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TransCanada Reports First Quarter 2017 Financial Results; Strong Results Build Upon Transformational 2016 – Part 2


Non-GAAP Measures

This news release contains references to non-GAAP measures, including comparable earnings, comparable EBITDA, comparable distributable cash flow, comparable funds generated from operations, comparable earnings per share and comparable distributable cash flow per share, that do not have any standardized meaning as prescribed by U.S. GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. These non-GAAP measures are calculated on a consistent basis from period to period and are adjusted for specific items in each period, as applicable. For more information on non-GAAP measures, refer to TransCanada's Quarterly Report to Shareholders dated May 4, 2017.

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First quarter 2017 financial highlights

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three months ended March 31 ------------------------------ (unaudited - millions of $, except per share amounts) 2017 2016 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Income Revenues 3,391 2,503 Net income attributable to common shares 643 252 per common share - basic and diluted $0.74 $0.36 Comparable EBITDA(1) 1,977 1,502 Comparable earnings(1) 698 494 per common share(1) $0.81 $0.70
Cash flows Net cash provided by operations 1,302 1,081 Comparable funds generated from operations(1) 1,508 1,249 Comparable distributable cash flow(1) 1,222 974 per common share(1) $1.41 $1.39 Capital spending - capital expenditures 1,560 836 - projects in development 42 67 Contributions to equity investments 192 170 Acquisitions, net of cash acquired - 995 Proceeds from sale of assets, net of transaction costs - 6
Dividends declared Per common share $0.625 $0.565 Basic common shares outstanding (millions) Average for the period 866 702 End of period 867 702 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Comparable EBITDA, comparable earnings, comparable earnings per common share, comparable funds generated from operations, comparable distributable cash flow and comparable distributable cash flow per common share are all non-GAAP measures. See the non-GAAP measures section for more information.

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Management's discussion and analysis

May 4, 2017

This management's discussion and analysis (MD&A) contains information to help the reader make investment decisions about TransCanada Corporation. It discusses our business, operations, financial position, risks and other factors for the three months ended March 31, 2017, and should be read with the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2017 which have been prepared in accordance with U.S. GAAP.

This MD&A should also be read in conjunction with our December 31, 2016 audited consolidated financial statements and notes and the MD&A in our 2016 Annual Report.

FORWARD-LOOKING INFORMATION

We disclose forward-looking information to help current and potential investors understand management's assessment of our future plans and financial outlook, and our future prospects overall.

Statements that are forward-looking are based on certain assumptions and on what we know and expect today and generally include words like anticipate, expect, believe, may, will, should, estimate or other similar words.

Forward-looking statements in this MD&A include information about the following, among other things:

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-- planned changes in our business including the divestiture of certain

assets -- our financial and operational performance, including the performance of our subsidiaries -- expectations or projections about strategies and goals for growth and expansion -- expected cash flows and future financing options available to us -- expected dividend growth -- expected costs for planned projects, including projects under construction, permitting and in development -- expected schedules for planned projects (including anticipated construction and completion dates) -- expected regulatory processes and outcomes -- expected impact of regulatory outcomes -- expected outcomes with respect to legal proceedings, including arbitration and insurance claims -- expected capital expenditures and contractual obligations -- expected operating and financial results -- expected impact of future accounting changes, commitments and contingent liabilities -- expected industry, market and economic conditions.

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Forward-looking statements do not guarantee future performance. Actual events and results could be significantly different because of assumptions, risks or uncertainties related to our business or events that happen after the date of this MD&A.

Our forward-looking information is based on the following key assumptions, and subject to the following risks and uncertainties:

Assumptions

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-- planned monetization of our U.S. Northeast power business
-- inflation rates, commodity prices and capacity prices
-- nature and scope of hedging
-- regulatory decisions and outcomes
-- the Canadian dollar to U.S. dollar exchange rate remains at or near

current levels -- interest rates -- tax rates -- planned and unplanned outages and the use of our pipeline and energy assets -- integrity and reliability of our assets -- access to capital markets -- anticipated construction costs, schedules and completion dates.

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Risks and uncertainties

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-- our ability to realize the anticipated benefits from the acquisition of

Columbia -- timing and execution of our planned asset sales -- our ability to successfully implement our strategic initiatives -- whether our strategic initiatives will yield the expected benefits -- the operating performance of our pipeline and energy assets -- amount of capacity sold and rates achieved in our pipeline businesses -- the availability and price of energy commodities -- the amount of capacity payments and revenues we receive from our energy business -- regulatory decisions and outcomes -- outcomes of legal proceedings, including arbitration and insurance claims -- performance and credit risk of our counterparties -- changes in market commodity prices -- changes in the political environment -- changes in environmental and other laws and regulations -- competitive factors in the pipeline and energy sectors -- construction and completion of capital projects -- costs for labour, equipment and materials -- access to capital markets -- interest, tax and foreign exchange rates -- weather -- cyber security -- technological developments -- economic conditions in North America as well as globally.

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You can read more about these factors and others in reports we have filed with Canadian securities regulators and the SEC, including the MD&A in our 2016 Annual Report.

As actual results could vary significantly from the forward-looking information, you should not put undue reliance on forward-looking information and should not use future-oriented information or financial outlooks for anything other than their intended purpose. We do not update our forward-looking statements due to new information or future events, unless we are required to by law.

FOR MORE INFORMATION

You can find more information about TransCanada in our annual information form and other disclosure documents, which are available on SEDAR (www.sedar.com).

NON-GAAP MEASURES

This MD&A references the following non-GAAP measures:

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-- comparable earnings
-- comparable earnings per common share
-- comparable EBITDA
-- comparable EBIT
-- funds generated from operations
-- comparable funds generated from operations
-- comparable distributable cash flow
-- comparable distributable cash flow per common share.

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These measures do not have any standardized meaning as prescribed by U.S. GAAP and therefore may not be similar to measures presented by other entities.

Comparable measures

We calculate comparable measures by adjusting certain GAAP and non-GAAP measures for specific items we believe are significant but not reflective of our underlying operations in the period. These comparable measures are calculated on a consistent basis from period to period and are adjusted for specific items in each period, as applicable.

Our decision not to adjust for a specific item is subjective and made after careful consideration. Specific items may include:

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-- certain fair value adjustments relating to risk management activities -- income tax refunds and adjustments and changes to enacted tax rates -- gains or losses on sales of assets or assets held for sale -- legal, contractual and bankruptcy settlements -- impact of regulatory or arbitration decisions relating to prior year

earnings -- restructuring costs -- impairment of goodwill, investments and other assets including certain ongoing maintenance and liquidation costs -- acquisition costs.

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We exclude the unrealized gains and losses from changes in the fair value of derivatives used to reduce our exposure to certain financial and commodity price risks. These derivatives generally provide effective economic hedges, but do not meet the criteria for hedge accounting. As a result, the changes in fair value are recorded in net income. As these amounts do not accurately reflect the gains and losses that will be realized at settlement, we do not consider them reflective of our underlying operations.

The following table identifies our non-GAAP measures against their equivalent GAAP measures.

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---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Comparable measure Original measure ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
comparable earnings net income attributable to common shares comparable earnings per common share net income per common share comparable EBITDA segmented earnings comparable EBIT segmented earnings comparable funds generated from net cash provided by operations operations comparable distributable cash flow net cash provided by operations ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

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Comparable earnings

Comparable earnings represent earnings or loss attributable to common shareholders on a consolidated basis adjusted for specific items. Comparable earnings is comprised of segmented earnings, interest expense, AFUDC, interest income and other, income taxes and non-controlling interests adjusted for the specific items. See the Consolidated results section for a reconciliation to net income attributable to common shares.

Comparable EBIT and comparable EBITDA

Comparable EBIT represents segmented earnings adjusted for the specific items described above. We use comparable EBIT as a measure of our earnings from ongoing operations as it is a useful measure of our performance and an effective tool for evaluating trends in each segment. Comparable EBITDA is calculated the same way as comparable EBIT but excludes the non-cash charges for depreciation and amortization. See the Reconciliation of non-GAAP measures section for a reconciliation to segmented earnings.

Funds generated from operations and comparable funds generated from operations

Funds generated from operations reflects net cash provided by operations before changes in operating working capital. We believe it is a useful measure of our consolidated operating cash flow because it does not include fluctuations from working capital balances, which do not necessarily reflect underlying operations in the same period, and is used to provide a consistent measure of the cash generating performance of our assets. Comparable funds generated from operations is adjusted for the cash impact of specific items noted above. See the Financial condition section for a reconciliation to net cash provided by operations.

Comparable distributable cash flow

We believe comparable distributable cash flow is a useful supplemental measure of performance that defines cash available to common shareholders before capital allocation. Comparable distributable cash flow is defined as comparable funds generated from operations less preferred share dividends, distributions to non-controlling interests and maintenance capital expenditures. Maintenance capital expenditures are expenditures incurred to maintain our operating capacity, asset integrity and reliability, and include amounts attributable to our proportionate share of maintenance capital expenditures on our equity investments. Although we deduct maintenance capital expenditures in determining comparable distributable cash flow, in certain of our rate-regulated businesses, maintenance capital expenditures are included in their respective rate bases, on which we earn a regulated return and recover depreciation through future tolls. See the Financial condition section for a reconciliation to net cash provided by operations.

Consolidated results - first quarter 2017

Certain costs previously reported in our Corporate segment are now being reported within the business segments to better align with how we measure our financial performance. 2016 results have been adjusted to reflect this change.

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three months ended March 31 ------------------------------ (unaudited - millions of $, except per share amounts) 2017 2016 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Canadian Natural Gas Pipelines 282 272 U.S. Natural Gas Pipelines 561 267 Mexico Natural Gas Pipelines 118 45 Liquids Pipelines 227 212 Energy 198 (126) Corporate (33) (27) ---------------------------------------------------------------------------- Total segmented earnings 1,353 643 Interest expense (500) (420) Allowance for funds used during construction 101 101 Interest income and other 20 100 ---------------------------------------------------------------------------- Income before income taxes 974 424 Income tax expense (200) (70) ---------------------------------------------------------------------------- Net income 774 354 Net income attributable to non-controlling interests (90) (80) ---------------------------------------------------------------------------- Net income attributable to controlling interests 684 274 Preferred share dividends (41) (22) ---------------------------------------------------------------------------- Net income attributable to common shares 643 252 ---------------------------------------------------------------------------- Net income per common share - basic and diluted $0.74 $0.36 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

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