EX-13.3 4 a06-10728_1ex13d3.htm EX-13

Exhibit 13.3

 

TRANSCANADA PIPELINES LIMITED

RECONCILIATION TO UNITED STATES GAAP

 

The first quarter 2006 unaudited consolidated financial statements of TransCanada PipeLines Limited (TCPL or the Company) have been prepared in accordance with Canadian generally accepted accounting principles (GAAP), which in some respects differ from U.S. GAAP. The effects of these differences on the Company’s consolidated financial statements for the three months ended March 31, 2006 are provided in the following U.S. GAAP condensed consolidated financial statements which should be read in conjunction with TCPL’s audited consolidated financial statements for the year ended December 31, 2005 and unaudited consolidated financial statements for the three months ended March 31, 2006 prepared in accordance with Canadian GAAP.

 

Condensed Statement of Consolidated Income and Comprehensive Income in Accordance with U.S. GAAP(1)

 

 

 

Three months ended
March 31

 

(millions of dollars)

 

2006

 

2005

 

Revenues

 

1,493

 

1,271

 

Cost of sales

 

365

 

221

 

Other costs and expenses

 

430

 

422

 

Depreciation

 

223

 

228

 

 

 

1,018

 

871

 

Operating income

 

475

 

400

 

Other (income)/expenses

 

 

 

 

 

Equity income(1)

 

(119

)

(98

)

Other expenses(2)

 

174

 

119

 

Income taxes

 

169

 

146

 

 

 

224

 

167

 

 

 

 

 

 

 

Net income from continuing operations - U.S. GAAP

 

251

 

233

 

Net income from discontinued operations - U.S. GAAP

 

28

 

—

 

Net Income in Accordance with U.S. GAAP

 

279

 

233

 

Adjustments affecting comprehensive income under U.S. GAAP

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

(4

)

5

 

Unrealized gain/(loss) on derivatives, net of tax(3)

 

18

 

(9

)

Comprehensive Income in Accordance with U.S. GAAP

 

293

 

229

 

 

Reconciliation of Income from Continuing Operations

 

 

 

Three months ended
March 31

 

(millions of dollars)

 

2006

 

2005

 

Net Income from Continuing Operations in Accordance with Canadian GAAP

 

250

 

238

 

U.S. GAAP adjustments

 

 

 

 

 

Unrealized gain/(loss) on energy contracts(3)

 

1

 

(10

)

Tax impact of unrealized gain/(loss) on energy contracts

 

—

 

4

 

Equity gain(4)(5)

 

—

 

2

 

Tax impact of equity gain

 

—

 

(1

)

Net income from Continuing Operations in Accordance with U.S. GAAP

 

251

 

233

 

 


 

Condensed Statement of Consolidated Cash Flows in Accordance with U.S. GAAP(1)

 

 

 

Three months ended
March 31

 

(millions of dollars)

 

2006

 

2005

 

Cash Generated from Operations(6)

 

 

 

 

 

Net cash provided by operating activities

 

494

 

264

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Net cash (used in)/provided by investing activities

 

(270

)

92

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Net cash (used in)/provided by financing activities

 

(63

)

65

 

 

 

 

 

 

 

Effect of Foreign Exchange Rate Changes on Cash and Short-Term Investments

 

1

 

2

 

Increase in Cash and Short-Term Investments

 

162

 

423

 

Cash and Short-Term Investments

 

 

 

 

 

Beginning of period

 

83

 

126

 

Cash and Short-Term Investments

 

 

 

 

 

End of period

 

245

 

549

 

 

Condensed Balance Sheet in Accordance with U.S. GAAP(1)

 

 

 

March
31,

 

December
31,

 

(millions of dollars)

 

2006

 

2005

 

Current assets(7)

 

1,094

 

1,058

 

Long-term investments(4)(5)

 

2,284

 

2,168

 

Plant, property and equipment

 

17,343

 

17,348

 

Regulatory asset(8)

 

2,576

 

2,601

 

Other assets(4)

 

2,025

 

2,028

 

 

 

25,322

 

25,203

 

 

 

 

 

 

 

Current liabilities(9)

 

2,223

 

2,797

 

Deferred amounts(3)(5)

 

1,304

 

1,298

 

Long-term debt(3)

 

10,278

 

9,675

 

Deferred income taxes(8)

 

3,045

 

3,102

 

Preferred securities

 

537

 

536

 

Non-controlling interests

 

402

 

394

 

Shareholders’ equity

 

7,533

 

7,401

 

 

 

25,322

 

25,203

 

 

Statement of Other Comprehensive Income in Accordance with U.S. GAAP

 

(millions of dollars)

 

Cumulative
Translation
Account

 

Minimum
Pension
Liability
(SFAS No.
87)

 

Cash Flow
Hedges
(SFAS No.
133)

 

Total

 

Balance at December 31, 2005

 

(89

)

(77

)

(58

)

(224

)

Unrealized gain on derivatives, net of tax of (10)(3)

 

—

 

—

 

18

 

18

 

Foreign currency translation adjustment, net of tax of $3

 

(4

)

—

 

—

 

(4

)

Balance at March 31, 2006

 

(93

)

(77

)

(40

)

(210

)

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2004

 

(71

)

(26

)

(4

)

(101

)

Unrealized loss on derivatives, net of tax of $8(3)

 

—

 

—

 

(9

)

(9

)

Foreign currency translation adjustment, net of tax of $10

 

5

 

—

 

—

 

5

 

Balance at March 31, 2005

 

(66

)

(26

)

(13

)

(105

)

 

2


 

(1)          In accordance with U.S. GAAP, the Condensed Statement of Consolidated Income, Statement of Consolidated Cash Flows and Consolidated Balance Sheet of TCPL are prepared using the equity method of accounting for joint ventures.

 

(2)          Other expenses included an allowance for funds used during construction of $1 million for the three months ended March 31, 2006 (March 31, 2005 - $1 million).

 

(3)          All foreign exchange and interest rate derivatives are recorded in the Company’s consolidated financial statements at fair value under Canadian GAAP. Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Derivatives and Hedging Activities”, all derivatives are recognized as assets and liabilities on the balance sheet and measured at fair value. For derivatives designated as fair value hedges, changes in the fair value are recognized in earnings together with an equal or lesser amount of changes in the fair value of the hedged item attributable to the hedged risk. For derivatives designated as cash flow hedges, changes in the fair value of the derivative that are effective in offsetting the hedged risk are recognized in other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of the change in fair value is also recognized in earnings each period. Substantially all of the amounts recorded in the three months ended March 31, 2006 and 2005 as differences between U.S. and Canadian GAAP, for income from continuing operations, relate to the differences in accounting treatment with respect to the hedged item and, for comprehensive income, relate to cash flow hedges.

 

Substantially all of the amounts recorded in the three months ended March 31, 2006 and 2005 as differences between U.S. and Canadian GAAP in respect of energy contracts relate to gains and losses on derivative energy contracts for periods before they were documented as hedges for purposes of U.S. GAAP and to differences in accounting with respect to physical energy contracts.

 

(4)           Under Canadian GAAP, pre-operating costs incurred during the commissioning phase of a new project are deferred until commercial production levels are achieved. After such time, those costs are amortized over the estimated life of the project. Under U.S. GAAP, such costs are expensed as incurred. Certain start-up costs incurred by Bruce Power L.P. (Bruce B), an equity investment, are required to be expensed under U.S. GAAP. Under both Canadian GAAP and U.S. GAAP, interest is capitalized on expenditures relating to construction of development projects actively being prepared for their intended use. In Bruce B, under U.S. GAAP, the carrying value of development projects against which interest is capitalized is lower due to the expensing of pre-operating costs.

 

(5)          Financial Interpretation (FIN) 45 requires the recognition of a liability for the fair value of certain guarantees that require payments contingent on specified types of future events. The measurement standards of FIN 45 are applicable to guarantees entered into after January 1, 2003. For U.S. GAAP purposes, the fair value of guarantees recorded as a liability at March 31, 2006 was $18 million (December 31, 2005 - $17 million) and relates to the Company’s equity interest in Bruce B and Bruce Power A L.P. The net income impact with respect to the guarantees for the three months ended March 31, 2006 was nil (March 31, 2005 – nil).

 

(6)           In accordance with U.S. GAAP, all current taxes are included in cash generated from operations.

 

(7)           Current assets at March 31, 2006 include derivative contracts of $33 million (December 31, 2005 - $49 million) and hedging deferrals of $64 million (December 31, 2005 - $93 million).

 

3


 

(8)          Under U.S. GAAP, the Company is required to record a deferred income tax liability for its cost-of-service regulated businesses. As these deferred income taxes are recoverable through future revenues, a corresponding regulatory asset is recorded for U.S. GAAP purposes.

 

(9)          Current liabilities at March 31, 2006 include dividends payable of $162 million (December 31, 2005 - $154 million) and current taxes payable of $257 million (December 31, 2005 - $251 million).

 

Other

 

In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No 154 “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and SFAS No. 3” which is effective for fiscal years beginning after December 15, 2005. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and error correction. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. Adopting the provisions under SFAS No. 154, as of January 1, 2006, has had no impact on the U.S. GAAP financial statements of the Company.

 

In February 2006, FASB issued SFAS No. 155 “Accounting for Certain Hybrid Financial Instruments - an amendment of SFAS No. 133 and 140” which is effective for fiscal years beginning after September 15, 2006. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including interim statements for any interim period, for that fiscal year. SFAS No. 155 permits fair value remeasurement of any hybrid instrument that contains an embedded derivative that otherwise would require bifurcation. Adopting the provisions under SFAS No. 155, as of January 1, 2007, is not expected to have an impact on the U.S. GAAP financial statements of the Company.

 

4


 

Summarized Financial Information of Long-Term Investments

 

The following summarized financial information of long-term investments includes those investments that are accounted for by the equity method under U.S. GAAP (including those that are accounted for by the proportionate consolidation method under Canadian GAAP).

 

 

 

Three months
ended March 31

 

(millions of dollars)

 

2006

 

2005

 

Income

 

 

 

 

 

Revenues

 

356

 

314

 

Other costs and expenses

 

(174

)

(146

)

Depreciation

 

(40

)

(44

)

Financial charges and other

 

(23

)

(26

)

Proportionate share of income before income taxes of long-term investments

 

119

 

98

 

 

(millions of dollars)

 

March
31,
2006

 

December
31, 2005

 

Balance Sheet

 

 

 

 

 

Current assets

 

444

 

456

 

Plant, property and equipment

 

3,426

 

3,365

 

Other assets (net)

 

15

 

—

 

Current liabilities

 

(274

)

(319

)

Deferred amounts (net)

 

—

 

(2

)

Non-recourse debt

 

(1,300

)

(1,307

)

Deferred income taxes

 

(27

)

(25

)

Proportionate share of net assets of long-term investments

 

2,284

 

2,168

 

 

5