Document:

Exhibit 4.204

 

TRANSCANADA

PIPELINES LIMITED

SIGNIFICANT

DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

 

Net

Income Reconciliation

 

	

  Nine

  months ended September 30 (millions of dollars except per share amounts)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Net income from continuing operations as

  reported in accordance with Canadian GAAP

  	

   

  	

  610

  	

   

  	

  572

  	

   

  
	

  U.S. GAAP adjustments

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Preferred securities charges(1)

  	

   

  	

  (43

  	

  )

  	

  (61

  	

  )

  
	

  Tax impact of preferred securities charges

  	

   

  	

  17

  	

   

  	

  26

  	

   

  
	

  Unrealized gain/(loss) on derivatives(2)

  	

   

  	

  31

  	

   

  	

  (12

  	

  )

  
	

  Tax impact of gain/(loss) on derivatives

  	

   

  	

  (12

  	

  )

  	

  5

  	

   

  
	

  Unrealized losses on energy trading

  contracts(3)

  	

   

  	

  (14

  	

  )

  	

  (21

  	

  )

  
	

  Tax impact of unrealized losses on energy

  trading contracts

  	

   

  	

  6

  	

   

  	

  9

  	

   

  
	

  Income taxes from substantively enacted tax

  rates(4)

  	

   

  	

  —

  	

   

  	

  28

  	

   

  
	

  Income from continuing operations in

  accordance with U.S. GAAP

  	

   

  	

  595

  	

   

  	

  546

  	

   

  
	

  Net loss from discontinued operations in

  accordance with U.S. GAAP

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

  Income before cumulative effect of the

  application of SFAS No. 133 in accordance with U.S. GAAP(2)

  	

   

  	

  595

  	

   

  	

  459

  	

   

  
	

  Cumulative effect of the application of

  SFAS No. 133, net of tax

  	

   

  	

  —

  	

   

  	

  (2

  	

  )

  
	

  Net income in accordance with U.S. GAAP

  	

   

  	

  595

  	

   

  	

  457

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Basic and diluted net income/(loss) per

  share in accordance with U.S. GAAP

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Continuing operations

  	

   

  	

  $

  	

  1.21

  	

   

  	

  $

  	

  1.11

  	

   

  
	

  Discontinued operations

  	

   

  	

  —

  	

   

  	

  (0.19

  	

  )

  
	

   

  	

   

  	

  $

  	

  1.21

  	

   

  	

  $

  	

  0.92

  	

   

  
	

  Basic and diluted net income per share in

  accordance with Canadian GAAP

  	

   

  	

  $

  	

  1.19

  	

   

  	

  $

  	

  0.90

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Dividend per common share

  	

   

  	

  $

  	

  0.75

  	

   

  	

  $

  	

  0.675

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Common Shares Outstanding (millions)

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Average for the period

  	

   

  	

  478.0

  	

   

  	

  475.5

  	

   

  

(1)              Under U.S. GAAP, the financial charges related to Preferred

Securities are recognized as an expense, rather than dividends.

 

(2)              Effective January 1, 2001, TransCanada PipeLines Limited

(TransCanada or the company) adopted the provisions of Statement of Financial

Accounting Standards (SFAS) No. 133 “Accounting for Derivatives and Hedging

Activities”.  SFAS No. 133 requires that

all derivatives be recognized as assets and liabilities on the balance sheet

and measured at fair value.

 

For

derivatives designated as fair value hedges, changes in the fair value are

recognized in earnings together with an equal or lesser amount of changes in

the fair value of the hedged item attributable to the hedged risk.  For derivatives designated as cash flow

hedges, changes in 

 

 

 

the

fair value of the derivative that are effective in offsetting the hedged risk

are recognized in other comprehensive income until the hedged item is

recognized in earnings. Any ineffective portion of the change in fair value is

recognized in earnings each period.

 

(3)              Under U.S. GAAP, energy trading contracts are measured at

fair value determined as at the balance sheet date.  Effective third quarter, 2002, TransCanada adopted the provisions

of EITF 02-3, “Accounting for Contracts Involved in Energy Trading and Risk

Management Activities” whereby the company is presenting all mark-to-market

gains and losses on a net basis.  This

accounting change has been applied retroactively with reclassification of prior

periods.

 

(4)              Under U.S. GAAP, only enacted rates can be used in

measuring deferred tax assets and liabilities; use of substantively enacted

rates is not permitted.  The February

2000 and October 2000 Federal budgets would not be considered enacted until the

proposals were completely enacted into law in June 2001 and, accordingly, the

related tax recoveries were recognized in 2001.

 

Condensed Statement of

Consolidated Income in Accordance with U.S. GAAP (5)

 

	

  Nine

  months ended September 30 (millions of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Revenues(3)

  	

   

  	

  3,125

  	

   

  	

  3,137

  	

   

  
	

  Operating expenses(3)

  	

   

  	

  1,158

  	

   

  	

  1,246

  	

   

  
	

  Depreciation

  	

   

  	

  545

  	

   

  	

  503

  	

   

  
	

   

  	

   

  	

  1,703

  	

   

  	

  1,749

  	

   

  
	

  Operating income

  	

   

  	

  1,422

  	

   

  	

  1,388

  	

   

  
	

  Other (income)/expenses

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Equity income

  	

   

  	

  (170

  	

  )

  	

  (157

  	

  )

  
	

  Other expenses

  	

   

  	

  619

  	

   

  	

  693

  	

   

  
	

  Income taxes

  	

   

  	

  378

  	

   

  	

  306

  	

   

  
	

   

  	

   

  	

  827

  	

   

  	

  842

  	

   

  
	

  Income from continuing

  operations in accordance with U.S. GAAP

  	

   

  	

  595

  	

   

  	

  546

  	

   

  
	

  Net (loss)/income from

  discontinued operations in accordance with U.S. GAAP

  	

   

  	

  —

  	

   

  	

  (87

  	

  )

  
	

  Income before cumulative effect

  of the application of SFAS No. 133 in accordance with U.S. GAAP

  	

   

  	

  595

  	

   

  	

  459

  	

   

  
	

  Cumulative effect of the

  application of SFAS No. 133, net of tax

  	

   

  	

  —

  	

   

  	

  (2

  	

  )

  
	

  Net income in accordance with

  U.S. GAAP

  	

   

  	

  595

  	

   

  	

  457

  	

   

  

 

Comprehensive Income in

Accordance with U.S. GAAP

 

	

  Nine

  months ended September 30 (millions of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Net income in accordance with U.S. GAAP

  	

   

  	

  595

  	

   

  	

  457

  	

   

  
	

  Adjustments affecting comprehensive income

  under U.S. GAAP

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Foreign currency translation adjustment

  	

   

  	

  1

  	

   

  	

  (15

  	

  )

  
	

  Unrealized loss on derivatives, net of tax(2)

  	

   

  	

  (4

  	

  )

  	

  (6

  	

  )

  
	

  Comprehensive income before cumulative

  effect of the application of SFAS No. 133 in accordance with U.S. GAAP

  	

   

  	

  592

  	

   

  	

  436

  	

   

  
	

  Cumulative effect of the application of

  SFAS No. 133, net of tax(2)

  	

   

  	

  —

  	

   

  	

  (4

  	

  )

  
	

  Comprehensive income in accordance with

  U.S. GAAP

  	

   

  	

  592

  	

   

  	

  432

  	

   

  

 

 

 

Condensed

Balance Sheet in Accordance with U.S. GAAP(5)

 

	

   

  	

   

  	

  September

  30

  	

   

  	

  December

  31

  	

   

  
	

  (millions

  of dollars)

  	

   

  	

  2002

  	

   

  	

  2001

  	

   

  
	

  Current assets

  	

   

  	

  1,186

  	

   

  	

  1,166

  	

   

  
	

  Energy trading assets(3)

  	

   

  	

  212

  	

   

  	

  255

  	

   

  
	

  Long-term investments

  	

   

  	

  1,606

  	

   

  	

  1,544

  	

   

  
	

  Plant, property and equipment

  	

   

  	

  15,186

  	

   

  	

  15,405

  	

   

  
	

  Regulatory asset(6)

  	

   

  	

  2,619

  	

   

  	

  2,613

  	

   

  
	

  Other assets

  	

   

  	

  501

  	

   

  	

  473

  	

   

  
	

   

  	

   

  	

  21,310

  	

   

  	

  21,456

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  Current liabilities(7)

  	

   

  	

  1,741

  	

   

  	

  1,847

  	

   

  
	

  Provision for loss on discontinued

  operations

  	

   

  	

  224

  	

   

  	

  264

  	

   

  
	

  Energy trading liabilities(3)

  	

   

  	

  51

  	

   

  	

  112

  	

   

  
	

  Deferred amounts

  	

   

  	

  497

  	

   

  	

  503

  	

   

  
	

  Long-term debt

  	

   

  	

  9,160

  	

   

  	

  9,512

  	

   

  
	

  Deferred income taxes(6)

  	

   

  	

  2,717

  	

   

  	

  2,557

  	

   

  
	

  Preferred securities(8)

  	

   

  	

  694

  	

   

  	

  694

  	

   

  
	

  Trust originated preferred securities

  	

   

  	

  218

  	

   

  	

  218

  	

   

  
	

  Shareholders’ equity

  	

   

  	

  6,008

  	

   

  	

  5,749

  	

   

  
	

   

  	

   

  	

  21,310

  	

   

  	

  21,456

  	

   

  

(5)              In

accordance with U.S. GAAP, the condensed Statement of Consolidated Income and

Balance Sheet are prepared using the equity method of accounting for joint

ventures.  Excluding the impact of other

U.S. GAAP adjustments, the use of the proportionate consolidation method of

accounting for joint ventures, as required under Canadian GAAP, results in the

same net income and Shareholders’ Equity.

 

(6)              Under U.S.

GAAP, the Company is required to record a deferred income tax liability for its

cost-of-service regulated businesses. As these deferred income taxes are

recoverable through future revenues, a corresponding regulatory asset is

recorded for U.S. GAAP purposes.

 

(7)              Current

liabilities include dividends payable of $125 million (2001 - $114 million) and

current taxes payable of  $149 million

(2001 - $149 million).

 

(8)              Under U.S.

GAAP, the Preferred Securities are classified as a liability.

 

Stock-Based Compensation

The

company uses the measurement rules of APB Opinion No. 25 to account for

employee stock options.  The use of the

fair value method of SFAS No. 123 “Accounting for Stock-Based Compensation”

would have resulted in net income of $589 million for the nine months ended

September 30, 2002 (2001 - $452 million) and net income per share of $1.20 in

2002 (2001 - $0.91).

 

Other

In June 2001, the Financial

Accounting Standards Board (FASB) issued SFAS No. 143 “Accounting for Asset

Retirement Obligations”, which addresses financial accounting and reporting for

obligations associated with asset retirement costs.  SFAS No. 143 requires that the fair value of a liability for an

asset retirement obligation be recognized in the period in which it is incurred

if a reasonable estimate of fair value can be made.  The fair value is added to the carrying amount of the associated

asset. The liability is accreted at the end of each period through charges to

operating expenses.  The company is

required and plans to adopt the provisions of SFAS No. 143 for the quarter

ending March 31, 2003.  The company has

not yet estimated the impact of adopting this standard.Exhibit 4.205

 

	

  KPMG LLP

  	

   

  	

   

  	

   

  
	

  Chartered Accountants

  	

   

  	

   

  	

   

  
	

  1200 205 - 5th Avenue SW

  	

  Telephone (403)

  691-8000

  
	

  Calgary AB T2P 4B9 .

  	

   

  	

  Telefax (403) 691-8008

  
	

   

  	

   

  	

  www.kpmg.ca

  

 

Alberta Securities

Commission

 

 

Dear Sirs

 

 

TransCanada PipeLines Limited (the “Company”)

 

We refer to the short form prospectus of the company

dated November 30, 2000 (“the Prospectus”) relating to the sale and issue of US

$750,000,000 Debt Securities (Unsecured) of the Company.

 

We are the auditors of the Company and under date of

February 25, 2002, we reported on the following financial statements

incorporated by reference in the Prospectus:

 

•                  Consolidated balance sheets as at

December 31, 2001 and December 31, 2000; and

 

•                  Consolidated statements of income,

retained earnings and cash flows for each of the years in the three-year period

ended December 31, 2001.

 

Also incorporated

by reference in the Prospectus are the following unaudited interim financial

statements which are being filed concurrently with the securities regulatory authorities:

 

•                  Consolidated balance sheet as at

September 30, 2002;

 

•                  Consolidated statements of income and

cash flows for the three-month and nine-month periods ended September 30, 2002

and 2001; and

 

•                  Consolidated statements of retained

earnings for the nine-month periods ended September 30, 2002 and 2001.

 

We have not audited any financial statements of the

Company as at any date or for any period subsequent to December 31, 2001.

Although we have performed an audit for the year ended December 31, 2001, the

purpose and therefore the scope of the audit was to enable us to express our

opinion on the consolidated financial statements as at December 31, 2001 and

for the year then ended, but not on the financial statements for any interim

period within that year. Therefore, we are unable to and do not express an

opinion on the above-mentioned unaudited interim consolidated financial

statements or on the financial position, results of operations or cash flows as

at any date or for any period subsequent to December 31, 2001.

 

 

 

 

 

Page 2

Alberta Securities Commission

 

 

We have, however, performed a review of the unaudited

interim consolidated financial statements of the Company as at September 30,

2002 and for the three-month and nine-month periods ended September 30, 2002

and 2001. We performed our review in accordance with Canadian generally

accepted standards for a review of interim financial statements by an entity’s

auditors. Such an interim review consists principally of applying analytical

procedures to financial data and making inquiries of, and having discussions

with, persons responsible for financial and accounting matters. An interim

review is substantially less in scope than an audit, whose objective is the

expression of an opinion regarding the financial statements. An interim review

does not provide assurance that we would become aware of any or all significant

matters that might be identified in an audit.

 

Based on our review, we are not aware of any material

modification that needs to be made for these interim consolidated financial

statements to be in accordance with Canadian generally accepted accounting

principles.

 

This letter is provided solely for the purpose of

assisting the securities regulatory authority to which it is addressed in discharging

its responsibilities and should not be used for any other purpose. Any use that

a third party makes of this letter or any reliance or decisions based on it,

are the responsibility of such third parties. We accept no responsibility for

loss or damages, if any, suffered by any third party as a result of decisions

made or actions taken based on this letter.

 

Yours very truly

 

 

/s/ KPMG LLP

 

 

Chartered Accountants

 

Calgary, Canada

November 1, 2002

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