Document:

Exhibit

4.202

 

 

 

 

	

  Media

  Inquiries:

  	

   

  	

  Glenn

  Herchak/Kurt Kadatz

  	

   

  	

  (403)

  920-7877

  
	

  Analyst

  Inquiries:

  	

   

  	

  David

  Moneta/Debbie Persad

  	

   

  	

  (403)

  920-7911

  

NewsRelease

TransCanada Continues to Report Strong Performance

 

Company declares 156th consecutive dividend

 

CALGARY, Alberta —

October 29, 2002 — (TSE: TRP) (NYSE: TRP)

 

Third Quarter 2002 Highlights:

(All financial figures

are in Canadian dollars unless noted otherwise)

 

•                  TransCanada

PipeLines Limited’s net income applicable to common shares from continuing operations

(net earnings) and net income applicable to common shares for the third quarter

2002 were $175 million or $0.37 per share — an increase of 10 per cent over net

earnings of $159 million ($0.33 per share) for the same period in 2001.

 

•                    Year-to-date

2002 net earnings were $567 million or $1.19 per share compared to $520 million

or $1.09 per share for the comparable period in 2001.  The results for the nine months ended September 30, 2002 include

after-tax net earnings of $30 million or $0.06 per share representing the

impact of the National Energy Board’s decision on TransCanada’s Fair Return

Application for the period January 1, 2001 to September 30, 2002 and $7 million

relating to TransCanada’s proportionate share of a favourable ruling for Great

Lakes Gas Transmission Limited Partnership with respect to Minnesota use tax

paid in prior years. Effective September 30, 2002, the company adopted accrual

accounting for energy trading contracts, changing from its previous policy of

mark-to-market accounting for these contracts. This accounting change has been

applied retroactively with restatement of prior periods.

 

 

 

•                    Net

income applicable to common shares for the nine months ended September 30, 2002

was $567 million or $1.19 per share compared to $433 million or $0.90 per share

for the same period in 2001.  The

year-to-date 2001 results included a net loss from discontinued operations of

$87 million or $0.19 per share, related to the Gas Marketing business, the disposition

of which was substantially completed in 2001.

 

 

 

•                    Funds

generated from continuing operations for the third quarter 2002 were $463

million, an increase of $14 million compared to the same period last year.  On a year-to-date basis, funds generated

from continuing operations were $1,395 million compared to $1,263 million in

2001, an increase of 10 per cent.

 

•                    TransCanada

invested $201 million in its core businesses in the third quarter 2002 to

further its growth strategies in pipelines and power.

 

•                    In

September 2002, TransCanada filed an application with the National Energy Board

(NEB) for tolls on its Canadian Mainline natural gas transmission system.  TransCanada requested the tolls be effective

January 1, 2003 upon expiry of currently approved tolls.  TransCanada has also filed a request with

the NEB for a review and variance of its RH-4-2001 Decision on TransCanada’s

Fair Return application.  In the 2003

tolls application, TransCanada requested the NEB approve a fair return for 2003

that reflects its decision on the review and variance application.

 

•                    TransCanada’s Board of Directors

today declared a quarterly dividend of $0.25 per share for the quarter ended

December 31, 2002 on the outstanding common shares.  This is the 156th consecutive quarterly dividend on

TransCanada’s common shares and is payable on January 31, 2003 to shareholders

of record at the close of business on December 31, 2002.  The Board also declared regular dividends on

TransCanada’s preferred shares.

 

•                    For

the nine months ended September 30, 2002:

•                    Deliveries

of natural gas on the Alberta System averaged 11.3 billion cubic feet per day

(Bcf/d) (2001 - 11.1 Bcf/d)

•                    Field

receipts volumes for the Alberta System were 11.3 Bcf/d (2001 - 11.5 Bcf/d)

•                    Canadian

Mainline deliveries averaged 7.1 Bcf/d (2001 - 

6.8 Bcf/d)

•                    Canadian

Mainline deliveries originating at the Alberta border and in Saskatchewan were

6.1 Bcf/d (2001 - 5.8 Bcf/d)

•                    The

BC System delivered an average of 1.0 Bcf/d (2001 — 1.1 Bcf/d)

 

“We are pleased to

report continued solid earnings for the third quarter,” said Hal Kvisle,

TransCanada’s chief executive officer. “Our positive earnings, cash flow and

strong balance sheet are a direct result of our commitment to operational

excellence and our low risk, asset-based approach to conducting business.”

 

In the third quarter 2002,

TransCanada furthered its strategy of growing and optimizing its power assets

by signing an agreement with an affiliate of El Paso Corporation for the

acquisition of 

 

 

 

the 300-megawatt (MW) ManChief

power plant near Brush, Colorado.  

TransCanada expects to complete the approximately US$127 million

transaction (subject to post-closing adjustments) in the fourth quarter 2002.

 

“The

ManChief acquisition will bring the amount of power TransCanada owns, controls

or has under construction to more than 2,550 megawatts,” said Mr. Kvisle.  “The entire capacity of the plant is sold

under long-term tolling contracts and will be immediately accretive to

earnings.”

 

Also in the third

quarter 2002, TransCanada acquired a general partnership interest in Northern

Border Partners, L.P. for $19 million. As a result of this transaction,

TransCanada is entitled to a 17.5 per cent vote on the partnership policy

committee of Northern Border Partners, L.P., which owns 70 per cent of Northern

Border Pipeline Company.

 

 

 

“Our management role in

Northern Border Partners will contribute to TransCanada’s ability to bring

northern natural gas to the growing North American marketplace,” said Mr.

Kvisle. “The Northern Border Pipeline transports gas from the

Montana-Saskatchewan border to markets in the midwestern United States.  In our view, it is a preferred route to move

gas from the North to markets in the future.”

 

He concluded, “Over the past

two years, we have consistently applied a disciplined and steady approach to

the management and growth of our pipeline and power businesses. As a result,

TransCanada continues to improve its strong financial position and deliver

solid results to its shareholders — a significant accomplishment during a

volatile time for the energy industry.

 

“There

are numerous opportunities in the North American marketplace in both pipelines

and power generation.  We are in the

enviable position of having the financial capacity to act when the time is

right,” he said.  “However, as we have

stated before, we will be prudent and continue to approach each opportunity

with a focus on enhancing and maximizing shareholder value while maintaining

our financial integrity.”

 

 

Conference Call

 

TransCanada will hold a

teleconference today at 1:00 p.m. (Mountain) / 3:00 p.m. (Eastern) to discuss

the third quarter 2002 financial results and general developments and issues

concerning the company.  Analysts,

members of the media and other interested parties wanting to participate in the

call should dial 1-800-273-9672 or 416-695-5806 (Toronto area) at least 10

minutes prior to the start of the call. 

No pass code is required.  A live

audio web cast of the teleconference will also be available on TransCanada’s

web site at www.transcanada.com.

 

The conference will begin with

a short address by members of TransCanada’s executive management, followed by a

question and answer period for investment analysts.  A question and answer period for members of the media will

immediately follow.

 

A replay of the teleconference

will be available two hours after the conclusion of the call until midnight,

November 5,

2002 by dialing 1-800-408-3053 or 416-695-5800 (Toronto area) and

entering passcode 1291106.  The web cast

will be archived and available for replay.

 

About TransCanada

 

TransCanada is a leading North

American energy company.  It is focused

on natural gas transmission and power services with 

 

 

 

employees who are expert in

these businesses.  The company’s network

of approximately 38,000 kilometres of pipeline transports the majority of

western Canada’s natural gas production to the fastest growing markets in

Canada and the United States. 

TransCanada owns, controls or is constructing a total of approximately

2,250 megawatts of power — an amount of power that can meet the needs of more

than two million average households. 

The company’s common shares trade under the symbol TRP on the Toronto

and New York stock exchanges.  Visit us

on the internet at www.transcanada.com for more information.

 

 

 

Third Quarter 2002 Financial Highlights

(unaudited)

 

	

  Operating Results

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Revenues

  	

   

  	

  1,285

  	

   

  	

  1,293

  	

   

  	

  3,876

  	

   

  	

  3,996

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net Income Applicable to Common Shares

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  433

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cash Flow

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Funds generated from continuing operations

  	

   

  	

  463

  	

   

  	

  449

  	

   

  	

  1,395

  	

   

  	

  1,263

  	

   

  
	

  Capital expenditures in continuing

  operations

  	

   

  	

  (182

  	

  )

  	

  (90

  	

  )

  	

  (393

  	

  )

  	

  (269

  	

  )

  

 

	

   

  	

   

  	

  Three months

  ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  Common Share Statistics

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net Income Per Share — Basic and Diluted

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.33

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  0.90

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Dividend Per Share

  	

   

  	

  $

  	

  0.25

  	

   

  	

  $

  	

  0.225

  	

   

  	

  $

  	

  0.75

  	

   

  	

  $

  	

  0.675

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Funds Generated Per Share from Continuing

  Operations

  	

   

  	

  $

  	

  0.97

  	

   

  	

  $

  	

  0.94

  	

   

  	

  $

  	

  2.92

  	

   

  	

  $

  	

  2.66

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Common Shares Outstanding

  (millions)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Average for the period

  	

   

  	

  478.9

  	

   

  	

  475.8

  	

   

  	

  478.0

  	

   

  	

  475.5

  	

   

  
	

  End of period

  	

   

  	

  479.1

  	

   

  	

  476.3

  	

   

  	

  479.1

  	

   

  	

  476.3

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  

 

 

 

 

THIRD

QUARTER 2002

Quarterly Report to

Shareholders

Consolidated Results-at-a-Glance

 

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars except per share amounts)

  	

   

  	

  2002

  	

   

  	

  2001*

  	

   

  	

  2002

  	

   

  	

  2001*

  	

   

  
	

  Net Income/(Loss) Applicable to Common

  Shares

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing operations

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  520

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

   

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  433

  	

   

  
	

  Net Income/(Loss) Per Share — Basic and

  Diluted

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing operations

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.33

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  1.09

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (0.19

  	

  )

  
	

   

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.33

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  0.90

  	

   

  

 

*Restated,

see note 2, Accounting Changes, in the Notes to the Consolidated Financial

Statements.

 

Management’s

Discussion and Analysis

 

The

following discussion and analysis should be read in conjunction with the

accompanying unaudited consolidated financial 

 

 

 

statements

of TransCanada PipeLines Limited (TransCanada or the company) and the notes

thereto.

 

Results

of Operations

 

Consolidated

 

TransCanada’s

net income applicable to common shares from continuing operations (net

earnings) for the nine months ended September 30, 2002 was $567 million or

$1.19 per share compared to $520 million or $1.09 per share for the comparable

period in 2001.  The increase of $47

million or $0.10 per share in the first nine months of 2002 compared to the

same period in 2001 is primarily due to strong results from the Transmission

business partially offset by lower earnings from the Power segment.  In June 2002, TransCanada received the

National Energy Board (NEB) decision on its Fair Return application (Fair

Return decision) to determine the cost of capital to be included in the

calculation of 2001 and 2002 final tolls on its Canadian Mainline. The results

for the nine months ended September 30, 2002 include after-tax net earnings of

$30 million 

 

 

 

or

$0.06 per share representing the impact of the Fair Return decision for the

period January 1, 2001 to September 30, 2002 and $7 million relating to

TransCanada’s proportionate share of a favourable ruling in Great Lakes with

respect to Minnesota use tax paid in prior years.

 

Net

income applicable to common shares for the nine months ended September 30, 2002

was $567 million or $1.19 per share compared to $433 million or $0.90 per share

for the same period in 2001.  The

year-to-date 2001 results included a net loss from discontinued operations of

$87 million or $0.19 per share related to the Gas Marketing business, the

disposition of which was substantially completed in 2001.

 

TransCanada’s net earnings and

net income applicable to common shares for third quarter 2002 were $175 million

or $0.37 per share compared to $159 million or $0.33 per share for third

quarter 2001.  All three segments

contributed to the increase of $16 million or $0.04 per share in the third

quarter.

 

Effective September 30, 2002,

the company adopted accrual accounting for energy trading contracts, changing

from its previous policy of mark-to-market accounting for these contracts.  With the company’s exit from the Gas

Marketing business, which was a trading based operation, and its continued

focus on using marketing activities to support its power generation assets and

power purchase arrangements, the use of accrual accounting better reflects the

underlying performance of the power operations.  This change eliminates unrealized gains and losses on energy

trading contracts recognized under mark-to-market accounting.  This accounting change has been applied

retroactively with restatement of prior periods (see note 2, Accounting

Changes, in the Notes to Consolidated Financial Statements).  The cumulative effect of this accounting

change as at January 1, 2001 was a decrease in retained earnings of $20

million.  Net earnings for the nine

months ended September 30, 2001 included a positive adjustment of $12 million.

Under accrual accounting, net earnings for the nine months ended September 30,

2002 are $8 million higher than would have been reported under mark-to-market

accounting.

 

 

 

Segment Results-at-a-Glance

 

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Transmission

  	

   

  	

  154

  	

   

  	

  145

  	

   

  	

  491

  	

   

  	

  432

  	

   

  
	

  Power

  	

   

  	

  35

  	

   

  	

  33

  	

   

  	

  116

  	

   

  	

  133

  	

   

  
	

  Corporate

  	

   

  	

  (14

  	

  )

  	

  (19

  	

  )

  	

  (40

  	

  )

  	

  (45

  	

  )

  
	

  Continuing operations

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  520

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

  Net Income Applicable to Common Shares

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  433

  	

   

  

 

Transmission

 

The Transmission business generated net earnings of $154 million and

$491 million for the three and nine months ended September 30, 2002,

respectively.

 

Transmission Results-at-a-Glance

 

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Wholly-Owned Pipelines

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Alberta System

  	

   

  	

  56

  	

   

  	

  52

  	

   

  	

  158

  	

   

  	

  145

  	

   

  
	

  Canadian Mainline

  	

   

  	

  72

  	

   

  	

  68

  	

   

  	

  232

  	

   

  	

  204

  	

   

  
	

  BC System

  	

   

  	

  1

  	

   

  	

  1

  	

   

  	

  4

  	

   

  	

  4

  	

   

  
	

   

  	

   

  	

  129

  	

   

  	

  121

  	

   

  	

  394

  	

   

  	

  353

  	

   

  
	

  North American Pipeline Ventures

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Great Lakes

  	

   

  	

  13

  	

   

  	

  13

  	

   

  	

  49

  	

   

  	

  41

  	

   

  
	

  TC PipeLines, LP

  	

   

  	

  4

  	

   

  	

  3

  	

   

  	

  12

  	

   

  	

  11

  	

   

  
	

  Iroquois

  	

   

  	

  4

  	

   

  	

  5

  	

   

  	

  15

  	

   

  	

  12

  	

   

  
	

  Portland

  	

   

  	

  —

  	

   

  	

  (1

  	

  )

  	

  2

  	

   

  	

  (1

  	

  )

  
	

  Foothills

  	

   

  	

  4

  	

   

  	

  4

  	

   

  	

  13

  	

   

  	

  15

  	

   

  
	

  Trans Québec & Maritimes

  	

   

  	

  2

  	

   

  	

  2

  	

   

  	

  6

  	

   

  	

  6

  	

   

  
	

  Northern Development

  	

   

  	

  (3

  	

  )

  	

  (5

  	

  )

  	

  (5

  	

  )

  	

  (6

  	

  )

  
	

  Other

  	

   

  	

  1

  	

   

  	

  3

  	

   

  	

  5

  	

   

  	

  1

  	

   

  
	

   

  	

   

  	

  25

  	

   

  	

  24

  	

   

  	

  97

  	

   

  	

  79

  	

   

  
	

  Net earnings

  	

   

  	

  154

  	

   

  	

  145

  	

   

  	

  491

  	

   

  	

  432

  	

   

  

 

Wholly–Owned Pipelines

 

The

Alberta System’s net earnings of $56 million in third quarter 2002 increased $4

million compared to $52 million in the same quarter of 2001.  Net earnings for the nine months ended

September 30, 2002 increased $13 million from the same period in 2001.  The increase in net earnings for third

quarter 2002 was primarily due to an interest refund relating to a prior year

income tax 

 

 

 

reassessment.  The increase in year-to-date net earnings

was primarily due to higher earnings from the Alberta System Rate Settlement,

an interest refund relating to a prior year income tax reassessment, and the

expiry of TransCanada’s transition support costs with respect to the products

and receipt-point pricing structure in first quarter 2002.

 

The

Canadian Mainline’s net earnings have increased $4 million and $28 million

respectively for the three and nine months ended September 30, 2002 when

compared to the corresponding periods in 2001. 

Net earnings in 2002 reflect the impact of the Fair Return decision

which included an increase in the deemed common equity ratio from 30 to 33 per

cent effective January 1, 2001 and an approved rate of return on common equity

of 9.61 per cent for 2001 and 9.53 per cent for 2002.

 

	

  Operating Statistics

  	

   

  	

  Alberta

  System*

  	

   

  	

  Canadian

  Mainline**

  	

   

  	

  BC System

  	

   

  
	

  Nine

  months ended September 30 (unaudited)

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Average investment base ($millions)

  	

   

  	

  5,089

  	

   

  	

  5,195

  	

   

  	

  8,909

  	

   

  	

  9,202

  	

   

  	

  204

  	

   

  	

  205

  	

   

  
	

  Delivery volumes (Bcf)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Total

  	

   

  	

  3,076

  	

   

  	

  3,037

  	

   

  	

  1,950

  	

   

  	

  1,857

  	

   

  	

  270

  	

   

  	

  287

  	

   

  
	

  Average per day

  	

   

  	

  11.3

  	

   

  	

  11.1

  	

   

  	

  7.1

  	

   

  	

  6.8

  	

   

  	

  1.0

  	

   

  	

  1.1

  	

   

  

*Field receipt volumes for the

Alberta System for the nine months ended September 30, 2002 were 3,094 Bcf

(2001 — 3,137 Bcf); average per day were 11.3 Bcf (2001 — 11.5 Bcf).

 

**Canadian Mainline deliveries

originating at the Alberta border and in Saskatchewan for the nine months ended

September 30, 2002 were 1,665 Bcf (2001 — 1,584 Bcf); average per day were 6.1

Bcf (2001 — 5.8 Bcf).

 

North American Pipeline Ventures

 

TransCanada’s proportionate share of net earnings from its other

Transmission businesses was $25 million and $97 million for the three and nine

months ended September 30, 2002, respectively. 

Net earnings for the three and nine months ended September 30, 2002 were

$1 million and $18 million higher, respectively, compared to the same periods

in 2001.

 

Higher year-to-date net earnings reflect TransCanada’s $7 million share

of a favourable ruling in Great Lakes related to Minnesota use tax paid in

prior years.  Excluding the impact of

the Great Lakes favourable ruling, the increase in year-to-date net earnings

was mainly due to favourable foreign exchange rates on stronger operating

results from U.S. pipeline affiliates and TransCanada’s increased ownership

interests in Iroquois and Portland acquired in second quarter 2001.  In addition, net earnings related to

TransCanada’s share of other ventures, including CrossAlta gas storage

facilities, Ventures LP and TransGas de Occidente, 

 

 

 

increased $4 million in the nine months ended September 30, 2002

compared to the same period in the prior year.

 

Power

 

Power Results-at-a-Glance

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Power LP investment

  	

   

  	

  9

  	

   

  	

  9

  	

   

  	

  27

  	

   

  	

  29

  	

   

  
	

  Northeastern U.S. operations

  	

   

  	

  27

  	

   

  	

  36

  	

   

  	

  114

  	

   

  	

  104

  	

   

  
	

  Western operations

  	

   

  	

  40

  	

   

  	

  24

  	

   

  	

  101

  	

   

  	

  134

  	

   

  
	

  General, administrative and support costs

  	

   

  	

  (17

  	

  )

  	

  (10

  	

  )

  	

  (48

  	

  )

  	

  (31

  	

  )

  
	

  Operating and other income

  	

   

  	

  59

  	

   

  	

  59

  	

   

  	

  194

  	

   

  	

  236

  	

   

  
	

  Financial charges

  	

   

  	

  (3

  	

  )

  	

  (5

  	

  )

  	

  (9

  	

  )

  	

  (15

  	

  )

  
	

  Income taxes

  	

   

  	

  (21

  	

  )

  	

  (21

  	

  )

  	

  (69

  	

  )

  	

  (88

  	

  )

  
	

  Net earnings

  	

   

  	

  35

  	

   

  	

  33

  	

   

  	

  116

  	

   

  	

  133

  	

   

  

 

Net

earnings for the nine months ended September 30, 2002 were $17 million lower

when compared to the same period in 2001. 

Net earnings of $35 million in third quarter 2002 increased $2 million

compared to $33 million in third quarter 2001.

 

Operating and other income from

the investment in TransCanada Power, L.P. remained consistent in the three

months ended September 30, 2002 compared to the same period in 2001.  However, for the nine months ended September

30, 2002, it decreased slightly when compared to the same period in 2001,

primarily due to an unplanned outage at the Williams Lake plant in the first

half of 2002.

 

The decrease of $9 million in operating and other income from the

Northeastern U.S. operations for the three months ended September 30, 2002 is

primarily due to lower revenues under long-term power sales arrangements

compared to the same period in 2001. 

Operating and other income for the nine months ended September 30, 2002

is higher by $10 million compared to the same period in 2001 mainly due to the

acquisition of the Curtis Palmer Hydroelectric Company, L.P. in July 2001,

partially offset by lower revenues under long-term power sales arrangements.

 

Operating and

other income from Western operations for the three months ended September 30,

2002 was $40 million, which was $16 million higher than the same period in

2001, and included income from the Sundance B power purchase arrangement (PPA)

acquired at the end of 2001, income from the commercial start up of the

Redwater and Carseland plants in January 2002, and lower contract prices on the

sale of output from the Sundance A PPA compared to the prior year. Operating

and other income for the 

 

 

 

nine months

ended September 30, 2002 is $33 million lower than the same period in 2001 due

mainly to TransCanada’s ability in 2001 to take advantage of market

opportunities created by high market prices and power price volatility, and in

2002, lower contract prices for the Sundance A PPA.  These impacts were offset by income from the Sundance B PPA and

the Redwater and Carseland plants.

 

The increase

in general, administrative and support costs for the three and nine months

ended September 30, 2002 compared to the same periods in 2001 is due to the

continuing growth of the Power business.

 

Corporate

 

Net

expenses for the three and nine months ended September 30, 2002 were $5 million

lower than net expenses for the same periods in 2001.  Results for the nine months ended September 30, 2001 included a

positive adjustment of $5 million to foreign currency gains reflecting the

January 1, 2002 required retroactive adoption of an accounting change issued by

the Canadian Institute of Chartered Accountants related to foreign currency

translation.  There was no impact of

this accounting change in the three months ended September 30, 2001 and in the

nine months ended September 30, 2002.

 

Net

expenses for third quarter 2002 have improved by $5 million compared to third

quarter 2001 primarily due to the positive impact of lower interest rates.  Corporate’s results for the nine months

ended September 30, 2002 have improved by $10 million compared to the

corresponding period in 2001, excluding the impact of the foreign currency

accounting change.  This increase is

primarily due to the positive impact of lower interest rates and lower general

and administrative expenses related to services that support discontinued

operations, partially offset by increased financial charges with respect to the

Fair Return decision.

 

Discontinued

Operations

 

The

Board of Directors approved a plan in July 2001 to dispose of the company’s Gas

Marketing business.  The company’s exit

from Gas Marketing was substantially completed by December 31, 2001.  As described in Management’s Discussion and

Analysis in TransCanada’s 2001 Annual Report, the company remains contingently

liable pursuant to obligations under certain energy trading contracts that

relate to the divested Gas Marketing business. 

At September 30, 2002, TransCanada reviewed the provision for loss on

discontinued operations, including the approximately $100 million of deferred

after-tax gains and remaining obligations related to the Gas Marketing

business, and concluded the provision and 

 

 

 

continued

deferral of the gains were appropriate. 

As a result, there was no earnings impact related to discontinued

operations in third quarter of 2002.

 

Liquidity

and Capital Resources

 

Funds

Generated from Operations

 

Funds

generated from continuing operations for the nine months ended September 30,

2002 increased by $132 million in comparison to the same period in 2001.  Funds generated from continuing operations

for third quarter 2002 increased $14 million compared to the prior year third

quarter.

 

TransCanada’s ability to

generate adequate amounts of cash and cash equivalents in the short term and

the long term when needed, and to maintain capacity to provide for planned

growth remains unchanged since December 31, 2001.

 

Investing

Activities

 

In

the three and nine months ended September 30, 2002, capital expenditures,

excluding acquisitions, totalled $182 million (2001 - $95 million) and $397

million (2001 - $318 million), respectively, and related primarily to

maintenance and capacity capital in the Transmission business and ongoing

construction of the Bear Creek and MacKay River power plants in Alberta.  In third quarter 2002, TransCanada acquired

a general partnership interest in Northern Border Partners, L.P. for $19

million (see Other Recent Developments — North American Pipeline

Ventures).  In third quarter 2001,

TransCanada acquired the Curtis Palmer Hydroelectric Company, L.P. for $438

million.

 

Financing

Activities

 

TransCanada used a portion of

its cash resources to fund debt maturities of $230 million and reduce notes

payable by $228 million in the nine months ended September 30, 2002.

 

In

the fourth quarter 2002, TransCanada intends to file shelf prospectuses in

Canada in the amount of $2 billion and in the United States in the amount of

US$1 billion.  These shelf prospectuses

will qualify for the issuance of common shares, preferred shares and/or debt

securities.

 

The above statement does not constitute an

offer to sell or the solicitation of an offer to buy any securities for sale in

the United States.  Any such offer will

only be made by means of a prospectus supplement filed with the Securities and

Exchange Commission if the company determines to go forward with an offering.

 

Dividends

 

On October 29, 2002,

TransCanada’s Board of Directors declared a quarterly dividend of $0.25 per

share for the quarter ended December 31, 2002 on the outstanding common

shares.  This is the 

 

 

 

156th consecutive

quarterly dividend paid by TransCanada on its common shares, and is payable on

January 31, 2003 to shareholders of record at the close of business on December

31, 2002.  The Board also declared

regular dividends on TransCanada’s preferred shares.

 

 

Discontinued

Operations

 

Net cash provided by

discontinued operating activities was $30 million for the nine months ended

September 30, 2002 compared with net cash used in discontinued operating

activities of $663 million for the same period in 2001.  The significant amount of net cash used in

the nine months ended September 30, 2001 was primarily in the Gas Marketing

business and included the return in 2001 of margin cash received in 2000, the

settlement of natural gas trading losses and other working capital adjustments.

 

There were no dispositions of

discontinued operations in the nine months ended September 30, 2002 compared to

dispositions of $954 million in the same period in 2001.

 

Risk

Management

 

With

respect to continuing operations, TransCanada’s market risk remains

substantially unchanged since December 31, 2001. However, with the recent

deterioration in the creditworthiness of a number of counterparties,

TransCanada has and will continue to mitigate this heightened credit risk with

additional financial assurances, including letters of credit and/or cash.  The company has retained certain exposures

as a result of the divestiture of the Gas Marketing business.  See explanation in Results of Operations -

Discontinued Operations.  For further

information on risks, refer to Management’s Discussion and Analysis in

TransCanada’s 2001 Annual Report.

 

TransCanada

manages market and credit risk exposures in accordance with its corporate risk

policies and position limits.  The

policies and limits are designed to mitigate the risk of significant loss.  The company’s primary market risks result

from volatility in commodity prices, interest rates and foreign currency

exchange rates.  The company is also

exposed to risk of loss due to the failure of counterparties to meet

contractual financial obligations.

 

Critical

Accounting Policy

 

TransCanada’s

critical accounting policy is the use of regulatory accounting for its

regulated operations which remains unchanged since December 31, 2001.   For further information on this 

 

 

 

critical

accounting policy, refer to Management’s Discussion and Analysis in

TransCanada’s 2001 Annual Report.

 

Outlook

 

The

outlook for the company’s segments remains relatively unchanged since December

31, 2001. Although disappointed with the June 2002 Fair Return decision which

in TransCanada’s opinion does not recognize the long-term business risks of the

Canadian Mainline, the company remains committed to the Canadian pipeline

business and to optimizing the risk-reward structure of its Canadian pipeline

business through negotiations with shippers and the regulatory process.  The company has filed with the NEB a request

for review and variance of the Fair Return decision.  For further information on outlook, refer to Management’s

Discussion and Analysis in TransCanada’s 2001 Annual Report.

 

The

company’s earnings and cash flow combined with a strong balance sheet at

September 30, 2002 provides the financial flexibility for TransCanada to make

disciplined investments in its core businesses of Transmission and Power.  Credit ratings on the company’s senior

unsecured debt assigned by Dominion Bond Rating Service Limited, Moody’s

Investors Service and Standard & Poor’s are currently A, A2 and A-, respectively,

all with a stable trend or outlook.

 

Other

Recent Developments

 

Transmission

 

Wholly–Owned Pipelines

 

In

September 2002, TransCanada filed an application with the NEB for tolls on its

Canadian Mainline.  The company

requested the tolls be effective January 1, 2003 upon expiry of currently approved

tolls.  In this application, TransCanada

seeks approval of a new Southwest tolling zone around Dawn in southwestern

Ontario, an increase in the bid floor price for Interruptible Transportation

Service and an increase in depreciation rates in addition to continuation of

certain operating incentives.  Also in

this application, TransCanada requested the NEB approve a fair return for 2003

that reflects the forthcoming decision on the review and variance application.

 

The

Alberta System Rate Settlement expires on December 31, 2002, and negotiations

are underway between TransCanada and its Alberta System customers for a

successor to this settlement.

 

 

 

North American Pipeline Ventures

 

In August 2002, TransCanada acquired a

general partnership interest in Northern Border Partners, L.P. from The

Williams Companies Inc. for $19 million. 

TransCanada now effectively owns 0.35 per cent of the aggregate two per

cent general partnership interest in Northern Border Partners, L.P. and is

entitled to a 17.5 per cent vote on the partnership policy committee.

 

Power

 

In September 2002,  TransCanada signed an agreement to acquire

the ManChief power plant from El Paso Corporation for approximately US$127

million, subject to post closing adjustments. 

The closing of the acquisition is expected to be completed in the fourth

quarter of 2002, pending necessary consents and regulatory approval.  The ManChief power plant is a simple-cycle,

two-turbine facility located near Brush, Colorado and has a generating capacity

of 300 megawatts.  The entire output of

the plant is sold under long-term tolling contracts that expire in 2012.

 

 

Forward–Looking Information

 

Certain information in this

quarterly report is forward–looking and is subject to important risks and

uncertainties.  The results or events

predicted in this information may differ from actual results or events.  Factors which could cause actual results or

events to differ materially from current expectations include, among other

things, the ability of TransCanada to successfully implement its strategic

initiatives and whether such strategic initiatives will yield the expected

benefits, the availability and price of energy commodities, regulatory

decisions, competitive factors in the pipeline and power industry sectors, and

the prevailing economic conditions in North America.  For additional 

 

 

 

information on these and other

factors, see the reports filed by TransCanada with Canadian securities

regulators and with the United States Securities and Exchange Commission.  TransCanada disclaims any intention or

obligation to update or revise any forward-looking statements, whether as a

result of new information, future events or otherwise.

 

 

 

Consolidated Income

 

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars except per share amounts)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Revenues

  	

   

  	

  1,285

  	

   

  	

  1,293

  	

   

  	

  3,876

  	

   

  	

  3,996

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Expenses

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Operating expenses

  	

   

  	

  549

  	

   

  	

  566

  	

   

  	

  1,589

  	

   

  	

  1,782

  	

   

  
	

  Depreciation

  	

   

  	

  211

  	

   

  	

  198

  	

   

  	

  631

  	

   

  	

  589

  	

   

  
	

   

  	

   

  	

  760

  	

   

  	

  764

  	

   

  	

  2,220

  	

   

  	

  2,371

  	

   

  
	

  Operating Income

  	

   

  	

  525

  	

   

  	

  529

  	

   

  	

  1,656

  	

   

  	

  1,625

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Other Expenses/(Income)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Financial charges

  	

   

  	

  213

  	

   

  	

  226

  	

   

  	

  652

  	

   

  	

  664

  	

   

  
	

  Financial charges of joint ventures

  	

   

  	

  22

  	

   

  	

  26

  	

   

  	

  67

  	

   

  	

  78

  	

   

  
	

  Allowance for funds used during

  construction

  	

   

  	

  (2

  	

  )

  	

  —

  	

   

  	

  (6

  	

  )

  	

  (3

  	

  )

  
	

  Interest and other income

  	

   

  	

  (20

  	

  )

  	

  (12

  	

  )

  	

  (56

  	

  )

  	

  (60

  	

  )

  
	

   

  	

   

  	

  213

  	

   

  	

  240

  	

   

  	

  657

  	

   

  	

  679

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Income from Continuing Operations before

  income taxes

  	

   

  	

  312

  	

   

  	

  289

  	

   

  	

  999

  	

   

  	

  946

  	

   

  
	

  Income Taxes — Current and Future

  	

   

  	

  123

  	

   

  	

  113

  	

   

  	

  389

  	

   

  	

  374

  	

   

  
	

  Net Income from Continuing Operations

  	

   

  	

  189

  	

   

  	

  176

  	

   

  	

  610

  	

   

  	

  572

  	

   

  
	

  Net Loss from Discontinued Operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

  Net Income

  	

   

  	

  189

  	

   

  	

  176

  	

   

  	

  610

  	

   

  	

  485

  	

   

  
	

  Preferred Securities Charges

  	

   

  	

  8

  	

   

  	

  11

  	

   

  	

  26

  	

   

  	

  35

  	

   

  
	

  Preferred Share Dividends

  	

   

  	

  6

  	

   

  	

  6

  	

   

  	

  17

  	

   

  	

  17

  	

   

  
	

  Net Income Applicable to Common Shares

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  433

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net Income/(Loss) Applicable to Common

  Shares

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing operations

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  520

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

   

  	

   

  	

  175

  	

   

  	

  159

  	

   

  	

  567

  	

   

  	

  433

  	

   

  
	

  Net Income/(Loss) Per Share — Basic and

  Diluted

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing operations

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.33

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  1.09

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  (0.19

  	

  )

  
	

   

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.33

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  0.90

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Average Shares Outstanding

  (millions)

  	

   

  	

  478.9

  	

   

  	

  475.8

  	

   

  	

  478.0

  	

   

  	

  475.5

  	

   

  

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

 

Consolidated Cash Flows

 

	

  (unaudited)

  	

   

  	

  Three

  months ended September 30

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cash Generated From Operations

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net income from continuing operations

  	

   

  	

  189

  	

   

  	

  176

  	

   

  	

  610

  	

   

  	

  572

  	

   

  
	

  Depreciation

  	

   

  	

  211

  	

   

  	

  198

  	

   

  	

  631

  	

   

  	

  589

  	

   

  
	

  Future income taxes

  	

   

  	

  71

  	

   

  	

  74

  	

   

  	

  180

  	

   

  	

  121

  	

   

  
	

  Other

  	

   

  	

  (8

  	

  )

  	

  1

  	

   

  	

  (26

  	

  )

  	

  (19

  	

  )

  
	

  Funds generated from continuing operations

  	

   

  	

  463

  	

   

  	

  449

  	

   

  	

  1,395

  	

   

  	

  1,263

  	

   

  
	

  (Increase)/decrease in operating working

  capital

  	

   

  	

  (12

  	

  )

  	

  150

  	

   

  	

  (68

  	

  )

  	

  71

  	

   

  
	

  Net cash provided by continuing operating

  activities

  	

   

  	

  451

  	

   

  	

  599

  	

   

  	

  1,327

  	

   

  	

  1,334

  	

   

  
	

  Net cash (used in)/provided by discontinued

  operating activities

  	

   

  	

  (21

  	

  )

  	

  (60

  	

  )

  	

  30

  	

   

  	

  (663

  	

  )

  
	

   

  	

   

  	

  430

  	

   

  	

  539

  	

   

  	

  1,357

  	

   

  	

  671

  	

   

  
	

  Investing Activities

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Capital expenditures

  	

   

  	

  (182

  	

  )

  	

  (95

  	

  )

  	

  (397

  	

  )

  	

  (318

  	

  )

  
	

  Acquisitions, net of cash acquired

  	

   

  	

  (19

  	

  )

  	

  (438

  	

  )

  	

  (19

  	

  )

  	

  (475

  	

  )

  
	

  Disposition of assets

  	

   

  	

  —

  	

   

  	

  (3

  	

  )

  	

  —

  	

   

  	

  954

  	

   

  
	

  Deferred amounts and other

  	

   

  	

  66

  	

   

  	

  45

  	

   

  	

  (47

  	

  )

  	

  37

  	

   

  
	

  Net cash (used in)/provided by investing

  activities

  	

   

  	

  (135

  	

  )

  	

  (491

  	

  )

  	

  (463

  	

  )

  	

  198

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Financing Activities

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Dividends and preferred securities charges

  	

   

  	

  (140

  	

  )

  	

  (131

  	

  )

  	

  (407

  	

  )

  	

  (379

  	

  )

  
	

  Notes payable issued/(repaid), net

  	

   

  	

  12

  	

   

  	

  (95

  	

  )

  	

  (228

  	

  )

  	

  (150

  	

  )

  
	

  Reduction of long-term debt

  	

   

  	

  (114

  	

  )

  	

  (282

  	

  )

  	

  (230

  	

  )

  	

  (629

  	

  )

  
	

  Non-recourse debt of joint ventures issued

  	

   

  	

  19

  	

   

  	

  7

  	

   

  	

  24

  	

   

  	

  18

  	

   

  
	

  Reduction of non-recourse debt of joint

  ventures

  	

   

  	

  (9

  	

  )

  	

  (14

  	

  )

  	

  (51

  	

  )

  	

  (47

  	

  )

  
	

  Common shares issued

  	

   

  	

  12

  	

   

  	

  9

  	

   

  	

  43

  	

   

  	

  19

  	

   

  
	

  Net cash used in financing activities

  	

   

  	

  (220

  	

  )

  	

  (506

  	

  )

  	

  (849

  	

  )

  	

  (1,168

  	

  )

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Increase/(Decrease) in Cash and Short-Term

  Investments

  	

   

  	

  75

  	

   

  	

  (458

  	

  )

  	

  45

  	

   

  	

  (299

  	

  )

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cash and Short-Term Investments

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Beginning of period

  	

   

  	

  269

  	

   

  	

  668

  	

   

  	

  299

  	

   

  	

  509

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cash and Short-Term Investments

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  End of period

  	

   

  	

  344

  	

   

  	

  210

  	

   

  	

  344

  	

   

  	

  210

  	

   

  

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

 

Consolidated Balance Sheet

 

	

   

  	

   

  	

  September

  30, 2002

  	

   

  	

  December

  31,

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  (unaudited)

  	

   

  	

  2001

  	

   

  
	

  ASSETS

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Current Assets

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Cash and short-term investments

  	

   

  	

  344

  	

   

  	

  299

  	

   

  
	

  Accounts receivable

  	

   

  	

  719

  	

   

  	

  655

  	

   

  
	

  Inventories

  	

   

  	

  184

  	

   

  	

  177

  	

   

  
	

  Other

  	

   

  	

  60

  	

   

  	

  43

  	

   

  
	

   

  	

   

  	

  1,307

  	

   

  	

  1,174

  	

   

  
	

  Long-Term Investments

  	

   

  	

  291

  	

   

  	

  268

  	

   

  
	

  Plant, Property and Equipment

  	

   

  	

  17,612

  	

   

  	

  17,863

  	

   

  
	

  Other Assets

  	

   

  	

  603

  	

   

  	

  649

  	

   

  
	

   

  	

   

  	

  19,813

  	

   

  	

  19,954

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  LIABILITIES AND SHAREHOLDERS’ EQUITY

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Current Liabilities

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Notes payable

  	

   

  	

  115

  	

   

  	

  343

  	

   

  
	

  Accounts payable

  	

   

  	

  792

  	

   

  	

  786

  	

   

  
	

  Accrued interest

  	

   

  	

  243

  	

   

  	

  233

  	

   

  
	

  Current portion of long-term debt

  	

   

  	

  631

  	

   

  	

  483

  	

   

  
	

  Current portion of non-recourse debt of

  joint ventures

  	

   

  	

  80

  	

   

  	

  44

  	

   

  
	

  Provision for loss on discontinued operations

  	

   

  	

  224

  	

   

  	

  264

  	

   

  
	

   

  	

   

  	

  2,085

  	

   

  	

  2,153

  	

   

  
	

  Deferred Amounts

  	

   

  	

  368

  	

   

  	

  393

  	

   

  
	

  Long-Term Debt

  	

   

  	

  8,963

  	

   

  	

  9,347

  	

   

  
	

  Future Income Taxes

  	

   

  	

  189

  	

   

  	

  39

  	

   

  
	

  Non-Recourse Debt of Joint Ventures

  	

   

  	

  1,229

  	

   

  	

  1,295

  	

   

  
	

  Junior Subordinated Debentures

  	

   

  	

  238

  	

   

  	

  237

  	

   

  
	

   

  	

   

  	

  13,072

  	

   

  	

  13,464

  	

   

  
	

  Shareholders’ Equity

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Preferred securities

  	

   

  	

  674

  	

   

  	

  675

  	

   

  
	

  Preferred shares

  	

   

  	

  389

  	

   

  	

  389

  	

   

  
	

  Common shares

  	

   

  	

  4,607

  	

   

  	

  4,564

  	

   

  
	

  Contributed surplus

  	

   

  	

  263

  	

   

  	

  263

  	

   

  
	

  Retained earnings

  	

   

  	

  794

  	

   

  	

  586

  	

   

  
	

  Foreign exchange adjustment

  	

   

  	

  14

  	

   

  	

  13

  	

   

  
	

   

  	

   

  	

  6,741

  	

   

  	

  6,490

  	

   

  
	

   

  	

   

  	

  19,813

  	

   

  	

  19,954

  	

   

  

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

 

Consolidated Retained Earnings

 

	

  (unaudited)

  	

   

  	

  Nine

  months ended September 30

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Balance at beginning of period

  	

   

  	

  586

  	

   

  	

  395

  	

   

  
	

  Net income

  	

   

  	

  610

  	

   

  	

  485

  	

   

  
	

  Preferred securities charges

  	

   

  	

  (26

  	

  )

  	

  (35

  	

  )

  
	

  Preferred share dividends

  	

   

  	

  (17

  	

  )

  	

  (17

  	

  )

  
	

  Common share dividends

  	

   

  	

  (359

  	

  )

  	

  (320

  	

  )

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  794

  	

   

  	

  508

  	

   

  

 

See accompanying Notes to the Consolidated Financial Statements.

 

 

 

 

Notes to Consolidated Financial Statements

(Unaudited)

 

1.              Significant

Accounting Policies

 

The

consolidated financial statements of TransCanada PipeLines Limited (TransCanada

or the company) have been prepared in accordance with Canadian generally

accepted accounting principles. The accounting policies applied are consistent

with those outlined in the company’s annual financial statements for the year

ended December 31, 2001 except as stated below.  These consolidated financial statements for the nine months ended

September 30, 2002 do not include all disclosures required in the annual

financial statements and should be read in conjunction with the annual

financial statements included in TransCanada’s 2001 Annual Report.  Amounts are stated in Canadian dollars

unless otherwise indicated. Certain comparative figures have been reclassified

to conform with the current period’s presentation.

 

Since a determination of many

assets, liabilities, revenues and expenses is dependent upon future events, the

preparation of these consolidated financial statements requires the use of

estimates and assumptions.  In the

opinion of Management, these consolidated financial statements have been

properly prepared within reasonable limits of materiality and within the

framework of the company’s significant accounting policies.

 

Regulation

 

In

June 2002, the company received the National Energy Board (NEB) decision on its

Fair Return application (Fair Return decision) to determine the cost of capital

to be included in the calculation of 2001 and 2002 final tolls on its Canadian

Mainline.  The Fair Return decision on

the cost of capital included an increase in the deemed common equity ratio from

30 to 33 per cent effective January 1, 2001. 

The NEB also decided that the return on equity as calculated based on

the NEB formula continued to be appropriate for the Canadian Mainline which

results in an approved rate of return on common equity of 9.61 per cent for

2001 and 9.53 per cent for 2002.  The

results for the nine months ended September 30, 2002 include after-tax net

earnings of $30 million or $0.06 per share representing the impact of the Fair

Return decision for the period January 1, 2001 to September 30, 2002.

 

2.              Accounting

Changes

 

Price risk

management

 

Effective

September 30, 2002, the company adopted accrual accounting for energy trading

contracts in its continuing 

 

 

 

operations,

changing from its previous policy of mark-to-market accounting for these

contracts.  This accounting change has

been applied retroactively with restatement of prior periods.  This change eliminates unrealized gains and

losses on energy trading contracts recognized under mark-to-market accounting.

The cumulative effect of this accounting change as at January 1, 2001 was a decrease

of $20 million in retained earnings. 

The impact of this change on earnings for the year ended December 31,

2001 was an increase of $11 million, which is reflected in the Power

segment.  The adoption of this policy

resulted in an increase/(decrease) to previously reported net earnings of: first

quarter 2001 — $7 million; second quarter 2001 - $9 million; third quarter 2001

- $(4) million; first quarter 2002 - $1 million and second quarter 2002 - $3

million.  If the company had continued

to use mark-to-market accounting, the net earnings for the three months ended

September 30, 2002 would have decreased by $4 million.

 

Foreign currency translation

 

Effective

January 1, 2002, TransCanada adopted the amendment to the Canadian Institute of

Chartered Accountants (CICA) Handbook Section “Foreign Currency

Translation”.  This amendment eliminates

the deferral and amortization of unrealized translation gains and losses on

foreign currency denominated monetary items that have a fixed or ascertainable

life extending beyond the end of the fiscal year following the current

reporting period. This accounting change was applied retroactively with

restatement of prior periods. The cumulative effect of this accounting change

as at January 1, 2001 was an increase of $1 million in retained earnings.  The impact of this change on net earnings

for the year ended December 31, 2001, which is reflected in the Corporate

segment, was an increase of $5 million. 

The impact of this change on net earnings for the three and nine months

ended September 30, 2002 was nil (first quarter 2001 - $(4) million; second

quarter 2001 - $9 million; third and fourth quarter 2001 — nil).

 

After

reflecting the accounting changes, the following amounts in the Consolidated

Balance Sheet, Consolidated Statement of Income and Consolidated Statement of

Cash Flows as at and for the years ended December 31, 2001 and December 31,

2000, respectively have been restated as follows.

 

 

 

	

  (millions

  of dollars)

  	

   

  	

  2001

  	

   

  	

  2000

  	

   

  
	

  Consolidated Balance Sheet

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Energy trading assets

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Current asset

  	

   

  	

  —

  	

   

  	

  —

  	

   

  
	

  Long-term asset

  	

   

  	

  —

  	

   

  	

  —

  	

   

  
	

  Other assets

  	

   

  	

  649

  	

   

  	

  524

  	

   

  
	

  Future income tax asset

  	

   

  	

  —

  	

   

  	

  204

  	

   

  
	

  Total assets

  	

   

  	

  19,954

  	

   

  	

  24,817

  	

   

  
	

  Energy trading liabilities

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Current liability

  	

   

  	

  —

  	

   

  	

  —

  	

   

  
	

  Long-term liability

  	

   

  	

  —

  	

   

  	

  —

  	

   

  
	

  Future income tax liability

  	

   

  	

  39

  	

   

  	

  —

  	

   

  
	

  Total liabilities

  	

   

  	

  13,464

  	

   

  	

  18,248

  	

   

  
	

  Retained earnings

  	

   

  	

  586

  	

   

  	

  395

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Consolidated Income

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Revenues

  	

   

  	

  5,275

  	

   

  	

  4,384

  	

   

  
	

  Operating expenses

  	

   

  	

  2,322

  	

   

  	

  1,672

  	

   

  
	

  Financial charges

  	

   

  	

  889

  	

   

  	

  953

  	

   

  
	

  Income taxes — current and future

  	

   

  	

  480

  	

   

  	

  354

  	

   

  
	

  Net income

  	

   

  	

  686

  	

   

  	

  768

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Consolidated Cash Flows

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Funds generated from continuing operations

  	

   

  	

  1,624

  	

   

  	

  1,495

  	

   

  
	

  Net cash provided by investing activities

  	

   

  	

  123

  	

   

  	

  1,067

  	

   

  

 

Stock-Based Compensation

 

Effective

January 1, 2002, TransCanada adopted the new standard of the CICA Handbook

Section “Stock-Based Compensation and Other Stock-Based Payments”.  This section establishes standards for the

recognition, measurement and disclosure of stock-based compensation and other

stock-based payments made in exchange for goods and services.  It applies to transactions in which an

enterprise grants shares of common stock, stock options, or other equity

instruments, or incurs liabilities based on the price of common stock or other

equity instruments.  This section is

consistent in most respects with Statement of Financial Accounting Standard No.

123 which was adopted by the company for U.S. GAAP purposes prior to 2002.  This new standard has been applied

prospectively for Canadian GAAP purposes, effective January 1, 2002.

 

On

February 25, 2002, the company issued 1,946,300 options to purchase common

shares at $21.43 under the company’s Key Employee Stock Incentive Plan.  Generally, 25 per cent of the common shares

subject to an option may be purchased on the award date and 25 per cent on each

of the three following award date anniversaries.

 

TransCanada

uses settlement date accounting to account for employee stock options.  Under settlement date accounting, there 

 

 

 

is

no requirement to record an expense on the date the options are granted.  For stock options granted after January 1,

2002, the use of the fair value method prescribed under the new standard would

have resulted in lower net income applicable to common shares of $2 million and

lower net income per share of $0.01 for the nine months ended September 30,

2002.  The company uses the

Black-Scholes model for this calculation.

 

 

3.              Segmented

Information

 

	

   

  	

   

  	

  Transmission

  	

   

  	

  Power

  	

   

  	

  Corporate

  	

   

  	

  Total

  	

   

  
	

  Three

  months ended September 30  (unaudited

  — millions of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Revenues

  	

   

  	

  971

  	

   

  	

  974

  	

   

  	

  314

  	

   

  	

  319

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  1,285

  	

   

  	

  1,293

  	

   

  
	

  Operating expenses

  	

   

  	

  (301

  	

  )

  	

  (311

  	

  )

  	

  (244

  	

  )

  	

  (253

  	

  )

  	

  (4

  	

  )

  	

  (2

  	

  )

  	

  (549

  	

  )

  	

  (566

  	

  )

  
	

  Depreciation

  	

   

  	

  (196

  	

  )

  	

  (188

  	

  )

  	

  (15

  	

  )

  	

  (10

  	

  )

  	

  —

  	

   

  	

  —

  	

   

  	

  (211

  	

  )

  	

  (198

  	

  )

  
	

  Operating income/(loss)

  	

   

  	

  474

  	

   

  	

  475

  	

   

  	

  55

  	

   

  	

  56

  	

   

  	

  (4

  	

  )

  	

  (2

  	

  )

  	

  525

  	

   

  	

  529

  	

   

  
	

  Financial and preferred equity charges

  	

   

  	

  (202

  	

  )

  	

  (214

  	

  )

  	

  (3

  	

  )

  	

  (4

  	

  )

  	

  (22

  	

  )

  	

  (25

  	

  )

  	

  (227

  	

  )

  	

  (243

  	

  )

  
	

  Financial charges of joint ventures

  	

   

  	

  (22

  	

  )

  	

  (25

  	

  )

  	

  —

  	

   

  	

  (1

  	

  )

  	

  —

  	

   

  	

  —

  	

   

  	

  (22

  	

  )

  	

  (26

  	

  )

  
	

  Other income

  	

   

  	

  14

  	

   

  	

  5

  	

   

  	

  4

  	

   

  	

  3

  	

   

  	

  4

  	

   

  	

  4

  	

   

  	

  22

  	

   

  	

  12

  	

   

  
	

  Income taxes

  	

   

  	

  (110

  	

  )

  	

  (96

  	

  )

  	

  (21

  	

  )

  	

  (21

  	

  )

  	

  8

  	

   

  	

  4

  	

   

  	

  (123

  	

  )

  	

  (113

  	

  )

  
	

  Continuing operations

  	

   

  	

  154

  	

   

  	

  145

  	

   

  	

  35

  	

   

  	

  33

  	

   

  	

  (14

  	

  )

  	

  (19

  	

  )

  	

  175

  	

   

  	

  159

  	

   

  
	

  Discontinued operations

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  —

  	

   

  	

  —

  	

   

  
	

  Net Income Applicable to Common Shares

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  175

  	

   

  	

  159

  	

   

  

 

	

   

  	

   

  	

  Transmission

  	

   

  	

  Power

  	

   

  	

  Corporate

  	

   

  	

  Total

  	

   

  
	

  Nine

  months ended September 30  (unaudited

  — millions of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Revenues

  	

   

  	

  2,914

  	

   

  	

  2,890

  	

   

  	

  962

  	

   

  	

  1,106

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  3,876

  	

   

  	

  3,996

  	

   

  
	

  Operating expenses

  	

   

  	

  (847

  	

  )

  	

  (913

  	

  )

  	

  (734

  	

  )

  	

  (854

  	

  )

  	

  (8

  	

  )

  	

  (15

  	

  )

  	

  (1,589

  	

  )

  	

  (1,782

  	

  )

  
	

  Depreciation

  	

   

  	

  (586

  	

  )

  	

  (562

  	

  )

  	

  (45

  	

  )

  	

  (25

  	

  )

  	

  —

  	

   

  	

  (2

  	

  )

  	

  (631

  	

  )

  	

  (589

  	

  )

  
	

  Operating income/(loss)

  	

   

  	

  1,481

  	

   

  	

  1,415

  	

   

  	

  183

  	

   

  	

  227

  	

   

  	

  (8

  	

  )

  	

  (17

  	

  )

  	

  1,656

  	

   

  	

  1,625

  	

   

  
	

  Financial and preferred equity charges

  	

   

  	

  (616

  	

  )

  	

  (644

  	

  )

  	

  (9

  	

  )

  	

  (11

  	

  )

  	

  (70

  	

  )

  	

  (61

  	

  )

  	

  (695

  	

  )

  	

  (716

  	

  )

  
	

  Financial charges of joint ventures

  	

   

  	

  (67

  	

  )

  	

  (74

  	

  )

  	

  —

  	

   

  	

  (4

  	

  )

  	

  —

  	

   

  	

  —

  	

   

  	

  (67

  	

  )

  	

  (78

  	

  )

  
	

  Other income

  	

   

  	

  38

  	

   

  	

  25

  	

   

  	

  11

  	

   

  	

  9

  	

   

  	

  13

  	

   

  	

  29

  	

   

  	

  62

  	

   

  	

  63

  	

   

  
	

  Income taxes

  	

   

  	

  (345

  	

  )

  	

  (290

  	

  )

  	

  (69

  	

  )

  	

  (88

  	

  )

  	

  25

  	

   

  	

  4

  	

   

  	

  (389

  	

  )

  	

  (374

  	

  )

  
	

  Continuing operations

  	

   

  	

  491

  	

   

  	

  432

  	

   

  	

  116

  	

   

  	

  133

  	

   

  	

  (40

  	

  )

  	

  (45

  	

  )

  	

  567

  	

   

  	

  520

  	

   

  
	

  Discontinued operations

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

  Net Income Applicable to Common Shares

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

  567

  	

   

  	

  433

  	

   

  

 

	

  Total

  Assets

  	

   

  	

  September

  30, 2002

  	

   

  	

  December

  31,

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  (unaudited)

  	

   

  	

  2001

  	

   

  
	

  Transmission

  	

   

  	

  17,047

  	

   

  	

  17,269

  	

   

  
	

  Power

  	

   

  	

  1,941

  	

   

  	

  1,880

  	

   

  
	

  Corporate

  	

   

  	

  634

  	

   

  	

  480

  	

   

  
	

  Continuing Operations

  	

   

  	

  19,622

  	

   

  	

  19,629

  	

   

  
	

  Discontinued Operations

  	

   

  	

  191

  	

   

  	

  325

  	

   

  
	

   

  	

   

  	

  19,813

  	

   

  	

  19,954

  	

   

  

 

 

 

4.              Discontinued

Operations

 

In

July 2001, the Board of Directors approved a plan to dispose of the company’s

Gas Marketing business.  The Gas

Marketing business provided supply, transportation and asset management

services, as well as structured financial products and services.  In December 1999, the Board of Directors

approved a plan (December Plan) to dispose of the company’s International,

Canadian Midstream and certain other businesses.  The company’s disposals under both plans were substantially completed

at December 31, 2001.

 

The

company remains contingently liable pursuant to obligations under certain

energy trading contracts that relate to the divested Gas Marketing

business.  At September 30, 2002, the

provision for loss on discontinued operations, including approximately $100

million of deferred after-tax gains and remaining obligations related to the

Gas Marketing business, was reviewed and was concluded to be appropriate.

 

Revenues

from discontinued operations for third quarter 2002 were $7 million (third

quarter 2001 - $2,342 million) and for the nine months ended September 30, 2002

were $30 million (2001 - $12,231 million). 

The provision for loss on discontinued operations at September 30, 2002

was $224 million (December 31, 2001 - $264 million).  This was comprised of $125 million (December 31, 2001 - $129

million) relating to Gas Marketing and $99 million (December 31, 2001 - $135

million) relating to the December Plan.

 

Other Financial Information on Discontinued

Operations

 

The following amounts related to discontinued

operations are included in the consolidated balance sheet.

 

	

   

  	

   

  	

  September

  30, 2002

  	

   

  	

  December

  31,

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  (unaudited)

  	

   

  	

  2001

  	

   

  
	

  Current assets

  	

   

  	

  88

  	

   

  	

  113

  	

   

  
	

  Non-current assets

  	

   

  	

  103

  	

   

  	

  212

  	

   

  
	

  Current liabilities

  	

   

  	

  (91

  	

  )

  	

  (116

  	

  )

  
	

  Non-current liabilities

  	

   

  	

  (2

  	

  )

  	

  (9

  	

  )

  
	

  Net Assets of Discontinued Operations

  	

   

  	

  98

  	

   

  	

  200

  	

   

  

 

 

 

5.              Commitments

and Contingencies

 

The

California Attorney General has filed a complaint for civil penalties in

California Superior Court under the California Business and Professions Code.

The complaint alleges that certain TransCanada subsidiaries and affiliates

engaged in sales or purchases of electricity in California for which they

failed to comply with the filing requirements of the Federal Power Act and FERC

orders. TransCanada believes the actions of its subsidiaries and affiliates

were in compliance with the Federal Power Act and FERC requirements.

TransCanada considers the complaint to be without merit and is vigorously

defending it.

 

The

Canadian Alliance of Pipeline Landowners’ Associations and two individual

landowners have commenced an action under Ontario’s Class Proceedings Act,

1992, against the company and Enbridge Inc. for damages alleged to arise from

the creation of a control zone within 30 metres of the pipeline pursuant to section

112 of the National Energy Board Act. 

The company believes the claim is without merit and will vigorously

defend the action.  The company has made

no provision for any potential liability. 

A liability, if any, would be dealt with through the regulatory process.

 

 

Supplementary Information

 

As at September 30, 2002,

TransCanada had 479,101,289 issued and outstanding common shares.  In addition, there were 13,347,221

outstanding options to purchase common shares, of which 10,662,395 were

exercisable as at September 30, 2002.

 

TransCanada welcomes questions

from shareholders and potential investors. Please telephone:

 

Investor Relations, at

1-800-361-6522 (Canada and U.S. Mainland) or direct dial David Moneta/Debbie

Persad at (403) 920-7911. The investor fax line is (403) 920-2457. Media

Relations: Glenn Herchak/Kurt Kadatz at (403) 920-7877.

 

Visit TransCanada’s Internet site at: http://www.transcanada.comExhibit

4.203

TransCanada PipeLines

Limited

EARNINGS COVERAGE

SEPTEMBER 30, 2002

 

 

 

The following

financial ratios have been calculated on a consolidated basis for the 12 month

period ended September 30, 2002 and are based on unaudited financial information.  The financial ratios have been calculated

based on financial information prepared in accordance with Canadian generally

accepted accounting principles.  The

following ratios have been prepared based on net income:

	

   

  	

   

  	

  September

  30, 2002

  	

   

  
	

  Earnings coverage

  on long-term debt  (1)

  	

   

  	

  2.39 times

  	

   

  
	

  Earnings

  coverage on long-term debt and  First

  Preferred Shares(1)

  	

   

  	

  2.30 times

  	

   

  

(1)                                  The above ratios have been

calculated without including the annual carrying charges relating to the equity

component of TransCanada’s outstanding preferred securities.  If the equity component of the preferred

securities were classified as debt, the entire carrying charges of the

preferred securities would be included in interest expense.  If these annual carrying charges had been included

in the calculations, the earnings coverage on long-term debt would have been

2.25 times for the 12 month period ended September 30, 2002 and the earnings

coverage on long-term debt and First Preferred Shares would have been 2.17

times for the 12 month period ended September 30, 2002.

 

 

 

 

The

following ratios have been prepared based on net income from continuing

operations:

	

   

  	

   

  	

  September

  30, 2002

  	

   

  
	

  Earnings

  coverage on long-term debt  (2)

  	

   

  	

  2.36 times

  	

   

  
	

  Earnings

  coverage on long-term debt and  First

  Preferred Shares(2)

  	

   

  	

  2.27 times

  	

   

  

(2)                                  The above ratios have been

calculated without including the annual carrying charges relating to the equity

component of TransCanada’s outstanding preferred securities.  If the equity component of the preferred

securities were classified as debt, the entire carrying charges of the

preferred securities would be included in interest expense.  If these annual carrying charges had been

included in the calculations, the earnings coverage on long-term debt would

have been 2.22 times for the 12 month period ended September 30, 2002 and the

earnings coverage on long-term debt and First Preferred Shares would have been

2.14 times for the 12 month period ended September 30, 2002.

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