Document:

<PAGE>

                                                                   Exhibit 10.5

                              EMPLOYMENT AGREEMENT
                              --------------------

         THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of May, 2001, by and between ENGINEERED SUPPORT SYSTEMS, INC.,
(hereinafter referred to as "Employer") and LARRY K. BREWER (hereinafter
referred to as "Employee") (Employer and Employee are sometimes hereinafter
individually referred to as a "Party" and collectively referred to as the
"Parties").

                              W I T N E S S E T H:

         WHEREAS, Employee desires to be employed by or to continue employment
with Employer and Employer desires to employ or continue to employ Employee
under the terms and conditions set forth in this Agreement; and,

         WHEREAS, it is the Employer's intention to employ Employee upon the
terms and conditions herein, which recognize and compensate Employee for the
obligations of Employee undertaken hereunder, including specifically, but not by
way of limitation, the covenants of Employee not to compete with the business of
Employer, as provided in paragraph 6.

         NOW, THEREFORE, in consideration of the foregoing and the promises and
agreements herein contained and other good valuable considerations, the receipt
and sufficiency of which are hereby acknowledged, Employer and Employee agree as
follows:

         1. EMPLOYMENT. Employee hereby accepts employment from Employer upon
            ----------
the terms and conditions hereinafter set forth.

         2. TERM OF EMPLOYMENT. The term of Employee's employment under this
            ------------------
Agreement shall be for the period commencing June 1, 2001 and ending May 31,
2003 (hereinafter "Initial Term"). The Employee's employment may be terminated
prior to the expiration of the Initial Term or any extension term of this
Agreement upon the happening of one or more of the following:

         (a) The death of Employee if actively employed by the Company at the
time of death;

         (b) The Employee's Disability which for purposes hereof shall mean
the Employee's failure substantially to discharge Employee's duties under
this Agreement for ninety (90) consecutive days or one hundred twenty (120) days
in any calendar year, whether or not consecutive, as a result of an injury,
disease, sickness or other physical or mental incapacity; or,

         (c) For "cause" immediately upon written notice from the Employer.
For purposes of this Agreement, the term "cause" shall mean the

                                       1

<PAGE>
<PAGE>

Employee's breach or violation of or failure to perform any of the material
terms and conditions of this Agreement or such other conduct or action by the
Employee which in the Employer's sole but reasonable opinion, materially and
adversely affects the business or reputation of the Employer, which shall
include specifically, but not by way of limitation, intentional or negligent
conduct or activity inconsistent with or proscribed by federal or state criminal
statute or regulation or express Employer policy pertaining to a contract with
the United States Government, or any act of dishonesty or disloyalty or breach
of trust against Employer.

         (d) By the Employer, without cause, by written notice, at any time.
In this circumstance only and subject to paragraph 19 hereof, the Employee
will be entitled to a severance allowance as hereinafter set forth. The
severance allowance shall be paid over a twelve (12) month period. During the
first six (6) months following the date of his termination, the Employee shall
be paid his then current monthly Base Salary (as hereinafter defined). During
the second six months following the date of his termination, the Employee shall
be paid fifty percent (50%) of his then current monthly Base Salary.
Notwithstanding anything in this provision or in this Agreement to the contrary,
in the event the Employee becomes gainfully employed during this twelve (12)
month period, all remaining payments that may be due under this provision, shall
be reduced by fifty percent (50%).

         (e) After the Initial Term (if this Agreement shall be extended),
by the Employee, at any time upon not less than thirty (30) days nor more
than sixty (60) days prior written notice to the Employer.

         Except as otherwise provided in paragraph 2(d) above, in the event
of the termination of the Employee's employment hereunder, for any reason,
Employee shall only be entitled to receive his Base Salary in accordance with
the Employer's regular payroll schedule through the effective date of such
termination and thereafter, the Employee shall have no further entitlement to
compensation hereunder.

         The Employee understands and agrees that in the event this
Agreement expires by its terms or in the event either party terminates
Employee's employment hereunder for any reason whatsoever, the restrictive
covenants set forth in paragraph 6 hereof and the remedies provision in
paragraph 10 hereof shall remain in full force and effect and shall survive
the expiration and termination of all other terms of this Agreement.

                                       2

<PAGE>
<PAGE>

         The Initial Term of this Agreement shall not be extended except by
mutual written agreement of the Parties.

         3.  JOB DUTIES. Upon the commencement of the Initial Term, the Employer
             ----------
agrees to employ the Employee as the Vice President-Business Development of
Employer under the administrative direction of and reporting to such person(s)
as Employer's Board of Directors ("Board") may from time to time direct.
Employee shall perform such duties and tasks as are customarily incident to his
position as well as such other duties and tasks as the Board may from time to
time request or as may be set forth in a job description for the position held
by Employee, as the same may from time to time be modified by Employer.

         If there is a Change in Control (as that term is hereinafter defined
in paragraph 19 hereof) of Employer, the Employee may be transferred from
employment with the Employer to employment with another corporation that is
affiliated with the Employer prior to the date on which a Change in Control
occurs, in which case, this other corporation or affiliate shall be substituted
for the Employer in this Agreement, and no termination of the Employee's
employment shall be deemed to have occurred. In the event of such transfer,
Employee shall hold the same or a similar executive position with the other
corporation or affiliate to whom he has been transferred and all other terms and
conditions of this Agreement shall remain in full force and effect.

         4.  COMPENSATION.
             ------------

         (a) Subject to the other provisions of this Agreement, and in
consideration of the services to be rendered hereunder, Employer agrees to
compensate Employee with a base salary of One Hundred Thirty-Eight Thousand
Dollars ($138,000.00) per year ("Base Salary"), payable in accordance with
Employer's regular payroll schedule. In addition to the Base Salary, the
Employer may pay the Employee a bonus or bonuses from time to time, which the
Board determines in their sole discretion based on such facts and circumstances
that it shall see fit to consider; provided, however, in no event, shall the
cumulative yearly total of bonuses paid to the Employee in any fiscal year of
the Employer, during the term of this Agreement be less than Thirty-Five
Thousand Dollars ($35,000.00) or exceed fifty percent (50%) of the Employee's
Base Salary.

         (b) During the term of this Agreement, Employer will pay or
reimburse Employee for those reasonable and necessary expenses that are incurred
by Employee in the interest of the business of Employer in accordance with the
policy of the Employer and as authorized by the Board.

         5.  RELATIONSHIP OF THE PARTIES. It is understood and agreed that
             ---------------------------
Employee stands in a confidential and fiduciary relationship with Employer and
has special obligations to protect, preserve, enhance, and promote the best
interests of the Employer. Therefore, Employer is relying on this confidential
relationship and on Employee's agreement and commitment that he will devote

                                       3

<PAGE>
<PAGE>

whatever time and attention as is necessary to the business of Employer and will
not during the term of this Agreement, nor any extension hereof, without
Employer's knowledge and written consent, be or become engaged in any other
business activity whether or not such business activity is pursued for gain,
profit, or other proprietary advantage. The foregoing shall not be construed as
preventing Employee from devoting reasonable (but limited) amounts of his time
to civic, community or charitable pursuits, or to personal investment, provided
that such activities do not interfere with Employee's performance of his
responsibilities and duties hereunder or otherwise present a conflict of
interest with respect to Employee's responsibilities to the Employer. A conflict
of interest exists if Employee either directly or indirectly has an undisclosed
financial interest in any company, its affiliates, divisions, subsidiaries or
associates, or in the business opportunities or ventures of any such company or
if it involves a substantial or meaningful investment or other interest in a
business association or other concern which engages in competition with the
Employer. For purposes hereof, a conflict shall not be considered to exist if
the competitor company, other entity or concern is a former employer of the
Employee and the investment in question represents a part of his compensation
package from such former employer or such other investment approved in writing
by Employer.

         6.  COVENANTS OF EMPLOYEE.
             ---------------------

             (a) So long as this Agreement shall be in effect and at all times
after the termination hereof, for whatever reason, Employee covenants,
warrants, and agrees that Employee will not (except as required in Employee's
duties to Employer), in any manner directly or indirectly, actually or attempt
to:

             (i) Disclose or divulge to any person, entity, firm or company
             whatsoever, or use or utilize for Employee's own benefit or
             for the benefit of any third person or concern, or for any
             reason inconsistent with the purpose of this Agreement or
             inconsistent with Employee's confidential and fiduciary
             relationship with Employer, any trade secrets, formulae,
             know-how, management and business methods, techniques or
             opportunities, customer information, supplier information,
             business or financial plans and materials or other information
             or data of Employer, and without regard to whether all of the
             foregoing matters would otherwise be deemed confidential,
             proprietary, material or important, the parties hereto hereby
             stipulate, as between them, the foregoing are important,
             material, propriety, and confidential and greatly affect the
             effective and successful conduct of the business and goodwill
             of Employer, and the parties further stipulate that any breach
             or evasion of the terms of this subparagraph (a) shall be a
             material breach of this Agreement.

             (b) During the term of this Agreement and for a period of two
(2) years after the Employee's termination, for whatever reason, Employee

                                       4

<PAGE>
<PAGE>

covenants, warrants, and agrees that Employee will not (except as required in
Employee's duties to Employer), in any manner directly or indirectly, actually
or attempt to:

             (i) Solicit, divert, take away from, have contact or interfere
             with any of the customers, trade business, patronage,
             employees or agents of Employer, or in any manner engage in
             any conduct or activity including, but not limited to, verbal
             representations or declarations, that would or could be
             construed or are intended as a disparagement of Employer's
             interests; and

             (ii) Engage, within the United States, directly or indirectly,
             either personally or as an employee, partner, associate,
             consultant, officer, manager, agent, representative, advisor,
             investor or stockholder or otherwise, or by means of any corporate
             or other entity or device, in any business which is "competitive"
             (as hereinafter defined) with the business of Employer.

             (c) For purposes hereof, a business will be deemed
"competitive" if any of its products or product processes are substantially
similar in use, design or application to the present and future products or
product processes of Employer or similar to any product with respect to which
Employer as of the date hereof has formulated a definitive interest. The
Employee agrees that during the term of this Agreement and for the term of the
restrictive covenants set forth herein, he will promptly communicate to Employer
the identity of all companies, persons or concerns with whom Employee is
considering employment, association or other relationship along with other
information as to the products of such company, person or concern sufficient in
detail to permit Employer to make a determination as to whether or not
competition exists. In order to preserve its rights under this Agreement, the
Employer may advise any third party with whom the Employee may consider,
establish or contract a relationship of the existence and terms of this
Agreement, and the Employee authorizes and consents to such disclosure, and
Company shall have no liability for so acting.

             (d) All of the covenants of Employee contained in this
paragraph 6 shall be construed as agreements independent of any other provision
of this Agreement and the existence of any claim or cause of action against
Employer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of these covenants.

             (e) It is the intention of the parties to restrict the
activities of Employee under this paragraph 6 only to the extent necessary for
the protection of legitimate business interests of Employer, and the parties
specifically covenant and agree that should any of the clauses or provisions set
forth herein, under any set of competent jurisdiction adjudicated to be either
illegal, invalid,

                                       5

<PAGE>
<PAGE>

or unenforceable under present or future law, then, and in that event, it is the
intention of the parties hereto that, in lieu of each such clause or provision,
there shall be substituted or added, and there is hereby substituted and added a
provision as similar in terms to such illegal, invalid, or unenforceable clause
or provision as may be legal, valid, and enforceable.

         7.  ESSI SECURITIES. Employee agrees to comply fully and faithfully
             ---------------
with regulations of the Securities and Exchange Commission pertaining to insider
transactions in Engineered Support Systems, Inc.'s ("ESSI") securities and
specifically, to report all intended, contemplated, and consummated transactions
involving ESSI securities to Employer.

         8.  SUGGESTIONS. The term suggestions as used herein designates all
             -----------
ideas, developments, improvements, inventions, or other intellectual property
whether patentable or not, which are conceived of, made, developed, or acquired
by Employee either alone or in conjunction with others during the term of this
Agreement and which are related to the business of Employer. Employee shall
communicate and promptly assign to Employer, all of his suggestions and Employer
shall have a free, exclusive right, title or license to make, use, sell, and
patent as to all such suggestions whether patentable or not. Employee hereby
releases Employer from any and all liability in connection with any of
Employee's suggestions, or liability because of use of any portions thereof.
Employee will, at any time upon request by Employer, execute and deliver any and
all papers and do all acts necessary or appropriate for the proper transfer,
assignment, and protection of license, title and other rights of Employer in and
to any intellectual property to which it may be entitled by virtue of this
paragraph.

         9.  DOCUMENTS. Employee agrees that all documents, instruments,
             ---------
drawings, plans, contracts, proposals, records, notebooks, invoices, statements
and correspondence, including all copies thereof, electronic or otherwise,
whether stored on CD, hard disk, floppy disk or magnetic tape, relating to the
business of Employer, shall be the property of Employer and, upon cessation of
Employee's employment with Employer, for whatever reason, all of the same then
in Employee's possession whether prepared by Employee or others, will be left
with or immediately delivered to Employer.

         10. REMEDIES. Notwithstanding anything to the contrary contained in
             --------
this Agreement, it is agreed that any breach or violation of any of the terms of
paragraphs 5, 6 or 7 of this Agreement by Employee will result in immediate and
irreparable injury to Employer and will authorize recourse to an ex parte
temporary restraining order, preliminary injunction, permanent injunction and/or
specific performance as well as to all other legal or equitable remedies to
which Employer may be entitled. Employee acknowledges that in the event of the
termination of the Employee's employment for any reason, Employee's experience
and capabilities are such that Employee can obtain employment in businesses
engaged in other lines or of a different nature, and that the enforcement of a
remedy by way of injunction will not prevent Employee from earning a livelihood.
No remedy conferred by any of the specific provisions of

                                       6

<PAGE>

this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity, by statute or
otherwise. The election of any one or more remedies by Employer shall not
constitute waiver of the right to pursue other available remedies at any time or
cumulatively from time to time.

         11. EMPLOYEE BENEFITS. Employee shall be entitled to participate, in
             -----------------
accordance with the eligibility requirements thereof, in any medical,
disability, accidental death, life insurance, profit sharing trust and 401(k)
programs and other employee benefits which now exist or that may be established
hereafter by Employer on the same basis as other employees of Employer.

         12. VACATION. Employee shall be entitled to four (4) weeks paid
             --------
vacation each year, which vacation time shall be taken during such periods as
may be mutually agreed upon by Employer and Employee.

         13. SEVERABILITY. Subject to the provisions of paragraph 6(d), all
             ------------
agreements and covenants herein contained are severable, and in the event any of
them shall be held to be invalid or unenforceable in any respect, this Agreement
shall be interpreted as if such invalid agreement or covenant were not contained
herein.

         14. WAIVER AND MODIFICATION. This Agreement is the final and only
             -----------------------
agreement between the Parties, hereby superseding all prior agreements or
promises not set forth or incorporated herein, whether written or oral. No
amendment, waiver or modification of this Agreement or any covenant, conditions
or limitation herein contained shall be valid unless in writing and duly
executed by the Employee and an officer of the Employer with the express written
consent of the Board, and no evidence of any amendment, waiver or modification
shall be offered or received in evidence in any proceeding, arbitration or
litigation between the Parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the Parties hereunder, unless such
amendment, waiver or modification is in writing, duly executed as aforesaid, and
the Parties further agree that the provisions of this paragraph may not be
waived or modified except as herein set forth.

         15. GOVERNING LAW. This Agreement shall be construed and enforced in
             -------------
accordance with the laws of the State of Missouri with the exclusive venue for
purposes of litigation being the Circuit Court for the County of St. Louis,
Missouri.

         16. ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
             -------------------------
brought to enforce or interpret any of the terms of this Agreement, the
prevailing party shall be entitled to recover from the other party the
reasonable attorneys' fees, costs, and necessary disbursements in addition to
any other relief to which it may be entitled.

                                       7

<PAGE>
<PAGE>

         17. BINDING EFFECT AND NON-ASSIGNMENT. The Employee may not assign the
             ---------------------------------
benefit of this Agreement or delegate the Employee's obligations under this
Agreement. This Agreement is assignable by the Employer. Subject to the
foregoing limitation on assignment and delegation by the Employee, this
Agreement shall be binding upon and inure to the benefit of the Employer and
Employee and their respective successors, assigns, heirs, legal representatives,
executors, and administrators. The term "Employer" as used in this Agreement
shall mean and include the party so named in the initial paragraph of this
Agreement, the surviving entity of any merger, combination, consolidation or
reorganization to which the Employer is a party, or the corporation or affiliate
to which Employee may be transferred as described in paragraph 3 hereof.

         18. NOTICES. All notices, requests, demands, reports or other
             -------
communication hereunder ("Notices") shall be in writing and shall be given by
registered or certified mail, return receipt requested, addressed as follows:

                      If to Employer:

                      Engineered Support Systems, Inc.
                      ATTN: President/Gerald A. Potthoff
                      201 Evans Lane
                      St. Louis, MO 63121-1126

                      With a copy to:

                      Engineered Support Systems, Inc.
                      ATTN: General Counsel/David Mattern
                      201 Evans Lane
                      St. Louis, MO 63121-1126

                      If to Employee:

                      Larry K. Brewer
                      17142 Surrey View Drive
                      Chesterfield, MO 63005

or to such other addresses as to which the parties hereto give Notice in
accordance with this paragraph 18.

         19. CHANGE IN CONTROL. If there is a Change in Control of Employer and
             -----------------
Employee is not offered a job with comparable responsibilities and Base Salary
by the new owner of Employer's business, Employer will pay Employee each month
for a period of one year after the date of the ownership change, Employee's then
current monthly Base Salary; provided, however, that if Employee becomes
employed by such ownership group or any other party during such one year period,
then the amount of Employee's monthly Base Salary will be reduced by any
compensation paid to Employee by or on behalf

                                       8

<PAGE>
<PAGE>

of the new owner of Employer's business or any other party with whom Employee
becomes gainfully employed during the one year period. The amounts due to
Employee pursuant to this paragraph 19 shall be payable in accordance with
Employer's regular payroll schedule. The amounts payable to Employee under this
paragraph 19 are in lieu of any severance entitlement that Employee may have
pursuant to paragraph 2(d) hereof. Employee agrees, as a condition to receiving
amounts pursuant to this paragraph 19, that he will advise and regularly update
Employer with respect to his employment and earnings sources after a Change in
Control and to provide Employer with such information as may be reasonably
requested by Employer for purposes of verifying Employee's earnings after the
Change in Control. Employee's entitlement to the amounts provided under this
paragraph 19 are further conditioned upon Employee executing a general release
agreement developed for use by Employer.

         For purposes hereof, the term "Change in Control" shall mean the sale
or transfer of all of the capital stock of Employer or the sale or transfer of
all or substantially all of the assets of Employer to a party not owned by or
affiliated with Employer or ESSI.

                                       9

<PAGE>
<PAGE>

         IN WITNESS WHEREOF, the Employer and Employee have executed this
Agreement to be duly signed and entered into the day and year first written
above.

                                                         "EMPLOYER"

                                             ENGINEERED SUPPORT SYSTEMS, INC.

                                             By: /s/ David D. Mattern
                                                -------------------------------
                                             Name: David D. Mattern
                                             Title: Secretary

                                                         "EMPLOYEE"

                                             /s/ Larry K. Brewer
                                             ----------------------------------
                                             Larry K. Brewer

                                       10Exhibit

4.208

 

	

   

  	

  

  

 

FOURTH QUARTER 2002

 

Quarterly Report to Shareholders

 

Consolidated

Results-at-a-Glance

 

	

  (unaudited)

  (millions of dollars except per share amounts)

  	

   

  	

  Three months ended

  December 31

  	

   

  	

  Year ended December 31

  	

   

  
	

   

  	

  2002

  	

   

  	

  2001*

  	

   

  	

  2002

  	

   

  	

  2001*

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net Income/(Loss) Applicable to Common Shares

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing

  operations

  	

   

  	

  180

  	

   

  	

  166

  	

   

  	

  747

  	

   

  	

  686

  	

   

  
	

  Discontinued

  operations

  	

   

  	

  —

  	

   

  	

  20

  	

   

  	

  —

  	

   

  	

  (67

  	

  )

  
	

   

  	

   

  	

  180

  	

   

  	

  186

  	

   

  	

  747

  	

   

  	

  619

  	

   

  
	

  Net Income/(Loss) Per Share - Basic

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing

  operations

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.35

  	

   

  	

  $

  	

  1.56

  	

   

  	

  $

  	

  1.44

  	

   

  
	

  Discontinued

  operations

  	

   

  	

  —

  	

   

  	

  0.05

  	

   

  	

  —

  	

   

  	

  (0.14

  	

  )

  
	

   

  	

   

  	

  $

  	

  0.37

  	

   

  	

  $

  	

  0.40

  	

   

  	

  $

  	

  1.56

  	

   

  	

  $

  	

  1.30

  	

   

  
															

 

* Restated, see note 2,

Accounting Changes, in the Notes to the Consolidated Financial Statements.

 

Management’s Discussion and Analysis

 

On January 28, 2003, the Board of Directors

of TransCanada PipeLines Limited (TransCanada or the company) raised the

quarterly dividend on the company's common shares from $0.25 per share to $0.27

per share, an increase of eight per cent, for the quarter ended March 31, 2003.

 

The following discussion and

analysis should be read in conjunction with the accompanying consolidated

financial statements of TransCanada and the notes thereto.

 

Results of Operations

 

Consolidated

 

TransCanada’s net income applicable to common

shares from continuing operations (net earnings) for the year ended December

31, 2002 was $747 million or $1.56 per share compared to $686 million or $1.44

per share in 2001.  The increase of $61

million or $0.12 per share in 2002 compared to 2001 is primarily due to higher

earnings from the Transmission business and reduced expenses in the Corporate

segment, partially offset by lower

 

 

 

earnings from the Power

segment.  In 2001, the Power segment

earnings reflected the significant market opportunities created by high market

prices and power price volatility.  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 year ended December 31, 2002 include

after-tax net income of $36 million or $0.08 per share, representing the impact

of the Fair Return decision for 2001 ($16 million) and 2002 ($20 million).  The results also include $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 year ended December 31, 2002 was $747 million or $1.56 per share compared

to $619 million or $1.30 per share in 2001. 

The 2001 results included a net loss from discontinued operations of $67

million or $0.14 per share.

 

TransCanada’s net earnings for

fourth quarter 2002 were $180 million or $0.37 per share compared to $166

million or $0.35 per share for fourth quarter 2001.  The increase of $14 million or $0.02 per share in the fourth

quarter is mainly attributable to stronger results from the Transmission

segment and lower expenses in the Corporate segment, offset by lower earnings

from the Power segment.

 

Net income applicable to common shares for

fourth quarter 2002 was $180 million or $0.37 per share compared to $186

million or $0.40 per share for fourth quarter 2001.  The fourth quarter 2001 results include a positive $20 million or

$0.05 per share after-tax adjustment to the provision for loss on discontinued

operations.

 

Funds generated from continuing operations of

$1,827 million for the year ended December 31, 2002 increased by $203 million

in comparison to 2001.  Funds generated

from continuing operations of $467 million for fourth quarter 2002 increased

$106 million compared to the fourth quarter last year.

 

The company has chosen to expense stock

options and the impact of this accounting change, which has been recorded in

the fourth quarter 2002, was a $2 million charge to net income in the three

months and year ended December 31, 2002.

 

Effective third quarter 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 (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 income for

the year ended December 31, 2001 included a positive adjustment of $11 million.

Under accrual accounting, net income for the year ended

 

 

 

 

December 31, 2002 is $13 million higher than

would have been reported under mark-to-market accounting.

 

	

  Segment

  Results-at-a-Glance

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  (unaudited)

  (millions of dollars)

  	

   

  	

  Three months ended

  December 31

  	

   

  	

  Year ended December 31

  	

   

  
	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Transmission

  	

   

  	

  162

  	

   

  	

  153

  	

   

  	

  653

  	

   

  	

  585

  	

   

  
	

  Power

  	

   

  	

  30

  	

   

  	

  35

  	

   

  	

  146

  	

   

  	

  168

  	

   

  
	

  Corporate

  	

   

  	

  (12

  	

  )

  	

  (22

  	

  )

  	

  (52

  	

  )

  	

  (67

  	

  )

  
	

  Continuing

  operations

  	

   

  	

  180

  	

   

  	

  166

  	

   

  	

  747

  	

   

  	

  686

  	

   

  
	

  Discontinued

  operations

  	

   

  	

  —

  	

   

  	

  20

  	

   

  	

  —

  	

   

  	

  (67

  	

  )

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Net Income Applicable to Common Shares

  	

   

  	

  180

  	

   

  	

  186

  	

   

  	

  747

  	

   

  	

  619

  	

   

  

 

Transmission

 

The Transmission business generated net

earnings of $162 million and $653 million for the three months and year ended

December 31, 2002, respectively.

 

	

  Transmission

  Results-at-a-Glance

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  (unaudited)

  (millions of dollars)

  	

   

  	

  Three months ended

  December 31

  	

   

  	

  Year ended December 31

  	

   

  
	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Wholly-Owned Pipelines

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Alberta

  System

  	

   

  	

  56

  	

   

  	

  59

  	

   

  	

  214

  	

   

  	

  204

  	

   

  
	

  Canadian

  Mainline

  	

   

  	

  75

  	

   

  	

  70

  	

   

  	

  307

  	

   

  	

  274

  	

   

  
	

  BC

  System

  	

   

  	

  2

  	

   

  	

  1

  	

   

  	

  6

  	

   

  	

  5

  	

   

  
	

   

  	

   

  	

  133

  	

   

  	

  130

  	

   

  	

  527

  	

   

  	

  483

  	

   

  
	

  North American Pipeline Ventures

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Great

  Lakes

  	

   

  	

  17

  	

   

  	

  15

  	

   

  	

  66

  	

   

  	

  56

  	

   

  
	

  TC

  PipeLines, LP

  	

   

  	

  5

  	

   

  	

  4

  	

   

  	

  17

  	

   

  	

  15

  	

   

  
	

  Iroquois

  	

   

  	

  3

  	

   

  	

  4

  	

   

  	

  18

  	

   

  	

  16

  	

   

  
	

  Portland

  	

   

  	

  —

  	

   

  	

  —

  	

   

  	

  2

  	

   

  	

  (1

  	

  )

  
	

  Foothills

  	

   

  	

  4

  	

   

  	

  5

  	

   

  	

  17

  	

   

  	

  20

  	

   

  
	

  Trans

  Québec & Maritimes

  	

   

  	

  2

  	

   

  	

  2

  	

   

  	

  8

  	

   

  	

  8

  	

   

  
	

  Northern

  Development

  	

   

  	

  (1

  	

  )

  	

  (3

  	

  )

  	

  (6

  	

  )

  	

  (9

  	

  )

  
	

  Other

  	

   

  	

  (1

  	

  )

  	

  (4

  	

  )

  	

  4

  	

   

  	

  (3

  	

  )

  
	

   

  	

   

  	

  29

  	

   

  	

  23

  	

   

  	

  126

  	

   

  	

  102

  	

   

  
	

  Net

  earnings

  	

   

  	

  162

  	

   

  	

  153

  	

   

  	

  653

  	

   

  	

  585

  	

   

  

 

 

 

 

Wholly-Owned Pipelines

 

The Alberta System’s net earnings of $56

million in fourth quarter 2002 decreased $3 million compared to $59 million in

the same quarter of 2001 primarily due to recognition in fourth quarter 2001 of

incentive earnings from operating cost efficiencies related to 2001.  Net earnings for the year ended December 31,

2002 increased $10 million when compared to the prior year, primarily due to an

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

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

System’s Products & Pricing Agreement which ended in the first quarter of

2002.  TransCanada is currently in

negotiations with Alberta System customers on the 2003 revenue requirement.  TransCanada plans to file an application for

approval of the Alberta System 2003 revenue requirement and final 2003 tolls,

rates and charges with the Alberta Energy and Utilities Board (EUB) by February

28, 2003.

 

The Canadian Mainline’s net earnings have

increased $5 million and $33 million, respectively, for the three months and

year ended December 31, 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.  The increase in earnings from the Fair

Return decision was partially offset by a decline in the rate of  return on common equity from 9.61 per cent

in 2001 to 9.53 per cent in 2002 and a lower average

 

 

 

investment base.  The NEB has scheduled a hearing to commence

February 24, 2003 to consider the Canadian Mainline 2003 Tolls and Tariff

Application.  In September 2002,

TransCanada also filed with the NEB a request for review and variance of the

Fair Return decision and that the final Canadian Mainline 2003 Tolls and Tariff

Application reflect the review and variance decision.  The NEB has not yet responded to TransCanada’s review and

variance request.

 

	

  Operating Statistics

  Year ended December 31 (unaudited)

  	

   

  	

  Alberta

  System*

  	

   

  	

  Canadian

  Mainline**

  	

   

  	

  BC

  System

  	

   

  
	

   

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Average

  investment base ($millions)

  	

   

  	

  5,074

  	

   

  	

  5,183

  	

   

  	

  8,884

  	

   

  	

  9,176

  	

   

  	

  211

  	

   

  	

  204

  	

   

  
	

  Delivery

  volumes (Bcf)

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Total

  	

   

  	

  4,146

  	

   

  	

  4,059

  	

   

  	

  2,630

  	

   

  	

  2,450

  	

   

  	

  371

  	

   

  	

  395

  	

   

  
	

  Average

  per day

  	

   

  	

  11.4

  	

   

  	

  11.1

  	

   

  	

  7.2

  	

   

  	

  6.7

  	

   

  	

  1.0

  	

   

  	

  1.1

  	

   

  

 

*Field

receipt volumes for the Alberta System for the year ended December 31, 2002

were 4,101 Bcf (2001 - 4,170 Bcf); average per day were 11.2 Bcf (2001 - 11.4

Bcf).

**Canadian

Mainline deliveries originating at the Alberta border and in Saskatchewan for

the year ended December 31, 2002 were 2,221 Bcf (2001 - 2,098 Bcf); average per

day were 6.1 Bcf (2001 - 5.7 Bcf).

 

North American Pipeline Ventures

 

TransCanada’s proportionate share of net

earnings from its other Transmission businesses was $29 million and $126

million for the three months and year ended December 31, 2002,

respectively.  This represents increases

of $6 million and $24 million, respectively, compared to the same periods in

2001.

 

Higher net earnings for the year ended

December 31, 2002 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 full year 2002 net earnings was mainly due

to higher transportation margins, 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 (CrossAlta), Ventures LP and TransGas de Occidente, increased $7

million in 2002 when compared to the prior year.

 

The $6 million increase in fourth quarter

2002 compared to 2001 is mainly due to lower northern development costs and

increased contributions from CrossAlta and Great Lakes.

 

 

 

 

 

Power

 

	

  Power Results-at-a-Glance

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  (unaudited)

  (millions of dollars)

  	

   

  	

  Three months ended December

  31

  	

   

  	

  Year ended December 31

  	

   

  
	

   

  	

  2002

  	

   

  	

  2001

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Power

  LP investment

  	

   

  	

  9

  	

   

  	

  10

  	

   

  	

  36

  	

   

  	

  39

  	

   

  
	

  Northeastern

  U.S. operations

  	

   

  	

  35

  	

   

  	

  55

  	

   

  	

  149

  	

   

  	

  159

  	

   

  
	

  Western

  operations

  	

   

  	

  30

  	

   

  	

  15

  	

   

  	

  131

  	

   

  	

  149

  	

   

  
	

  General,

  administrative and support costs

  	

   

  	

  (25

  	

  )

  	

  (18

  	

  )

  	

  (73

  	

  )

  	

  (49

  	

  )

  
	

  Operating

  and other income

  	

   

  	

  49

  	

   

  	

  62

  	

   

  	

  243

  	

   

  	

  298

  	

   

  
	

  Financial

  charges

  	

   

  	

  (4

  	

  )

  	

  (9

  	

  )

  	

  (13

  	

  )

  	

  (24

  	

  )

  
	

  Income

  taxes

  	

   

  	

  (15

  	

  )

  	

  (18

  	

  )

  	

  (84

  	

  )

  	

  (106

  	

  )

  
	

  Net

  earnings

  	

   

  	

  30

  	

   

  	

  35

  	

   

  	

  146

  	

   

  	

  168

  	

   

  

 

Power’s net earnings of $146 million for the

year ended December 31, 2002 were $22 million lower when compared to 2001.  Net earnings of $30 million in fourth

quarter 2002 decreased $5 million compared to $35 million in fourth quarter

2001.

 

Operating and other income from

the investment in TransCanada Power, L.P. (Power LP) for the three months ended

December 31, 2002 was comparable to the same period in 2001.  For the year ended December 31, 2002,

earnings were $3 million lower when compared to 2001, primarily due to an

unplanned outage at the Williams Lake plant in the first half of 2002 and a

reduction in TransCanada’s ownership interest from 41.6 per cent to 35.6 per

cent in Power LP, effective October 2001.

 

Operating and other income from

the Northeastern U.S. Operations decreased $10 million and $20 million, for the

year and three months ended December 31, 2002, respectively, compared to the

same periods in 2001.  The decrease is

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

2002 and TransCanada’s ability to capitalize on market opportunities in fourth

quarter 2001.  The annual decrease is

partially offset by income from a full year ownership in 2002 of the Curtis

Palmer Hydroelectric Company, L.P., which was acquired in July 2001.

 

 

 

 

Operating and other income from

Western Operations of $30 million for the three months ended December 31, 2002

was $15 million higher than the same period in 2001.  Results in 2002 included income from the December 2001

acquisition of a 50 per cent interest in the Sundance B power purchase

arrangement (PPA), the January 2002 commercial start up of the Redwater and

Carseland plants, the November 2002 acquisition of the ManChief plant, and

lower contract prices on the sale of output from the Sundance A PPA compared to

2001.  Operating and other income for

the year ended December 31, 2002 is $18 million lower than 2001, mainly due to

lower contract prices for the Sundance A PPA in 2002 and TransCanada’s ability

in the first half of 2001 to take advantage of market opportunities created by

high market prices and power price volatility. 

These decreases are partially offset by income from the Sundance B PPA

and the Redwater, Carseland and ManChief plants.

 

The increase in general,

administrative and support costs for the three months and year ended December

31, 2002 compared to the same periods in 2001 includes increased project

development costs and reflects the continuing investment in the Power business.

 

Corporate

 

Net expenses were $12 million

and $22 million for the three months ended December 31, 2002 and 2001, respectively.  Net expenses were $52 million for the year

ended December 31, 2002 compared to $67 million for 2001.

 

Results for the year ended

December 31, 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

December 31, 2001 nor in the year ended December 31, 2002.

 

Net expenses for fourth quarter

2002 have improved by $10 million compared to fourth quarter 2001, and results

for the full year 2002, excluding the impact of the foreign currency accounting

change, have improved by $20 million compared to 2001.  These improvements are primarily due to

lower general and administrative expenses to support discontinued operations

and the positive impact of lower interest rates offset by increased Corporate

financial charges resulting from 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 December 31,

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 2002.

 

Liquidity and Capital Resources

 

Funds Generated from Operations

 

Funds generated from continuing operations of

$1,827 million for the year ended December 31, 2002 increased by $203 million

in comparison to 2001.  Funds generated

from continuing operations of $467 million for fourth quarter 2002 increased

$106 million compared to the fourth quarter last year.

 

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

substantially unchanged since December 31, 2001.

 

Investing Activities

 

In the three months and year ended December

31, 2002, capital expenditures, excluding acquisitions, totalled $202 million

(2001 - $174 million) and $599 million (2001 - $492 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 fourth quarter 2002, TransCanada acquired

the ManChief power plant for $209 million. 

Acquisitions for the year ended December 31, 2002 totalled $228 million

compared to $585 million in 2001.

 

Financing Activities

 

TransCanada used a portion of its cash

resources to fund debt maturities of $486 million and reduce notes payable by

$46 million in 2002.

 

In the fourth quarter 2002, TransCanada filed

shelf prospectuses in Canada and the United States qualifying for issuance of

$2 billion of common shares, preferred shares and/or debt securities including

medium term notes and US$1 billion of common shares, preferred shares and/or

debt securities, respectively.  Any

offer to sell securities under these shelf prospectuses will only be made by

means of prospectus supplements filed with the appropriate securities

regulatory authorities.

 

During the fourth quarter 2002, TransCanada

established a new $1.5 billion syndicated credit facility, replacing existing

lines set to expire in mid-2003.

 

Dividends

 

On January 28, 2003, TransCanada’s Board of

Directors declared a quarterly dividend of $0.27 per share for the quarter

ended March 31, 2003 on the outstanding common shares.  This is the 157th consecutive

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

April 30, 2003 to shareholders of record at the close of business on March 31,

2003.  The Board also declared regular

dividends on TransCanada’s preferred shares.

 

Discontinued Operations

 

Net cash provided by discontinued operating

activities was $59 million for the year ended December 31, 2002 compared with

net cash used in discontinued operating activities of $659 million in

2001.  The significant amount of net

cash used in the year ended December 31, 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 year ended December 31, 2002 compared to dispositions of

$1,170 million in 2001.

 

 

 

Risk

Management

 

With respect to continuing operations,

TransCanada’s market risk remains substantially unchanged since December 31,

2001. However, with the deterioration in the creditworthiness of a number of

counterparties since December 31, 2001, 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 their financial obligations.

 

Controls and Procedures

 

Within 90 days prior to the filing of this

quarterly report, TransCanada’s management evaluated the effectiveness of the

design and operation of the company’s disclosure controls and procedures

(disclosure controls) and internal controls for financial reporting purposes

(internal controls). Based on that evaluation, the Chief Executive Officer and

the Chief Financial Officer have concluded that:

 

•                                          TransCanada’s

disclosure controls are effective in ensuring that material information

relating to TransCanada is made known to management on a timely basis, and is

included in this quarterly report; and

 

•                                          TransCanada’s

internal controls are effective in providing assurance that the financial

statements for this quarter are fairly presented in accordance with Canadian

generally accepted accounting principles.

 

To the best of these officers’

knowledge and belief, there have been no significant changes in internal

controls or in other

 

 

 

 

factors that could significantly affect

internal controls subsequent to the date on which such evaluation was completed

in connection with this quarterly report.

 

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. 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 continue to provide 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 (DBRS), Moody’s Investors Service (Moody’s) and Standard & Poor’s

are

 

 

 

 

currently A, A2 and A-,

respectively.  On December 23, 2002,

Standard & Poor’s placed its rating on TransCanada’s senior unsecured debt

on ‘CreditWatch’ with negative implications. 

DBRS and Moody’s continue to maintain a ‘stable’ outlook.

 

Other Recent Developments

 

Transmission

 

Wholly-Owned Pipelines

 

In December 2002, the EUB

approved interim tolls for 2003 on the Alberta System.  TransCanada is currently in negotiation with

Alberta System customers on the 2003 revenue requirement.  TransCanada plans to file an application for

approval of the Alberta System 2003 revenue requirement and final 2003 tolls,

rates and charges with the EUB by February 28, 2003.

 

In December 2002, TransCanada’s Mainline interim

tolls were approved by the NEB.  The NEB

is scheduled to commence a public hearing beginning on February 24, 2003 to

consider TransCanada’s application for approval of 2003 tolls.

 

North American Pipeline Ventures

 

In January 2003, Portland Natural Gas

Transmission System received U.S. Federal Energy Regulatory Commission

approval, subject to a public comment period, on new tolls which are effective

retroactive to April 2002.

 

Power

 

In November 2002, TransCanada completed its

acquisition of the ManChief power plant from El Paso for $209 million.  The ManChief power plant is a simple-cycle,

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

of 300 megawatts (MW).  The entire

output of the plant is sold under long-term tolling contracts that expire in

2012.

 

In December 2002, TransCanada reached an

agreement under which affiliates of TransCanada will acquire a 31.6 per cent

interest in Bruce Power Limited Partnership (Bruce Power) and an approximate

33.3 per cent interest in Bruce Power Inc., the general partner of Bruce Power,

from British Energy plc (BE) for approximately $376 million.  TransCanada will also fund a one-third share

($75 million) of a $225 million accelerated deferred rent payment to Ontario

Power Generation (OPG).  Currently, BE

and Cameco Corporation (Cameco) indirectly hold the interests in Bruce Power

together with the Power Workers’ Union and The Society of Energy

 

 

 

Professionals. TransCanada, as part of a

consortium that includes Cameco and BPC Generation Infrastructure Trust, a

trust established by the Ontario Municipal Employees Retirement System, expects

to close the transaction in February 2003 pending necessary consents and

regulatory approval.  The Bruce Power

facility is made up of two nuclear plants - Bruce B and Bruce A.  Bruce B consists of four reactors, currently

generating 3,140 MW.  Bruce A consists

of four 769 MW reactors, which are currently not operating.  Two of the Bruce A units are expected to be

restarted and online by the summer of 2003. 

Bruce Power is a tenant under a lease on the facility which expires in

2018 with an option to extend the lease by up to 25 years.  The Bruce Power facility will continue to be

managed and operated by the management and staff of Bruce Power.  Spent fuel and decommissioning liabilities

remain the responsibility of OPG.

 

 

 

In December 2002, TransCanada

and OPG announced the formation of Portlands Energy Centre L.P., a 50/50

partnership.  The partnership will

assess the viability of developing a 550 MW combined cycle natural gas-fuelled

cogeneration facility which would be located in the Portlands area of Toronto’s

downtown waterfront.

 

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.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00046-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00046-of-00352.parquet"}]]