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4. Assets held for sale
U.S. Northeast Power Assets
The Company's planned monetization of its U.S. Northeast power business, for the purpose of permanently financing a portion of the Columbia acquisition, includes the sale of Ravenswood, Ironwood, Kibby Wind, Ocean State Power, TC Hydro and the marketing business, TransCanada Power Marketing (TCPM).
On November 1, 2016, the Company entered into agreements to sell all of these assets except TCPM.
The sale of Ravenswood, Ironwood, Kibby Wind and Ocean State Power to a third party for proceeds of approximately US$2.2 billion is expected to close in the second quarter of 2017. As a result, the Company recorded a loss of approximately $829 million ($863 million after tax) in 2016 which included the impact of an estimated $70 million of foreign currency translation gains to be reclassified from AOCI to Net income on close. At March 31, 2017, the related assets and liabilities were classified as held for sale in the Energy segment and were recorded at their fair values less costs to sell based on the proceeds expected on the close of this sale.
At March 31, 2017, the assets and liabilities related to TC Hydro were also classified as held for sale in the Energy segment. Subsequently, on April 19, 2017, the Company closed the sale of TC Hydro for gross proceeds of US$1.065 billion, subject to post-closing adjustments. As a result, on April 19, 2017, the Company recorded a gain on sale of approximately $710 million ($440 million after tax) including the impact of an estimated $5 million of foreign currency translation gains. The proceeds received were used to reduce the outstanding balance on the acquisition bridge facility.
As of March 31, 2017, TCPM did not meet the criteria to be classified as held for sale.
The following table details the assets and liabilities held for sale at March 31, 2017.
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(millions of $) U.S. Canadian(1) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Assets held for sale Accounts receivable 10 13 Inventories 56 74 Other current assets 73 97 Plant, property and equipment 2,242 2,986(2) Intangible and other assets 335 447 Foreign currency translation gains - 70(3) ---------------------------------------------------------------------------- Total assets held for sale 2,716 3,687 ---------------------------------------------------------------------------- Liabilities related to assets held for sale Accounts payable and other 21 28 Other long-term liabilities 24 32 ---------------------------------------------------------------------------- Total liabilities related to assets held for sale 45 60 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) At March 31, 2017 exchange rate of $1.33. (2) Includes $17 million (US$13 million) for a gas plant held for sale in the U.S. Natural Gas Pipelines segment. (3) Foreign currency translation gains related to the investments in Ravenswood, Ironwood, Kibby Wind and Ocean State Power will be reclassified from AOCI to Net Income on close of the sales./T/
5. Income taxes
The effective tax rates for the three-month periods ended March 31, 2017 and 2016 were 21 per cent and 17 per cent, respectively. The higher effective tax rate in 2017 was primarily the result of changes in the proportion of income earned between Canadian and foreign jurisdictions.
6. Long-term debt
LONG-TERM DEBT RETIRED/REPAID
The Company retired/repaid long-term debt in the three months ended March 31, 2017 as follows:
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(unaudited -
millions of
Canadian $, unless
noted otherwise)
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In the three months ended March 31, 2017, TransCanada capitalized interest related to capital projects of $45 million (2016 - $41 million).
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7. Junior subordinated notes issued
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (unaudited - millions of Canadian $, unless noted otherwise) Maturity Interest Company Issue date Type date Amount rate ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- TRANSCANADA PIPELINES LIMITED March 2017 Junior Subordinated Notes(1,2) March 2077 US $1,500 5.55 % ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) The Junior subordinated notes are subordinated in right of payment to existing and future senior indebtedness or other obligations of TCPL. (2) The Junior subordinated notes were issued to TransCanada Trust (the Trust), a financing trust subsidiary wholly-owned by TCPL. While the obligations of the Trust are fully and unconditionally guaranteed by TCPL on a subordinated basis, the Trust is not consolidated in TransCanada's financial statements because TCPL does not have a variable interest in the Trust and the only substantive assets of the Trust are junior subordinated notes of TCPL./T/
In March 2017, the Trust issued US$1.5 billion of Trust Notes - Series 2017-A (Trust Notes) to third party investors with a fixed interest rate of 5.30 per cent for the first ten years converting to a floating rate thereafter. All of the proceeds of the issuance by the Trust were loaned to TCPL for US$1.5 billion of junior subordinated notes of TCPL at an initial fixed rate of 5.55 per cent, including a 0.25 per cent administration charge. The rate will reset commencing March 2027 until March 2047 to the three month LIBOR plus 3.458 per cent per annum; from March 2047 until March 2077, the interest rate will reset to the three month LIBOR plus 4.208 per cent per annum. The Junior subordinated notes are callable at TCPL's option at any time on or after March 15, 2027 at 100 per cent of the principal amount plus accrued and unpaid interest to the date of redemption.
Pursuant to the terms of the Trust Notes and related agreements, in certain circumstances (1) TCPL may issue deferral preferred shares to holders of the Trust Notes in lieu of interest; and (2) TransCanada and TCPL would be prohibited from declaring or paying dividends on or redeeming their outstanding preferred shares (or, if none are outstanding, their respective common shares) until all deferral preferred shares are redeemed by TCPL. The Trust Notes may also be automatically exchanged for preferred shares of TCPL upon certain kinds of bankruptcy and insolvency events. All of these preferred shares would rank equally with any other outstanding first preferred shares of TCPL.
8. Common units subject to rescission or redemption
Columbia Pipeline Partners LP acquisition
On February 17, 2017, the Company acquired all outstanding publicly held common units of Columbia Pipeline Partners LP (CPPL) at a price of US$17.00 and a stub period distribution payment of US$0.10 per common unit for an aggregate transaction value of US$921 million. As this was a transaction under common control, it was recognized in equity.
At December 31, 2016, the entire $1,073 million (US$799 million) of the Company's non-controlling interest in CPPL was recorded as Common units subject to rescission or redemption on the condensed consolidated balance sheet.
Common units of TC PipeLines, LP subject to rescission
At March 31, 2017, $82 million (US$63 million) (December 31, 2016 - $106 million (US$82 million)) was recorded as Common units subject to rescission or redemption on the condensed consolidated balance sheet. In March 2017, rescission rights on 0.4 million TC PipeLines, LP common units expired and $24 million was reclassified to equity. The Company continued to classify $82 million with respect to 1.2 million common units outside Equity because the potential rescission rights of the units are not within the control of the Company. At March 31, 2017, no unitholder has claimed or attempted to exercise any rescission rights to date and these remaining rescission rights expire one year from the date of purchase of the units which ranges from April 1, 2016 to May 19, 2016.
9. Other comprehensive loss and accumulated other comprehensive loss
Components of other comprehensive loss, including the portion attributable to non-controlling interests and related tax effects, are as follows:
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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- three months ended March 31, 2017
Income Tax Before Tax Recovery/ Net of Tax (unaudited - millions of Canadian $) Amount Expense Amount ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Foreign currency translation losses on net investment in foreign operations (88) 6 (82) Change in fair value of net investment hedges (2) 1 (1) Change in fair value of cash flow hedges 6 (1) 5 Reclassification of actuarial gains and losses on pension and other post- retirement benefit plans 5 (2) 3 Other comprehensive income on equity investments 4 (1) 3 ---------------------------------------------------------------------------- Other comprehensive loss (75) 3 (72) ---------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- three months ended March 31, 2016
Income Tax Before Tax Recovery/ Net of Tax (unaudited - millions of Canadian $) Amount Expense Amount ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Foreign currency translation losses on net investment in foreign operations (210) (2) (212) Change in fair value of net investment hedges (3) 1 (2) Change in fair value of cash flow hedges (54) 15 (39) Reclassification to net income of gains on cash flow hedges 120 (40) 80 Reclassification of actuarial gains and losses on pension and other post- retirement benefit plans 5 (1) 4 Other comprehensive income on equity investments 4 (1) 3 ---------------------------------------------------------------------------- Other comprehensive loss (138) (28) (166) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------/T/
The changes in AOCI by component are as follows:
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three months ended
March 31, 2017
AOCI balance at January 1, 2017 (376) (28) (208) (348) (960) Other comprehensive (loss)/income before reclassifications(2) (42) 4 - - (38) Amounts reclassified from accumulated other comprehensive loss - - 3 3 6 ---------------------------------------------------------------------------- Net current period other comprehensive (loss)/income(3) (42) 4 3 3 (32) ---------------------------------------------------------------------------- AOCI balance at March 31, 2017 (418) (24) (205) (345) (992) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) All amounts are net of tax. Amounts in parentheses indicate losses recorded to OCI. (2) Other comprehensive (loss)/income before reclassifications on currency translation adjustments and cash flow hedges is net of non-controlling interest losses of $41 million and gains of $1 million. (3) Losses related to cash flow hedges reported in AOCI and expected to be reclassified to net income in the next 12 months are estimated to be $2 million ($1 million, net of tax) at March 31, 2017. These estimates assume constant commodity prices, interest rates and foreign exchange rates over time, however, the amounts reclassified will vary based on the actual value of these factors at the date of settlement.
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