TransAlta Reports Higher Third Quarter Earnings and Strong Operational Performance, Part 2 of 2.Business Editors Part 2 CALGARY Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Alberta--(BUSINESS WIRE)--Oct. 17, 2002 In the fourth quarter of 2000, TransAlta TransAlta Corporation TSX: TA NYSE: TAC (formerly:Calgary Power) is a Canadian energy company based in Calgary, Alberta. It operates 51 power plants in Canada, the United States, Mexico, and Australia. made a provision of US$28.8 million against US$58.0 million owing from the California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). Independent System Operator and the California Power Exchange. During the first quarter of 2001, US$5.0 million was collected. No change has been made to the provision due to the continuing uncertainty in California. The amount has been reclassified to long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. as collection is no longer expected in 2002, although ultimate collected is still expected. NET INTEREST EXPENSE, FOREIGN EXCHANGE, OTHER EXPENSE, NON-CONTROLLING INTERESTS AND PREFERRED SECURITIES DISTRIBUTIONS
3 months ended 9 months ended
Sept. 30 Sept. 30
2002 2001 2002 2001
---------------------------------------------------------------------
Net interest expense $ 20.9 $ 12.4 $ 58.7 $ 75.7
Other expense (income) 1.5 (0.4) 0.9 (0.3)
Foreign exchange loss (gain) 1.0 2.0 (0.3) 2.1
Non-controlling interests 3.6 3.7 14.5 15.6
Preferred securities distributions,
net of tax 5.5 3.3 16.2 9.6
---------------------------------------------------------------------
$ 32.5 $ 21.0 $ 90.0 $102.7
---------------------------------------------------------------------
Net interest expense (net of interest income, capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. , and amounts allocated to discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. ) increased to $20.9 million in the three months ended Sept. 30, 2002 compared to $12.4 million in the same period of 2001. Net interest expense decreased to $58.7 million in the nine months ended Sept. 30, 2002 from $75.7 million in the same period of 2001. The three and nine months ended Sept. 30, 2001 include interest income of $15.5 million related to the deferred accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying from the discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. Distribution and Retail (D&R) operation for the period from October October: see month. 2000 to September September: see month. 30, 2001, which was recognized in the third quarter of 2001 following an EUB EUB Energy and Utilities Board (Alberta, Canada) EUB EU–Büro (Bundesministerium für Bildung und Forschung; German ministry of Science) EUB Electric Upright Bass EUB European Union Bank EUB Essential User Bypass decision. Excluding this amount, net interest expense has declined due to an overall decline in debt levels and higher capitalized interest offset by a higher proportion of debt subject to long-term interest rates. On June June: see month. 20, 2002, the corporation issued US$300.0 million of senior notes under a US$1.0 billion shelf registration statement filed May 14, 2002. The proceeds of the issuance were used to repay short-term debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. and U.S. denominated commercial paper. The notes bear interest at 6.75 per cent and mature on July July: see month. 15, 2012. The decreases in earnings attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to non-controlling interests in the three and nine months ended Sept. 30, 2002 compared to the same periods of 2001 reflect the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of the preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. of TransAlta Utilities Corporation for $121.6 million in September 2001, resulting in lower subsidiary preferred share dividends, partially offset by increased earnings from the 49.99 per cent non-controlling interest in TransAlta Cogeneration cogeneration In power systems, use of steam for both power generation and heating. High-temperature, high-pressure steam from a boiler and superheater first passes through a turbine to produce power. , L.P. due to the addition of the Fort Saskatchewan Saskatchewan, province, Canada Saskatchewan (səskăch`əwən, –wän', săs'–), province (2001 pop. 978,933), 251,700 sq mi (651,903 sq km), W Canada. plant in the third quarter of 2001. The increases in preferred securities distributions, net of tax, reflect the issuance of $175.0 million of 7.75 per cent preferred securities in November November: see month. 2001. INCOME TAXES
3 months ended 9 months ended
Sept. 30 Sept. 30
2002 2001 2002 2001
---------------------------------------------------------------------
Income taxes $ 19.2 $ 10.8 $ 53.2 $ 89.4
Effective tax rate 20.0% 21.1% 25.9% 35.6%
---------------------------------------------------------------------
Income taxes increased to $19.2 million in the three months ended Sept. 30, 2002 from $10.8 million for the same period in 2001 and decreased to $53.2 million in the nine months ended Sept. 30, 2002 from $89.4 million for the same period of 2001. The effective income tax rate, expressed as a percentage of earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the before income taxes and non-controlling interests, decreased slightly to 20.0 per cent in the third quarter of 2002 from 21.1 per cent in the third quarter of 2001. The effective tax rate in 2002 reflects the benefit of previously unrecognized foreign loss carryforward Loss Carryforward An accounting technique with which a company applies net operating losses of the current year to future year's profits in order to reduce tax liability. Notes: balances which were recognized during the quarter as it became more likely than not that they would be utilized. Due to lower earnings in the three months ended Sept. 30, 2001, the 21.1 per cent effective rate reflects the impact of the financing arrangements of TransAlta's foreign operations. The benefits of these arrangements do not vary with earnings. For the nine months ended Sept. 30, 2002, the effective rate declined to 25.9 per cent from 35.6 per cent in the nine months ended Sept. 30, 2001. The decrease was due to the benefit of previously unrecognized loss carryforward balances discussed above. DISCONTINUED OPERATIONS
3 months ended 9 months ended
Sept. 30 Sept. 30
2002 2001 2002 2001
---------------------------------------------------------------------
Transmission operation $ - $ 8.0 $ 12.8 $ 31.1
Gain on disposal of
Transmission operation - - 110.0 -
Edmonton Composter operation - - - 0.7
---------------------------------------------------------------------
$ - $ 8.0 $122.8 $ 31.8
---------------------------------------------------------------------
On April 29, 2002, TransAlta's Transmission operation was sold for proceeds of $821.0 million, of which $3.0 million remains outstanding. The proceeds excluded $31.7 million in accounts receivable, which were retained and subsequently collected by TransAlta, and $4.4 million in accounts payable. The disposal resulted in a gain on sale of $110.0 million ($0.65 per common share), net of income taxes of $32.9 million. The gain on disposal reflects management's best estimate. The final gain on sale will be adjusted to reflect actual amounts, which are expected to be finalized See finalization. by Dec. 31, 2002. In June 29, 2001, TransAlta sold its Edmonton Edmonton (ĕd`məntən), city (1991 pop. 616,741), provincial capital, central Alta., Canada, on the North Saskatchewan River. The center of the largest metropolitan area in Alberta, Edmonton, known as the "Gateway to the North," is located Composter for proceeds of $97.0 million, which approximated its book value. FINANCIAL POSITION The following chart outlines significant changes in the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. from Dec. 31, 2001 to Sept. 30, 2002:
Increase/
(Decrease) Explanation
---------------------------------------------------------------------
Cash and cash equivalents $ 58.6
Refer to Consolidated Statements
of Cash Flows.
Accounts receivable and other (224.7)
Decrease primarily due to
collection of receivable related
to monetized Pierce Power hedges
($82 million), timing of PPA
receivables ($73 million) and
reclassification of California
receivables to long-term.
Income taxes receivable 71.1 Final
instalment of 2001 income taxes
paid in the first quarter of
2002, offset by current year
additional prepayments.
Materials and supplies,
at average cost 26.6 Higher coal inventory balances
as a result of second and third
quarter economic dispatch
decisions and increased
production of coal.
Long-term receivables (103.0) Receipt of amount due from
Aquila (formerly UtiliCorp)
relating to the sale of the
discontinued D&R operation,
offset by increase in sulphur
tax abatement and
reclassification of California
receivables to long-term.
Property, plant and equipment,
net of accumulated
depreciation (81.2) Capital expenditures and
construction activity during
the period, more than offset by
depreciation and the sale of the
Transmission operation.
Other assets 22.9 Financing costs related to
US$300.0 million debt issuance
and financings of Mexican
projects.
Short-term debt (535.7) Repayment with a portion of the
proceeds on disposal of the
Transmission operation.
Accounts payable and accrued
liabilities (116.1) Decrease due to the timing of
expenditures.
Price risk management
liabilities (current and
long-term) 34.9 Decrease in margins on energy
trading activities.
Long-term debt (including
current portion) 326.6 US$300.0 million debt issuance,
offset by decrease in long-term
commercial paper repaid with
proceeds on disposal of the
Transmission operation.
Shareholders' equity 123.5 Net earnings offset by dividends
and net redemption of common
shares.
STATEMENTS OF CASH FLOWS:
3 months ended September 30
2002 2001 Explanation
---------------------------------------------------------------------
Cash and cash
equivalents,
beginning of
period $ 150.5 $ 42.1
Provided by
(used in):
Operating activities (14.2) 65.8 Lower cash operating earnings in
addition to $49.9 million
payment to Alberta Power Pool
related to ancillary services
revenue settlement and timing of
income tax payments.
Investing activities (47.3) (347.1) In
2002, collection of amounts
receivable from Aquila (formerly
UtiliCorp) related to sale of
the discontinued Alberta D&R
operation in 2000 ($180.3
million), offset by lower
capital expenditures relating to
the construction of the Sarnia,
Big Hanaford, Campeche and
Chihuahua plants.
In 2001, capital expenditures
also included the installation
of the scrubber at the Centralia
plant.
Financing activities 27.5 303.8 In 2002, the issuance of US$63.0
million of commercial paper as a
hedge of U.S. operations,
partially offset by the
repurchase of $16.5 million in
common shares and the payment of
$28.3 million in common share
dividends.
In 2001, higher net debt
issuances of $497.0 million were
used to fund capital
expenditures, offset by common
share dividends of $40.4 million
and the redemption of preferred
shares for $122.1 million.
Translation of foreign
currency cash 4.1 (3.1)
---------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 120.6 $ 61.5
---------------------------------------------------------------------
9 months ended
September 30 2002 2001 Explanation
---------------------------------------------------------------------
Cash and cash
equivalents,
beginning
of period $ 62.0 $ 53.8
Provided by (used in):
Operating activities 248.2 583.9 Lower cash operating earnings
as a result of the impact of
the Wabamun arbitration and
prior period regulatory
decisions, timing of ancillary
revenue settlement, timing of
accounts receivable relating to
the Alberta Power Pool for
Generation due to deregulation
on Jan. 1, 2001 ($170.0
million), the final instalment
of 2001 income taxes paid in the
first quarter of 2002 ($109.0
million) and the timing of
income tax payments, offset by
the collection of the
Transmission receivables
($31.7 million).
Investing activities 224.8 (710.8) In 2002, proceeds on the
disposal of the Transmission
operation and collection of
amounts receivable from Aquila
(formerly UtiliCorp) related to
the sale of the discontinued
Alberta D&R operation in 2000,
offset by capital expenditures
relating to the construction of
the Sarnia, Big Hanaford,
Campeche and Chihuahua plants
as well as installation of the
scrubber at the Centralia plant
during the second quarter.
In 2001, capital expenditures
relating primarily to the
installation of the scrubber at
the Centralia plant and
construction of the Sarnia and
Campeche plants were offset by
proceeds on the disposal of the
Edmonton Composter and the
Mildred Lake and Fort Nelson
plants.
Financing activities (417.6) 137.8 In 2002, the issuance of
US$300.0 million in long-term
bonds and the proceeds on the
sale of the Transmission
operation discussed above offset
by the repayment of long-term
commercial paper, short-term
debt and the repayment of common
share and preferred securities
distributions.
In 2001, long-term borrowings
were used primarily to repay
short-term debt, fund capital
expenditures and to finance the
redemption of preferred shares
for $122.1 million.
Translation of foreign
currency cash 3.2 (3.2)
---------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 120.6 $ 61.5
---------------------------------------------------------------------
OUTLOOK The key factors affecting the financial results for 2002 continue to be the availability of and production from generating assets, the pricing applicable to non-contracted production and the costs of production. Availability and production for the remainder of the year is expected to be consistent with the first nine months of the year. The 248 MW gas-fired gas-fired adj → de gas gas-fired adj → au gaz gas-fired adj (heater etc) → Gas- Big Hanaford plant will be available for production in the fourth quarter of 2002, however actual production will be dependent on a recovery in spark spreads Spark Spread The difference between the market price of electricity and its cost of production. Notes: This measure is important because it helps utility companies determine their bottom line (profit). . The 650 MW Sarnia, Ontario Sarnia is a city in Southwestern Ontario, Canada (city population 71,419, census area population 88,793, in 2006). It is the largest city on Lake Huron and is located where the three upper Great Lakes empty into the St. Clair River. plant is scheduled to commence commercial operations in the first quarter of 2003. Electricity spot prices and spark spreads are expected to continue at their current level for the fourth quarter and into 2003. Expected electricity demand compared to levels of supply is expected to prevent prices from materially increasing over the medium-term. TransAlta is continuing its focus on reducing fuel and OM&A expenses. The areas for reductions were identified in the fourth quarter of 2001, and have been and continue to be implemented. The benefits of these initiatives are beginning to be realized, and are expected to become fully apparent in 2003 and beyond. Energy Marketing anticipates that short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. markets will continue to be active. Liquidity in the medium- and longer-term markets has decreased, however there is a need for the types of products offered in these markets and we expect that additional creditworthy cred·it·wor·thy adj. Having an acceptable credit rating. cred  it·wor counterparties CounterpartiesThe parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. will begin to emerge and thereby increase liquidity. Assets under construction at Sept. 30, 2002 totalled $1,125.3 million and consisted primarily of the Sarnia Sarnia, city (1991 pop. 74,376), S Ont., Canada, on the St. Clair River, at the south end of Lake Huron and opposite Port Huron, Mich. The two cities are connected by a railroad tunnel, and there is a bridge between Port Huron and Point Edward, just N of Sarnia. plant discussed above and the 252 MW Campeche Campeche, city, Mexico Campeche, city (1990 pop. 150,518), capital of Campeche state, SE Mexico, on the Yucatán peninsula. It is fortified and surrounded by 18th-century walls. and 259 MW Chihuahua Chihuahua, state, Mexico Chihuahua (chēwä`wä), state (1990 pop. 2,441,873), 94,831 sq mi (245,612 sq km), N Mexico, on the border of N.Mex. and Texas. The city of Chihuahua is the capital. plants in Mexico Mexico, city, Mexico Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. , which are scheduled to commence commercial operations in the first and third quarter of 2003, respectively. In February February: see month. 2002, the EUB approved the previously announced 900 MW expansion of the Keephills plant. TransAlta is now updating its feasibility study The analysis of a problem to determine if it can be solved effectively. The operational (will it work?), economical (costs and benefits) and technical (can it be built?) aspects are part of the study. Results of the study determine whether the solution should be implemented. , factoring in the impact of Alberta's transmission constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. , environmental conditions placed on the approval by the EUB and market conditions. The corporation expects to announce its decision by the end of 2002. In May 2002, TransAlta and EPCOR See Equal percentage contribution rule. Utilities Inc. (EPCOR) entered into a preliminary Memorandum of Understanding A Memorandum of Understanding (MoU) is a legal document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action and may not imply a legal commitment. to jointly develop the Keephills project and negotiate the purchase of a 50 per cent interest in EPCOR's Genesee Genesee (jĕnəsē`), river, 158 mi (254 km) long, rising in the Allegheny Mts., N Pa., and flowing through W N.Y. to Lake Ontario at Rochester; it is crossed by the New York State Canal System's Erie Canal. 3 project. The negotiations will also include an option for EPCOR to purchase a 50 per cent interest in TransAlta's Sarnia plant and the purchase of output from a recent capacity expansion at the Sundance Sundance is a popular ski resort located near Provo, Utah. It was bought by the actor Robert Redford in 1968. Redford's wife was from Utah and they had built a home in the area five years earlier. generation facility. Negotiations are expected to be completed by the end of 2002. TransAlta will continue to focus on exploring strategic acquisitions. The corporation believes its strong balance sheet will enable the corporation to take advantage of an increasing number of attractively priced asset acquisition opportunities to grow capacity. The Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. government has indicated its intention to ratify ratify v. to confirm and adopt the act of another even though it was not approved beforehand. Example: An employee for Holsinger's Hardware orders carpentry equipment from Phillips Screws and Nails although the employee was not authorized to buy anything. the Kyoto Protocol Kyoto Protocol: see global warming. . TransAlta is not able to estimate the full impact the ratification The confirmation or adoption of an act that has already been performed. A principal can, for example, ratify something that has been done on his or her behalf by another individual who assumed the authority to act in the capacity of an agent. will have on its business, as the government has not yet established an implementation plan. However, the PPAs for TransAlta's coal-fired Adj. 1. coal-fired - fueled by burning coal; "a coal-fired ship" coal-burning fueled - heated, driven, or produced by burning fuel plants in Alberta contain 'Change in Law' provisions which provide an opportunity to recover compliance costs from the PPA PPA 1. Palpation, Percussion & Ausculation 2. Pittsburgh pneumonia agent 3. Postpartum amenorrhea 4. Price per accession 5. Pure pulmonary atresia customers. As a member of the Canadian Clean Power Coalition, TransAlta, along with its peers, is exploring other means to reduce greenhouse gas greenhouse gas n. Any of the atmospheric gases that contribute to the greenhouse effect. greenhouse gas emissions emissions npl → émissions fpl emissions npl → Emissionen pl . TransAlta has an internal target to reduce net Canadian emissions to zero by 2024.
TRANSALTA CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS AND
RETAINED EARNINGS (in millions of Canadian dollars except per share
amounts)
Unaudited Unaudited
3 months ended 9 months ended
Sept. 30 Sept. 30
-------------------------------------------
2002 2001 2002 2001
---------------------------------------------------------------------
Revenues $ 450.3 $ 573.3 $ 1,206.3 $ 1,885.0
Fuel and purchased power (173.2) (250.5) (476.7) (984.2)
---------------------------------------------------------------------
Gross margin 277.1 322.8 729.6 900.8
---------------------------------------------------------------------
Operating expenses
Operations, maintenance
and administration 98.4 147.8 285.4 359.9
Depreciation and amortization 53.1 105.7 156.5 198.4
Taxes, other than
income taxes 6.0 4.1 19.8 14.1
---------------------------------------------------------------------
157.5 257.6 461.7 572.4
---------------------------------------------------------------------
Operating income 119.6 65.2 267.9 328.4
Other income (expense) (1.5) 0.4 (0.9) 0.3
Foreign exchange gain (loss) (1.0) (2.0) 0.3 (2.1)
Net interest expense (20.9) (12.4) (58.7) (75.7)
---------------------------------------------------------------------
Earnings from continuing
operations before
regulatory decisions, income
taxes and non-controlling
interests 96.2 51.2 208.6 250.9
Prior period regulatory
decisions (Note 8) - - (3.3) -
---------------------------------------------------------------------
Earnings from continuing
operations before income
taxes and non-controlling
interests 96.2 51.2 205.3 250.9
Income taxes 19.2 10.8 53.2 89.4
Non-controlling interests 3.6 3.7 14.5 15.6
---------------------------------------------------------------------
Earnings from
continuing operations 73.4 36.7 137.6 145.9
Earnings from discontinued
operations (Note 2) - 8.0 12.8 31.8
Gain on disposal of
discontinued operations
(Note 2) - - 110.0 -
---------------------------------------------------------------------
Net earnings 73.4 44.7 260.4 177.7
Preferred securities
distributions, net of tax 5.5 3.3 16.2 9.6
---------------------------------------------------------------------
Net earnings applicable
to common shareholders $ 67.9 $ 41.4 $ 244.2 $ 168.1
Common share dividends (42.1) (41.8) (126.7) (126.7)
Adjustment arising from
normal course issuer bid (4.1) (9.9) (27.0) (20.7)
Retained earnings
Opening balance 907.1 857.9 838.3 826.9
---------------------------------------------------------------------
Closing balance $ 928.8 $ 847.6 $ 928.8 $ 847.6
---------------------------------------------------------------------
Weighted average common
shares outstanding in
the period 169.2 168.8 169.5 168.8
---------------------------------------------------------------------
Basic earnings per share
Continuing operations $ 0.40 $ 0.20 $ 0.72 $ 0.81
Earnings from
discontinued operations - 0.05 0.07 0.19
---------------------------------------------------------------------
Net earnings from
operations 0.40 0.25 0.79 1.00
Net gain on disposal of
discontinued operations - - 0.65 -
---------------------------------------------------------------------
Net earnings $ 0.40 $ 0.25 $ 1.44 $ 1.00
---------------------------------------------------------------------
Diluted earnings per share
Earnings from
continuing operations $ 0.40 $ 0.20 $ 0.72 $ 0.79
Earnings from
discontinued operations $ - 0.05 0.07 0.19
---------------------------------------------------------------------
Net earnings from
operations 0.40 0.25 0.79 0.98
Net gain on disposal of
discontinued operations - - 0.65 -
---------------------------------------------------------------------
Net earnings $ 0.40 $ 0.25 $ 1.44 $ 0.98
---------------------------------------------------------------------
-- See accompanying notes.
TRANSALTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars)
Unaudited Unaudited
3 months ended 9 months ended
Sept. 30 Sept. 30
-----------------------------------
2002 2001 2002 2001
---------------------------------------------------------------------
Operating activities
Net earnings $ 73.4 $ 44.7 $ 260.4 $ 177.7
Depreciation and amortization 73.2 135.6 235.1 296.2
Non-controlling interests 3.6 3.7 14.5 15.6
Loss (gain) on sale of assets 0.3 (8.5) 3.3 (7.5)
Site restoration costs incurred (9.0) (6.3) (12.1) (10.2)
Future income taxes (recovery) (34.4) 15.3 (16.6) 6.7
Unrealized (gain) loss from
energy marketing activities 0.3 (25.6) 5.0 (12.3)
Gain on disposal of Transmission
operation - - (110.0) -
Other non-cash items (4.5) 8.6 (7.6) 10.2
---------------------------------------------------------------------
102.9 167.5 372.0 476.4
Change in non-cash operating
working capital balances (117.1) (101.7) (123.8) 107.5
---------------------------------------------------------------------
Cash flow from (used in)
operating activities (14.2) 65.8 248.2 583.9
---------------------------------------------------------------------
Investing activities
Additions to capital assets (182.2) (357.7) (751.2) (827.5)
Acquisitions - - - (9.8)
Proceeds on sale of
discontinued operations - 44.1 818.0 201.4
Long-term receivables 136.0 (32.2) 170.7 (66.6)
Long-term investments (0.5) - (6.1) -
Other (0.6) (1.3) (6.6) (8.3)
---------------------------------------------------------------------
Cash flow from (used in)
investing activities (47.3) (347.1) 224.8 (710.8)
---------------------------------------------------------------------
Financing activities
Net increase (decrease)
in short-term debt 1.4 425.4 (536.4) 69.7
Issuance of long-term debt 92.1 91.7 612.5 664.9
Repayment of long-term debt (3.5) (20.1) (306.3) (291.9)
Redemption of preferred shares
of a subsidiary - (122.1) - (122.1)
Issuance of common shares 0.2 2.0 1.8 14.0
Redemption of common shares (16.5) (16.2) (49.9) (30.2)
Distributions on
preferred securities (9.1) (5.5) (26.7) (17.2)
Dividends on common shares (28.3) (40.4) (86.0) (120.9)
Deferred financing charges (2.3) - (7.6) -
Dividends to subsidiary's
non-controlling preferred
shareholders - (3.3) - (8.3)
Distributions to subsidiary's
non-controlling limited partner (6.5) (7.7) (19.0) (20.3)
Other - - - 0.1
---------------------------------------------------------------------
Cash flow from (used in)
financing activities 27.5 303.8 (417.6) 137.8
---------------------------------------------------------------------
Cash flow from (used in) operating,
investing and financing
activities (34.0) 22.5 55.4 10.9
Effect of translation on
foreign currency cash 4.1 (3.1) 3.2 (3.2)
---------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (29.9) 19.4 58.6 7.7
Cash and cash equivalents,
beginning of period 150.5 42.1 62.0 53.8
---------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 120.6 $ 61.5 $ 120.6 $ 61.5
---------------------------------------------------------------------
-- See accompanying notes.
TRANSALTA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars)
Sept. 30 Dec. 31
2002 2001
(Unaudited) (Audited*)
---------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 120.6 $ 62.0
Accounts receivable and other 400.6 625.3
Price risk management assets (Note 3) 139.2 137.6
Future income tax assets 18.1 16.9
Income taxes receivable 199.4 128.3
Materials and supplies at average cost 112.1 85.5
---------------------------------------------------------------------
990.0 1,055.6
---------------------------------------------------------------------
Investments (Note 4) 44.9 37.3
Long-term receivables (Note 5) 118.4 221.4
Property, plant and equipment (Note 2)
Cost 8,083.1 8,766.7
Accumulated depreciation (2,069.5) (2,671.9)
---------------------------------------------------------------------
6,013.6 6,094.8
Goodwill 29.3 29.3
Future income tax assets 51.4 15.6
Price risk management assets (Note 3) 79.8 71.3
Other assets 70.0 47.1
---------------------------------------------------------------------
Total assets $ 7,397.4 $ 7,572.4
---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 1.5 $ 537.2
Accounts payable and accrued liabilities 511.4 627.5
Price risk management liabilities (Note 3) 135.7 114.1
Future income tax liabilities 0.4 11.8
Dividends payable 42.7 42.8
Current portion of long-term debt 105.2 104.3
---------------------------------------------------------------------
796.9 1,437.7
---------------------------------------------------------------------
Long-term debt (Note 6) 2,732.5 2,406.8
Deferred credits and other
long-term liabilities 553.0 526.5
Future income tax liabilities 390.3 409.1
Price risk management liabilities (Note 3) 82.3 69.0
Non-controlling interests 277.2 281.0
Preferred securities 452.0 452.6
Common shareholders' equity
Common shares (Note 7) 1,201.9 1,170.9
Retained earnings 928.8 838.3
Cumulative translation adjustment (17.5) (19.5)
---------------------------------------------------------------------
2,113.2 1,989.7
---------------------------------------------------------------------
Total liabilities and shareholders' equity $ 7,397.4 $ 7,572.4
---------------------------------------------------------------------
Contingencies (Note 9)
-- See accompanying notes.
-- Derived from the audited Dec. 31, 2001 consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge (Unaudited) (Tabular tab·u·lar adj. 1. Having a plane surface; flat. 2. Organized as a table or list. 3. Calculated by means of a table. tabular resembling a table. amounts in millions of Canadian dollars Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents , except as otherwise noted) 1. ACCOUNTING POLICIES These interim consolidated financial statements do not include all of the disclosures included in the corporation's annual consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the corporation's most recent annual consolidated financial statements. The accounting policies used in the preparation of these interim consolidated financial statements conform with those used in the corporation's most recent annual consolidated financial statements, except for accounting for goodwill, stock-based compensation exchange gains and losses on translation of long-term foreign currency denominated monetary items and the presentation of energy-trading activities. Effective Jan. 1, 2002, the corporation prospectively adopted the new Canadian New Canadian Noun Canad a recent immigrant to Canada Institute of Chartered Accountants char·tered accountant n. Chiefly British Abbr. CA A member of one of the institutes of accountants granted a royal charter. (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) standard for goodwill and other intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. . Under the new standard, goodwill and certain intangibles are no longer subject to amortization, but are instead tested for impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. at least annually. The adoption of this standard resulted in the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of $29.3 million from acquired intangibles to goodwill, which will no longer be subject to amortization under the new standard. There was no impairment of goodwill upon adoption of this standard. Net income and earnings per share for the three and nine months ended Sept. 30, 2001 adjusted to exclude the amortization of the above amount are as follows:
3 months 9 months
ended ended
Sept. 30, Sept. 30,
2001 2001
---------------------------------------------------------------------
Reported net earnings applicable to
common shareholders $ 41.4 $ 168.1
Amortization of acquired intangibles 2.3 5.4
---------------------------------------------------------------------
Adjusted net earnings applicable to
common shareholders $ 43.7 $ 173.5
---------------------------------------------------------------------
Reported basic earnings per share $ 0.25 $ 1.00
Amortization of acquired intangibles per share 0.01 0.03
---------------------------------------------------------------------
Adjusted basic earnings per share $ 0.26 $ 1.03
---------------------------------------------------------------------
Reported diluted earnings per share $ 0.25 $ 0.98
Amortization of acquired intangibles per share 0.01 0.03
---------------------------------------------------------------------
Adjusted diluted earnings per share $ 0.26 $ 1.01
---------------------------------------------------------------------
On Jan. 1, 2002, the corporation retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin adopted the new CICA standard for stock-based compensation. The new standard requires that stock-based payments to non-employees, direct awards of stock and awards that call for settlement in cash or other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. be accounted for using the fair value method of accounting. The fair value method is encouraged for other stock-based compensation plans, but other methods of accounting, such as the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. method, are permitted. Under the fair value method, compensation expense is measured at the grant date and recognized over the service period. Under the intrinsic value method, compensation expense is determined as the difference between the market price of the underlying stock and the exercise price of the equity instrument granted. If the intrinsic value method is used, disclosure is made of earnings and per share amounts as if the fair value method had been used. The corporation has elected e·lect v. e·lect·ed, e·lect·ing, e·lects v.tr. 1. To select by vote for an office or for membership. 2. To pick out; select: elect an art course. to use the intrinsic value method of accounting for its fixed stock option plans and its performance stock option plan. Accordingly, no compensation cost has been recognized for these plans. The following table provides pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma measures of net earnings and earnings per share had compensation expense been recognized based on the estimated fair value of the options on the grant date in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the fair value method of accounting for stock-based compensation:
3 months ended 9 months ended
Sept. 30 Sept. 30
2002 2001 2002 2001
---------------------------------------------------------------------
Reported net earnings applicable
to common shareholders $ 67.9 $ 41.4 $ 244.2 $ 168.1
Compensation expense 1.0 0.5 2.7 1.5
---------------------------------------------------------------------
Pro forma net earnings applicable
to common shareholders $ 66.9 $ 40.9 $ 241.5 $ 166.6
---------------------------------------------------------------------
Reported basic earnings per share $ 0.40 $ 0.25 $ 1.44 $ 1.00
Compensation expense per share 0.01 - 0.02 0.01
---------------------------------------------------------------------
Pro forma basic earnings per share $ 0.39 $ 0.25 $ 1.42 $ 0.99
---------------------------------------------------------------------
Reported diluted
earnings per share $ 0.40 $ 0.25 $ 1.44 $ 0.98
Compensation expense per share 0.01 - 0.02 0.01
---------------------------------------------------------------------
Pro forma diluted
earnings per share $ 0.39 $ 0.25 $ 1.42 $ 0.97
---------------------------------------------------------------------
Options were only granted in the first quarter of 2002. The estimated fair value of these stock options was determined using the binomial binomial (bī'nō`mēəl), polynomial expression (see polynomial) containing two terms, for example, x+y. The binomial theorem, or binomial formula, gives the expansion of the nth power of a binomial (x+ model using the following weighted average assumptions, resulting in a weighted-average fair value of $4.25 per option (2001 - $4.35):
2002 2001
-------------------------------------------------------------------
Risk-free interest rate 5.9% 5.4%
Expected hold period to exercise (years) 7.0 7.0
Volatility in the price of the corporation's shares 28.3% 28.2%
-------------------------------------------------------------------
The accounting treatment for the corporation's performance share ownership plan remains unchanged from the year ended Dec. 31, 2001. Under this plan, compensation expense recognized in the three and nine months ended Sept. 30, 2002 was $2.1 million and $6.4 million, respectively (2001 - $1.2 million and $5.5 million, respectively). The CICA amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. its standard on foreign currency translation effective Jan. 1, 2002. The changes require that translation gains and losses arising on long-term foreign currency denominated monetary items be included in income in the current period. Previously, these gains and losses were to be amortized over the life of the related item. As TransAlta designates long-term foreign currency denominated items as hedges of net investments in foreign operations, all gains and losses arising on the translation of these items are deferred and included in the cumulative translation adjustment account in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. , therefore this amendment has no impact on TransAlta. In June 2002, the Emerging Issues Task Force (EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ) in the U.S. reached a consensus in EITF 02-3 that all mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. gains and losses on energy trading contracts should be shown net in the statement of earnings whether or not settled physically, effective for financial statements issued for periods ending after July 15, 2002, with reclassification of prior periods presented. An entity should also disclose the gross transaction volumes for those energy trading contracts that are physically settled. TransAlta has adopted this standard for Canadian GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). as well. Commencing in the quarter ended Sept. 30, 2002, TransAlta has presented all energy trading and marketing activities on a net basis in the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statements of earnings and retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. . TransAlta's results are seasonal in nature due to the nature of the electricity market and related fuel costs. 2. DISCONTINUED OPERATIONS On July 4, 2001, the corporation signed a purchase and sale agreement for the disposal of its Transmission operation. Regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approval was received on March 28, 2002. On April 29, 2002, the Transmission operation was sold for proceeds of $821.0 million, of which $3.0 million remains outstanding. The proceeds excluded accounts receivable of $31.7 million, which were retained and collected by TransAlta, and accounts payable of $4.4 million. The disposal resulted in a gain on sale of $110.0 million ($0.65 per common share), net of income taxes of $32.9 million. The gain on disposal reflects management's best estimate. The final gain on sale will be adjusted to reflect actual amounts, which are expected to be finalized by Dec. 31, 2002. On June 29, 2001, the corporation's composter facility in Edmonton, Alberta was sold for cash proceeds of $97.0 million, which approximated its book value. For reporting purposes, the results of the Transmission and Edmonton Composter operations have been presented as discontinued operations in the statement of earnings.
2002 2001
3 months ended Sept. 30 Transmission Transmission
-------------------------------------------------------------------
Revenues $ - $ 38.9
Operating expenses - (22.0)
-------------------------------------------------------------------
Operating income - 16.9
Net interest expense - (3.1)
-------------------------------------------------------------------
Earnings before income taxes - 13.8
Income taxes - 5.8
-------------------------------------------------------------------
Earnings from discontinued operations - 8.0
-------------------------------------------------------------------
2002 2001
Edmonton
9 months ended Sept. 30 Transmission Transmission Composter Total
-------------------------------------------------------------------
Revenues $ 55.8 $ 128.3 $ 6.6 $134.9
Operating expenses (30.8) (65.5) (5.4) (70.9)
-------------------------------------------------------------------
Operating income 25.0 62.8 1.2 64.0
Net interest expense (2.4) (9.1) - (9.1)
-------------------------------------------------------------------
Earnings before income taxes 22.6 53.7 1.2 54.9
Income taxes 9.8 22.6 0.5 23.1
-------------------------------------------------------------------
Earnings before gain from
discontinued operations 12.8 31.1 0.7 31.8
Gain on disposal 110.0 - - -
-------------------------------------------------------------------
Earnings from discontinued
operations $ 122.8 $ 31.1 $ 0.7 $ 31.8
-------------------------------------------------------------------
At Sept. 30, 2002, all of the corporation's discontinued operations had been sold. At Dec. 31, 2001, all of the corporation's discontinued operations had been sold with the exception of the Transmission operation. Balance sheet amounts are as follows:
Sept. 30, 2002 Dec. 31, 2001
--------------------------------------------------------------
Current assets $ - $ 36.1
Capital assets - 637.5
Other assets - 3.3
Current liabilities - (15.5)
--------------------------------------------------------------
Net assets $ - $ 661.4
--------------------------------------------------------------
3. PRICE RISK MANAGEMENT ASSETS AND LIABILITIES The Energy Marketing group uses energy derivatives Also known as energy trade, oil trade, gas trade, power trade. Major players include: Mitsui & Co. Energy Risk Management, major trading houses, oil companies, utilities, financial institutions. , including physical and financial swaps, forwards and options to gain market information, optimize optimize - optimisation returns from assets and to earn trading revenues. Trading activities are accounted for at fair value in accordance with Canadian and U.S. GAAP (EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities). Similar products are used to hedge the corporation's exposure to changes in electricity and natural gas prices. Under Canadian GAAP, settlement accounting is used for hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. activities if certain criteria criteria (krītēr´ē  ),n. are met. Under U.S. GAAP, hedging activities are accounted for in accordance with FASB Statement FASB Statement A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting 133, Accounting for Derivative Instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. and Hedging Activities. Energy Marketing's price risk management assets and liabilities represent the fair value of unsettled (unrealized) trading transactions:
Sept. 30, 2002 Dec. 31, 2001
--------------------------------------------------------------
Price risk management assets
Current $ 139.2 $ 137.6
Long-term 79.8 71.3
Price risk management liabilities
Current (135.7) (114.1)
Long-term (82.3) (69.0)
--------------------------------------------------------------
$ 1.0 $ 25.8
--------------------------------------------------------------
The following table illustrates movements in the fair value of the corporation's price risk assets and liabilities during the nine months ended Sept. 30, 2002: Fair value of net price risk management assets outstanding at Dec. 31, 2001 $ 25.8 Fair value of new contracts entered into during the period 13.0 Contracts realized or settled during the period (32.8) Changes in fair values attributable to changes in valuation techniques and assumptions - Changes in fair values attributable to market price and other market changes (5.0) ----------------------------------------------------------------- Fair value of net price risk management assets outstanding at Sept. 30, 2002 $ 1.0 ----------------------------------------------------------------- The source of the valuations of the above contracts and maturities over each of the next five calendar years and thereafter is as follows:
2007 and
2002 2003 2004 2005 2006 thereafter Total
-----------------------------------------------------------------
Prices actively
quoted $0.9 $(6.8) $0.8 $0.7 $0.8 $0.4 $(3.2)
Prices based on
models 0.1 4.1 - - - - 4.2
-----------------------------------------------------------------
Asset
(liability) $1.0 $(2.7) $0.8 $0.7 $0.8 $0.4 $ 1.0
-----------------------------------------------------------------
4. INVESTMENTS In January January: see month. 2002, an additional $2.9 million was invested in a wind power generation company. This investment is accounted for using the equity method. In April 2002, an additional $2.5 million was invested in a distributed generation Distributed generation generates electricity from many small energy sources. It has also been called also called on-site generation, dispersed generation, embedded generation, decentralized generation, decentralized energy or company. This investment is accounted for using the equity method. In April 2002, an initial $0.2 million was invested in a biomass generation company. An additional $0.5 million was invested in September 2002. The investment is accounted for using the cost method. In addition, a foreign exchange revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of $1.5 million occurred during the nine months ended Sept. 30, 2002 on the investment in the Australian Australian pertaining to or originating in Australia. Australian bat lyssavirus disease see Australian bat lyssavirus disease. Australian cattle dog a medium-sized, compact working dog used for control of cattle. gas transmission pipeline. 5. LONG-TERM RECEIVABLES Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed In August 2002, the amount due from Aquila Aquila, in the Bible Aquila (ăk`wĭlə, əkwĭl`ə), in the New Testament, Christian of Jewish origin from Pontus who lived at Rome. He and his wife, Prisca or Priscilla, were friendly to Paul. Networks Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of (formerly UtiliCorp Networks Canada) that arose from the August 2000 sale of the discontinued Alberta Distribution and Retail operation was collected in full. The California accounts receivable have been reclassified to long-term, as collection is no longer expected in 2002, although ultimate collection is expected. 6. LONG-TERM DEBT Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. On June 20, 2002, the corporation issued debt of US$300.0 million under a US$1.0 billion shelf prospectus A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. filed May 14, 2002. The notes are unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and bear interest at 6.75 per cent, and mature on July 15, 2012. Net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). on the issuance were $456.9 million. In the third quarter of 2002, TransAlta issued US$63.0 million of commercial paper, which bears interest at a fixed rate of 1.75 per cent. Under the terms of TransAlta's credit facility, the corporation has the ability and intent to maintain these commercial paper borrowings beyond one year. 7. COMMON SHARES ISSUED AND OUTSTANDING TransAlta Corporation is authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to issue an unlimited number of voting common shares without nominal Trifling, token, or slight; not real or substantial; in name only. Nominal capital, for example, refers to extremely small or negligible funds, the use of which in a particular business is incidental. NOMINAL. Relating to a name. or par value. At Sept. 30, 2002, the corporation had 168.4 million (Dec. 31, 2001 - 168.3 million) common shares issued and outstanding plus outstanding employee stock options to purchase an additional 3.4 million shares (Dec. 31, 2001 - 2.8 million). In February 2002, TransAlta announced a normal course issuer bid to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to 3.0 million common shares for cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. . In the nine months ended Sept. 30, 2002, 1.9 million common shares have been repurchased under normal course issuer bids. 8. PRIOR PERIOD REGULATORY DECISION Financial results for 2002 were affected by Alberta Energy and Utilities Board (EUB) decisions related to other reporting periods. The impact of such regulatory decisions is recorded when the effect of such decisions is known, without adjustment to the financial statements of prior periods. On April 16, 2002, the EUB rendered a negative decision of $3.3 million with respect to TransAlta's hydro hy·dro adj. Hydroelectric. n. pl. hy·dros 1. Hydroelectric power. 2. A hydroelectric power plant. bidding strategy in 2000. 9. CONTINGENCIES Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. In August 2000, a single thermal thermal /ther·mal/ (ther´m'l) pertaining to or characterized by heat. ther·mal adj. 1. Of, relating to, using, producing, or caused by heat. 2. generating unit at the Wabamun plant was shut down due to safety concerns related to possible corrosion fatigue Corrosion fatigue is fatigue in a corrosive environment. It is the mechanical degradation of a material under the joint action of corrosion and cyclic loading. Nearly all engineering structures experience some form of alternating stress and are exposed to harmful environments cracks within the waterwall tubing of its boiler boiler, device for generating steam. It consists of two principal parts: the furnace, which provides heat, usually by burning a fuel, and the boiler proper, a device in which the heat changes water into steam. . Repairs were completed late in the second quarter of 2001 and the unit returned to service in June 2001. Since Jan. 1, 2001, the unit has been subject to the terms of a power purchase arrangement (PPA). Under the PPA's force majeure [French, A superior or irresistible power.] An event that is a result of the elements of nature, as opposed to one caused by human behavior. The term force majeure article, the corporation is not obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. to supply electricity during the period of repair, subject to confirmation by the administrator of the PPAs. Had such confirmation not occurred, the corporation would have been obligated to pay a penalty equal to the cost of obtaining an alternative source of electricity to fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. its PPA supply obligations during the affected period. The force majeure decision went to arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the in July 2001. On May 23, 2002, the arbitrators confirmed in their ruling that the outage out·age n. 1. A quantity or portion of something lacking after delivery or storage. 2. A temporary suspension of operation, especially of electric power. qualified as a force majeure event, but also ruled that the corporation should have returned the unit to service more quickly. As a result of the decision, the corporation was required to pay $38.9 million plus interest of $2.7 million. On May 8, 2002, the U.S. Federal Energy Regulatory Commission The Federal Energy Regulatory Commission (FERC) is the United States federal agency with jurisdiction over electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates. (FERC FERC Federal Energy Regulatory Commission FERC FEMA Emergency Response Capability ) requested that 150 sellers of wholesale electricity and ancillary Subordinate; aiding. A legal proceeding that is not the primary dispute but which aids the judgment rendered in or the outcome of the main action. A descriptive term that denotes a legal claim, the existence of which is dependent upon or reasonably linked to a main claim. services to the California electricity market, including TransAlta, respond to questions regarding their trading strategies In finance, a trading strategy (see also trading system) is a predefined set of rules to apply. Usually, this refers to a means used to replicate an option in order to give it an arbitrage free value in the sense that the cost of buying some financial assets to give the same in California during 2000 and 2001. TransAlta has responded to the FERC request and believes it operated in accordance with all applicable laws, rules, regulations and tariffs This is a list of tariffs and trade legislation:
On May 21 and 22, 2002, FERC issued two additional requests for information regarding 'round-trip' trading activities, to which TransAlta responded, stating that the corporation does not believe it participated in any round-trip trades Round-trip trade The purchase and sale of a security within a short period of time. during 2000 and 2001. In addition, Reliant Energy Reliant Energy, Inc., based in Houston, Texas, is a non-utility, retail and wholesale electricity provider. In Texas, it provides service to nearly 1.9 million retail electricity customers, including residential and small business customers and commercial, industrial, Inc. issued a statement that it engaged in round-trip trades in 1999 with Merchant Energy Group of the Americas A·mer·i·cas , the See America. , Inc. (MEGA (1) Million (10 to the 6th power). Abbreviated "M". In communications, mega typically refers to 1,000,000. In storage, mega typically refers to 1,048,576. See MB, binary values and space/time. (2) A prefix attached to words that means a very large size or quantity. ). TransAlta acquired an initial 50 per cent interest in MEGA in June 2000, and acquired the remaining 50 per cent in June 2001. TransAlta contends that no round-trip trading Round-Trip Trading An action that attempts to inflate transaction volumes through the continuous and frequent purchase and sale of a particular security, commodity or asset. occurred between Reliant Energy Inc. and MEGA during any period in which TransAlta had an ownership interest in MEGA. TransAlta will continue to cooperate with the regulators and supply all information requested. On May 30, 2002, the California Attorney General's Office (CAGO CAGO Colleague of the American Guild of Organists CAGO Contractor Acquired Government Owned CAGO Cargo Apparent Good Order ) filed civil complaints in the state court of California against eight additional wholesale power companies, including TransAlta. The complaint alleges violations of California's unfair business practices law in connection with rates charged for wholesale electricity sales. TransAlta believes that it has complied with applicable laws in regard to this complaint. In particular, the company is of the view that the basis of the complaint is a matter of federal rather than state jurisdictions. In this regard, the company notes that FERC has previously rejected re·ject tr.v. re·ject·ed, re·ject·ing, re·jects 1. To refuse to accept, submit to, believe, or make use of. 2. To refuse to consider or grant; deny. 3. allegations made by CAGO that TransAlta's subsidiaries violated vi·o·late tr.v. vi·o·lat·ed, vi·o·lat·ing, vi·o·lates 1. To break or disregard (a law or promise, for example). 2. To assault (a person) sexually. 3. rate filing requirements. On June 26, 2002, TransAlta filed a Notice of Motion to dismiss dismiss v. the ruling by a judge that all or a portion (one or more of the causes of action) of the plaintiff's lawsuit is terminated (thrown out) at that point without further evidence or testimony. the complaint. On Sept. 9, 2002, the Commodities Futures Trading Commission requested information on similar issues. TransAlta has provided the requested information. The Canadian government has indicated its intention to ratify the Kyoto Protocol. TransAlta is not able to estimate the full impact the ratification will have on its business, as the government has not yet established an implementation plan. However, the PPAs for TransAlta's coal-fired plants in Alberta contain 'Change in Law' provisions which provide an opportunity to recover compliance costs from the PPA customers. 10. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current period's presentation. 11. SEGMENTED DISCLOSURES Effective Jan. 1, 2002, the Generation and Independent Power Projects business segments were combined into one Generation segment to reflect changes in TransAlta's organizational structure  This article has no lead section.To comply with Wikipedia's lead section guidelines, one should be written. . Prior period amounts have been reclassified.
A. Segment financial information
I) Earnings information
Unaudited
--------------------------------------------------------------------
3 months ended Energy
Sept. 30, 2002 Generation Marketing Corporate Totals
--------------------------------------------------------------------
Revenues $ 431.8 $ 1,358.6 $ - $ 1,790.4
Trading purchases - (1,340.1) - (1,340.1)
--------------------------------------------------------------------
Net segment revenues 431.8 18.5 - 450.3
Fuel and purchased
power (173.2) - - (173.2)
--------------------------------------------------------------------
Gross margin 258.6 18.5 - 277.1
Operations, maintenance
and administration 76.9 5.0 16.5 98.4
Depreciation and
amortization 48.2 0.6 4.3 53.1
Taxes, other than
income taxes 5.9 0.1 - 6.0
--------------------------------------------------------------------
EBIT before corporate
allocations 127.6 12.8 (20.8) 119.6
Corporate allocations (18.7) (2.1) 20.8 -
--------------------------------------------------------------------
EBIT $ 108.9 $ 10.7 $ - $ 119.6
--------------------------------------------------------
Other expense (1.5)
Foreign exchange loss (1.0)
Net interest expense (20.9)
--------------------------------------------------------------------
Earnings from continuing operations before income
taxes and non-controlling interests $ 96.2
--------------------------------------------------------------------
Unaudited
--------------------------------------------------------------------
3 months ended Energy
Sept. 30, 2001 Generation Marketing Corporate Totals
--------------------------------------------------------------------
Revenues $ 527.8 $ 424.0 $ - $ 951.8
Trading purchases - (378.5) - (378.5)
--------------------------------------------------------------------
Net segment revenues 527.8 45.5 - 573.3
Fuel and purchased
power (250.5) - - (250.5)
--------------------------------------------------------------------
Gross margin 277.3 45.5 - 322.8
Operations, maintenance
and administration 126.2 7.5 14.1 147.8
Depreciation and
amortization 97.1 2.9 5.7 105.7
Taxes, other than
income taxes 4.1 - - 4.1
--------------------------------------------------------------------
EBIT before corporate
allocations 49.9 35.1 (19.8) 65.2
Corporate allocations (18.3) (1.5) 19.8 -
--------------------------------------------------------------------
EBIT $ 31.6 $ 33.6 $ - $ 65.2
--------------------------------------------------------
Other income 0.4
Foreign exchange loss (2.0)
Net interest expense (12.4)
--------------------------------------------------------------------
Earnings from continuing operations before income
taxes and non-controlling interests $ 51.2
--------------------------------------------------------------------
Unaudited
--------------------------------------------------------------------
9 months ended Energy
Sept. 30, 2002 Generation Marketing Corporate Totals
--------------------------------------------------------------------
Revenues $ 1,175.2 $ 2,711.4 $ - $ 3,886.6
Trading purchases - (2,680.3) - (2,680.3)
--------------------------------------------------------------------
Net segment
revenues 1,175.2 31.1 - 1,206.3
Fuel and purchased
power (476.7) - - (476.7)
--------------------------------------------------------------------
Gross margin 698.5 31.1 - 729.6
Operations, maintenance
and administration 231.0 11.5 42.9 285.4
Depreciation and
amortization 138.9 2.0 15.6 156.5
Taxes, other than
income taxes 19.7 0.1 - 19.8
Prior period
regulatory decisions
(Note 8) 3.3 - - 3.3
--------------------------------------------------------------------
EBIT before corporate
allocations 305.6 17.5 (58.5) 264.6
Corporate allocations (52.5) (6.0) 58.5 -
--------------------------------------------------------------------
EBIT $ 253.1 $ 11.5 $ - $ 264.6
--------------------------------------------------------
Other expense (0.9)
Foreign exchange gain 0.3
Net interest expense (58.7)
--------------------------------------------------------------------
Earnings from continuing operations before income
taxes and non-controlling interests $ 205.3
--------------------------------------------------------------------
Unaudited
--------------------------------------------------------------------
9 months ended Energy
Sept. 30, 2001 Generation Marketing Corporate Totals
--------------------------------------------------------------------
Revenues $ 1,726.6 $ 2,167.8 $ - $ 3,894.4
Trading purchases - (2,009.4) - (2,009.4)
--------------------------------------------------------------------
Net segment
revenues 1,726.6 158.4 - 1,885.0
Fuel and purchased
power (984.2) - - (984.2)
--------------------------------------------------------------------
Gross margin 742.4 158.4 - 900.8
Operations, maintenance
and administration 279.0 34.6 46.3 359.9
Depreciation and
amortization 174.1 7.0 17.3 198.4
Taxes, other than
income taxes 14.1 - - 14.1
--------------------------------------------------------------------
EBIT before corporate
allocations 275.2 116.8 (63.6) 328.4
Corporate allocations (58.9) (4.7) 63.6 -
--------------------------------------------------------------------
EBIT $ 216.3 $ 112.1 $ - 328.4
--------------------------------------------------------
Other income 0.3
Foreign exchange loss (2.1)
Net interest expense (75.7)
--------------------------------------------------------------------
Earnings from continuing operations before income
taxes and non-controlling interests $ 250.9
--------------------------------------------------------------------
II. Selected balance sheet information
Energy Discontinued
Sept. 30, 2002 Generation Marketing Corporate Operations Total
---------------------------------------------------------------------
Segment assets $ 6,322.1 $ 430.8 $ 644.5 $ - $ 7,397.4
Dec. 31, 2001 (audited)
---------------------------------------------------------------------
Segment assets $ 5,862.9 $ 423.6 $ 609.0 $ 676.9 $ 7,572.4
III. Selected cash flow information
3 months ended Energy Discontinued
Sept. 30, 2002 Generation Marketing Corporate Operations Total
---------------------------------------------------------------------
Capital
expenditures $ 179.0 $ 0.4 $ 2.8 $ - $ 182.2
3 months ended Sept. 30, 2001
---------------------------------------------------------------------
Capital
expenditures $ 323.1 $ 3.9 $ 19.4 $ 11.3 $ 357.7
9 months ended Sept. 30, 2002
---------------------------------------------------------------------
Capital
expenditures $ 718.3 $ 2.1 $ 9.0 $ 21.8 $ 751.2
9 months ended Sept. 30, 2001
---------------------------------------------------------------------
Capital
expenditures $ 732.1 $ 41.8 $ 21.4 $ 32.2 $ 827.5
IV. Reconciliation
Depreciation and amortization expense (D&A) per statement of
cash flows
3 months ended 9 months ended
Sept. 30 Sept. 30
2002 2001 2002 2001
--------------------------------------------------------------------
D&A expense for
reportable segments $ 53.1 $ 105.7 $ 156.5 $ 198.4
Discontinued operations - 9.7 15.6 33.6
Mining equipment depreciation,
included in fuel
and purchased power 8.7 9.0 27.8 27.8
Site restoration accrual,
included in fuel and
purchased power 9.6 10.2 31.2 31.2
Amortization of deferred
financing charges and other 1.8 1.0 4.0 5.2
--------------------------------------------------------------------
$ 73.2 $ 135.6 $ 235.1 $ 296.2
--------------------------------------------------------------------
12. UNITED STATES United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP), which, in most material respects, conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" United States generally accepted accounting principles (U.S. GAAP). Significant differences between Canadian and U.S. GAAP are as follows:
A. EARNINGS AND EPS
3 months ended 9 months ended
Sept. 30 Sept. 30
Notes 2002 2001 2002 2001
---------------------------------------------------------------------
Earnings from continuing
operations, Canadian GAAP $ 73.4 $ 36.7 $137.6 $145.9
Derivatives and hedging
activities, net of tax I (5.4) 0.5 (2.2) 0.9
Start-up costs, net of tax II (0.9) 0.8 (4.2) 2.6
Preferred securities
distributions, net of tax III (5.5) (3.3) (16.2) (9.6)
Amortization of debt
extinguishment, net of tax IV 0.3 0.3 0.7 0.7
Income taxes - rate change
adjustment V - - - 20.0
Amortization of pension
transition adjustment VI (1.2) (1.2) (3.4) (3.4)
---------------------------------------------------------------------
Earnings from continuing
operations, U.S. GAAP $ 60.7 $ 33.8 $112.3 $157.1
Earnings from discontinued
operations, Canadian
and U.S. GAAP $ - 8.0 12.8 31.8
Net gain on disposal of
discontinued operations,
Canadian and U.S. GAAP - - 110.0 -
---------------------------------------------------------------------
Net earnings before change
in accounting principle,
U.S. GAAP 60.7 41.8 235.1 188.9
Cumulative effect of change
in accounting principle,
net of taxes of $0.1 million I - - - 0.2
---------------------------------------------------------------------
Net earnings, U.S. GAAP $ 60.7 $ 41.8 $235.1 $189.1
Cumulative effect of change
in accounting principle,
net of taxes of $25.9
million I,VIII - - - (38.5)
Foreign currency cumulative
translation adjustment I,VIII 11.3 13.0 (8.3) (37.8)
Net gain (loss) on
derivative instruments I,VIII (28.2) (4.9) (32.7) 1.3
---------------------------------------------------------------------
Comprehensive income,
U.S. GAAP $ 43.8 $ 49.9 $194.1 $114.1
---------------------------------------------------------------------
Basic EPS, U.S. GAAP
Earnings from continuing
operations $ 0.36 $ 0.20 $ 0.66 $ 0.93
Earnings from
discontinued operations - 0.05 0.07 0.19
---------------------------------------------------------------------
Net earnings from operations 0.36 0.25 0.73 1.12
Net gain on disposal
of discontinued operations - - 0.65 -
Cumulative effect of change
in accounting principle - - - -
---------------------------------------------------------------------
Net earnings $ 0.36 $ 0.25 $ 1.38 $ 1.12
---------------------------------------------------------------------
Diluted EPS, U.S. GAAP
Earnings from
continuing operations $ 0.36 $ 0.20 $ 0.66 $ 0.91
Earnings from
discontinued operations - 0.05 0.07 0.19
---------------------------------------------------------------------
Net earnings from operations 0.36 0.25 0.73 1.10
Net gain on disposal of
discontinued operations - - 0.65 -
Cumulative effect of change
in accounting principle - - - -
---------------------------------------------------------------------
Net earnings $ 0.36 $ 0.25 $ 1.38 $ 1.10
---------------------------------------------------------------------
B. BALANCE SHEETS
Sept. 30, 2002 Dec. 31, 2001
(Audited)
Canadian U.S. Canadian U.S.
Notes GAAP GAAP GAAP GAAP
Assets
Current derivative assets I $ - $ 2.8 $ - $ 58.5
Accounts receivable IX 400.6 398.9 625.3 624.0
Future or deferred income
tax assets - current V 18.1 18.1 16.9 25.6
Income taxes receivable I, II 199.4 207.7 128.3 136.9
Investments X 44.9 261.7 37.3 227.8
Property, plant and
equipment, net II 6,013.6 6,022.6 6,094.8 6,110.9
Other assets I, II, III, VI 70.0 12.1 47.1 18.3
Long-term
derivative asset I - 67.9 - 54.1
Liabilities
Accounts payable and
accrued liabilities VI 511.4 466.0 627.5 580.7
Current derivative
liability I - 0.8 - 21.5
Firm commitments I - 5.7 - 3.6
Long-term debt,
including
current portion I, III, X 2,837.7 3,538.2 2,511.1 3,184.5
Deferred credits and
other long-term
liabilities I, IV 553.0 519.2 526.5 498.7
Regulatory rate-making
liability V - - - 8.7
Long-term
derivative liabilities I - 164.4 - 134.3
Future or deferred I, II, III,
income taxes IV, V, VI 390.3 363.2 409.1 416.6
Equity
Preferred securities III 452.0 - 452.6 -
Common shares IX 1,201.9 1,200.2 1,170.9 1,169.2
Retained earnings I, II, IV, V, VI 928.8 939.8 838.3 858.4
Cumulative
translation
adjustment I, VIII (17.5) - (19.5) -
Accumulated other
comprehensive income I, VIII - (94.7) - (53.7)
C. Reconciling items I. DERIVATIVES derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. AND HEDGING ACTIVITIES On Jan. 1, 2001, the corporation adopted Statement 133, Accounting for Derivative Instruments and Hedging Activities. The new statement requires all derivative instruments to be recorded on the balance sheet at fair value, with changes in fair value recognized in earnings in the period of change. If the derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. is designated as and qualifies as a fair value hedge, the changes in fair value of the derivative and the hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. item attributable to the hedged risk are recognized in earnings in the period the change occurs. If the derivative is designated as and qualifies as a cash flow hedge A cash flow hedge is a hedge of the exposure to the variability of cash flow that
OCI Organisation de la Conférence Islamique (French: Organization of the Islamic Conference) OCI Other Comprehensive Income OCI Office of the Commissioner of Insurance OCI Organizational Conflict of Interest ) and is recognized in earnings as the hedged item affects earnings. The ineffective portion of changes in fair value of cash flow hedges is recognized in earnings. If the derivative is designated as and qualifies as a hedge of a net investment in a foreign currency, the effective portion of changes in fair value is recorded in cumulative translation adjustment (CTA An abbreviation for cum testamento annexo, Latin for "with the will annexed." ) as part of OCI and the ineffective portion is recognized in earnings. The adoption of Statement 133 on Jan. 1, 2001 resulted in the recognition of additional derivative assets with a fair value of $1.6 million, firm commitment assets with a fair value of $0.6 million, additional derivative liabilities with a fair value of $88.6 million, a $0.3 million ($0.2 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. ) credit to income as the cumulative effect of a change in accounting principle and a charge of $64.4 million ($38.5 million after-tax) to OCI as the cumulative effect of a change in accounting principle. (i) Fair value hedging strategy The corporation enters into forward exchange contracts to hedge certain firm commitments denominated in foreign currencies to protect against adverse changes in exchange rates and uses interest rate swaps Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. to manage interest rate exposure. The swaps modify exposure to interest rate risk by converting a portion of the corporation's fixed-rate debt to a floating rate. In the three and nine months ended Sept. 30, 2002 and 2001, the corporation's fair value hedges resulted in net gains of $nil related to the ineffective portion of its hedging instruments (inclusive of inclusive of prep. Taking into consideration or account; including. the time value of money) as well as the portion of the hedging instrument excluded from the assessment of hedge effectiveness. (ii) Cash flow hedging strategy The corporation uses forward-starting swaps, treasury locks and spread locks to hedge the interest rates of anticipated issuances of debt to protect the corporation against increases in interest rates prior to the date of issuance, and uses fixed for floating swaps Fixed for floating swap An interest rate swap in which the fixed rate payments are tradeed for a floating rate. to hedge generation production to protect the corporation against fluctuations in commodity prices. The maximum term of cash flow hedges of anticipated transactions is 13 years. In the three and nine months ended Sept. 30, 2002, the corporation's cash flow hedges resulted in a net gain of $nil and $0.2 million, respectively, (2001 - $nil) related to the ineffective portion of its hedging instruments, and a net gain of $nil and $0.2 million, respectively, (2001 - $nil) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness. In June 2002, forward starting swaps with a notional amount The notional amount (or notional principal amount or notional value) on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional. of US$125.0 million were settled and debt was issued, resulting in a loss of $11.2 million. The loss will be reclassified from OCI over ten years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time term of the hedged debt. Over the next twelve months, the corporation expects to reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you net losses of $1.0 million from OCI to net earnings that arose from cash flow hedges, and expects to reclassify approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $6.1 million of net losses on cash flow hedging instruments that arose on adoption of statement 133 from accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as (AOCI AOCI Accumulated Other Comprehensive Income AOCI Airport Operators Council International (now Airports Association Council International) AOCI Airborne Ocean Color Imager AOCI Accredited Off-Campus Instruction AOCI Adoption Option Committee, Inc. ) to earnings. (iii) Net investment hedges The company uses cross-currency interest rate swaps, forward sales forward sales npl → ventas fpl a término contracts and direct foreign currency debt to hedge its exposure to changes in the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of its investments in its foreign subsidiaries in the U.S., Australia Australia (ôstrāl`yə), smallest continent, between the Indian and Pacific oceans. With the island state of Tasmania to the south, the continent makes up the Commonwealth of Australia, a federal parliamentary state (2005 est. pop. , Barbados Barbados (bärbā`dōz), island state (2005 est. pop. 279,300), 166 sq mi (430 sq km), in the West Indies. The capital and largest city is Bridgetown. Land, People, and Economy The island, E of St. and Mexico. In the three and nine months ended Sept. 30, 2002, the corporation recognized a net after-tax gain Net after-tax gain Capital gain after income taxes have been paid. of $11.3 million and a net after-tax loss of $8.3 million, respectively (2001 - $13.0 million net after-tax gain and $37.8 million net after-tax loss, respectively) on its net investment hedges, included in CTA, related to cross-currency interest rate swaps and forward sales contracts. In the three and nine months ended Sept. 30, 2001, the corporation recognized income of $nil and $0.7 million, respectively (2001 - $nil), related to ineffectiveness in·ef·fec·tive adj. 1. Not producing an intended effect; ineffectual: an ineffective plea. 2. Inadequate; incompetent: an ineffective teacher. of its net investment hedges. (iv) Trading activities As disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in Note 20 to the corporation's most recent annual consolidated financial statements, the corporation uses energy derivatives including physical and financial swaps, forwards and options to gain market information, optimize returns from assets and to earn trading revenues. These derivatives are recorded on the balance sheet at fair value under both Canadian and U.S. GAAP (EITF 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities). (v) Other hedging activities In the three and nine months ended Sept. 30, 2002, the corporation recognized a loss of $4.3 million and $3.1 million, respectively (2001 - losses of $4.1 million and $10.5 million, respectively) related to hedging activities that do not qualify for hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). treatment under Statement 133. II. START-UP Start-up The earliest stage of a new business venture. COSTS Under U.S. GAAP, certain start-up costs, including revenues and expenses in the pre-operating period, are expensed rather than capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. to deferred charges and capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) as under Canadian GAAP, which also results in decreased depreciation and amortization expense under U.S. GAAP. III. PREFERRED SECURITIES Under U.S. GAAP, the corporation's preferred securities are considered to be entirely debt with no equity component, whereas under Canadian GAAP, these preferred securities have both a debt and equity component. Accordingly, the preferred security distributions are classified as an expense under U.S. GAAP rather than a direct charge to retained earnings. Under U.S. GAAP, the costs associated with the issuance of the preferred securities are recorded as an asset whereas under Canadian GAAP, these costs, net of tax, are charged to preferred securities. IV. DEBT EXTINGUISHMENT The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. Under U.S. GAAP, the premium on redemption of long-term debt related to the limited partnership transaction, as described in Note 12 to the corporation's most recent annual consolidated financial statements, was recorded as an extraordinary loss when it occurred, whereas for Canadian GAAP the loss is amortized to earnings over the period of the limited partnership to 2018. V. INCOME TAXES Future income taxes under Canadian GAAP are referred to as deferred income taxes under U.S. GAAP. Canadian and U.S. GAAP require accounting for income taxes using the liability method of tax allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as ; however, two significant differences remain between Canadian and U.S. GAAP: i. Canadian GAAP requires that future income tax balances be adjusted to reflect substantively sub·stan·tive adj. 1. Substantial; considerable. 2. Independent in existence or function; not subordinate. 3. Not imaginary; actual; real. 4. enacted rates rather than currently legislated tax rates under U.S. GAAP. As a result of this difference, a $20.0 million adjustment to earnings from continuing operations was required in 2001; and ii. Under Canadian GAAP, rate-regulated operations need not recognize future income taxes to the extent that future income taxes are expected to be included in the rates charged to and recovered from customers. For these operations, U.S. GAAP requires that the corporation record deferred income tax assets or liabilities for its rate-regulated operations. As these amounts are recoverable or payable through future revenues, a corresponding regulatory asset or liability is recorded for U.S. GAAP purposes. Deferred income taxes under U.S. GAAP would be as follows:
Sept. 30, 2002 Dec. 31, 2001
(Audited)
---------------------------------------------------------------------
Future income tax liability (net)
under Canadian GAAP $ (321.2) $ (388.4)
Rate-regulated operations
deferred income taxes - 8.7
Derivatives 44.2 15.6
Start-up costs (2.3) (2.3)
Preferred securities (6.0) (6.2)
Debt extinguishment 9.7 9.7
Employee future benefits (18.5) (24.3)
---------------------------------------------------------------------
$ (294.1) $ (387.2)
---------------------------------------------------------------------
Comprised of the following:
---------------------------------------------------------------------
Current deferred income tax assets $ 18.1 $ 25.6
Long-term deferred income tax assets 51.4 15.6
Current deferred income tax liabilities (0.4) (11.8)
Long-term deferred income tax liability (363.2) (416.6)
---------------------------------------------------------------------
$ (294.1) $ (387.2)
---------------------------------------------------------------------
VI. EMPLOYEE FUTURE BENEFITS U.S. GAAP requires that the cost of employee pension benefits be determined using the accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. method with application from 1989. It was not feasible (algorithm) feasible - A description of an algorithm that takes polynomial time (that is, for a problem set of size N, the resources required to solve the problem can be expressed as some polynomial involving N). to apply this standard using this effective date. The transition asset as at Jan. 1, 1998 was determined in accordance with elected practice prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by the Securities and Exchange Commission and is amortized over ten years. The difference between U.S. GAAP and Canadian GAAP for the corporation's regulated reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. operations had no effect on net earnings and retained earnings, as any difference from the allowed method of recovery is recognized as a regulatory liability refundable Refundable Eligible for refunding under the terms of a bond indenture. through regulation. As indicated in Note 4 to the annual consolidated financial statements, the corporation discontinued regulatory accounting and commenced the application of Canadian GAAP consistent with the deregulation Deregulation The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Notes: Traditional areas that have been deregulated are the telephone and airline industries. of the electricity generation industry in Alberta The primary industries in Alberta, Canada are energy, lumber, farming and ranching. While gold and other mining operations still exist from the time of the Klondike Gold Rush, they have diminished in importance as oil and gas extraction have achieved dominance in the 1980s beginning Jan. 1, 2001. Sensitivity to changes in assumed health care cost trend rates at Dec. 31, 2001 are as follows:
One percentage One percentage
point increase point decrease
---------------------------------------------------------------------
Effect on total service
and interest costs 0.1 (0.1)
Effect on post-retirement
benefit obligation 0.6 (0.6)
---------------------------------------------------------------------
VII. JOINT VENTURES In accordance with Canadian GAAP, joint ventures are required to be proportionately pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. consolidated regardless of the legal form of the entity. Under U.S. GAAP, incorporated joint ventures Incorporated joint venture A joint venture in which the legal means of dividing the project's equity by shareholdings in a company. are required to be accounted for by the equity method. However, in accordance with practices prescribed by the SEC, the corporation, as a Foreign Private Issuer, has elected for the purpose of this reconciliation to account for incorporated joint ventures by the proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. consolidation method. VIII. OTHER COMPREHENSIVE INCOME The changes in the components of OCI were as follows:
3 months 9 months
ended ended
Sept. 30 Sept. 30
2002 2001 2002 2001
---------------------------------------------------------------------
Cumulative effect of accounting
change, net of taxes
of ($25.9) million $ - $ - $ - $(38.5)
---------------------------------------------------------------------
Net gain on derivative instruments:
Unrealized gain (loss),
net of taxes of ($19.3) million
and $(23.6) million (2001 - $(4.9)
million and $(4.0) million) (29.0) (7.4) (35.4) (5.9)
Reclassification from OCI to net income,
net of taxes of $0.5 million
and $1.8 million (2001 - $1.7 million
and $4.8 million) 0.8 2.5 2.7 7.2
---------------------------------------------------------------------
Net gain (loss) on derivative
instruments (28.2) (4.9) (32.7) 1.3
Translation adjustments 11.3 13.0 (8.3) (37.8)
Other comprehensive income (loss) $(16.9) $ 8.1 $(41.0) $(75.0)
---------------------------------------------------------------------
The components of accumulated other comprehensive income are:
Sept. 30, Dec. 31,
2002 2001
---------------------------------------------------------------------
Net loss on derivative instruments $(61.2) $(28.5)
Translation adjustments (33.5) (25.2)
---------------------------------------------------------------------
Accumulated other comprehensive loss $(94.7) $(53.7)
---------------------------------------------------------------------
IX. SHARE CAPITAL Under U.S. GAAP, amounts receivable for share capital should be recorded as a deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. from shareholder's equity. Under the corporation's employee share purchase plan, accounts receivable for share purchases at Sept. 30, 2002 was $1.7 million (Dec. 31, 2001 - $1.7 million). X. RIGHT OF OFFSET AGREEMENT As disclosed in Notes 6 and 11 to the annual consolidated financial statements, the corporation has a UK bank deposit that has been offset with a New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. bank facility. The arrangement does not qualify for offsetting under U.S. GAAP. D. DILUTED EARNINGS PER SHARE diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of Diluted earnings per share has been calculated after giving rise to the dilutive effect Dilutive effect Result of a transaction that decreases earnings per common share (EPS). of the exercise of stock options, which would increase the weighted average number of common shares outstanding by nil for the three and nine months ended Sept. 30, 2002 (2001 - nil and 0.2 million). The dilutive impact of PSOP PSOP Plastic Small Outline Package PSOP Personal Stock Option Plan PSOP Power Small Outline Package would result in an increase in compensation expense of $nil for the three and nine months ended Sept. 30, 2002 (2001 - $2.6 million), and an increase in the weighted average number of common shares outstanding of 0.3 million for the three and nine months ended Sept. 30, 2002 (2001 - 0.6 million).
SUPPLEMENTAL INFORMATION
Annualized Sept 30,2002 Dec. 31, 2001
Closing market price $ 18.75 $ 21.60
Price range (last 12 months)
High $ 24.09 $ 30.13
Low $ 18.08 $ 19.15
Debt/invested capital 48.9% 52.3%
Return on common shareholders' equity 8.8% 10.9%
Return on invested capital 7.1% 8.7%
Book value per share $ 12.49 $ 11.82
Cash dividends per share $ 1.00 $ 1.00
Price/earnings ratio (times) 17.7 17.0
Dividend payout ratio 93.2% 78.5%
Interest coverage (times) 2.5 3.2
Interest coverage including
preferred securities (times) 2.1 2.8
Dividend coverage (times) 2.1 4.1
----------------------------------------------------------------------
GLOSSARY OF KEY TERMS
Availability - A measure of time, expressed as a percentage
of continuous operation 24 hours a day, 365
days a year, that a generating unit is capable
of generating electricity, whether or not it is
actually generating electricity.
Btu - A standard unit for measuring the quantity of
heat energy required to heat one pound of water
one degree Fahrenheit.
Capacity - The rated continuous load-carrying ability,
expressed in megawatts of generation equipment.
Gigawatt - A measure of electric energy equal to 1,000
megawatts.
Gigawatt hour (GWh) - A measure of electricity
consumption equivalent to the use of 1,000
megawatts of power over a period of one hour.
Heat rate - A measure of conversion, expressed as Btu/MW,
of the amount of thermal energy required to
generate electrical energy.
Megawatt - A measure of electric energy equal to
1,000,000 watts.
Megawatt hour (MWh) - A measure of electricity
consumption equivalent to the use of 1,000,000
watts of power over a period of one hour.
Spark spread - A measure of gross margin per MW,
sales price less cost of fuel.
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