EX-13.3 4 trp-12312015xfs.htm FORM 40-F FINANCIAL STATEMENTS Exhibit
EXHIBIT 13.3

Management's report on Internal Control over Financial Reporting
The consolidated financial statements and Management's Discussion and Analysis (MD&A) included in this Annual Report are the responsibility of the management of TransCanada Corporation (TransCanada or the Company) and have been approved by the Board of Directors of the Company. The consolidated financial statements have been prepared by management in accordance with United States generally accepted accounting principles (GAAP) and include amounts that are based on estimates and judgments. The MD&A is based on the Company's financial results. It compares the Company's financial and operating performance in 2015 to that in 2014, and highlights significant changes between 2014 and 2013. The MD&A should be read in conjunction with the consolidated financial statements and accompanying notes. Financial information contained elsewhere in this Annual Report is consistent with the consolidated financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management has designed and maintains a system of internal control over financial reporting, including a program of internal audits to carry out its responsibility. Management believes these controls provide reasonable assurance that financial records are reliable and form a proper basis for the preparation of financial statements. The internal control over financial reporting include management's communication to employees of policies that govern ethical business conduct.
Under the supervision and with the participation of the President and Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control (COSO) – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management concluded, based on its evaluation, that internal control over financial reporting was effective as of December 31, 2015, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes.
The Board of Directors is responsible for reviewing and approving the financial statements and MD&A and ensuring that management fulfills its responsibilities for financial reporting and internal control. The Board of Directors carries out these responsibilities primarily through the Audit Committee, which consists of independent, non-management directors. The Audit Committee meets with management at least five times a year and meets independently with internal and external auditors and as a group to review any significant accounting, internal control and auditing matters in accordance with the terms of the Charter of the Audit Committee, which is set out in the Annual Information Form. The Audit Committee's responsibilities include overseeing management's performance in carrying out its financial reporting responsibilities and reviewing the Annual Report, including the consolidated financial statements and MD&A, before these documents are submitted to the Board of Directors for approval. The internal and independent external auditors have access to the Audit Committee without the requirement to obtain prior management approval.
The Audit Committee approves the terms of engagement of the independent external auditors and reviews the annual audit plan, the Auditors' Report and the results of the audit. It also recommends to the Board of Directors the firm of external auditors to be appointed by the shareholders.
The shareholders have appointed KPMG LLP as independent external auditors to express an opinion as to whether the consolidated financial statements present fairly, in all material respects, the Company's consolidated financial position, results of operations and cash flows in accordance with GAAP. The reports of KPMG LLP outline the scope of its examinations and its opinions on the consolidated financial statements and the effectiveness of the Company's internal control over financial reporting.
 
Russell K. Girling
 
Donald R. Marchand
President and
Chief Executive Officer
 
Executive Vice-President and
Chief Financial Officer
 
 
 
February 10, 2016
 
 

 
 
 
 
 
TransCanada Consolidated financial statements 2015 119



Independent Auditors' Report of Registered Public Accounting Firm
TO THE SHAREHOLDERS OF TRANSCANADA CORPORATION
We have audited the accompanying consolidated financial statements of TransCanada Corporation, which comprise the Consolidated balance sheets as at December 31, 2015 and December 31, 2014, the Consolidated statements of income, comprehensive income, cash flows and equity for each of the years in the three-year period ended December 31, 2015, and Notes, comprising a summary of significant accounting policies and other explanatory information.
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS' RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the Consolidated financial statements present fairly, in all material respects, the consolidated financial position of TransCanada Corporation as at December 31, 2015 and December 31, 2014, and its consolidated results of operations and its consolidated cash flows for each of the years in the three-year period ended December 31, 2015 in accordance with U.S. generally accepted accounting principles.
OTHER MATTER
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TransCanada Corporation’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 10, 2016 expressed an unmodified (unqualified) opinion on the effectiveness of TransCanada Corporation’s internal control over financial reporting.
Chartered Professional Accountants
Calgary, Canada
February 10, 2016

 
 
 
120 TransCanada Consolidated financial statements 2015
 
 



Report of Independent Registered Public Accounting Firm
TO THE SHAREHOLDERS OF TRANSCANADA CORPORATION
We have audited TransCanada Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). TransCanada Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, TransCanada Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the Consolidated balance sheets of TransCanada Corporation as of December 31, 2015 and December 31, 2014, and the related Consolidated statements of income, comprehensive income, cash flows, and equity for each of the years in the three-year period ended December 31, 2015, and our report dated February 10, 2016 expressed an unmodified (unqualified) opinion on those Consolidated financial statements.
Chartered Professional Accountants
Calgary, Canada
February 10, 2016

 
 
 
 
 
TransCanada Consolidated financial statements 2015 121



Consolidated statement of income
year ended December 31
 
2015

 
2014

 
2013

(millions of Canadian $, except per share amounts)
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Natural Gas Pipelines
 
5,383

 
4,913

 
4,497

Liquids Pipelines
 
1,879

 
1,547

 
1,124

Energy
 
4,038

 
3,725

 
3,176

 
 
11,300

 
10,185

 
8,797

Income from Equity Investments (Note 8)
 
440

 
522

 
597

Operating and Other Expenses
 
 
 
 
 
 
Plant operating costs and other
 
3,250

 
2,973

 
2,674

Commodity purchases resold
 
2,237

 
1,836

 
1,317

Property taxes
 
517

 
473

 
445

Depreciation and amortization
 
1,765

 
1,611

 
1,485

Asset impairment charges (Note 7)
 
3,745

 

 

 
 
11,514

 
6,893

 
5,921

(Loss)/Gain on Assets Held for Sale/Sold (Notes 6 and 25)
 
(125
)
 
117

 

Financial Charges
 
 
 
 
 
 
Interest expense (Note 16)
 
1,370

 
1,198

 
985

Interest income and other
 
(163
)
 
(91
)
 
(34
)
 
 
1,207

 
1,107

 
951

(Loss)/Income before Income Taxes
 
(1,106
)
 
2,824

 
2,522

Income Tax Expense/(Recovery) (Note 15)
 
 
 
 
 
 
Current
 
136

 
145

 
43

Deferred
 
(102
)
 
686

 
568

 
 
34

 
831

 
611

Net (Loss)/Income
 
(1,140
)
 
1,993

 
1,911

Net Income attributable to non-controlling interests (Note 18)
 
6

 
153

 
125

Net (Loss)/Income Attributable to Controlling Interests
 
(1,146
)
 
1,840

 
1,786

Preferred share dividends
 
94

 
97

 
74

Net (Loss)/Income Attributable to Common Shares
 
(1,240
)
 
1,743

 
1,712

 
 
 
 
 
 
 
Net (Loss)/Income per Common Share (Note 19)
 
 
 
 
 
 
Basic and diluted
 

($1.75
)
 

$2.46

 

$2.42

 
 
 
 
 
 
 
Dividends Declared per Common Share
 

$2.08

 

$1.92

 

$1.84

 
 
 
 
 
 
 
Weighted Average Number of Common Shares (millions) (Note 19)
 
 
 
 
 
 
Basic
 
709

 
708

 
707

Diluted
 
709

 
710

 
708

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

 
 
 
122 TransCanada Consolidated financial statements 2015
 
 



Consolidated statement of comprehensive income
year ended December 31
2015

2014

2013

(millions of Canadian $)
Net (Loss)/Income
(1,140
)
1,993

1,911

Other Comprehensive Income/(Loss), Net of Income Taxes
 
 
 
Foreign currency translation gains on net investment in foreign operations
813

517

383

Change in fair value of net investment hedges
(372
)
(276
)
(239
)
Change in fair value of cash flow hedges
(57
)
(69
)
71

Reclassification to net income of gains and losses on cash flow hedges
88

(55
)
41

Unrealized actuarial gains and losses on pension and other post-retirement benefit plans
51

(102
)
67

Reclassification to net income of actuarial gains and losses and prior service costs on pension and other post-retirement benefit plans
32

18

23

Other comprehensive income/(loss) on equity investments
47

(204
)
234

Other comprehensive income/(loss) (Note 21)
602

(171
)
580

Comprehensive (Loss)/Income
(538
)
1,822

2,491

Comprehensive income attributable to non-controlling interests
312

283

191

Comprehensive (Loss)/Income Attributable to Controlling Interests
(850
)
1,539

2,300

Preferred share dividends
94

97

74

Comprehensive (Loss)/Income Attributable to Common Shares
(944
)
1,442

2,226

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

 
 
 
 
 
TransCanada Consolidated financial statements 2015 123



Consolidated statement of cash flows
year ended December 31
 
2015

 
2014

 
2013

(millions of Canadian $)
 
Cash Generated from Operations
 
 
 
 
 
 
Net (loss)/income
 
(1,140
)
 
1,993

 
1,911

Depreciation and amortization
 
1,765

 
1,611

 
1,485

Asset impairment charges (Note 7)
 
3,745

 

 

Deferred income taxes (Note 15)
 
(102
)
 
686

 
568

Income from equity investments (Note 8)
 
(440
)
 
(522
)
 
(597
)
Distributed earnings received from equity investments (Note 8)
 
576

 
579

 
605

Employee post-retirement benefits expense, net of funding (Note 22)
 
44

 
37

 
50

Loss/(gain) on assets held for sale/sold (Notes 6 and 25)
 
125

 
(117
)
 

Equity allowance for funds used during construction
 
(165
)
 
(95
)
 
(19
)
Unrealized losses/(gains) on financial instruments
 
58

 
74

 
(35
)
Other
 
47

 
22

 
32

Increase in operating working capital (Note 24)
 
(398
)
 
(189
)
 
(326
)
Net cash provided by operations
 
4,115

 
4,079

 
3,674

Investing Activities
 
 
 
 
 
 
Capital expenditures (Note 4)
 
(3,918
)
 
(3,489
)
 
(4,264
)
Capital projects in development (Note 4)
 
(511
)
 
(848
)
 
(488
)
Contributions to equity investments (Note 8)
 
(493
)
 
(256
)
 
(163
)
Acquisitions, net of cash acquired (Note 25)
 
(236
)
 
(241
)
 
(216
)
Proceeds from sale of assets, net of transaction costs (Note 25)
 

 
196

 

Distributions in excess of equity earnings (Note 8)
 
226

 
159

 
128

Deferred amounts and other
 
322

 
335

 
(117
)
Net cash used in investing activities
 
(4,610
)
 
(4,144
)
 
(5,120
)
Financing Activities
 
 
 
 
 
 
Notes payable (repaid)/issued, net
 
(1,382
)
 
544

 
(492
)
Long-term debt issued, net of issue costs
 
5,045

 
1,403

 
4,253

Long-term debt repaid
 
(2,105
)
 
(1,069
)
 
(1,286
)
Junior subordinated notes issued, net of issue costs
 
917

 

 

Dividends on common shares
 
(1,446
)
 
(1,345
)
 
(1,285
)
Dividends on preferred shares
 
(92
)
 
(94
)
 
(71
)
Distributions paid to non-controlling interests
 
(224
)
 
(178
)
 
(166
)
Common shares issued
 
27

 
47

 
72

Common shares repurchased (Note 19)
 
(294
)
 

 

Preferred shares issued, net of issue costs (Note 20)
 
243

 
440

 
585

Partnership units of subsidiary issued, net of issue costs 
 
55

 
79

 
384

Preferred shares of subsidiary redeemed (Note 18)
 

 
(200
)
 
(200
)
Net cash provided by/(used in) financing activities
 
744

 
(373
)
 
1,794

Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
 
112

 

 
28

Increase/(Decrease) in Cash and Cash Equivalents
 
361

 
(438
)
 
376

Cash and Cash Equivalents
 
 
 
 
 
 
Beginning of year
 
489

 
927

 
551

Cash and Cash Equivalents
 
 
 
 
 
 
End of year
 
850

 
489

 
927

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

 
 
 
124 TransCanada Consolidated financial statements 2015
 
 



Consolidated balance sheet
at December 31
 
2015

 
2014

(millions of Canadian $)
 
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
850

 
489

Accounts receivable
 
1,388

 
1,313

Inventories
 
323

 
292

Other (Note 5)
 
1,353

 
1,019

 
 
3,914

 
3,113

Plant, Property and Equipment (Note 7)
 
44,817

 
41,774

Equity Investments (Note 8)
 
6,214

 
5,598

Regulatory Assets (Note 9)
 
1,184

 
1,297

Goodwill (Note 10)
 
4,812

 
4,034

Intangible and Other Assets (Note 11)
 
3,191

 
2,646

Restricted Investments
 
351

 
63

 
 
64,483

 
58,525

LIABILITIES
 
 
 
 
Current Liabilities
 
 
 
 
Notes payable (Note 12)
 
1,218

 
2,467

Accounts payable and other (Note 13)
 
3,021

 
2,892

Accrued interest
 
520

 
424

Current portion of long-term debt (Note 16)
 
2,547

 
1,797

 
 
7,306

 
7,580

Regulatory Liabilities (Note 9)
 
1,159

 
263

Other Long-Term Liabilities (Note 14)
 
1,260

 
1,052

Deferred Income Tax Liabilities (Note 15)
 
5,144

 
4,857

Long-Term Debt (Note 16)
 
29,037

 
22,960

Junior Subordinated Notes (Note 17)
 
2,422

 
1,160

 
 
46,328

 
37,872

EQUITY
 
 
 
 
Common shares, no par value (Note 19)
 
12,102

 
12,202

Issued and outstanding:
December 31, 2015 – 703 million shares
 
 
 
 
 
December 31, 2014 – 709 million shares
 
 
 
 
Preferred shares (Note 20)
 
2,499

 
2,255

Additional paid-in capital
 
7

 
370

Retained earnings
 
2,769

 
5,478

Accumulated other comprehensive loss (Note 21)
 
(939
)
 
(1,235
)
Controlling interests
 
16,438

 
19,070

Non-controlling interests (Note 18)
 
1,717

 
1,583

 
 
18,155

 
20,653

 
 
64,483

 
58,525

Commitments, Contingencies and Guarantees (Note 26)
Corporate Restructuring Costs (Note 27)
Subsequent Events (Note 28)
The accompanying Notes to the consolidated financial statements are an integral part of these statements.
On behalf of the Board:
Russell K. Girling
Director
Siim A. Vanaselja
Director

 
 
 
 
 
TransCanada Consolidated financial statements 2015 125



Consolidated statement of equity
year ended December 31
 
2015

 
2014

 
2013

(millions of Canadian $)
 
Common Shares
 
 
 
 
 
 
Balance at beginning of year
 
12,202

 
12,149

 
12,069

Shares issued on exercise of stock options (Note 19)
 
30

 
53

 
80

Shares repurchased (Note 19)
 
(130
)
 

 

Balance at end of year
 
12,102

 
12,202

 
12,149

Preferred Shares
 
 
 
 
 
 
Balance at beginning of year
 
2,255

 
1,813

 
1,224

Shares issued under public offering, net of issue costs (Note 20)
 
244

 
442

 
589

Balance at end of year
 
2,499

 
2,255

 
1,813

Additional Paid-In Capital
 
 
 
 
 
 
Balance at beginning of year
 
370

 
401

 
379

Issuance of stock options, net of exercises
 
8

 
3

 
(2
)
Dilution impact from TC PipeLines, LP units issued
 
6

 
9

 
29

Redemption of subsidiary's preferred shares
 

 
(6
)
 
(5
)
Impact of common shares repurchased (Note 19)
 
(164
)
 

 

Impact of asset drop downs to TC PipeLines, LP (Note 25)
 
(213
)
 
(37
)
 

Balance at end of year
 
7

 
370

 
401

Retained Earnings
 
 
 
 
 
 
Balance at beginning of year
 
5,478

 
5,096

 
4,687

Net (loss)/income attributable to controlling interests
 
(1,146
)
 
1,840

 
1,786

Common share dividends
 
(1,471
)
 
(1,360
)
 
(1,301
)
Preferred share dividends
 
(92
)
 
(98
)
 
(76
)
Balance at end of year
 
2,769

 
5,478

 
5,096

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
Balance at beginning of year
 
(1,235
)
 
(934
)
 
(1,448
)
Other comprehensive income/(loss) (Note 21)
 
296

 
(301
)
 
514

Balance at end of year
 
(939
)
 
(1,235
)
 
(934
)
Equity Attributable to Controlling Interests
 
16,438

 
19,070

 
18,525

Equity Attributable to Non-Controlling Interests
 
 
 
 
 
 
Balance at beginning of year
 
1,583

 
1,611

 
1,425

Net (loss)/income attributable to non-controlling interests
 
 
 
 
 
 
TC PipeLines, LP
 
(13
)
 
136

 
93

Portland Natural Gas Transmission System
 
19

 
15

 
12

Preferred share dividends of TCPL
 

 
2

 
20

Other comprehensive income attributable to non-controlling interests
 
306

 
130

 
66

Issuance of TC PipeLines, LP units
 
 
 
 
 
 
Proceeds, net of issue costs
 
55

 
79

 
384

Decrease in TransCanada's ownership of TC PipeLines, LP
 
(11
)
 
(14
)
 
(47
)
Distributions declared to non-controlling interests
 
(222
)
 
(182
)
 
(166
)
Redemption of subsidiary's preferred shares
 

 
(194
)
 
(195
)
Other
 

 

 
19

Balance at end of year
 
1,717

 
1,583

 
1,611

Total Equity
 
18,155

 
20,653

 
20,136

The accompanying Notes to the consolidated financial statements are an integral part of these statements.

 
 
 
126 TransCanada Consolidated financial statements 2015
 
 



Notes to consolidated financial statements
1.  DESCRIPTION OF TRANSCANADA'S BUSINESS
TransCanada Corporation (TransCanada or the Company) is a leading North American energy infrastructure company which operates in three business segments, Natural Gas Pipelines, Liquids Pipelines and Energy, each of which offers different products and services.
Natural Gas Pipelines
The Natural Gas Pipelines segment consists of the Company's investments in 67,300 km (41,900 miles) of regulated natural gas pipelines and 250 Bcf of regulated natural gas storage facilities. These assets are located in Canada, the United States (U.S.) and Mexico.
Liquids Pipelines
The Liquids Pipelines segment consists of 4,247 km (2,639 miles) of wholly-owned and operated crude oil pipeline systems which connect Alberta and U.S. crude oil supplies to U.S. refining markets in Illinois, Oklahoma and Texas.
Energy
The Energy segment primarily consists of the Company's investments in 19 electrical power generation plants and 2 non-regulated natural gas storage facilities. These include Canadian plants in Alberta, Ontario, Québec and New Brunswick and U.S. plants in New York, New England and Arizona.
2.  ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles (GAAP). Amounts are stated in Canadian dollars unless otherwise indicated.
Basis of Presentation
The consolidated financial statements include the accounts of TransCanada and its subsidiaries. The Company consolidates its interest in entities over which it is able to exercise control. To the extent there are interests owned by other parties, these interests are included in Non-controlling interests. TransCanada uses the equity method of accounting for joint ventures in which the Company is able to exercise joint control and for investments in which the Company is able to exercise significant influence. TransCanada records its proportionate share of undivided interests in certain assets. Certain prior year amounts have been reclassified to conform to current year presentation.
Use of Estimates and Judgments
In preparing these financial statements, TransCanada is required to make estimates and assumptions that affect both the amount and timing of recording assets, liabilities, revenues and expenses since the determination of these items may be dependent on future events. The Company uses the most current information available and exercises careful judgment in making these estimates and assumptions. Significant estimates and judgments used in the preparation of the consolidated financial statements include, but are not limited to:
fair value and depreciation rates of plant, property and equipment (Note 7);
carrying value of regulatory assets and liabilities (Note 9);
fair value of goodwill (Note 10);
amortization rates and fair value of intangible assets (Note 11);
carrying value of asset retirement obligations (Note 14);
provisions for income taxes (Note 15);
assumptions used to measure retirement and other post-retirement obligations (Note 22);
fair value of financial instruments (Note 23); and
provision for commitments, contingencies and guarantees (Note 26).
Actual results could differ from those estimates.

 
 
 
 
 
TransCanada Consolidated financial statements 2015 127



Regulation
In Canada, regulated natural gas pipelines and liquids pipelines are subject to the authority of the National Energy Board (NEB). In the U.S., natural gas pipelines, liquids pipelines and regulated natural gas storage assets are subject to the authority of the Federal Energy Regulatory Commission (FERC). In Mexico, natural gas pipelines are subject to the authority of the Energy Regulatory Commission (CRE). The Company's Canadian, U.S. and Mexican natural gas transmission operations are regulated with respect to construction, operations and the determination of tolls. Rate-regulated accounting (RRA) standards may impact the timing of the recognition of certain revenues and expenses in TransCanada's rate-regulated businesses which may differ from that otherwise expected in non-rate-regulated businesses to appropriately reflect the economic impact of the regulators' decisions regarding revenues and tolls. TransCanada's businesses that apply RRA currently include Canadian, U.S. and Mexican natural gas pipelines, regulated U.S. natural gas storage and certain of its liquids pipelines projects. RRA is not applicable to the Keystone Pipeline System as the regulators' decisions regarding operations and tolls on that system generally do not have an impact on timing of recognition of revenues and expenses.
Revenue Recognition
Natural Gas Pipelines and Liquids Pipelines
Revenues from the Company's natural gas and liquids pipelines, with the exception of Canadian natural gas pipelines which are subject to RRA, are generated from contractual arrangements for committed capacity and from the transportation of natural gas or crude oil. Revenues earned from firm contracted capacity arrangements are recognized ratably over the contract period regardless of the amount of natural gas or crude oil that is transported. Transportation revenues for interruptible or volumetric-based services are recognized when physical deliveries of natural gas or crude oil are made.
Revenues from Canadian natural gas pipelines subject to RRA are recognized in accordance with decisions made by the NEB. The Company's Canadian natural gas pipeline rates are based on revenue requirements designed to recover the costs of providing natural gas transportation services, which include a return of and return on capital, as approved by the NEB. The Company's Canadian natural gas pipelines are not subject to risks related to variances in revenues and most costs. These variances are generally subject to deferral treatment and are recovered or refunded in future rates. The Company's Canadian natural gas pipelines are at times subject to incentive mechanisms, as negotiated with shippers and approved by the NEB. These mechanisms can result in the Company recognizing more or less revenue than required to recover the costs that are subject to incentives. Revenues are recognized on firm contracted capacity ratably over the contract period. Revenues from interruptible or volumetric-based services are recorded when physical delivery is made. Revenues recognized prior to an NEB decision on rates for that period reflect the NEB's last approved ROE assumptions. Adjustments to revenue are recorded when the NEB decision is received.
The Company's U.S. natural gas pipelines are subject to FERC regulations and, as a result, revenues collected may be subject to refund during a rate proceeding. Allowances for these potential refunds are recognized using management's best estimate based on the facts and circumstances of the proceeding. Any allowances that are recognized during the proceeding process are refunded or retained at the time a regulatory decision becomes final.
Revenues from the Company's regulated natural gas storage services are recognized ratably over the contract period for firm committed capacity regardless of the amount of natural gas that is stored and when gas is injected or withdrawn for interruptible or volumetric-based services. The Company does not take ownership of the gas or oil that it transports or stores for others.
Energy
Power
Revenues from the Company's Energy business are primarily derived from the sale of electricity and from the sale of unutilized natural gas fuel, which are recorded at the time of delivery. Revenues also include capacity payments and ancillary services, as well as gains and losses resulting from the use of commodity derivative contracts. The accounting for derivative contracts is described in the Derivative Instruments and Hedging Activities section of this note.
Natural Gas Storage
Revenues earned from providing non-regulated natural gas storage services are recognized in accordance with the terms of the natural gas storage contracts, which is generally over the term of the contract. Revenues earned on the sale of proprietary natural gas are recorded in the month of delivery. Derivative contracts for the purchase or sale of natural gas are recorded at fair value with changes in fair value recorded in Revenues.

 
 
 
128 TransCanada Consolidated financial statements 2015
 
 



Cash and Cash Equivalents
The Company's Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair value.
Inventories
Inventories primarily consist of materials and supplies, including spare parts and fuel, and natural gas inventory in storage, and are carried at the lower of weighted average cost or market.
Plant, Property and Equipment
Natural Gas Pipelines
Plant, property and equipment for natural gas pipelines are carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Pipeline and compression equipment are depreciated at annual rates ranging from one per cent to six per cent, and metering and other plant equipment are depreciated at various rates, reflecting their estimated useful lives. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. The cost of regulated natural gas pipelines includes an allowance for funds used during construction (AFUDC) consisting of a debt component and an equity component based on the rate of return on rate base approved by regulators. AFUDC is reflected as an increase in the cost of the assets in plant, property and equipment and the equity component of AFUDC is a non-cash expenditure with a corresponding credit recognized in Interest income and other expense in the Consolidated statement of income. Interest is capitalized during construction of non-regulated natural gas pipelines.
When regulated natural gas pipelines retire plant, property and equipment from service, the original book cost is removed from the gross plant amount and recorded as a reduction to accumulated depreciation. Costs incurred to remove a plant from service, net of any salvage proceeds, are also recorded in accumulated depreciation.
Liquids Pipelines
Plant, property and equipment for liquids pipelines are carried at cost. Depreciation is calculated on a straight-line basis once the assets are ready for their intended use. Pipeline and pumping equipment are depreciated at annual rates ranging from two per cent to 2.5 per cent, and other plant and equipment are depreciated at various rates. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. The cost of these assets includes interest capitalized during construction for non-regulated liquids pipelines and AFUDC for regulated pipelines. When liquids pipelines retire plant, property and equipment from service, the original book cost and related accumulated depreciation and amortization are derecognized and any gain or loss is recorded in earnings.
Energy
Power generation and natural gas storage plant, equipment and structures are recorded at cost and, once the assets are ready for their intended use, depreciated by major component on a straight-line basis over their estimated service lives at average annual rates ranging from two per cent to 20 per cent. Other equipment is depreciated at various rates. The cost of major overhauls of equipment is capitalized and depreciated over the estimated service lives of the overhauls. Interest is capitalized on facilities under construction. When these assets are retired from plant, property and equipment, the original book cost and related accumulated depreciation and amortization are derecognized and any gain or loss is recorded in earnings.
Corporate
Corporate Plant, property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives at average annual rates ranging from three per cent to 20 per cent.
Capitalized Project Costs
The Company capitalizes project costs once advancement to a construction stage is probable or costs are otherwise likely to be recoverable. The Company also capitalizes interest for non-regulated projects in development and AFUDC for regulated projects. Capital projects in development are included in Intangible and other assets. These represent larger projects that generally require regulatory or other approvals before physical construction can begin. Once approvals are received, projects are moved to Plant, property and equipment under construction. When the asset is ready for its intended use and available for operations, capitalized project costs are depreciated in accordance with the Company's depreciation policies.
Project costs related to acquisitions are capitalized once the acquisition is probable.

 
 
 
 
 
TransCanada Consolidated financial statements 2015 129



Assets Held For Sale
The Company classifies assets as held for sale when management approves and commits to a formal plan to actively market a disposal group and expects the sale to close within the next twelve months. Upon classifying an asset as held for sale, the asset is recorded at the lower of its carrying amount or its estimated fair value, reduced for selling costs, and any losses are recognized in income. Depreciation expense is no longer recorded for any assets that are classified as held for sale.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as Plant, property and equipment and Intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows or the estimated price to sell is less than the carrying value of an asset, an impairment loss is recognized for the excess of the carrying value over the fair value of the asset.
Acquisitions and Goodwill
The Company accounts for business acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are primarily measured at their estimated fair value at the date of acquisition. Goodwill is not amortized and is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. The annual review for goodwill impairment is performed at the reporting unit level which is one level below the Company's operating segments. The Company initially assesses qualitative factors to determine whether events or changes in circumstances indicate that goodwill might be impaired. If TransCanada concludes that it is not more likely than not that the fair value of the reporting unit is greater than its carrying value, the first step of the two-step impairment test is performed by comparing the fair value of the reporting unit to its carrying value, which includes goodwill. If the fair value is less than carrying value, an impairment is indicated and a second step is performed to measure the amount of the impairment. In the second step, the implied fair value of goodwill is calculated by deducting the recognized amounts of all tangible and intangible net assets of the reporting unit from the fair value determined in the initial assessment. If the carrying value of goodwill exceeds the calculated implied fair value of goodwill, an impairment charge is recorded in an amount equal to the difference.
Power Purchase Arrangements
A power purchase agreement (PPA) is a long-term contract for the purchase or sale of power on a predetermined basis. Substantially all PPAs under which TransCanada buys power are accounted for as operating leases. Initial payments for these PPAs were recognized in Intangible and other assets and amortized on a straight-line basis over the term of the contracts, which expire in 2017 and 2020. A portion of these PPAs has been subleased to third parties under terms and conditions similar to the PPAs. The subleases are accounted for as operating leases and TransCanada records the margin earned from the subleases as a component of Revenues.
Restricted Investments
The Company has certain investments that are restricted as to their withdrawal and use. These restricted investments are classified as available for sale and are recorded at fair value on the Consolidated balance sheet.
As a result of the NEB’s Land Matters Consultation Initiative (LMCI), TransCanada is required to collect funds to cover estimated future pipeline abandonment costs for all NEB regulated Canadian pipelines. Collected funds are placed in trusts that hold and invest the funds and are accounted for as Restricted investments. LMCI restricted investments may only be used to abandon the NEB regulated pipeline facilities; therefore, a corresponding regulatory liability is recorded on the Consolidated balance sheet. The Company also has other restricted investments that have been set aside to fund insurance claim losses to be paid by the Company's wholly-owned captive insurance subsidiary.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred income tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates at the balance sheet date that are anticipated to apply to taxable income in the years in which temporary differences are expected to be reversed or settled. Changes to these balances are recognized in income in the period during which they occur except for changes in balances related to the Canadian Mainline, NGTL System and Foothills, which are deferred until they are refunded or recovered in tolls, as permitted by the NEB.

 
 
 
130 TransCanada Consolidated financial statements 2015
 
 



Canadian income taxes are not provided on the unremitted earnings of foreign investments that the Company does not intend to repatriate in the foreseeable future.
Asset Retirement Obligations
The Company recognizes the fair value of a liability for asset retirement obligations (ARO) in the period in which it is incurred, when a legal obligation exists and a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset and the liability is accreted through charges to operating expenses.
The Company has recorded ARO related to the non-regulated natural gas storage operations and certain power generation facilities. The scope and timing of asset retirements related to natural gas pipelines, liquids pipelines and hydroelectric power plants is indeterminable. As a result, the Company has not recorded an amount for ARO related to these assets, with the exception of certain abandoned facilities.
Environmental Liabilities
The Company records liabilities on an undiscounted basis for environmental remediation efforts that are likely to occur and where the cost can be reasonably estimated. The estimates, including associated legal costs, are based on available information using existing technology and enacted laws and regulations. The estimates are subject to revision in future periods based on actual costs incurred or new circumstances. Amounts expected to be recovered from other parties, including insurers, are recorded as an asset separate from the associated liability.
Emission allowances or credits purchased for compliance are recorded on the Consolidated balance sheet at historical cost and expensed when they are utilized. Compliance costs are expensed when incurred. Allowances granted to or internally generated by TransCanada are not attributed a value for accounting purposes. When required, TransCanada accrues emission liabilities on the Consolidated balance sheet upon the generation or sale of power using the best estimate of the amount required to settle the obligation. Allowances and credits not used for compliance are sold and any gain or loss is recorded in Revenues.
Stock Options and Other Compensation Programs
TransCanada's Stock Option Plan permits options for the purchase of common shares to be awarded to certain employees, including officers. Stock options granted are recorded using the fair value method. Under this method, compensation expense is measured at the grant date based on the fair value as calculated using a binomial model and is recognized on a straight-line basis over the vesting period, with an offset to Additional paid-in capital. Upon exercise of stock options, amounts originally recorded against Additional paid-in capital are reclassified to Common shares.
The Company has medium-term incentive plans, under which payments are made to eligible employees. The expense related to these incentive plans is accounted for on an accrual basis. Under these plans, benefits vest when certain conditions are met, including the employees' continued employment during a specified period and achievement of specified corporate performance targets.
Employee Post-Retirement Benefits
The Company sponsors defined benefit pension plans (DB Plans), defined contribution plans (DC Plans), a savings plan and other post-retirement benefit plans. Contributions made by the Company to the DC Plans and savings plan are expensed in the period in which contributions are made. The cost of the DB Plans and other post-retirement benefits received by employees is actuarially determined using the projected benefit method pro-rated based on service and management's best estimate of expected plan investment performance, salary escalation, retirement age of employees and expected health care costs.
The DB Plans' assets are measured at fair value at December 31 of each year. The expected return on the DB Plans' assets is determined using market-related values based on a five-year moving average value for all of the DB Plans' assets. Past service costs are amortized over the expected average remaining service life of the employees. Adjustments arising from plan amendments are amortized on a straight-line basis over the average remaining service life of employees active at the date of amendment. The Company recognizes the overfunded or underfunded status of its DB Plans as an asset or liability, respectively, on its Consolidated balance sheet and recognizes changes in that funded status through Other comprehensive income/(loss) (OCI) in the year in which the change occurs. The excess of net actuarial gains or losses over 10 per cent of the greater of the benefit obligation and the market-related value of the DB Plans' assets, if any, is amortized out of Accumulated other comprehensive income/(loss) (AOCI) over the average remaining service life of the active employees. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement.

 
 
 
 
 
TransCanada Consolidated financial statements 2015 131



For certain regulated operations, post-retirement benefit amounts are recoverable through tolls as benefits are funded. The Company records any unrecognized gains or losses or changes in actuarial assumptions related to these post-retirement benefit plans as either regulatory assets or liabilities. The regulatory assets or liabilities are amortized on a straight-line basis over the expected average remaining service life of active employees.
Foreign Currency Transactions and Translation
Foreign currency transactions are those transactions whose terms are denominated in a currency other than the currency of the primary economic environment in which the company or reporting subsidiary operates, referred to as the functional currency. Transactions denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the rate of exchange in effect at the balance sheet date whereas non-monetary assets and liabilities are translated at the historical rate of exchange in effect on the date of the transaction. Exchange gains and losses resulting from translation of monetary assets and liabilities are recorded in income except for exchange gains and losses of the foreign currency debt related to Canadian regulated natural gas pipelines, which are deferred until they are refunded or recovered in tolls, as permitted by the NEB.
Gains and losses arising from translation of foreign operations' functional currencies to the Company's Canadian dollar reporting currency are reflected in OCI. Asset and liability accounts are translated at the period-end exchange rates while revenues, expenses, gains and losses are translated at the exchange rates in effect at the time of the transaction. The Company's U.S. dollar-denominated debt has been designated as a hedge of the net investment in foreign subsidiaries and, as a result, the unrealized foreign exchange gains and losses on the U.S. dollar denominated debt are also reflected in OCI.
Derivative Instruments and Hedging Activities
All derivative instruments are recorded on the Consolidated balance sheet at fair value, unless they qualify for and are designated under a normal purchase and normal sales exemption, or are considered to meet other permitted exemptions.
The Company applies hedge accounting to arrangements that qualify and are designated for hedge accounting treatment, which includes fair value and cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Hedge accounting is discontinued prospectively if the hedging relationship ceases to be effective or the hedging or hedged items cease to exist as a result of maturity, expiry, sale, termination, cancellation or exercise.
In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the hedged risk and these changes are recognized in Net income. Changes in the fair value of the hedged item, to the extent that the hedging relationship is effective, are offset by changes in the fair value of the hedging item, which are also recorded in Net income. Changes in the fair value of foreign exchange and interest rate fair value hedges are recorded in Interest income and other expense and Interest expense, respectively. If hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to Net income over the remaining term of the original hedging relationship.
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative is initially recognized in OCI, while any ineffective portion is recognized in Net income in the same financial statement category as the underlying transaction. When hedge accounting is discontinued, the amounts recognized previously in AOCI are reclassified to Revenues, Interest expense and Interest income and other, as appropriate, during the periods when the variability in cash flows of the hedged item affects Net income or as the original hedged item settles. Gains and losses on derivatives are reclassified immediately to Net income from AOCI when the hedged item is sold or terminated early, or when it becomes probable that the anticipated transaction will not occur.
In hedging the foreign currency exposure of a net investment in a foreign operation, the effective portion of foreign exchange gains and losses on the hedging instruments is recognized in OCI and the ineffective portion is recognized in Net income. The amounts recognized previously in AOCI are reclassified to Net income in the event the Company reduces its net investment in a foreign operation.
In some cases, derivatives do not meet the specific criteria for hedge accounting treatment. In these instances, the changes in fair value are recorded in Net income in the period of change.

 
 
 
132 TransCanada Consolidated financial statements 2015
 
 



The recognition of gains and losses on derivatives for Canadian natural gas regulated pipelines exposures is determined through the regulatory process. Gains and losses arising from changes in the fair value of derivatives accounted for as part of RRA, including those that qualify for hedge accounting treatment, can be recovered through the tolls charged by the Company. As a result, these gains and losses are deferred as Regulatory assets or Regulatory liabilities and are refunded to or collected from the ratepayers, in subsequent years when the derivative settles.
Derivatives embedded in other financial instruments or contracts (host instrument) are recorded as separate derivatives. Embedded derivatives are measured at fair value if their economic characteristics are not clearly and closely related to those of the host instrument, their terms are the same as those of a stand-alone derivative and the total contract is not held for trading or accounted for at fair value. When changes in the fair value of embedded derivatives are measured separately, they are included in Net income.
Long-Term Debt Transaction Costs
The Company records Long-term debt transaction costs as other assets and amortizes these costs using the effective interest method for all costs except those related to the Canadian natural gas regulated pipelines, which continue to be amortized on a straight-line basis in accordance with the provisions of regulatory tolling mechanisms.
Guarantees
Upon issuance, the Company records the fair value of certain guarantees entered into by the Company or partially owned entities for which contingent payments may be made. The fair value of these guarantees is estimated by discounting the cash flows that would be incurred by the Company if letters of credit were used in place of the guarantees as appropriate in the circumstances. Guarantees are recorded as an increase to Equity investments, Plant, property and equipment, or a charge to Net income, and a corresponding liability is recorded in Other long-term liabilities.
3.  ACCOUNTING CHANGES
Changes in Accounting Policies for 2015
Derivatives and Hedging
In August 2015, the Financial Accounting Standards Board (FASB) issued new guidance on the application of the normal purchases and normal sales scope exception to certain electricity contracts within nodal energy markets. The amendments in this update apply to entities that enter into contracts for the purchase or sale of electricity on a forward basis and arrange for transmission through or delivery to a location within a nodal energy market whereby one of the contracting parties incurs charges (or credits) for the transmission of that electricity based in part on locational marginal pricing differences payable to (or receivable from) an independent system operator. This new guidance was effective upon issuance, was applied prospectively and did not have a material impact on the Company's consolidated financial statements.
Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued new guidance which requires that deferred tax assets and liabilities be classified as non-current on the balance sheet. The new guidance is effective January 1, 2017, however, since early application is permitted, the Company elected to retrospectively apply this guidance effective January 1, 2015. Application of this new guidance will simplify the Company’s process in determining deferred tax amounts and simplify their presentation. The application of this amendment resulted in a reclassification of Deferred tax assets previously recorded in Other current assets, and Deferred tax liabilities previously recorded in Accounts payable and other to non-current Deferred income tax assets and liabilities. Prior year amounts have been reclassified to conform to current year presentation.
Reporting discontinued operations
In April 2014, the FASB issued amended guidance on the reporting of discontinued operations. The criteria of what will qualify as a discontinued operation has changed and there are expanded disclosures required. This new guidance was applied prospectively from January 1, 2015 and there was no impact on the Company's consolidated financial statements as a result of applying this new standard.

 
 
 
 
 
TransCanada Consolidated financial statements 2015 133



Future Accounting Changes
Revenue from contracts with customers
In 2014, the FASB issued new guidance on revenue from contracts with customers. This guidance supersedes the current revenue recognition requirements and most industry-specific guidance. This new guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this new standard to January 1, 2018, with early adoption not permitted before January 1, 2017. There are two methods in which the amendment can be applied: (1) retrospectively to each prior reporting period presented, or (2) retrospectively with the cumulative effect recognized at the date of initial application.
The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.
Extraordinary and unusual income statement items
In January 2015, the FASB issued new guidance on extraordinary and unusual income statement items. This update eliminates from GAAP the concept of extraordinary items. This new guidance is effective from January 1, 2016 and will be applied prospectively. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.
Consolidation
In February 2015, the FASB issued new guidance on consolidation analysis. This update requires that entities reevaluate whether they should consolidate certain legal entities and eliminates the presumption that a general partner should consolidate a limited partnership. This new guidance is effective from January 1, 2016 and will be applied retrospectively. The Company is currently evaluating the impact of the adoption of this guidance and has not yet determined the effect on its consolidated financial statements.
Imputation of interest
In April 2015, the FASB issued new guidance on simplifying the accounting for debt issuance costs. The amendments in this update require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with debt discounts or premiums. This new guidance is effective January 1, 2016 and will be applied retrospectively. The application of this amendment will result in a reclassification of debt issuance costs currently recorded in Intangible and other assets to an offset of their respective debt liabilities.
Inventory
In July 2015, the FASB issued new guidance on simplifying the measurement of inventory. The amendments in this update specify
that an entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. This new guidance is effective January 1, 2017 and will be applied prospectively. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.
Business Combinations
In September 2015, the FASB issued guidance which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with a requirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amended guidance requires that the acquirer record, in the same period’s financial statements as the adjustment was determined, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The new guidance is effective January 1, 2016 and will be applied prospectively. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.

 
 
 
134 TransCanada Consolidated financial statements 2015
 
 



4.  SEGMENTED INFORMATION
year ended December 31, 2015
Natural Gas
Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Revenues
5,383

 
1,879

 
4,038

 

 
11,300

Income from equity investments
179

 

 
261

 

 
440

Plant operating costs and other
(1,736
)
 
(478
)
 
(766
)
 
(270
)
 
(3,250
)
Commodity purchases resold

 

 
(2,237
)
 

 
(2,237
)
Property taxes
(349
)
 
(79
)
 
(89
)
 

 
(517
)
Depreciation and amortization
(1,132
)
 
(266
)
 
(336
)
 
(31
)
 
(1,765
)
Asset impairment charges

 
(3,686
)
 
(59
)
 

 
(3,745
)
Loss on assets held for sale
(125
)
 

 

 

 
(125
)
Segmented earnings/(losses)
2,220

 
(2,630
)
 
812

 
(301
)
 
101

Interest expense
 

 
 

 
 

 
 

 
(1,370
)
Interest income and other
 

 
 

 
 

 
 

 
163

Loss before income taxes
 

 
 

 
 

 
 

 
(1,106
)
Income tax expense
 

 
 

 
 

 
 

 
(34
)
Net loss
 

 
 

 
 

 
 

 
(1,140
)
Net income attributable to non-controlling interests
 

 
 

 
 

 
 

 
(6
)
Net loss attributable to controlling interests
 

 
 

 
 

 
 

 
(1,146
)
Preferred share dividends
 

 
 

 
 

 
 

 
(94
)
Net loss attributable to common shares
 

 
 

 
 

 
 

 
(1,240
)
 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
Capital expenditures
2,466

 
1,012

 
376

 
64

 
3,918

Capital projects in development
233

 
278

 

 

 
511

 
2,699

 
1,290

 
376

 
64

 
4,429

 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
TransCanada Consolidated financial statements 2015 135



year ended December 31, 2014
Natural Gas
Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Revenues
4,913

 
1,547

 
3,725

 

 
10,185

Income from equity investments
163

 

 
359

 

 
522

Plant operating costs and other
(1,501
)
 
(426
)
 
(919
)
 
(127
)
 
(2,973
)
Commodity purchases resold

 

 
(1,836
)
 

 
(1,836
)
Property taxes
(334
)
 
(62
)
 
(77
)
 

 
(473
)
Depreciation and amortization
(1,063
)
 
(216
)
 
(309
)
 
(23
)
 
(1,611
)
Gain on assets sold
9

 

 
108

 

 
117

Segmented earnings/(losses)
2,187

 
843

 
1,051

 
(150
)
 
3,931

Interest expense
 

 
 

 
 

 
 

 
(1,198
)
Interest income and other
 

 
 

 
 

 
 

 
91

Income before income taxes
 

 
 

 
 

 
 

 
2,824

Income tax expense
 

 
 

 
 

 
 

 
(831
)
Net income
 

 
 

 
 

 
 

 
1,993

Net income attributable to non-controlling interests
 

 
 

 
 

 
 

 
(153
)
Net income attributable to controlling interests
 

 
 

 
 

 
 

 
1,840

Preferred share dividends
 

 
 

 
 

 
 

 
(97
)
Net income attributable to common shares
 

 
 

 
 

 
 

 
1,743

 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
Capital expenditures
1,768

 
1,469

 
206

 
46

 
3,489

Capital projects in development
368

 
480

 

 

 
848

 
2,136

 
1,949

 
206

 
46

 
4,337



 
 
 
136 TransCanada Consolidated financial statements 2015
 
 



year ended December 31, 2013
Natural Gas
Pipelines

 
Liquids
Pipelines

 
Energy

 
Corporate

 
Total

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
Revenues
4,497

 
1,124

 
3,176

 

 
8,797

Income from equity investments
145

 

 
452

 

 
597

Plant operating costs and other
(1,405
)
 
(328
)
 
(833
)
 
(108
)
 
(2,674
)
Commodity purchases resold

 

 
(1,317
)
 

 
(1,317
)
Property taxes
(329
)
 
(44
)
 
(72
)
 

 
(445
)
Depreciation and amortization
(1,027
)
 
(149
)
 
(293
)
 
(16
)
 
(1,485
)
Segmented earnings/(losses)
1,881

 
603

 
1,113

 
(124
)
 
3,473

Interest expense
 

 
 

 
 

 
 

 
(985
)
Interest income and other
 

 
 

 
 

 
 

 
34

Income before income taxes
 

 
 

 
 

 
 

 
2,522

Income tax expense
 

 
 

 
 

 
 

 
(611
)
Net income
 

 
 

 
 

 
 

 
1,911

Net income attributable to non-controlling interests
 

 
 

 
 

 
 

 
(125
)
Net income attributable to controlling interests
 

 
 

 
 

 
 

 
1,786

Preferred share dividends
 

 
 

 
 

 
 

 
(74
)
Net income attributable to common shares
 

 
 

 
 

 
 

 
1,712

 
 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
 
Capital expenditures
1,776

 
2,286

 
152

 
50

 
4,264

Capital projects in development
245

 
243

 

 

 
488

 
2,021

 
2,529

 
152

 
50

 
4,752


 
 
 
 
 
TransCanada Consolidated financial statements 2015 137



at December 31
2015

 
2014

(millions of Canadian $)
 
 
 
 
Total Assets
 
 
 
Natural Gas Pipelines
31,072

 
27,103

Liquids Pipelines
16,046

 
16,116

Energy
15,558

 
14,197

Corporate
1,807

 
1,109

 
64,483

 
58,525

Geographic Information
year ended December 31
2015

 
2014

 
2013

(millions of Canadian $)
 
 
 
 
 
 
Revenues
 
 
 
 
 
Canada – domestic
3,877

 
3,956

 
4,659

Canada – export
1,292

 
1,314

 
997

United States
5,872

 
4,718

 
3,029

Mexico
259

 
197

 
112

 
11,300

 
10,185

 
8,797

at December 31
2015

 
2014

(millions of Canadian $)
 
 
 
 
Plant, Property and Equipment
 
 
 
Canada
19,287

 
19,191

United States
21,899

 
20,098

Mexico
3,631

 
2,485

 
44,817

 
41,774


 
 
 
138 TransCanada Consolidated financial statements 2015
 
 



5.  OTHER CURRENT ASSETS
at December 31
 
 
2014

(millions of Canadian $)
2015

 
 
 
 
 
Cash held as collateral
585

 
423

Fair value of derivative contracts (Note 23)
442

 
409

Regulatory assets (Note 9)
85

 
16

Assets held for sale (Note 6)
20

 

Other
221

 
171

 
1,353

 
1,019

6.  ASSETS HELD FOR SALE
On December 18, 2015, the Company entered into an agreement to sell TC Offshore LLC (TCO) to a third party and expects the sale to close in early 2016. As a result, at December 31, 2015, the related assets and liabilities were held for sale in the Natural Gas Pipelines segment and were recorded at their fair values less costs to sell. This resulted in a loss of $125 million pre-tax in 2015 which is included in (Loss)/gain on assets held for sale/sold in the Consolidated statement of income. TCO is a FERC regulated entity that operates as part of ANR. TCO does not represent a major line of business or geographical area of the Company, and therefore is not considered to be a discontinued operation as of December 31, 2015.
at December 31
 
2015

(millions of Canadian $)
 
 
 
Assets Held for Sale
 
 
Accounts receivable
 
4

Inventories
 
1

Other current assets
 
1

Plant, property and equipment
 
14

Total Assets Held for Sale (included in Other current assets, Note 5)
 
20

Liabilities Related to Assets Held for Sale
 
 
Accounts payable and other
 
38

Other long-term liabilities
 
1

Total Liabilities Related to Assets Held for Sale (included in Accounts payable and other, Note 13)
 
39


 
 
 
 
 
TransCanada Consolidated financial statements 2015 139



7.  PLANT, PROPERTY AND EQUIPMENT
 
2015
 
2014
at December 31
Cost

 
Accumulated
Depreciation

 
Net
Book
Value

 
Cost

 
Accumulated
Depreciation

 
Net
Book
Value

(millions of Canadian $)
 
 
 
 
 
 
 
 
 
 
 
 
Natural Gas Pipelines
 
 
 
 
 
 
 
 
 
 
 
Canadian Mainline
 
 
 
 
 
 
 
 
 
 
 
Pipeline
9,164

 
5,966

 
3,198

 
9,045

 
5,712

 
3,333

Compression
3,433

 
2,220

 
1,213

 
3,423

 
2,100

 
1,323

Metering and other
499

 
192

 
307

 
458

 
180

 
278

 
13,096

 
8,378

 
4,718

 
12,926

 
7,992

 
4,934

Under construction
257

 

 
257

 
135

 

 
135

 
13,353

 
8,378

 
4,975

 
13,061

 
7,992

 
5,069

NGTL System
 
 
 
 
 
 
 
 
 
 
 
Pipeline
8,456

 
3,820

 
4,636

 
8,185

 
3,619

 
4,566

Compression
2,188

 
1,404

 
784

 
2,055

 
1,318

 
737

Metering and other
1,096

 
489

 
607

 
1,032

 
446

 
586

 
11,740

 
5,713

 
6,027

 
11,272

 
5,383

 
5,889

Under construction
969

 

 
969

 
413

 

 
413

 
12,709

 
5,713

 
6,996

 
11,685

 
5,383

 
6,302

ANR1
 
 
 
 
 
 
 
 
 
 
 
Pipeline
1,449

 
350

 
1,099

 
1,217

 
227

 
990

Compression
1,101

 
187

 
914

 
780

 
140

 
640

Metering and other
977

 
252

 
725

 
737

 
231

 
506

 
3,527

 
789

 
2,738

 
2,734

 
598

 
2,136

Under construction
304

 

 
304

 
127

 

 
127

 
3,831

 
789

 
3,042

 
2,861

 
598

 
2,263

Mexico
 
 
 
 
 
 
 
 
 
 
 
Pipeline
1,296

 
162

 
1,134

 
1,053

 
104

 
949

Compression
183

 
14

 
169

 
151

 
6

 
145

Metering and other
388

 
27

 
361

 
314

 
20

 
294

 
1,867

 
203

 
1,664

 
1,518

 
130

 
1,388

Under construction
1,959

 

 
1,959

 
1,098

 

 
1,098

 
3,826

 
203

 
3,623

 
2,616

 
130

 
2,486

Other Natural Gas Pipelines
 
 
 
 
 
 
 
 
 
 
 
GTN
2,278

 
765

 
1,513

 
1,842

 
588

 
1,254

Great Lakes
2,157

 
1,155

 
1,002

 
1,807

 
939

 
868

Foothills
1,606

 
1,162

 
444

 
1,671

 
1,180

 
491

Other2
2,223

 
572

 
1,651

 
1,800

 
363

 
1,437

 
8,264

 
3,654

 
4,610

 
7,120

 
3,070

 
4,050

Under construction
71

 

 
71

 
34

 

 
34

 
8,335

 
3,654

 
4,681

 
7,154

 
3,070

 
4,084

 
42,054

 
18,737

 
23,317

 
37,377

 
17,173

 
20,204

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
140 TransCanada Consolidated financial statements 2015
 
 



 
 
 
 
 
 
 
 
 
 
 
 
Liquids Pipelines
 
 
 
 
 
 
 
 
 
 
 
Keystone
 
 
 
 
 
 
 
 
 
 
 
Pipeline
9,288

 
718

 
8,570

 
7,931

 
463

 
7,468

Pumping equipment
1,092

 
108

 
984

 
964

 
80

 
884

Tanks and other
3,034

 
228

 
2,806

 
2,282

 
144

 
2,138

 
13,414

 
1,054

 
12,360

 
11,177

 
687

 
10,490

Under construction
1,826

 

 
1,826

 
4,438

 

 
4,438

 
15,240

 
1,054

 
14,186

 
15,615

 
687

 
14,928

Energy
 
 
 
 
 
 
 
 
 
 
 
Natural Gas – Ravenswood
2,607

 
654

 
1,953

 
2,140

 
476

 
1,664

Natural Gas – Other3,4
3,361

 
1,164

 
2,197

 
3,214

 
971

 
2,243

Hydro, Wind and Solar5
2,417

 
476

 
1,941

 
2,194

 
359

 
1,835