TransCanada Reports 30 Per Cent Increase in Second Quarter Comparable Earnings to $357 Million, or $0.51 Per Share
"We continue to experience strong earnings and cash flow growth as our company realizes the benefits of major projects that have started operations over the last year," said Russ Girling, TransCanada's president and chief executive officer. "Those benefits have translated into a 30 per cent increase in comparable earnings for the second quarter of 2011, compared to the same period in 2010."
TransCanada has completed and brought into service more than $10 billion of assets under its capital growth program. Most recently, the Company's Guadalajara pipeline began shipping natural gas in Mexico in mid June. In early May, TransCanada's Coolidge Generating Station began producing power in Arizona under a 20-year power purchase arrangement (PPA) with a local utility.
Earlier in 2011 and in 2010, the company brought into service the first and second phases of the Keystone oil pipeline system, the Bison and Groundbirch natural gas pipelines, Maine's largest wind project – Kibby Wind, the Halton Hills Generating Station in Ontario and the North Central Corridor gas pipeline in northern Alberta.
Looking forward, TransCanada is focused on completing the remaining projects that are part of its current capital program - the Keystone U.S. Gulf Coast Expansion (Keystone XL), additional extensions and expansions of the Alberta System, the Bruce Power restart program in Ontario and the Cartier Wind power project in Québec. Each is expected to generate long-term, sustainable earnings and cash flow as they begin operations.
Second Quarter Highlights
(All financial figures are unaudited and in Canadian dollars unless noted otherwise)
Comparable earnings for second quarter 2011 were $357 million ($0.51 per share) compared to $275 million ($0.40 per share) in the same period in 2010. The increase was primarily due to incremental earnings from recently commissioned assets including Keystone, Halton Hills, Bison and Coolidge. Also contributing to the year-over-year increase in earnings were higher Natural Gas Pipeline earnings from the Alberta System and ANR and higher Energy earnings from U.S. Power and Bruce A. Partially offsetting these increases were higher interest costs and a lower contribution from Western Power and Bruce B.
Notable recent developments in Oil Pipelines, Natural Gas Pipelines, Energy and Corporate include:
Natural Gas Pipelines:
The Mainline is a very important component of the North American gas delivery system. Total deliveries averaged 5.9 billion cubic feet per day (Bcf/d) for the first six months of this year, making it the largest long haul gas transportation system on the continent. Receipts from the WCSB continue to make up the majority of the volumes, averaging 3.6 Bcf/d for the first half of the year and peaking at 5.4 Bcf/d this past winter.
Successful new capacity open seasons for the Mainline concluded over the past 12 months, resulting in contractual agreements to ship a total of approximately 350 MMcf/d of Marcellus shale gas to eastern markets. Gas deliveries from Niagara to the Toronto market are expected to begin at a rate of 230 MMcf/d in November 2012, increasing to 350 MMcf/d in November 2013. An application for approval to construct $130 million of new pipeline infrastructure to accommodate these volumes was filed with the NEB July 18, 2011.
There is ongoing shipper interest for additional capacity in the eastern part of the Canadian Mainline and more requests for service are expected over time.
On June 24, 2011, the NEB approved the construction and operation of a 24-km (15-mile) extension of the Groundbirch natural gas pipeline. Construction is expected to commence in August 2011 with an in-service date of April 1, 2012 and an estimated capital cost of approximately $60 million. The project is required to service 250 MMcf/d of new transportation contracts.
TransCanada continues to advance further pipeline development in B.C. and Alberta to transport new natural gas supplies. The Company has filed several applications with the NEB requesting approval of expansions of the Alberta System to accommodate requests for additional natural gas transmission service throughout the northwest portion of the WCSB. As of June 30, 2011, the NEB has approved pipeline projects with total capital costs estimated at $500 million. Further pipeline projects with a total capital cost of approximately $700 million are before the NEB for approval.
The successful open seasons and ongoing business with Western Canadian producers have resulted in significant contracts from both the Montney and Horn River shale gas formations. TransCanada has firm commitments to transport 2.9 Bcf/d from northeast British Columbia and northwest Alberta by 2014. Further requests to transport significant additional volumes on the Alberta System from the northwest portion of the WCSB have been received.
Subject to regulatory approval, Bruce Power expects to achieve a first synchronization of the Unit 2 generator to the electrical grid by the end of 2011, with commercial operation expected to occur in first quarter 2012. Fuel loading into Unit 1 is expected to begin in third quarter 2011, with a first synchronization of the generator during first quarter 2012 and commercial operation is expected to occur during third quarter 2012.
TransCanada's share of the total capital cost is expected to be approximately $2.4 billion. The Company has invested $2.1 billion as of June 30, 2011.
Construction continues on the five-stage, 590 MW Cartier Wind project in Québec. The 58 MW Montagne-Sèche project and phase one of the Gros-Morne wind farm with 101 MW are expected to be operational in December 2011. The 111 MW Gros-Morne phase two is expected to be operational in December 2012. These are the fourth and fifth Québec-based wind farms of Cartier Wind, which are 62 per cent owned by TransCanada. All of the power produced by Cartier Wind is sold under a 20-year PPA to Hydro-Québec.
The arbitration panel is expected to hold a hearing in March and April 2012. Assuming the hearing concludes within the time allotted, TransCanada expects to receive a decision in mid- 2012. As the limited information received to date does not support these claims, TransCanada continues to record revenues and costs under the PPA as though this event was a normal plant outage.
TransCanada believes that this treatment by the NYISO is in direct contravention of a series of Federal Energy Regulatory Commission (FERC) orders which direct how new entrant capacity is to be treated for the purpose of determining capacity price. TransCanada and a number of other parties have brought a series of complaints before the FERC. The outcome of the complaints and the long-term impact that this development may have on TransCanada's operations at Ravenswood are unknown.
The demand curve reset process continues with the NYISO's June 20, 2011 compliance filing resulting in an increased demand curve for 2011 to 2014. The FERC has not yet responded to this filing and, as a result, it is not yet known when the revised demand curves will be effective.
Teleconference and Webcast – Audio and Slide Presentation:
TransCanada will hold a teleconference and webcast to discuss its 2011 second quarter financial results. Russ Girling, TransCanada president and chief executive officer and Don Marchand, executive vice-president and chief financial officer, along with other members of the TransCanada executive leadership team, will discuss the financial results and company developments before opening the call to questions from analysts and members of the media.
Event: TransCanada 2011 second quarter financial results teleconference and webcast
Date: Thursday, July 28, 2011
Time:: 2:30 p.m. mountain daylight time (MDT) / 4:30 p.m. eastern daylight time (EDT)
How: Analysts, members of the media and other interested parties are invited to participate by calling (866) 223-7781 or (416) 340-8018 (Toronto area). Please dial in 10 minutes prior to the start of the call. No pass code is required. A live webcast of the teleconference will be available at http://www.transcanada.com/.
A replay of the teleconference will be available two hours after the conclusion of the call until midnight (EDT) August 4, 2011. Please call (800) 408-3053 or (905) 694-9451 (Toronto area) and enter pass code 5762531#.
With more than 60 years experience, TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas and oil pipelines, power generation and gas storage facilities. TransCanada's network of wholly owned natural gas pipelines extends more than 57,000 kilometres (35,500 miles), tapping into virtually all major gas supply basins in North America. TransCanada is one of the continent's largest providers of gas storage and related services with approximately 380 billion cubic feet of storage capacity. A growing independent power producer, TransCanada owns, or has interests in, over 10,800 megawatts of power generation in Canada and the United States. TransCanada is developing one of North America's largest oil delivery systems. TransCanada's common shares trade on the Toronto and New York stock exchanges under the symbol TRP. For more information visit: http://www.transcanada.com/.
This news release may contain certain information that is forward-looking and is subject to important risks and uncertainties. The words "anticipate", "expect", "believe", "may", "should", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking information. Forward-looking statements in this document are intended to provide TransCanada security holders and potential investors with information regarding TransCanada and its subsidiaries, including management's assessment of TransCanada's and its subsidiaries' future financial and operational plans and outlook. Forward-looking statements in this document may include, among others, statements regarding the anticipated business prospects, projects and financial performance of TransCanada and its subsidiaries, expectations or projections about the future, strategies and goals for growth and expansion, expected and future cash flows, costs, schedules including anticipated construction and completion dates, operating and financial results and expected impact of future commitments and contingent liabilities. All forward-looking statements reflect TransCanada's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among others, the ability of TransCanada to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of the Company's pipeline and energy assets, the availability and price of energy commodities, capacity payments, regulatory processes and decisions, changes in environmental and other laws and regulations, competitive factors in the pipeline and energy sectors, construction and completion of capital projects, labour, equipment and material costs, access to capital markets, interest and currency exchange rates, technological developments and economic conditions in North America. By its nature, forward-looking information is subject to various risks and uncertainties, which could cause TransCanada's actual results and experience to differ materially from the anticipated results or expectations expressed. Additional information on these and other factors is available in the reports filed by TransCanada with Canadian securities regulators and with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this news release or otherwise, and not to use future-oriented information or financial outlooks for anything other than their intended purpose. TransCanada undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
TransCanada uses the measures Comparable Earnings, Comparable Earnings per Share, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Comparable EBITDA, Earnings Before Interest and Taxes (EBIT), Comparable EBIT, Comparable Interest Expense, Comparable Interest Income and Other, Comparable Income Taxes and Funds Generated from Operations in this news release. These measures do not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP). They are, therefore, considered to be non-GAAP measures and may not be comparable to similar measures presented by other entities. Management of TransCanada uses these non-GAAP measures to improve its ability to compare financial results among reporting periods and to enhance its understanding of operating performance, liquidity and ability to generate funds to finance operations. These non-GAAP measures are also provided to readers as additional information on TransCanada's operating performance, liquidity and ability to generate funds to finance operations.
EBITDA is an approximate measure of the Company's pre-tax operating cash flow and is generally used to better measure performance and evaluate trends of individual assets. EBITDA comprises earnings before deducting interest and other financial charges, income taxes, depreciation and amortization, net income attributable to non-controlling interests and preferred share dividends. EBIT is a measure of the Company's earnings from ongoing operations and is generally used to better measure performance and evaluate trends within each segment. EBIT comprises earnings before deducting interest and other financial charges, income taxes, net income attributable to non-controlling interests and preferred share dividends.
Comparable Earnings, Comparable EBITDA, Comparable EBIT, Comparable Interest Expense, Comparable Interest Income and Other, and Comparable Income Taxes comprise Net Income Attributable to Common Shares, EBITDA, EBIT, Interest Expense, Interest Income and Other, and Income Taxes Expense, respectively, adjusted for specific items that are significant but are not reflective of the Company's underlying operations in the period. Specific items are subjective, however, management uses its judgement and informed decision-making when identifying items to be excluded in calculating these non-GAAP measures, some of which may recur. Specific items may include but are not limited to certain fair value adjustments relating to risk management activities, income tax refunds and adjustments, gains or losses on sales of assets, legal and bankruptcy settlements, and write-downs of assets and investments.
The table in the Non-GAAP Measures section of the Management's Discussion and Analysis presents a reconciliation of these non-GAAP measures to Net Income Attributable to Common Shares. Comparable Earnings per Share is calculated by dividing Comparable Earnings by the weighted average number of common shares outstanding for the period.
Funds Generated from Operations comprise Net Cash Provided by Operations before changes in operating working capital and allows management to better measure consolidated operating cash flow, excluding fluctuations from working capital balances which may not necessarily be reflective of underlying operations in the same period. A reconciliation of Funds Generated from Operations to Net Cash Provided by Operations is presented in the Second Quarter 2011 Financial Highlights table in this news release.
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