Home Annual Report 2002

 


 
 



NOTE 2 Accounting Changes

Price Risk Management In 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, 2000 was nil. The impact of this change on net income for the years ended December 31, 2001 and December 31, 2000 was an increase of $11 million ($0.02 per share) and a decrease of $20 million ($0.04 per share), respectively, which is reflected in the Power segment. Under accrual accounting, net income for the year ended December 31, 2002 is $13 million ($0.03 per share) higher than would have been reported under mark-to-market accounting.

Foreign Currency Translation In 2002, the Company 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, 2000 was an increase of $3 million in retained earnings. The impact of this change on net income for the years ended December 31, 2001 and December 31, 2000 was an increase of $5 million ($0.01 per share) and a decrease of $2 million ($0.01 per share), respectively, which is reflected in the Corporate segment. This change had no impact on net income for the year ended December 31, 2002.

Stock-Based Compensation In 2002, the Company 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 standard allows companies to either expense, over the vesting period, the fair value of the stock options granted or to disclose this impact. This new standard has been applied prospectively.

The Company has chosen to expense stock options and the impact of this accounting change, which has been recorded in 2002, results in a $2 million charge to net income. This charge is reflected in the Transmission and Power segments. The Company used the Black-Scholes model for this calculation with the weighted average assumptions being 5 years of expected life, 4.7 per cent interest rate, 18 per cent volatility and 4.7 per cent dividend yield.

The impacts of the accounting changes on 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, are as follows.

Increase/(Decrease)

 

2001

2000

(millions of dollars)

   

Consolidated Balance Sheet

Energy trading assets

   

   Current asset

(152)

(582)

   Long-term asset

(365)

(379)

Other assets

322

215

Future income tax asset

15

Total assets

(195)

(731)

Energy trading liabilities

   

   Current liability

(72)

(542)

   Long-term liability

(112)

(170)

Future income tax liability

(8)

Total liabilities

(192)

(712)

Retained earnings

(3)

(19)

     

Consolidated Income

   

Revenues

26

(37)

Operating expenses

9

Financial charges

(6)

2

Income taxes current and future

7

(17)

Net income

16

(22)

     

Consolidated Cash Flows

   

Funds generated from continuing operations

110

212

Net cash used in investing activities

(110)

(212)


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