EX-13.2 3 tcpl-09302017xfinstmts.htm THIRD QUARTER FINANCIAL STATEMENTS Exhibit
EXHIBIT 13.2

Condensed consolidated statement of income
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2017

 
2016

 
2017

 
2016

 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
Canadian Natural Gas Pipelines
 
921

 
951

 
2,725

 
2,677

U.S. Natural Gas Pipelines
 
811

 
812

 
2,684

 
1,585

Mexico Natural Gas Pipelines
 
139

 
121

 
432

 
249

Liquids Pipelines
 
437

 
440

 
1,410

 
1,292

Energy
 
934

 
1,308

 
2,599

 
3,083

 
 
3,242

 
3,632

 
9,850

 
8,886

Income from Equity Investments
 
156

 
154

 
527

 
355

Operating and Other Expenses
 
 

 
 

 
 

 
 

Plant operating costs and other
 
976

 
1,177

 
2,980

 
2,646

Commodity purchases resold
 
621

 
783

 
1,711

 
1,628

Property taxes
 
127

 
136

 
442

 
405

Depreciation and amortization
 
506

 
527

 
1,539

 
1,425

Goodwill and other asset impairment charges
 

 
1,085

 

 
1,296

 
 
2,230

 
3,708

 
6,672

 
7,400

(Loss)/Gain on Sale of Assets
 
(9
)
 

 
489

 
(4
)
Financial Charges
 
 

 
 

 
 

 
 

Interest expense
 
522

 
538

 
1,578

 
1,369

Allowance for funds used during construction
 
(145
)
 
(110
)
 
(367
)
 
(322
)
Interest income and other
 
(83
)
 
(18
)
 
(192
)
 
(128
)
 
 
294

 
410

 
1,019

 
919

Income/(Loss) before Income Taxes
 
865

 
(332
)
 
3,175

 
918

Income Tax Expense/(Recovery)
 
 

 
 

 
 

 
 

Current
 
7

 
15

 
129

 
104

Deferred
 
178

 
(281
)
 
640

 
(25
)
 
 
185

 
(266
)
 
769

 
79

Net Income/(Loss)
 
680

 
(66
)
 
2,406

 
839

Net income attributable to non-controlling interests
 
44

 
52

 
189

 
184

Net Income/(Loss)Attributable to Controlling Interests and to Common Shares
 
636

 
(118
)
 
2,217

 
655

 
See accompanying notes to the condensed consolidated financial statements.



TRANSCANADA PIPELINES LIMITED [51
THIRD QUARTER 2017


Condensed consolidated statement of comprehensive income
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2017

 
2016

 
2017

 
2016

 
 
 
 
 
 
 
 
 
Net Income/(Loss)
 
680

 
(66
)
 
2,406

 
839

Other Comprehensive (Loss)/Income, Net of Income Taxes
 
 

 
 

 
 

 
 

Foreign currency translation (losses)/gains on net investment in foreign operations
 
(370
)
 
55

 
(721
)
 
(152
)
Reclassification of foreign currency translation gains on net investment in foreign operations
 

 

 
(77
)
 

Change in fair value of net investment hedges
 
(1
)
 
(1
)
 
(3
)
 
(9
)
Change in fair value of cash flow hedges
 
1

 
5

 
4

 
21

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

 

 
(1
)
 
40

Unrealized actuarial gains and losses on pension and other post-retirement benefit plans
 
2

 

 
2

 

Reclassification of actuarial gains and losses on pension and other post-retirement benefit plans
 
4

 
4

 
11

 
12

Other comprehensive income on equity investments
 
3

 
4

 
6

 
11

Other comprehensive (loss)/income (Note 10)
 
(361
)
 
67

 
(779
)
 
(77
)
Comprehensive Income
 
319

 
1

 
1,627

 
762

Comprehensive (loss)/income attributable to non-controlling interests
 
(25
)
 
76

 
31

 
104

Comprehensive Income/(Loss) Attributable to Controlling Interests and to Common Shares
 
344

 
(75
)
 
1,596

 
658

See accompanying notes to the condensed consolidated financial statements.




TRANSCANADA PIPELINES LIMITED [52
THIRD QUARTER 2017


Condensed consolidated statement of cash flows
 
 
three months ended
September 30
 
nine months ended
September 30
(unaudited - millions of Canadian $)
 
2017

 
2016

 
2017

 
2016

 
 
 
 
 
 
 
 
 
Cash Generated from Operations
 
 
 
 
 
 
 
 
Net income/(loss)
 
680

 
(66
)
 
2,406

 
839

Depreciation and amortization
 
506

 
527

 
1,539

 
1,425

Goodwill and other asset impairment charges
 

 
1,085

 

 
1,296

Deferred income taxes
 
178

 
(281
)
 
640

 
(25
)
Income from equity investments
 
(156
)
 
(154
)
 
(527
)
 
(355
)
Distributions received from operating activities of equity investments
 
296

 
185

 
743

 
625

Employee post-retirement benefits funding, net of expense
 
(73
)
 
4

 
(64
)
 
(5
)
Loss/(gain) on sale of assets
 
9

 

 
(489
)
 
4

Equity allowance for funds used during construction
 
(107
)
 
(71
)
 
(249
)
 
(195
)
Unrealized (gains)/losses on financial instruments
 
(77
)
 
82

 
14

 
(71
)
Other
 
(5
)
 
1

 
(1
)
 
24

(Increase)/decrease in operating working capital
 
(83
)
 
(7
)
 
(223
)
 
28

Net cash provided by operations
 
1,168

 
1,305

 
3,789

 
3,590

Investing Activities
 
 

 
 

 
 

 
 

Capital expenditures
 
(2,031
)
 
(1,444
)
 
(5,383
)
 
(3,262
)
Capital projects in development
 
(37
)
 
(62
)
 
(135
)
 
(219
)
Contributions to equity investments
 
(475
)
 
(286
)
 
(1,140
)
 
(570
)
Restricted cash
 

 
12,987

 

 

Acquisitions, net of cash acquired
 

 
(12,609
)
 

 
(13,608
)
Proceeds from sales of assets, net of transaction costs
 

 

 
4,147

 
6

Other distributions from equity investments
 

 

 
362

 
725

Deferred amounts and other
 
164

 
(12
)
 
(87
)
 
20

Net cash used in investing activities
 
(2,379
)
 
(1,426
)
 
(2,236
)
 
(16,908
)
Financing Activities
 
 

 
 

 
 

 
 

Notes payable issued/(repaid), net
 
451

 
(423
)
 
1,232

 
(100
)
Long-term debt issued, net of issue costs
 
1,151

 
6

 
1,968

 
12,333

Long-term debt repaid
 
(46
)
 
(53
)
 
(5,515
)
 
(2,343
)
Junior subordinated notes issued, net of issue costs
 
(3
)
 
1,551

 
3,468

 
1,551

Advances (to)/from affiliate, net
 
(15
)
 
(5
)
 
(15
)
 
2,131

Dividends on common shares
 
(544
)
 
(397
)
 
(1,573
)
 
(1,159
)
Distributions paid to non-controlling interests
 
(66
)
 
(77
)
 
(215
)
 
(201
)
Common shares issued
 
190

 

 
591

 
2,471

Partnership units of TC PipeLines, LP issued, net of issue costs
 
43

 
45

 
162

 
151

Common units of Columbia Pipeline Partners LP acquired
 

 

 
(1,205
)
 

Net cash provided by/(used in) financing activities
 
1,161

 
647

 
(1,102
)
 
14,834

Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents
 
(16
)
 
3

 
(35
)
 
(127
)
(Decrease)/Increase in Cash and Cash Equivalents
 
(66
)
 
529

 
416

 
1,389

Cash and Cash Equivalents
 
 

 
 

 
 

 
 

Beginning of period
 
1,449

 
1,673

 
967

 
813

Cash and Cash Equivalents
 
 

 
 

 
 

 
 

End of period
 
1,383

 
2,202

 
1,383

 
2,202

See accompanying notes to the condensed consolidated financial statements.



TRANSCANADA PIPELINES LIMITED [53
THIRD QUARTER 2017


Condensed consolidated balance sheet
 
 
September 30,

 
December 31,

(unaudited - millions of Canadian $)
 
2017

 
2016

ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
1,383

 
967

Accounts receivable
 
2,822

 
2,093

Inventories
 
390

 
368

Assets held for sale
 
431

 
3,717

Other
 
743

 
908

 
 
5,769

 
8,053

Plant, Property and Equipment
net of accumulated depreciation of $23,257 and $22,263, respectively
 
55,842

 
54,475

Equity Investments
 
6,349

 
6,544

Regulatory Assets
 
1,309

 
1,322

Goodwill
 
13,076

 
13,958

Intangible and Other Assets
 
3,150

 
2,947

Restricted Investments
 
810

 
642

 
 
86,305

 
87,941

LIABILITIES
 
 

 
 

Current Liabilities
 
 

 
 

Notes payable
 
1,963

 
774

Accounts payable and other
 
4,086

 
3,876

Dividends payable
 
548

 
491

Due to affiliate
 
2,343

 
2,358

Accrued interest
 
541

 
595

Liabilities related to assets held for sale
 
18

 
86

Current portion of long-term debt
 
4,216

 
1,838

 
 
13,715

 
10,018

Regulatory Liabilities
 
2,512

 
2,121

Other Long-Term Liabilities
 
745

 
1,183

Deferred Income Tax Liabilities
 
8,069

 
7,662

Long-Term Debt
 
30,414

 
38,312

Junior Subordinated Notes
 
7,004

 
3,931

 
 
62,459

 
63,227

Common Units Subject to Rescission or Redemption
 

 
1,179

EQUITY
 
 

 
 

Common shares, no par value
 
21,572

 
20,981

Issued and outstanding:
September 30, 2017 - 868 million shares
 
 

 
 

 
December 31, 2016 - 859 million shares
 
 

 
 

Additional paid-in capital
 

 
211

Retained earnings
 
2,038

 
1,577

Accumulated other comprehensive loss
 
(1,581
)
 
(960
)
Controlling Interests
 
22,029

 
21,809

Non-controlling interests
 
1,817

 
1,726

 
 
23,846

 
23,535

 
 
86,305

 
87,941

 
Commitments, Contingencies and Guarantees (Note 14)
Variable Interest Entities (Note 16)
Subsequent Events (Note 17)
See accompanying notes to the condensed consolidated financial statements.



TRANSCANADA PIPELINES LIMITED [54
THIRD QUARTER 2017


Condensed consolidated statement of equity
 
nine months ended September 30
(unaudited - millions of Canadian $)
2017

 
2016

 
 
 
 
Common Shares
 
 
 
Balance at beginning of period
20,981

 
16,320

Shares issued
591

 
2,471

Balance at end of period
21,572

 
18,791

Additional Paid-In Capital
 

 
 

Balance at beginning of period
211

 
210

Issuance of stock options
9

 
12

Dilution impact from TC PipeLines, LP units issued
18

 
17

Impact of asset drop downs to TC PipeLines, LP
(202
)
 
(38
)
Impact of Columbia Pipeline Partners LP acquisition
(171
)
 

Reclassification of Additional Paid-In Capital deficit to Retained Earnings
135

 

Balance at end of period

 
201

Retained Earnings
 

 
 

Balance at beginning of period
1,577

 
2,989

Net income attributable to controlling interests
2,217

 
655

Common share dividends
(1,633
)
 
(1,246
)
Adjustment related to employee share-based payments (Note 2)
12

 

Reclassification of Additional Paid-In Capital deficit to Retained Earnings
(135
)
 

Balance at end of period
2,038

 
2,398

Accumulated Other Comprehensive Loss
 

 
 

Balance at beginning of period
(960
)
 
(939
)
Other comprehensive loss
(621
)
 
3

Balance at end of period
(1,581
)
 
(936
)
Equity Attributable to Controlling Interests
22,029

 
20,454

Equity Attributable to Non-Controlling Interests
 

 
 

Balance at beginning of period
1,726

 
1,717

Acquisition of non-controlling interests in Columbia Pipelines Partners LP

 
1,051

Net income attributable to non-controlling interests
189

 
184

Other comprehensive loss attributable to non-controlling interests
(158
)
 
(80
)
Issuance of TC PipeLines, LP units
 
 
 
Proceeds, net of issue costs
162

 
151

Decrease in TCPL's ownership of TC PipeLines, LP
(29
)
 
(28
)
Reclassification from/(to) common units of TC PipeLines, LP subject to rescission
106

 
(106
)
Distributions declared to non-controlling interests
(212
)
 
(200
)
Impact of Columbia Pipeline Partners LP acquisition
33

 

Balance at end of period
1,817

 
2,689

Total Equity
23,846

 
23,143

 
See accompanying notes to the condensed consolidated financial statements.



TRANSCANADA PIPELINES LIMITED [55
THIRD QUARTER 2017


Notes to condensed consolidated financial statements
(unaudited)
1. Basis of presentation
These condensed consolidated financial statements of TransCanada PipeLines Limited (TCPL or the Company) have been prepared by management in accordance with U.S. GAAP. The accounting policies applied are consistent with those outlined in TCPL’s annual audited consolidated financial statements for the year ended December 31, 2016, except as described in Note 2, Accounting changes. Capitalized and abbreviated terms that are used but not otherwise defined herein are identified in TCPL’s 2016 Annual Report.
These condensed consolidated financial statements reflect adjustments, all of which are normal recurring adjustments that are, in the opinion of management, necessary to reflect fairly the financial position and results of operations for the respective periods. These condensed consolidated financial statements do not include all disclosures required in the annual financial statements and should be read in conjunction with the 2016 audited consolidated financial statements included in TCPL’s 2016 Annual Report. Certain comparative figures have been reclassified to conform with the current period’s presentation.
Earnings for interim periods may not be indicative of results for the fiscal year in the Company’s natural gas pipelines segments due to the timing of regulatory decisions and seasonal fluctuations in short-term throughput volumes on U.S. pipelines. Earnings for interim periods may also not be indicative of results for the fiscal year in the Company’s Energy segment due to the impact of seasonal weather conditions on customer demand and market pricing in certain of the Company’s investments in electrical power generation plants and non-regulated gas storage facilities.
USE OF ESTIMATES AND JUDGEMENTS
In preparing these financial statements, TCPL 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 judgement in making these estimates and assumptions. In the opinion of management, these condensed consolidated financial statements have been properly prepared within reasonable limits of materiality and within the framework of the Company’s significant accounting policies included in the annual audited consolidated financial statements for the year ended December 31, 2016, except as described in Note 2, Accounting changes.
2. Accounting changes
CHANGES IN ACCOUNTING POLICIES FOR 2017
Inventory
In July 2015, the FASB issued new guidance on simplifying the measurement of inventory. The new guidance specifies that an entity should measure inventory within the scope of this guidance 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 was effective January 1, 2017, was applied prospectively and did not have a material impact on the Company's consolidated balance sheet.



TRANSCANADA PIPELINES LIMITED [56
THIRD QUARTER 2017


Derivatives and hedging
In March 2016, the FASB issued new guidance that clarifies the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The new guidance requires only an assessment of the four-step decision sequence outlined in U.S. GAAP to determine whether the economic characteristics and risks of call or put options are clearly and closely related to the economic characteristics and risks of their debt hosts. This new guidance was effective January 1, 2017, was applied prospectively and has not resulted in any impact on the Company's consolidated financial statements.
Equity method investments
In March 2016, the FASB issued new guidance that simplifies the transition to equity method accounting. The new guidance eliminates the requirement to retroactively apply the equity method of accounting when an increase in ownership interest in an investment qualifies it for equity method accounting. This new guidance was effective January 1, 2017, was applied prospectively and has not resulted in any impact on the Company's consolidated financial statements.
Employee share-based payments
In March 2016, the FASB issued new guidance that simplifies several aspects of the accounting for employee share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The new guidance also permits entities to make an accounting policy election either to continue to estimate the total number of awards for which the requisite service period will not be rendered or to account for forfeitures when they occur. The Company has elected to account for forfeitures when they occur. This new guidance was effective January 1, 2017 and resulted in a cumulative-effect adjustment of $12 million to opening retained earnings and the recognition of a deferred tax asset related to employee share-based payments that were made prior to the adoption of this guidance.
Consolidation
In October 2016, the FASB issued new guidance on consolidation relating to interests held through related parties that are under common control. The new guidance amends the consolidation requirements such that if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. The new guidance was effective January 1, 2017, was applied retrospectively and did not result in any change to the Company's consolidation conclusions.
FUTURE ACCOUNTING CHANGES
Revenue from contracts with customers
In 2014, the FASB issued new guidance on revenue from contracts with customers. The new guidance requires that an entity recognize revenue in accordance with a prescribed model. This model is used to depict the transfer of promised goods or services to customers in an amount that reflects the total consideration to which it expects to be entitled during the term of the contract in exchange for those goods or services. The new guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and the related cash flows. The Company will adopt the new standard on the effective date of January 1, 2018. There are two methods in which the new standard can be adopted: (1) a full retrospective approach with restatement of all prior periods presented, or (2) a modified retrospective approach with a cumulative-effect adjustment as of the date of adoption. The Company will adopt the standard using the modified retrospective approach with the cumulative-effect of the adjustment recognized at the date of adoption, subject to allowable and elected practical expedients.
The Company has identified all existing customer contracts that are within the scope of the new guidance and is on schedule in the process of analyzing individual contracts or groups of contracts by operating segment to identify any significant changes in how revenues are recognized as a result of implementing the new guidance. The Company has completed its analysis of the Liquids Pipelines and Energy operating segments and has not identified any material



TRANSCANADA PIPELINES LIMITED [57
THIRD QUARTER 2017


differences in the amount and timing of revenue recognition. The Company is currently analyzing its Canadian, U.S. and Mexico Natural Gas Pipelines and has not yet concluded on the impact of the new guidance on these operating segments. The Company continues its contract analysis to obtain the information necessary to quantify the cumulative-effect adjustment, if any, on prior period revenues and revenue recognized going forward, and is monitoring additional authoritative or interpretive guidance related to the new standard as it becomes available.
Although consolidated revenues may not be materially impacted by the new guidance, the Company currently anticipates significant changes to disclosures based on the additional requirements prescribed. These new disclosures include information regarding the significant judgments used in evaluating when and how revenue is recognized and information related to contract assets and liabilities. In addition, the new guidance requires that the Company’s revenue recognition policy disclosure includes additional detail regarding the various performance obligations and the nature, amount, timing and estimates of revenue and cash flows generated from contracts with customers. The Company continues to develop and evaluate disclosures required with a particular focus on the scope of contracts subject to disclosure of remaining performance obligations. The Company also continues to address any system and process changes necessary to compile the information to meet the recognition and disclosure requirements of the new guidance.
Financial instruments
In January 2016, the FASB issued new guidance on the accounting for equity investments and financial liabilities. The new guidance will change the income statement effect of equity investments and the recognition of changes in the fair value of financial liabilities when the fair value option is elected. The new guidance also requires the Company to assess valuation allowances for deferred tax assets related to available for sale debt securities in combination with their other deferred tax assets. This new guidance is effective January 1, 2018 and a method of adoption is specified for each component of the guidance. 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.
Leases
In February 2016, the FASB issued new guidance on the accounting for leases. The new guidance amends the definition of a lease requiring the customer to have both (1) the right to obtain substantially all of the economic benefits from the use of the asset and (2) the right to direct the use of the asset in order for an arrangement to qualify as a lease. The new guidance also establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new guidance does not make extensive changes to lessor accounting.
The new guidance is effective on January 1, 2019, with early adoption permitted.  A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is continuing to identify and analyze existing lease agreements to determine the effect of adoption of the new guidance on its consolidated financial statements. The Company is also addressing system and process changes necessary to compile the information to meet the recognition and disclosure requirements of the new guidance.
Measurement of credit losses on financial instruments
In June 2016, the FASB issued new guidance that significantly changes how entities measure credit losses for most financial assets and certain other financial instruments that are not measured at fair value through net income. The new guidance amends the impairment model of financial instruments basing it on expected losses rather than incurred losses. These expected credit losses will be recognized as an allowance rather than a direct write down of the amortized cost basis. The new guidance is effective January 1, 2020 and will be applied using a modified retrospective approach. 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.



TRANSCANADA PIPELINES LIMITED [58
THIRD QUARTER 2017


Income taxes
In October 2016, the FASB issued new guidance on the income tax effects of intra-entity transfers of assets other than inventory. The new guidance requires the recognition of deferred and current income taxes for an intra-entity asset transfer when the transfer occurs. The new guidance is effective January 1, 2018 and will be applied using a modified retrospective approach. 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.
Restricted cash
In November 2016, the FASB issued new guidance on restricted cash and cash equivalents on the statement of cash flows. The new guidance requires that the statement of cash flows explain the change during the period in the total cash and cash equivalents balance, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and cash equivalents will be included with Cash and cash equivalents when reconciling the beginning of year and end of year total amounts on the statement of cash flows. This new guidance is effective January 1, 2018 and will be applied retrospectively.
Goodwill impairment
In January 2017, the FASB issued new guidance on simplifying the test for goodwill impairment by eliminating Step 2 of the impairment test, which is the requirement to calculate the implied fair value of goodwill to measure the impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This new guidance is effective January 1, 2020 and will be applied prospectively, however, early adoption is permitted.
Employee post-retirement benefits
In March 2017, the FASB issued new guidance that will require entities to disaggregate the current service cost component from the other components of net benefit cost and present it with other current compensation costs for related employees in the income statement. The new guidance also requires that the other components of net benefit cost be presented elsewhere in the income statement and excluded from income from operations if such a subtotal is presented. In addition, the new guidance makes changes to the components of net benefit cost that are eligible for capitalization. Entities must use a retrospective transition method to adopt the requirement for separate presentation in the income statement of the components of net benefit cost, and a prospective transition method to adopt the change to capitalization of benefit costs. This new guidance is effective January 1, 2018. The Company does not expect a material impact on its consolidated financial statements.
Amortization on purchased callable debt securities
In March 2017, the FASB issued new guidance that shortens the amortization period for the premium on certain purchased callable debt securities by requiring entities to amortize the premium to the earliest call date. This new guidance is effective January 1, 2019 and will be applied using a modified retrospective approach. 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.
Hedge accounting
In August 2017, the FASB issued new guidance on hedge accounting, making more financial and non-financial hedging strategies eligible for hedge accounting. The new guidance also amends the presentation requirements relating to the change in fair value of a derivative and additional disclosure requirements include cumulative basis adjustments for fair value hedges and the effect of hedging on individual statement of income line items. This new guidance is effective January 1, 2019, with early adoption permitted, and will be applied prospectively with a cumulative-effect adjustment to opening retained earnings on adoption. The Company is currently evaluating the impact of the adoption of this guidance, however it does not anticipate a material impact on its consolidated financial statements.



TRANSCANADA PIPELINES LIMITED [59
THIRD QUARTER 2017


3. Segmented information
three months ended September 30, 2017
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
 
 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
Energy

 
Corporate

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
921

 
811

 
139

 
437

 
934

 

 
3,242

Income/(loss) from equity investments
 
4

 
53

 
(11
)
 
4

 
99

 
7

 
156

Plant operating costs and other
 
(318
)
 
(341
)
 
(10
)
 
(145
)
 
(126
)
 
(36
)
 
(976
)
Commodity purchases resold
 

 

 

 

 
(621
)
 

 
(621
)
Property taxes
 
(63
)
 
(41
)
 

 
(22
)
 
(1
)
 

 
(127
)
Depreciation and amortization
 
(228
)
 
(145
)
 
(23
)
 
(71
)
 
(39
)
 

 
(506
)
Loss on sale of assets
 

 

 

 

 
(9
)
 

 
(9
)
Segmented earnings/(loss)
 
316

 
337

 
95

 
203

 
237

 
(29
)
 
1,159

Interest expense
 
(522
)
Allowance for funds used during construction
 
145

Interest income and other
 
83

Income before income taxes
 
865

Income tax expense
 
(185
)
Net income
 
680

Net income attributable to non-controlling interests
 
(44
)
Net income attributable to controlling interests and to common shares
 
636

three months ended September 30, 2016
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
 
 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
Energy

 
Corporate

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
951

 
812

 
121

 
440

 
1,308

 

 
3,632

Income/(loss) from equity investments
 
3

 
65

 
(2
)
 

 
88

 

 
154

Plant operating costs and other
 
(340
)
 
(369
)
 
(8
)
 
(163
)
 
(261
)
 
(36
)
 
(1,177
)
Commodity purchases resold
 

 

 

 

 
(783
)
 

 
(783
)
Property taxes
 
(65
)
 
(38
)
 

 
(21
)
 
(12
)
 

 
(136
)
Depreciation and amortization
 
(220
)
 
(138
)
 
(13
)
 
(73
)
 
(83
)
 

 
(527
)
Asset impairment charges
 

 

 

 

 
(1,085
)
 

 
(1,085
)
Segmented earnings/(losses)
 
329

 
332

 
98

 
183

 
(828
)
 
(36
)
 
78

Interest expense
 
(538
)
Allowance for funds used during construction
 
110

Interest income and other
 
18

Loss before income taxes
 
(332
)
Income tax recovery
 
266

Net loss
 
(66
)
Net income attributable to non-controlling interests
 
(52
)
Net loss attributable to controlling interests and to common shares
 
(118
)



TRANSCANADA PIPELINES LIMITED [60
THIRD QUARTER 2017


nine months ended September 30, 2017
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
 
 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
Energy

 
Corporate

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
2,725

 
2,684

 
432

 
1,410

 
2,599

 

 
9,850

Income/(loss) from equity investments
 
9

 
175

 

 
3

 
341

 
(1
)
 
527

Plant operating costs and other
 
(958
)
 
(973
)
 
(29
)
 
(437
)
 
(482
)
 
(101
)
 
(2,980
)
Commodity purchases resold
 

 

 

 

 
(1,711
)
 

 
(1,711
)
Property taxes
 
(201
)
 
(136
)
 

 
(67
)
 
(38
)
 

 
(442
)
Depreciation and amortization
 
(672
)
 
(451
)
 
(70
)
 
(228
)
 
(118
)
 

 
(1,539
)
Gain on sale of assets

 

 

 

 

 
489

 

 
489

Segmented earnings/(loss)
 
903

 
1,299

 
333

 
681

 
1,080

 
(102
)
 
4,194

Interest expense
 
(1,578
)
Allowance for funds used during construction
 
367

Interest income and other
 
192

Income before income taxes
 
3,175

Income tax expense
 
(769
)
Net income
 
2,406

Net income attributable to non-controlling interests
 
(189
)
Net income attributable to controlling interests and to common shares
 
2,217

nine months ended September 30, 2016
 
Canadian Natural Gas Pipelines

 
U.S. Natural Gas Pipelines

 
Mexico Natural Gas Pipelines

 
Liquids Pipelines

 
 
 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
Energy

 
Corporate

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
2,677

 
1,585

 
249

 
1,292

 
3,083

 

 
8,886

Income/(loss) from equity investments
 
9

 
150

 
(2
)
 
(1
)
 
199

 

 
355

Plant operating costs and other
 
(886
)
 
(597
)
 
(34
)
 
(417
)
 
(625
)
 
(87
)
 
(2,646
)
Commodity purchases resold
 

 

 

 

 
(1,628
)
 

 
(1,628
)
Property taxes
 
(202
)
 
(78
)
 

 
(67
)
 
(58
)
 

 
(405
)
Depreciation and amortization
 
(655
)
 
(269
)
 
(29
)
 
(214
)
 
(258
)
 

 
(1,425
)
Asset impairment charges
 

 

 

 

 
(1,296
)
 

 
(1,296
)
Loss on sale of assets
 

 
(4
)
 

 

 

 

 
(4
)
Segmented earnings/(losses)
 
943

 
787

 
184

 
593

 
(583
)
 
(87
)
 
1,837

Interest expense
 
(1,369
)
Allowance for funds used during construction
 
322

Interest income and other
 
128

Income before income taxes
 
918

Income tax expense
 
(79
)
Net Income
 
839

Net income attributable to non-controlling interests
 
(184
)
Net Income attributable to controlling interests and to common shares
 
655




TRANSCANADA PIPELINES LIMITED [61
THIRD QUARTER 2017


TOTAL ASSETS 
(unaudited - millions of Canadian $)
 
September 30, 2017

 
December 31, 2016

 
 
 
 
 
Canadian Natural Gas Pipelines
 
17,010

 
15,816

U.S. Natural Gas Pipelines
 
34,897

 
34,422

Mexico Natural Gas Pipelines
 
5,470

 
5,013

Liquids Pipelines
 
16,436

 
16,896

Energy
 
8,979

 
13,169

Corporate
 
3,513

 
2,625

 
 
86,305

 
87,941

 
4.  Assets held for sale
Solar Assets
On October 24, 2017, the Company entered into an agreement to sell its Ontario Solar assets to a third party for approximately $540 million. The sale is expected to close by the end of 2017, subject to certain regulatory and other approvals, and will include customary closing adjustments. An estimated gain of $130 million ($100 million after-tax) is expected to be recognized upon closing of the transaction.
At September 30, 2017, the related assets and liabilities were classified as held for sale in the Energy segment as follows:
 
 
 
 
(unaudited - millions of Canadian $)
 
 
 
 
 
 
 
Assets held for sale
 
 
 
Accounts receivable
 
6

 
Inventories
 
1

 
Plant, property and equipment
 
424

 
Total assets held for sale
 
431

 
 
 
 
 
Liabilities related to assets held for sale
 
 
 
Accounts payable and other
 
1

 
Other long-term liabilities
 
17

 
Total liabilities related to assets held for sale
 
18

 
5. Income taxes
The effective tax rates for the nine-month periods ended September 30, 2017 and 2016 were 24 per cent and 9 per cent, respectively. The higher effective tax rate in 2017 was primarily the result of changes in the proportion of income earned between Canadian and foreign jurisdictions and the goodwill impairment charge in 2016.



TRANSCANADA PIPELINES LIMITED [62
THIRD QUARTER 2017


6. Long-term debt
LONG-TERM DEBT ISSUED
The Company issued long-term debt in the nine months ended September 30, 2017 as follows:
(unaudited - millions of Canadian $, unless noted otherwise)
Company
 
Issue date
 
Type
 
Maturity date
 
Amount

 
Interest rate

 
 
 
 
 
 
 
 
 
 
 
TRANSCANADA PIPELINES LIMITED
 
 
 
 
 
 
 
 
 
 
September 2017
 
Medium Term Notes
 
March 2028
 
300

 
3.39
%
 
 
September 2017
 
Medium Term Notes
 
September 2047
 
700

 
4.33
%
TUSCARORA GAS TRANSMISSION COMPANY

 
 
 
 
 
 
 
 
 
 
August 2017
 
Term Loan
 
August 2020
 
US 25

 
Floating

TC PIPELINES, LP
 
 
 
 
 
 
 
 
 
 
May 2017
 
Senior Unsecured Notes
 
May 2027
 
US 500

 
3.90
%
LONG-TERM DEBT RETIRED
The Company retired long-term debt in the nine months ended September 30, 2017 as follows:
(unaudited - millions of Canadian $, unless noted otherwise)
Company
 
Retirement date
 
Type
 
Amount

 
Interest rate

 
 
 
 
 
 
 
 
 
TUSCARORA GAS TRANSMISSION COMPANY

 
 
 
 
 
 
 
 
August 2017
 
Senior Secured Notes
 
US 12

 
3.82
%
TRANSCANADA PIPELINES LIMITED
 
 
 
 
 
 
 
 
June 2017
 
Acquisition Bridge Facility
 
US 1,513

 
Floating

 
 
February 2017
 
Acquisition Bridge Facility
 
US 500

 
Floating

 
 
January 2017
 
Medium Term Notes
 
300

 
5.10
%
TRANSCANADA PIPELINE USA LTD.
 
 
 
 
 
 
 
 
June 2017
 
Acquisition Bridge Facility
 
US 630

 
Floating

 
 
April 2017
 
Acquisition Bridge Facility
 
US 1,070

 
Floating

The acquisition bridge facilities were put into place to finance a portion of the Columbia acquisition. Proceeds from the sale of the U.S. Northeast power assets were used to fully retire the remaining acquisition bridge facilities in second quarter 2017.
In the three and nine months ended September 30, 2017, TCPL capitalized interest related to capital projects of $49 million and $150 million (2016 - $46 million and $133 million).



TRANSCANADA PIPELINES LIMITED [63
THIRD QUARTER 2017


7. Junior subordinated notes issued
(unaudited - millions of Canadian $, unless noted otherwise)
Company
 
Issue date
 
Type
 
Maturity date
 
Amount

 
Interest rate

 
 
 
 
 
 
 
 
 
 
 
TRANSCANADA PIPELINES LIMITED
 
 
 
 
 
 
 
 
 
 
 
 
May 2017
 
Junior Subordinated Notes1,2
 
May 2077
 
1,500

 
4.90
%
 
 
March 2017
 
Junior Subordinated Notes1,2
 
March 2077
 
US 1,500

 
5.55
%
1 
The Junior subordinated notes are subordinated in right of payment to existing and future senior indebtedness or other obligations of TCPL.
2 
The Junior subordinated notes were issued to TransCanada Trust (the Trust), a financing trust subsidiary wholly-owned by TCPL. While the obligations of the Trust are fully and unconditionally guaranteed by TCPL on a subordinated basis, the Trust is not consolidated in TCPL's financial statements because TCPL does not have a variable interest in the Trust and the only substantive assets of the Trust are junior subordinated notes of TCPL.
In May 2017, the Trust issued $1.5 billion of Trust Notes - Series 2017-B (Trust Notes) to third party investors with a fixed interest rate of 4.65 per cent for the first ten years converting to a floating rate thereafter. All of the proceeds of the issuance by the Trust were loaned to TCPL for $1.5 billion of junior subordinated notes of TCPL at an initial fixed rate of 4.90 per cent, including a 0.25 per cent administration charge. The rate will reset commencing May 2027 until May 2047 to the then three month Bankers' Acceptance rate plus 3.33 per cent per annum; from May 2047 until May 2077, the interest rate will reset to the then three month Bankers' Acceptance rate plus 4.08 per cent per annum. The junior subordinated notes are callable at TCPL's option at any time on or after May 18, 2027 at 100 per cent of the principal amount plus accrued and unpaid interest to the date of redemption.
In March 2017, the Trust issued US$1.5 billion of Trust Notes - Series 2017-A (Trust Notes) to third party investors with a fixed interest rate of 5.30 per cent for the first ten years converting to a floating rate thereafter. All of the proceeds of the issuance by the Trust were loaned to TCPL for US$1.5 billion of junior subordinated notes of TCPL at an initial fixed rate of 5.55 per cent, including a 0.25 per cent administration charge. The rate will reset commencing March 2027 until March 2047 to the then three month LIBOR plus 3.458 per cent per annum; from March 2047 until March 2077, the interest rate will reset to the then three month LIBOR plus 4.208 per cent per annum. The junior subordinated notes are callable at TCPL's option at any time on or after March 15, 2027 at 100 per cent of the principal amount plus accrued and unpaid interest to the date of redemption.
Pursuant to the terms of the Trust Notes and related agreements, in certain circumstances (1) TCPL may issue deferral preferred shares to holders of the Trust Notes in lieu of interest; and (2) TransCanada and TCPL would be prohibited from declaring or paying dividends on or redeeming their outstanding preferred shares (or, if none are outstanding, their respective common shares) until all deferral preferred shares are redeemed by TCPL. The Trust Notes may also be automatically exchanged for preferred shares of TCPL upon certain kinds of bankruptcy and insolvency events. All of these preferred shares would rank equally with any other outstanding first preferred shares of TCPL.



TRANSCANADA PIPELINES LIMITED [64
THIRD QUARTER 2017


8. Common Shares
On January 31, 2017, the Company issued 3.0 million common shares to TransCanada for proceeds of $187 million,
on April 28, 2017, the Company issued 3.3 million common shares to TransCanada for proceeds of $214 million and on July 31, 2017, the Company issued 3.0 million common shares to TransCanada for proceeds of $190 million. These share issuances resulted in 868 million shares outstanding at September 30, 2017 (December 31, 2016 - 859 million).
9. Common units subject to rescission or redemption
Columbia Pipeline Partners LP acquisition
On February 17, 2017, the Company acquired all outstanding publicly held common units of Columbia Pipeline Partners LP (CPPL) at a price of US$17.00 and a stub period distribution payment of US$0.10 per common unit for an aggregate transaction value of US$921 million. As this was a transaction between entities under common control, it was recognized in equity.
At December 31, 2016, the entire $1,073 million (US$799 million) of the Company's non-controlling interest in CPPL was recorded as Common units subject to rescission or redemption on the condensed consolidated balance sheet.
Common units of TC PipeLines, LP subject to rescission
In 2017, rescission rights on 1.6 million TC PipeLines, LP common units expired and $106 million (US$82 million) was reclassified to equity. At September 30, 2017, there were no outstanding Common units subject to rescission or redemption on the condensed consolidated balance sheet (December 31, 2016 - $106 million (US$82 million)).



TRANSCANADA PIPELINES LIMITED [65
THIRD QUARTER 2017


10. Other comprehensive (loss)/income and accumulated other comprehensive loss
Components of other comprehensive (loss)/income, including the portion attributable to non-controlling interests and related tax effects, are as follows: 
three months ended September 30, 2017
 
 
 
Income Tax

 
 
(unaudited - millions of Canadian $)
 
Before Tax Amount

 
Recovery/Expense

 
Net of Tax Amount

 
 
 
 
 
 
 
Foreign currency translation losses on net investment in foreign operations
 
(364
)
 
(6
)
 
(370
)
Change in fair value of net investment hedges
 
(1
)
 

 
(1
)
Change in fair value of cash flow hedges
 
1

 

 
1

Unrealized actuarial gains and losses on pension and other post-retirement benefit plans
 
5

 
(3
)
 
2

Reclassification of actuarial gains and losses on pension and other post-retirement benefit plans
 
6

 
(2
)
 
4

Other comprehensive income on equity investments
 
4

 
(1
)
 
3

Other comprehensive loss
 
(349
)
 
(12
)
 
(361
)
three months ended September 30, 2016
 
 
 
Income Tax

 
 
(unaudited - millions of Canadian $)
 
Before Tax Amount

 
Recovery/Expense

 
Net of Tax Amount

 
 
 
 
 
 
 
Foreign currency translation gains on net investment in foreign operations
 
55

 

 
55

Change in fair value of net investment hedges
 
(2
)
 
1

 
(1
)
Change in fair value of cash flow hedges
 
6

 
(1
)
 
5

Reclassification to net income of gains and losses on cash flow hedges
 
1

 
(1
)
 

Reclassification of actuarial gains and losses on pension and other post-retirement benefit plans

 
6

 
(2
)
 
4

Other comprehensive income on equity investments
 
5

 
(1
)
 
4

Other comprehensive income
 
71

 
(4
)
 
67

nine months ended September 30, 2017
 
 
 
Income Tax

 
 
(unaudited - millions of Canadian $)
 
Before Tax Amount

 
Recovery/Expense

 
Net of Tax Amount

 
 
 
 
 
 
 
Foreign currency translation losses on net investment in foreign operations
 
(717
)
 
(4
)
 
(721
)
Reclassification of foreign currency translation gains on net investment on disposal of foreign operations

 
(77
)
 

 
(77
)
Change in fair value of net investment hedges
 
(4
)
 
1

 
(3
)
Change in fair value of cash flow hedges
 
5

 
(1
)
 
4

Reclassification to net income of gains and losses on cash flow hedges
 
(2
)
 
1

 
(1
)
Unrealized actuarial gains and losses on pension and other post-retirement benefit plans
 
5

 
(3
)
 
2

Reclassification of actuarial gains and losses on pension and other post-retirement benefit plans
 
16

 
(5
)
 
11

Other comprehensive income on equity investments
 
8

 
(2
)
 
6

Other comprehensive loss
 
(766
)
 
(13
)
 
(779
)



TRANSCANADA PIPELINES LIMITED [66
THIRD QUARTER 2017


nine months ended September 30, 2016
 
 
 
Income Tax

 
 
(unaudited - millions of Canadian $)
 
Before Tax Amount

 
Recovery/Expense

 
Net of Tax Amount

 
 
 
 
 
 
 
Foreign currency translation losses on net investment in foreign operations
 
(150
)
 
(2
)
 
(152
)
Change in fair value of net investment hedges
 
(12
)
 
3

 
(9
)
Change in fair value of cash flow hedges
 
33

 
(12
)
 
21

Reclassification to net income of gains and losses on cash flow hedges
 
65

 
(25
)
 
40

Reclassification of actuarial gains and losses on pension and other post-retirement benefit plans

 
17

 
(5
)
 
12

Other comprehensive income on equity investments
 
14

 
(3
)
 
11

Other comprehensive loss
 
(33
)
 
(44
)
 
(77
)
The changes in AOCI by component are as follows:
three months ended September 30, 2017
 
Currency

 
 
 
Pension and

 
 
 
 
(unaudited - millions of Canadian $)
 
Translation Adjustments

 
Cash Flow Hedges

 
OPEB Plan Adjustments

 
Equity Investments

 
Total1

 
 
 
 
 
 
 
 
 
 
 
AOCI balance at July 1, 2017
 
(716
)
 
(27
)
 
(201
)
 
(345
)
 
(1,289
)
Other comprehensive (loss)/income before reclassifications2,3
 
(303
)
 
2

 
2

 

 
(299
)
Amounts reclassified from accumulated other comprehensive loss
 

 

 
4

 
3

 
7

Net current period other comprehensive (loss)/income
 
(303
)
 
2

 
6

 
3

 
(292
)
AOCI balance at September 30, 2017
 
(1,019
)
 
(25
)
 
(195
)
 
(342
)
 
(1,581
)
1 
All amounts are net of tax. Amounts in parentheses indicate losses recorded to OCI.
2 
Other comprehensive (loss)/income before reclassifications on currency translation adjustments and cash flow hedges is net of non-controlling interest losses of $68 million and losses of $1 million, respectively.
3 
Other comprehensive (loss)/income before reclassifications on pension and OPEB plan adjustments includes a $27 million reduction on settlements and curtailments.
nine months ended September 30, 2017
 
Currency

 
 
 
Pension and

 
 
 
 
(unaudited - millions of Canadian $)
 
Translation Adjustments

 
Cash Flow Hedges

 
OPEB Plan Adjustments

 
Equity Investments

 
Total1

 
 
 
 
 
 
 
 
 
 
 
AOCI balance at January 1, 2017
 
(376
)
 
(28
)
 
(208
)
 
(348
)
 
(960
)
Other comprehensive (loss)/income before reclassifications2,3
 
(566
)
 
4

 
2

 

 
(560
)
Amounts reclassified from accumulated other comprehensive loss
 
(77
)
 
(1
)
 
11

 
6

 
(61
)
Net current period other comprehensive (loss)/income4
 
(643
)
 
3

 
13


6

 
(621
)
AOCI balance at September 30, 2017
 
(1,019
)
 
(25
)
 
(195
)
 
(342
)
 
(1,581
)
1 
All amounts are net of tax. Amounts in parentheses indicate losses recorded to OCI.
2 
Other comprehensive (loss)/income before reclassifications on currency translation adjustments net of non-controlling interest losses of
$158 million.
3 
Other comprehensive (loss)/income before reclassifications on pension and OPEB plan adjustments includes a $27 million reduction on settlements and curtailments.
4 
Losses related to cash flow hedges reported in AOCI and expected to be reclassified to net income in the next 12 months are estimated to be $10 million ($7 million, net of tax) at September 30, 2017. These estimates assume constant commodity prices, interest rates and foreign exchange rates over time, however, the amounts reclassified will vary based on the actual value of these factors at the date of settlement.



TRANSCANADA PIPELINES LIMITED [67
THIRD QUARTER 2017


Details about reclassifications out of AOCI into the consolidated statement of income are as follows: 
 
 
Amounts reclassified from
accumulated other comprehensive loss
1
 
Affected line item
in the condensed
consolidated statement of income
 
 
three months ended
September 30
 
nine months ended
September 30
 
(unaudited - millions of Canadian $)
 
2017

2016

 
2017

2016

 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
Commodities
 
4

7

 
15

(54
)
 
Revenues (Energy)
Foreign exchange
 

(5