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Dated December 12, 2007
AND U.S. INFORMATION STATEMENT
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Brookfield Infrastructure Partners L.P. was established by Brookfield Asset Management in May 2007 as an owner and operator of high quality infrastructure assets on a global basis. Our current operations consist principally of the ownership of transmission systems and timberlands in North and South America. Brookfield Infrastructure Partners is focused on high quality, long life infrastructure assets that generate stable cash flows, require relatively minimal maintenance capital expenditures and, due to barriers to entry and other factors, tend to appreciate in value over time. |
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• | an “affiliate” of any person are to any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person; | |
• | “Brookfield” are to Brookfield Asset Management and any affiliate of Brookfield Asset Management, other than us; | |
• | “Brookfield Asset Management” are to Brookfield Asset Management Inc.; | |
• | the “current operations” are to the businesses in which we will hold an interest on closing of the spin-off as well as our Brazilian transmission investments and our Ontario transmission operations which will be transferred by Brookfield to us following closing of the spin-off; | |
• | our “electricity transmission operations” refer to our interest in Transelec Chile S.A., or Transelec, our Chilean transmission operations, our investments in the Transmissions Brasilerias De Energica companies, or TBE, our Brazilian transmission investments, which will be transferred to us by Brookfield as described in “Business — Current Operations — Electricity Transmission — Overview” and Great Lakes Power Transmission LP, which |
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will hold our Ontario transmission operations upon their transfer as described in “Business — Current Operations — Electricity Transmission — Overview”; |
• | “Holding Entities” are to the subsidiaries of the Infrastructure Partnership, from time-to-time, through which it indirectly holds all of our interests in the operating entities; | |
• | the “infrastructure division” are to the portion of Brookfield’s current infrastructure operations owned during the periods prior to September 30, 2007 that will be contributed to us as part of the spin-off; | |
• | the “Infrastructure General Partner” are to Brookfield Infrastructure General Partner Limited, which serves as the general partner of the Infrastructure GP LP; | |
• | the “Infrastructure GP LP” are to Brookfield Infrastructure GP L.P., which serves as the general partner of the Infrastructure Partnership; | |
• | the “Infrastructure Partnership” are to Brookfield Infrastructure L.P.; | |
• | “our limited partnership agreement” are to the amended and restated limited partnership agreement of our partnership; | |
• | the “Manager” are to Brookfield Infrastructure Group Inc. and, unless the context otherwise requires, include any other affiliate of Brookfield that provides services to us pursuant to the Master Services Agreement or any other service agreement or arrangement; | |
• | “our Managing General Partner” are to Brookfield Infrastructure Partners Limited, which serves as our partnership’s general partner; | |
• | “Master Services Agreement” are to the master management and administration agreement to be dated as of the spin-off among the Service Recipients, Brookfield Infrastructure Group Inc. and certain other affiliates of Brookfield Asset Management who are party thereto; | |
• | “operating entities” are any entities which directly or indirectly hold our current operations and/or infrastructure assets that we may acquire in the future, including any assets held through joint ventures, partnerships and consortium arrangements; | |
• | “our partnership” are to Brookfield Infrastructure Partners L.P.; | |
• | this “prospectus” is to this Canadian Prospectus and U.S. Information Statement dated , 2007; | |
• | the “Redemption-Exchange Mechanism” are to the mechanism by which Brookfield may request redemption of its limited partnership interests in the Infrastructure Partnership in whole or in part in exchange for cash, subject to the right of our partnership to acquire such interests (in lieu of such redemption) in exchange for limited partnership units of our partnership, as more fully set forth in “Description of the Infrastructure Partnership Limited Partnership Agreement — Redemption-Exchange Mechanism”; | |
• | “Service Recipients” are to our partnership, the Infrastructure Partnership and the Holding Entities; | |
• | “spin-off” are to the special dividend by Brookfield Asset Management of our units; | |
• | our “timber operations” refer to our interest in Island Timberlands Limited Partnership, or Island Timberlands, our Canadian timber operations and our interest in Longview Timber Holdings, Corp., or Longview, our U.S. timber operations; and | |
• | “our units” are to the limited partnership units in our partnership and references to “our unitholders” are to the holders of our units. |
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• | The spin-off will create a “pure play” public issuer that should be well positioned to pursue an infrastructure acquisition and growth strategy. Private sector participation in the infrastructure industry is anticipated to undergo significant growth in the coming years. Brookfield believes it has an opportunity to be a long-term leader in this industry and that the establishment of a focused public issuer dedicated to this strategy will help to achieve this objective. Through our affiliation with Brookfield, we believe that we will have a competitive advantage in comparison with a stand-alone infrastructure company including access to Brookfield-originated acquisition opportunities and Brookfield transaction execution expertise. | |
• | Infrastructure investments generally require significant amounts of capital. A separate public issuer focused exclusively on infrastructure will facilitate capital raising for investments in this sector. | |
• | The spin-off is anticipated to surface the value of our infrastructure assets for Brookfield’s shareholders by highlighting the quality of our current operations. | |
• | Brookfield believes the spin-off will also establish greater transparency for Brookfield as an asset manager focused on the infrastructure industry by showcasing its achievements in this area. |
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• | strong competitive positions with high barriers to entry; | |
• | strong margins and stable cash flow; and | |
• | upside from economic growth and/or inflation. |
• | an estimated 17.3% interest in 8,279 kilometers, or km, of transmission lines in Chile that serve 98% of the population of the country which include 100% of Chile’s 500 kV transmission lines, the highest voltage lines in the country, and approximately 46% of the transmission lines between 110 kV and 500 kV in Chile; | |
• | ownership of 7% to 18% interests in a group of five related transmission investments comprising over 2,100 km of transmission lines in Brazil, with one transmission line located in the south and the remaining four lines located in the northeast. Four of the lines are rated 500 kV or higher and one line is rated at 230 kV. The transmission lines began service between 2002 and 2005. Our Brazilian transmission investments will be transferred by Brookfield to us following closing of the spin-off upon receipt of required regulatory approvals; and | |
• | a 100% interest in approximately 550 km of 44 kV to 230 kV transmission lines in Canada that comprise an important component of Ontario’s transmission system that connects generation in Northern Ontario to electricity demand in Southern Ontario. Our Ontario operations will be transferred by Brookfield to us following closing of the spin-off upon receipt of required regulatory approvals. |
• | a 37.5% interest in approximately 634,000 acres of freehold timberlands located principally on Vancouver Island with an estimated merchantable inventory of 58.0 million cubic meters, or m3, primarily comprised of high value Douglas-fir, Hemlock and Cedar with a long-run sustainable yield of 1.8 million m3, and approximately 33,625 acres of higher and better use properties, or HBU lands, which are properties that we believe will have greater value if used for a purpose other than as timberlands, such as real estate development or conservation; and | |
• | a 30% interest in approximately 588,000 acres of freehold timberlands in Oregon and Washington with an estimated merchantable inventory of 37.5 million m3, primarily comprised of high value Douglas-fir and Hemlock with a long-run sustainable yield of 2.4 million m3. |
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• | incorporate our technical insight into the evaluation and execution of acquisitions; | |
• | maintain a disciplined approach to acquisitions; | |
• | actively manage our assets to improve operating performance; and | |
• | employ a hands-on approach to key value drivers such as capital investments, development projects, follow-on acquisitions and financings. |
• | Ability to leverage Brookfield’s transaction structuring expertise. With its extensive background in the real estate, power generation and other hard asset industries, Brookfield has in depth experience acquiring hard assets and with securitization and other financing techniques which are prevalent in the real estate sector and are increasingly being utilized in infrastructure sectors where the underlying assets have similar characteristics. We will have an opportunity to benefit from this expertise. | |
• | Ability to pursue acquisitions of businesses that own infrastructure assets together with other assets that have a riskier cash flow profile. Such transactions may not be appropriate for us on a stand-alone basis. Brookfield has the skills and capital to acquire such companies and separate the infrastructure assets from the non-infrastructure assets. A good example of this is the acquisition of Longview, which had both a timber business and an integrated converting business that increased the overall risk profile of the company. Brookfield separated these two businesses and contributed an interest in the timber operations to us while retaining and restructuring the more volatile converting business. We believe that we will have an opportunity to acquire infrastructure assets through similar transactions in the future. | |
• | Ability to acquire assets developed by Brookfield through its operating platforms. Brookfield is well positioned to identify development opportunities. For example, Brookfield is actively pursuing greenfield development projects in the electricity transmission sector, and we expect that, if and when these development projects come to fruition, we will have an opportunity to acquire an interest in them from Brookfield. | |
• | Ability to participate alongside Brookfield and in or alongside Brookfield sponsored or co-sponsored consortiums and partnerships. Our acquisition strategy focuses on large scale transactions, for which we believe there is less competition and where Brookfield has sufficient influence or control so that our operations-oriented approach can be deployed to create value. Due to similar asset characteristics and capital requirements, we believe that the infrastructure industry will evolve like the real estate industry in which assets are commonly owned through consortiums and partnerships of institutional equity investors and owner/operators such as ourselves. Accordingly, an integral part of our strategy is to participate with institutional investors in Brookfield sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield sponsored or co-sponsored partnerships that target acquisitions that suit our profile. Brookfield has a strong track record of leading such consortiums and partnerships and actively managing underlying assets to improve performance. Brookfield has agreed that it will not sponsor such arrangements that are suitable for us in the infrastructure sector unless we are given an opportunity to participate. See “Relationship with Brookfield — Relationship Agreement”. Furthermore, Brookfield also has extensive financial resources including annual cash flow in excess of $1.0 billion and market capitalization of over $20 billion. Accordingly, Brookfield has the balance sheet to underwrite a significant portion of the required equity for these larger transactions and syndicate equity following completion, enabling us to act quickly and provide vendors with transaction certainty. |
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(1) | Brookfield will also acquire approximately 6% of our units in connection with the satisfaction of Canadian federal and U.S. “backup” withholding tax requirements upon the spin-off. See “The Spin-Off”. |
(2) | Brookfield’s limited partnership interest in the Infrastructure Partnership will be redeemable for cash or exchangeable for our units, in accordance with the Redemption-Exchange Mechanism, which could result in Brookfield Asset Management eventually owning 39% of our issued and outstanding units, in addition to the units referenced in (1). See “Description of the Infrastructure Partnership Limited Partnership Agreement — Redemption-Exchange Mechanism”. |
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• | our investments in TBE, our Brazilian transmission investments, which will be transferred to us by Brookfield in the fourth quarter of 2007 following receipt of regulatory approval; | |
• | Great Lakes Power Limited Transmission Division, which holds our Ontario transmission operations, which will be transferred to us by Brookfield in the fourth quarter of 2007 following receipt of regulatory approval; and | |
• | our increased investment in Transelec which will be made in the first quarter of 2008 as a result of a purchase price adjustment following finalization of Transelec’s current transmission rate proceeding. |
As at and for the | As at and for the | |||||||||||||||
Nine Months Ended | Year Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | 2006 | 2005 | |||||||||||||
Revenue | $ | 453.2 | $ | 207.7 | $ | 307.8 | $ | 102.8 | ||||||||
Direct operating costs | (207.8 | ) | (112.1 | ) | (163.0 | ) | (77.9 | ) | ||||||||
245.9 | 95.6 | 144.8 | 24.9 | |||||||||||||
Net income | $ | (16.8 | ) | $ | 7.6 | $ | (4.9 | ) | $ | 1.0 | ||||||
Depreciation and amortization | 108.2 | 29.0 | 49.7 | 12.7 | ||||||||||||
Deferred income taxes | (12.1 | ) | 5.9 | (2.3 | ) | — | ||||||||||
Performance fee payable | — | — | 40.0 | — | ||||||||||||
Minority interests in the foregoing items | (41.4 | ) | (21.8 | ) | (49.6 | ) | (6.4 | ) | ||||||||
Funds from operations(1) | $ | 37.9 | $ | 20.7 | $ | 32.9 | $ | 7.3 | ||||||||
Total assets | $ | 7,320.3 | $ | 4,627.8 | $ | 973.4 | ||||||||||
Divisional equity | $ | 1,280.7 | $ | 349.8 | $ | 266.8 |
(1) | Funds from operations is defined as net income adding back depreciation and amortization, deferred income taxes and a performance fee accrued, net of minority interest related to those items, which are either directly on the statement of income or are a component of the equity earnings of an underlying investee company. Funds from operations is a measure of operating performance that is not calculated in accordance with U.S. GAAP. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure” for a discussion of funds from operations and its limitations as a measure of our operating performance. The table above presents a reconciliation of funds from operations to net income. We consider funds from operations to be a measure of operating performance. The elimination of cash items from a non-GAAP liquidity measure would be prohibited by U.S. rules promulgated by the Securities and Exchange Commission. However, in accordance with the policies of Canadian securities regulators, notwithstanding that we consider funds from operations to be a measure of |
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As at and for the | For the | |||||||||||||||
Nine Months Ended | Years Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | 2006 | 2005 | |||||||||||||
Funds from operations | $ | 37.9 | $ | 20.7 | $ | 32.9 | $ | 7.3 | ||||||||
Accrued interest on debt | — | — | 60.6 | — | ||||||||||||
Other changes in non-cash working capital | 2.3 | (33.6 | ) | (2.2 | ) | 13.0 | ||||||||||
Minority interest | 50.7 | 19.5 | 30.8 | 7.4 | ||||||||||||
Cash flow from operating activities | $ | 90.9 | $ | 6.6 | $ | 122.1 | $ | 27.7 | ||||||||
As at and for the | For the | For the | ||||||||||
Nine Months Ended | Year Ended | Year Ended | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Revenue | $ | 24.4 | $ | 29.7 | $ | 23.9 | ||||||
Direct operating costs | (4.1 | ) | (5.3 | ) | (5.0 | ) | ||||||
20.3 | 24.4 | 18.9 | ||||||||||
Net income | $ | 19.2 | $ | 17.9 | $ | 8.0 | ||||||
Depreciation and amortization | 28.4 | 26.9 | 12.6 | |||||||||
Deferred income taxes | (5.5 | ) | (1.8 | ) | 0.1 | |||||||
Performance fee payable | — | 15.0 | — | |||||||||
Funds from operations(1) | $ | 42.1 | $ | 58.0 | $ | 20.7 | ||||||
Total assets | $ | 1,051.8 | ||||||||||
Partnership equity | $ | 875.3 |
(1) | Funds from operations is defined as net income adding back depreciation and amortization, deferred income taxes and a performance fee accrued, which are either directly on the statement of income or are a component of the equity earnings of an underlying investee company. Funds from operations is a measure of operating performance that is not calculated in accordance with U.S. GAAP. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measure” for a discussion of funds from operations and its limitations as a measure of our operating performance. The table above presents a reconciliation of funds from operations to net income. Only net income has been used as the basis for the calculation of funds from operations because a pro forma statement of cash flows for the Infrastructure Partnership is not available. Only a pro forma statement of net income is available. |
As at and for the | For the | For the | ||||||||||
Nine Months Ended | Year Ended | Year Ended | ||||||||||
September 30, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Revenue | $ | 11.5 | $ | 10.7 | $ | 4.8 | ||||||
Net income | $ | 11.5 | $ | 10.7 | $ | 4.8 | ||||||
Total assets | $ | 525.2 | ||||||||||
Partnership equity | $ | 525.2 |
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Questions | Answers About the Spin-Off | |
How will the spin-off work? | Brookfield intends to effect a reorganization so that the current operations are acquired by the Holding Entities, which will be wholly-owned by the Infrastructure Partnership. Brookfield Asset Management will hold an approximate 60% limited partnership interest in the Infrastructure Partnership and one or more wholly-owned subsidiaries of Brookfield Asset Management will hold the remaining 40% interest in the Infrastructure Partnership through a 1% general partnership interest and a 39% limited partnership interest in the Infrastructure Partnership. Brookfield Asset Management will transfer the approximate 60% limited partnership interest in the Infrastructure Partnership that it holds to our partnership in consideration of our units. These units will then be distributed by Brookfield Asset Management to holders of its Class A limited voting shares and Class B limited voting shares as a special dividend. For additional information on the spin-off, see “The Spin-Off.” | |
What will our relationship with Brookfield Asset Management be after the spin-off? | For information on our relationship with Brookfield after the spin-off, see “Relationship with Brookfield.” | |
When will the spin-off be completed? | Brookfield Asset Management expects to complete the spin-off by distributing our units on January 31, 2008 to holders of record of Brookfield Asset Management’s Class A limited voting shares and Class B limited voting shares on the record date set for the special dividend. For additional information on the spin-off, see “The Spin-Off.” | |
What is the record date for the distribution? | January , 2008. | |
If I am a holder of Brookfield Asset Management Class A limited voting shares or Class B limited voting shares, what do I have to do to participate in the distribution? | Nothing. You are not required to pay for our units to be received by you upon the spin-off or tender or surrender your Class A limited voting shares or Class B limited voting shares of Brookfield Asset Management or take any other action in connection with the spin-off. No vote of Brookfield Asset Management’s shareholders will be required for the spin-off. If you own Brookfield Asset Management voting Class A limited voting shares or Class B limited voting shares as of the close of business on the record date, a certificate or a book-entry account statement reflecting your ownership of our units will be mailed to you, or your brokerage account will be credited for our units, on or about January 31, 2008. |
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Questions | Answers About the Spin-Off | |
How many of your limited partnership units will I receive? | Brookfield Asset Management will distribute one of our units for every twenty-five Class A limited voting shares or Class B limited voting shares of Brookfield Asset Management you own of record as of the close of business on the record date. Based on approximately Class A limited voting shares and Class B limited voting shares of Brookfield Asset Management that we expect to be outstanding on the record date, Brookfield Asset Management will distribute approximately 24 million units of our partnership. No holder will be entitled to receive any fractional interests in our units. Holders who would otherwise be entitled to a fractional unit will receive a cash payment. For additional information on the distribution, see “The Spin-Off.” | |
Is the spin-off taxable for United States and Canadian federal income tax purposes? | Holders who receive units of our partnership pursuant to the spin-off will be considered to have received a taxable dividend equal to the fair market value of our units so received plus the amount of any cash received in lieu of fractional units. Non-Canadian limited partners who acquire our units pursuant to the spin-off will be considered to have received a taxable dividend for Canadian federal income tax purposes and will be subject to Canadian federal withholding tax on the amount of the special dividend. See “Material Tax Considerations” for further detail on the United States and Canadian federal income tax consequences of the receipt, holding or disposition of our units. | |
Do you intend to make distributions on your limited partnership units? | Under our limited partnership agreement, distributions to our unitholders will be made only as determined by our Managing General Partner in its sole discretion. Our Managing General Partner expects to adopt a distribution policy for our partnership pursuant to which our partnership will make quarterly cash distributions in an initial amount of $ per unit to unitholders of record as of the record date for each calendar quarter. This distribution policy will target a distribution level that is sustainable on a long-term basis while retaining sufficient liquidity to carry out necessary maintenance capital expenditures and for general purposes. We believe that a distribution of 65% to 75% of funds from operations will allow us to meet these objectives. See “Distribution Policy” for additional information on our distribution policy following the spin-off. | |
Where will I be able to trade your limited partnership units? | There is currently no public trading market for our units. However, our units have been approved for listing on the NYSE under the symbol “BIP”. |
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Questions | Answers About the Spin-Off | |
Will the number of Brookfield Asset Management shares I own change as a result of the spin-off? | No. The number of Class A limited voting shares and Class B limited voting shares of Brookfield Asset Management that you own will not change as a result of the spin-off. | |
What will happen to the listing of Brookfield Asset Management’s Class A limited voting shares? | Nothing. Brookfield Asset Management’s Class A limited voting shares will continue to be traded on the New York and Toronto stock exchanges under the ticker symbols “BAM” and “BAM.A”, respectively. | |
Who do I contact for information regarding you and the spin-off? | Before the spin-off, you should direct inquiries relating to the spin-off to: | |
Brookfield Asset Management Inc. Suite 300, Brookfield Place 181 Bay Street P.O. Box 762 Toronto, Ontario, Canada M5J 2T3 Attention: Denis Couture (416) 363-9491 | ||
After the spin-off, you should direct inquiries relating to our units to: | ||
Brookfield Infrastructure Group Corporation Three World Financial Center 11th Floor New York, New York, USA 10281-1021 Attention: John Stinebaugh (212) 417-7275 | ||
After the spin-off, the transfer agent and registrar for our units will be: | ||
BNY Mellon Shareowner Services 480 Washington Blvd. Jersey City, New Jersey, USA 07310 |
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• | there is no accepted industry standard for what constitutes an infrastructure asset. Brookfield may consider certain assets that have both real-estate related characteristics and infrastructure related characteristics to be real estate and not infrastructure; | |
• | it is an integral part of Brookfield’s (and our) strategy to pursue the acquisition of infrastructure assets through consortium arrangements with institutional investors, strategic partners or financial sponsors and to form partnerships to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed with us that it will not enter any such arrangements that are suitable for us without giving us an opportunity to participate in them, there is no minimum level of participation to which we will be entitled; | |
• | the same professionals within Brookfield’s organization that are involved in acquisitions that are suitable for us are responsible for the consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield’s broader asset management business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for us; |
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• | Brookfield will only recommend acquisition opportunities that it believes are suitable for us. Our focus is on assets where we believe that our operations-oriented approach can be deployed to create value. Accordingly, opportunities where Brookfield cannot play an active role in influencing the underlying operating company or managing the underlying assets may not be suitable for us, even though they may be attractive from a purely financial perspective. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and will limit our ability to participate in these more passive investments and may limit our ability to have more than 50% of our assets concentrated in a single jurisdiction; and | |
• | in addition to structural limitations, the question of whether a particular acquisition is suitable is highly subjective and is dependent on a number of factors including our liquidity position at the time, the risk profile of the opportunity, its fit with the balance of our then current operations and other factors. If Brookfield determines that an opportunity is not suitable for us, it may still pursue such opportunity on its own behalf, or on behalf of a Brookfield sponsored partnership or consortium. |
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• | changes in our financial performance and prospects and Brookfield’s financial performance and prospects or in the financial performance and prospects of companies engaged in businesses that are similar to us or Brookfield; | |
• | the termination of our Master Services Agreement or the departure of some or all Brookfield’s professionals; | |
• | changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to us; | |
• | sales of our units by our unitholders; | |
• | general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events; | |
• | speculation in the press or investment community regarding us or Brookfield or factors or events that may directly or indirectly affect us or Brookfield; and | |
• | a loss of a major funding source. |
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• | our lack of a separate operating history; | |
• | differences between our objectives and the objectives of Brookfield; | |
• | our ability to execute our growth strategy including completion of acquisitions and to achieve desired results from acquisitions; | |
• | our partnership’s ability to make distributions; | |
• | the continuation of the Manager under our Master Services Agreement, the continued affiliation with Brookfield of its key professionals and the continued willingness of Brookfield to pursue acquisitions; | |
• | our financial condition and liquidity and the financial condition and liquidity of the Infrastructure Partnership; | |
• | changes in financial markets, interest rates, general economic or political conditions; | |
• | the general volatility of the capital markets and the market price of our units; and | |
• | other factors described in this prospectus, including those set forth under “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”. |
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(1) | Brookfield will also acquire approximately 6% of our units in connection with the satisfaction of Canadian federal and U.S. “backup” withholding tax requirements upon the spin-off. See “The Spin-Off”. |
(2) | Brookfield’s limited partnership interest in the Infrastructure Partnership will be redeemable for cash or exchangeable for our units in accordance with the Redemption-Exchange Mechanism, which could result in Brookfield Asset Management eventually owning 39% of our issued and outstanding units, in addition to the units referenced in (1). See “Description of the Infrastructure Partnership Limited Partnership Agreement — Redemption-Exchange Mechanism”. |
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As at September 30, 2007 | ||||||||
Actual | Pro Forma(2) | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Limited partnership investment in the Infrastructure Partnership(1) | $ | 2 | $ | 631.1 million | ||||
Total assets | 2 | 631.1 million | ||||||
Liabilities | $ | — | 105.9 million | |||||
Net assets | 2 | 525.2 million | ||||||
Total net assets | $ | 2 | $ | 525.2 million | ||||
(1) | Includes the value of cash held by the Infrastructure Partnership and its subsidiaries. |
(2) | See “Unaudited Pro Forma Financial Statements”. |
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• | 27.8% interest in Transelec Chile S.A., or Transelec, our Chilean transmission operations, which Brookfield acquired in June 2006; |
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• | 50% interest in Island Timberlands Limited Partnership, or Island Timberlands, our Canadian timber operations, which Brookfield acquired in May 2005; and | |
• | 100% interest in Longview Timber Holdings Corp., or Longview, our U.S. timber operations, which Brookfield acquired on April 20, 2007. |
• | our investments in the Transmissions Brasilerias De Energica companies, or TBE, our Brazilian transmission investments, which will be transferred to us by Brookfield in the fourth quarter of 2007 following receipt of regulatory approval; | |
• | Great Lakes Power Limited Transmission Division, which holds our Ontario transmission operations, which will be transferred to us by Brookfield in the fourth quarter of 2007 following receipt of regulatory approval; and | |
• | our increased investment in Transelec which will be made in the first quarter of 2008 as a result of a purchase price adjustment following finalization of Transelec’s current transmission rate proceeding. |
• | funds from operations does not include depreciation and amortization expense; because we own capital assets with finite lives, depreciation and amortization expense recognizes the fact that we must maintain or replace our asset base in order to preserve our revenue generating capability; | |
• | funds from operations does not include deferred income taxes, which may become payable if we own our assets for a long period of time; and | |
• | funds from operations does not include a performance fee accrued in 2006 relating to our Canadian timber operations, which will be required to be paid in cash and which type of fee we expect we will accrue in the future. |
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As at and for the | As at and for the | ||||||||||||||||
Nine Months Ended | Year Ended | ||||||||||||||||
September 30, | December 31, | ||||||||||||||||
2007 | 2006 | 2006 | 2005 | ||||||||||||||
(unaudited) | |||||||||||||||||
(MILLIONS) | |||||||||||||||||
Revenue | $ | 453 | .2 | $ | 207.7 | $ | 307.7 | $ | 102.8 | ||||||||
Funds from operations | 37 | .9 | 20.7 | 32.9 | 7.3 | ||||||||||||
Net income (loss) | (16 | .8 | ) | 7.6 | (4.9 | ) | 1.0 | ||||||||||
Total assets | 7,320 | .3 | 4,627.8 | 973.4 | |||||||||||||
Non-recourse borrowings | 3,200 | .9 | 1,712.9 | 410.0 | |||||||||||||
Divisional equity | 1,280 | .7 | 349.8 | 266.8 |
Nine Months Ended | Year Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | 2006 | 2005 | |||||||||||||
(unaudited) | ||||||||||||||||
(MILLIONS) | ||||||||||||||||
Net income (loss) | $ | (16.8 | ) | $ | 7.6 | $ | (4.9 | ) | $ | 1.0 | ||||||
Add back or deduct the following: | ||||||||||||||||
Depreciation, depletion and amortization | 108.2 | 29.0 | 49.7 | 12.7 | ||||||||||||
Deferred taxes and other | (12.1 | ) | 5.9 | 37.7 | — | |||||||||||
Minority interest in the foregoing | (41.4 | ) | (21.8 | ) | (49.6 | ) | (6.4 | ) | ||||||||
Funds from operations(1) | $ | 37.9 | $ | 20.7 | $ | 32.9 | $ | 7.3 | ||||||||
(1) | We consider funds from operations to be a measure of operating performance. The elimination of cash items from a non-GAAP liquidity measure would be prohibited by U.S. rules promulgated by the Securities and Exchange Commission. However, in accordance with the policies of Canadian |
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As at and for the | For the | |||||||||||||||
Nine Months Ended | Years Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | 2006 | 2005 | |||||||||||||
Funds from operations | $ | 37.9 | $ | 20.7 | $ | 32.9 | $ | 7.3 | ||||||||
Accrued interest on debt | — | — | 60.6 | — | ||||||||||||
Other changes in non-cash working capital | 2.3 | (33.6 | ) | (2.2 | ) | 13.0 | ||||||||||
Minority interest | 50.7 | 19.5 | 30.8 | 7.4 | ||||||||||||
Cash flow from operating activities | $ | 90.9 | $ | 6.6 | $ | 122.1 | $ | 27.7 | ||||||||
Nine Months Ended | Year Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2007 | 2006 | 2006 | 2005 | |||||||||||||
(unaudited) | ||||||||||||||||
(MILLIONS) | ||||||||||||||||
Net income (loss) by segment | ||||||||||||||||
Electricity transmission | $ | 6.4 | $ | 1.4 | $ | 5.9 | $ | — | ||||||||
Timber | (23.2 | ) | 6.2 | (10.8 | ) | 1.0 | ||||||||||
Net income (loss) | $ | (16.8 | ) | $ | 7.6 | $ | (4.9 | ) | $ | 1.0 | ||||||
Funds from operations by segment | ||||||||||||||||
Electricity transmission | $ | 19.3 | 6.8 | $ | 13.5 | $ | — | |||||||||
Timber | 18.6 | 13.9 | 19.4 | 7.3 | ||||||||||||
Funds from operations | $ | 37.9 | 20.7 | $ | 32.9 | $ | 7.3 | |||||||||
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Combined Basis | Proportionate Share(2) | |||||||||||||||
Nine Months Ended | Year Ended | Nine Months Ended | Year Ended | |||||||||||||
September 30, 2007 | December 31, 2006(3) | September 30, 2007 | December 31, 2006(3) | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
(MILLIONS) | ||||||||||||||||
Revenue | $ | 180.3 | $ | 110.5 | $ | 19.3 | $ | 11.8 | ||||||||
Net operating income | 149.8 | 85.7 | 16.0 | 9.2 | ||||||||||||
Investment and other income | 23.9 | 11.5 | 2.6 | 1.2 | ||||||||||||
Interest expense, net of interest income on restricted cash(4) | (127.9 | ) | (72.4 | ) | (11.2 | ) | (5.5 | ) | ||||||||
Minority interest in net income before the following(1) | (26.5 | ) | (11.3 | ) | — | — | ||||||||||
Funds from operations | 19.3 | 13.5 | 7.4 | 4.9 | ||||||||||||
Depreciation and amortization | (41.3 | ) | (29.3 | ) | (4.4 | ) | (3.1 | ) | ||||||||
Deferred taxes and other | (4.9 | ) | 2.3 | (0.5 | ) | 0.3 | ||||||||||
Minority interest in the foregoing items(1) | 33.3 | 19.4 | — | — | ||||||||||||
Net income | $ | 6.4 | $ | 5.9 | $ | 2.5 | $ | 2.1 | ||||||||
Net equity investment | $ | 131.3 | $ | 123.0 | ||||||||||||
Annualized cash return on equity | 7.5 | % | 7.8 | % |
(1) | Reflects the 72.2% interest of investors other than Brookfield. | |
(2) | Proportionate share is based on the Infrastructure Partnership’s ownership interest upon completion of the spin-off of 10.7%. | |
(3) | Reflects nine months of results. | |
(4) | Interest expense is presented net of income on restricted cash segregated to satisfy debt. |
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Year Ended | ||||
December 31, 2006 | ||||
(MILLIONS) | ||||
Contracts with escalation | $ | 4.1 | ||
Regulated revenue with escalation | 7.4 | |||
11.5 | ||||
Other transmission revenue | 0.3 | |||
$ | 11.8 | |||
• | Increase in ownership of our Chilean transmission operations. Had we owned our Chilean operations for the full year ended December 31, 2006 and had the adjustments described above under “— Business Developments” been in place for the full year, our share of net operating income, funds from operations and net income would have been $31.7 million, $18.8 million and $9.3 million, respectively, from these operations. | |
• | Acquisition of our Ontario transmission operations. Our Ontario transmission operations generated $24.4 million of net operating income, $13.4 million of funds from operations and $10.1 million of net income during 2006. | |
• | Acquisition of our Brazilian transmission investments. Our Brazilian transmission investments, which will be accounted for on a cost basis, generated annualized dividends of $11.2 million in 2006, representing an approximate 6.9% return on our initial investments. These annualized dividends were less than the returns represented by underlying funds from operations due to the utilization of cash flow to satisfy scheduled amortization of non-recourse debt and preferred stock that fully amortize over the next eight years. |
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Combined Basis | ||||||||||||||||
Nine Months Ended | Year Ended | |||||||||||||||
September 30, | September 30, | December 31, | December 31, | |||||||||||||
2007(3) | 2006 | 2006 | 2005(1) | |||||||||||||
(unaudited) | ||||||||||||||||
(MILLIONS) | ||||||||||||||||
Revenue | $ | 272.9 | $ | 151.6 | $ | 197.3 | $ | 102.8 | ||||||||
Net operating income | $ | 95.6 | $ | 47.3 | $ | 59.1 | $ | 24.9 | ||||||||
Investment and other income | 10.4 | (0.7 | ) | 4.7 | 2.1 | |||||||||||
Interest expense | (63.2 | ) | (18.7 | ) | (24.9 | ) | (12.7 | ) | ||||||||
Minority interest in net income before the following(2) | (24.2 | ) | (14.0 | ) | (19.5 | ) | (7.2 | ) | ||||||||
Funds from operations | 18.6 | 13.9 | 19.4 | 7.1 | ||||||||||||
Depreciation, depletion and amortization | (66.9 | ) | (15.4 | ) | (20.4 | ) | (12.7 | ) | ||||||||
Performance fee and other | — | — | (40.0 | ) | — | |||||||||||
Deferred taxes | 17.0 | — | — | — | ||||||||||||
Minority interest in the foregoing items(2) | 8.1 | 7.7 | 30.2 | 6.4 | ||||||||||||
Net income (loss) | $ | (23.2 | ) | $ | 6.2 | $ | (10.8 | ) | $ | 0.8 | ||||||
(1) | Reflects seven months of results from our Canadian operations. | |
(2) | Reflects the 50% interests in our Canadian operations of investors other than Brookfield. | |
(3) | Reflects 162 days of results from our U.S. operations. |
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Proportionate Share(2) | ||||||||||||||||
Nine Months Ended | Year Ended | |||||||||||||||
September 30, | September 30, | December 31, | December 31, | |||||||||||||
2007(3) | 2006 | 2006 | 2005(1) | |||||||||||||
(unaudited) | ||||||||||||||||
(MILLIONS) | ||||||||||||||||
Revenue | $ | 95.7 | $ | 56.9 | $ | 74.9 | $ | 39.2 | ||||||||
Net operating income | $ | 33.2 | $ | 17.8 | $ | 23.0 | $ | 10.0 | ||||||||
Investment and other income | 3.7 | (0.3 | ) | 0.9 | 0.3 | |||||||||||
Interest expense | (20.4 | ) | (7.0 | ) | (9.3 | ) | (4.7 | ) | ||||||||
Funds from operations | 16.5 | 10.5 | 14.6 | 5.6 | ||||||||||||
Depreciation, depletion and amortization | (21.3 | ) | (5.8 | ) | (7.7 | ) | (4.8 | ) | ||||||||
Performance fee | — | — | (15.0 | ) | — | |||||||||||
Deferred taxes and other | 5.1 | — | — | — | ||||||||||||
Net income (loss) | $ | 0.3 | $ | 4.7 | $ | (8.1 | ) | $ | 0.8 | |||||||
Net equity investment | $ | 368.7 | $ | 169.8 | $ | 191.5 | ||||||||||
Cash return on equity | 6.0 | % | 8.5 | % | 4.9 | % | ||||||||||
(1) | Reflects seven months of results from our Canadian operations. | |
(2) | Proportionate share is based on the Infrastructure Partnership’s ownership interest upon completion of the spin-off of 37.5% for Island Timberlands and 30.0% for Longview. | |
(3) | Reflects 162 days of results of Longview. |
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Year Ended | Year Ended(1) | |||||||||||||||||||||||
December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||
Harvest (m3) | Sales (m3) | Revenue | Harvest (m3) | Sales (m3) | Revenue | |||||||||||||||||||
(MILLIONS, VOLUME IN THOUSANDS) | ||||||||||||||||||||||||
Douglas-fir | 452.7 | 440.4 | $ | 43.4 | 291.0 | 237.7 | $ | 22.2 | ||||||||||||||||
Whitewood | 244.7 | 244.2 | 13.8 | 78.3 | 181.0 | 8.9 | ||||||||||||||||||
Other | 87.3 | 85.9 | 14.5 | 22.3 | 58.4 | 4.7 | ||||||||||||||||||
784.7 | 770.5 | 71.7 | 391.6 | 477.1 | 35.8 | |||||||||||||||||||
Gain on HBU and other sales | 3.2 | 3.5 | ||||||||||||||||||||||
$ | 74.9 | $ | 39.3 | |||||||||||||||||||||
(1) | Reflects seven months of results from our Canadian operations. |
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• | Acquisition of U.S. timber operations. The timber segment’s share of net operating income, funds from operations and net income from our U.S. operations would have been $30.1 million, $10.9 million and $8.0 million, respectively, had they been held for the full year of 2006 and taking into account the acquisition financing and elimination of certain non-recurring items all of which is reflected in our pro forma financial statements. | |
• | Increase in harvest levels. Our share of the 2006 harvest in our Canadian operations was 14% below planned levels, due to challenging weather conditions. We expect harvest levels to return to planned levels going forward. As a result of a substantial surplus of merchantable standing inventory in our U.S. operations, we expect to have the opportunity to increase harvest levels by approximately 40% relative to 2006 levels, and sustain this higher level for a period of ten years before falling back to the long run sustainable yield of approximately 10% above 2006 levels. In order to capture the full value of this opportunity, this increase in harvest will be staged in as market conditions improve. | |
• | Increased margins. Over time as our product mix evolves to a greater percentage of secondary harvest relative to primary harvest in our Canadian operations, we expect our margins to increase due to the lower harvesting costs of our secondary harvest product. |
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• | long-term final maturity with little or no principal amortization; | |
• | local currency denomination to hedge currency risk by matching our revenues with liabilities; and | |
• | inflation linked financings to the extent that our assets and associated revenue streams are indexed to inflation in order to hedge inflation and lower borrowing costs. |
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Average | ||||||||||||||||||||||||||||||||
Term | ||||||||||||||||||||||||||||||||
Millions | (years) | 2007 | 2008 | 2009 | 2010 | 2011 | Beyond | Total | ||||||||||||||||||||||||
Combined | 8.0 | $ | 29.3 | 1,283.7 | $ | — | $ | — | 490.3 | $ | 1,397.6 | $ | 3,200.9 | |||||||||||||||||||
Proportionate | 7.0 | 3.1 | 385.1 | — | — | 52.5 | 259.4 | 700.1 |
Balance | ||||||||
September 30, | December 31, | |||||||
Millions | 2007 | 2006 | ||||||
(unaudited) | ||||||||
(MILLIONS) | ||||||||
Electricity transmission | $ | 884.6 | $ | 242.2 | ||||
Timber | 226.3 | 226.1 | ||||||
Total | $ | 1,110.9 | $ | 468.3 | ||||
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Expected Maturity Dates | ||||||||||||||||||||||||||||
December 31, 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | |||||||||||||||||||||
($ EQUIVALENT IN MILLIONS) | ||||||||||||||||||||||||||||
Interest rate sensitivity | ||||||||||||||||||||||||||||
Current assets(a) | $ | 108.4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 108.4 | ||||||||||||||
Current liabilities(b) | (150.0 | ) | — | — | — | — | — | (150.0 | ) | |||||||||||||||||||
Net floating rate position | (41.6 | ) | — | — | — | — | — | (41.6 | ) | |||||||||||||||||||
Chilean Inflation Sensitivity | ||||||||||||||||||||||||||||
Long term debt(c) | $ | (211.1 | ) | $ | (1.1 | ) | $ | (2.2 | ) | $ | (2.2 | ) | $ | (3.3 | ) | $ | (564.2 | ) | $ | (784.1 | ) | |||||||
(a) | Current assets includes short term money market instruments (time deposits etc.) used primarily for cash management purposes. |
(b) | Current liabilities includes a short term loan that matures in 2007. |
(c) | Long term debt contains our Chilean transmission operations’ debt that is denominated in UF. |
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December 31, 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | |||||||||||||||||||||||||
(In USD, MILLIONS) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
USD | 661.8 | — | — | — | 220.0 | — | 881.8 | |||||||||||||||||||||||||
CLP | — | — | — | — | — | — | — | |||||||||||||||||||||||||
UF | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
USD | — | — | — | — | — | — | — | |||||||||||||||||||||||||
CLP | (665.3 | ) | — | — | — | — | — | (665.3 | ) | |||||||||||||||||||||||
UF | (211.1 | ) | (1.1 | ) | (2.2 | ) | (2.2 | ) | (274.9 | ) | (564.2 | ) | (1,055.7 | ) | ||||||||||||||||||
Net exposure | ||||||||||||||||||||||||||||||||
USD | 661.8 | — | — | — | 220.0 | — | 881.8 | |||||||||||||||||||||||||
CLP | (665.3 | ) | — | — | — | — | — | (665.3 | ) | |||||||||||||||||||||||
UF | (211.1 | ) | (1.1 | ) | (2.2 | ) | (2.2 | ) | (274.9 | ) | (564.2 | ) | (1,055.7 | ) | ||||||||||||||||||
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• | Timberland Carrying Value. Timberlands are carried at cost less accumulated depletion. Site preparation and planting costs are capitalized as reforestation. Reforestation is transferred to a merchantable timber classification after 30 years. Depletion of the timberlands is based on the volume of timber estimated to be available over the harvest cycle. The process of estimating sustainable harvest is complex, requiring significant estimation in the evaluation of timber stand volumes based on the development of yield curves derived from data on timber species, timber stand age and growing site indexes gathered from a physical sampling of the timberland resource base. Although every reasonable effort is made to ensure that the sustainable harvest determination represents the most accurate assessment possible, subjective decisions and variances in sampling data from the actual timberland resource base make this determination generally less precise than other estimates used in the preparation of the combined financial statements. Changes in the determination of sustainable harvest could result in corresponding changes in the provision for depletion of the private timberland asset. Rates of depletion are revised for material changes to growth and harvest assumptions and are adjusted for any significant acquisition or disposition of timber. A 5% decrease in estimated timber volume available over the harvest cycle would have increased 2006 depletion expense by approximately $0.3 million. | |
• | Island Timberlands Performance Fee. Accrual of the expense relating to the Island Timberlands performance fee (December 31, 2006 — $40.0 million) is determined based upon estimates of the fair market value of Island Timberland’s timber business determined utilizing a discounted cash flow approach. Based on this analysis, the timber business is estimated to be valued at approximately $875 million as at December 31, 2006. Below, we have outlined the material assumptions that underlie the estimated valuation as well as a sensitivity analysis for each material assumption: |
• | Timber growth and depletion over the next 10 years. Studies have shown that a base level cut of about 1,843,000 cubic meters per year is sustainable over the long term, with an additional 547,000 cubic meters available for the next 10 years primarily due to the existence of a surplus of mature timber. If sustainable harvest rates decreased/increased by 10%, the value of the timber assets would decrease/increase to $784 million and $976 million, respectively. | |
• | Log prices. The estimated valuation assumes that log prices will remain unchanged for the next few years and then gradually increase. If log prices decreased/increased by 10%, the value of the timber assets would decrease/increase to $653 million and $1,097 million, respectively. | |
• | A discount rate of 7.23% was used in the appraisal. If the discount rate increased/decreased by 10%, the value of the timber assets would decrease/increase to $969 million and $798 million, respectively. |
• | Lot selling prices. The estimated valuation assumes lot selling prices based on market averages in the region. If lot selling prices decreased/increased by 10%, the value of the HBU land would decrease/increase to $287 million and $347 million, respectively. | |
• | Discount rate. If the discount rate used of 7.23% increased/decreased by 10%, the value of the HBU land would decrease/increase to $362 million and $280 million, respectively. |
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• | Goodwill. Impairment testing for goodwill is performed on an annual basis by the underlying investments. The first part of the test is a comparison of the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value is less than the carrying value, then the second part of the test is required to measure the amount of potential goodwill impairment. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill (that shall be determined in the same manner as the amount of goodwill recognized in a business combination) with the carrying amount of that goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, then we would recognize an impairment loss in the amount of the difference, which would be recorded as a charge to income. The fair value of the reporting unit is determined using discounted cash flow models. In order to estimate future cash flows, we must make assumptions about future events that are highly uncertain at the time of estimation. For example, we make assumptions and estimates about future interest rates, exchange rates, electricity transmission rate increases, cost trends, including expected operating and maintenance costs and taxes. The number of years included in determining discounted cash flow, in our opinion, is estimable because the number is closely associated with the useful lives of our transmission lines and other tangible assets. These useful lives are determinable based on historical experience and electricity transmission regulatory framework. The discount rate used in the analysis may fluctuate as economic conditions changes. Therefore, the likelihood of a change in estimate in any given period may be relatively high. | |
• | Intangible Assets. Intangible asset that are not subject to amortization (e.g. rights-of-way) are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. Fair value of the indefinite useful life intangible assets may be assessed by reference to the market prices and if such information is not available we apply discounted cash flow models that are subject to the same inherent limitations and uncertainties as those described above related to the estimations of the fair value of our reporting unit. | |
• | Derivatives. Transelec has certain financial derivative and embedded derivative instruments that are recorded at fair value, with changes in fair value recognized in earnings under the U.S. Financial Accounting Standards Board Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, except for certain instruments that qualify and are effective hedges of the foreign exchange risk exposure in the net investment of our transmission assets for which the changes in fair value are recognized in other comprehensive income. In establishing the fair value of such instruments, Transelec makes assumptions based on available market data and pricing models, which may change from time to time. Calculation of fair values of financial and embedded derivatives is done using models that are based primarily on discounted future cash flows and which use various inputs. Those inputs include estimated forward exchange rates, interest rates, inflation indices, prices of metals, and others. These inputs become more difficult to predict and the estimates are less precise, the further in the future these estimates are made. As a result, fair values are highly dependent upon the assumptions being used. |
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• | the transfer to us of a 10.7% ownership interest in Transelec (which was acquired by Brookfield on June 30, 2006) and a 37.5% interest in Island Timberlands (which was acquired by Brookfield on May 30, 2005), reflecting (1) a reduction from the 27.8% and 50% ownership interests in Transelec and Island Timberlands, respectively, in the infrastructure division’s historical financial statements and (2) a change in method of accounting for such interests from consolidation to equity accounting; | |
• | the investment of $102.7 million of equity into Transelec to fund an adjustment to the original purchase price of Transelec due to an increase in the regulated asset value of our Chilean transmission operations; as a result of our disproportionate funding of such equity investment, the Infrastructure Partnership’s 10.7% ownership interest in Transelec will increase to an estimated 17.3% ownership interest; | |
• | the transfer to us of a 30% interest in Longview Fibre Company’s timberland operations reflecting (1) a reduction from the 100% interest in Longview Fibre Company acquired by Brookfield on April 20, 2007 included in the infrastructure division’s historical financial statements, (2) adjustments to Longview Fibre Company’s historical financial statements for the sale by Longview Fibre Company of eight converting facilities and all of its manufacturing operations prior to the Infrastructure Partnership’s acquisition of its interest in our U.S. timber operations and (3) a change in method of accounting for our U.S. timber operations from consolidation to equity accounting; | |
• | the transfer to us of interests ranging from 7% to 18% in five separate, but related, Brazilian electricity transmission investments, which are collectively referred to as TBE, expected to occur in the fourth quarter of 2007. The transaction which is subject to regulatory approval, will be cost accounted for by the Infrastructure Partnership; and | |
• | the spin-off and related transactions including entry into our Master Services Agreement and the issuance by the Holding Entities of preferred shares to Brookfield. |
• | the transfer to us of the 37.5% interest in Island Timberlands as though the transfer had occurred as of May 31, 2005 (the date of Brookfield Asset Management’s initial investment), reflecting both a reduction from the 50% ownership in the historical financial statements of the infrastructure division and a change in method of accounting for the interest from consolidation to equity accounting, and |
• | the transfer to us of a 100% ownership interest in the transmission division of Great Lakes Power Limited (referred to as our Ontario transmission operations), which was originally acquired by Brookfield in 1982, upon receipt of regulatory approval expected in the fourth quarter of 2007, the results of which will be consolidated in the Infrastructure Partnership’s financial statements as though the transfer had occurred as of January 1, 2005. |
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PRO FORMA BALANCE SHEET
AS AT SEPTEMBER 30, 2007
(Unaudited, in millions of U.S. dollars)
Deconsolidation | Deconsolidation | Deconsolidation | ||||||||||||||||||||||||||||||||||
and Change | and Change | and Change | ||||||||||||||||||||||||||||||||||
of Ownership | of Ownership | of Ownership | ||||||||||||||||||||||||||||||||||
Combined | Adjustments- | Adjustments- | Adjustments | Ontario | Other | Pro | ||||||||||||||||||||||||||||||
Division | Island | Transelec | Longview | Adjusted | Transmission | TBE | Adj | Forma | ||||||||||||||||||||||||||||
Note references: | 1(a)i | 1(a)i | 1(a)i | 1(a)iii | 1(a)iv | |||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Current Assets | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 236.4 | $ | (31.2 | ) | $ | (118.3 | ) | $ | (50.4 | ) | $ | 36.5 | $ | 2.2 | $ | — | $ | 20.0 | 1(a)vi | $ | 58.7 | ||||||||||||||
Accounts Receivable | 61.3 | (2.8 | ) | (50.0 | ) | (8.5 | ) | — | 23.3 | — | — | 23.3 | ||||||||||||||||||||||||
Inventory | 26.9 | (20.0 | ) | (0.1 | ) | (6.8 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Prepaid expenses | 4.5 | (2.1 | ) | (0.2 | ) | (2.2 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Recoverable taxes | 3.9 | — | (3.9 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Other assets | 26.7 | — | (26.7 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Restricted Cash | 849.5 | — | (848.8 | ) | (0.7 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Goodwill | 1,059.9 | — | (469.3 | ) | (590.6 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Intangible assets | 266.5 | — | (266.5 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Property, plant and equipment | 4,601.9 | (876.6 | ) | (1,837.3 | ) | (1,888.0 | ) | — | 210.7 | — | — | 210.7 | ||||||||||||||||||||||||
Deferred income taxes | 124.9 | — | (124.9 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Other assets | 57.9 | (2.5 | ) | (52.3 | ) | (3.1 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Cost accounted investments | — | — | — | — | — | — | 163.2 | — | 163.2 | |||||||||||||||||||||||||||
Equity accounted investments | — | 169.7 | 131.3 | 199.0 | 500.0 | — | — | 102.7 | 1(a)v | 602.7 | ||||||||||||||||||||||||||
Total assets | 7,320.3 | (765.5 | ) | (3,667.0 | ) | (2,351.3 | ) | 536.5 | 236.2 | 163.2 | 122.7 | 1,058.6 | ||||||||||||||||||||||||
Liabilities and Shareholder’s equity | ||||||||||||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||||||||||||
Accounts payable | 111.0 | (13.9 | ) | (95.6 | ) | (1.5 | ) | — | 25.8 | — | — | 25.8 | ||||||||||||||||||||||||
Management fee payable — current portion | 9.0 | (9.0 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Short term bank loan | 21.3 | (2.0 | ) | (18.0 | ) | (1.3 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Other liabilities | 36.9 | (7.5 | ) | (18.0 | ) | (11.4 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Current portion of non-recourse borrowings | 29.3 | — | (29.3 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Non-Current Liabilities | ||||||||||||||||||||||||||||||||||||
Non-recourse borrowings | 3,171.6 | (410.0 | ) | (1,477.9 | ) | (1,283.7 | ) | — | 115.6 | — | — | 115.6 | ||||||||||||||||||||||||
Other debt of subsidiaries | 924.2 | — | (924.2 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Deferred tax liabilities | 575.4 | — | — | (575.4 | ) | — | 21.8 | — | — | 21.8 | ||||||||||||||||||||||||||
Management fee payable | 28.2 | (28.2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Other liabilities | 21.8 | — | (8.3 | ) | (13.5 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Minority interest in net assets | 1,110.9 | (226.2 | ) | (884.7 | ) | — | — | — | — | 20.0 | 1(a)vi | 20.0 | ||||||||||||||||||||||||
Divisional equity | 1,280.7 | (274.9 | ) | (342.3 | ) | (663.5 | ) | — | — | — | — | — | ||||||||||||||||||||||||
Redeemable partnership units | — | 80.4 | 51.2 | 77.6 | 209.2 | 28.5 | 63.6 | 40.1 | 341.4 | |||||||||||||||||||||||||||
Partnership capital | — | 125.8 | 80.1 | 121.4 | 327.3 | 44.5 | 99.6 | 62.6 | 534.0 | |||||||||||||||||||||||||||
Total liabilities and divisional equity | $ | 7,320.3 | $ | (765.5 | ) | $ | (3,667.0 | ) | $ | (2,351.3 | ) | $ | 536.5 | $ | 236.2 | $ | 163.2 | $ | 122.7 | $ | 1,058.6 | |||||||||||||||
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PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(unaudited, in millions of U.S. dollars)
Deconsolidation | Deconsolidation | Deconsolidation | ||||||||||||||||||||||||||||||||||
and Change | and Change | and Change | ||||||||||||||||||||||||||||||||||
of Ownership | of Ownership | of Ownership | ||||||||||||||||||||||||||||||||||
Combined | Adjustments- | Adjustments- | Adjustment- | Ontario | Other | Pro | ||||||||||||||||||||||||||||||
Division | Island | Transelec | Longview | Adjusted | Transmission | TBE | Adj | Forma | ||||||||||||||||||||||||||||
Note references: | 1(b)i | 1(b)i | 1(b)i | 1(b)(iii) | 1(b)(v) | |||||||||||||||||||||||||||||||
Gross Revenues | ||||||||||||||||||||||||||||||||||||
Timberlands | $ | 272.9 | $ | (184.0 | ) | $ | — | $ | (88.9 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Transmission | 180.3 | — | (180.3 | ) | — | — | 24.4 | — | — | 24.4 | ||||||||||||||||||||||||||
453.2 | (184.0 | ) | (180.3 | ) | (88.9 | ) | — | 24.4 | — | — | 24.4 | |||||||||||||||||||||||||
Costs and expenses applicable to revenues | (179.5 | ) | 117.6 | 20.2 | 41.7 | — | (4.1 | ) | — | — | (4.1 | ) | ||||||||||||||||||||||||
Depreciation, depletion and amortization | (108.2 | ) | 16.2 | 41.3 | 50.7 | — | (4.2 | ) | — | — | (4.2 | ) | ||||||||||||||||||||||||
Selling, general and administrative expenses | (28.3 | ) | 6.6 | 10.3 | 11.4 | — | — | — | (8.2 | )1(b)vi | (8.4 | ) | ||||||||||||||||||||||||
Other income (expense) | 5.6 | (0.8 | ) | (3.1 | ) | (1.7 | ) | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||||||||||||
Gain on sale of assets | 7.9 | (7.4 | ) | — | (0.5 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Interest income on restricted cash | 58.3 | — | (58.3 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Equity accounted earnings | — | 12.0 | 2.5 | (11.8 | ) | 2.7 | — | — | 2.4 | 1(b)ii,iv | 5.1 | |||||||||||||||||||||||||
Investment income | — | — | — | — | — | — | 15.5 | — | 15.5 | |||||||||||||||||||||||||||
Interest expense | (249.4 | ) | 19.7 | 186.2 | 43.5 | — | (5.1 | ) | — | (0.9 | )1(b)viii | (6.0 | ) | |||||||||||||||||||||||
Income (loss) before deferred taxes and minority interest | (40.4 | ) | (20.1 | ) | 18.8 | 44.4 | 2.7 | 10.0 | 15.5 | (6.7 | ) | 21.5 | ||||||||||||||||||||||||
Current taxes | — | — | — | — | — | (3.5 | ) | — | — | (3.5 | ) | |||||||||||||||||||||||||
Deferred income taxes and other | 32.9 | — | (15.9 | ) | (17.0 | ) | — | 0.2 | — | 1.0 | 1(b)vii | 1.2 | ||||||||||||||||||||||||
Minority interest in income of Consolidated subsidiaries | (9.3 | ) | 16.1 | (6.8 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||
Net income for the period | $ | (16.8 | ) | $ | (4.0 | ) | $ | (3.9 | ) | $ | 27.4 | $ | 2.7 | $ | 6.7 | $ | 15.5 | $ | (5.7 | ) | $ | 19.2 | ||||||||||||||
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PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(unaudited, in millions of U.S. dollars)
Deconsolidation | Deconsolidation | |||||||||||||||||||||||||||||||||||
and Change | and Change | |||||||||||||||||||||||||||||||||||
in Ownership | in Ownership | |||||||||||||||||||||||||||||||||||
Combined | Adjustments- | Adjustments- | Ontario | Other | Pro | |||||||||||||||||||||||||||||||
Division | Island | Transelec | Adjusted | TBE | Longview | Transmission | Adj | Forma | ||||||||||||||||||||||||||||
Note references: | 1(b)i | 1(b)i | 1(b)(v) | 1(b)(ii) | 1(b)(iii) | |||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||
Timberlands | $ | 197.2 | $ | (197.2 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
Transmission | 110.5 | — | (110.5 | ) | — | — | — | 29.7 | — | 29.7 | ||||||||||||||||||||||||||
307.7 | (197.2 | ) | (110.5 | ) | — | — | — | 29.7 | — | 29.7 | ||||||||||||||||||||||||||
Costs and expenses applicable to revenues, excluding depreciation, depletion and amortization | (145.5 | ) | 130.9 | 14.6 | — | — | — | (5.3 | ) | — | (5.3 | ) | ||||||||||||||||||||||||
Selling, general and administrative expenses | (17.5 | ) | 7.3 | 10.2 | — | — | — | — | (10.9 | )1(b)vi | (11.1 | ) | ||||||||||||||||||||||||
Gain on sale of assets | 5.8 | (5.8 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Interest income on restricted cash | 38.8 | — | (38.8 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Equity accounted earnings | — | (8.1 | ) | 2.3 | (5.8 | ) | — | 8.0 | — | 7.6 | 1(b)iv | 9.8 | ||||||||||||||||||||||||
Investment income | — | — | — | — | 11.2 | — | — | — | 11.2 | |||||||||||||||||||||||||||
Interest expense | (136.1 | ) | 24.9 | 111.2 | — | — | — | (5.6 | ) | (1.2 | )1(b)viii | (6.8 | ) | |||||||||||||||||||||||
Depreciation, depletion and amortization | (49.7 | ) | 20.4 | 29.3 | — | — | — | (4.7 | ) | — | (4.7 | ) | ||||||||||||||||||||||||
Other income (expense) | 10.5 | 1.0 | (11.5 | ) | — | — | — | (1.2 | ) | — | (1.2 | ) | ||||||||||||||||||||||||
Income before deferred taxes and other items below | 14.0 | (26.6 | ) | 6.8 | (5.8 | ) | 11.2 | 8.0 | 12.9 | (4.5 | ) | 21.8 | ||||||||||||||||||||||||
Current taxes | — | — | — | — | — | — | (4.2 | ) | — | (4.2 | ) | |||||||||||||||||||||||||
Deferred income tax assets and other | (37.7 | ) | 40.0 | (2.3 | ) | — | — | — | 1.4 | (1.1 | )1(b)vii | 0.3 | ||||||||||||||||||||||||
Minority interest in net income of consolidated subsidiaries | 18.8 | (10.7 | ) | (8.1 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||
Net income | $ | (4.9 | ) | $ | 2.7 | $ | (3.6 | ) | $ | (5.8 | ) | $ | 11.2 | $ | 8.0 | $ | 10.1 | $ | (5.6 | ) | $ | 17.9 | ||||||||||||||
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PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(unaudited, in millions of U.S. dollars)
Deconsolidation | ||||||||||||||||||||||||
and Change | ||||||||||||||||||||||||
in Ownership | ||||||||||||||||||||||||
Combined | Adjustments- | Ontario | Other | Pro | ||||||||||||||||||||
Division | Island | Adjusted | Transmission | Adj | Forma | |||||||||||||||||||
Note references: | 1(b)i | 1(b)(iii) | ||||||||||||||||||||||
Gross Revenues | ||||||||||||||||||||||||
Timberlands | $ | 102.8 | $ | (102.8 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Transmission | — | — | — | 23.9 | — | 23.9 | ||||||||||||||||||
102.8 | (102.8 | ) | — | 23.9 | — | 23.9 | ||||||||||||||||||
Costs and expenses applicable to revenues, excluding depreciation, depletion and amortization | (74.5 | ) | 74.5 | — | (5.0 | ) | — | (5.0 | ) | |||||||||||||||
Selling, general and administrative expenses | (3.4 | ) | 3.4 | — | — | — | — | |||||||||||||||||
Gain on sale of assets | 2.2 | (2.2 | ) | — | — | — | — | |||||||||||||||||
Equity accounted earnings | — | 0.7 | 0.7 | — | — | 0.7 | ||||||||||||||||||
Investment income | — | — | — | — | — | — | ||||||||||||||||||
Interest expense | (12.7 | ) | 12.7 | — | (2.1 | ) | — | (2.1 | ) | |||||||||||||||
Depreciation, depletion and amortization | (12.7 | ) | 12.7 | — | (3.6 | ) | — | (3.6 | ) | |||||||||||||||
Other income (expense) | 0.3 | (0.3 | ) | — | (1.4 | ) | — | (1.4 | ) | |||||||||||||||
Income before deferred taxes and other items below | 2.0 | (1.3 | ) | 0.7 | 11.8 | — | 12.5 | |||||||||||||||||
Current taxes | — | — | — | (4.4 | ) | — | (4.4 | ) | ||||||||||||||||
Deferred income tax assets and other | — | — | — | — | (0.1 | )1(b)vii | (0.1 | ) | ||||||||||||||||
Minority interest in income of consolidated subsidiaries | (1.0 | ) | 1.0 | — | — | — | — | |||||||||||||||||
Net income | $ | 1.0 | $ | (0.3 | ) | $ | 0.7 | $ | 7.4 | $ | (0.1 | ) | $ | 8.0 | ||||||||||
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1. | Pro Forma Adjustments |
a. | Unaudited Pro Forma Balance Sheet |
i. | Deconsolidation and Change of Ownership Adjustments |
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ii. | Acquisition of Longview |
Pro Forma Adjustments | Infrastructure | |||||||||||||||||||
Purchase | Sale of | Non-Retained | Partnership | |||||||||||||||||
Longview | Price | Manufacturing | 70% of | Investment | ||||||||||||||||
Fibre Co. | Allocations | Operations | Longview | in Longview | ||||||||||||||||
(MILLIONS) | ||||||||||||||||||||
Current assets | $ | 212.2 | $ | 130.7 | $ | (260.1 | ) | $ | (58.0 | ) | $ | 24.8 | ||||||||
Timber assets | 203.0 | 1,730.6 | (8.0 | ) | (1,348.0 | ) | 577.6 | |||||||||||||
Other long-term assets | 663.7 | (468.0 | )(1) | (195.4 | ) | (0.3 | ) | — | ||||||||||||
Goodwill | — | 592.6 | — | (414.8 | ) | 177.8 | ||||||||||||||
Total assets | $ | 1,078.9 | $ | 1,985.9 | $ | (463.5 | ) | $ | (1,821.1 | ) | $ | 780.2 | ||||||||
Current liabilities | $ | (168.1 | ) | $ | 57.8 | $ | 100.6 | $ | 6.7 | $ | (3.0 | ) | ||||||||
Long-term liabilities | (681.2 | ) | (718.2 | ) | 205.7 | 835.7 | (358.0 | ) | ||||||||||||
Deferred income tax liability | — | (592.6 | ) | — | 414.8 | (177.8 | ) | |||||||||||||
Equity | $ | 229.6 | $ | 732.9 | $ | (157.2 | ) | $ | (563.9 | ) | $ | 241.4 | ||||||||
(1) | The decline in fair value of the other long term assets is a result of negative fair value allocated to the manufacturing assets. |
iv. | Probable Acquisition of TBE |
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v. | Probable Transelec Purchase Price Adjustment |
vi. | Minority interests |
i. | Deconsolidation and Change of Ownership Adjustments |
ii. | Longview Adjustments |
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Year Ended | ||||
December 31, | ||||
2006 | ||||
(MILLIONS) | ||||
Consolidated net income, as disclosed in Longview Fibre Company’s Annual Report on form 10-K for the year-ended December 31, 2006 | $ | 18.9 | ||
Add: manufacturing net loss | 26.1 | (a) | ||
Add: pension expense attributable to manufacturing business | 4.7 | (b) | ||
Income from timber operations | 49.7 | |||
Add: interest expense allocated to timber operations based on old capital structure | 36.4 | (c) | ||
Add: loss (gain) on disposal of sawmill assets | 3.9 | (d) | ||
Add: debt extinguishment costs | 11.0 | (e) | ||
Adjusted income from timber operations | 101.0 | |||
Less: pro forma interest expense based on new capital structure | (74.5 | )(c) | ||
Pro forma income from timber operations | $ | 26.5 | ||
Infrastructure Partnership’s share of income (losses) | $ | 8.0 | ||
(a) | adjustment to add back the net loss generated by the manufacturing business; |
(b) | adjustment related to pension expense recorded in 2006 relating to employees of Longview’s manufacturing business. The pension expense was recorded at a corporate level; thus it was not allocated to the operating segments; |
(c) | adjustment to reflect the additional interest expense that would have been recorded by Longview under the new capital structure, adding back the interest expense on the debt that was extinguished by Brookfield upon acquisition; |
(d) | gains (losses) that were incurred on the disposal of the company’s sawmill assets; and |
(e) | adjusts for expenses incurred by Longview to retire its debt upon close of the acquisition. |
iii. | Probable Acquisition of our Ontario Transmission Operations |
iv. | Probable Acquisition of Additional Interest in Transelec |
v. | Probable Acquisition of TBE |
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vi. | Management Fee |
vii. | Deferred taxes |
viii. | Minority interests |
2. | Limited Partnership Units Subject to the Redemption-Exchange Mechanism |
3. | Funds From Operations — Pro Forma |
Nine Months | ||||||||||||
Ended | Year Ended | Year Ended | ||||||||||
September 30, 2007 | December 31, 2006 | December 31, 2005 | ||||||||||
Net income | $ | 19.2 | $ | 17.7 | $ | 8.0 | ||||||
Add back or deduct non-cash and other components of net income: | ||||||||||||
Depreciation and amortization | 28.4 | 26.9 | 12.6 | |||||||||
Deferred taxes and other | (5.5 | ) | (1.8 | ) | 0.1 | |||||||
Performance fees | — | 15.0 | — | |||||||||
Funds from operations | $ | 42.1 | $ | 57.8 | $ | 20.7 | ||||||
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PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2007
(unaudited, in millions of U.S. dollars)
Pro forma | ||||||||||||
Historical | Adjustments | Pro forma | ||||||||||
Assets | ||||||||||||
Investment in Infrastructure Partnership | $ | — | 525.2 | (2) | 525.2 | |||||||
Equity | ||||||||||||
Unit holders’ equity | $ | — | 525.2 | (2) | 525.2 | |||||||
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2007
(unaudited, in millions of U.S. dollars)
Pro forma | ||||||||||||
Historical | Adjustments | Pro forma | ||||||||||
Share of Infrastructure Partnership income | $ | — | $ | 11.5 | (3) | $ | 11.5 | |||||
Net income | $ | — | $ | 11.5 | $ | 11.5 | ||||||
FOR THE YEAR ENDED DECEMBER 31, 2006
(unaudited, in millions of U.S. dollars)
Pro forma | ||||||||||||
Historical | Adjustments | Pro forma | ||||||||||
Share of Infrastructure Partnership income | $ | — | $ | 10.7 | (3) | $ | 10.7 | |||||
Net income | $ | — | $ | 10.7 | $ | 10.7 | ||||||
FOR THE YEAR ENDED DECEMBER 31, 2005
(unaudited, in millions of U.S. dollars)
Pro forma | ||||||||||||
Historical | Adjustments | Pro forma | ||||||||||
Share of Infrastructure Partnership income | $ | — | $ | 4.8 | (3) | $ | 4.8 | |||||
Net income | $ | — | $ | 4.8 | $ | 4.8 | ||||||
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1. | Basis of Presentation |
2. | Unaudited Pro Forma Balance Sheet |
3. | Unaudited Pro Forma Statement of Income |
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• | Strong competitive positions with high barriers to entry. Infrastructure assets are usually protected by strong barriers to entry due to economies of scale or natural monopoly characteristics. Furthermore, the demand for products and services based on infrastructure assets are generally price inelastic compared with other goods and services. Users of infrastructure assets have few, if any, viable alternatives as alternatives are often cost prohibitive and/or uneconomic to use. | |
• | Strong margins and stable cash flow. Due to their capital intensive nature, infrastructure assets commonly have high fixed costs and low on-going variable costs, including maintenance capital expenditures, compared to other industries. As a result, infrastructure assets are often characterized by high operating profit margins which tend to reduce cash flow volatility, thereby enhancing their ability to support debt and make distributions to equity. Furthermore, due to their economies of scale, infrastructure assets tend to exhibit very attractive risk adjusted returns on expansion capital opportunities. | |
• | Upside from economic growth and/or inflation. Due their natural monopoly characteristics, infrastructure assets, in many instances, are regulated or provided pursuant to long-term contracts. Through such frameworks, cash flows are commonly linked to measures of economic growth, such as real gross domestic product, and/or inflation. In other instances, due to their essential nature, infrastructure assets are generally able to pass through inflation to underlying users via price increases. Thus, infrastructure assets generally have cash flow profiles that increase with inflation. |
• | Utilities. Utilities include the networks that provide basic utility services to communities such as gas, water and electricity. The transmission and distribution components of utility networks are widely regarded as natural monopolies due to their high barriers to entry and substantial economies of scale. As a result, transmission and distribution networks are usually subject to some level of government regulation. The regulation of utilities varies across jurisdictions, although there are often certain common themes. Returns are usually prescribed by a regulator and linked to the total value of a utility’s regulated asset base, which accretes over time based on the excess of capital expenditures over depreciation. Some jurisdictions allow for the regulated asset base to increase by inflation. Returns calculated in this manner are then added to operating costs, taxes and other allowances to determine tariffs which are based on projected volume. Consequently, utilities that are subject to this style of regulation generally do not have significant price risk. Instead, returns are more closely linked to economic growth and/or inflation as well as relative performance versus certain regulatory assumptions, such as operating costs, capital expenditures, tax and cost of capital. | |
• | Renewable resources. Renewable resources are assets such as timberland, hydro-electric power generation facilities and wind power generation facilities, which produce products that are essential inputs to the global economy. The types of products they produce tend to have few, if any, alternatives and as a result they have less demand variability than other products. For the most part, renewable resources produce unregulated products. However, due to the finite supply of similar resources, low variable cost structure and locational advantages, they often have strong competitive positions and, as a result, strong margins. Infrastructure based on renewable resources tends to have very long asset lives, if properly maintained. | |
• | Transportation. Transportation infrastructure supports the transport of passengers or cargo via air, land or sea and includes infrastructure such as toll roads, bridges, tunnels, airports, ports, railway lines, urban rail, ferries and other transport-related facilities. Transportation infrastructure generally enjoys high barriers to entry arising from the significant capital cost of building a competing alternative. In addition, due to natural monopoly characteristics, transportation infrastructure is frequently regulated via concession agreements which may further limit the development of competing infrastructure or otherwise support patronage on the asset. Most transportation infrastructure is subject to some level of demand risk since these types of infrastructure assets rely on throughput for a significant proportion of their revenues. Transportation infrastructure is commonly linked to regional economic growth or demographic changes, although the assets can be insulated from demand risk through contractual or regulatory arrangements. |
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Ownership | ||||||
Combined | ||||||
with | ||||||
Location | Description | Our Interest | Brookfield | |||
Chile | 8,279 km of transmission lines that serve 98% of the population of the country which include 100% of Chile’s 500 kV transmission lines, the highest voltage lines in the country, and approximately 46% of the high voltage lines between 110 kV and 500 kV in Chile | 17.3%(1) | 33%(1) | |||
Brazil | over 2,100 km of transmission lines, with one transmission line located in the south and the remaining four lines located in the northeast. Four of the lines are rated 500 kV or higher and one line is rated at 230 kV. The transmission lines began service between 2002 and 2005 | 7% to 18%(2) | 7% to 18%(2) | |||
Canada | approximately 550 km of 44 kV to 230 kV transmission lines that comprise an important component of Ontario’s transmission system that connects generators in northern Ontario to electricity demand in Southern Ontario | 100%(3) | 100% |
(1) | Percentage includes estimated increase in ownership resulting from purchase price adjustment, that will be made upon finalization of the current transmission industry rate proceeding, anticipated to be made in the first quarter of 2008. |
(2) | Our Brazilian transmission investments are comprised of interests in a group of five related transmission operations owned with four other industry partners, with ownership in each asset ranging from 7% to 18%. These investments will be transferred by Brookfield to us following closing of the spin-off upon receipt of required regulatory approvals. |
(3) | Our Ontario transmission operations will be transferred by Brookfield to us following closing of the spin-off upon receipt of required regulatory approvals. |
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• | Stable revenues with inflationary growth. Due to our regulatory frameworks and contracts, combined with the essential nature of our service, our transmission systems have a very secure competitive position. All three systems generate stable revenue with no material volume risk and, in many instances, have automatic inflation escalators. Revenues for all three of our transmission operations are spread across a large user base, mitigating credit risk. | |
• | Constructive regulatory regimes. Our Chilean and Brazilian systems are subject to less regulatory risk than a transmission system in the United States or Canada. Our Chilean system’s 10% return on replacement cost is stipulated in Chilean law. Thus, a change of law would be required to reduce this return. Furthermore, since it is a return on total assets, the risk that a regulator reduces rates based upon actual capital structure deployed is reduced. For our Brazilian system, rates are established in the concession agreement. The only factor that causes rates to fluctuate during the concession period is the cumulative change in Brazilian inflation. | |
• | Strong free cash flow generation. Since the Chilean regulatory and contractual frameworks are based on replacement cost and the Brazilian revenues are based on stipulated contractual amounts, we are not required to invest at our level of depreciation to prevent a decline in revenues. Since both systems are in very good physical condition, maintenance capital expenditures are at relatively low levels. As a result of high profit margins combined with low maintenance capital expenditures, our transmission operations generate strong cash flow. | |
• | Expansion opportunities. Our Chilean and Ontario systems have significant revenue generating capital investment opportunities. Both Chile and Canada have economic generation that is many miles away from customers. Upgrades and expansions of the electricity transmission system will be required to connect this economic generation to load centers to satisfy increased electricity demand resulting from economic growth. In addition, our Chilean operations are also well positioned to pursue opportunities to expand their subtransmission lines to augment their existing network. |
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Ownership | ||||||||||
Our | Combined | |||||||||
Ownership | with | |||||||||
Location | Description | Percentage | Brookfield | |||||||
Coastal British Columbia, Canada | approximately 634,000 acres of freehold timberlands located principally on Vancouver Island with an estimated merchantable inventory of 58.0 million m3, primarily comprised of high value Douglas-fir, Hemlock and Cedar with a long-run sustainable yield of 1.8 million m3 and approximately 33,625 acres of HBU lands | 37.5% | 50% | |||||||
Oregon and Washington, United States | approximately 588,000 acres of freehold timberlands in Oregon and Washington with an estimated merchantable inventory of 37.5 million m3, primarily comprised of high value Douglas-fir and Hemlock with a long-run sustainable yield of 2.4 million m3 | 30% | 100% |
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• | Scarce, high value, premium asset. Our timberlands are primarily comprised of softwood such as Douglas-fir and Hemlock that is generally preferred over hardwood for construction lumber and plywood because of its strength and flexibility. Our timberlands include significant volumes of fine-grained Douglas-fir, which is considered a premium product and is in strong demand in the Asian export markets because of its aesthetic appeal and structural properties. | |
• | Market access and location. The coastal location of our Canadian timberlands provides access to the western U.S. and Asian markets, and our U.S. timberlands also have ready access to the Asian marketplace through the port of Longview. This access to multiple markets provides us flexibility to react quickly to changes in market conditions. | |
• | Favourable long-term industry dynamics. Sawmill modernization and construction has resulted in over three billion board feet of additional lumber manufacturing capacity in the Pacific Northwest in the last five years. Due to their high fixed cost structure, these mills will continue to operate in soft lumber pricing markets. We also expect our timberlands to benefit from increasing scarcity in global timber supplies. This increasing scarcity is |
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expected to result from a number of factors including the Western Canadian mountain pine beetle infestation which has had a significant impact on the supply of Canadian timber from the interior of British Columbia and Alberta, newly implemented Russian log export restrictions, continued withdrawals of North American timberlands for conservation and alternative uses and competition for wood fibre for use in bio fuels. However, in the near term, we expect that the continued softness in the U.S. housing market, exacerbated by the extreme dislocations in the mortgage financing market, will result in continued reduction in demand from sawmills that produce lumber for the housing market, putting downward pressure on log prices. |
• | Diversified product mix in highly productive climate. Our timberlands are diversified by species mix, age distribution, geographic location and customer type. As a result, we are well-positioned to serve the growing Canadian, U.S. and Asian timber markets. Species and age diversification allows us to offer over 200 different log sort grades, enabling us to meet the needs of a large customer base. Also, due to the climate of our coastal location, we have among the most productive timberlands in North America with an overall average annual growth rate on unmanaged natural stands of 3.68 m3 per acre, more than three times the average annual growth rate of timberlands located in the northeastern part of North America. | |
• | High margin business with sustainable cash flows. Our timber operations generate strong profit margins due to our low fixed cost structure and strategic harvesting decisions designed to enhance margins. In addition, our timberlands require minimal amounts of maintenance capital. This low capital intensity, together with high operating margins, allows our timberlands to produce stable and sustainable cash flows. |
• | incorporate our technical insight into the evaluation and execution of acquisitions; | |
• | maintain a disciplined approach to acquisitions; | |
• | actively manage our assets to improve operating performance; and | |
• | employ a hands-on approach to key value drivers such as capital investments, development projects, follow-on acquisitions and financings. |
• | Ability to leverage Brookfield’s transaction structuring expertise. With its extensive background in the real estate, power generation and other hard asset industries, Brookfield has in depth experience acquiring hard assets and with securitization techniques which are prevalent in the real estate sector and are increasingly being utilized in infrastructure and other financing sectors where the underlying assets have similar characteristics. We will have an opportunity to benefit from this expertise. | |
• | Ability to pursue acquisitions of businesses that own infrastructure assets together with other assets that have a riskier cash flow profile. Such transactions may not be appropriate for us on a stand-alone basis. Brookfield has the skills and capital to acquire such companies and separate the infrastructure assets from the non-infrastructure assets. A good example of this is the acquisition of Longview, which had both a timber business and an integrated converting business that increased the overall risk profile of the company. Brookfield separated these two businesses and contributed an interest in the timber operations to us while retaining and restructuring the more volatile converting business. We believe that we will have an opportunity to acquire infrastructure assets through similar transactions in the future. | |
• | Ability to acquire assets developed by Brookfield through its operating platforms. Brookfield is well positioned to identify development opportunities. For example, Brookfield is actively pursuing greenfield development projects in the electricity transmission sector, and we expect that, if and when these development projects come to fruition, we will have an opportunity to acquire an interest in them from Brookfield. | |
• | Ability to participate alongside Brookfield and in or alongside Brookfield sponsored or co-sponsored consortiums and partnerships. Our acquisition strategy focuses on large scale transactions, for which we believe there is less competition and where Brookfield has sufficient influence or control so that our operations- |
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oriented approach can be deployed to create value. Due to similar asset characteristics and capital requirements, we believe that the infrastructure industry will evolve like the real estate industry in which assets are commonly owned through consortiums and partnerships of institutional equity investors and owner/operators such as ourselves. Accordingly, an integral part of our strategy is to participate with institutional investors in Brookfield sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield sponsored or co-sponsored partnerships that target acquisitions that suit our profile. Brookfield has a strong track record of leading such consortiums and partnerships and actively managing underlying assets to improve performance. Brookfield has agreed that it will not sponsor such arrangements that are suitable for us in the infrastructure sector unless we are given an opportunity to participate. See “Relationship with Brookfield — Relationship Agreement”. Furthermore, Brookfield also has extensive financial resources including annual cash flow in excess of $1.0 billion and market capitalization of over $20 billion. Accordingly, Brookfield has the balance sheet to underwrite a significant portion of the required equity for these larger transactions and syndicate equity following completion, enabling us to act quickly and provide vendors with transaction certainty. |
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Name and Municipality of Residence(1) | Age | Position | Principal Occupation | |||||
Derek Pannell Toronto, Canada | 60 | Chairman | Managing Partner, Brookfield Asset Management | |||||
Arthur Jacobson, Jr. Mamaroneck, New York | 44 | Director | Managing Member, Martinart Partners, L.L.C., a restaurant | |||||
James Keyes Devonshire, Bermuda | 44 | Director | Partner, Appleby, an international law firm | |||||
Danesh Varma Kingston-Upon-Thames, England | 57 | Director | Chief Financial Officer, African-Aura Resources Limited, a mining company | |||||
James Wallace Sudbury, Ontario | 60 | Director | President, Pioneer Construction Inc., a construction company | |||||
Alan Wiener Rye, New York | 63 | Director | Managing Director, Wachovia Securities |
(1) | The mailing addresses for the directors are set forth under “Security Ownership”. |
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• | the dissolution of our partnership; | |
• | any material amendment to the Master Services Agreement, the equity commitment, our limited partnership agreement or the Infrastructure Partnership’s limited partnership agreement; | |
• | any material service agreement or other arrangement pursuant to which Brookfield will be paid a fee, or other consideration other than any agreement or arrangement contemplated by the Master Services Agreement; | |
• | any calls by the Infrastructure Partnership or our partnership on the equity commitment provided by Brookfield as described under “Relationship with Brookfield — Equity Commitment and Other Financing”; | |
• | co-investments by us with Brookfield or any of its affiliates; | |
• | acquisitions by us from, and dispositions by us to, Brookfield or any of its affiliates; | |
• | any other material transaction involving us and Brookfield or an affiliate of Brookfield; and | |
• | termination of, or any determinations regarding indemnification under, the Master Services Agreement. |
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• | our accounting and financial reporting processes; | |
• | the integrity and audits of our financial statements; | |
• | our compliance with legal and regulatory requirements; and | |
• | the qualifications, performance and independence of our independent accountants. |
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Years of | Years at | Current Position with | ||||||||||||
Name | Age | Experience | Brookfield | the Manager | ||||||||||
Jeffrey Blidner | 59 | 31 | 6 | Chairman | ||||||||||
Samuel Pollock | 41 | 19 | 13 | Co-Chief Executive Officer | ||||||||||
Aaron Regent | 41 | 16 | 16 | Co-Chief Executive Officer | ||||||||||
John Stinebaugh | 41 | 19 | 2 | Chief Financial Officer |
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• | Business development capability. Brookfield’s operating platforms have intimate knowledge of their respective markets. Additionally, Brookfield has a network of very senior relationships within its industry sectors. As a result, Brookfield believes it is well positioned to proactively identify and originate transactions. | |
• | Operational expertise. Brookfield’s operating platforms are responsible for enhancing performance of their respective businesses. In particular, Brookfield has considerable experience in structuring and executing long-term contracts with end users to maximize the value of its assets. Brookfield actively manages its revenue base by working with end users on an ongoing basis to identify opportunities to enhance the value of these arrangements by, for example, amending contract terms to address changing counterparty requirements in return for increased value. Additionally, Brookfield strives to increase operating margins by improving efficiency. This can be achieved by the application of best-in-class operating expertise and scale to identify opportunities to reduce operating costs while maintaining quality. In addition, Brookfield looks for opportunities to deploy capital to increase output and/or reduce costs as well as to put in place appropriate maintenance programs to reduce costs and preserve asset values over their life cycle. | |
• | Industry insight. Brookfield’s operating platforms enable it to develop fundamental views on the factors that impact asset value. Brookfield utilizes this knowledge to ensure it takes advantage of the most current operating and financing practices, as well as to make acquisition and divestiture decisions. | |
• | Leadership. Brookfield endeavours to be a leader in each of its major operating areas, not through the size of its operating platforms but through the quality of its people and operations and Brookfield’s long-term commitment to building best-in-class operations. Brookfield believes that this will enable it to attract and retain high quality personnel which will, in turn, increase performance. |
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Performance and Capacity
• | causing or supervising the carrying out of all day-to-day management, secretarial, accounting, banking, treasury, administrative, liaison, representative, regulatory and reporting functions and obligations; | |
• | establishing and maintaining or supervising the establishment and maintenance of books and records; | |
• | identifying, evaluating and recommending to the Holding Entities acquisitions or dispositions from time-to-time and, where requested to do so, assisting in negotiating the terms of such acquisitions or dispositions; |
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• | recommending and, where requested to do so, assisting in the raising of funds whether by way of debt, equity or otherwise, including the preparation, review or distribution of any prospectus or offering memorandum in respect thereof and assisting with communications support in connection therewith; | |
• | recommending to the Holding Entities suitable candidates to serve on the boards of directors or their equivalents of the operating entities; | |
• | making recommendations with respect to the exercise of any voting rights to which the Holding Entities are entitled in respect of the operating entities; | |
• | making recommendations with respect to the payment of dividends by the Holding Entities or any other distributions by the Service Recipients, including distributions by our partnership to our unitholders; | |
• | monitoring and/or oversight of the applicable Service Recipient’s accountants, legal counsel and other accounting, financial or legal advisors and technical, commercial, marketing and other independent experts, and managing litigation in which a Service Recipient is sued or commencing litigation after consulting with, and subject to the approval of, the relevant board of directors or its equivalent; | |
• | attending to all matters necessary for any reorganization, bankruptcy proceedings, dissolution or winding up of a Service Recipient, subject to approval by the relevant board of directors or its equivalent; | |
• | supervising the timely calculation and payment of taxes payable, and the filing of all tax returns due, by each Service Recipient; | |
• | causing the Service Recipients’ annual consolidated financial statements and quarterly interim financial statements to be: (i) prepared in accordance with generally accepted accounting principles or other applicable accounting principles for review and audit at least to such extent and with such frequency as may be required by law or regulation; and (ii) submitted to the relevant board of directors or its equivalent for its prior approval; | |
• | making recommendations in relation to and effecting the entry into insurance of each Service Recipient’s assets, together with other insurances against other risks, including directors and officers insurance as the relevant service provider and the relevant board of directors or its equivalent may from time to time agree; | |
• | arranging for individuals to carry out the functions of principal executive, accounting and financial officers for our partnership only for purposes of applicable securities laws; | |
• | providing individuals to act as senior officers of Holding Entities as agreed from time-to-time, subject to the approval of the relevant board of directors or its equivalent; | |
• | advising the Service Recipients regarding the maintenance of compliance with applicable laws and other obligations; and | |
• | providing all such other services as may from time-to-time be agreed with the Service Recipients that are reasonably related to the Service Recipient’s day-to-day operations. |
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• | the Manager defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 30 days after written notice of the breach is given to the Manager; | |
• | the Manager engages in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to the Service Recipients; | |
• | the Manager is grossly negligent in the performance of its duties under the agreement and such negligence results in material harm to the Service Recipients; or | |
• | certain events relating to the bankruptcy or insolvency of the Manager. |
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• | in favour of the election of a director (or its equivalent) approved by the entity through which our interest in the relevant entity is held; and |
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• | in accordance with the direction of the entity through which our interest in the relevant entity is held with respect to the approval or rejection of the following matters relating to the operating entity, as applicable: (i) any sale of all or substantially all of its assets, (ii) any merger, amalgamation, consolidation, business combination or other material corporate transaction, except in connection with any internal reorganization that does not result in a change of control, (iii) any plan or proposal for a complete or partial liquidation or dissolution, or any reorganization or any case, proceeding or action seeking relief under any existing laws or future laws relating to bankruptcy or insolvency, (iv) any issuance of shares, units or other securities, including debt securities, or (v) any commitment or agreement to do any of the foregoing. |
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• | the licensee defaults in the performance of any material term, condition or agreement contained in the agreement and the default continues for a period of 30 days after written notice of termination of the breach is given to the licensee; | |
• | the licensee assigns, sublicenses, pledges, mortgages or otherwise encumbers the intellectual property rights granted to it pursuant to the licensing agreement; | |
• | certain events relating to a bankruptcy or insolvency of the licensee; or | |
• | the licensee ceases to be an affiliate of Brookfield. |
• | in originating and recommending acquisition opportunities, Brookfield has significant discretion to determine the suitability of opportunities for us and to allocate such opportunities to us or to itself or third parties; | |
• | because of the scale of typical infrastructure acquisitions and because our strategy includes completing acquisitions through consortium or partnership arrangements with pension funds and other financial sponsors, we will likely make co-investments with Brookfield and Brookfield sponsored funds or Brookfield sponsored or co-sponsored consortiums and partnerships, which typically will require that Brookfield owe fiduciary duties to the other partners or consortium members that it does not owe to us; | |
• | there may be circumstances where Brookfield will determine that an acquisition opportunity is not suitable for us because of limits arising due to regulatory or tax considerations or limits on our financial capacity or because of the immaturity of the target assets or the fit with our acquisition strategy and Brookfield is entitled to pursue the acquisition on its own behalf rather than offering us the opportunity to make the acquisition and, as a result, Brookfield may initially or ultimately make the acquisition; | |
• | where Brookfield has made an acquisition, it may transfer it to us at a later date after the assets have been developed or we have obtained sufficient financing; | |
• | our relationship with Brookfield involves a number of arrangements pursuant to which Brookfield provides various services and access to financing arrangements and acquisition opportunities, and circumstances may arise in which these arrangements will need to be amended or new arrangements will need to be entered into; | |
• | our arrangements with Brookfield were negotiated in the context of the spin-off, which may have resulted in those arrangements containing terms that are less favorable than those which otherwise might have been obtained from unrelated parties; | |
• | under the Infrastructure Partnership’s limited partnership agreement and the agreements governing the operating entities, Brookfield will be generally entitled to share in the returns generated by our operations, which could create an incentive for it to assume greater risks when making decisions than they otherwise would in the absence of such arrangements; |
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• | Brookfield will be permitted to pursue other business activities and provide services to third parties that compete directly with our business and activities without providing us with an opportunity to participate, which could result in the allocation of Brookfield’s resources, personnel and acquisition opportunities to others who compete with us; | |
• | Brookfield will not owe our partnership or our unitholders any fiduciary duties, which may limit our recourse against it; and | |
• | the liability of Brookfield is limited under our arrangements with them, and we have agreed to indemnify Brookfield against claims, liabilities, losses, damages, costs or expenses which they may face in connection with those arrangements, which may lead them to assume greater risks when making decisions than they otherwise would if such decisions were being made solely for their own account, or may give rise to legal claims for indemnification that are adverse to the interests of our unitholders. |
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1. | enlarge the obligations of any limited partner without its consent, except that any amendment that would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership interests may be approved by at least a majority of the type or class of partnership interests so affected, or | |
2. | enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by our partnership to our Managing General Partner or any of its affiliates without the consent of our Managing General Partner, which may be given or withheld in its sole discretion. |
1. | a change in the name of our partnership, the location of our partnership’s registered office, or our partnership’s registered agent, | |
2. | the admission, substitution or withdrawal of partners in accordance with our limited partnership agreement, |
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3. | a change that our Managing General Partner determines is necessary or appropriate for our partnership to qualify or to continue our partnership’s qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or to ensure that our partnership will not be treated as an association taxable as a corporation or otherwise taxed as an entity for tax purposes, | |
4. | an amendment that our Managing General Partner determines to be necessary or appropriate to address certain changes in tax regulations, legislation or interpretation, | |
5. | an amendment that is necessary, in the opinion of our counsel, to prevent our partnership or our Managing General Partner or its directors, officers, agents or trustees, from having a material risk of being in any manner being subjected to the provisions of the U.S. Investment Company Act or similar legislation in other jurisdictions, | |
6. | an amendment that our Managing General Partner determines in its sole discretion to be necessary or appropriate for the creation, authorization or issuance of any class or series of partnership interests or options, rights, warrants or appreciation rights relating to partnership securities, | |
7. | any amendment expressly permitted in our limited partnership agreement to be made by our Managing General Partner acting alone, | |
8. | an amendment effected, necessitated or contemplated by an agreement of merger, consolidation or other combination agreement that has been approved under the terms of our limited partnership agreement, | |
9. | any amendment that in the sole discretion of our Managing General Partner is necessary or appropriate to reflect and account for the formation by our partnership of, or its investment in, any corporation, partnership, joint venture, limited liability company or other entity, as otherwise permitted by our limited partnership agreement, | |
10. | a change in our partnership’s fiscal year and related changes, or | |
11. | any other amendments substantially similar to any of the matters described in (1) through (10) above. |
1. | do not adversely affect our partnership’s limited partners considered as a whole (including any particular class of partnership interests as compared to other classes of partnership interests) in any material respect, | |
2. | are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any governmental agency or judicial authority, | |
3. | are necessary or appropriate to facilitate the trading of our units or to comply with any rule, regulation, guideline or requirement of any securities exchange on which our units are or will be listed for trading, | |
4. | are necessary or appropriate for any action taken by our Managing General Partner relating to splits or combinations of units under the provisions of our limited partnership agreement, or | |
5. | are required to effect the intent expressed in this prospectus or the intent of the provisions of our limited partnership agreement or are otherwise contemplated by our limited partnership agreement. |
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• | executed our limited partnership agreement and become bound by the terms thereof; | |
• | granted an irrevocable power of attorney to our Managing General Partner and any officer thereof to act as such partner’s agent and attorney-in-fact to execute, swear to, acknowledge, deliver, file and record in the appropriate public offices all (i) all agreements, certificates, documents and other instruments relating to the existence or qualification of our partnership as an exempted limited partnership (or a partnership in which the limited partners have limited liability) in Bermuda and in all jurisdictions in which our partnership may conduct activities and affairs or own property; any amendment, change, modification or restatement of our limited partnership agreement, subject to the requirements of our limited partnership agreement; the dissolution and liquidation of our partnership; the admission, withdrawal or removal of any partner of our partnership or any capital contribution of any partner of our partnership; the determination of the rights, preferences and privileges of any class or series of units or other partnership interests of our partnership, and to a merger or consolidation of our partnership; and (ii) subject to the requirements of our limited partnership agreement, all ballots, consents, approvals, waivers, certificates, documents and other instruments necessary or appropriate, in the sole discretion of our Managing General Partner or the liquidator of our partnership, to make, evidence, give, confirm or ratify any voting consent, approval, agreement or other action that is made or given by our partnership’s partners or is consistent with the terms of our limited partnership agreement or to effectuate the terms or intent of our limited partnership agreement; and | |
• | made the consents and waivers contained in our limited partnership agreement, including with respect to the approval of the transactions and agreements entered into in connection with our formation and the spin-off. |
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• | first, 100% of any available cash to our partnership until our partnership has been distributed an amount equal to our partnership’s expenses and outlays for the quarter properly incurred; | |
• | second, 100% of any available cash then remaining to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, until each holder of an Infrastructure Partnership limited partnership unit has received distributions during such quarter in an amount equal to $ , referred to as the Minimum Quarterly Distribution; | |
• | third, 85% of any available cash then remaining to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, and 15% to the Infrastructure GP LP, until each holder of an Infrastructure Partnership limited partnership unit has received distributions during such quarter in an amount equal to $ , referred to as the First Distribution Threshold; and | |
• | thereafter, 75% of any available cash then remaining to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, and 25% to the Infrastructure GP LP. |
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• | first, 100% to our partnership until our partnership has received an amount equal to the excess of (1) the amount of our partnership’s outlays and expenses incurred during the term of the Infrastructure Partnership, over (2) the aggregate amount of distributions received by our partnership pursuant to the first tier of the Regular Distribution Waterfall during the term of the Infrastructure Partnership; | |
• | second, 100% to the partners of the Infrastructure Partnership, in proportion to their respective amounts of unrecovered capital in the Infrastructure Partnership; | |
• | third, 100% to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, until each holder of an Infrastructure Partnership limited partnership unit has received an amount equal to the excess of (i) the Minimum Quarterly Distribution for each quarter during the term of the Infrastructure Partnership (subject to adjustment upon the subsequent issuance of additional partnership interests in the Infrastructure Partnership), over (ii) the aggregate amount of distributions made in respect of an Infrastructure Partnership limited partnership unit pursuant to the second tier of the Regular Distribution Waterfall during the term of the Infrastructure Partnership (subject to adjustment upon the subsequent issuance of additional partnership interests in the Infrastructure Partnership); | |
• | fourth, 85% to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, and 15% to the Infrastructure GP LP, until each holder of an Infrastructure Partnership limited partnership unit has received an amount equal to the excess of (i) the First Distribution Threshold less the Minimum Quarterly Distribution for each quarter during the term of the Infrastructure Partnership (subject to adjustment upon the subsequent issuance of additional partnership interests in the Infrastructure Partnership), over (ii) the aggregate amount of distributions made in respect of an Infrastructure Partnership limited partnership unit pursuant to the third tier of the Regular Distribution Waterfall during the term of the Infrastructure Partnership (subject to adjustment upon the subsequent issuance of additional partnership interests in the Infrastructure Partnership); | |
• | thereafter, 75% to the owners of the Infrastructure Partnership’s partnership interests, pro rata to their percentage interests, and 25% to the Infrastructure GP LP. |
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1. | enlarge the obligations of any limited partner without its consent, except that any amendment that would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership interests may be approved by at least a majority of the type or class of partnership interests so affected, or | |
2. | enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by the Infrastructure Partnership to the Infrastructure GP LP or any of its affiliates without the consent of the Infrastructure GP LP which may be given or withheld in its sole discretion. |
1. | a change in the name of the partnership, the location of the partnership’s registered office or the partnership’s registered agent, | |
2. | the admission, substitution, withdrawal or removal of partners in accordance with the limited partnership agreement, | |
3. | a change that the Infrastructure GP LP determines is necessary or appropriate for the partnership to qualify or to continue its qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or to ensure that the Infrastructure Partnership will not be treated as an association taxable as a corporation or otherwise taxed as an entity for tax purposes, | |
4. | an amendment that the Infrastructure GP LP determines to be necessary or appropriate to address certain changes in tax regulations, legislation or interpretation, | |
5. | an amendment that is necessary, in the opinion of counsel, to prevent the Infrastructure Partnership or the Infrastructure GP LP or its directors, officers, agents or trustees, from having a material risk of being in any manner subjected to the provisions of the U.S. Investment Company Act or similar legislation in other jurisdictions, | |
6. | an amendment that the Infrastructure GP LP determines in its sole discretion to be necessary or appropriate for the creation, authorization or issuance of any class or series of partnership interests or options, rights, warrants or appreciation rights relating to partnership securities, | |
7. | any amendment expressly permitted in the Infrastructure Partnership’s limited partnership agreement to be made by the Infrastructure GP LP acting alone, |
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8. | an amendment effected, necessitated or contemplated by an agreement of merger, consolidation or other combination agreement that has been approved under the terms of the Infrastructure Partnership’s limited partnership agreement, | |
9. | any amendment that in the sole discretion of the Infrastructure GP LP is necessary or appropriate to reflect and account for the formation by the partnership of, or its investment in, any corporation, partnership, joint venture, limited liability company or other entity, as otherwise permitted by the Infrastructure Partnership’s limited partnership agreement, | |
10. | a change in its fiscal year and related changes, | |
11. | any amendment concerning the computation or allocation of specific items of income, gain, expense or loss among the partners that, in the sole discretion of the Infrastructure GP LP, is necessary or appropriate to (i) comply with the requirements of applicable law, (ii) reflect the partners’ interests in the Infrastructure Partnership, or (iii) consistently reflect the distributions made by the Infrastructure Partnership to the partners pursuant to the terms of the limited partnership agreement of the Infrastructure Partnership, or | |
12. | any other amendments substantially similar to any of the matters described in (1) through (11) above. |
1. | do not adversely affect the Infrastructure Partnership’s limited partners considered as a whole (including any particular class of partnership interests as compared to other classes of partnership interests) in any material respect, | |
2. | are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any governmental agency or judicial authority, | |
3. | are necessary or appropriate to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading, | |
4. | are necessary or appropriate for any action taken by the Infrastructure GP LP relating to splits or combinations of units under the provisions of the Infrastructure Partnership’s limited partnership agreement, or | |
5. | are required to effect the intent expressed in this prospectus or the intent of the provisions of the Infrastructure Partnership’s limited partnership agreement or are otherwise contemplated by the Infrastructure Partnership’s limited partnership agreement. |
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Units Outstanding | Units Outstanding | |||||||||||||||
Prior to the | Immediately After the | |||||||||||||||
Spin-Off and | Spin-Off and | |||||||||||||||
Related Transactions | Related Transactions | |||||||||||||||
Name and Address | Units Owned | Percentage | Units Owned | Percentage | ||||||||||||
Brookfield Asset Management Inc. Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3 | 1 | 100% | (1) | % | ||||||||||||
Derek Pannell c/o Brookfield Asset Management Inc., Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3 | — | 0% | 2,142 | *% | ||||||||||||
Arthur Jacobson, Jr. c/o Appleby Corporate Services (Bermuda) Limited of Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda | — | 0% | — | *% | ||||||||||||
James Keyes c/o Appleby Corporate Services (Bermuda) Limited of Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda | — | 0% | — | *% | ||||||||||||
Danesh Varma c/o Appleby Corporate Services (Bermuda) Limited of Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda | — | 0% | — | *% | ||||||||||||
James Wallace c/o Appleby Corporate Services (Bermuda) Limited of Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda | — | 0% | — | *% | ||||||||||||
Alan Wiener c/o Appleby Corporate Services (Bermuda) Limited of Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda | — | 0% | — | *% | ||||||||||||
All directors as a group (6 persons) | — | 0% | 2,142 | *% |
(1) | Assuming full exercise by Brookfield of the redemption right and by our partnership of our right of first refusal described under “Description of the Infrastructure Partnership Limited Partnership Agreement — Redemption-Exchange Mechanism” and includes 1.4 million units held by Brookfield in connection with amounts to be withheld upon the spin-off. See “The Spin-Off”. |
* | Less than 1%. |
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(a) | the name, address and taxpayer identification number of the beneficial owner and the nominee; | |
(b) | whether the beneficial owner is (1) a person that is not a U.S. person, (2) a foreign government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing, or (3) a tax-exempt entity; | |
(c) | the amount and description of units held, acquired or transferred for the beneficial owner; and | |
(d) | specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. |
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• | The balance sheet of Brookfield Infrastructure Partners L.P. as at May 21, 2007; | |
• | The balance sheet of Brookfield Infrastructure Partners Limited as at May 17, 2007; | |
• | The divisional combined financial statements of Brookfield Infrastructure Division as of and for the years ended December 31, 2006 and 2005 (as restated); | |
• | The consolidated financial statements of Island Timberlands Limited Partnership as at December 31, 2006 and December 25, 2005 and for the year ended December 31, 2006 and the period from June 1, 2005 to December 25, 2005; and | |
• | The financial statements of Great Lakes Power Transmission Division as at and for the years ended December 31, 2006 and 2005, and as at and for the years ended December 31, 2005 and 2004. |
• | consolidated financial statements of HQI Transelec Chile S.A. and Subsidiary as at June 30, 2006 and December 31, 2005 and for the period ended June 30, 2006 and the year ended December 31, 2005; | |
• | consolidated financial statements of ETC Holdings Ltd. and Subsidiaries as at December 31, 2006 and for the twenty-eight weeks ended December 31, 2006; |
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1. | the Acquisition Agreements described under the heading “The Spin-Off”; | |
2. | the master purchase agreement described under the heading “The Spin-Off”; | |
3. | the Master Services Agreement described under the heading “Management and Our Master Services Agreement — Our Master Services Agreement”; | |
4. | the Relationship Agreement described under the heading “Relationship with Brookfield — Relationship Agreement”; | |
5. | the equity commitment described under the heading “Relationship with Brookfield — Equity Commitment and Other Financing”; | |
6. | the registration rights agreement described under the heading “Relationship with Brookfield — Registration Rights Agreement”; | |
7. | the licensing agreements described under the heading “Relationship with Brookfield — Licensing Agreement”; | |
8. | our limited partnership agreement described under the heading “Description of Our Units and Our Limited Partnership Agreement”; | |
9. | the Infrastructure Partnership’s limited partnership agreement described under the heading “Description of the Infrastructure Partnership Limited Partnership Agreement”; and | |
10. | the agreement relating to the indirect acquisition of Longview described under the heading “Relationship with Brookfield — Master Purchase Agreement and Acquisition Agreements”. |
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Table of Contents
Licensed Public Accountants
July 26, 2007
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2007 | ||||
Assets | ||||
Cash | $ | 2 | ||
Partners’ capital | $ | 2 | ||
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1. | ORGANIZATION |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
F-5
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Table of Contents
Licensed Public Accountants
July 26, 2007
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2007 | ||||
Assets | ||||
Cash | $ | 4 | ||
Shareholders’ equity | $ | 4 | ||
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1. | ORGANIZATION |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Licensed Public Accountants
July 26, 2007 (except as
to note 19, which is
as at October 11, 2007)
F-11
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Notes | 2006 | 2005 | ||||||||||
(MILLIONS, US DOLLARS) | ||||||||||||
(As Restated — See Note 19) | ||||||||||||
ASSETS | ||||||||||||
Current Assets | ||||||||||||
Cash and cash equivalents | $ | 158.6 | $ | 29.8 | ||||||||
Accounts receivable | 29.6 | 5.6 | ||||||||||
Inventory | 23.2 | 18.0 | ||||||||||
Prepaid expenses | 6.7 | 1.5 | ||||||||||
Other assets | 10.7 | — | ||||||||||
Total current assets | 228.8 | 54.9 | ||||||||||
Restricted cash | 3 | 849.5 | — | |||||||||
Goodwill | 2 | (g) | 455.5 | — | ||||||||
Intangible assets | 4 | 256.7 | — | |||||||||
Deferred income taxes | 5 | 97.7 | — | |||||||||
Other assets | 7 | 68.8 | 3.3 | |||||||||
Property, plant and equipment, net | 6 | 2,670.8 | 915.2 | |||||||||
Total assets | $ | 4,627.8 | $ | 973.4 | ||||||||
LIABILITIES AND DIVISIONAL EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Accounts payable | $ | 70.9 | $ | 41.2 | ||||||||
Management fee payable | 11 | 5.6 | — | |||||||||
Short term bank loan | 149.6 | — | ||||||||||
Other liabilities | 8.3 | — | ||||||||||
Current portion of non-recourse borrowings | 8 | 224.0 | — | |||||||||
Total current liabilities | 458.4 | 41.2 | ||||||||||
Non-recourse borrowings | 8 | 1,489.9 | 410.0 | |||||||||
Other debt of subsidiaries | 9 | 1,771.3 | — | |||||||||
Management fee payable | 11 | 34.4 | — | |||||||||
Other liabilities | 55.7 | — | ||||||||||
Minority interest in consolidated subsidiaries | 10 | 468.3 | 255.4 | |||||||||
Divisional equity | 349.8 | 266.8 | ||||||||||
Total liabilities and divisional equity | $ | 4,627.8 | $ | 973.4 | ||||||||
F-12
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2006 | 2005 | |||||||
(MILLIONS US DOLLARS) | ||||||||
Net income (loss) for the year | $ | (4.9 | ) | $ | 1.0 | |||
Other comprehensive income (loss): | ||||||||
Translations of the net investment in foreign operations | 5.2 | — | ||||||
Net losses on related hedging items, net of taxes of $4.2 million | (5.7 | ) | — | |||||
Comprehensive income (loss) | $ | (5.4 | ) | $ | 1.0 | |||
�� |
F-13
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2006 | 2005 | |||||||
(MILLIONS US DOLLARS) | ||||||||
Opening divisional equity | $ | 266.8 | $ | — | ||||
Contributions | 88.4 | 265.8 | ||||||
Net income (loss) for the year | (4.9 | ) | 1.0 | |||||
Other comprehensive loss | (0.5 | ) | — | |||||
Ending divisional equity | $ | 349.8 | $ | 266.8 | ||||
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Notes | 2006 | 2005 | ||||||||||
(MILLIONS US DOLLARS) | ||||||||||||
(As Restated — See Note 19) | ||||||||||||
Gross Revenue | ||||||||||||
Timber | $ | 197.3 | $ | 102.8 | ||||||||
Transmission | 110.5 | — | ||||||||||
307.8 | 102.8 | |||||||||||
Costs and expenses applicable to revenues, excluding depreciation, depletion and amortization | (145.5 | ) | (74.5 | ) | ||||||||
Depreciation, depletion and amortization | (49.7 | ) | (12.7 | ) | ||||||||
Other income | 10.4 | 0.4 | ||||||||||
Selling, general and administrative expenses | (17.5 | ) | (3.4 | ) | ||||||||
Management fee | 13 | (40.0 | ) | — | ||||||||
Gain on sale of assets | 5.8 | 2.1 | ||||||||||
Interest income on restricted cash | 38.8 | — | ||||||||||
Interest expense | (136.1 | ) | (12.7 | ) | ||||||||
Income (loss) before taxes and other items below | (26.0 | ) | 2.0 | |||||||||
Deferred income taxes | 2.3 | — | ||||||||||
Minority interest in income (loss) of consolidated subsidiaries | 12 | 18.8 | (1.0 | ) | ||||||||
Net income (loss) for the year | $ | (4.9 | ) | $ | 1.0 | |||||||
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2006 | 2005 | |||||||
(MILLIONS, US DOLLARS) | ||||||||
(As Restated — | ||||||||
See Note 19) | ||||||||
Operating activities | ||||||||
Net income (loss) for the year | $ | (4.9 | ) | $ | 1.0 | |||
Items not involving cash: | ||||||||
Depreciation, depletion and amortization | 49.7 | 12.7 | ||||||
Gain on sale of assets | (5.8 | ) | (2.1 | ) | ||||
Minority interests | (18.8 | ) | 1.0 | |||||
Deferred income taxes | (2.3 | ) | — | |||||
Accrued interest | 60.6 | — | ||||||
Management fee | 40.0 | — | ||||||
Other | (10.0 | ) | 0.1 | |||||
Change in non-cash operating items: | ||||||||
Accounts receivable | 6.6 | (3.2 | ) | |||||
Inventories | (5.1 | ) | 1.5 | |||||
Prepaid and other assets | (6.9 | ) | 0.6 | |||||
Recoverable income taxes | (2.6 | ) | 9.1 | |||||
Accounts payable and accrued liabilities | 27.3 | 7.0 | ||||||
Other liabilities | (5.7 | ) | — | |||||
122.1 | 27.7 | |||||||
Investing activities | ||||||||
Acquisition of timberland assets, net of cash acquired | — | (527.5 | ) | |||||
Acquisition of transmission assets, net of cash acquired | (1,648.5 | ) | — | |||||
Payments on foreign exchange forward contracts designated as hedge of net investment | (27.6 | ) | — | |||||
Proceeds from sale of property, plant and equipment | 12.9 | 9.6 | ||||||
Additions to property, plant and equipment | (34.8 | ) | (3.2 | ) | ||||
Restricted cash | (814.0 | ) | — | |||||
(2,512.0 | ) | (521.1 | ) | |||||
Financing activities | ||||||||
Capital contributions | 348.8 | 531.7 | ||||||
Proceeds from long term debt | 1,374.4 | 3.0 | ||||||
Distribution, to limited partners | (18.5 | ) | (11.5 | ) | ||||
Proceeds from bank loans | 814.0 | — | ||||||
2,518.7 | 523.2 | |||||||
Increase in cash and cash equivalents | 128.8 | 29.8 | ||||||
Cash and cash equivalents, beginning of year | 29.8 | — | ||||||
Cash and cash equivalents, end of year | $ | 158.6 | $ | 29.8 | ||||
Supplemental cash flow information | ||||||||
Cash interest paid | $ | 25.3 | $ | 2.1 | ||||
Cash taxes paid | $ | 2.3 | $ | — |
F-16
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1. | ORGANIZATION AND DESCRIPTION OF BUSINESS |
2. | SUMMARY OF ACCOUNTING POLICIES |
(a) | Basis of Presentation |
Timberland Carrying Value |
Island Timberlands Performance Fee |
F-17
Table of Contents
Goodwill |
Intangible assets |
Derivatives |
F-18
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(b) | Acquisitions Completed During 2006 |
Transelec |
As of | ||||
June 30, 2006 | ||||
(MILLIONS) | ||||
Assets acquired: | ||||
Current assets (net of cash and cash equivalents) | $ | 30.0 | ||
Property, plant and equipment | 1,751.4 | |||
Indefinite life intangibles (rights-of-way) | 247.5 | |||
Other assets | 52.4 | |||
Goodwill | 625.0 | |||
Total assets acquired | 2,706.3 | |||
Liabilities assumed: | ||||
Current portion of long-term bonds payable | (248.5 | ) | ||
Long-term bonds payable | (672.4 | ) | ||
Deferred income taxes | (84.4 | ) | ||
Other liabilities | (52.5 | ) | ||
Total liabilities assumed | (1,057.8 | ) | ||
Net cash consideration | $ | 1,648.5 | ||
Consideration: | ||||
Net assets acquired | $ | 1,746.6 | ||
Less: Cash and cash equivalents acquired | 98.1 | |||
Net non-cash assets acquired | $ | 1,648.5 | ||
(c) | Acquisitions Completed During 2005 |
Island Timberlands |
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(d) | Foreign Currency Translation and Transactions |
(e) | Cash and cash equivalents |
December 31, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
(MILLIONS) | ||||||||
Cash and bank | $ | 38.1 | $ | 29.8 | ||||
Term deposits | 94.4 | — | ||||||
Reverse resale agreements | 26.1 | — | ||||||
Total | $ | 158.6 | $ | 29.8 | ||||
(f) | Recently Issued Accounting Standards |
(g) | Goodwill |
(1) | The fair value of a reporting unit is compared with its carrying amount, including goodwill, in order to identify a potential impairment. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. | |
(2) | When the carrying amount of a reporting unit exceeds its fair value, the fair value of the reporting unit’s goodwill should be compared with its carrying amount to measure the amount of the impairment loss, if any. When the carrying amount of reporting unit goodwill exceeds the fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. |
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(h) | Property, Plant and Equipment |
i) | Timber Infrastructure | |
Timberlands and logging roads are carried at cost less accumulated depletion and amortization. Site preparation and planting costs are capitalized as reforestation. Reforestation is transferred to a merchantable timber classification after 30 years. | ||
Depletion of the timberlands is based on the volume of timber estimated to be available over the harvest cycle. | ||
Amortization of logging roads is provided as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. | ||
Timberlands and logging roads are tested for impairment in value whenever events or changes in circumstances indicate their carrying value may not be recoverable. Recoverability is assessed by comparing the carrying amount to the projected future net cash flows the long-lived assets are expected to generate. The amount of any impairment loss is determined as the excess of the carrying value of the asset over its fair value. | ||
Property, plant and equipment are carried at cost less accumulated depreciation. Plant and equipment are depreciated on a straight-line basis at rates that reflect the economic lives of the assets based on the following annual rates: |
Buildings | 3% – 5% | |||
Plant and equipment | 10% – 20% |
Property, plant and equipment includes HBU land is not depreciated and the value of this land varies with real estate conditions as well as the local regulatory environment. | ||
Island Timberlands reviews for the impairment of property, plant, and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from the expected undiscounted future cash flows from its use and eventual disposition. The amount of any impairment loss is determined as the excess of the carrying value of the asset over its fair value. The Division did not record any impairment losses for the years ended December 31, 2006 and 2005. | ||
ii) | Transmission Infrastructure | |
Property, plant and equipment are stated at acquisition cost based on fair values determined as of June 30, 2006 (date of acquisition of Transelec). The cost of an item of property, plant and equipment acquired subsequently includes the purchase price and other acquisition costs such as installation costs including architectural, design and engineering fees, legal fees, survey costs and site preparation costs. The cost of items constructed or developed over time includes direct construction (such as materials and labour), and overhead costs directly attributable to the construction or development activity, including interest costs. | ||
Some of Transelec’s transmission lines and other assets may have asset retirement obligations. The vast majority of Transelec’s rights-of-way (easements) on which such assets are located are of perpetual duration. As Transelec expects to use the majority of its installed assets for an indefinite period, no removal date can be determined and consequently a reasonable estimate of the fair value of any related asset retirement obligation cannot be made at the balance sheet dates. If, at some future date, it becomes possible to estimate the fair value cost of removing assets that Transelec is legally required to remove, an asset retirement obligation will be recognized at that time. | ||
The depreciation of property, plant and equipment has been calculated using a straight-line method, based on the estimated useful lives of the assets that for major classes of the property, plant and equipment are as follows: |
Description | Years | |||
Transmission lines | 40 | |||
Electrical equipment | 15-35 | |||
Non-hydraulic civil projects | 40 | |||
Other | 3-40 |
(i) | Accounts receivable |
(j) | Derivative contracts and hedging |
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(k) | Asset retirement obligations |
(l) | Revenue recognition — Timberlands |
Revenue recognition — Transmission |
(m) | Current and deferred income taxes |
(n) | Inventories |
3. | RESTRICTED CASH |
4. | INTANGIBLE ASSETS |
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5. | DEFERRED INCOME TAXES |
2006 | ||||||||||||
Deferred income tax | Deferred income tax | |||||||||||
Temporary differences | assets | liabilities | 2005 | |||||||||
(MILLIONS) | (MILLIONS) | |||||||||||
Leased assets | $ | — | $ | 8.1 | $ | — | ||||||
Property, plant and equipment | 110.9 | — | — | |||||||||
Price-level restatement | 2.7 | — | — | |||||||||
Intangibles | — | 22.4 | — | |||||||||
Capitalized financial expenses | — | 2.6 | — | |||||||||
Write-offs of assets | 0.4 | — | — | |||||||||
Prepaid expenses | — | 1.7 | — | |||||||||
Tax losses(1) | 13.9 | — | — | |||||||||
Swap contracts | 0.3 | — | — | |||||||||
Bonds | 10.2 | — | — | |||||||||
Off-market contracts | — | 5.9 | — | |||||||||
Total deferred income taxes | $ | 138.4 | $ | 40.7 | $ | — | ||||||
Net deferred income tax assets | $ | 97.7 | $ | — | $ | — | ||||||
(1) | In accordance with current Chilean tax regulations, tax losses do not expire. |
6. | PROPERTY, PLANT AND EQUIPMENT |
Note | 2006 | 2005 | ||||||||||
(MILLIONS) | ||||||||||||
Timber infrastructure | (a) | $ | 892.7 | $ | 915.2 | |||||||
Transmission infrastructure | (b) | 1,778.1 | — | |||||||||
Total | $ | 2,670.8 | $ | 915.2 | ||||||||
(a) | Timberlands infrastructure |
2006 | ||||||||||||||||
Accumulated | 2005 | |||||||||||||||
Depreciation | Net Book | Net Book | ||||||||||||||
Cost | and Depletion | Value | Value | |||||||||||||
HBU land | $ | 110.3 | $ | — | $ | 110.3 | $ | 113.8 | ||||||||
Buildings | 0.9 | 0.2 | 0.7 | 0.8 | ||||||||||||
Plant and equipment | 3.9 | 1.1 | 2.8 | 3.5 | ||||||||||||
Timberlands | 791.9 | 23.6 | 768.3 | 789.7 | ||||||||||||
Reforestation | 6.1 | — | 6.1 | 0.8 | ||||||||||||
Logging roads | 12.5 | 8.0 | 4.5 | 6.6 | ||||||||||||
$ | 925.6 | $ | 32.9 | $ | 892.7 | $ | 915.2 | |||||||||
(b) | Transmission infrastructure |
2006 | 2005 | |||||||||||||||
Accumulated | Net Book | Net Book | ||||||||||||||
Cost | Depreciation | Value | Value | |||||||||||||
Land | $ | 28.4 | $ | — | $ | 28.4 | $ | — | ||||||||
Buildings and infrastructure | 1,278.8 | 15.7 | 1,263.1 | — | ||||||||||||
Machinery and equipment | 499.1 | 15.1 | 484.0 | — | ||||||||||||
Other property, plant and equipment | 2.6 | — | 2.6 | — | ||||||||||||
$ | 1,808.9 | $ | 30.8 | $ | 1,778.1 | $ | — | |||||||||
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7. | Other assets |
2006 | 2005 | |||||||||||
Fair value of embedded derivative contracts | (a | ) | $ | 38.5 | $ | — | ||||||
Long-term receivables | 17.6 | — | ||||||||||
Other miscellaneous assets | 12.7 | — | ||||||||||
$ | 68.8 | $ | — | |||||||||
(a) | Embedded derivatives held by Transelec corresponded to foreign currency and various indexation features embedded in acquisition of fixed assets and electricity transmission contracts. Fair value of those contracts was $31.5 million as at December 31, 2006 (2005 - $ nil). |
8. | NON-RECOURSE BORROWINGS |
Repayment Date | Interest Rate | 2006 | 2005 | |||||||||||||
Chilean denominated bonds | March 1, 2007 | 6.2% | $ | 1.4 | $ | — | ||||||||||
Chilean denominated bonds | March 1, 2007 | 6.2% | 2.8 | — | ||||||||||||
Chilean denominated bonds | September 1, 2007 | 6.2% | 0.1 | — | ||||||||||||
Chilean denominated bonds | September 1, 2007 | 6.2% | 2.1 | — | ||||||||||||
U.S. denominated bonds | August 15, 2007 | 7.8% | 7.9 | — | ||||||||||||
Chilean denominated bonds | March 1, 2007 | 6.2% | 69.2 | — | ||||||||||||
Chilean denominated bonds | March 1, 2007 | 6.2% | 138.4 | — | ||||||||||||
Chilean denominated bonds | September 1, 2007 | 6.2% | 0.1 | — | ||||||||||||
Chilean denominated bonds | September 1, 2007 | 6.2% | 1.0 | — | ||||||||||||
Chilean denominated bonds | June 15, 2007 | 4.3% | 0.9 | — | ||||||||||||
Chilean denominated bonds | March 1, 2022 | 6.2% | 7.8 | — | ||||||||||||
Chilean denominated bonds | March 1, 2022 | 6.2% | 117.5 | — | ||||||||||||
U.S. denominated bonds | April 15, 2011 | 7.9% | 489.9 | — | ||||||||||||
Chilean denominated bonds | December 15, 2027 | 4.3% | 464.8 | — | ||||||||||||
$ | 1,303.9 | $ | — | |||||||||||||
Repayment Date | Interest Rate | 2006 | 2005 | |||||||||||||
U.S. secured bonds | August 30, 2015 | 5.6% | $ | 100.0 | $ | 100.0 | ||||||||||
U.S. secured bonds | August 30, 2025 | 6.2% | 210.0 | 210.0 | ||||||||||||
U.S. secured bonds | August 30, 2030 | 6.3% | 100.0 | 100.0 | ||||||||||||
$ | 410.0 | $ | 410.0 | |||||||||||||
Timberlands | Transmission | Total Annual | ||||||||||
infrastructure | infrastructure | Repayments | ||||||||||
(MILLIONS) | ||||||||||||
2007 | $ | $ | 224.0 | $ | 224.0 | |||||||
2008 | — | — | — | |||||||||
2009 | — | — | — | |||||||||
2010 | — | — | — | |||||||||
2011 | — | 490.9 | 490.9 | |||||||||
Thereafter | 410.0 | 589.0 | 999.0 | |||||||||
Total-2006 | $ | 410.0 | $ | 1,303.9 | $ | 1,713.9 | ||||||
Total-2005 | $ | 410.0 | $ | — | $ | 410.0 | ||||||
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9. | OTHER DEBT OF SUBSIDIARIES |
2006 | 2005 | |||||||||||
Promissory notes | (a | ) | $ | 859.4 | $ | — | ||||||
Bank loans | (b | ) | 849.4 | — | ||||||||
Long term derivatives | (c | ) | 62.5 | — | ||||||||
$ | 1,771.3 | $ | — | |||||||||
a) Represents a promissory convertible note issued by ETC Holdings Ltd. to its shareholders. The notes are due on June 30, 2016 and accrue interest of LIBOR plus 2.875 basis points (8.2%). The notes were converted into equity in 2007. | ||
b) Represents the outstanding capital of a loan obtained from a third party by ETC Holdings Ltd. The loan bears interest at a rate equal to the six month LIBOR plus 3% (8.4%). | ||
c) Transelec entered into five US$/UF cross currency swaps contracts totaling $220.0 million to hedge part of its exchange rate risk exposure to bonds denominated in US$. Initially, the swaps were designated as cash flow hedges, however given ineffectiveness observed after inception, hedge accounting was not applied and all changes in the fair value of the swaps were recorded in income. Fair value of the swap contracts recognized on the balance sheet is $62.5 million (2005 — $ nil). The swaps mature in 2011. |
10. | MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES |
11. | MANAGEMENT FEE PAYABLE |
12. | SEGMENTED INFORMATION |
For the Years Ended December 31, | ||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||
Electricity | Division’s | Division’s | Division’s | |||||||||||||||||||||
Transmission | Share | Timber | Share | Timber | Share | |||||||||||||||||||
(MILLIONS) | ||||||||||||||||||||||||
Gross revenue | $ | 110.5 | $ | 30.8 | $ | 197.3 | $ | 98.7 | $ | 102.8 | $ | 51.4 | ||||||||||||
Direct costs | (24.8 | ) | (6.9 | ) | (138.2 | ) | (69.1 | ) | (77.9 | ) | (39.0 | ) | ||||||||||||
Net operating income | 85.7 | 23.9 | 59.1 | 29.6 | 24.9 | 12.4 | ||||||||||||||||||
Investment and other income | 11.5 | 3.2 | 4.7 | 2.2 | 2.5 | 1.3 | ||||||||||||||||||
Interest expense, net of interest on restricted cash | (81.5 | ) | (13.6 | )(a) | (24.9 | ) | (12.4 | ) | (12.7 | ) | (6.4 | ) | ||||||||||||
Funds from operations | 15.7 | 13.5 | 38.9 | 19.4 | 14.7 | 7.3 | ||||||||||||||||||
Depreciation | (29.3 | ) | (8.2 | ) | (20.4 | ) | (10.2 | ) | (12.7 | ) | (6.3 | ) | ||||||||||||
Deferred taxes and other provisions | 2.3 | 0.6 | (40.0 | ) | (20.0 | ) | — | — | ||||||||||||||||
Net income (loss) | $ | (11.3 | ) | $ | 5.9 | $ | (21.5 | ) | $ | (10.8 | ) | $ | 2.0 | $ | 1.0 | |||||||||
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As at December 31, | ||||||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||||||
Electricity | Division’s | Division’s | Division’s | |||||||||||||||||||||
Transmission | Share | Timber | Share | Timber | Share | |||||||||||||||||||
(MILLIONS) | ||||||||||||||||||||||||
Current assets | $ | 156.9 | $ | 43.8 | $ | 41.9 | $ | 51.0 | (b) | $ | 43.4 | $ | 33.3 | (b) | ||||||||||
Non-current assets | 3,506.3 | 978.3 | 892.7 | 446.4 | 918.5 | 459.2 | ||||||||||||||||||
Assets | $ | 3,663.2 | $ | 1,022.1 | $ | 934.6 | $ | 497.4 | $ | 961.9 | $ | 492.5 | ||||||||||||
Current liabilities | $ | (432.5 | ) | $ | (120.7 | ) | $ | (25.9 | ) | $ | (13.0 | ) | $ | (21.2 | ) | $ | (10.6 | ) | ||||||
Non-current liabilities | (2,894.8 | ) | (807.6 | ) | (456.5 | ) | (228.3 | ) | (430.1 | ) | (215.1 | ) | ||||||||||||
Liabilities | $ | (3,327.3 | ) | $ | (928.3 | ) | $ | (482.4 | ) | $ | (241.3 | ) | $ | (451.3 | ) | $ | (225.7 | ) | ||||||
For the Years Ended December 31, | ||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||
Electricity | | |||||||||||||||||||
Transmission | Timber | Total | Timber | Total | ||||||||||||||||
(MILLIONS) | ||||||||||||||||||||
Revenue | $ | 110.5 | $ | 197.3 | $ | 307.8 | $ | 102.8 | $ | 102.8 | ||||||||||
Long lived assets | $ | 3,408.6 | $ | 892.7 | $ | 4,301.3 | $ | 918.5 | $ | 918.5 |
For the Years Ended December 31, | ||||||||||||||||||||
2006 | 2005 | |||||||||||||||||||
Canada | Chile | Total | Canada | Total | ||||||||||||||||
(MILLIONS) | ||||||||||||||||||||
Revenue | $ | 197.3 | $ | 110.5 | $ | 307.8 | $ | 102.8 | $ | 102.8 | ||||||||||
Long lived assets | $ | 892.7 | $ | 3,408.6 | $ | 4,301.3 | $ | 918.5 | $ | 918.5 |
(a) | Reflects Brookfield’s share after eliminating $9.1 million of interest expense paid on intercompany debt between the Division and the transmission operations. |
(b) | Reflects Brookfield’s share after elimination of $30.0 million (2005 — $11.5 million) of intercompany dividends paid out by the timber operations to the Division. |
13. | ANTICIPATED EVENTS |
F-26
Table of Contents
14. | COMBINED FINANCIAL STATEMENTS |
As at December 31, 2006 | As at December 31, 2005 | |||||||||||||||||||||||||||
Island | Transelec | Adjustments | Consolidated | Island | Adjustments | Consolidated | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 7.7 | $ | 120.9 | $ | 30.0 | (a) | $ | 158.6 | $ | 18.3 | $ | 11.5 | (a) | $ | 29.8 | ||||||||||||
Accounts receivable | 7.4 | 22.2 | — | 29.6 | 5.6 | — | 5.6 | |||||||||||||||||||||
Inventory | 23.1 | 0.1 | — | 23.2 | 18.0 | — | 18.0 | |||||||||||||||||||||
Prepaid expenses | 0.9 | 5.8 | — | 6.7 | 1.5 | — | 1.5 | |||||||||||||||||||||
Other assets | 2.8 | 7.9 | — | 10.7 | — | — | — | |||||||||||||||||||||
Total current assets | 41.9 | 156.9 | 30.0 | 228.8 | 43.4 | 11.5 | 54.9 | |||||||||||||||||||||
Restricted cash | — | 849.5 | — | 849.5 | — | — | — | |||||||||||||||||||||
Goodwill | — | 455.5 | — | 455.5 | — | — | — | |||||||||||||||||||||
Intangibles | — | 256.7 | — | 256.7 | — | — | — | |||||||||||||||||||||
Deferred income taxes | — | 97.7 | — | 97.7 | — | — | — | |||||||||||||||||||||
Other assets | — | 68.8 | — | 68.8 | 3.3 | — | 3.3 | |||||||||||||||||||||
Property, plant and equipment, net | 892.7 | 1,778.1 | — | 2,670.8 | 915.2 | — | 915.2 | |||||||||||||||||||||
Total assets | $ | 934.6 | $ | 3,663.2 | $ | 30.0 | $ | 4,627.8 | $ | 961.9 | $ | 11.5 | $ | 973.4 | ||||||||||||||
Liabilities and divisional equity | ||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||
Accounts payable | $ | 20.3 | $ | 50.6 | $ | — | $ | 70.9 | $ | 21.1 | $ | — | $ | 21.1 | ||||||||||||||
Management fee payable | 5.6 | — | — | 5.6 | — | — | — | |||||||||||||||||||||
Short term bank loan | — | 149.6 | — | 149.6 | — | — | — | |||||||||||||||||||||
Other liabilities | — | 8.3 | — | 8.3 | — | — | — | |||||||||||||||||||||
Current portion of non-recourse borrowings | — | 224.0 | — | 224.0 | — | — | — | |||||||||||||||||||||
Total current liabilities | 25.9 | 432.5 | — | 458.4 | 21.1 | — | 21.1 | |||||||||||||||||||||
Non-recourse borrowings | 410.0 | 1,079.9 | — | 1,489.9 | 410.0 | — | 410.0 | |||||||||||||||||||||
Other debt of subsidiaries | — | 1,771.3 | — | 1,771.3 | — | — | — | |||||||||||||||||||||
Management fee payable | 34.4 | — | — | 34.4 | — | — | — | |||||||||||||||||||||
Other liabilities | 12.1 | 43.6 | — | 55.7 | 20.1 | — | 20.1 | |||||||||||||||||||||
Minority interest in consolidated subsidiaries | — | — | 468.3 | (c) | 468.3 | — | 255.4 | (c) | 255.4 | |||||||||||||||||||
Divisional equity | 452.2 | 335.9 | (438.3 | )(d) | 349.8 | 510.7 | (243.9 | )(d) | 266.8 | |||||||||||||||||||
$ | 934.6 | $ | 3,663.2 | $ | 30.0 | $ | 4,627.8 | $ | 961.9 | $ | 11.5 | $ | 973.4 | |||||||||||||||
Year ended December 31, 2006 | Year ended December 31, 2005 | |||||||||||||||||||||||||||
Island | Transelec | Adjustments | Combined | Island | Adjustments | Combined | ||||||||||||||||||||||
(MILLIONS) | (MILLIONS) | |||||||||||||||||||||||||||
Gross revenues | ||||||||||||||||||||||||||||
Timber | $ | 197.3 | $ | — | $ | — | $ | 197.3 | $ | 102.8 | $ | — | $ | 102.8 | ||||||||||||||
Transmission | — | 110.5 | — | 110.5 | — | — | — | |||||||||||||||||||||
197.3 | 110.5 | — | 307.8 | 102.8 | — | 102.8 | ||||||||||||||||||||||
Costs and expenses applicable to revenues excluding depreciation, depletion and amortization | (130.9 | ) | (14.6 | ) | — | (145.5 | ) | (74.5 | ) | — | (74.5 | ) | ||||||||||||||||
Selling, general and administrative expenses | (7.3 | ) | (10.2 | ) | — | (17.5 | ) | (3.4 | ) | — | (3.4 | ) | ||||||||||||||||
Management fee | (40.0 | ) | — | — | (40.0 | ) | — | — | — | |||||||||||||||||||
Gain on sale of assets | 5.8 | — | — | 5.8 | 2.1 | — | 2.1 | |||||||||||||||||||||
Interest income on restricted cash | — | 38.8 | — | 38.8 | ||||||||||||||||||||||||
Interest expense | (24.9 | ) | (120.3 | ) | 9.1 | (b) | (136.1 | ) | (12.7 | ) | — | (12.7 | ) | |||||||||||||||
Depreciation, depletion, and amortization | (20.4 | ) | (29.3 | ) | — | (49.7 | ) | (12.7 | ) | — | (12.7 | ) | ||||||||||||||||
Other income | (1.1 | ) | 11.5 | — | 10.4 | 0.4 | — | 0.4 | ||||||||||||||||||||
Income (loss) before taxes and other items below | (21.5 | ) | (13.6 | ) | 9.1 | (26.0 | ) | 2.0 | — | 2.0 | ||||||||||||||||||
Deferred income taxes | — | 2.3 | — | 2.3 | — | — | — | |||||||||||||||||||||
Minority interest in income (loss) of consolidated subsidiaries | — | — | 18.8 | (c) | 18.8 | — | (1.0 | )(c) | (1.0 | ) | ||||||||||||||||||
Net income (loss) for the year | $ | (21.5 | ) | $ | (11.3 | ) | $ | 27.9 | $ | (4.9 | ) | $ | 2.0 | $ | (1.0 | ) | $ | 1.0 | ||||||||||
F-27
Table of Contents
Year Ended December 31, 2006 | Year Ended December 31, 2005 | |||||||||||||||||||||||||||
Island | Transelec | Adjustments | Combined | Island | Adjustments | Combined | ||||||||||||||||||||||
(MILLIONS) | (MILLIONS) | |||||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||
Net income (loss) for the year | $ | (21.5 | ) | $ | (11.3 | ) | $ | 27.9 | $ | (4.9 | ) | $ | 2.0 | $ | (1.0 | ) | $ | 1.0 | ||||||||||
Items not involving cash: | ||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 20.3 | 29.4 | — | 49.7 | 12.7 | — | 12.7 | |||||||||||||||||||||
Gain on sale of assets | (5.8 | ) | — | — | (5.8 | ) | (2.1 | ) | — | (2.1 | ) | |||||||||||||||||
Minority interests | — | — | (18.8 | ) | (18.8 | ) | — | 1.0 | 1.0 | |||||||||||||||||||
Deferred income taxes | — | (2.3 | ) | — | (2.3 | ) | — | — | — | |||||||||||||||||||
Accrued interest | — | 60.6 | — | 60.6 | — | — | — | |||||||||||||||||||||
Management fee payable | 40.0 | — | — | 40.0 | — | — | — | |||||||||||||||||||||
Other | (1.8 | ) | 0.9 | (9.1 | ) | (10.0 | ) | 0.1 | — | 0.1 | ||||||||||||||||||
Change in non-cash operating items: | ||||||||||||||||||||||||||||
Accounts receivable | 2.9 | 3.7 | — | 6.6 | (3.2 | ) | — | (3.2 | ) | |||||||||||||||||||
Inventories | (5.1 | ) | — | — | (5.1 | ) | 1.5 | — | 1.5 | |||||||||||||||||||
Prepaid and other assets | 0.6 | (7.5 | ) | — | (6.9 | ) | 0.6 | — | 0.6 | |||||||||||||||||||
Receivable income taxes | — | (2.6 | ) | — | (2.6 | ) | — | — | — | |||||||||||||||||||
Accounts payable and accrued liabilities | (0.8 | ) | 28.1 | — | 27.3 | 9.1 | — | 9.1 | ||||||||||||||||||||
Other liabilities | (5.7 | ) | — | — | (5.7 | ) | 7.0 | — | 7.0 | |||||||||||||||||||
23.1 | 99.0 | — | 122.1 | 27.7 | — | 27.7 | ||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||
Acquisition of timberland assets, net of cash acquired | — | — | — | — | (527.5 | ) | — | (527.5 | ) | |||||||||||||||||||
Acquisition of transmission assets, net of cash acquired | — | (1,648.5 | ) | — | (1,648.5 | ) | — | — | — | |||||||||||||||||||
Payments on foreign exchange forward contracts designated as a hedge of a net investment | — | (27.6 | ) | — | (27.6 | ) | — | — | — | |||||||||||||||||||
Proceeds from sale of property, plant and equipment | 12.9 | — | — | 12.9 | 9.6 | — | 9.6 | |||||||||||||||||||||
Additions to property, plant and equipment | (9.6 | ) | (25.2 | ) | — | (34.8 | ) | (3.2 | ) | — | (3.2 | ) | ||||||||||||||||
Restricted Cash | — | (814.0 | ) | — | (814.0 | ) | — | — | — | |||||||||||||||||||
3.3 | (2,515.3 | ) | — | (2,512.0 | ) | (521.1 | ) | — | (521.1 | ) | ||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||
Capital contributions | — | 348.8 | — | 348.8 | 531.7 | — | 531.7 | |||||||||||||||||||||
Proceeds from long term debt | — | 1,374.4 | — | 1,374.4 | 3.0 | — | 3.0 | |||||||||||||||||||||
Distribution to limited partners | (37.0 | ) | — | 18.5 | (18.5 | ) | (23.0 | ) | 11.5 | (11.5 | ) | |||||||||||||||||
Proceeds from bank loans | — | 814.0 | — | 814.0 | — | — | — | |||||||||||||||||||||
(37.0 | ) | 2,537.2 | 18.5 | 2,518.7 | 511.7 | 11.5 | 523.2 | |||||||||||||||||||||
Increase in cash and cash equivalents | (10.6 | ) | 120.9 | 18.5 | 128.8 | 18.3 | 11.5 | 29.8 | ||||||||||||||||||||
Cash and cash equivalents, beginning of year | 18.3 | — | 11.5 | 29.8 | — | — | — | |||||||||||||||||||||
Cash and cash equivalents, end of year | $ | 7.7 | $ | 120.9 | $ | 30.0 | $ | 158.6 | $ | 18.3 | $ | 11.5 | $ | 29.8 | ||||||||||||||
(a) | Reflect’s the Division’s share of distributions paid out by Island. |
(b) | Eliminations of interest expense paid by Transelec to Brookfield in connection with Brookfield’s proportionate share of Transelec’s long-term notes payable to related parties. |
(c) | Reflects the portion of Island and Transelec not owned by the Division. |
(d) | Reflects the impact of the above adjustments on the Division’s equity and net income. |
15. | GUARANTEES |
F-28
Table of Contents
16. | COMMITMENTS |
$ | ||||
(MILLIONS) | ||||
2007 | $ | 4.6 | ||
2008 | 3.9 | |||
2009 | 2.6 | |||
2010 | 1.4 | |||
2011 | 0.5 | |||
$ | 13.0 | |||
17. | CONTINGENCIES |
1. | On May 15, 2000, the Superintendency of Electricity and Fuel (Superintendencia de Electricidad y Combustibles (the “SEyC”) levied a fine on Transelec of 300 annual tax units (“UTA”), which as of December 31, 2006 amounted to $0.2 million, through Exempt Resolution No. 876, for its alleged responsibility in the power failure of the Sistema Interconectado Central (“SIC”) on July 14, 1999, caused by the untimely withdrawal from service of the San Isidro Plant of San Isidro S.A. On May 25, 2000, an administrative motion was filed by Transelec before SEyC, which is pending resolution. | |
2. | On December 5, 2002, SEyC in Ordinary Official Letter No. 7183, charged Transelec for its alleged responsibility in the interruption of electrical supply in the SIC on September 23, 2002. By Exempt Resolution No. 1438 of August 14, 2003, the SEyC applied various fines to Transelec for a total of UTA 2,500 equivalent as of December 31, 2006 to $1.8 million. The company had appealed the complaint before the Santiago Court of Appeals, and made a deposit of 25% of the original fine. The company claims that it is not responsible for this situation since it considers it a case of force majeure. | |
3. | The SEyC in Ordinary Official Letter No. 1210, dated February 21, 2003, filed charges for the alleged responsibility of Transelec in the interruption of electric service in the SIC, on January 13, 2003. By Resolution No. 808, of April 27, 2004, SEyC imposed a fine of UTA 560 equivalent as of December 31, 2006 to $0.4 million, against which a writ of administrative reconsideration was filed, which was subsequently rejected. The company appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. The company claims that it is not responsible for this situation since it considers it a case of force majeure. | |
4. | On June 25, 2003, the Zone Director of the III Zone of SEyC in Ordinary Official Letter No. 488, filed charges against Transelec for its alleged responsibility in the interruption of electrical supply in the SIC, south of Temuco on March 7, 2003. The company had filed the corresponding responses. Management believes it has no responsibility for this event. | |
5. | On June 30, 2005, SEyC through Exempt Resolution No. 1117, applied the following sanctions to Transelec: (i) a fine of 560 UTA equivalent as of December 31, 2006 to $0.4 million, for allegedly not having ensured electric service, as determined in the investigation of the general failure of the SIC on November 7, 2003; (ii) a fine of 560 UTA equivalent as of December 31, 2006 to $0.4 million, levied on the company as owner of the installations, for allegedly operating the installations without adhering to the operation scheduling set forth by the CDEC-SIC, without justified cause, as determined in the investigation of the general failure of the SIC on November 7, 2003. The company had appealed the charges before the SEyC, which is pending resolution. Management believes it has no responsibility for these events. | |
6. | On December 17, 2004, SEyC, through Exempt Resolution No. 2334, fined Transelec with an amount of 300 UTA equivalent as of December 2006 to $0.2 million, for its alleged responsibility in the interruption of electrical supply south of Temuco, caused by a truck that crashed into a structure of the Charrúa — Temuco transmission line. The company had filed a motion of invalidation and administrative reconsideration, claiming that it was a case of force majeure and that the charges are not applicable and should be cancelled. | |
7. | On April 1, 2004, SEyC in Ordinary Official Letter No. 1631, filed charges against Transelec for restrictions in the transfer of power on November 5, 2003, in the Charrúa-Temuco line, due to the construction of the La Isla and Los Pinos crossing, which decreased the distance between the conductors and the ground. The corresponding response has been filed. Management believes that the charges are not applicable, and therefore the SEyC should nullify the effects of these charges. | |
8. | On December 31, 2005, SEyC through Official Letter No. 1831, filed charges against Transelec for allegedly operating its installations and in the process infringing on various provisions of the electrical regulations, which would have caused the interruption of electrical supply in the SIC on March 21, 2005. By Resolution No. 220, on February 7, 2006, the company was fined with an amount of 560 UTA equivalent as of December 31, 2006 to $0.4 million. Recourse was presented on February 16, 2006, which is still pending resolution. | |
9. | On August 11, 2003, Transelec was notified of the resolution of the arbitration case against Sociedad Austral de Electricidad S.A. (“Saesa”) in which Transelec demanded an amount of $2.3 million. The resolution rejected the claim filed by the company. Currently, the recourse to overturn this decision remains outstanding before the Santiago Court of Appeal. The purpose of this trial is to determine the amount that Saesa should pay to Transelec for use of its transmission system. Up to December 31, 2006, the company has recognized and/or received part of the claimed amount in conformity with Resolution of Ministry of Economic Development and Reconstruction No. 88 of 2001. |
F-29
Table of Contents
10. | Through Ordinary Office No. 793, dated December 12, 2005, the SEyC of the 7th Region filed charges against Transelec for loss of electrical power in the town of Constitución on November 21, 2005 due to a failure, which occurred as a consequence of forestry works that caused a tree to fall on the power line between San Javier and Constitución. The company presented its evidence on January 4, 2006. On May 7, 2006, by Resolution No. 33, the SEyC of the 7th Region fined the company the amount of 400 UTM equivalent as of December 2006 to $0.1 million. The sanction was re-imposed and ratified on June 7, 2006 by Resolution No. 42. The company appealed the charges before the Court of Appeals of Talca, placing a deposit of 25% of the original fine. The company maintains that it is not responsible for this event, as it was caused by a third party, and thus should be considered a case of force majeure. |
18. | RISK MANAGEMENT AND EMBEDDED DERIVATIVES |
19. | RESTATEMENT OF CERTAIN FINANCIAL STATEMENT INFORMATION AND NOTE DISCLOSURES |
(1) The combined balance sheets have been amended to reflect a classified presentation. As a result, the statements now clearly distinguish between current and long-term assets and liabilities. | ||
(2) The combined statements of income have been amended to include descriptions which more specifically reflect the nature of the underlying expenditures. There has been no change in the net income (loss) for either period presented. | ||
(3) The combined statements of cash flow have been amended to provide more detailed cash flow information for the Division. | ||
(4) Notes 2, 5, 6, 7, 8, 9, 14 and 18 have been expanded as required by U.S. GAAP and Regulation SX of the SEC’s Rules and Regulations. | ||
(5) Note 17, Contingencies, has been added to outline a number of outstanding contingencies, which consist primarily of litigation, lawsuits and demands from regulators for underlying entities. |
F-30
Table of Contents
As at September 30, 2007 and December 31, 2006 and
for the nine months ended September 30, 2007 and 2006
(Unaudited)
F-31
Table of Contents
September 30, | December 31, | |||||||||||
Notes | 2007 | 2006 | ||||||||||
(As Restated — | ||||||||||||
see Note 1) | ||||||||||||
(MILLIONS) | ||||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 236.4 | $ | 158.6 | ||||||||
Accounts receivable | 61.3 | 31.1 | ||||||||||
Inventory | 26.9 | 23.2 | ||||||||||
Prepaid expenses | 4.5 | 6.7 | ||||||||||
Recoverable taxes | 3.9 | 2.6 | ||||||||||
Other assets | 26.7 | 6.6 | ||||||||||
Total current assets | 359.7 | 228.8 | ||||||||||
Restricted cash | 849.5 | 849.5 | ||||||||||
Goodwill | 1,059.9 | 455.5 | ||||||||||
Intangibles | 266.5 | 256.7 | ||||||||||
Deferred income taxes | 124.9 | 97.7 | ||||||||||
Property, plant and equipment | 3 | 4,601.9 | 2,670.8 | |||||||||
Other assets | 57.9 | 68.8 | ||||||||||
Total assets | $ | 7,320.3 | $ | 4,627.8 | ||||||||
LIABILITIES AND DIVISIONAL EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Accounts payable | $ | 111.0 | $ | 71.4 | ||||||||
Management fee payable — current portion | 9.0 | 5.6 | ||||||||||
Short term bank loan | 21.3 | 149.6 | ||||||||||
Other liabilities | 36.9 | 7.8 | ||||||||||
Current portion of non-recourse borrowings | 4 | 29.3 | 224.0 | |||||||||
Total current liabilities | 207.5 | 458.4 | ||||||||||
Non-Current Liabilities | ||||||||||||
Non-recourse borrowings | 4 | 3,171.6 | 1,489.9 | |||||||||
Other debt of subsidiaries | 924.2 | 1,771.3 | ||||||||||
Deferred tax liabilities | 575.4 | — | ||||||||||
Management fee payable | 28.2 | 34.4 | ||||||||||
Other liabilities | 21.8 | 55.7 | ||||||||||
Minority interest in net assets | 1,110.9 | 468.3 | ||||||||||
Divisional equity | 1,280.7 | 349.8 | ||||||||||
Total liabilities and divisional equity | $ | 7,320.3 | $ | 4,627.8 | ||||||||
F-32
Table of Contents
Nine Months Ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Gross Revenue | ||||||||
Timber | $ | 272.9 | $ | 151.6 | ||||
Transmission | 180.3 | 56.1 | ||||||
453.2 | 207.7 | |||||||
Costs and expenses applicable to revenues | (179.5 | ) | (105.4 | ) | ||||
Depreciation, depletion and amortization | (108.2 | ) | (29.0 | ) | ||||
Selling, general and administrative expenses | (28.3 | ) | (6.7 | ) | ||||
Other income (expense) | 5.6 | (6.4 | ) | |||||
Gain on sale of assets | 7.9 | 2.1 | ||||||
Interest income on restricted cash | 58.3 | 2.7 | ||||||
Interest expense | (249.4 | ) | (60.2 | ) | ||||
Income (loss) before deferred taxes and minority interest | (40.4 | ) | 4.8 | |||||
Deferred income taxes | 32.9 | 0.5 | ||||||
Minority interest in income of Consolidated subsidiaries | (9.3 | ) | 2.3 | |||||
Net income for the period | $ | (16.8 | ) | $ | 7.6 | |||
F-33
Table of Contents
Nine Months Ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Net income (loss) for the period | $ | (16.8 | ) | $ | 7.6 | |||
Other Comprehensive income (loss): | — | — | ||||||
Translation of the net investment in foreign operations | 22.3 | — | ||||||
Net losses on related hedging items | (11.1 | ) | — | |||||
Deferred gain on interest rate swaps | — | — | ||||||
Comprehensive income | $ | (5.6 | ) | $ | 7.6 | |||
F-34
Table of Contents
Nine Months Ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Opening divisional equity | $ | 349.8 | $ | 266.8 | ||||
Contributions | 1,187.2 | 97.3 | ||||||
Net income | (16.8 | ) | 7.6 | |||||
Other comprehensive income | 11.2 | — | ||||||
Dividends | (250.7 | ) | — | |||||
Ending divisional equity | $ | 1,280.7 | $ | 371.7 | ||||
F-35
Table of Contents
Nine Months Ended | ||||||||
September 30 | ||||||||
2007 | 2006 | |||||||
Operating activities | ||||||||
Net income for the period | $ | (16.8 | ) | $ | 7.6 | |||
Items not involving cash: | ||||||||
Depreciation, depletion and amortization | 108.2 | 29.0 | ||||||
Gain (loss) on sale of assets | (6.2 | ) | (2.1 | ) | ||||
Minority interests | 9.3 | (2.3 | ) | |||||
Deferred income taxes | (34.3 | ) | (3.3 | ) | ||||
Other | 8.6 | 7.4 | ||||||
Change in non-cash operating items | ||||||||
Accounts Receivable | 6.5 | 6.8 | ||||||
Prepaid Expenses and other assets | 7.9 | (17.2 | ) | |||||
Recoverable taxes | (1.2 | ) | (5.0 | ) | ||||
Accounts payable and other accruals | 10.9 | (8.5 | ) | |||||
Inventories | 25.6 | (1.9 | ) | |||||
Other | (24.8 | ) | (3.9 | ) | ||||
Management fee payable | (2.8 | ) | — | |||||
90.9 | 6.6 | |||||||
Investing activities | ||||||||
Additions to property, plant and equipment | (54.5 | ) | (1,694.3 | ) | ||||
Proceeds from sale of capital assets | 68.2 | — | ||||||
Proceeds from sale of manufacturing assets | 139.9 | — | ||||||
Purchase of outstanding shares of stock | (1,463.6 | ) | — | |||||
Loan receivable | 92.2 | — | ||||||
Other | (13.7 | ) | (814.0 | ) | ||||
(1,231.5 | ) | (2,508.3 | ) | |||||
Financing activities | ||||||||
Short term borrowings | (23.7 | ) | — | |||||
Additions to long-term debt | 1,699.3 | 2,228.0 | ||||||
Repayment of loans and debt | (935.9 | ) | — | |||||
Distribution to limited partners | (18.6 | ) | (12.5 | ) | ||||
Cash dividends paid | (250.7 | ) | — | |||||
Capital contributions | 688.3 | 348.8 | ||||||
Other | (6.2 | ) | — | |||||
1,152.5 | 2,564.3 | |||||||
Effect of exchange rate changes on cash and cash equivalents | 5.1 | — | ||||||
Increase in cash and cash equivalents | 17.0 | 62.6 | ||||||
Cash, beginning of period | 219.4 | 117.7 | ||||||
Cash, end of period | $ | 236.4 | $ | 180.3 | ||||
F-36
Table of Contents
1. | ORGANIZATION AND DESCRIPTION OF THE BUSINESS |
2. | SUMMARY OF ACCOUNTING POLICIES |
�� | Accounting Estimates |
Acquisitions Completed During the Quarter |
F-37
Table of Contents
April 20, | ||||
2007 | ||||
(MILLIONS) | ||||
Assets acquired: | ||||
Current assets (excluding cash) | $ | 342.9 | ||
Timber assets | 1,933.6 | |||
Other long term assets | 195.7 | |||
Goodwill | 592.6 | |||
Total assets acquired | 3,064.8 | |||
Liabilities assumed: | ||||
Current liabilities | (110.3 | ) | ||
Long term liabilities | (1,399.4 | ) | ||
Deferred income tax liabilities | (592.6 | ) | ||
(2,102.3 | ) | |||
Net assets | $ | 962.5 | ||
Considerations: | ||||
Net Assets acquired | $ | 962.5 | ||
Less: Cash and cash equivalents | 62.1 | |||
Net-non-cash assets acquired | $ | 900.4 | ||
3. | PROPERTY, PLANT AND EQUIPMENT |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Timber infrastructure | $ | 2,764.6 | $ | 892.7 | ||||
Transmission infrastructure | 1,837.3 | 1,778.1 | ||||||
Total | $ | 4,601.9 | $ | 2,670.8 | ||||
4. | NON-RECOURSE BORROWINGS |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
Long-term bonds — Timber | $ | 1,693.7 | $ | 410.0 | ||||
Long-term bonds — Transmission | 1,507.2 | 1,303.9 | ||||||
$ | 3,200.9 | $ | 1,713.9 | |||||
F-38
Table of Contents
5. | SEGMENTED INFORMATION |
For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||||||||||||||
Electricity | Division’s | Division’s | Electricity | Division’s | Division’s | |||||||||||||||||||||||||||
Transmission | Share | Timber | Share | Transmission | Share | Timber | Share | |||||||||||||||||||||||||
Gross Revenues | $ | 180.3 | $ | 50.3 | $ | 272.9 | $ | 180.9 | $ | 56.1 | $ | 15.7 | $ | 151.6 | $ | 75.8 | ||||||||||||||||
Direct Costs | (30.5 | ) | (8.5 | ) | (177.3 | ) | (115.2 | ) | (7.8 | ) | (2.2 | ) | (104.3 | ) | (52.1 | ) | ||||||||||||||||
Net operating income | 149.8 | 41.8 | 95.6 | 65.7 | 48.3 | 13.5 | 47.3 | 23.7 | ||||||||||||||||||||||||
Investment and other income | 23.9 | 6.7 | 10.4 | 6.3 | 2.8 | 0.8 | (0.7 | ) | (0.4 | ) | ||||||||||||||||||||||
Interest expense, net of interest income on restricted cash | (137.0 | ) | (29.2 | ) | (63.2 | ) | (53.4 | ) | (43.4 | ) | (7.5 | ) | (18.7 | ) | (9.4 | ) | ||||||||||||||||
Funds from operations | 36.7 | 19.3 | 42.8 | 18.6 | 7.7 | 6.8 | 27.9 | 13.9 | ||||||||||||||||||||||||
Depreciation, depletion and amortization | (41.3 | ) | (11.5 | ) | (66.9 | ) | (58.8 | ) | (13.6 | ) | (3.8 | ) | (15.4 | ) | (7.7 | ) | ||||||||||||||||
Deferred taxes and other | (4.9 | ) | (1.4 | ) | 17.0 | 17.0 | (5.9 | ) | (1.6 | ) | — | — | ||||||||||||||||||||
Net income (loss) | $ | (9.5 | ) | $ | 6.4 | $ | (7.1 | ) | $ | (23.2 | ) | $ | (11.8 | ) | $ | 1.4 | $ | 12.5 | $ | 6.2 | ||||||||||||
As of September 30, 2007 | As of December 31, 2006 | |||||||||||||||||||||||||||||||
Electricity | Division’s | Division’s | Electricity | Division’s | Division’s | |||||||||||||||||||||||||||
Transmission | Share | Timber | Share | Transmission | Share | Timber | Share | |||||||||||||||||||||||||
Current assets | $ | 199.2 | $ | 55.6 | $ | 111.9 | $ | 89.9 | $ | 156.9 | $ | 43.8 | $ | 41.9 | $ | 21.0 | ||||||||||||||||
Non-current assets | 3,599.1 | 1,004.1 | 3,361.5 | 2,922.0 | 3,506.3 | 978.3 | 892.7 | 446.4 | ||||||||||||||||||||||||
Assets | 3,798.3 | 1,059.7 | 3,473.4 | 3,011.9 | 3,663.2 | 1,022.1 | 934.6 | 467.4 | ||||||||||||||||||||||||
Current liabilities | (160.9 | ) | (44.9 | ) | (46.6 | ) | (30.4 | ) | (432.5 | ) | (120.7 | ) | (25.9 | ) | (13.0 | ) | ||||||||||||||||
Non-current liabilities | (2,410.4 | ) | (672.5 | ) | (2,310.8 | ) | (2,091.7 | ) | (2,894.8 | ) | (807.6 | ) | (456.5 | ) | (228.3 | ) | ||||||||||||||||
Liabilities | $ | (2,571.3 | ) | $ | (717.4 | ) | $ | (2,357.4 | ) | $ | (2,122.1 | ) | $ | (3,327.3 | ) | $ | (928.3 | ) | $ | (482.4 | ) | $ | (241.3 | ) |
Electricity | Electricity | |||||||||||||||||||||||
Transmission | Timber | Total | Transmission | Timber | Total | |||||||||||||||||||
Revenues (for the 9 months ended September 30, 2007 and 2006) | $ | 180.3 | $ | 272.9 | 453.2 | $ | 56.1 | $ | 151.6 | 207.7 | ||||||||||||||
Long-lived assets (as at September 30, 2007 and December 31, 2006) | $ | 3,474.2 | $ | 3,361.5 | $ | 6,835.7 | $ | 3,408.6 | $ | 892.7 | $ | 4,301,3 |
Chile | Canada | U.S. | Total | Chile | Canada | U.S. | Total | |||||||||||||||||||||||||
Revenues (for the 9 months ended September 30, 2007 and 2006) | $ | 180.3 | $ | 184.0 | $ | 88.9 | $ | 453.2 | $ | 56.1 | $ | 151.6 | — | $ | 207.7 | |||||||||||||||||
Long-lived assets (as at September 30, 2007 and December 31, 2006) | $ | 3,474.2 | $ | 879.1 | $ | 2,482.4 | $ | 6,835.7 | $ | 3,408.6 | $ | 892.7 | — | $ | 4,301.3 |
F-39
Table of Contents
6. | COMBINED FINANCIAL STATEMENTS |
As at September 30, 2007 | As at December 31, 2006 | |||||||||||||||||||||||||||||||||||
Island | Transelec | Longview | Adjustments | Combined | Island | Transelec | Adjustments | Combined | ||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||
Current Assets | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 19.1 | $ | 118.3 | $ | 50.4 | $ | 48.6(a | ) | $ | 236.4 | $ | 7.7 | $ | 120.9 | $ | 30.0(a | ) | $ | 158.6 | ||||||||||||||||
Accounts Receivable | 2.8 | 50.0 | 8.5 | — | 61.3 | 7.4 | 23.7 | — | 31.1 | |||||||||||||||||||||||||||
Inventory | 20.0 | 0.1 | 6.8 | — | 26.9 | 23.1 | 0.1 | — | 23.2 | |||||||||||||||||||||||||||
Prepaid expenses | 2.1 | 0.2 | 2.2 | — | 4.5 | 0.9 | 5.8 | — | 6.7 | |||||||||||||||||||||||||||
Recoverable taxes | — | 3.9 | — | — | 3.9 | — | 2.6 | — | 2.6 | |||||||||||||||||||||||||||
Other assets | — | 26.7 | — | — | 26.7 | 2.8 | 3.8 | — | 6.6 | |||||||||||||||||||||||||||
Total current assets | 44.0 | 199.2 | 67.9 | 48.6 | 359.7 | 41.9 | 156.9 | 30.0 | 228.8 | |||||||||||||||||||||||||||
Restricted Cash | — | 848.8 | 0.7 | — | 849.5 | — | 849.5 | — | 849.5 | |||||||||||||||||||||||||||
Goodwill | — | 469.3 | 590.6 | — | 1,059.9 | — | 455.5 | — | 455.5 | |||||||||||||||||||||||||||
Intangible assets | — | 266.5 | — | — | 266.5 | — | 256.7 | — | 256.7 | |||||||||||||||||||||||||||
Deferred income taxes | — | 124.9 | — | — | 124.9 | — | 97.7 | — | 97.7 | |||||||||||||||||||||||||||
Property, plant and equipment | 876.6 | 1,837.3 | 1,888.0 | — | 4,601.9 | 892.7 | 1,778.1 | — | 2,670.8 | |||||||||||||||||||||||||||
Other assets | 2.5 | 52.3 | 3.1 | — | 57.9 | — | 68.8 | — | 68.8 | |||||||||||||||||||||||||||
Total assets | $ | 923.1 | $ | 3,798.3 | $ | 2,550.3 | $ | 48.6 | $ | 7,320.3 | $ | 934.6 | $ | 3,663.2 | $ | 30.0 | $ | 4,627.8 | ||||||||||||||||||
Liabilities and Shareholder’s equity | ||||||||||||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||||||||||||
Accounts payable | 13.9 | 95.6 | 1.5 | — | 111.0 | 20.3 | 51.1 | — | 71.4 | |||||||||||||||||||||||||||
Management fee payable — current portion | 9.0 | — | — | — | 9.0 | 5.6 | — | — | 5.6 | |||||||||||||||||||||||||||
Short term bank loan | 2.0 | 18.0 | 1.3 | — | 21.3 | — | 149.6 | — | 149.6 | |||||||||||||||||||||||||||
Other liabilities | 7.5 | 18.0 | 11.4 | — | 36.9 | — | 7.8 | — | 7.8 | |||||||||||||||||||||||||||
Current portion of non-recourse borrowings | 29.3 | — | — | 29.3 | — | 224.0 | — | 224.0 | ||||||||||||||||||||||||||||
Total current liabilities | 32.4 | 160.9 | 14.2 | — | 207.5 | 25.9 | 432.5 | — | 458.4 | |||||||||||||||||||||||||||
Non-Current Liabilities | ||||||||||||||||||||||||||||||||||||
Non-recourse borrowings | 410.0 | 1,477.9 | 1,283.7 | — | 3,171.6 | 410.0 | 1,079.9 | — | 1,489.9 | |||||||||||||||||||||||||||
Other debt of subsidiaries | — | 924.2 | — | — | 924.2 | — | 1,771.3 | — | 1,771.3 | |||||||||||||||||||||||||||
Deferred tax liabilities | — | — | 575.4 | — | 575.4 | — | — | — | — | |||||||||||||||||||||||||||
Management fee payable | 28.2 | — | — | — | 28.2 | 34.4 | — | — | 34.4 | |||||||||||||||||||||||||||
Other liabilities | — | 8.3 | 13.5 | — | 21.8 | 12.1 | 43.6 | — | 55.7 | |||||||||||||||||||||||||||
Minority interest in net assets | — | — | — | 1,110.9(c | ) | 1,110.9 | — | — | 468.3(c | ) | 468.3 | |||||||||||||||||||||||||
Divisional equity | 452.5 | 1,227.0 | 663.5 | (1,062.3 | )(d) | 1,280.7 | 452.2 | 335.9 | (438.3 | )(d) | 349.8 | |||||||||||||||||||||||||
Total liabilities and divisional equity | $ | 923.1 | $ | 3,798.3 | $ | 2,550.3 | $ | 48.6 | $ | 7,320.3 | $ | 934.6 | $ | 3,663.2 | $ | 30.0 | $ | 4,627.8 | ||||||||||||||||||
F-40
Table of Contents
For the Nine Months Ended September 30, 2007 | For the Nine Months Ended September 30, 2006 | |||||||||||||||||||||||||||||||||||
Island | Transelec | Longview | Adjustments | Combined | Island | Transelec | Adjustments | Combined | ||||||||||||||||||||||||||||
Gross Revenues | ||||||||||||||||||||||||||||||||||||
Timber | $ | 184.0 | $ | — | $ | 88.9 | $ | — | $ | 272.9 | $ | 151.6 | $ | — | $ | — | $ | 151.6 | ||||||||||||||||||
Transmission | — | 180.3 | — | — | 180.3 | — | 56.1 | — | 56.1 | |||||||||||||||||||||||||||
184.0 | 180.3 | 88.9 | — | 453.2 | 151.6 | 56.1 | — | 207.7 | ||||||||||||||||||||||||||||
Costs and expenses applicable to revenues | (117.6 | ) | (20.2 | ) | (41.7 | ) | — | (179.5 | ) | (99.1 | ) | (6.3 | ) | — | (105.4 | ) | ||||||||||||||||||||
Depreciation, depletion and amortization | (16.2 | ) | (41.3 | ) | (50.7 | ) | — | (108.2 | ) | (15.4 | ) | (13.6 | ) | — | (29.0 | ) | ||||||||||||||||||||
Selling, general and administrative expenses | (6.6 | ) | (10.3 | ) | (11.4 | ) | — | (28.3 | ) | (5.2 | ) | (1.5 | ) | — | (6.7 | ) | ||||||||||||||||||||
Other income (expense) | 0.8 | 3.1 | 1.7 | — | 5.6 | (2.8 | ) | (3.6 | ) | — | (6.4 | ) | ||||||||||||||||||||||||
Gain on sale of assets | 7.4 | — | 0.5 | — | 7.9 | 2.1 | — | — | 2.1 | |||||||||||||||||||||||||||
Interest income on restricted cash | — | 58.3 | — | — | 58.3 | — | 2.7 | — | 2.7 | |||||||||||||||||||||||||||
Interest expense | (19.7 | ) | (195.3 | ) | (43.5 | ) | 9.1(b | ) | (249.4 | ) | (18.7 | ) | (46.1 | ) | 4.6(b | ) | (60.2 | ) | ||||||||||||||||||
Income (loss) before deferred taxes and minority interest | 32.1 | (25.4 | ) | (56.2 | ) | 9.1 | (40.4 | ) | 12.5 | (12.3 | ) | 4.6 | 4.8 | |||||||||||||||||||||||
Deferred income taxes | — | 15.9 | 17.0 | — | 32.9 | — | 0.5 | — | 0.5 | |||||||||||||||||||||||||||
Minority interest in income of Consolidated subsidiaries | — | — | — | (9.3 | )(c) | (9.3 | ) | — | — | 2.3(c | ) | 2.3 | ||||||||||||||||||||||||
Net income for the period | $ | 32.1 | $ | (9.5 | ) | $ | (39.2 | ) | $ | (0.2 | )(d) | $ | (16.8 | ) | $ | 12.5 | $ | (11.8 | ) | $ | 6.9(d | ) | $ | 7.6 | ||||||||||||
F-41
Table of Contents
For the Nine Months Ended September 30, 2007 | For the Nine Months Ended September 30, 2006 | |||||||||||||||||||||||||||||||||||
Island | Transelec | Longview | Adjustments | Combined | Island | Transelec | Adjustments | Combined | ||||||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||||||||||
Net income for the period | $ | 32.1 | $ | (9.5 | ) | $ | (39.2 | ) | $ | (0.2 | ) | $ | (16.8 | ) | $ | 12.5 | $ | (11.8 | ) | $ | 6.9 | $ | 7.6 | |||||||||||||
Items not involving cash: | ||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 16.2 | 41.3 | 50.7 | — | 108.2 | 15.4 | 13.6 | — | 29.0 | |||||||||||||||||||||||||||
Gain (loss) on sale of assets | (7.4 | ) | — | 1.2 | — | (6.2 | ) | (2.1 | ) | — | — | (2.1 | ) | |||||||||||||||||||||||
Minority interests | — | — | — | 9.3 | 9.3 | — | — | (2.3 | ) | (2.3 | ) | |||||||||||||||||||||||||
Deferred income taxes | — | (17.5 | ) | (16.8 | ) | — | (34.3 | ) | — | (3.3 | ) | — | (3.3 | ) | ||||||||||||||||||||||
Other | 0.3 | 20.0 | (2.6 | ) | (9.1 | ) | 8.6 | 0.3 | 11.7 | (4.6 | ) | 7.4 | ||||||||||||||||||||||||
Change in non-cash operating items | ||||||||||||||||||||||||||||||||||||
Accounts Receivable | 4.7 | (12.0 | ) | 13.8 | — | 6.5 | 3.4 | 3.4 | — | 6.8 | ||||||||||||||||||||||||||
Prepaid Expenses and other assets | (1.2 | ) | 5.7 | 3.4 | — | 7.9 | 0.7 | (17.9 | ) | (17.2 | ) | |||||||||||||||||||||||||
Recoverable taxes | — | (1.2 | ) | 0.0 | — | (1.2 | ) | — | (5.0 | ) | — | (5.0 | ) | |||||||||||||||||||||||
Accounts payable and other accruals | (6.4 | ) | 14.0 | 3.3 | — | 10.9 | (6.9 | ) | (1.6 | ) | — | (8.5 | ) | |||||||||||||||||||||||
Inventories | 3.1 | — | 22.5 | — | 25.6 | (1.9 | ) | — | — | (1.9 | ) | |||||||||||||||||||||||||
Other | 0.7 | — | (25.5 | ) | — | (24.8 | ) | (3.9 | ) | — | — | (3.9 | ) | |||||||||||||||||||||||
Management fee payable | (2.8 | ) | — | — | — | (2.8 | ) | — | ||||||||||||||||||||||||||||
$ | 39.3 | $ | 40.8 | $ | 10.8 | $ | — | $ | 90.9 | $ | 17.5 | $ | (10.9 | ) | $ | — | $ | 6.6 | ||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||||||||||
Additions to property, plant and equipment | $ | (7.2 | ) | $ | (26.9 | ) | $ | (20.4 | ) | $ | — | $ | (54.5 | ) | $ | (2.3 | ) | $ | (1,692.0 | ) | $ | — | $ | (1,694.3 | ) | |||||||||||
Proceeds from sale of capital assets | 14.5 | — | 53.7 | — | 68.2 | — | — | — | — | |||||||||||||||||||||||||||
Proceeds from sale of manufacturing assets | — | — | 139.9 | — | 139.9 | — | — | — | — | |||||||||||||||||||||||||||
Purchase of outstanding shares of stock | — | — | (1,463.6 | ) | — | (1,463.6 | ) | — | — | — | — | |||||||||||||||||||||||||
Loan receivable | — | — | 92.2 | — | 92.2 | — | — | — | — | |||||||||||||||||||||||||||
Other | — | (13.7 | ) | — | — | (13.7 | ) | — | (814.0 | ) | — | (814.0 | ) | |||||||||||||||||||||||
7.3 | (40.6 | ) | (1,198.2 | ) | — | (1,231.5 | ) | (2.3 | ) | (2,506.0 | ) | — | (2,508.3 | ) | ||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||||||||||
Short term borrowings | $ | 2.0 | $ | — | $ | (25.7 | ) | $ | — | $ | (23.7 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Additions to long-term debt | — | 349.3 | 1,350.0 | — | 1,699.3 | — | 2,228.0 | — | 2,228.0 | |||||||||||||||||||||||||||
Repayment of loans and debt | — | (357.2 | ) | (578.7 | ) | — | (935.9 | ) | — | — | — | — | ||||||||||||||||||||||||
Distribution to limited partners | (37.2 | ) | — | — | 18.6 | (18.6 | ) | (25.0 | ) | — | 12.5 | (12.5 | ) | |||||||||||||||||||||||
Cash dividends paid | — | — | (250.7 | ) | — | (250.7 | ) | — | — | — | — | |||||||||||||||||||||||||
Capital contributions | — | — | 688.3 | — | 688.3 | — | 348.8 | — | 348.8 | |||||||||||||||||||||||||||
Other | — | — | (6.2 | ) | — | (6.2 | ) | — | — | — | — | |||||||||||||||||||||||||
(35.2 | ) | (7.9 | ) | 1,177.0 | 18.6 | 1,152.5 | (25.0 | ) | 2,576.8 | 12.5 | 2,564.3 | |||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | 5.1 | — | — | 5.1 | — | — | — | — | |||||||||||||||||||||||||||
Increase in cash and cash equivalents | 11.4 | (2.6 | ) | (10.4 | ) | 18.6 | 17.0 | (9.8 | ) | 59.9 | 12.5 | 62.6 | ||||||||||||||||||||||||
Cash, beginning of period | 7.7 | 120.9 | 60.8 | 30.0 | 219.4 | 18.3 | 99.4 | — | 117.7 | |||||||||||||||||||||||||||
Cash, end of period | $ | 19.1 | $ | 118.3 | $ | 50.4 | $ | 48.6 | $ | 236.4 | $ | 8.5 | $ | 159.3 | $ | 12.5 | $ | 180.3 | ||||||||||||||||||
(a) | Reflects the division’s share of distributions paid out by Island. |
(b) | Eliminations of interest expense paid by Transelec to Brookfield in connection with Brookfield’s proportionate share of Transelec’s long-term notes payable to related parties. |
(c) | Reflects the portion of Island and Transelec not owned by the Division. |
(d) | Reflects the impact of the above adjustments on the Division’s equity and net income. |
F-42
Table of Contents
1. | On May 15, 2000, the Superintendency of Electricity and Fuel (Superintendencia de Electricidad y Combustibles or SEyC) fined Transelec 300 annual tax units (“UTA”), which as of September 30, 2007, amounted to $0.2 million, through Exempt Resolution No. 876, for its alleged responsibility in the power failure of the Sistema Interconectado Central (“SIC”) on July 14, 1999, caused by the untimely withdrawal from service of the San Isidro Plant of San Isidro S.A. On May 25, 2000, an administrative motion was filed by Transelec before SEyC, which is pending resolution. | |
2. | On December 5, 2002, SEyC in Ordinary Official Letter No. 7183, charged Transelec for its alleged responsibility in the interruption of electrical supply in the SIC on September 23, 2002. By Exempt Resolution No. 1438 of August 14, 2003, the SEyC applied various fines to Transelec for a total of UTA 2,500 equivalent as of September 30, 2007 to $1.9 million. Transelec had appealed the complaint before the Santiago Court of Appeals, and made a deposit of 25% of the original fine. Transelec claims that it is not responsible for this situation since it considers it a case of force majeure. | |
3. | The SEyC in Ordinary Official Letter No. 1210, dated February 21, 2003, filed charges for the alleged responsibility of Transelec in the interruption of electric service in the SIC, on January 13, 2003. By Resolution No. 808, of April 27, 2004, SEyC imposed a fine of UTA 560 equivalent as of September 30, 2007 to $0.4 million, against which a writ of administrative reconsideration was filed, which was subsequently rejected. Transelec appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. Transelec claims that it is not responsible for this situation since it considers it a case of force majeure. | |
4. | On June 30, 2005 SEyC through Exempt Resolution No. 1117, applied the following sanctions to Transelec: (i) a fine of 560 UTA equivalent as of September 30, 2007 to $0.4 million, for allegedly not having ensured electric service, as determined in the investigation of the general failure of the SIC on November 7, 2003; (ii) a fine of 560 UTA equivalent as of September 30, 2007 to $0.4 million, levied on Transelec as owner of the installations, for allegedly operating the installations without adhering to the operation scheduling set forth by the CDEC-SIC, without justified cause, as determined in the investigation of the general failure of the SIC on November 7, 2003. Transelec appealed the charges before the SEyC, which is pending resolution. Management believes it has no responsibility for these events. | |
5. | On December 17, 2004, SEyC, through Exempt Resolution No. 2334, fined Transelec with an amount of 300 UTA equivalent as of September 30, 2007 to $0.2 million, for its alleged responsibility in the interruption of electrical supply south of Temuco, caused by a truck that crashed into a structure of the Charrúa — Temuco transmission line. Transelec filed a motion of invalidation and administrative reconsideration, claiming that it was a case of force majeure and that the charges are not applicable and should be cancelled. | |
6. | On December 31, 2005, SEyC through Official Letter No. 1831, filed charges against Transelec for allegedly operating its installations and in the process infringing on various provisions of the electrical regulations, which would have caused the interruption of electrical supply in the SIC on March 21, 2005. By Resolution No. 220, on February 7, 2006, Transelec was fined with an amount of 560 UTA equivalent as of September 30, 2007 to $0.4 million. Recourse was presented on February 16, 2006, which is still pending resolution. | |
7. | On August 11, 2003, Transelec was notified of the resolution of the arbitration case against Sociedad Austral de Electricidad S.A. (“Saesa”) in which Transelec demanded an amount of $2.3 million. The resolution rejected the claim filed by Transelec. Currently, the recourse to overturn this decision remains outstanding before the Santiago Court of Appeal. The purpose of this trial is to determine the amount that Saesa should pay to Transelec for use of its transmission system. Up to September 30, 2007, Transelec has recognized and/or received part of the claimed amount in conformity with Resolution of Ministry of Economic Development and Reconstruction No. 88 of 2001. | |
8. | Through Ordinary Office No. 793, dated December 12, 2005, the SEyC of the 7th Region, filed charges against Transelec for loss of electrical power in the town of Constitución on November 21, 2005 due to a failure, which occurred as a consequence of forestry works that caused a tree to fall on the power line between San Javier and Constitución. Transelec presented its evidence on January 4, 2006. On May 7, 2006, by Resolution No. 33, the SEyC of the 7th Region fined the Company with the amount of 400 UTM equivalent as of September 30, 2007 to $0.1 million. The sanction was re-imposed and ratified on June 7, 2006 by Resolution No. 42. Transelec appealed the charges before the Court of Appeals of Talca, placing a deposit of 25% of the original fine. Transelec maintains that it is not responsible for this event, as it was caused by a third party, and thus should be considered a case of force majeure. |
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As at June 30, 2006 and December 31, 2005
and for the period ended June 30, 2006 and the years ended December 31, 2005 and 2004
F-44
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Santiago, Chile | (signed) Ernst & Young Ltda. |
F-45
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Transelec S.A.:
Santiago, Chile | (signed) PricewaterhouseCoopers |
F-46
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June 30, | December 31, | |||||||||
Note | 2006 | 2005 | ||||||||
ThCh$ | ThCh$ | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and banks | 3,860,774 | 3,074,019 | ||||||||
Term deposits | 3 | 36,428,774 | 17,051,988 | |||||||
Trade accounts receivable | 4 | 13,967,967 | 8,086,118 | |||||||
Miscellaneous receivables, net | 4 | 522,668 | 446,963 | |||||||
Accounts receivable from related companies | 5 | — | 5,170 | |||||||
Inventories | 43,968 | 44,772 | ||||||||
Recoverable taxes | 6 | — | 1,290,916 | |||||||
Prepaid expenses | 314,331 | 578,905 | ||||||||
Deferred income taxes, net | 6 | — | 201,068 | |||||||
Other current assets | 7 | 15,429,947 | 15,287,025 | |||||||
Total current assets | 70,568,429 | 46,066,944 | ||||||||
Property, plant and equipment: | 9 | |||||||||
Land | 6,969,202 | 6,990,536 | ||||||||
Buildings and infrastructure, works in progress | 414,954,450 | 410,403,771 | ||||||||
Machinery and equipment | 341,483,690 | 340,765,449 | ||||||||
Other fixed assets | 1,563,124 | 1,547,719 | ||||||||
Technical reappraisal | 22,379,528 | 22,943,694 | ||||||||
Accumulated depreciation (less) | (154,321,303 | ) | (144,163,720 | ) | ||||||
Total property, plant and equipment, net | 633,028,691 | 638,487,449 | ||||||||
Other assets: | ||||||||||
Investments in other companies | 10 | 77,460 | 71,650 | |||||||
Goodwill, net of accumulated amortization | 11 | 86,086,711 | 89,137,804 | |||||||
Long-term receivables | 4 | 8,886,192 | 8,815,497 | |||||||
Long-term deferred income taxes, net | 6 | 5,303,254 | 8,053,956 | |||||||
Intangibles, net of accumulated amortization | 12 | 24,441,746 | 22,956,598 | |||||||
Other | 13 | 5,533,809 | 6,196,749 | |||||||
Total other assets | 130,329,172 | 135,232,254 | ||||||||
Total assets | 833,926,292 | 819,786,647 | ||||||||
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CONSOLIDATED BALANCE SHEETS
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of June 30, 2006 unless otherwise stated)
June 30, | December 31, | |||||||||
Note | 2006 | 2005 | ||||||||
ThCh$ | ThCh$ | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Bonds payable — short-term portion | 14 | 132,051,600 | 35,482,096 | |||||||
Accounts payable | 11,014,587 | 8,115,571 | ||||||||
Miscellaneous payables | 5 | 1,663,294 | 1,322,149 | |||||||
Notes and accounts payable to related companies | — | 117,390 | ||||||||
Provisions | 15 | 1,693,455 | 1,576,344 | |||||||
Withholdings | 1,180,892 | 1,127,398 | ||||||||
Income tax payables | 6 | 966,638 | — | |||||||
Deferred income taxes, net | 6 | 5,153 | — | |||||||
Other current liabilities | 42,693 | 124,589 | ||||||||
Total current liabilities | 148,618,312 | 47,865,537 | ||||||||
Long-term liabilities: | ||||||||||
Long-term bonds payable | 14 | 329,711,427 | 437,791,401 | |||||||
Miscellaneous long-term payables | 4 | 6,859,236 | 4,189,429 | |||||||
Provisions | 15 | 1,486,861 | 1,503,217 | |||||||
Other long-term liabilities | 2,200,085 | — | ||||||||
Total long-term liabilities | 340,257,609 | 443,484,047 | ||||||||
Minority interest | 1,719 | 1,731 | ||||||||
Contingencies and commitments | 22 | — | — | |||||||
Shareholders’ Equity: | 17 | |||||||||
Paid-in capital | 319,136,035 | 319,136,035 | ||||||||
Accumulated deficit | (36,792 | ) | (524,011 | ) | ||||||
Net income for the period | 25,949,409 | 35,390,487 | ||||||||
Interim dividends (less) | — | (25,567,179 | ) | |||||||
Shareholders’ equity, net | 345,048,652 | 328,435,332 | ||||||||
Total liabilities and Shareholders’ Equity | 833,926,292 | 819,786,647 | ||||||||
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Six Months | ||||||||||||||
Ended | Year Ended | |||||||||||||
June 30, | December 31, | December 31, | ||||||||||||
Note | 2006 | 2005 | 2004 | |||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||
Operating income: | ||||||||||||||
Sales | 62,458,308 | 120,971,772 | 117,292,477 | |||||||||||
Cost of sales | (18,233,901 | ) | (35,356,862 | ) | (34,524,366 | ) | ||||||||
Gross margin | 44,224,407 | 85,614,910 | 82,768,111 | |||||||||||
Administrative and selling expenses | (2,343,865 | ) | (4,519,366 | ) | (4,996,747 | ) | ||||||||
Operating income | 41,880,542 | 81,095,544 | 77,771,364 | |||||||||||
Non-operating income and expense: | ||||||||||||||
Interest income | 845,021 | 3,899,367 | 4,205,290 | |||||||||||
Other non-operating income | 18 | 7,764,399 | 3,875,977 | 1,380,647 | ||||||||||
Amortization of goodwill | 11 | (3,051,093 | ) | (6,150,093 | ) | (5,974,573 | ) | |||||||
Interest expense | (17,575,078 | ) | (37,302,193 | ) | (35,814,256 | ) | ||||||||
Other non-operating expenses | 18 | (484,876 | ) | (4,501,396 | ) | (4,988,117 | ) | |||||||
Price-level restatement, net | 19 | 309,604 | (1,316,908 | ) | 113,749 | |||||||||
Foreign currency translation, net | 20 | 2,263,053 | 5,022,294 | (885,742 | ) | |||||||||
Non-operating income and expenses, net | (9,928,970 | ) | (36,472,952 | ) | (41,963,002 | ) | ||||||||
Income before income taxes and minority interest | 31,951,572 | 44,622,592 | 35,808,362 | |||||||||||
Income taxes | 6 | (6,002,063 | ) | (9,231,929 | ) | (8,070,654 | ) | |||||||
Income before minority interest | 25,949,509 | 35,390,663 | 27,737,708 | |||||||||||
Minority interest | (100 | ) | (176 | ) | (241 | ) | ||||||||
Net income for the period | 25,949,409 | 35,390,487 | 27,737,467 | |||||||||||
F-49
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Six Months | ||||||||||||||
Ended | Year Ended | |||||||||||||
June 30, | December 31, | December 31, | ||||||||||||
Note | 2006 | 2005 | 2004 | |||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||
Net income for the period | 25,949,409 | 35,390,487 | 27,737,467 | |||||||||||
Gain sale of fixed assets | (7,480,862 | ) | (425,598 | ) | (101,094 | ) | ||||||||
Charges (credits) to income that do not represent cash flows: | ||||||||||||||
Depreciation for the year | 11,904,937 | 23,046,777 | 22,101,621 | |||||||||||
Amortization of intangibles | 390,706 | 739,103 | 740,914 | |||||||||||
Write offs and provisions | — | 1,509,809 | 2,016,901 | |||||||||||
Amortization of goodwill | 3,051,093 | 6,150,093 | 5,974,573 | |||||||||||
Price-level restatement, net | (309,604 | ) | 1,316,908 | (113,749 | ) | |||||||||
Foreign exchange rate differences, net | (2,263,053 | ) | (5,022,294 | ) | 885,742 | |||||||||
Other charges to income that do not represent cash flows | 943,436 | 1,892,666 | 1,889,882 | |||||||||||
Changes in assets, that affect cash flows (increase) decrease: | ||||||||||||||
Trade accounts receivable | (5,914,602 | ) | 5,455,294 | (169,090 | ) | |||||||||
Inventories | 803 | 1,190 | 2,358 | |||||||||||
Other assets | (1,801,870 | ) | 1,720,158 | 730,853 | ||||||||||
Changes in liabilities that affect cash flows increase (decrease): | ||||||||||||||
Accounts payable related to operating income | (8,196,658 | ) | (4,336,297 | ) | (2,273,578 | ) | ||||||||
Interest payable | 165,329 | (515,450 | ) | (431,623 | ) | |||||||||
Income taxes payable (net) | 5,216,400 | 5,884,390 | 12,889 | |||||||||||
Value added tax and other similar taxes payable | 111,165 | (436,807 | ) | 3,289,602 | ||||||||||
Minority interest | 100 | 176 | 241 | |||||||||||
Net cash provided by operating activities | 21,766,729 | 72,370,605 | 62,293,909 | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||
Dividends paid | (9,280,900 | ) | (53,100,912 | ) | (16,160,641 | ) | ||||||||
Capital reduction | — | (37,905,120 | ) | — | ||||||||||
Net cash used in financing activities | (9,280,900 | ) | (91,006,032 | ) | (16,160,641 | ) | ||||||||
Cash Flows from Investing Activities: | ||||||||||||||
Sale of fixed assets | 13,757,576 | 466,272 | 278,578 | |||||||||||
Collection of related companies loans | 33,417,416 | 10,446,527 | ||||||||||||
Purchase of fixed assets (less) | (5,364,872 | ) | (18,280,327 | ) | (45,761,615 | ) | ||||||||
Payment of capitalized interest (less) | (675,376 | ) | (1,187,201 | ) | (4,019,233 | ) | ||||||||
Permanent investments | — | — | (12,824 | ) | ||||||||||
Other investment disbursements | — | — | (1,570,624 | ) | ||||||||||
Net cash flows provided by (used in) investing activities | 7,717,328 | 14,416,160 | (40,639,191 | ) | ||||||||||
Total net cash flows for the period | 20,203,157 | (4,219,267 | ) | 5,494,077 | ||||||||||
Effect of inflation and currency exchange rate on cash and cash equivalents | (80,466 | ) | (8,535,370 | ) | (2,570,785 | ) | ||||||||
Net change in cash and cash equivalents | 20,122,691 | (12,754,637 | ) | 2,923,292 | ||||||||||
Cash and cash equivalents, beginning of the year | 32,772,296 | 45,526,933 | 42,603,641 | |||||||||||
Cash and cash equivalents, end of the year | 2(f) | 52,894,987 | 32,772,296 | 45,526,933 | ||||||||||
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(a) | Accounting period |
(b) | Basis of preparation |
(c) | Basis of consolidation |
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(d) | Price-level restatement |
Changes over | ||||
previous | ||||
November 30 | ||||
November 30, 2004 | 2.5% | |||
November 30, 2005 | 3.6% | |||
May 31, 2006 | 1.1% |
Changes over | ||||
previous | ||||
December 31 | ||||
December 31, 2004 | 2.4% | |||
December 31, 2005 | 3.7% | |||
June 30, 2006 | 1.1% |
Ch$ | ||||
December 31, 2004 | 17,317.05 | |||
December 31, 2005 | 17,974.81 | |||
June 30, 2006 | 18,151.40 |
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(e) | Assets and liabilities in foreign currencies |
As of | As of | As of | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
Ch$ | Ch$ | Ch$ | ||||||||||
United States dollar | 547.31 | 512.50 | 557.40 | |||||||||
Euro | 692.62 | 606.08 | 760.13 |
(f) | Cash and cash equivalents |
As of | As of | As of | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
2006 | 2005 | 2004 | ||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Cash and banks | 3,860,774 | 3,074,019 | 2,724,142 | |||||||||
Term deposits | 36,428,774 | 17,051,988 | 28,802,391 | |||||||||
Reverse resale agreements | 12,605,439 | 12,646,289 | 14,000,400 | |||||||||
Total | 52,894,987 | 32,772,296 | 45,526,933 | |||||||||
(g) | Allowance for doubtful accounts |
(h) | Property, plant and equipment |
Description | Years | |||
Transmission lines | 40 | |||
Electrical equipment | 15-35 | |||
Non-hydraulic civil projects | 40 | |||
Other | 3-40 |
(i) | Lease contract |
(j) | Intangibles |
(k) | Goodwill |
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(l) | Bonds payable |
(m) | Deferred debt issuance and placement expenses |
(n) | Income taxes and deferred taxes |
(o) | Staff severance indemnities |
(p) | Vacation accrual |
(q) | Revenues |
(r) | Derivative contracts |
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(s) | Computer software |
(t) | Statement of cash flows |
As of | As of | |||||||
June 30, | December 31, | |||||||
Bank | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Citibank NA | 15,430,054 | 1,057,237 | ||||||
Banco Chile | 2,609,755 | 1,463,389 | ||||||
Banco Santander Santiago | 3,088,516 | 3,377,155 | ||||||
Banco BBVA | 3,686,092 | 3,244,180 | ||||||
Banco Credito de e Inversiones | 31,064 | 678,273 | ||||||
Bank of America NA TD | 11,583,293 | 1,005,046 | ||||||
JP Morgan CH.Bk NA TD | — | 6,226,708 | ||||||
Total | 36,428,774 | 17,051,988 | ||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Trade accounts receivable from tolls | 8,609,332 | 7,682,822 | ||||||
Receivables from services | 14,849 | 403,296 | ||||||
Trade accounts receivable from tariff revenue | 5,343,786 | — | ||||||
Total | 13,967,967 | 8,086,118 | ||||||
Current | ||||||||||||||||||||||||||||||||
Up to 90 days | From 90 to 365 days | Total Current (net) | Long-term | |||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||||
Trade accounts receivable | 12,963,561 | 8,086,118 | 1,004,406 | — | 13,967,967 | 8,086,118 | — | — | ||||||||||||||||||||||||
Miscellaneous receivables(1) | 522,668 | 446,963 | — | — | 522,668 | 446,963 | 8,886,192 | 8,815,497 | ||||||||||||||||||||||||
Total | 13,486,229 | 8,533,081 | 1,004,406 | — | 14,490,635 | 8,533,081 | 8,886,192 | 8,815,497 | ||||||||||||||||||||||||
(1) | In long-term receivables the Company classified positive differences related to the estimation of the tariff income, as discussed in the Note 2q) of ThCh$ 6,641,138 as of June 30, 2006 (ThCh$ 6,767,611 as of December 31, 2005). Negative difference from the estimations is shown in Miscellaneous payables caption under Long-term liabilities and amounts to ThCh$ 6,859,236 as of June 30, 2006 and to ThCh$ 4,189,429 as of December 31, 2005. Those amounts do not bear interest. These differences originate because, by law, the Company must charge toll fees, that is, the annual value of transmission per tranche less expected Tariff Revenue. However, when receiving real tariff revenue per tranche from CDEC and CDEC-SING, the law requires re-invoicing of the difference between expected Tariff Revenue and real tariff revenue, and the difference must be refunded or charged to the users of the respective transmission tranches. The timing of the settlement of those balances depends on the termination of the tariff setting process based on the results of the trunk transmission study as set in the Short Law (see Note 2q)). Currently it is expected that this process will be concluded by the end of the year 2007. |
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(a) | Notes and accounts receivable (current) |
As of | As of | |||||||
June 30, | December 31, | |||||||
Company | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Hydro-Québec International Transmisión Sudamérica S.A. | — | 5,170 | ||||||
Total | — | 5,170 | ||||||
(b) | Notes and accounts payable (current) |
As of | As of | |||||||
June 30, | December 31, | |||||||
Company | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Hydro-Québec International | — | 47,035 | ||||||
Hydro-Québec International Transmisión Sudamérica S.A. | 70,355 | |||||||
Total | — | 117,390 | ||||||
(c) | Transactions with related parties |
Six months ended | Year ended | Year ended | ||||||||||||||||||||||||||
June 30, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||||||||||||||||||
Effect on | Effect on | Effect on | ||||||||||||||||||||||||||
income | income | income | ||||||||||||||||||||||||||
(Charge)/ | (Charge)/ | (Charge)/ | ||||||||||||||||||||||||||
Company | Nature of relationship | Transaction | Amount | Credit | Amount | Credit | Amount | Credit | ||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||
Hydro-Québec internacional Transmisión Sudamérica S.A. | Direct parent | Loans granted | — | — | 1,458,209 | — | 3,093,308 | — | ||||||||||||||||||||
Hydro-Québec internacional Transmisión Sudamérica S.A. | Direct parent | Repayment of loans received | — | — | 31,117,849 | — | — | — | ||||||||||||||||||||
Hydro-Québec internacional Transmisión Sudamérica S.A. | Direct parent | Interest received | — | — | 2,944,345 | — | — | — | ||||||||||||||||||||
Hydro-Québec internacional Transmisión Sudamérica S.A. | Direct parent | Services purchased | — | — | 399,616 | (399,616 | ) | 457,535 | (457,535 | ) | ||||||||||||||||||
Hydro-Québec International | Indirect parent | Services purchased | — | — | 696,990 | (696,990 | ) | 1,223,145 | (1,223,145 | ) |
(a) | Taxes recoverable and payable |
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Income tax provision | (3,045,137 | ) | (3,306,214 | ) | ||||
Monthly income tax installments | 2,078,499 | 4,591,844 | ||||||
Other credits | — | 5,286 | ||||||
Total | (966,638 | ) | 1,290,916 | |||||
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(b) | Income tax charge |
Six months | Year ended | Year ended | ||||||||||
ended | December 31, | December 31, | ||||||||||
Description | June 30, 2006 | 2005 | 2004 | |||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Current income tax | (3,045,137 | ) | (3,306,214 | ) | (4,109,072 | ) | ||||||
Effect of deferred income taxes | (2,920,951 | ) | (5,839,377 | ) | (3,875,244 | ) | ||||||
Effect of amortization of complementary deferred tax assets and liabilities | (35,975 | ) | (86,338 | ) | (86,338 | ) | ||||||
Total | (6,002,063 | ) | (9,231,929 | ) | (8,070,654 | ) | ||||||
(c) | Deferred taxes |
As of June 30, 2006 | As of December 31, 2005 | |||||||||||||||||||||||||||||||
Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | |||||||||||||||||||||||||||||
Temporary differences | Short-term | Long-term | Short-term | Long-term | Short-term | Long-term | Short-term | Long-term | ||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||||
Staff vacation accrual | 83,232 | — | — | — | 96,544 | — | — | — | ||||||||||||||||||||||||
Leased assets | — | — | — | 4,195,929 | — | 27,486 | — | 4,671,326 | ||||||||||||||||||||||||
Property, plant and equipment | — | 9,847,645 | — | — | — | 12,732,066 | — | — | ||||||||||||||||||||||||
Staff severance indemnities | — | — | — | 198,457 | — | — | — | 205,975 | ||||||||||||||||||||||||
Capitalization of financial expenses | — | — | — | 1,329,173 | — | — | — | 1,290,871 | ||||||||||||||||||||||||
Write-offs of assets | — | 209,164 | — | — | — | 224,894 | — | — | ||||||||||||||||||||||||
Prepaid expenses | — | — | — | 806,378 | — | — | — | 906,291 | ||||||||||||||||||||||||
Forward contracts | — | — | 167,874 | — | 20,737 | — | — | — | ||||||||||||||||||||||||
Swap contracts | — | 131,361 | — | — | — | 478,551 | — | — | ||||||||||||||||||||||||
Others | 79,489 | 15,573 | — | — | 83,787 | — | — | — | ||||||||||||||||||||||||
Total | 162,721 | 10,203,743 | 167,874 | 6,529,937 | 201,068 | 13,462,997 | — | 7,074,463 | ||||||||||||||||||||||||
Complementary accounts net of amortization | — | — | — | (1,629,448 | ) | — | — | — | (1,665,422 | ) | ||||||||||||||||||||||
Total deferred taxes | 162,721 | 10,203,743 | 167,874 | 4,900,489 | 201,068 | 13,462,997 | — | 5,409,041 | ||||||||||||||||||||||||
Net deferred tax assets/liabilities | — | 5,303,254 | 5,153 | — | 201,068 | 8,053,956 | — | — | ||||||||||||||||||||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Reverse resale agreements(1) | 12,605,439 | 12,646,289 | ||||||
Bond issuance expenses | 1,175,454 | 1,175,454 | ||||||
Bond placement discount | 661,563 | 661,563 | ||||||
Forward contracts | 987,491 | — | ||||||
Other | — | 803,719 | ||||||
Total | 15,429,947 | 15,287,025 | ||||||
(1) | Details provided in Note 8. |
F-57
Table of Contents
Dates | Subscription | Interest | ||||||||||||||||||||||
Inception | Maturity | Counterparty | Currency | value | rate | Final value | Market value | |||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||||||||||||
Jun 7, 2006 | Jul 6, 2006 | Banco Security | Ch$ | 147,000 | 0.38% | 147,540 | 147,428 | |||||||||||||||||
Jun 6, 2006 | Jul 4, 2006 | Banco Santander Santiago | Ch$ | 100,000 | 0.38% | 100,355 | 100,304 | |||||||||||||||||
Jun 13, 2006 | Jul 3, 2006 | Banco Santander Santiago | Ch$ | 86,500 | 0.38% | 86,719 | 86,686 | |||||||||||||||||
Jun 14, 2006 | Jul 6, 2006 | Banco Santander Santiago | Ch$ | 100,500 | 0.39% | 100,787 | 100,709 | |||||||||||||||||
Jun 15, 2006 | Jul 7, 2006 | Banco Santander Santiago | Ch$ | 100,800 | 0.39% | 101,088 | 100,997 | |||||||||||||||||
Jun 16, 2006 | Jul 10, 2006 | Citibank NA | Ch$ | 700,000 | 0.34% | 701,904 | 701,111 | |||||||||||||||||
Jun 16, 2006 | Jul 12, 2006 | Citibank NA | Ch$ | 2,450,800 | 0.36% | 2,458,446 | 2,454,917 | |||||||||||||||||
Jun 16, 2006 | Jul 11, 2006 | Banco Santander Santiago | Ch$ | 110,000 | 0.39% | 110,358 | 110,200 | |||||||||||||||||
Jun 16, 2006 | Jul 5, 2006 | Banco Santander Santiago | Ch$ | 100,000 | 0.39% | 100,247 | 100,182 | |||||||||||||||||
Jun 16, 2006 | Jul 10, 2006 | Banco Santander Santiago | Ch$ | 150,000 | 0.39% | 150,468 | 150,273 | |||||||||||||||||
Jun 19, 2006 | Jul 4, 2006 | Banco Security | Ch$ | 778,000 | 0.38% | 779,478 | 779,084 | |||||||||||||||||
Jun 20, 2006 | Jul 18, 2006 | Banco de Chile | Ch$ | 580,00 | 0.38% | 582,057 | 580,735 | |||||||||||||||||
Jun 21, 2006 | Jul 5, 2006 | Banco de Chile | Ch$ | 384,290 | 0.38% | 384,971 | 384,728 | |||||||||||||||||
Jun 21, 2006 | Jul 14, 2006 | Banco Santander Santiago | Ch$ | 100,000 | 0.41% | 100,314 | 100,123 | |||||||||||||||||
Jun 21, 2006 | Jul 13, 2006 | Banco Santander Santiago | Ch$ | 93,500 | 0.41% | 93,781 | 93,615 | |||||||||||||||||
Jun 21, 2006 | Jul 12, 2006 | Banco Santander Santiago | Ch$ | 110,000 | 0.41% | 110,316 | 110,135 | |||||||||||||||||
Jun 22, 2006 | Jul 18, 2006 | Citibank NA | Ch$ | 1,850,000 | 0.37% | 1,855,932 | 1,851,825 | |||||||||||||||||
Jun 22, 2006 | Jul 18, 2006 | Banco Santander Santiago | Ch$ | 110,000 | 0.38% | 110,362 | 110,111 | |||||||||||||||||
Jun 22, 2006 | Jul 17, 2006 | Banco Santander Santiago | Ch$ | 100,700 | 0.38% | 101,019 | 100,802 | |||||||||||||||||
Jun 23, 2006 | Jul 6, 2006 | Banco de Credito e Inversiones | Ch$ | 219,000 | 0.34% | 219,323 | 219,174 | |||||||||||||||||
Jun 23, 2006 | Jul 6, 2006 | Banco de Credito e Inversiones | Ch$ | 1,429,000 | 0.40% | 1,431,477 | 1,430,334 | |||||||||||||||||
Jun 28, 2006 | Jul 6, 2006 | Banco de Credito e Inversiones | Ch$ | 355,900 | 0.40% | 356,280 | 355,995 | |||||||||||||||||
Jun 28, 2006 | Jul 10, 2006 | Banco Bilbao Vizcaya Argentaria | Ch$ | 1,019,600 | 0.34% | 1,020,987 | 1,019,831 | |||||||||||||||||
Jun 27, 2006 | Jul 4, 2006 | Banco de Chile | Ch$ | 1,050,700 | 0.38% | 1,051,632 | 1,051,099 | |||||||||||||||||
Jun 27, 2006 | Jul 21, 2006 | Banco Santander Santiago | Ch$ | 109,000 | 0.38% | 109,331 | 109,041 | |||||||||||||||||
Jun 27, 2006 | Jul 20, 2006 | Banco Santander Santiago | Ch$ | 100,000 | 0.38% | 100,291 | 100,038 | |||||||||||||||||
Jun 28, 2006 | Jul 6, 2006 | Banco de Credito e Inversiones | Ch$ | 94,500 | 0.35% | 94,588 | 94,523 | |||||||||||||||||
Jun 22, 2006 | Jul 6, 2006 | Banco Santander Santiago | Ch$ | 21,100 | 0.38% | 21,137 | 21,122 | |||||||||||||||||
Jun 23, 2006 | Jul 6, 2006 | Banco Santander Santiago | Ch$ | 16,300 | 0.37% | 16,326 | 16,315 | |||||||||||||||||
Jun 29, 2006 | Jul 11, 2006 | Banco Santander Santiago | Ch$ | 24,000 | 0.38% | 24,036 | 24,002 | |||||||||||||||||
12,605,439 | ||||||||||||||||||||||||
Dates | Subscription | Interest | ||||||||||||||||||||||
Inception | Maturity | Counterparty | Currency | value | rate | Final value | Market value | |||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||||||||||||
Dec 28, 2005 | Jan 4, 2006 | Banco de Credito e Inversiones | Ch$ | 56,500 | 0.37% | 56,549 | 57,143 | |||||||||||||||||
Dec 29, 2005 | Jan 10, 2006 | Banco de Credito e Inversiones | Ch$ | 35,600 | 0.37% | 35,653 | 36,001 | |||||||||||||||||
Dec 29, 2005 | Jan 12, 2006 | Banco de Credito e Inversiones | Ch$ | 90,000 | 0.37% | 90,155 | 91,012 | |||||||||||||||||
Dec 15, 2005 | Jan 5, 2006 | Banco Santander Santiago | U.S.$ | 166,819 | 0.35% | 167,159 | 168,916 | |||||||||||||||||
Dec 7, 2005 | Jan 9, 2006 | Banco Santander Santiago | Ch$ | 87,435 | 0.34% | 87,703 | 88,637 | |||||||||||||||||
Dec 15, 2005 | Jan 5, 2006 | Banco de Credito e Inversiones | Ch$ | 480,500 | 0.35% | 481,677 | 486,692 | |||||||||||||||||
Dec 16, 2005 | Jan 5, 2006 | ABN Amro Bank | Ch$ | 2,770,500 | 0.33% | 2,776,595 | 2,805,597 | |||||||||||||||||
Dec 21, 2005 | Jan 5, 2006 | Banco Santander Santiago | Ch$ | 114,850 | 0.33% | 115,040 | 116,241 | |||||||||||||||||
Dec 21, 2005 | Jan 6, 2006 | Banco Santander Santiago | Ch$ | 150,000 | 0.33% | 150,264 | 151,817 | |||||||||||||||||
Dec 21, 2005 | Jan 9, 2006 | Banco Santander Santiago | Ch$ | 176,650 | 0.33% | 177,019 | 178,789 | |||||||||||||||||
Dec 21, 2005 | Jan 12, 2006 | Banco de Chile | Ch$ | 380,660 | 0.37% | 381,693 | 385,321 | |||||||||||||||||
Dec 21, 2005 | Jan 12, 2006 | Banco de Chile | Ch$ | 558,700 | 0.37% | 560,216 | 565,542 | |||||||||||||||||
Dec 21, 2005 | Jan 2, 2006 | Banco de Credito e Inversiones | Ch$ | 817,000 | 0.35% | 818,144 | 826,950 | |||||||||||||||||
Dec 22, 2005 | Jan 9, 2006 | Banco de Credito e Inversiones | Ch$ | 765,000 | 0.37% | 766,698 | 774,273 | |||||||||||||||||
Dec 22, 2005 | Jan 10, 2006 | Banco Santander Santiago | Ch$ | 150,000 | 0.34% | 150,323 | 151,805 | |||||||||||||||||
Dec 22, 2005 | Jan 13, 2006 | Banco Santander Santiago | Ch$ | 103,000 | 0.34% | 103,257 | 104,239 | |||||||||||||||||
Dec 22, 2005 | Jan 9, 2006 | Banco Security | Ch$ | 433,300 | 0.36% | 434,236 | 438,539 | |||||||||||||||||
Dec 22, 2005 | Jan 9, 2006 | Banco de Chile | Ch$ | 658,200 | 0.37% | 659,661 | 666,179 | |||||||||||||||||
Dec 26, 2005 | Jan 12, 2006 | Banco Santander Santiago | Ch$ | 123,480 | 0.35% | 123,725 | 124,911 | |||||||||||||||||
Dec 26, 2005 | Jan 19, 2006 | Banco de Chile | Ch$ | 382,700 | 0.37% | 383,833 | 387,148 | |||||||||||||||||
Dec 26, 2005 | Jan 23, 2006 | Citibank NA | Ch$ | 2,500,000 | 0.39% | 2,509,100 | 2,529,143 | |||||||||||||||||
Dec 26, 2005 | Jan 26, 2006 | Banco Bilvao Viscaya Argentaria | Ch$ | 800,000 | 0.37% | 802,368 | 809,298 | |||||||||||||||||
Dec 28, 2005 | Jan 24, 2006 | Banco Security | Ch$ | 500,000 | 0.36% | 501,620 | 505,682 | |||||||||||||||||
Dec 28, 2005 | Jan 17, 2006 | Banco Santander Santiago | Ch$ | 97,105 | 0.32% | 97,312 | 98,207 | |||||||||||||||||
Dec 28, 2005 | Jan 20, 2006 | Banco Santander Santiago | Ch$ | 97,105 | 0.32% | 97,343 | 98,207 | |||||||||||||||||
12,646,289 | ||||||||||||||||||||||||
F-58
Table of Contents
As of June 30, 2006 | As of December 31, 2005 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Cost | depreciation | Net book value | Cost | depreciation | Net book value | |||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||
Land | 6,969,202 | — | 6,969,202 | 6,990,536 | — | 6,990,536 | ||||||||||||||||||
Buildings and infrastructure: | ||||||||||||||||||||||||
Buildings | 9,712,628 | (2,366,336 | ) | 7,346,292 | 9,500,000 | (2,203,183 | ) | 7,296,817 | ||||||||||||||||
Access roads | 609,377 | (100,364 | ) | 509,013 | 606,575 | (92,051 | ) | 514,524 | ||||||||||||||||
Transmission lines | 347,696,253 | (58,646,727 | ) | 289,049,526 | 343,634,813 | (55,040,702 | ) | 288,594,111 | ||||||||||||||||
Houses and apartments | 549,861 | (355,852 | ) | 194,009 | 553,048 | (350,960 | ) | 202,088 | ||||||||||||||||
Non-hydraulic civil projects | 36,413,491 | (6,745,942 | ) | 29,667,549 | 35,411,771 | (6,158,089 | ) | 29,253,682 | ||||||||||||||||
Works in progress | 19,972,840 | — | 19,972,840 | 20,697,564 | — | 20,697,564 | ||||||||||||||||||
Total Buildings and infrastructure | 414,954,450 | (68,215,221 | ) | 346,739,229 | 410,403,771 | (63,844,985 | ) | 346,558,786 | ||||||||||||||||
Machinery and equipment: | ||||||||||||||||||||||||
Telecommunications equipment | 13,552,880 | (5,068,545 | ) | 8,484,335 | 13,346,632 | (4,646,006 | ) | 8,700,626 | ||||||||||||||||
Furniture, machinery and office equipment | 254,991 | (167,278 | ) | 87,713 | 254,965 | (158,478 | ) | 96,487 | ||||||||||||||||
Service furniture and equipment | 45,740 | (24,412 | ) | 21,328 | 45,631 | (22,860 | ) | 22,771 | ||||||||||||||||
Tools and instruments | 2,617,230 | (1,474,464 | ) | 1,142,766 | 2,413,021 | (1,422,661 | ) | 990,360 | ||||||||||||||||
Power generation unit | 822,746 | (180,710 | ) | 642,036 | 819,132 | (166,249 | ) | 652,883 | ||||||||||||||||
Electrical equipment | 276,776,912 | (59,212,923 | ) | 217,563,989 | 276,564,687 | (55,468,230 | ) | 221,096,457 | ||||||||||||||||
Mechanical, protection and measurement equipment | 42,673,669 | (10,891,041 | ) | 31,782,628 | 42,700,270 | (9,840,516 | ) | 32,859,754 | ||||||||||||||||
Transport and loading equipment | 777,011 | (451,415 | ) | 325,596 | 776,998 | (427,164 | ) | 349,834 | ||||||||||||||||
Computers | 1,021,679 | (757,020 | ) | 264,659 | 996,027 | (650,438 | ) | 345,589 | ||||||||||||||||
Software | 2,940,832 | (2,252,986 | ) | 687,846 | 2,848,086 | (2,014,099 | ) | 833,987 | ||||||||||||||||
Total Machinery and equipment | 341,483,690 | (80,480,794 | ) | 261,002,896 | 340,765,449 | (74,816,701 | ) | 265,948,748 | ||||||||||||||||
Other Property, plant, and equipment: | ||||||||||||||||||||||||
Construction materials | 1,563,124 | — | 1,563,124 | 1,547,719 | — | 1,547,719 | ||||||||||||||||||
Total Other property, plant, and equipment | 1,563,124 | — | 1,563,124 | 1,547,719 | — | 1,547,719 | ||||||||||||||||||
Increased value from technical appraisal | 22,379,528 | (5,625,288 | ) | 16,754,240 | 22,943,694 | (5,502,034 | ) | 17,441,660 | ||||||||||||||||
Total property, plant and equipment | 787,349,994 | (154,321,303 | ) | 633,028,691 | 782,651,169 | (144,163,720 | ) | 638,487,449 | ||||||||||||||||
F-59
Table of Contents
Book value | ||||||||||||
As of | As of | |||||||||||
Ownership | June 30, | December 31, | ||||||||||
Entity | interest | 2006 | 2005 | |||||||||
% | ThCh$ | ThCh$ | ||||||||||
CDEC-SIC Limitada | 7.1429 | 23,551 | 23,668 | |||||||||
CDEC-SING Limitada | 14.29 | 53,909 | 47,982 | |||||||||
Total | 77,460 | 71,650 | ||||||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Opening balance | 121,369,453 | 121,369,453 | ||||||
Accumulated amortization | (35,282,742 | ) | (32,231,649 | ) | ||||
Total net balance | 86,086,711 | 89,137,804 | ||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Rights-of-way | 29,499,760 | 27,633,054 | ||||||
Accumulated amortization | (5,058,014 | ) | (4,676,456 | ) | ||||
Intangibles, net | 24,441,746 | 22,956,598 | ||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Prepaid general expenses | 230,863 | 231,747 | ||||||
Deferred expenses on bonds placements — UF | 607,224 | 791,216 | ||||||
Deferred expenses on bond placement — U.S.$ | 2,960,724 | 3,364,459 | ||||||
Discount on bonds placements — UF | 794,443 | 1,035,163 | ||||||
Discount on bond placement — U.S.$ | 660,448 | 750,509 | ||||||
Others | 280,107 | 23,655 | ||||||
Total | 5,533,809 | 6,196,749 | ||||||
(a) | Bonds issued on the local market |
F-60
Table of Contents
Issuer | HQI Transelec Chile S.A. | |
Securities issued | Bearer bonds in local currency, denominated in Unidades de Fomento. | |
Issuance value | Up to UF 10,000,000 divided into: | |
— Series A-1: up to UF 3,000,000 (3,000 bonds of UF 1,000 each), | ||
— Series A-2: up to UF 4,000,000 (4,000 bonds of UF 1,000 each), | ||
— Series B-1: up to UF 1,000,000 (1,000 bonds of UF 1,000 each), | ||
— Series B-2: up to UF 3,000,000 (3,000 bonds of UF 1,000 each). | ||
Indexation | Based on variations in Unidad de Fomento index | |
Amortization period | Series A, 6 years and Series B, 21 years (6-year grace period and 1 and 15 years for capital amortization, respectively). | |
Capital amortization | Series A, in a single installment, upon maturity and Series B, payable semi-annually, in increasing amounts. | |
Early redemption | Series A without advanced redemption and Series B effective as of September 1, 2009, on any of its denominated dates of payment of interest or interest and capital amortization. | |
Interest rate | Series A and B bonds accrue a 6.20% annual interest rate on the outstanding capital, expressed in Unidades de Fomento. Interest is calculated over a period of 360 days, upon maturity and payable semi-annually in two semesters of 180 days each. | |
Interest payments | Semi-annually payments, upon maturity on March 1 and September 1 yearly, starting on September 1, 2001. Interest accrued as of June 30, 2006 amounts to ThCh$ 3,399,288 (ThCh$ 3,403,245 as of December 31, 2005) and is presented in Current liabilities. | |
Guarantees | This issuance has no special guarantees, except the general guarantee on all the issuer’s assets. | |
Period of placement | 36 months, as from the date of register with the SVS. |
(b) | Bonds issued on the U.S. market |
Issuer | HQI Transelec Chile S.A. | |
Securities issued | U.S.$ denominated bonds (Yankee Bonds) issued in the United States. | |
Issuance value | ThUS$ 465,000 in a single serie. | |
Capital amortization | At maturity on April 15, 2011. | |
Interest rate | 7.875% annual. | |
Interest payments | On April 15 and October 15 each year, effective beginning on October 15, 2001. Interest accrued as of June 30, 2006 amounts to ThCh$ 4,286,810 (ThCh$ 4,117,523 as of December 31, 2005) and is presented in Current liabilities. |
(c) | The detail of bonds payable as of June 30, 2006 and December 31, 2005 is as follows: |
Registration or | ||||||||||||||||||||||||||||||
identification | Nominal | Currency or | Book value | |||||||||||||||||||||||||||
number of the | amount | indexation | Interest | Maturity | Periodicity of payments | As of | As of | Principal/ | ||||||||||||||||||||||
instrument | Series | placed | unit | rate | date | Interest | Principal | Jun 30, 2006 | Dec 31, 2005 | Interest | ||||||||||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||||||||||||
Current portion of long-term bonds: | ||||||||||||||||||||||||||||||
249 | A1 | 40,712 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | 738,965 | 739,836 | Interest | ||||||||||||||||||||
249 | A2 | 81,424 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | 1,477,960 | 1,479,672 | Interest | ||||||||||||||||||||
249 | B1 | 4,071 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 73,894 | 73,984 | Interest | ||||||||||||||||||||
249 | B2 | 61,068 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 1,108,470 | 1,109,754 | Interest | ||||||||||||||||||||
First issuance | Single | 7,946,777 | U.S.$ | 7.88% | Apr 15, 2007 | Semiannually | At maturity | 4,286,810 | 4,117,523 | Interest | ||||||||||||||||||||
Swap | 5 contracts | 851,566 | UF | 9.16% | Oct 14, 2006 | Semiannually | At maturity | 15,457,101 | 27,961,327 | Interest | ||||||||||||||||||||
249 | A1 | 2,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | 36,302,800 | — | Principal | ||||||||||||||||||||
249 | A2 | 4,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | 72,605,600 | — | Principal | ||||||||||||||||||||
Total current portion of bond payable | 132,051,600 | 35,482,096 | ||||||||||||||||||||||||||||
Long-term bonds payable: | ||||||||||||||||||||||||||||||
249 | A1 | 2,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 36,345,065 | Principal | ||||||||||||||||||||
249 | A2 | 4,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 72,690,132 | Principal | ||||||||||||||||||||
249 | B1 | 200,000 | UF | 6.2% | Mar 1, 2022 | Semiannually | Semiannually | 3,630,280 | 3,634,507 | Principal | ||||||||||||||||||||
249 | B2 | 3,000,000 | UF | 6.2% | Mar 1, 2022 | Semiannually | Semiannually | 54,454,200 | 54,517,599 | Principal | ||||||||||||||||||||
First issuance | Single | 465,000,000 | U.S.$ | 7.88% | Apr 15, 2011 | Semiannually | At maturity | 250,839,600 | 240,933,938 | Principal | ||||||||||||||||||||
Swap | 3 contracts | 7,315,503 | UF | 9.16% | Apr 15, 2011 | Semiannually | At maturity | 13,153,011 | 20,849,899 | Principal | ||||||||||||||||||||
Swap | 1 contract | 1,906,538 | UF | 6.81% | Apr 14, 2011 | Semiannually | At maturity | 7,634,336 | 8,820,261 | Principal | ||||||||||||||||||||
Total Long-term bonds payable | 329,711,427 | 437,791,401 | ||||||||||||||||||||||||||||
F-61
Table of Contents
As of | As of | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Staff severance indemnities (short-term) (Note 17) | 46,612 | 12,720 | ||||||
Accrued payroll | 775,002 | 995,719 | ||||||
Vacation accrual | 489,598 | 567,905 | ||||||
Bonus for employees | 331,713 | — | ||||||
Provision for insurance expenses | 50,530 | — | ||||||
Total short-term provisions | 1,693,455 | 1,576,344 | ||||||
Staff severance indemnities (long-term) (Note 17) | 1,486,861 | 1,503,217 | ||||||
Total long-term provisions | 1,486,861 | 1,503,217 | ||||||
Six months ended | Year ended | Year ended | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
Description | 2006 | 2005 | 2004 | |||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Opening balance | 1,360,240 | 1,375,202 | 1,374,462 | |||||||||
Price-level restatement | 48,969 | 40,507 | 34,362 | |||||||||
Provision for the year | 128,569 | 129,983 | 98,889 | |||||||||
Benefits paid | (38,337 | ) | (38,758 | ) | (83,003 | ) | ||||||
Closing balance, including: | 1,499,441 | 1,506,934 | 1,424,710 | |||||||||
Short-term portion | 46,612 | 12,720 | 175,525 | |||||||||
Long-term portion | 1,486,861 | 1,503,217 | 1,249,185 |
(a) | Changes in equity accounts in the six months ended June 30, 2006 and in the years ended December 31, 2005 and 2004 were as follows: |
Number of | ||||||||||||||||||||||||
Description | shares | Paid-in capital | Retained earnings | Interim dividends | Net income | Total | ||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | ThCh$ | ||||||||||||||||||||
Beginning balance as of January 1, 2004 | 1,000,000 | 332,640,946 | (1,139,941 | ) | — | 15,712,920 | 347,213,925 | |||||||||||||||||
Distribution of prior year’s income | — | — | 15,712,920 | — | (15,712,920 | ) | — | |||||||||||||||||
Final dividend, prior year | — | — | (15,038,354 | ) | — | — | (15,038,354 | ) | ||||||||||||||||
Price-level restatement of capital | — | 8,316,024 | (15,039 | ) | — | — | 8,300,985 | |||||||||||||||||
Net income for the year | — | — | — | — | 26,482,312 | 26,482,312 | ||||||||||||||||||
Closing balance as of December 31, 2004 | — | 340,956,970 | (480,414 | ) | — | 26,482,312 | 366,958,868 | |||||||||||||||||
Closing balance restated to constant pesos | 1,000,000 | 344,707,497 | (485,699 | ) | — | 26,773,617 | 370,995,415 | |||||||||||||||||
Beginning balance as of January 1, 2005 | 1,000,000 | 340,956,970 | (480,414 | ) | — | 26,482,312 | 366,958,868 | |||||||||||||||||
Distribution of prior year’s income | — | — | 26,482,312 | — | (26,482,312 | ) | — | |||||||||||||||||
Final dividend, prior year | — | — | (26,467,273 | ) | — | — | (26,467,273 | ) | ||||||||||||||||
Capital decrease | — | (37,492,700 | ) | — | — | — | (37,492,700 | ) | ||||||||||||||||
Price-level restatement of capital | — | 12,199,464 | (52,935 | ) | — | — | 12,146,529 | |||||||||||||||||
Net income for the year | — | — | — | — | 35,005,427 | 35,005,427 | ||||||||||||||||||
Interim dividends | — | — | — | (25,289,000 | ) | — | (25,289,000 | ) | ||||||||||||||||
Closing balance as of December 31, 2005 | — | 315,663,734 | (518,310 | ) | (25,289,000 | ) | 35,005,427 | 324,861,851 | ||||||||||||||||
Closing balance restated to constant pesos | 1,000,000 | 319,136,035 | (524,011 | ) | (25,567,179 | ) | 35,390,487 | 328,435,332 | ||||||||||||||||
Beginning balance as of January 1, 2006 | 1,000,000 | 315,663,734 | (518,310 | ) | (25,289,000 | ) | 35,005,427 | 324,861,851 | ||||||||||||||||
Distribution of prior year’s income | — | — | 35,005,427 | — | (35,005,427 | ) | — | |||||||||||||||||
Final dividend, prior year | — | — | (34,487,117 | ) | 25,289,000 | — | (9,198,117 | ) | ||||||||||||||||
Price-level restatement of capital | — | 3,472,301 | (36,792 | ) | — | — | 3,435,509 | |||||||||||||||||
Net income for the period | — | — | — | — | 25,949,409 | 25,949,409 | ||||||||||||||||||
Closing balance as of June 30, 2006 | 1,000,000 | 319,136,035 | (36,792 | ) | — | 25,949,409 | 345,048,652 | |||||||||||||||||
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(b) | Other reserves — hedge of the net investment in subsidiary |
As of | As of | |||||||||||
January 1, | Movement in | June 30, | ||||||||||
2006 | the period | 2006 | ||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Investment in HQI Transelec Norte S.A. | (6,688,463 | ) | 693,185 | (5,995,278 | ) | |||||||
Change in debt — hedging instrument | 6,688,463 | (693,185 | ) | 5,995,278 | ||||||||
Total | — | — | — | |||||||||
As of | As of | |||||||||||
January 1, | Movement in | December 31, | ||||||||||
2005 | the year | 2005 | ||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Investment in HQI Transelec Norte S.A. | (1,532,336 | ) | (315,038 | ) | (1,847,374 | ) | ||||||
Debt — hedging instrument | 1,532,336 | 315,038 | 1,847,374 | |||||||||
Total | — | — | — | |||||||||
As of | As of | |||||||||||
January 1, | Movement in | December 31, | ||||||||||
2004 | the year | 2004 | ||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Investment in HQI Transelec Norte S.A. | (3,570,108 | ) | 2,037,772 | (1,532,336 | ) | |||||||
Debt — hedging instrument | 3,570,108 | (2,037,772 | ) | 1,532,336 | ||||||||
Total | — | — | — | |||||||||
(c) | Dividends and capital reductions |
(a) | Other non-operating income |
Six months | ||||||||||||
ended | Year ended | Year ended | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
Description | 2006 | 2005 | 2004 | |||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Prior year income | 143,919 | 1,982,102 | 664,233 | |||||||||
Income on sale of materials | 25,495 | 1,462,294 | 704,214 | |||||||||
Gain on sale of fixed assets | 7,594,985 | — | — | |||||||||
Other | 431,581 | 12,200 | ||||||||||
Total | 7,764,399 | 3,875,977 | 1,380,647 | |||||||||
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(b) | Other non-operating expenses |
Six months | ||||||||||||
ended | Year ended | Year ended | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
Description | 2006 | 2005 | 2004 | |||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Prior year expenses | 326,070 | 1,759,830 | 521,801 | |||||||||
Directors’ fees | 61,946 | 83,639 | 78,191 | |||||||||
Loss on disposal of fixed assets and write-offs | 64,941 | 2,585,873 | 2,340,917 | |||||||||
Amortization of prepaid expenses | 24,928 | 48,439 | 52,868 | |||||||||
Loss on Guacolda Agreement | — | — | 1,917,457 | |||||||||
Fiscal and judicial fines | 6,991 | 23,615 | 76,883 | |||||||||
Total | 484,876 | 4,501,396 | 4,988,117 | |||||||||
Six months | Year ended | Year ended | ||||||||||||||
ended June 30, | December 31, | December 31, | ||||||||||||||
Description | Indexation | 2006 | 2005 | 2004 | ||||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||||
Inventories | CPI | 21,986 | 1,597 | 7,137 | ||||||||||||
Property, plant and equipment | CPI | 6,091,383 | 20,289,920 | 14,535,938 | ||||||||||||
Investments in related companies | CPI | 161,625 | 601,708 | 465,602 | ||||||||||||
Intangibles | CPI | 434,088 | 959,570 | 675,776 | ||||||||||||
Cash and banks | CPI | 193,996 | 1,880,329 | 380,901 | ||||||||||||
Goodwill | CPI | 969,848 | 3,311,162 | 2,394,951 | ||||||||||||
Accounts receivable from related companies | CPI | 320,734 | 2,041,898 | 2,109,255 | ||||||||||||
Deferred taxes | CPI | 90,087 | 492,766 | 442,495 | ||||||||||||
Other non-monetary assets | CPI | 307,528 | 167,303 | 320,217 | ||||||||||||
Expense and cost accounts | CPI | 271,278 | 1,181,878 | 787,457 | ||||||||||||
Shareholders’ equity | CPI | (3,435,509 | ) | (12,280,140 | ) | (8,694,418 | ) | |||||||||
Bonds payable | UF | (4,461,539 | ) | (17,220,921 | ) | (11,549,632 | ) | |||||||||
Non-monetary liabilities | CPI | (2,426 | ) | (336 | ) | (12,653 | ) | |||||||||
Revenue accounts | CPI | (653,475 | ) | (2,743,642 | ) | (1,749,277 | ) | |||||||||
Net credit (charge) to income | 309,604 | (1,316,908 | ) | 113,749 | ||||||||||||
Six months | Year ended | Year ended | ||||||||||||||
ended June 30, | December 31, | December 31, | ||||||||||||||
Description | Currency | 2006 | 2005 | 2004 | ||||||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||||||
Term deposits | U.S.$ | 488,809 | (5,416,074 | ) | (1,469,291 | ) | ||||||||||
Accounts receivable from related companies | U.S.$ | 1,636,475 | (5,405,880 | ) | (6,532,980 | ) | ||||||||||
Forward contracts | U.S.$ | 2,646,420 | (1,156,649 | ) | 826,086 | |||||||||||
Accounts receivable | U.S.$ | 6,181 | (24,812 | ) | (361,536 | ) | ||||||||||
Investments in related companies | U.S.$ | 693,185 | (1,867,695 | ) | (1,549,192 | ) | ||||||||||
Cash and banks | U.S.$ | (123,817 | ) | (1,895,542 | ) | (705,840 | ) | |||||||||
Accounts payable to related companies | U.S.$ | — | 269 | — | ||||||||||||
Bonds payable | U.S.$ | (9,905,663 | ) | 30,541,679 | 24,958,320 | |||||||||||
Accounts payable | U.S.$ | 10,711 | (73,832 | ) | (68,507 | ) | ||||||||||
Swap contracts | U.S.$ | 6,751,282 | (9,687,645 | ) | (15,982,802 | ) | ||||||||||
Lease contract | U.S.$ | 59,470 | 8,475 | — | ||||||||||||
Net foreign currency translation gain (loss) | 2,263,053 | 5,022,294 | (885,742 | ) | ||||||||||||
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• On January 20, 2005, the original maturity was extended, through a contract that stipulates an initial exchange on October 13, 2006 of U.S.$50,000,000 for UF 1,642,780.64 and a final exchange on April 14, 2011. | ||
• On February 2, 2005 the original maturity was extended through a contract that stipulates an initial exchange on October 16, 2006 of U.S.$20,000,000 for UF 660,462.07 and a final exchange on April 14, 2011. | ||
• Finally, on February 25, 2005, the original maturity was extended through a contract that stipulates an initial exchange on April 13, 2006 of U.S.$50,000,000 for UF 1,652,982.56 and a final exchange on April 14, 2011. |
Description of contracts | ||||||||||||||||||||||||||||||||||||||||||||
Purchase/ | ||||||||||||||||||||||||||||||||||||||||||||
Maturity or | Sale | Value of | Affected accounts | |||||||||||||||||||||||||||||||||||||||||
Type of | Type of | Contract | Expiration | Specific | Position | �� | Covered item or transaction | covered | Asset / Liability | Effect on Income | ||||||||||||||||||||||||||||||||||
derivative | contract | Value | date | Item | (P/S) | Name | Amount | items | Name | Amount | Realized | Unrealized | ||||||||||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$$ | ThCh$ | ThCh$ | ||||||||||||||||||||||||||||||||||||||||
Swap | CCTE | 50,000,000 | 2nd quarter of 2011 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 25,607,000 | 26,972,000 | Obligations with the public | 6,139,182 | — | (25,643 | ) | |||||||||||||||||||||||||||||||
Swap | CCTE | 50,000,000 | 2nd quarter of 2011 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 25,607,000 | 26,972,000 | Obligations with the public | 3,004,670 | — | (62,764 | ) | |||||||||||||||||||||||||||||||
Swap | CCTE | 50,000,000 | 4th quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 35,830,500 | 26,972,000 | Obligations with the public | 14,056,224 | 490,764 | (358,219 | ) | |||||||||||||||||||||||||||||||
Swap | CCTE | 20,000,000 | 2nd quarter of 2011 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 14,110,000 | 10,788,800 | Obligations with the public | 5,347,829 | (187,654 | ) | (136,787 | ) | ||||||||||||||||||||||||||||||
Swap | CCTE | 50,000,000 | 2nd quarter of 2011 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 32,375,000 | 26,972,000 | Obligations with the public | 7,696,543 | (81,597 | ) | (62,207 | ) | ||||||||||||||||||||||||||||||
Forward | CCPE | 8,000,000 | 3 rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 4,395,200 | 4,315,520 | Other current liabilities | 79,680 | — | (79,680 | ) | |||||||||||||||||||||||||||||||
Forward | CCPE | 8,350,000 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 4,587,741 | 4,504,324 | Other current liabilities | 83,417 | — | (83,417 | ) | |||||||||||||||||||||||||||||||
Forward | CCPE | 18,000,000 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 9,214,200 | 9,709,920 | Other current liabilities | 495,720 | — | 495,720 | ||||||||||||||||||||||||||||||||
Forward | CCPE | 14,250,000 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 7,303,838 | 7,687,020 | Other current liabilities | 383,183 | — | 383,183 | ||||||||||||||||||||||||||||||||
Forward | CCPE | 12,000,000 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 6,246,480 | 6,473,280 | Other current liabilities | 226,800 | — | 226,800 | ||||||||||||||||||||||||||||||||
Forward | CCPE | 13,000,000 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 7,100,600 | 7,012,720 | Other current liabilities | 87,880 | — | (87,880 | ) | |||||||||||||||||||||||||||||||
Forward | CCPE | 10,181,471 | 3rd quarter of 2006 | Exchange rate (U.S.$) | S | U.S. dollar bonds | 5,359,526 | 5,492,293 | Other current liabilities | 132,766 | — | 132,766 |
(a) | Debt covenants |
• | Maintain, during the period the bonds are outstanding, assets free of any kind of lien or encumbrance, whose book value is equal to or greater than 1.2 times the book value of all the liabilities and debts of the issuer that are not subject to any liens or guarantees on assets or instruments belonging to it, including among such liabilities, the debt arising from the bond issuance. | |
• | Not sell, cede, transfer, contribute or in any way give up title to, either for money or for free, its essential assets. | |
• | Maintain a level of indebtedness at the individual and consolidated level whereby the ratio of Total demandable liabilities / Total capitalization, is no greater than 0.7. | |
• | Maintain, during the period the bonds are outstanding, minimum individual and consolidated shareholders’ equity of UF 15,000,000. |
(b) | Pending lawsuits |
(c) | Litigations, lawsuits and demands from regulators |
1. | On May 15, 2000, the Superintendency of Electricity and Fuel (Superintendencia de Electricidad y Combustibles or SEC) fined Transelec of 300 annual tax units (UTA), which as of June 30, 2006, amounted to ThCh$ 114,448, through Exempt Resolution No. 876, for its alleged responsibility in the power failure of the Sistema Interconectado Central (SIC) on July 14, 1999, caused by the untimely withdrawal from service of the San Isidro Plant of San Isidro S.A. On May 25, 2000, an administrative motion was filed by Transelec before SEC, which is pending resolution. | |
2. | On December 5, 2002, SEC in Ordinary Official Letter No. 7183, charged Transelec for its alleged responsibility in the interruption of electrical supply in the SIC on September 23, 2002. By Exempt Resolution No. 1438 of August 14, 2003, the SEC applied various fines to Transelec for a total of UTA 2,500 equivalent as of June 30, 2006 to ThCh$ 953,730. The Company had appealed the complaint before the Santiago Court of Appeals, and made a deposit of 25% of the original fine. Management believes it has no responsibility for this event. | |
3. | The SEC in Ordinary Official Letter No. 1210, dated February 21, 2003, filed charges for the alleged responsibility of Transelec in the interruption of electric service in the SIC, on January 13, 2003. By Resolution No. 808, of April 27, 2004, SEC imposed a fine of UTA 560 equivalent as of June 30, 2006 to ThCh$ 213,636, against which a writ of administrative reconsideration was filed, which was |
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subsequently rejected. The Company appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. Management believes it has no responsibility for this event. |
4. | On June 25, 2003, the Zone Director of the III Zone of SEC in Ordinary Official Letter No. 488, filed charges against Transelec for its alleged responsibility in the interruption of electrical supply in the SIC, south of Temuco on March 7, 2003. The Company had filed the corresponding responses. Management believes it has no responsibility for this event. | |
5. | On June 30, 2005 SEC through Exempt Resolution No. 1117, applied the following sanctions to Transelec: (i) a fine of 560 UTA equivalent as of June 30, 2006 to ThCh$ 213,636, for allegedly not having ensured electric service, as determined in the investigation of the general failure of the SIC on November 7, 2003; (ii) a fine of 560 UTA equivalent as of June 30, 2006 to ThCh$ 213,636, levied on the Company as owner of the installations, for allegedly operating the installations without adhering to the operation scheduling set forth by the CDEC-SIC, without justified cause, as determined in the investigation of the general failure of the SIC on November 7, 2003. The Company had appealed the charges before the SEC, which is pending resolution. Management believes it has no responsibility for these events. | |
6. | On December 17, 2004, SEC, through Exempt Resolution No. 2334, fined Transelec with an amount of 300 UTA equivalent as of June 30, 2006 to ThCh$ 114,448 for its alleged responsibility in the interruption of electrical supply south of Temuco, caused by a truck that crashed into a structure of the Charrúa — Temuco transmission line. The Company had filed a motion of invalidation and administrative reconsideration. Management believes it has no responsibility for this event. | |
7. | On April 1, 2004, SEC in Ordinary Official Letter No. 1631, filed charges against Transelec for restrictions in the transfer of power on November 5, 2003, in the Charrúa-Temuco line, due to the construction of the La Isla and Los Pinos crossing, which decreased the distance between the conductors and the ground. The corresponding response has been filed. Management believes that the charges are not applicable, and therefore the SEC should nullify the effects of these charges. | |
8. | On December 31, 2005, SEC through Official Letter No. 1831, filed charges against Transelec for allegedly operating its installations and in the process infringing on various provisions of the electrical regulations, which would have caused the interruption of electrical supply in the SIC on March 21, 2005. By Resolution No. 220, on February 7, 2006, the Company was fined with an amount of 560 UTA equivalent as of June 30, 2006 to ThCh$ 213,636. Recourse was presented on February 16, 2006, which is still pending resolution. | |
9. | On August 11, 2003, Transelec was notified of the resolution of the arbitration case against Sociedad Austral de Electricidad S.A. (Saesa) in which Transelec demanded amount of ThUS$ 2,300. The resolution rejected the claim filed by the Company. Currently, the recourse to overturn this decision remains outstanding before the Santiago Court of Appeal. The purpose of this trial is to determine the amount that Saesa should pay to Transelec for use of its transmission system. Up to December 31, 2006, the Company has recognized and/or received part of the claimed amount in conformity with Resolution of Ministry of Economic Development and Reconstruction No. 88 of 2001. | |
10. | Through Ordinary Office No. 793, dated December 12, 2005, the SEC of the 7th Region, filed charges against Transelec for loss of electrical power in the town of Constitución on November 21, 2005 due to a failure, which occurred as a consequence of forestry works that caused a tree to fall on the power line between San Javier and Constitución. The Company presented its evidence on January 4, 2006. On May 7, 2006, by Resolution No. 33, the SEC of the 7th Region fined the Company with the amount of 400 UTM equivalent as of June 30, 2006 to ThCh$ 12,716. The sanction was re-imposed and ratified on June 7, 2006 by Resolution No. 42. The Company appealed the charges before the Court of Appeals of Talca, placing a deposit of 25% of the original fine. Management believes it has no responsibility for this event as it was caused by a third party. |
(d) | Guarantees |
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(a) | Assets |
As of | ||||||||||||
June 30, | December 31, | |||||||||||
Description | Currency | 2006 | 2005 | |||||||||
ThCh$ | ThCh$ | |||||||||||
Current assets | ||||||||||||
Cash and banks | Ch$ | 3,495,042 | 2,959,338 | |||||||||
Cash and banks | U.S.$ | 365,732 | 114,681 | |||||||||
Term deposits | U.S.$ | 30,250,513 | 10,823,452 | |||||||||
Term deposits | Ch$ | 6,178,261 | 6,228,536 | |||||||||
Trade accounts receivable | Ch$ | 12,533,468 | 6,654,297 | |||||||||
Trade accounts receivable | U.S.$ | 1,434,499 | 1,431,821 | |||||||||
Miscellaneous receivables | Ch$ | 484,761 | 423,717 | |||||||||
Miscellaneous receivables | U.S.$ | 37,907 | — | |||||||||
Accounts receivable from related companies | Ch$ | — | 5,170 | |||||||||
Recoverable taxes | Ch$ | — | 1,290,870 | |||||||||
Prepaid expenses | Ch$ | 314,331 | 578,905 | |||||||||
Deferred taxes | Ch$ | — | 201,068 | |||||||||
Other current assets (reverse resale agreements) | UF | 12,605,438 | 12,477,373 | |||||||||
Other current assets (reverse resale agreements) | U.S.$ | 731,190 | 168,916 | |||||||||
Other current assets (deferred debt issuance costs) | Ch$ | 1,837,017 | 2,640,737 | |||||||||
Other receivables | U.S.$ | 256,302 | 23,246 | |||||||||
Other Assets | ||||||||||||
Investments in other companies | Ch$ | 77,460 | 71,651 | |||||||||
Long-term receivables | UF | 24,857 | 67,322 | |||||||||
Long-term receivables | U.S.$ | 1,021,814 | 1,126,270 | |||||||||
Accounts receivable from related companies | U.S.$ | 7,839,521 | — | |||||||||
Long-term deferred taxes | Ch$ | 5,303,254 | (8,053,956 | ) | ||||||||
Other assets | Ch$ | 5,533,809 | 6,196,749 | |||||||||
Long-term receivables | Ch$ | — | 7,621,905 | |||||||||
Total | Ch$ | 35,757,403 | 26,819,987 | |||||||||
U.S.$ | 41,937,478 | 13,688,386 | ||||||||||
UF | 12,630,295 | 12,544,695 |
(b) | Short-term liabilities |
Up to 90 days | 90 days to 1 year | |||||||||||||||||||||||||||||||||||
June 30, 2006 | June 30, 2006 | |||||||||||||||||||||||||||||||||||
Annual | December 31, 2005 | Annual | December 31, 2005 | |||||||||||||||||||||||||||||||||
Average | Annual Average | Average | Annual Average | |||||||||||||||||||||||||||||||||
Interest | Interest | Interest | Interest | |||||||||||||||||||||||||||||||||
Description | Currency | Amount | rate | Amount | rate | Amount | rate | Amount | rate | |||||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||||||||||||
Bond interest payable | UF | 3,399,288 | 6,11% | 3,403,247 | 6.2% | — | — | — | — | |||||||||||||||||||||||||||
Bond interest payable | U.S.$ | — | — | — | — | 4,268,810 | 7,88% | 4,117,522 | 7.88% | |||||||||||||||||||||||||||
Accounts payable | U.S.$ | 6,382,501 | — | 429,743 | — | — | — | — | — | |||||||||||||||||||||||||||
Accounts payable | Ch$ | 4,632,086 | — | 7,685,828 | — | — | — | — | — | |||||||||||||||||||||||||||
Miscellaneous payables | Ch$ | 1,663,294 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Miscellaneous payables | U.S.$ | — | — | 1,322,149 | — | — | — | — | — | |||||||||||||||||||||||||||
Accounts payable to related companies | U.S.$ | — | — | 117,390 | — | — | — | — | — | |||||||||||||||||||||||||||
Provisions | Ch$ | 1,693,455 | — | 1,576,344 | — | — | — | — | — | |||||||||||||||||||||||||||
Withholdings | Ch$ | 1,180,892 | — | 1,127,398 | — | — | — | — | — | |||||||||||||||||||||||||||
Deferred income taxes | Ch$ | 5,153 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Bonds payable | UF | — | — | — | — | 108,908,400 | — | — | — | |||||||||||||||||||||||||||
Forward contracts | Ch$ | — | — | 121,980 | — | — | — | — | — | |||||||||||||||||||||||||||
Swap contracts | UF | — | — | — | — | 15,457,102 | — | 27,961,327 | — | |||||||||||||||||||||||||||
Income tax payables | Ch$ | 966,638 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other current liabilities | Ch$ | 42,693 | — | 2,609 | — | — | — | — | — | |||||||||||||||||||||||||||
Total short-term liabilities | UF | 3,399,288 | — | 3,403,247 | — | 124,365,502 | — | 27,961,327 | — | |||||||||||||||||||||||||||
U.S.$ | 6,382,501 | — | 1,869,282 | — | 4,286,810 | — | 4,117,522 | — | ||||||||||||||||||||||||||||
Ch$ | 10,184,211 | — | 10,514,159 | — | — | — | — | — |
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(c) | Long-term liabilities as of June 30, 2006 |
1 to 3 years | 3 to 5 years | 5 to 10 years | Over 10 years | |||||||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||||||
annual | annual | annual | annual | |||||||||||||||||||||||||||||||||
interest | interest | interest | interest | |||||||||||||||||||||||||||||||||
Description | Currency | Amount | rate | Amount | rate | Amount | rate | Amount | rate | |||||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||||||||||||
Bonds payable | UF | — | — | — | — | 5,808,448 | 6.20% | 52,276,032 | 6.20% | |||||||||||||||||||||||||||
Bonds payable | U.S.$ | — | — | 250,839,600 | 7.88% | — | — | — | — | |||||||||||||||||||||||||||
Swap contracts | UF | 20,787,347 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Provisions | Ch$ | 1,486,861 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Miscellaneous payables | Ch$ | 6,859,236 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other long-term liabilities | U.S.$ | 2,200,085 | ||||||||||||||||||||||||||||||||||
Total long-term liabilities | UF | 20,787,347 | — | — | — | 5,808,448 | — | 52,276,032 | — | |||||||||||||||||||||||||||
U.S.$ | 2,200,085 | — | 250,839,600 | — | — | — | — | — | ||||||||||||||||||||||||||||
Ch$ | 8,346,097 | — | — | — | — | — | — | — |
(d) | Long-term liabilities as of December 31, 2005 |
1 to 3 years | 3 to 5 years | 5 to 10 years | Over 10 years | |||||||||||||||||||||||||||||||||
Average | Average | Average | Average | |||||||||||||||||||||||||||||||||
annual | annual | annual | annual | |||||||||||||||||||||||||||||||||
interest | interest | interest | interest | |||||||||||||||||||||||||||||||||
Description | Currency | Amount | rate | Amount | rate | Amount | rate | Amount | rate | |||||||||||||||||||||||||||
ThCh$ | ThCh$ | ThCh$ | ThCh$ | |||||||||||||||||||||||||||||||||
Bonds payable | UF | 109,035,198 | 6,2% | — | — | 5,740,948 | 6.20% | 51,668,536 | 6.20% | |||||||||||||||||||||||||||
Bonds payable | U.S.$ | — | — | 240,933,938 | 7,88% | — | — | — | — | |||||||||||||||||||||||||||
Swap contracts | Ch$ | 29,670,161 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Provisions | Ch$ | 1,503,217 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Miscellaneous payables | Ch$ | 4,189,429 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Total long-term liabilities | U.S.$ | — | — | 240,933,938 | — | — | — | — | — | |||||||||||||||||||||||||||
UF | 109,035,198 | — | — | — | 5,740,948 | — | 51,668,536 | — | ||||||||||||||||||||||||||||
Ch$ | 35,362,807 | — | — | — | — | — | — | — |
Six months | ||||||||||||
ended | Year ended | Year ended | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
Description | 2006 | 2005 | 2004 | |||||||||
ThCh$ | ThCh$ | ThCh$ | ||||||||||
Archeological inspection related to Charrúa — Chillán line | 4,931 | 32,291 | — | |||||||||
Design of ISO 14001 environmental quality management system | 10,654 | 64,038 | 29,610 | |||||||||
ISO 9000 quality management system | 17,991 | 35,236 | — | |||||||||
Reforestation in Nadal National Reserve | — | — | 24,375 | |||||||||
Reforestation associated to construction of the Ancoa-Itahue line | — | — | 18,007 | |||||||||
Reforestation plan in Ojos Buenos | — | — | 1,621 | |||||||||
Urgent environmental works | 9,190 | — | — | |||||||||
Other miscellaneous disbursements | 2,054 | 16,513 | 85,804 | |||||||||
Total | 44,820 | 148,078 | 159,417 | |||||||||
F-68
Table of Contents
(a) | Inflation accounting |
(b) | Capitalization of interest |
(c) | Staff severance indemnity |
(d) | Acquisition of the Transmission Business |
F-69
Table of Contents
(e) | Deferred income taxes |
(i) | the reversal of the complementary assets and liabilities recorded as a transitional provision for unrecorded deferred taxes as of January 1, 2000 and their corresponding amortization into income, and | |
(ii) | accounting for deferred tax effects related to U.S. GAAP adjustments. |
(f) | Minimum dividend |
(g) | Derivative contracts and hedging |
(h) | Embedded derivatives |
F-70
Table of Contents
(i) | Effects of conforming to U.S. GAAP |
Six months ended | Year ended | |||||||
June 30, | December 31, | |||||||
2006 | 2005 | |||||||
ThCh$ | ThCh$ | |||||||
Net income as shown in the Chilean GAAP financial statements | 25,949,409 | 35,390,487 | ||||||
Capitalization of interest (paragraph b) | (2,316 | ) | (4,633 | ) | ||||
Staff severance indemnities (paragraph c) | 26,465 | (16,463 | ) | |||||
Amortization of goodwill (paragraph d) | 3,051,093 | 6,150,093 | ||||||
Depreciation of property, plant and equipment (paragraph d) | (2,272,359 | ) | (4,602,881 | ) | ||||
Financial derivative instruments (paragraph g) | 1,033,073 | 1,313,243 | ||||||
Embedded derivatives (paragraph h) | 5,170,511 | (1,485,155 | ) | |||||
Adjustments of deferred income taxes (paragraph e) | 60,019 | (873,039 | ) | |||||
Net income under U.S. GAAP | 33,015,895 | 35,871,652 | ||||||
As of | As of | |||||||
June 30, | December 31, | |||||||
2006 | 2005 | |||||||
ThCh$ | ThCh$ | |||||||
Shareholder’s equity as shown in the Chilean GAAP financial statements | 345,048,652 | 328,435,332 | ||||||
Capitalization of interest (paragraph b) | 141,338 | 143,654 | ||||||
Staff severance indemnities (paragraph c) | (307,832 | ) | (334,297 | ) | ||||
Goodwill (paragraph d) | 34,934,809 | 31,883,716 | ||||||
Accumulated depreciation of property, plant and equipment (paragraph d) | (24,768,927 | ) | (22,496,568 | ) | ||||
Deferred income taxes (paragraph e) | 238,853 | 40,862 | ||||||
Minimum dividend (paragraph f) | (7,784,823 | ) | — | |||||
Financial derivative instruments (paragraph g) | 1,369,956 | 336,883 | ||||||
Embedded derivatives (paragraph h) | 18,789,359 | 13,618,848 | ||||||
Shareholder’s equity under U.S. GAAP | 367,661,385 | 351,628,430 | ||||||
Six months ended | Year ended | |||||||
June 30, | December 31, | |||||||
Description | 2006 | 2005 | ||||||
ThCh$ | ThCh$ | |||||||
Opening balance | 351,628,430 | 397,666,250 | ||||||
Minimum dividend liability | (7,784,823 | ) | — | |||||
Dividends paid | (9,198,117 | ) | (44,004,352 | ) | ||||
Capital decrease | — | (37,905,120 | ) | |||||
Net income for the period | 33,015,895 | 35,871,652 | ||||||
Closing balance | 367,661,385 | 351,628,430 | ||||||
(j) | Earnings per share disclosure |
Six months ended | Year ended | |||||||
June 30, | December 31, | |||||||
2006 | 2005 | |||||||
Ch$ | Ch$ | |||||||
Basic earnings per share - Chilean GAAP | 25,949 | 35,390 | ||||||
Basic earnings per share - U.S. GAAP | 35,016 | 35,872 | ||||||
Weighted average number of shares of common stock outstanding | 1,000,000 | 1,000,000 |
F-71
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twenty-eight weeks ended December 31, 2006 and the three months ended March 31, 2007
F-72
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F-73
Table of Contents
As of | As of | |||||||||||
March 31, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 2f | 128,181 | 120,986 | |||||||||
Trade accounts receivable | 3 | 46,146 | 22,241 | |||||||||
Miscellaneous receivables, net | 1,250 | 1,476 | ||||||||||
Inventories | 59 | 59 | ||||||||||
Recoverable taxes | 4 | 4,190 | 2,611 | |||||||||
Prepaid expenses | 945 | 5,720 | ||||||||||
Future income taxes | 4 | 344 | 469 | |||||||||
Other current assets | 5 | 1,077 | 3,333 | |||||||||
Total current assets | 182,192 | 156,895 | ||||||||||
Property, plant and equipment: | 6 | |||||||||||
Land | 28,071 | 28,394 | ||||||||||
Buildings and infrastructure | 1,271,164 | 1,278,848 | ||||||||||
Machinery and equipment | 499,202 | 499,086 | ||||||||||
Other property, plant and equipment | 2,611 | 2,645 | ||||||||||
Accumulated depreciation (less) | (44,315 | ) | (30,838 | ) | ||||||||
Total property, plant and equipment, net | 1,756,733 | 1,778,135 | ||||||||||
Other assets: | ||||||||||||
Investments in other companies | 426 | 180 | ||||||||||
Goodwill | 2d | 454,018 | 455,519 | |||||||||
Long-term receivables | 3 | — | 17,616 | |||||||||
Long-term future income taxes, net | 4 | 93,192 | 97,106 | |||||||||
Intangibles | 2i | 253,406 | 256,650 | |||||||||
Deferred debt issuance costs | — | 13,257 | ||||||||||
Long-term deposit | 12d) | 867,283 | 849,522 | |||||||||
Other | 39,237 | 41,520 | ||||||||||
Total other assets | 1,707,562 | 1,731,370 | ||||||||||
Total assets | 3,646,487 | 3,666,400 | ||||||||||
F-74
Table of Contents
As of | As of | |||||||||||
March 31, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
(Unaudited) | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Short-term bank loans | — | 149,613 | ||||||||||
Current portion of long-term bonds payable | 7 | 28,194 | 223,968 | |||||||||
Derivatives | 9 | 414 | 177 | |||||||||
Accounts payable | 45,316 | 36,407 | ||||||||||
Miscellaneous payables | 13,733 | 14,214 | ||||||||||
Income tax payable | 322 | — | ||||||||||
Provisions | 10 | 2,818 | 3,857 | |||||||||
Withholdings | 4,162 | 3,750 | ||||||||||
Other current liabilities | 174 | 494 | ||||||||||
Total current liabilities | 95,133 | 432,480 | ||||||||||
Long-term liabilities: | ||||||||||||
Long-term bonds payable | 7 | 1,398,135 | 1,079,904 | |||||||||
Long-term derivatives | 8 | 856,475 | 849,437 | |||||||||
9 | 61,554 | 62,432 | ||||||||||
Long-term notes payable to related parties | 9 | 877,228 | 859,467 | |||||||||
Miscellaneous accounts payable | 3 | — | 19,619 | |||||||||
Long-term provisions | 10 | 5,154 | 5,224 | |||||||||
Other long-term liabilities | 26,426 | 18,644 | ||||||||||
Total long-term liabilities | 3,224,972 | 2,894,727 | ||||||||||
Contingencies and commitments | 2g, 2o, 9, 12 | — | — | |||||||||
Non-controlling interest | 135 | 140 | ||||||||||
Shareholders’ Equity: | 11 | |||||||||||
Paid-in capital | 348,812 | 348,812 | ||||||||||
Accumulated other comprehensive loss | (11,607 | ) | (1,674 | ) | ||||||||
Retained deficit | (10,958 | ) | (8,085 | ) | ||||||||
Subtotal Accumulated other comprehensive loss and Retained deficit | (22,565 | ) | (9,759 | ) | ||||||||
Shareholders’ Equity, net | 326,247 | 339,053 | ||||||||||
Total Liabilities and Shareholders’ Equity | 3,646,487 | 3,666,400 | ||||||||||
F-75
Table of Contents
Three Months | Twenty Eight | |||||||||||
Ended | Weeks Ended | |||||||||||
March 31, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
(Unaudited) | ||||||||||||
Sales revenue | 59,115 | 110,539 | ||||||||||
Other income | 1,041 | 1,913 | ||||||||||
Cost of sales | (8,535 | ) | (14,606 | ) | ||||||||
Depreciation | (13,729 | ) | (29,280 | ) | ||||||||
Administrative and selling expenses | (2,197 | ) | (10,223 | ) | ||||||||
Income before financing charges, income taxes and non-controlling interest | 35,695 | 58,343 | ||||||||||
Interest income | 19,566 | 38,797 | ||||||||||
Interest expense, including: | (60,383 | ) | (120,328 | ) | ||||||||
— Interest on long-term debt | (56,592 | ) | (102,512 | ) | ||||||||
— Other interest expense | (3,791 | ) | (17,816 | ) | ||||||||
Foreign exchange gain, net | 642 | 9,629 | ||||||||||
Other non-operating income | 7,796 | — | ||||||||||
Income (loss) before income taxes and non-controlling interest | 3,316 | (13,559 | ) | |||||||||
Income tax (charge) recovery | 4 | (3,073 | ) | 5,540 | ||||||||
Non-controlling interest | 31 | (66 | ) | |||||||||
Net income (loss) for the period | 274 | (8,085 | ) | |||||||||
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Table of Contents
Three Months | Twenty Eight | |||||||
Ended | Weeks Ended | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | (Unaudited) | |||||||
Net income (loss) for the period | 274 | (8,085 | ) | |||||
Other comprehensive income (loss): | ||||||||
— Translation of the net investment in self-sustaining foreign operation | (17,144 | ) | 18,820 | |||||
— Net gains (losses) on related hedging items, net of taxes of ThUS $(1,477) and ThUS $4,198, respectively | 7,211 | (20,494 | ) | |||||
Comprehensive loss | (9,659 | ) | (9,759 | ) | ||||
F-77
Table of Contents
Three Months | Twenty Eight | |||||||
Ended | Weeks Ended | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
Deficit at the beginning of the period | (8,085 | ) | — | |||||
Change in accounting policy(1) | (3,147 | ) | — | |||||
Net income (loss) for the period | 274 | (8,085 | ) | |||||
Retained deficit at the end of the period | (10,958 | ) | (8,085 | ) | ||||
(1) | Refer to Note 2(q) for further detail about impact of new accounting policies. |
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Three Months | Twenty Eight | |||||||||||
Ended | Weeks Ended | |||||||||||
March 31, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
(Unaudited) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income (loss) for the period | 274 | (8,085 | ) | |||||||||
Adjustments for items that do not represent cash flows: | ||||||||||||
Depreciation | 13,729 | 29,280 | ||||||||||
Foreign exchange gain, net | (642 | ) | (9,629 | ) | ||||||||
Future income taxes | 1,624 | (5,540 | ) | |||||||||
Accrued interest | 29,963 | 60,648 | ||||||||||
Other | 16,565 | 10,675 | ||||||||||
Changes in working capital balances: | ||||||||||||
Trade accounts receivable | (6,289 | ) | 3,652 | |||||||||
Prepaid expenses and other assets | 7,678 | (7,486 | ) | |||||||||
Recoverable income taxes | (1,579 | ) | (2,611 | ) | ||||||||
Accounts payable and accrued liabilities | (13,307 | ) | 28,160 | |||||||||
Net cash provided by operating activities | 48,016 | 99,064 | ||||||||||
Cash Flows from Financing Activities: | ||||||||||||
Capital contributions | — | 348,812 | ||||||||||
Proceeds from bonds | 306,899 | 420,155 | ||||||||||
Proceeds from loans | — | 1,404,646 | ||||||||||
Proceeds from notes | — | 814,000 | ||||||||||
Payments of loans | (352,482 | ) | (450,387 | ) | ||||||||
Net cash (used in) provided by financing activities | (45,583 | ) | 2,537,226 | |||||||||
Cash Flows from Investing Activities: | ||||||||||||
Acquisition of business, net of cash acquired of ThUS $98,055 | — | (1,648,537 | ) | |||||||||
Purchase of property, plant, and equipment | (4,254 | ) | (25,193 | ) | ||||||||
Proceeds from (payments on) foreign exchange forward contracts designated as hedge of net investment | 9,016 | (27,574 | ) | |||||||||
Long-term deposit | — | (814,000 | ) | |||||||||
Net cash flows provided by (used in) investing activities | 4,762 | (2,515,304 | ) | |||||||||
Total net cash flows for the period | 7,195 | 120,986 | ||||||||||
Cash and cash equivalents, beginning of the period | 120,986 | — | ||||||||||
Cash and cash equivalents, end of the period | 2f | 128,181 | 120,986 | |||||||||
Supplemental cash flow information: | ||||||||||||
Interest paid | 11,149 | 45,768 | ||||||||||
Income taxes paid | 6,550 | 8,127 |
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Table of Contents
Information as of and for the three months ended March 31, 2007 is unaudited
(Expressed in thousands of U.S. dollars unless otherwise stated)
a) | Basis of accounting |
b) | Basis of consolidation |
Participation as | Participation as | |||||||||||||||
of March 31, 2007 | of December 31, 2006 | |||||||||||||||
Direct/Indirect | % | Direct/Indirect | % | |||||||||||||
Rentas Eléctricas I Limitada | Direct | 99.96 | Direct | 99.96 | ||||||||||||
Transelec Holdings Rentas Limitada | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||
Rentas Eléctricas III Limitada | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||
Transelec S.A. | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||
Transelec Norte S.A. | Indirect | 99.96 | Indirect | 99.96 |
c) | Business combination |
F-80
Table of Contents
As of | ||||
June 30, 2006 | ||||
ThUS$ | ||||
Assets acquired: | ||||
Current assets (net of cash and cash equivalents) | 29,981 | |||
Property, plant and equipment | 1,751,444 | |||
Indefinite life intangibles (rights-of-way) | 247,500 | |||
Other assets | 52,395 | |||
Goodwill | 625,006 | |||
Total assets acquired | 2,706,326 | |||
Liabilities assumed: | ||||
Current portion of long-term bonds payable | (248,509 | ) | ||
Long-term bonds payable | (672,387 | ) | ||
Future income tax | (84,424 | ) | ||
Other liabilities | (52,469 | ) | ||
Total liabilities assumed | (1,057,789 | ) | ||
Net cash consideration | 1,648,537 | |||
Consideration: | ||||
Net assets acquired | 1,746,592 | |||
Less: Cash and cash equivalents acquired | 98,055 | |||
Net non-cash assets acquired | 1,648,537 | |||
d) | Goodwill |
(1) | The fair value of a reporting unit should be compared with its carrying amount, including goodwill, in order to identify a potential impairment. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. | |
(2) | When the carrying amount of a reporting unit exceeds its fair value, the fair value of the reporting unit’s goodwill should be compared with its carrying amount to measure the amount of the impairment loss, if any. When the carrying amount of reporting unit goodwill exceeds the fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. |
F-81
Table of Contents
e) | Reporting currency and foreign currency translation |
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Ch$ | Ch$ | |||||||
United States dollar | 539.21 | 532.39 |
Index-linked assets and liabilities |
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Ch$ | Ch$ | |||||||
Unidad de Fomento | 18,372.97 | 18,336.38 |
f) | Cash and cash equivalents and Statement of Cash Flows |
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
ThUS$ | ThUS$ | |||||||
Cash and bank | 7,083 | 12,320 | ||||||
Term deposits | 94,972 | 80,604 | ||||||
Reverse resale agreements | 26,126 | 28,062 | ||||||
Total | 128,181 | 120,986 | ||||||
g) | Property, plant, and equipment |
F-82
Table of Contents
h) | Depreciation of property, plant, and equipment |
Description | Years | |||
Transmission lines | 40 | |||
Electrical equipment | 15-35 | |||
Non-hydraulic civil projects | 40 | |||
Other | 3-40 |
i) | Intangibles |
j) | Bonds payable |
k) | Deferred debt issuance and placement expenses |
l) | Current and future income taxes |
m) | Vacation accrual |
n) | Staff severance indemnities |
o) | Revenue recognition and tariff-setting |
F-83
Table of Contents
p) | Derivative contracts and hedging |
q) | Changes in accounting policies |
Comprehensive Income |
Financial Instruments — Recognition and Measurement |
Hedges |
F-84
Table of Contents
Impact of adopting Sections 1530, 3855, 3861 and 3865 |
r) | Future accounting pronouncements |
3. | SHORT AND LONG-TERM RECEIVABLES AND MISCELLANEOUS LONG-TERM ACCOUNTS PAYABLE |
a) | Recoverable income taxes |
As of | As of | |||||||
March 31, | December 31, | |||||||
Description | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
Provision for income taxes | (2,360 | ) | (8,954 | ) | ||||
Monthly income tax installments | 6,550 | 8,127 | ||||||
Receivable from tax losses absorbed | — | 3,418 | ||||||
Other income tax credits | — | 20 | ||||||
Total | 4,190 | 2,611 | ||||||
F-85
Table of Contents
b) | Income tax charge/recovery |
For the | For the | |||||||
Three Months Ended | Twenty-eight Weeks Ended | |||||||
Description | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
Current income tax | (1,449 | ) | (3,418 | ) | ||||
Benefit from tax losses absorbed and other credits | — | 3,418 | ||||||
Effect of future income taxes | (1,624 | ) | 5,540 | |||||
Total income tax (charge) recovery | (3,073 | ) | 5,540 | |||||
c) | Future income taxes |
As of March 31, 2007 | ||||||||||||||||||||||||||||||||
Future income tax | As of December 31, 2006 | |||||||||||||||||||||||||||||||
Future income tax assets | liabilities | Future income tax assets | Future income tax liabilities | |||||||||||||||||||||||||||||
Temporary differences | Short-term | Long-term | Short-term | Long-term | Short-term | Long-term | Short-term | Long-term | ||||||||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||
Staff vacation accrual | 192 | — | — | — | 201 | — | — | — | ||||||||||||||||||||||||
Leased assets | — | 23 | — | — | — | — | — | 8,096 | ||||||||||||||||||||||||
Property, plant and equipment | — | 94,804 | — | — | — | 110,943 | — | — | ||||||||||||||||||||||||
Price-level restatement | — | 3,244 | — | — | — | 2,705 | — | — | ||||||||||||||||||||||||
Intangibles | — | — | — | 22,431 | — | — | — | 22,419 | ||||||||||||||||||||||||
Capitalized of financial expenses | — | — | — | — | — | — | — | 2,548 | ||||||||||||||||||||||||
Write-offs of assets | — | — | — | — | — | 367 | — | — | ||||||||||||||||||||||||
Prepaid expenses | — | — | — | 2,361 | — | — | — | 1,733 | ||||||||||||||||||||||||
Forward contracts | 4 | — | — | — | — | — | 75 | — | ||||||||||||||||||||||||
Tax losses(1) | — | 16,846 | — | — | — | 13,340 | — | — | ||||||||||||||||||||||||
Swap contracts | — | — | — | — | — | 273 | — | — | ||||||||||||||||||||||||
Embedded derivatives | — | — | — | 6,601 | — | — | — | — | ||||||||||||||||||||||||
Bonds | — | 9,668 | — | — | 162 | 10,195 | — | — | ||||||||||||||||||||||||
Off-market contracts | — | — | — | — | — | — | — | 5,921 | ||||||||||||||||||||||||
Others | 148 | — | — | — | 181 | — | — | — | ||||||||||||||||||||||||
Total future income taxes | 344 | 124,585 | — | 31,393 | 544 | 137,823 | 75 | 40,717 | ||||||||||||||||||||||||
Net future income tax assets/liabilities | 344 | 93,192 | — | — | 469 | 97,106 | — | — | ||||||||||||||||||||||||
(1) | In accordance with current Chilean tax regulations, tax losses do not expire. |
As of | As of | |||||||
March 31, | December 31, | |||||||
Description | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
Forward contract | 1,077 | 3,322 | ||||||
Other | — | 11 | ||||||
Total | 1,077 | 3,333 | ||||||
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As of March 31, 2007 | As of December 31, 2006 | |||||||||||||||||||||||
Accumulated | Net | Accumulated | Net | |||||||||||||||||||||
Description | Cost | depreciation | book value | Cost | depreciation | book value | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Land | 28,071 | — | 28,071 | 28,394 | — | 28,394 | ||||||||||||||||||
Buildings and infrastructure: | ||||||||||||||||||||||||
Buildings | 22,448 | (604 | ) | 21,845 | 22,622 | (458 | ) | 22,164 | ||||||||||||||||
Access roads | 391 | (8 | ) | 383 | 404 | (5 | ) | 399 | ||||||||||||||||
Transmission lines | 988,227 | (18,678 | ) | 969,549 | 1,001,720 | (11,898 | ) | 989,822 | ||||||||||||||||
Houses and apartments | 146 | (3 | ) | 143 | 154 | (2 | ) | 152 | ||||||||||||||||
Non-hydraulic civil projects | 191,130 | (4,564 | ) | 186,565 | 189,835 | (3,340 | ) | 186,495 | ||||||||||||||||
Works in progress | 68,822 | — | 68,822 | 64,113 | — | 64,113 | ||||||||||||||||||
Total Buildings and infrastructure | 1,271,164 | (23,857 | ) | 1,247,307 | 1,278,848 | (15,703 | ) | 1,263,145 | ||||||||||||||||
Machinery and equipment: | ||||||||||||||||||||||||
Telecommunications equipment | 10,840 | (1,619 | ) | 9,221 | 10,760 | (1,345 | ) | 9,415 | ||||||||||||||||
Furniture, machinery and office equipment | 245 | (18 | ) | 227 | 239 | (12 | ) | 227 | ||||||||||||||||
Service furniture and equipment | 47 | (3 | ) | 44 | 46 | (2 | ) | 44 | ||||||||||||||||
Tools and instruments | 2,003 | (104 | ) | 1,899 | 1,927 | (71 | ) | 1,856 | ||||||||||||||||
Power generation unit | 1,828 | (111 | ) | 1,717 | 1,842 | (81 | ) | 1,761 | ||||||||||||||||
Electrical equipment | 428,552 | (13,201 | ) | 415,351 | 429,639 | (9,677 | ) | 419,962 | ||||||||||||||||
Mechanical, protection and measurement equipment | 51,589 | (4,865 | ) | 46,724 | 51,801 | (3,635 | ) | 48,166 | ||||||||||||||||
Transport and loading equipment | 620 | (59 | ) | 561 | 556 | (39 | ) | 517 | ||||||||||||||||
Computers and software | 3,478 | (478 | ) | 3,000 | 2,276 | (273 | ) | 2,003 | ||||||||||||||||
Total Machinery and equipment | 499,202 | (20,458 | ) | 478,744 | 499,086 | (15,135 | ) | 483,951 | ||||||||||||||||
Other Property, plant, and equipment: | ||||||||||||||||||||||||
Construction materials | 2,611 | — | 2,611 | 2,645 | — | 2,645 | ||||||||||||||||||
Total Other property, plant, and equipment | 2,611 | — | 2,611 | 2,645 | — | 2,645 | ||||||||||||||||||
Total property, plant and equipment | 1,801,048 | (44,315 | ) | 1,756,733 | 1,808,973 | (30,838 | ) | 1,778,135 | ||||||||||||||||
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Registration or | ||||||||||||||||||||||||||||||||||
identification | Nominal | Currency or | Book value | |||||||||||||||||||||||||||||||
number of the | amount | indexation | Interest | Periodicity of payments | As of | As of | Principal/ | |||||||||||||||||||||||||||
instrument | Series | placed | unit | rate | Maturity date | Interest | Principal | Mar 31, 2007 | Dec 31, 2006 | Interest | ||||||||||||||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||
Current portion of long-term bonds: | ||||||||||||||||||||||||||||||||||
249 | A1 | 40,712 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 1,402 | Interest | ||||||||||||||||||||||||
249 | A2 | 81,424 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 2,804 | Interest | ||||||||||||||||||||||||
249 | B1 | 4,071 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 35 | 140 | Interest | ||||||||||||||||||||||||
249 | B2 | 61,068 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 519 | 2,103 | Interest | ||||||||||||||||||||||||
First issuance | Single | 7,946,777 | US$ | $ | 7.88% | Apr 15, 2007 | Semiannually | At maturity | 17,483 | 7,947 | Interest | |||||||||||||||||||||||
249 | A1 | 2,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 69,198 | Principal | ||||||||||||||||||||||||
249 | A2 | 4,000,000 | UF | 6.2% | Mar 1, 2007 | Semiannually | At maturity | — | 138,397 | Principal | ||||||||||||||||||||||||
249 | B1 | 4,000 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 136 | 69 | Principal | ||||||||||||||||||||||||
249 | B2 | 60,000 | UF | 6.2% | Sep 1, 2007 | Semiannually | Semiannually | 2,044 | 1,039 | Principal | ||||||||||||||||||||||||
481 | D | 25,235 | UF | 4.25% | Jun 15, 2007 | Semiannually | Semiannually | 5,696 | 869 | Interest | ||||||||||||||||||||||||
480 | C | 17,349.50 | UF | 3.5% | Sep 1, 2007 | Semiannually | Semiannually | 592 | — | Interest | ||||||||||||||||||||||||
First issuance | Private placement | 1,688,625 | US$ | $ | 7.11% | May 2, 2007 | Semiannually | At maturity | 1,689 | — | Interest | |||||||||||||||||||||||
Total current portion of bond payable | 28,194 | 223,968 | ||||||||||||||||||||||||||||||||
Long-term bonds payable: | ||||||||||||||||||||||||||||||||||
249 | B1 | 198,000 | UF | 6.2% | Mar 1, 2022 | Semiannually | Semiannually | 7,544 | 7,827 | Principal | ||||||||||||||||||||||||
249 | B2 | 2,970,000 | UF | 6.2% | Mar 1, 2022 | Semiannually | Semiannually | 114,886 | 117,404 | Principal | ||||||||||||||||||||||||
First issuance | Single | 465,000,000 | US$ | $ | 7.88% | Apr 15, 2011 | Semiannually | At maturity | 488,487 | 489,888 | Principal | |||||||||||||||||||||||
481 | D | 13,500,000 | UF | 4.25% | Dec 15, 2027 | Semiannually | At maturity | 459,997 | 464,785 | Principal | ||||||||||||||||||||||||
480 | C | 6,000,000 | UF | 3.5% | Sept 01, 2016 | Semiannually | At maturity | 204,443 | — | Principal | ||||||||||||||||||||||||
First issuance | Private placement | 150,000,000 | US$ | $ | 7.11% | May 02, 2026 | Quarterly | At maturity | 150,000 | — | Principal | |||||||||||||||||||||||
Debt issuance costs | (27,222 | ) | — | |||||||||||||||||||||||||||||||
Total Long-term bonds payable | 1,398,135 | 1,079,904 | ||||||||||||||||||||||||||||||||
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As of | As of | |||||||
March 31, | December 31, | |||||||
Year | 2007 | 2007 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
2007 | 28,194 | 223,968 | ||||||
2008 | 2,181 | 2,204 | ||||||
2009 | 2,181 | 2,204 | ||||||
2010 | 2,181 | 2,204 | ||||||
2011 | 490,668 | 493,194 | ||||||
Thereafter | 900,924 | 580,098 | ||||||
Total | 1,426,329 | 1,303,872 | ||||||
8. | BANK LOANS |
As of | As of | |||||||
March 31, | December 31, | |||||||
Year | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
2007 | — | — | ||||||
2008 | — | — | ||||||
2009 | 856,475 | 849,437 | ||||||
2010 | — | — | ||||||
2011 | — | — | ||||||
Thereafter | — | — | ||||||
Total | 856,475 | 849,437 | ||||||
9. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
As of March 31, 2007 | As of December 31, 2006 | |||||||||||||||||||||||
Financial assets | HFT(1) | L&R(2) | Total | HFT(1) | L&R(2) | Total | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Cash and cash equivalents | 128,121 | — | 128,121 | 120,896 | 120,896 | |||||||||||||||||||
Trade accounts receivable | — | 46,146 | 46,146 | — | 22,241 | 22,241 | ||||||||||||||||||
Derivative financial instruments, including: | ||||||||||||||||||||||||
— Forward contracts(3) | 1,077 | — | 1,077 | 3,333 | — | 3,333 | ||||||||||||||||||
— Embedded derivatives(4) | 38,829 | — | 38,829 | — | — | — | ||||||||||||||||||
Long-term bank deposit | 867,283 | 867,283 | 849,522 | 849,522 | ||||||||||||||||||||
Investments in other companies | 426 | — | 426 | 180 | — | 180 | ||||||||||||||||||
Long-term receivables | — | — | — | — | 17,616 | 17,616 | ||||||||||||||||||
Total | 1,035,736 | 46,146 | 1,081,882 | 973,931 | 39,857 | 1,013,788 | ||||||||||||||||||
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As of | As of | |||||||||||||||
March 31, 2007 | December 31, 2006 | |||||||||||||||
Other than | Other than | |||||||||||||||
Financial liabilities | HFT(1) | HFT(1) | HFT(1) | HFT(1) | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
(Unaudited) | ||||||||||||||||
Accounts payable, and other short-term payables | — | 59,049 | — | 50,621 | ||||||||||||
Debt (including long-term and short- term portion) | — | 3,160,032 | — | 3,162,389 | ||||||||||||
Derivatives (swap contracts) | 61,968 | — | 62,609 | — | ||||||||||||
Other long-term payables | — | 26,426 | 38,263 | |||||||||||||
Total | 61,968 | 3,245,507 | 62,609 | 3,251,273 | ||||||||||||
(1) | Held-for-trading. | |
(2) | Loans and receivables. | |
(3) | Classified in other current assets. | |
(4) | Classified in other non-current assets. |
As of March 31, 2007 | As of December 31, 2006 | |||||||||||||||
Description | Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
(Unaudited) | ||||||||||||||||
Long-term bonds payable | 1,425,357 | 1,441,007 | 1,079,904 | 1,091,761 | ||||||||||||
Long-term bank loan | 866,471 | 888,355 | 849,437 | 886,731 |
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10. | PROVISIONS |
As of | As of | |||||||
March 31, | December 31, | |||||||
Description | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
(Unaudited) | ||||||||
Accrued payroll | 1,205 | 2,241 | ||||||
Vacation accrual | 1,128 | 1,183 | ||||||
Staff severance indemnities (short-term portion) | 485 | 433 | ||||||
Total | 2,818 | 3,857 | ||||||
11. | SHAREHOLDERS’ EQUITY |
Accumulated | ||||||||||||||||||||
other | Cumulative | Retained | ||||||||||||||||||
Paid-in | comprehensive | translation | earnings | |||||||||||||||||
Description | capital | loss | adjustment | (losses) | Total | |||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ||||||||||||||||
Contribution of initial capital(1) | 12 | — | — | 12 | ||||||||||||||||
Increase of capital(1) | 348,800 | — | — | 348,800 | ||||||||||||||||
Net investment in self-sustaining foreign operation | — | — | 18,820 | — | 18,820 | |||||||||||||||
Loss on hedging instruments | — | — | (20,494 | ) | — | (20,494 | ) | |||||||||||||
Net loss for the period | — | — | — | (8,085 | ) | (8,085 | ) | |||||||||||||
Balance as of December 31, 2006 | 348,812 | — | (1,674 | ) | (8,085 | ) | 339,053 | |||||||||||||
(Unaudited) | ||||||||||||||||||||
Balance as of January 1, 2007 | 348,812 | — | (1,674 | ) | (8,085 | ) | 339,053 | |||||||||||||
Reclassification of net cumulative translation adjustment | — | (1,674 | ) | 1,674 | — | — | ||||||||||||||
Change in accounting policy (Note 2q) | — | — | — | (3,147 | ) | (3,147 | ) | |||||||||||||
Net investment in self-sustaining foreign operation | — | (17,144 | ) | — | — | (17,144 | ) | |||||||||||||
Gain on hedging instruments | — | 7,211 | — | — | 7,211 | |||||||||||||||
Net loss for the period | — | — | — | 274 | 274 | |||||||||||||||
Balance as of March 31, 2007 | 348,812 | (11,607 | ) | — | (10,958 | ) | 326,247 | |||||||||||||
(1) | ETC Holdings Ltd. was founded with the initial minimum share capital of ThUS$ 12. Subsequently shareholders increase the capital by ThUS$ 348,800. |
Participation | ||||
Shareholder | % | |||
CPP Investment Board Private Holding Inc. | 27.7453 | |||
Bryson International Limited | 27.7453 | |||
4358520 Canada Inc. | 22.1106 | |||
4358538 Canada Inc. | 3.9019 | |||
Infra — PSP Canada Inc. | 18.4969 | |||
Total | 100.0000 | |||
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12. | CONTINGENCIES AND RESTRICTIONS |
a) | Debt covenants |
– | Maintain, during the period the bonds are outstanding, assets free of any kind of lien or encumbrance, whose book value is equal to or greater than 1.2 times the book value of all the liabilities and debts of the issuer that are not subject to any liens or guarantees on assets or instruments belonging to it, including among such liabilities, the debt arising from the bond issuance. | |
– | Not sell, cede, transfer, contribute or in any way give up title to, either for money or for free, its essential assets. | |
– | Maintain a level of indebtedness at the individual and consolidated level whereby the ratio of Total demandable liabilities / Total capitalization, is no greater than 0.7. | |
– | Maintain, during the period the bonds are outstanding, minimum individual and consolidated shareholders’ equity of UF 15,000,000. |
b) | Litigations, lawsuits and demands from regulators |
1. | On May 15, 2000, the Superintendency of Electricity and Fuel (Superintendencia de Electricidad y Combustibles or SEC) fined Transelec of 300 annual tax units (UTA), which as of March 31, 2007, amounted to ThUS$ 215, through Exempt Resolution No. 876, for its alleged responsibility in the power failure of the Sistema Interconectado Central (SIC) on July 14, 1999, caused by the untimely withdrawal from service of the San Isidro Plant of San Isidro S.A. On May 25, 2000, an administrative motion was filed by Transelec before SEC, which is pending resolution. | |
2. | On December 5, 2002, SEC in Ordinary Official Letter No. 7183, charged Transelec for its alleged responsibility in the interruption of electrical supply in the SIC on September 23, 2002. By Exempt Resolution No. 1438 of August 14, 2003, the SEC applied various fines to Transelec for a total of UTA 2,500 equivalent as of March 2007 to ThUS$ 1,795. The Company had appealed the complaint before the Santiago Court of Appeals, and made a deposit of 25% of the original fine. The Company claims that it is not responsible for this situation since it considers it a case of force majeure. |
3. | The SEC in Ordinary Official Letter No. 1210, dated February 21, 2003, filed charges for the alleged responsibility of Transelec in the interruption of electric service in the SIC, on January 13, 2003. By Resolution No. 808, of April 27, 2004, SEC imposed a fine of UTA 560 equivalent as of March 2007 to ThUS$ 402, against which a writ of administrative reconsideration was filed, which was subsequently rejected. The Company appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. The Company claims that it is not responsible for this situation since it considers it a case of force majeure. | |
4. | On June 25, 2003, the Zone Director of the III Zone of SEC in Ordinary Official Letter No. 488, filed charges against Transelec for its alleged responsibility in the interruption of electrical supply in the SIC, south of Temuco on March 7, 2003. The Company had filed the corresponding responses. Management believes it has no responsibility for this event. | |
5. | On June 30, 2005 SEC through Exempt Resolution No. 1117, applied the following sanctions to Transelec: (i) a fine of 560 UTA equivalent as of March 31, 2007 to ThUS$ 402, for allegedly not having ensured electric service, as determined in the investigation of the general failure of the SIC on November 7, 2003; (ii) a fine of 560 UTA equivalent as of March 2007 to ThUS$ 402, levied on the Company as owner of the installations, for allegedly operating the installations without adhering to the operation scheduling set forth by the CDEC-SIC, without justified cause, as determined in the investigation of the general failure of the SIC on November 7, 2003. The Company had appealed the charges before the SEC, which is pending resolution. Management believes it has no responsibility for these events. | |
6. | On December 17, 2004, SEC, through Exempt Resolution No. 2334, fined Transelec with an amount of 300 UTA equivalent as of December 2006 to ThUS$ 215, for its alleged responsibility in the interruption of electrical supply south of Temuco, caused by a truck that crashed into a structure of the Charrúa — Temuco transmission line. The Company had filed a motion of invalidation and administrative reconsideration, claiming that it was a case of force majeure and that the charges are not applicable and should be cancelled. | |
7. | On April 1, 2004, SEC in Ordinary Official Letter No. 1631, filed charges against Transelec for restrictions in the transfer of power on November 5, 2003, in the Charrúa-Temuco line, due to the construction of the La Isla and Los Pinos crossing, which decreased the distance between the conductors and the ground. The corresponding response has been filed. Management believes that the charges are not applicable, and therefore the SEC should nullify the effects of these charges. | |
8. | On December 31, 2005, SEC through Official Letter No. 1831, filed charges against Transelec for allegedly operating its installations and in the process infringing on various provisions of the electrical regulations, which would have caused the interruption of electrical supply in the SIC on March 21, 2005. By Resolution No. 220, on February 7, 2006, the Company was fined with an amount of 560 UTA equivalent as of March 2007 to ThUS$ 402. Recourse was presented on February 16, 2006, which is still pending resolution. | |
9. | On August 11, 2003, Transelec was notified of the resolution of the arbitration case against Sociedad Austral de Electricidad S.A. (Saesa) in which Transelec demanded amount of ThUS$ 2,300. The resolution rejected the claim filed by the Company. Currently, the recourse to overturn this decision remains outstanding before the Santiago Court of Appeal. The purpose of this trial is to determine the amount that Saesa should pay to Transelec for use of its transmission system. Up to March 31, 2007, the Company has recognized and/or received part of the claimed amount in conformity with Resolution of Ministry of Economic Development and Reconstruction No. 88 of 2001. | |
10. | Through Ordinary Office No. 793, dated December 12, 2005, the SEC of the 7th Region, filed charges against Transelec for loss of electrical power in the town of Constitución on November 21, 2005 due to a failure, which occurred as a consequence of forestry works |
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that caused a tree to fall on the power line between San Javier and Constitución. The Company presented its evidence on January 4, 2006. On May 7, 2006, by Resolution No. 33, the SEC of the 7th Region fined the Company with the amount of 400 UTM equivalent as of December 2006 to ThUS$ 24. The sanction was re-imposed and ratified on June 7, 2006 by Resolution No. 42. The Company appealed the charges before the Court of Appeals of Talca, placing a deposit of 25% of the original fine. The Company maintains that it is not responsible for this event, as it was caused by a third party, and thus should be considered a case of force majeure. |
c) | Guarantees |
d) | Pledges on assets |
13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
a) | Embedded derivatives |
b) | Accounting for Uncertainty in Income Taxes |
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c) | Effects of conforming to US GAAP |
For the | ||||
28 weeks ended | ||||
Description | 2006 | |||
ThUS$ | ||||
Net loss as shown in the Canadian GAAP financial statements | (8,085 | ) | ||
Embedded derivatives (paragraph a) | (3,791 | ) | ||
Adjustments of deferred income taxes (paragraph a) | 644 | |||
Net loss under US GAAP | (11,232 | ) | ||
Other comprehensive income (loss): | ||||
Translation of the net investment in self-sustaining foreign operation | 18,820 | |||
Net losses on related hedging items, net of taxes of ThUS$ 4,198 | (20,494 | ) | ||
Total comprehensive loss under US GAAP | (12,906 | ) | ||
As of | ||||
December 31, | ||||
Description | 2006 | |||
ThUS$ | ||||
Shareholders’ equity as shown in the Canadian GAAP financial statements | 339,053 | |||
Embedded derivatives (paragraph a) | (3,791 | ) | ||
Adjustments of deferred income taxes (paragraph a) | 644 | |||
Shareholders’ equity under US GAAP | 335,906 | |||
c) | Effects of conforming to US GAAP |
For the | ||||
28 weeks ended | ||||
Description | 2006 | |||
ThCh$ | ||||
Opening balance | — | |||
Contribution and increase of capital | 348,812 | |||
Net investment in self-sustaining foreign operation | 18,820 | |||
Loss on hedging instruments | (20,494 | ) | ||
Net loss for the period | (11,232 | ) | ||
Closing balance | 335,906 | |||
d) | Recent US GAAP accounting pronouncements |
– | permits fair value re-measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; | |
– | clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”; | |
– | establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; | |
– | clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and | |
– | amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. |
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US$: | United States dollars | |
ThUS$: | Thousands of United States dollars | |
UF: | Unidad de Fomento. UF is an inflation-indexed, Chilean-peso denominated monetary unit set daily in advance on the basis of the previous month’s inflation rate. |
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As of | As of | |||||||||||
September 30, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ||||||||||||
(Unaudited) | ThUS$ | |||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 118,306 | 120,986 | ||||||||||
Trade accounts receivable | 3 | 48,328 | 22,241 | |||||||||
Miscellaneous receivables, net | 1,696 | 1,476 | ||||||||||
Inventories | 62 | 59 | ||||||||||
Recoverable taxes | 3,871 | 2,611 | ||||||||||
Prepaid expenses | 223 | 5,720 | ||||||||||
Future income taxes | 2,406 | 469 | ||||||||||
Other current assets | 24,327 | 3,333 | ||||||||||
Total current assets | 199,219 | 156,895 | ||||||||||
Property, plant and equipment: | 4 | |||||||||||
Land | 29,447 | 28,394 | ||||||||||
Buildings and infrastructure | 1,345,857 | 1,278,848 | ||||||||||
Machinery and equipment | 533,598 | 499,086 | ||||||||||
Other property, plant and equipment | 2,769 | 2,645 | ||||||||||
Accumulated depreciation (less) | (74,340 | ) | (30,838 | ) | ||||||||
Total property, plant and equipment, net | 1,837,331 | 1,778,135 | ||||||||||
Other assets: | ||||||||||||
Investments in other companies | 282 | 180 | ||||||||||
Goodwill | 469,251 | 455,519 | ||||||||||
Long-term receivables | 3 | 4,993 | 17,616 | |||||||||
Long-term future income taxes, net | 124,906 | 97,106 | ||||||||||
Intangibles | 266,500 | 256,650 | ||||||||||
Deferred debt issuance costs | — | 13,257 | ||||||||||
Long-term bank deposit | 10d | ) | 848,814 | 849,522 | ||||||||
Other | 46,975 | 41,520 | ||||||||||
Total other assets | 1,761,721 | 1,731,370 | ||||||||||
Total assets | 3,798,271 | 3,666,400 | ||||||||||
F-97
Table of Contents
(Unaudited) | ||||||||||||
As of | As of | |||||||||||
September 30, | December 31, | |||||||||||
Note | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Short-term bank loans | 17,997 | 149,613 | ||||||||||
Current portion of long-term bonds payable | 5 | 29,348 | 223,968 | |||||||||
Derivatives | 7 | 1,239 | 177 | |||||||||
Accounts payable | 92,673 | 47,828 | ||||||||||
Miscellaneous payables | 2,951 | 2,793 | ||||||||||
Provisions | 8 | 4,371 | 3,857 | |||||||||
Withholdings | 4,229 | 3,750 | ||||||||||
Other current liabilities | 7,814 | 494 | ||||||||||
Total current liabilities | 160,622 | 432,480 | ||||||||||
Long-term liabilities: | ||||||||||||
Long-term bonds payable | 5 | 1,477,856 | 1,079,904 | |||||||||
Long-term bank loans | 6 | 839,401 | 849,437 | |||||||||
Long-term derivatives | 7 | 84,751 | 62,432 | |||||||||
Long-term notes payable to related parties | 7 | — | 859,467 | |||||||||
Miscellaneous accounts payable | 3 | — | 19,619 | |||||||||
Long-term provisions | 8 | 5,416 | 5,224 | |||||||||
Other long-term liabilities | 2,935 | 18,644 | ||||||||||
Total long-term liabilities | 2,410,359 | 2,894,727 | ||||||||||
Contingencies and commitments | 7,10 | — | — | |||||||||
Non-controlling interest | 307 | 140 | ||||||||||
Shareholders’ Equity: | 9 | |||||||||||
Paid-in capital | 1,207,571 | 348,812 | ||||||||||
Accumulated other comprehensive income (loss) | 40,113 | (1,674 | ) | |||||||||
Deficit | (20,702 | ) | (8,085 | ) | ||||||||
Subtotal Accumulated other comprehensive income (loss) and Deficit | 19,411 | (9,759 | ) | |||||||||
Shareholders’ Equity, net | 1,226,982 | 339,053 | ||||||||||
Total Liabilities and Shareholders’ Equity | 3,798,271 | 3,666,400 | ||||||||||
F-98
Table of Contents
For the Three | For the Nine | For the Fourteen | ||||||||||
Months Ended | Months Ended | Weeks Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Sales revenue | 62,855 | 180,316 | 56,124 | |||||||||
Other income | 10,898 | 18,707 | 393 | |||||||||
Cost of sales | (7,190 | ) | (20,169 | ) | (6,341 | ) | ||||||
Depreciation | (12,718 | ) | (41,315 | ) | (13,591 | ) | ||||||
Administrative and selling expenses | (5,019 | ) | (10,299 | ) | (1,515 | ) | ||||||
Income before financing charges, income taxes and non-controlling interest | 48,826 | 127,240 | 35,070 | |||||||||
Interest income | 20,193 | 58,305 | 2,743 | |||||||||
Interest expense, including: | (67,145 | ) | (195,340 | ) | (46,068 | ) | ||||||
— Interest on long-term debt | (67,050 | ) | (194,712 | ) | (41,653 | ) | ||||||
— Other interest | (95 | ) | (628 | ) | (4,415 | ) | ||||||
Other financial expense | (8,727 | ) | (20,829 | ) | (6,402 | ) | ||||||
Foreign exchange gain, net | 1,103 | 5,163 | 2,374 | |||||||||
Loss before income taxes and non-controlling interest | (5,750 | ) | (25,461 | ) | (12,283 | ) | ||||||
Income tax recovery | 9,633 | 15,915 | 461 | |||||||||
Non-controlling interest | 78 | 76 | 3 | |||||||||
Net income (loss) for the period | 3,961 | (9,470 | ) | (11,819 | ) | |||||||
F-99
Table of Contents
(Expressed in thousands of U.S. dollars unless otherwise stated)
For the Three | For the Nine | For the Fourteen | ||||||||||
Months Ended | Months Ended | Weeks Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Net income (loss) for the period | 3,961 | (9,470 | ) | (11,819 | ) | |||||||
Other comprehensive income (loss): | ||||||||||||
— Translation of the net investment in self-sustaining foreign operations | 45,468 | 61,245 | 4,300 | |||||||||
— Net losses on related hedging items, net of taxes of ThUS$3,208, ThUS$3,985 and ThUS$1,329, respectively | (15,664 | ) | (19,458 | ) | (6,487 | ) | ||||||
Comprehensive income (loss) for the period | 33,765 | 32,317 | (14,006 | ) | ||||||||
F-100
Table of Contents
For the Three | For the Nine | For the Fourteen | ||||||||||
Months Ended | Months Ended | Weeks Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Deficit at the beginning of the period | (24,663 | ) | (8,085 | ) | — | |||||||
Change in accounting policy(1) | — | (3,147 | ) | — | ||||||||
Net income (loss) for the period | 3,961 | (9,470 | ) | (11,819 | ) | |||||||
Deficit at the end of the period | (20,702 | ) | (20,702 | ) | (11,819 | ) | ||||||
(1) | Refer to Note 2c) for further detail about impact of new accounting policies. |
F-101
Table of Contents
For the Three | For the Nine | For the Fourteen | ||||||||||
Months Ended | Months Ended | Weeks Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
ThUS$ | ThUS$ | ThUS$ | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income (loss) for the period | 3,961 | (9,470 | ) | (11,819 | ) | |||||||
Adjustments for items that do not represent cash flows: | ||||||||||||
Depreciation | 12,718 | 41,315 | 13,591 | |||||||||
Foreign exchange gain, net | (1,103 | ) | (5,163 | ) | (2,374 | ) | ||||||
Future income taxes | (10,772 | ) | (17,519 | ) | (3,284 | ) | ||||||
Accrued interest to be received | 16,609 | (18,186 | ) | |||||||||
Accrued interest to be paid | (20,696 | ) | 29,451 | 14,302 | ||||||||
Other | 28,292 | 13,824 | (251 | ) | ||||||||
Changes in working capital balances: | ||||||||||||
Trade accounts receivable | (5,441 | ) | (11,973 | ) | 3,357 | |||||||
Prepaid expenses and other assets | 4,313 | 5,734 | (17,910 | ) | ||||||||
Recoverable income taxes | (114 | ) | (1,152 | ) | (4,984 | ) | ||||||
Accounts payable and accrued liabilities | 27,542 | 13,975 | (1,642 | ) | ||||||||
Net cash provided by (used in) operating activities | 55,309 | 40,836 | (11,014 | ) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Capital contributions | — | — | 348,812 | |||||||||
Proceeds from bonds | — | 349,319 | — | |||||||||
Proceeds from loans | — | — | 1,414,000 | |||||||||
Proceeds from notes | — | — | 814,000 | |||||||||
Payments of loans | — | (357,208 | ) | — | ||||||||
Net cash provided by (used in) financing activities | — | (7,889 | ) | 2,576,812 | ||||||||
Cash Flows from Investing Activities: | ||||||||||||
Acquisition of business, net of cash acquired of ThUS$98,055 | — | — | (1,687,649 | ) | ||||||||
Purchase of property, plant and equipment | (19,781 | ) | (26,913 | ) | (4,373 | ) | ||||||
Payments on foreign exchange forward contracts designated as hedge of net investment | (16,377 | ) | (13,722 | ) | — | |||||||
Long-term bank deposit | — | — | (814,000 | ) | ||||||||
Net cash flows used in investing activities | (36,158 | ) | (40,635 | ) | (2,506,022 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 1,758 | 5,008 | — | |||||||||
Total net increase (decrease) in cash and cash equivalents for the period | 20,909 | (2,680 | ) | 59,776 | ||||||||
Cash and cash equivalents, beginning of the period | 97,397 | 120,986 | 99,428 | |||||||||
Cash and cash equivalents, end of the period | 118,306 | 118,306 | 159,204 | |||||||||
Supplemental cash flow information: | ||||||||||||
Interest paid | 9,252 | 103,789 | 37,227 | |||||||||
Income taxes paid | 1,275 | 5,410 | — |
F-102
Table of Contents
(Unaudited)
(Expressed in thousands of U.S. dollars unless otherwise stated)
Participation as | Participation as | Participation as | ||||||||||||||||||||||
of September 30, 2007 | of December 31, 2006 | of September 30, 2006 | ||||||||||||||||||||||
Direct/Indirect | % | Direct/Indirect | % | Direct/Indirect | % | |||||||||||||||||||
Rentas Eléctricas I Limitada | Direct | 99.96 | Direct | 99.96 | Direct | 99.96 | ||||||||||||||||||
Transelec Holdings Rentas Limitada | Indirect | 99.96 | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||||||||
Rentas Eléctricas III Limitada | — | — | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||||||||
Rentas Eléctricas IV Limitada | — | — | — | — | Indirect | 99.96 | ||||||||||||||||||
Transelec S.A. | Indirect | 99.96 | Indirect | 99.96 | Indirect | 99.96 | ||||||||||||||||||
Transelec Norte S.A. | Indirect | 99.96 | Indirect | 99.96 | Indirect | 99.96 |
F-103
Table of Contents
Comprehensive Income |
Financial Instruments — Recognition and Measurement |
Hedges |
Impact of adopting Sections 1530, 3855, 3861 and 3865 |
F-104
Table of Contents
Note 3 — | SHORT AND LONG-TERM RECEIVABLES AND MISCELLANEOUS LONG-TERM ACCOUNTS PAYABLE |
Note 4 — | PROPERTY, PLANT AND EQUIPMENT |
As of September 30, 2007 | As of December 31, 2006 | |||||||||||||||||||||||
Accumulated | Net | Accumulated | Net | |||||||||||||||||||||
Description | Cost | depreciation | book value | Cost | depreciation | book value | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Land | 29,447 | — | 29,447 | 28,394 | — | 28,394 | ||||||||||||||||||
Buildings and infrastructure: | ||||||||||||||||||||||||
Buildings | 24,424 | (938 | ) | 23,486 | 22,622 | (458 | ) | 22,164 | ||||||||||||||||
Access roads | 1,105 | (15 | ) | 1,090 | 404 | (5 | ) | 399 | ||||||||||||||||
Transmission lines | 1,037,155 | (32,339 | ) | 1,004,816 | 1,001,720 | (11,898 | ) | 989,822 | ||||||||||||||||
Houses and apartments | 153 | (5 | ) | 148 | 154 | (2 | ) | 152 | ||||||||||||||||
Non-hydraulic civil projects | 204,786 | (7,384 | ) | 197,402 | 189,835 | (3,340 | ) | 186,495 | ||||||||||||||||
Works in progress | 78,234 | — | 78,234 | 64,113 | — | 64,113 | ||||||||||||||||||
Total Buildings and infrastructure | 1,345,857 | (40,681 | ) | 1,305,176 | 1,278,848 | (15,703 | ) | 1,263,145 | ||||||||||||||||
Machinery and equipment: | ||||||||||||||||||||||||
Telecommunications equipment | 12,571 | (2,264 | ) | 10,307 | 10,760 | (1,345 | ) | 9,415 | ||||||||||||||||
Furniture, machinery and office equipment | 254 | (42 | ) | 212 | 239 | (12 | ) | 227 | ||||||||||||||||
Service furniture and equipment | 52 | (6 | ) | 46 | 46 | (2 | ) | 44 | ||||||||||||||||
Tools and instruments | 2,109 | (183 | ) | 1,926 | 1,927 | (71 | ) | 1,856 | ||||||||||||||||
Power generation unit | 2,058 | (180 | ) | 1,878 | 1,842 | (81 | ) | 1,761 | ||||||||||||||||
Electrical equipment | 455,336 | (21,250 | ) | 434,086 | 429,639 | (9,677 | ) | 419,962 | ||||||||||||||||
Mechanical, protection and measurement equipment | 56,291 | (8,462 | ) | 47,829 | 51,801 | (3,635 | ) | 48,166 | ||||||||||||||||
Transport and loading equipment | 608 | (105 | ) | 503 | 556 | (39 | ) | 517 | ||||||||||||||||
Computers and software | 4,319 | (1,167 | ) | 3,152 | 2,276 | (273 | ) | 2,003 | ||||||||||||||||
Total Machinery and equipment | 533,598 | (33,659 | ) | 499,939 | 499,086 | (15,135 | ) | 483,951 | ||||||||||||||||
Other Property, plant and equipment: | ||||||||||||||||||||||||
Construction materials | 2,769 | — | 2,769 | 2,645 | — | 2,645 | ||||||||||||||||||
Total Other property, plant and equipment | 2,769 | — | 2,769 | 2,645 | — | 2,645 | ||||||||||||||||||
Total property, plant and equipment | 1,911,671 | (74,340 | ) | 1,837,331 | 1,808,973 | (30,838 | ) | 1,778,135 | ||||||||||||||||
F-105
Table of Contents
Registration or | ||||||||||||||||||||||||||||
identification | Nominal | Currency or | Book value | |||||||||||||||||||||||||
number of the | amount | indexation | Interest | Periodicity of payments | As of | As of | Principal/ | |||||||||||||||||||||
instrument | Series | placed | unit | rate | Maturity date | Interest | Principal | Sep 30, 2007 | Dec 31, 2006 | Interest | ||||||||||||||||||
ThUS$ | ThUS$ | |||||||||||||||||||||||||||
Current portion of long-term bonds: | ||||||||||||||||||||||||||||
249 | A1 | 40,712 | UF | 6.2 | % | Mar 1, 2007 | Semiannually | At maturity | — | 1,402 | Interest | |||||||||||||||||
249 | A2 | 81,424 | UF | 6.2 | % | Mar 1, 2007 | Semiannually | At maturity | — | 2,804 | Interest | |||||||||||||||||
249 | B1 | 1,008 | UF | 6.2 | % | Mar 1, 2008 | Semiannually | Semiannually | 38 | 140 | Interest | |||||||||||||||||
249 | B2 | 15,114 | UF | 6.2 | % | Mar 1, 2008 | Semiannually | Semiannually | 567 | 2,103 | Interest | |||||||||||||||||
First issuance | Single | 17,482,910 | US$ | 7.88 | % | Oct 15, 2008 | Semiannually | At maturity | 17,483 | 7,947 | Interest | |||||||||||||||||
249 | A1 | 2,000,000 | UF | 6.2 | % | Mar 1, 2007 | Semiannually | At maturity | — | 69,198 | Principal | |||||||||||||||||
249 | A2 | 4,000,000 | UF | 6.2 | % | Mar 1, 2007 | Semiannually | At maturity | — | 138,397 | Principal | |||||||||||||||||
249 | B1 | 4,000 | UF | 6.2 | % | Sep 1, 2008 | Semiannually | Semiannually | 150 | 69 | Principal | |||||||||||||||||
249 | B2 | 60,000 | UF | 6.2 | % | Sep 1, 2008 | Semiannually | Semiannually | 2,250 | 1,039 | Principal | |||||||||||||||||
481 | D | 167,180 | UF | 4.25 | % | Dec 15, 2007 | Semiannually | Semiannually | 6,272 | 869 | Interest | |||||||||||||||||
480 | C | 17,350 | UF | 3.5 | % | Mar 1, 2008 | Semiannually | Semiannually | 651 | — | Interest | |||||||||||||||||
First issuance | Private placement | 1,688,625 | US$ | 7.11 | % | Nov 2, 2007 | Semiannually | At maturity | 1,937 | — | Interest | |||||||||||||||||
Total current portion of bond payable | 29,348 | 223,968 | ||||||||||||||||||||||||||
Long-term bonds payable: | ||||||||||||||||||||||||||||
249 | B1 | 194,000 | UF | 6.2 | % | Mar 1, 2022 | Semiannually | Semiannually | 8,321 | 7,827 | Principal | |||||||||||||||||
249 | B2 | 2,910,000 | UF | 6.2 | % | Mar 1, 2022 | Semiannually | Semiannually | 124,816 | 117,404 | Principal | |||||||||||||||||
First issuance | Single | 465,000,000 | US$ | 7.88 | % | Apr 15, 2011 | Semiannually | At maturity | 485,581 | 489,888 | Principal | |||||||||||||||||
481 | D | 13,500,000 | UF | 4.25 | % | Dec 15, 2027 | Semiannually | At maturity | 506,456 | 464,785 | Principal | |||||||||||||||||
480 | C | 6,000,000 | UF | 3.5 | % | Sep 1, 2016 | Semiannually | At maturity | 225,092 | — | Principal | |||||||||||||||||
First issuance | Private placement | 150,000,000 | US$ | 7.11 | % | May 2, 2013 | Quarterly | At maturity | 150,000 | — | Principal | |||||||||||||||||
Debt issuance costs | (22,410 | ) | — | |||||||||||||||||||||||||
Total Long-term bonds payable | 1,477,856 | 1,079,904 | ||||||||||||||||||||||||||
F-106
Table of Contents
As of | As of | |||||||
September 30, | December 31, | |||||||
Year | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
2007 | 29,348 | 223,968 | ||||||
2008 | 2,401 | 2,204 | ||||||
2009 | 2,401 | 2,204 | ||||||
2010 | 2,401 | 2,204 | ||||||
2011 | 490,383 | 493,194 | ||||||
Thereafter | 980,270 | 580,098 | ||||||
Total | 1,507,204 | 1,303,872 | ||||||
Note 6 — | BANK LOANS |
As of | As of | |||||||
September 30, | December 31, | |||||||
Year | 2007 | 2006 | ||||||
ThUS$ | ThUS$ | |||||||
2007 | 17,997 | — | ||||||
2008 | — | — | ||||||
2009 | — | — | ||||||
2010 | 839,401 | 849,347 | ||||||
2011 | — | — | ||||||
Thereafter | — | — | ||||||
Total | 857,398 | 849,437 | ||||||
Note 7 — | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
As of September 30, 2007 | As of December 31, 2006 | |||||||||||||||||||||||
Financial assets | HFT(1) | L&R(2) | Total | HFT(1) | L&R(2) | Total | ||||||||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||||||||
Cash and cash equivalents | 118,306 | — | 118,306 | 120,896 | 120,896 | |||||||||||||||||||
Trade accounts receivable | — | 48,328 | 48,328 | — | 22,241 | 22,241 | ||||||||||||||||||
Guarantee deposit (restricted) | 5,807 | — | 5,807 | — | — | |||||||||||||||||||
Accrued interest on the long-term bank deposit (restricted) | 18,187 | — | 18,187 | |||||||||||||||||||||
Derivative financial instruments, including: | ||||||||||||||||||||||||
— Forward contracts(3) | — | — | — | 3,333 | — | 3,333 | ||||||||||||||||||
— Embedded derivatives(4) | 46,578 | — | 46,578 | — | — | — | ||||||||||||||||||
Long-term bank deposit | 848,814 | — | 848,814 | 849,522 | — | 849,522 | ||||||||||||||||||
Investments in other companies | 282 | — | 282 | 180 | — | 180 | ||||||||||||||||||
Long-term receivables | — | — | — | — | 17,616 | 17,616 | ||||||||||||||||||
Total | 1,037,974 | 48,328 | 1,086,302 | 973,931 | 39,857 | 1,013,788 | ||||||||||||||||||
As of September 30, 2007 | As of December 31, 2006 | |||||||||||||||
Financial liabilities | HFT(1) | Other than HFT(1) | HFT(1) | Other than HFT(1) | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Accounts payable and other short-term payables | — | 95,624 | — | 50,621 | ||||||||||||
Debt (including long-term and short-term portion) | — | 2,364,602 | — | 3,162,389 | ||||||||||||
Derivatives financial instruments, including: | �� | |||||||||||||||
Swap contracts | 85,990 | — | 62,609 | |||||||||||||
Forward contracts | 7,747 | — | — | — | ||||||||||||
Other long-term payables | — | 2,935 | — | 38,263 | ||||||||||||
Total | 93,737 | 2,463,161 | 62,609 | 3,251,273 | ||||||||||||
(1) | Held-for-trading. |
F-107
Table of Contents
(2) | Loans and receivables. | |
(3) | Classified in other current assets. | |
(4) | Classified in other non-current assets. |
As of September 30, 2007 | As of December 31, 2006 | |||||||||||||||
Description | Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Long-term bonds payable | 1,477,856 | 1,518,045 | 1,079,904 | 1,091,761 | ||||||||||||
Long-term bank loan | 839,401 | 864,915 | 849,437 | 886,731 |
F-108
Table of Contents
Note 9 — | SHAREHOLDERS’ EQUITY |
Accumulated | ||||||||||||||||
other | ||||||||||||||||
Paid-in | comprehensive | |||||||||||||||
Description | capital | income (loss) | Deficit | Total | ||||||||||||
ThUS$ | ThUS$ | ThUS$ | ThUS$ | |||||||||||||
Fourteen weeks ended September 30, 2006 | ||||||||||||||||
Contribution of initial capital(1) | 12 | — | — | 12 | ||||||||||||
Increase of capital(1) | 348,800 | — | — | 348,800 | ||||||||||||
Net investment in self-sustaining foreign operations | — | 4,300 | — | 4,300 | ||||||||||||
Loss on hedging instruments | — | (6,487 | ) | — | (6,487 | ) | ||||||||||
Net loss for the period | — | — | (11,819 | ) | (11,819 | ) | ||||||||||
Balance as of September 30, 2006 | 348,812 | (2,187 | ) | (11,819 | ) | 334,806 | ||||||||||
Three months ended September 30, 2007 | ||||||||||||||||
Balance as of July 1, 2007 | 1,207,571 | 10,309 | (24,663 | ) | 1,193,217 | |||||||||||
Net investment in self-sustaining foreign operations | — | 45,468 | — | 45,468 | ||||||||||||
Loss on hedging instruments | — | (15,664 | ) | — | (15,664 | ) | ||||||||||
Net income for the period | — | — | 3,961 | 3,961 | ||||||||||||
Balance as of September 30, 2007 | 1,207,571 | 40,113 | (20,702 | ) | 1,226,982 | |||||||||||
Nine months ended September 30, 2007 | ||||||||||||||||
Balance as of January 1, 2007 | 348,812 | (1,674 | ) | (8,085 | ) | 339,053 | ||||||||||
Increase of capital(1) | 858,759 | — | — | 858,759 | ||||||||||||
Change in accounting policy (Note 2c) | — | — | (3,147 | ) | (3,147 | ) | ||||||||||
Net investment in self-sustaining foreign operations | — | 61,245 | — | 61,245 | ||||||||||||
Loss on hedging instruments | — | (19,458 | ) | — | (19,458 | ) | ||||||||||
Net income for the period | — | — | (9,470 | ) | (9,470 | ) | ||||||||||
Balance as of September 30, 2007 | 1,207,571 | 40,113 | (20,702 | ) | 1,226,982 | |||||||||||
(1) | ETC Holdings Ltd. was founded with the initial minimum share capital of ThUS$12. Subsequently shareholders increased the capital by ThUS$344,590, ThUS$4,210 and ThUS$858,759 on June 29, 2006, December 5, 2006 and June 27, 2007, respectively. |
Note 10 — | CONTINGENCIES, COMMITMENTS AND RESTRICTIONS |
1. | On May 15, 2000, the Superintendency of Electricity and Fuel (Superintendencia de Electicidad y Combustibles or SEC) fined Transelec 300 annual tax units (UTA), which as of September 30, 2007 amounted to ThUS$ 235, through Exempt Resolution No. 876 for its alleged responsibility in the power failure of the Sistema Interconectado Central (SIC) on July 14, 1999, caused by the untimely withdrawal from service of the San Isidro Plant of San Isidro S.A. On May 25, 2000, an administrative motion was filed by Transelec before SEC, which is pending resolution. | |
2. | On December 5, 2002, the SEC in Ordinary Official Letter No. 7183 charged Transelec for its alleged responsibility in the interruption of electrical supply in the SIC on September 23, 2002. By Exempt Resolution No. 1438 of August 14, 2003, the SEC applied various fines to Transelec for a total of UTA 2,500 equivalent, as of September 30, 2007, to ThUS$ 1,958. The Company had appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. The Company claims that it is not responsible for this situation since it considers it a case of force majeure. |
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3. | The SEC in Ordinary Official Letter No. 1210, dated February 21, 2003, filed charges for the alleged responsibility of Transelec in the interruption of electric service in the SIC, on January 13, 2003. By Resolution No. 808, of April 27, 2004, the SEC imposed a fine of UTA 560 equivalent as of September 30, 2007 to ThUS$440, against which a writ of administrative reconsideration was filed which was subsequently rejected. The Company appealed the complaint before the Santiago Court of Appeals and made a deposit of 25% of the original fine. The Company claims that it is not responsible for this situation since it considers it a case of force majeure. | |
4. | On June 30, 2005 the SEC, through Exempt Resolution No. 1117, applied the following sanctions to Transelec: (i) a fine of 560 UTA equivalent as of September 30, 2007 to ThUS$415, for allegedly not having ensured electric service, as determined in the investigation of the general failure of the SIC on November 7, 2003; (ii) a fine of 560 UTA equivalent as of September 30, 2007 to ThUS$440, levied on the Company as owner of the installations, for allegedly operating the installations without adhering to the operation scheduling set forth by the CDEC-SIC, without justified cause, as determined in the investigation of the general failure of the SIC on November 7, 2003. The Company had appealed the charges before the SEC, which is pending resolution. Management believes it has no responsibility for these events. | |
5. | On December 17, 2004 the SEC, through Exempt Resolution No. 2334, fined Transelec with an amount of 300 UTA equivalent as of September 30, 2007 to ThUS$235, for its alleged responsibility in the interruption of electrical supply south of Temuco, caused by a truck that crashed into a structure of the Charrúa — Temuco transmission line. The Company had filed a motion of invalidation and administrative reconsideration, claiming that it was a case of force majeure and that the charges are not applicable and should be cancelled. | |
6. | On December 31, 2005, the SEC through Official Letter No. 1831, filed charges against Transelec for allegedly operating its installations and in the process infringing on various provisions of the electrical regulations, which would have caused the interruption of electrical supply in the SIC on March 21, 2005. By Resolution No. 220, on February 7, 2006, the Company was fined with an amount of 560 UTA equivalent as of September 30, 2007 to ThUS$440. Recourse was presented on February 16, 2006, which is still pending resolution. | |
7. | On August 11, 2003, in the arbitration case against Sociedad Austral de Electricidad S.A. (Saesa) for an annual and preliminary base amount of ThUS$2,300, the Company was notified of the resolution of the arbitration, which rejected the suit filed by the Company. Currently, the recourse to overturn this decision remains outstanding before the Santiago Court of Appeal. The purpose of this trial is to determine the amount that Saesa must pay to Transelec for basic use and additional. As of September 30, 2007, the Company has recognized and/or received part of this revenue, in conformity with Ministerial Resolution No 88 of 2001, of the Ministry of Economic Development and Reconstruction. | |
8. | During 2006 and 2007, Transelec filed an executive lawsuit against Empresa Eléctrica Puyehue demanding payment of overdue invoices totaling to ThUS$2,153. The lawsuit is in progress. Management expects that the full amount of the receivables will be collected. | |
9. | On October 1, 2007, Transelec filed an executive lawsuit against Empresa Eléctrica Panguipulli demanding payment of an overdue invoice amounting to ThUS$168. The lawsuit is in progress. Management expects that the full amount of the receivables will be collected. |
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Note 11 — | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
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for the year ended December 31, 2006 and
the period from June 1, 2005 to December 25, 2005
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2800 - 1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
Vancouver, Canada January 26, 2007 (except as to Notes 11(viii), 17 and 18, which are as of June 12, 2007) | (signed) Deloitte & Touche LLP Independent Registered Chartered Accountants |
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Period from | ||||||||||||
Year Ended | June 1, 2005 to | |||||||||||
December 31, | December 25, | |||||||||||
Note | 2006 | 2005 | ||||||||||
$ | $ | |||||||||||
Sales | 197,280 | 102,811 | ||||||||||
Operating costs and expenses | ||||||||||||
Manufacturing and production costs | 130,901 | 74,506 | ||||||||||
Depreciation, depletion and amortization | 20,317 | 12,747 | ||||||||||
Selling, general and administrative | 7,340 | 3,444 | ||||||||||
158,558 | 90,697 | |||||||||||
Operating income | 38,722 | 12,114 | ||||||||||
Non-operating expenses (income) | ||||||||||||
Interest expense | 24,893 | 12,694 | ||||||||||
Other expenses (income) | 10 | 1,180 | (390 | ) | ||||||||
Gain on sale of assets | 5,6 | (5,783 | ) | (2,167 | ) | |||||||
Management fee — performance bonus | 11(viii | ) | 40,000 | — | ||||||||
60,290 | 10,137 | |||||||||||
Net (loss) income for the period | (21,568 | ) | 1,977 | |||||||||
Allocated as follows: | ||||||||||||
Limited Partners interests | (21,568 | ) | 1,977 | |||||||||
General Partner interest | — | — | ||||||||||
(21,568 | ) | 1,977 | ||||||||||
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Period from | ||||||||||||||||||||
Year Ended | June 1, 2005 to | |||||||||||||||||||
December 31, | December 25, | |||||||||||||||||||
Limited | General | 2006 | 2005 | |||||||||||||||||
Note | Partners | Partner | Total | Total | ||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||
Partners’ equity, beginning of period | 510,697 | — | 510,697 | — | ||||||||||||||||
Contributions | 3 | — | — | — | 531,696 | |||||||||||||||
Net (loss) income | (21,568 | ) | — | (21,568 | ) | 1,977 | ||||||||||||||
Distributions | (37,000 | ) | — | (37,000 | ) | (23,000 | ) | |||||||||||||
Cumulative translation adjustment | (1 | ) | — | (1 | ) | 24 | ||||||||||||||
Partners’ equity, end of period | 452,128 | — | 452,128 | 510,697 | ||||||||||||||||
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December 31, | December 25, | |||||||||||
Note | 2006 | 2005 | ||||||||||
$ | $ | |||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash | 7,671 | 18,316 | ||||||||||
Accounts receivable | 7,396 | 5,631 | ||||||||||
Inventories | 4 | 23,061 | 18,003 | |||||||||
Prepaid expenses | 940 | 1,531 | ||||||||||
39,068 | 43,481 | |||||||||||
Property, plant and equipment | 5 | 113,835 | 118,029 | |||||||||
Timberlands and logging roads | 6 | 778,858 | 797,197 | |||||||||
Deferred debt issue costs | 2,791 | 3,194 | ||||||||||
934,552 | 961,901 | |||||||||||
LIABILITIES | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | 20,283 | 21,119 | ||||||||||
Management fee — performance bonus payable | 11(viii | ) | 5,650 | — | ||||||||
�� | 25,933 | 21,119 | ||||||||||
Management fee — performance bonus | 11(viii | ) | 34,350 | — | ||||||||
Other liabilities | 7 | 12,141 | 20,085 | |||||||||
Long-term debt | 8 | 410,000 | 410,000 | |||||||||
482,424 | 451,204 | |||||||||||
Partners’ equity | 9 | 452,128 | 510,697 | |||||||||
934,552 | 961,901 | |||||||||||
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Period from | ||||||||||||
Year Ended | June 1, 2005 to | |||||||||||
December 31, | December 25, | |||||||||||
Note | 2006 | 2005 | ||||||||||
$ | $ | |||||||||||
Operating activities | ||||||||||||
Net income for the period | (21,568 | ) | 1,977 | |||||||||
Items not involving cash | ||||||||||||
Depreciation, depletion and amortization | 20,317 | 12,747 | ||||||||||
Amortization of deferred debt issue costs | 403 | — | ||||||||||
Change in estimated restructuring liabilities | (2,351 | ) | — | |||||||||
Gain on sale of assets | (5,783 | ) | (2,167 | ) | ||||||||
Management fee — performance bonus payable | 40,000 | — | ||||||||||
Change in non-cash operating items | ||||||||||||
Accounts receivable | 2,884 | (3,200 | ) | |||||||||
Inventories | (5,058 | ) | 1,535 | |||||||||
Prepaid expenses | 592 | 571 | ||||||||||
Accounts payable and accrued liabilities | (836 | ) | 9,056 | |||||||||
Other liabilities | (5,593 | ) | 7,222 | |||||||||
23,007 | 27,741 | |||||||||||
Investing activities | ||||||||||||
Acquisition of timberland assets, net of cash acquired | 3 | — | (527,517 | ) | ||||||||
Additions to property, plant and equipment, and timberlands and logging roads | (9,532 | ) | (3,207 | ) | ||||||||
Proceeds from sale of property, plant and equipment | 12,880 | 9,613 | ||||||||||
3,348 | (521,111 | ) | ||||||||||
Financing activities | ||||||||||||
Partner’s capital contributions | — | 531,696 | ||||||||||
Proceeds from long-term debt | — | 6,184 | ||||||||||
Deferred debt issue costs | — | (3,194 | ) | |||||||||
Distributions to limited partners | (37,000 | ) | (23,000 | ) | ||||||||
(37,000 | ) | 511,686 | ||||||||||
(Decrease) increase in cash and cash equivalents | (10,645 | ) | 18,316 | |||||||||
Cash, beginning of period | 18,316 | — | ||||||||||
Cash, end of period | 7,671 | 18,316 | ||||||||||
Supplemental disclosure of non-cash investing activities | ||||||||||||
During 2006, the Partnership recorded a cost of acquisition adjustment | 3 | |||||||||||
Supplemental cash flow information | ||||||||||||
Interest paid | 24,893 | 4,167 |
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1. | PRIMARY BUSINESS ACTIVITY |
2. | SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation |
(b) | Foreign currency translation |
(c) | Cash and cash equivalents |
(d) | Accounts receivable |
(e) | Inventories |
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(f) | Property, plant and equipment |
Buildings | 3% - 5% | |||
Plant and equipment | 10% - 20% |
(g) | Timberlands and logging roads |
(h) | Asset retirement obligations |
(i) | Deferred debt issue costs |
(j) | Revenue recognition |
(k) | Shipping and handling costs |
(l) | Income taxes |
(m) | Fiscal periods |
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3. | ACQUISITION OF THE TIMBERLAND ASSETS |
$ | ||||
Cash and cash equivalents | 4,181 | |||
Accounts receivable | 2,431 | |||
Inventories | 19,538 | |||
Prepaid expenses | 2,102 | |||
Property, plant and equipment | 124,116 | |||
Timberlands and logging roads | 808,069 | |||
Accounts payable and accrued liabilities | (12,062 | ) | ||
Other liabilities | (12,863 | ) | ||
Long-term debt | (403,816 | ) | ||
Cost of the acquisition | 531,696 | |||
4. | INVENTORIES |
2006 | 2005 | |||||||
$ | $ | |||||||
Logs and boomsticks | 21,724 | 17,632 | ||||||
Materials and supplies | 1,337 | 371 | ||||||
23,061 | 18,003 | |||||||
5. | PROPERTY, PLANT AND EQUIPMENT |
2006 | 2005 | |||||||||||||||
Accumulated | Net book | Net book | ||||||||||||||
Cost | depreciation | value | value | |||||||||||||
$ | $ | $ | $ | |||||||||||||
HBU land | 110,303 | — | 110,303 | 113,757 | ||||||||||||
Buildings | 885 | 208 | 677 | 806 | ||||||||||||
Plant and equipment | 3,948 | 1,093 | 2,855 | 3,466 | ||||||||||||
115,136 | 1,301 | 113,835 | 118,029 | |||||||||||||
6. | TIMBERLANDS AND LOGGING ROADS |
2006 | ||||||||||||||||
Accumulated | 2005 | |||||||||||||||
depletion and | Net book | Net book | ||||||||||||||
Cost | amortization | value | value | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Timberlands | 791,921 | 23,616 | 768,305 | 789,664 | ||||||||||||
Reforestation | 6,065 | — | 6,065 | 846 | ||||||||||||
Logging roads | 12,483 | 7,995 | 4,488 | 6,687 | ||||||||||||
810,469 | 31,611 | 778,858 | 797,197 | |||||||||||||
7. | OTHER LIABILITIES |
2006 | 2005 | |||||||
$ | $ | |||||||
Deferred gain on former interest rate swaps | 5,445 | 5,524 | ||||||
Accrued compensation | — | 630 | ||||||
Restructuring liabilities | 6,374 | 13,618 | ||||||
Asset retirement obligations | 322 | 313 | ||||||
12,141 | 20,085 | |||||||
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Interest rate swaps |
Restructuring liabilities |
8. | LONG-TERM DEBT |
2006 | 2005 | |||||||
$ | $ | |||||||
U.S. secured bonds repayable on August 30, 2015, interest at 5.58% | 100,000 | 100,000 | ||||||
U.S. secured bonds repayable on August 30, 2025, interest at 6.17% | 210,000 | 210,000 | ||||||
U.S. secured bonds repayable on August 30, 2030, interest at 6.27% | 100,000 | 100,000 | ||||||
410,000 | 410,000 | |||||||
9. | PARTNERS’ EQUITY ACCOUNTS |
Number of | ||||||||
units | ||||||||
authorized | Participation | |||||||
and issued | % | |||||||
Limited Partners interests | 53,168,984 | 99.999 | ||||||
General Partner interest | 1 | 0.001 |
10. | OTHER NON-OPERATING (INCOME)/EXPENSES |
2006 | 2005 | |||||||
$ | $ | |||||||
Foreign exchange | 293 | (48 | ) | |||||
Legal obligations (from WYL) | 1,248 | — | ||||||
Severance | 1,330 | — | ||||||
Changes in estimated restructuring liabilities | (2,351 | ) | — | |||||
Other | 660 | (342 | ) | |||||
1,180 | (390 | ) | ||||||
11. | RELATED PARTY TRANSACTIONS |
(i) Island engages in various transactions with Western Forest Products Ltd. (“Western”), a company under the common control of one of the limited partners. Reference to transactions with Western, include those with Cascadia, which was effectively purchased by Western in 2006. During the year, each entity purchased and sold logs, as well as boom gear, to each other. These transactions were recorded at the exchange amount determined by reference to current market pricing. Certain overhead and administrative fees were charged between Island and Western for services that are provided from one entity to the other. During the year, Island billed $12,635 (2005 — $14,810) to Western and recognized billings from Western in the amount of $9,474 (2005 — $4,934). | ||
(ii) Pursuant to the WYL asset purchase agreement, the Partnership provided a limited guarantee in favour of WYL of the obligations of Cascadia (now Western) under the WYL asset purchase agreement (the “Island Guarantee”). Western has agreed to indemnify the Partnership in respect of any liability that it incurs under the Island Guarantee. As security for the indemnity, Western has assumed responsibility for a debenture, originally issued by Cascadia, in the amount of $100,000 in favour of the Partnership, which charges all of Western’s purchased Cascadia real property and grants a security interest over all such present and after-acquired personal property. The debenture places certain restrictions on Western of the type typically found in grants of security of this nature, including restrictions on the ability to make distributions to its shareholders without the consent of the Partnership. |
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(iii) Island engaged in transactions with Brookfield and its affiliates related to administrative and other functions that were controlled by Brookfield. During the year, Island was billed $2,611 (2005 — $2,588) for these services. | ||
(iv) Under a loan agreement with IT Finance, Island incurred interest payments in the amount of $24,893 (2005 — $8,174) and charged IT Finance $26 for expenses paid on their behalf. | ||
(v) Under an agreement with Brookfield, on the sale of Cascadia in 2006, Island will receive an amount equivalent to the excess of the sale proceeds over $100,000 plus carrying costs from May 26, 2005. An excess amount, estimated at $4,649, has been recorded as a reduction of the purchase price paid by Island for the acquisition of the timberland assets (Note 3). | ||
(vi) Island holds a 50% interest in Strathcona Helicopters Ltd. (“Strathcona”). During the year, Island utilized Strathcona for helicopter transport services totalling $1,045 (2005 — $761). | ||
(vii) Receivable (payable) balances with entities under common control |
2006 | 2005 | |||||||
$ | $ | |||||||
Western | 336 | (677 | ) | |||||
Carma Developers LP | (74 | ) | — | |||||
Brookfield | 4,649 | (1,077 | ) | |||||
IT Finance | (8,269 | ) | (8,255 | ) | ||||
Other | (7 | ) | — | |||||
(3,365 | ) | (10,009 | ) | |||||
(viii) Management fee-performance bonus | ||
Pursuant to the terms of a Management Agreement between Island and Brookfield Timberlands Management (“BTM”), an affiliate of Brookfield, management fees are payable to BTM as compensation for the services provided. These fees are comprised of a base management fee at 0.075% of the Fair Market Value of partnership units which is payable quarterly, and a performance fee which becomes payable annually upon the achievement of specified performance thresholds, which are also determined by reference to Fair Market Value measures. | ||
The performance fee is calculated annually using independent valuation reports, however the final calculation of the amount owing with respect to the performance fee is subject to a clawback calculation based on a five year period ended in 2011 and every fifth year thereafter. In accordance with the terms of this clawback clause, if Island has paid BTM performance fees in excess of the amount that would have been paid if the performance fee had been calculated for each five year period, rather than annually, the excess amount will be rapid by BTM to Island. | ||
The base management fee of $1,659 (2005 — $931) has been expensed in the statement of operations. | ||
The initial performance fee, due in 2007, is based on performance up to December 31, 2006, using independent valuation reports as of that date. | ||
In April 2007, following receipt of independent valuation reports, management estimated the performance fee for the period ended December 31, 2006 to be $40 million. The fees are payable in installments over a 7 year-period, and will bear interest at a rate of 6.02%. The performance fee has been accrued and charged to the consolidated statement of operations for the period ended December 31, 2006. |
12. | EMPLOYEE BENEFIT PLANS |
13. | CONTINGENCIES |
14. | SEGMENT INFORMATION |
2006 | 2005 | |||||||
$ | $ | |||||||
Sales by location of customer | ||||||||
Canada | 53,386 | 24,719 | ||||||
United States | 91,656 | 51,900 | ||||||
Japan and Asia | 52,238 | 26,192 | ||||||
197,280 | 102,811 | |||||||
Sales by product line | ||||||||
Logs | 196,835 | 102,505 | ||||||
Other | 445 | 306 | ||||||
197,280 | 102,811 | |||||||
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$ | ||||
2007 | 4.6 | |||
2008 | 3.9 | |||
2009 | 2.6 | |||
2010 | 1.4 | |||
2011 | 0.5 | |||
13.0 | ||||
16. | FINANCIAL INSTRUMENTS |
(a) | Fair values |
(b) | Credit risk |
17. | SUBSEQUENT EVENTS |
18. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
(a) | Joint ventures |
2006 | 2005 | |||||||
$ | $ | |||||||
Income (loss) | ||||||||
Revenues | 445 | 306 | ||||||
Expenses | 543 | 201 | ||||||
Net (loss) income | (98 | ) | 105 | |||||
Cash flows provided by (used in) | ||||||||
Operating activities | 5 | — | ||||||
Investing activities | (5 | ) | — | |||||
Financial activities | — | — |
(b) | Long-term debt issue costs |
(c) | Foreign currency translation adjustments |
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(d) | Consolidated cash flows |
(e) | Presentation of consolidated financial statements |
(f) | Recent accounting pronouncements — U.S. GAAP |
(g) | Recent accounting pronouncements — Canadian GAAP |
• | Financial assets will be classified as either loans and receivables, held-to-maturity, held-for-trading or available-for-sale. Loans and receivables will include all loans and receivables except debt securities and will be accounted for at amortized cost. Held-to-maturity classification will be restricted to fixed maturity instruments that the company intends and is able to hold to maturity and will be accounted for at amortized cost. Held-for-trading instruments will be recorded at fair value with unrealized gains and losses reported in net income. The remaining financial assets will be classified as available-for-sale. These will be recorded at fair value with unrealized gains and losses reported in a new category of the consolidated statement of financial position under shareholders’ equity called other comprehensive income (“OCI”); | |
• | Financial liabilities will be classified as either held-for-trading or other. Held-for-trading instruments will be recorded at fair value with realized and unrealized gains and losses reported in net income. Other instruments will be accounted for at amortized cost with gains and losses reported in net income in the period that the liability is derecognized; and | |
• | Derivatives will be classified as held-for-trading unless designated as hedging instruments. All derivatives, including embedded derivatives that must be separately accounted for, will be recorded at fair value on the consolidated statement of financial position. |
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period from December 27, 2004 to May 29, 2005 and
the year ended December 26, 2004
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Chartered Accountants
June 8, 2007
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May 29, | December 26, | |||||||||||
Note | 2005 | 2004 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | — | $ | 2 | ||||||||
Trade accounts receivable | 1,074 | 1,122 | ||||||||||
Other accounts receivable | 3,414 | 3,943 | ||||||||||
Inventories | 3 | 26,821 | 21,627 | |||||||||
Prepaid expenses | 708 | 916 | ||||||||||
32,017 | 27,610 | |||||||||||
Property, plant and equipment | 4 | 26,285 | 26,161 | |||||||||
Timberlands and roads | 5 | 619,743 | 623,326 | |||||||||
Goodwill | 128,405 | 128,405 | ||||||||||
Other assets | — | 52 | ||||||||||
$ | 806,450 | $ | 805,554 | |||||||||
LIABILITIES AND BUSINESS UNIT EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Trade accounts payable | $ | 8,188 | $ | 7,151 | ||||||||
Accrued payroll and related liabilities | 1,424 | 1,466 | ||||||||||
Other accrued liabilities | 4,241 | 1,700 | ||||||||||
13,853 | 10,317 | |||||||||||
Other liabilities | 782 | 767 | ||||||||||
Business Unit equity | 791,815 | 794,470 | ||||||||||
Basis of presentation | 2(a) | |||||||||||
Contingencies and commitments | 12,13 | |||||||||||
$ | 806,450 | $ | 805,554 | |||||||||
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Period from | ||||||||||||
December 27, | Year Ended | |||||||||||
2004 to | December 26, | |||||||||||
Notes | May 29, 2005 | 2004 | ||||||||||
Sales | $ | 70,528 | $ | 179,338 | ||||||||
Costs and expenses: | ||||||||||||
Manufacturing and product costs | 44,646 | 97,992 | ||||||||||
Depreciation, depletion and amortization | 8,145 | 18,544 | ||||||||||
Selling, general and administrative | 1,798 | 2,007 | ||||||||||
Allocated Weyerhaeuser Company Limited general and administrative expenses | 9 | 2,203 | 6,237 | |||||||||
56,792 | 124,780 | |||||||||||
Operating income | 13,736 | 54,558 | ||||||||||
Non-operating income (expense): | ||||||||||||
Gain on sale of properties | 6 | 8,275 | 9,253 | |||||||||
Other income (expense) | 7 | (2,510 | ) | 1,349 | ||||||||
5,765 | 10,602 | |||||||||||
Income before income taxes | 19,501 | 65,160 | ||||||||||
Income taxes | 8 | 5,768 | 22,147 | |||||||||
Net earnings | $ | 13,733 | $ | 43,013 | ||||||||
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Period from | ||||||||
December 27, | Year Ended | |||||||
2004 to | December 26, | |||||||
May 29, 2005 | 2004 | |||||||
Balance, beginning of period | $ | 794,470 | $ | 797,425 | ||||
Net earnings | 13,733 | 43,013 | ||||||
Net payments to Weyerhaeuser Company Limited | (16,388 | ) | (45,968 | ) | ||||
Balance, end of period | $ | 791,815 | $ | 794,470 | ||||
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Period from | ||||||||
December 27, | Year Ended | |||||||
2004 to | December 26, | |||||||
May 29, 2005 | 2004 | |||||||
Cash provided by (used in): | ||||||||
Operations: | ||||||||
Net earnings | $ | 13,733 | $ | 43,013 | ||||
Items not involving cash: | ||||||||
Depreciation, depletion and amortization | 8,145 | 18,544 | ||||||
Gain on sale of properties | (8,275 | ) | (9,253 | ) | ||||
Gain on disposal of assets | (765 | ) | (810 | ) | ||||
Other | 67 | 74 | ||||||
Changes in non-cash operating working capital: | ||||||||
Trade accounts receivable | 48 | (940 | ) | |||||
Other accounts receivable | 529 | (1,962 | ) | |||||
Inventories | (5,194 | ) | (7,939 | ) | ||||
Prepaid expenses | 208 | (864 | ) | |||||
Trade accounts payable | 1,037 | 2,718 | ||||||
Accrued payroll and related liabilities | (42 | ) | 141 | |||||
Other accrued liabilities | 2,541 | (54 | ) | |||||
12,032 | 42,668 | |||||||
Financing: | ||||||||
Mortgage proceeds received | — | 500 | ||||||
Net payments to WYL | (16,388 | ) | (45,968 | ) | ||||
(16,388 | ) | (45,468 | ) | |||||
Investments: | ||||||||
Additions to timberlands | (3,110 | ) | (5,465 | ) | ||||
Additions to roads | (1,736 | ) | (4,576 | ) | ||||
Additions to property, plant and equipment | (602 | ) | (250 | ) | ||||
Proceeds from sale of assets | 9,802 | 13,091 | ||||||
4,354 | 2,800 | |||||||
Decrease in cash and cash equivalents | (2 | ) | — | |||||
Cash and cash equivalents, beginning of period | 2 | 2 | ||||||
Cash and cash equivalents, end of period | $ | — | $ | 2 | ||||
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F-131
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F-132
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May 29, | December 26, | |||||||
2005 | 2004 | |||||||
Logs | $ | 25,866 | $ | 20,545 | ||||
Materials and supplies | 955 | 1,082 | ||||||
$ | 26,821 | $ | 21,627 | |||||
May 29, 2005 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Land | $ | 1,370 | $ | — | $ | 1,370 | ||||||
Buildings | 6,884 | 2,037 | 4,847 | |||||||||
Equipment | 30,439 | 10,925 | 19,514 | |||||||||
Construction in progress | 554 | — | 554 | |||||||||
$ | 39,247 | $ | 12,962 | $ | 26,285 | |||||||
December 26, 2004 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Land | $ | 1,370 | $ | — | $ | 1,370 | ||||||
Buildings | 6,884 | 1,875 | 5,009 | |||||||||
Equipment | 30,728 | 11,077 | 19,651 | |||||||||
Construction in progress | 131 | — | 131 | |||||||||
$ | 39,113 | $ | 12,952 | $ | 26,161 | |||||||
May 29, 2005 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Timberlands | $ | 676,283 | $ | 60,739 | $ | 615,544 | ||||||
Roads | 20,942 | 16,743 | 4,199 | |||||||||
$ | 697,225 | $ | 77,482 | $ | 619,743 | |||||||
December 26, 2004 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
Timberlands | $ | 673,920 | $ | 55,137 | $ | 618,783 | ||||||
Roads | 19,206 | 14,663 | 4,543 | |||||||||
$ | 693,126 | $ | 69,800 | $ | 623,326 | |||||||
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May 29, | December 26 | |||||||
2005 | 2004 | |||||||
Gain on disposal of assets | $ | 765 | $ | 810 | ||||
Closure and severance | (3,101 | ) | — | |||||
Other | (174 | ) | 539 | |||||
$ | (2,510 | ) | $ | 1,349 | ||||
Period from | ||||||||
December 27, | Year ended | |||||||
2004 to | December 26, | |||||||
May 29, 2005 | 2004 | |||||||
Computed expected income tax expense | $ | 6,946 | $ | 23,210 | ||||
Increase (decrease) in income taxes for: | ||||||||
Non-taxable income and expenses | (1,608 | ) | (2,028 | ) | ||||
Other | 430 | 965 | ||||||
Income tax expense | $ | 5,768 | $ | 22,147 | ||||
Effective tax rate | 29.6% | 34.0% | ||||||
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2005 | $ | 3,272 | ||
2006 | 4,183 | |||
2007 | 2,657 | |||
2008 | 1,263 | |||
2009 | 247 | |||
Thereafter | 315 | |||
$ | 11,937 | |||
Period from | ||||||||
December 27, | Year ended | |||||||
2004 to | December 26, | |||||||
May 29, 2005 | 2004 | |||||||
Sales by location of customer: | ||||||||
Canada | $ | 17,051 | $ | 44,716 | ||||
United States | 43,251 | 80,242 | ||||||
Japan | 6,688 | 44,122 | ||||||
Asia | 3,538 | 10,258 | ||||||
$ | 70,528 | $ | 179,338 | |||||
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for the three and nine months ended September 30, 2007 and 2006
(Unaudited)
F-136
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INTERIM CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
(Unaudited)
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
$ | $ | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | 19,059 | 7,671 | ||||||
Accounts receivable | 2,724 | 7,396 | ||||||
Inventories | 19,965 | 23,061 | ||||||
Prepaid expenses | 2,144 | 940 | ||||||
43,892 | 39,068 | |||||||
Property, plant and equipment (Note 3) | 107,795 | 113,835 | ||||||
Timberlands and logging roads (Note 4) | 768,842 | 778,858 | ||||||
920,529 | 931,761 | |||||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | 13,866 | 20,283 | ||||||
Credit Facility (Note 7) | 2,015 | — | ||||||
Management Fee — performance bonus (Note 2) | 9,032 | 5,650 | ||||||
24,913 | 25,933 | |||||||
Management Fee — performance bonus payable (Note 2) | 28,172 | 34,350 | ||||||
Other liabilities | 7,488 | 12,141 | ||||||
60,573 | 72,424 | |||||||
Long-term debt | 410,000 | 410,000 | ||||||
Less: Deferred debt issue costs | (2,524 | ) | (2,791 | ) | ||||
407,476 | 407,209 | |||||||
468,049 | 479,633 | |||||||
Partners’ equity | 452,480 | 452,128 | ||||||
920,529 | 931,761 | |||||||
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INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 2007 TO SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Sales | 53,081 | 54,877 | 183,969 | 151,589 | ||||||||||||
Operating costs and expenses | ||||||||||||||||
Manufacturing and production costs | 39,918 | 37,317 | 117,647 | 99,086 | ||||||||||||
Depreciation, depletion and amortization | 2,639 | 3,650 | 16,228 | 15,402 | ||||||||||||
Selling, general and administrative | 2,326 | 1,621 | 6,583 | 5,210 | ||||||||||||
44,883 | 42,588 | 140,458 | 119,698 | |||||||||||||
Operating income | 8,198 | 12,289 | 43,511 | 31,891 | ||||||||||||
Other expenses (income) | ||||||||||||||||
Interest expense | 6,829 | 6,236 | 19,656 | 18,691 | ||||||||||||
Other expenses (income) | (1,462 | ) | 853 | (3,699 | ) | 2,818 | ||||||||||
Gain on sale of assets (Note 3) | (3,429 | ) | (1,156 | ) | (7,441 | ) | (2,143 | ) | ||||||||
Management fee — performance bonus (Note 2) | 3,382 | — | 2,854 | — | ||||||||||||
5,320 | 5,933 | 11,370 | 19,366 | |||||||||||||
Net income for the period | 2,878 | 6,356 | 32,141 | 12,525 | ||||||||||||
Allocated as follows: | ||||||||||||||||
Limited Partners interests | 2,878 | 6,356 | 32,141 | 12,525 | ||||||||||||
General Partner interest | — | — | — | — | ||||||||||||
2,878 | 6,356 | 32,141 | 12,525 | |||||||||||||
F-138
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INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
PERIOD FROM JANUARY 1, 2007 TO SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
(Unaudited)
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2007 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Net income | 2,878 | 6,356 | 32,141 | 12,525 | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Gain on fair values of derivatives designated as cash flow hedges | (19 | ) | (19 | ) | (87 | ) | (58 | ) | ||||||||
Effect of foreign currency translation of foreign operations | 5 | — | 13 | 10 | ||||||||||||
Other comprehensive loss | (14 | ) | (19 | ) | (74 | ) | (48 | ) | ||||||||
Comprehensive income | 2,864 | 6,337 | 32,067 | 12,477 | ||||||||||||
Accumulated other comprehensive income, beginning of period | 5,408 | 5,519 | 5,468 | 5,548 | ||||||||||||
Other comprehensive loss | (14 | ) | (19 | ) | (74 | ) | (48 | ) | ||||||||
Accumulated other comprehensive income, end of period | 5,394 | 5,500 | 5,394 | 5,500 | ||||||||||||
F-139
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INTERIM CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
PERIOD FROM JANUARY 1, 2007 TO SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
(Unaudited)
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Limited | General | 2007 | 2006 | |||||||||||||
Partners | Partner | Total | Total | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Partners’ equity, beginning of period | 452,122 | 6 | 452,128 | 510,697 | ||||||||||||
Net income | 32,141 | — | 32,141 | 12,525 | ||||||||||||
Transitional adjustment (Note 1) | (23 | ) | — | (23 | ) | (24 | ) | |||||||||
Distributions | (37,160 | ) | — | (37,160 | ) | (25,000 | ) | |||||||||
447,080 | 6 | 447,086 | 498,198 | |||||||||||||
Accumulated other comprehensive income | 5,394 | — | 5,394 | 5,500 | ||||||||||||
Partners’ equity, end of period | 452,474 | 6 | 452,480 | 503,698 | ||||||||||||
F-140
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INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 2007 TO SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
(Unaudited)
Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Operating activities | ||||||||||||||||
Net income for the period | 2,878 | 6,356 | 32,141 | 12,525 | ||||||||||||
Items not involving cash | ||||||||||||||||
Depreciation, depletion and amortization | 2,639 | 3,650 | 16,228 | 15,402 | ||||||||||||
Amortization of deferred debt issue costs | 106 | 153 | 267 | 322 | ||||||||||||
Gain on sale of assets | (3,429 | ) | (1,156 | ) | (7,441 | ) | (2,143 | ) | ||||||||
Change in non-cash operating items | ||||||||||||||||
Accounts receivable | (242 | ) | 793 | 4,671 | 3,380 | |||||||||||
Inventories | 14,471 | 8,320 | 3,096 | (1,883 | ) | |||||||||||
Prepaid expenses | (456 | ) | 17 | (1,205 | ) | 657 | ||||||||||
Accounts payable and accrued liabilities | (11,880 | ) | (8,688 | ) | (6,418 | ) | (6,901 | ) | ||||||||
Management fee — performance bonus payable | 3,382 | — | (2,796 | ) | — | |||||||||||
Other liabilities | 502 | (4,654 | ) | 720 | (3,925 | ) | ||||||||||
7,971 | 4,791 | 39,263 | 17,434 | |||||||||||||
Investing activities | ||||||||||||||||
Acquisition of timberland assets purchase price adjustment | 28 | — | 545 | — | ||||||||||||
Additions to property, plant and equipment, and timberlands and logging roads | (2,799 | ) | (2,803 | ) | (7,814 | ) | (8,063 | ) | ||||||||
Proceeds from sale of assets | 4,949 | 1,719 | 14,539 | 5,796 | ||||||||||||
2,178 | (1,084 | ) | 7,270 | (2,267 | ) | |||||||||||
Financing activities | ||||||||||||||||
Credit facilities | 2,015 | — | 2,015 | — | ||||||||||||
Distributions to limited partners | (9,000 | ) | (8,000 | ) | (37,160 | ) | (25,000 | ) | ||||||||
(6,985 | ) | (8,000 | ) | (35,145 | ) | (25,000 | ) | |||||||||
Increase (decrease) in cash | 3,164 | (4,293 | ) | 11,388 | (9,833 | ) | ||||||||||
Cash, beginning of period | 15,895 | 12,776 | 7,671 | 18,316 | ||||||||||||
Cash, end of period | 19,059 | 8,483 | 19,059 | 8,483 | ||||||||||||
Supplemental cash flow information | ||||||||||||||||
Interest paid | 12,416 | 12,383 | 24,835 | 24,835 |
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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(Expressed in thousands of U.S. dollars)
(Unaudited)
• A presentational reclassification of amounts previously recorded in “Cumulative translation adjustments” to “Accumulated other comprehensive income”. | ||
• A presentational reclassification of the deferred gain on former interest rate swaps previously recorded on the balance sheet to “Accumulated other comprehensive income”. | ||
• A presentational reclassification of the deferred debt issue costs from assets to being included in the initial carrying amount of Island’s long-term debt. | ||
• Deferred debt issue costs are amortized under the effective interest method. |
F-142
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September 30, 2007 | December 31, 2006 | |||||||||||||||
Accumulated | Net book | Net book | ||||||||||||||
Cost | depreciation | value | value | |||||||||||||
$ | $ | $ | $ | |||||||||||||
HBU land | 104,189 | — | 104,189 | 110,303 | ||||||||||||
Buildings | 1,176 | 267 | 909 | 677 | ||||||||||||
Plant and equipment | 4,399 | 1,702 | 2,697 | 2,855 | ||||||||||||
109,764 | 1,969 | 107,795 | 113,835 | |||||||||||||
September 30, 2007 | ||||||||||||||||
Accumulated | December 31, 2006 | |||||||||||||||
depletion and | Net book | Net book | ||||||||||||||
Cost | amortization | value | value | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Timberlands | 790,638 | 35,831 | 754,807 | 768,305 | ||||||||||||
Reforestation | 10,165 | — | 10,165 | 6,065 | ||||||||||||
Logging roads | 15,503 | 11,633 | 3,870 | 4,488 | ||||||||||||
816,306 | 47,464 | 768,842 | 778,858 | |||||||||||||
Number of | ||||||||
units | ||||||||
authorized | Participation | |||||||
and issued | % | |||||||
Limited Partners interests | 53,168,984 | 99.999 | ||||||
General Partner interest | 1 | 0.001 |
F-143
Table of Contents
3 Months Ended | 9 Months Ended | |||||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Sales by location of customer | ||||||||||||||||
Canada | 15,690 | 13,129 | 61,679 | 39,927 | ||||||||||||
United States | 20,310 | 27,471 | 67,777 | 74,581 | ||||||||||||
Japan and Asia | 17,081 | 14,277 | 54,513 | 37,081 | ||||||||||||
53,081 | 54,877 | 183,969 | 151,589 | |||||||||||||
Sales by product line | ||||||||||||||||
Logs | 52,946 | 54,723 | 183,644 | 151,239 | ||||||||||||
Other | 135 | 154 | 325 | 350 | ||||||||||||
53,081 | 54,877 | 183,969 | 151,589 | |||||||||||||
(i) Island engages in various transactions with Western Forest Products Ltd. (“Western”), a company under the common control of one of the limited partners. Reference to transactions with Western, include those with Cascadia, which was effectively purchased by Western in 2006. During the year, each entity purchased and sold logs, as well as boom gear, to each other. These transactions were recorded at the exchange amount determined by reference to current market pricing. Certain overhead and administrative fees were charged between Island and Western for services that are provided from one entity to the other. During the year, Island billed $13,060 (2006 — $8,387) to Western and recognized billings from Western in the amount of $7,619 (2006 — $12,028). | ||
(ii) Pursuant to the WYL asset purchase agreement, the Partnership provided a limited guarantee in favour of WYL of the obligations of Cascadia (now Western) under the WYL asset purchase agreement (the “Island Guarantee”). Western has agreed to indemnify the Partnership in respect of any liability that it incurs under the Island Guarantee. As security for the indemnity, Western has assumed responsibility for a debenture, originally issued by Cascadia, in the amount of $100,000 in favour of the Partnership, which charges all of Western’s purchased Cascadia real property and grants a security interest over all such present and after-acquired personal property. The debenture places certain restrictions on Western of the type typically found in grants of security of this nature, including restrictions on the ability to make distributions to its shareholders without the consent of the Partnership. | ||
(iii) Island engaged in transactions with Brookfield and its affiliates related to administrative and other functions that were controlled by Brookfield. During the year, Island was billed $492 (2006 — $1,836) for these services. | ||
(iv) Under a loan agreement with IT Finance, a company under common control of one of the limited partners, Island incurred interest payments in the amount of $18,605 (2006 — $18,605) and charged IT Finance $20 (2006 — $19) for expenses paid on their behalf. | ||
(v) Under an agreement with Brookfield, on the sale of Cascadia in 2006, Island will receive an amount equivalent to the excess of the sale proceeds over $100,000 plus carrying costs from May 26, 2005. An excess amount of $4,649 was estimated and recorded as a reduction of the purchase price paid by Island for the acquisition of the timberland assets for the year ended December 31, 2006. Island received a settlement of $5,159 during the quarter ended March 31, 2007 and subsequently received a final adjustment of $28 during the current quarter ended September 30, 2007. | ||
(vi) Island holds a 50% interest in Strathcona Helicopters Ltd. (“Strathcona”). During the year, Island utilized Strathcona for helicopter transport services totalling $588 (2006 — $789). | ||
(vii) Receivable (payable) balances with entities under common control: |
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
$ | $ | |||||||
Western | (146 | ) | 336 | |||||
Carma Developers LP | — | (74 | ) | |||||
Brookfield | — | 4,649 | ||||||
IT Finance | (2,059 | ) | (8,269 | ) | ||||
Other | (5 | ) | (7 | ) | ||||
(2,210 | ) | (3,365 | ) | |||||
F-144
Table of Contents
(a) Joint ventures |
9 Months Ended | ||||||||
September 30, | June 30, | |||||||
2007 | 2006 | |||||||
$ | $ | |||||||
Income (loss) | ||||||||
Revenues | 326 | 350 | ||||||
Expenses | 529 | 393 | ||||||
Net loss | (203 | ) | (43 | ) | ||||
Cash flows provided by (used in) | ||||||||
Operating activities | 13 | 12 | ||||||
Investing activities | (13 | ) | (12 | ) | ||||
Financial activities | — | — |
(b) Consolidated cash flows |
(c) Presentation of consolidated financial statements |
(d) Recent accounting pronouncements — US GAAP |
(e) Recent accounting pronouncements — Canadian GAAP |
(i) | Accounting changes |
(ii) | Capital disclosures |
(iii) | Inventories |
F-145
Table of Contents
As at December 31, 2006 and 2005 and for the year ended December 31, 2006,
the two months ended December 31, 2005 and
the years ended October 31, 2005 and 2004
F-146
Table of Contents
Longview Fibre Company:
Portland, Oregon
F-147
Table of Contents
Year Ended | Two Months Ended | |||||||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||||||
Note | 2006 | 2005 | 2005 | 2004 | ||||||||||||||||
NET SALES: | ||||||||||||||||||||
Timber | $ | 193,021 | $ | 27,425 | $ | 186,783 | $ | 192,840 | ||||||||||||
Manufacturing | 757,645 | 116,121 | 711,309 | 638,326 | ||||||||||||||||
Total net sales | 950,666 | 143,546 | 898,092 | 831,166 | ||||||||||||||||
Cost of products sold, including outward freight | 800,997 | 125,187 | 742,686 | 689,470 | ||||||||||||||||
GROSS PROFIT | 149,669 | 18,359 | 155,406 | 141,696 | ||||||||||||||||
Selling, administrative and general expenses | 96,391 | 17,644 | 93,559 | 82,752 | ||||||||||||||||
Loss (gain) on impairment and disposition of assets | 15 | 7,229 | (1,348 | ) | 9,692 | — | ||||||||||||||
Advisory fees and REIT-related expenses | 10 | 13,940 | — | — | — | |||||||||||||||
OPERATING PROFIT (LOSS): | ||||||||||||||||||||
Timber | 78,595 | 14,310 | 84,792 | 90,039 | ||||||||||||||||
Manufacturing | (46,486 | ) | (12,247 | ) | (32,637 | ) | (31,095 | ) | ||||||||||||
Total operating profit | 32,109 | 2,063 | 52,155 | 58,944 | ||||||||||||||||
Interest income | 984 | 102 | 286 | 188 | ||||||||||||||||
Interest expense | (36,394 | ) | (6,200 | ) | (37,044 | ) | (37,493 | ) | ||||||||||||
Other income (expense) | 11 | (12,946 | ) | (5,118 | ) | 1,137 | 1,262 | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES | (16,247 | ) | (9,153 | ) | 16,534 | 22,901 | ||||||||||||||
Provision (benefit) for income taxes: | 13 | |||||||||||||||||||
Current | (4 | ) | 33 | 1,688 | 123 | |||||||||||||||
Deferred | (35,218 | ) | (3,333 | ) | 4,492 | 8,877 | ||||||||||||||
(35,222 | ) | (3,300 | ) | 6,180 | 9,000 | |||||||||||||||
NET INCOME (LOSS) | $ | 18,975 | $ | (5,853 | ) | $ | 10,354 | $ | 13,901 | |||||||||||
Per share data: | 4 | |||||||||||||||||||
Net income (loss) | $ | 0.29 | $ | (0.09 | ) | $ | 0.16 | $ | 0.21 | |||||||||||
Cash dividends paid: | ||||||||||||||||||||
Regular dividends | $ | 0.65 | — | $ | 0.06 | $ | 0.04 | |||||||||||||
REIT-Special Earnings and Profits Distribution | 3 | $ | 1.17 | — | — | — | ||||||||||||||
Shares outstanding | 3,4 | 65,752 | 65,750 | 65,750 | 65,750 |
(dollars in thousands)
Year Ended | Two Months Ended | |||||||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||||||
Note | 2006 | 2005 | 2005 | 2004 | ||||||||||||||||
Net income (loss) | $ | 18,975 | $ | (5,853 | ) | $ | 10,354 | $ | 13,901 | |||||||||||
Other comprehensive loss on derivatives, net of tax | 12 | (3,640 | ) | — | — | — | ||||||||||||||
Other comprehensive income (loss) | $ | 15,335 | $ | (5,853 | ) | $ | 10,354 | $ | 13,901 | |||||||||||
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Table of Contents
Accumulated | ||||||||||||||||||||||||||||
Additional | Retained | Other | Total | |||||||||||||||||||||||||
Common Stock | Paid-In | Earnings | Comprehensive | Shareholder’s | ||||||||||||||||||||||||
Note | Shares | Amounts | Capital | (Deficit) | Loss | Equity | ||||||||||||||||||||||
Balance at October 31, 2003 | 51,077 | $ | 76,615 | $ | 3,306 | $ | 352,386 | $ | — | $ | 432,307 | |||||||||||||||||
Net income | — | — | — | 13,901 | — | 13,901 | ||||||||||||||||||||||
Cash dividends at $0.05 per common share | — | — | — | (2,554 | ) | — | (2,554 | ) | ||||||||||||||||||||
Balance at October 31, 2004 | 51,077 | 76,615 | 3,306 | 363,733 | — | 443,654 | ||||||||||||||||||||||
Net income | — | — | — | 10,354 | — | 10,354 | ||||||||||||||||||||||
Cash dividend at $0.08 per common share | — | — | — | (4,086 | ) | — | (4,086 | ) | ||||||||||||||||||||
Balance at October 31, 2005 | 51,077 | 76,615 | 3,306 | 370,001 | — | 449,922 | ||||||||||||||||||||||
Net loss | — | — | — | (5,853 | ) | — | (5,853 | ) | ||||||||||||||||||||
Balance at December 31, 2005 | 51,077 | 76,615 | 3,306 | 364,148 | — | 444,069 | ||||||||||||||||||||||
Net income | — | — | — | 18,975 | — | 18,975 | ||||||||||||||||||||||
Issuance of common stock under Dividend Reinvestment Plan | 18 | 9 | 14 | 164 | — | — | 178 | |||||||||||||||||||||
Cash dividends declared or paid at $0.88 per common share | — | — | — | (58,339 | ) | — | (58,339 | ) | ||||||||||||||||||||
REIT E&P Special Dividend Distribution: | 3 | |||||||||||||||||||||||||||
Common stock | 14,673 | 22,010 | 286,107 | (308,117 | ) | — | — | |||||||||||||||||||||
Cash | — | — | — | (77,012 | ) | — | (77,012 | ) | ||||||||||||||||||||
Adjustment to initially apply SFAS 158, net of tax | 2 | — | — | — | — | (23,171 | ) | (23,171 | ) | |||||||||||||||||||
Unrealized loss on derivatives, net of tax | 12 | — | — | — | — | (3,640 | ) | (3,640 | ) | |||||||||||||||||||
Balance at December 31, 2006 | 65,759 | $ | 98,639 | $ | 289,577 | $ | (60,345 | ) | $ | (26,811 | ) | $ | 301,060 | |||||||||||||||
F-149
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As of Dec. 31 | As of Dec. 31 | |||||||||||
Note | 2006 | 2005 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash | $ | 2,753 | $ | 1,608 | ||||||||
Accounts and notes receivable | 122,194 | 111,514 | ||||||||||
Allowance for doubtful accounts | (755 | ) | (1,000 | ) | ||||||||
Refundable income taxes | 319 | 3,898 | ||||||||||
Inventories | 5 | 75,785 | 65,727 | |||||||||
Prepaid expenses and other assets | 11,934 | 9,295 | ||||||||||
Total current assets | 212,230 | 191,042 | ||||||||||
Capital assets: | ||||||||||||
Buildings, machinery and equipment at cost | 6 | 1,757,092 | 1,815,044 | |||||||||
Accumulated depreciation | (1,196,042 | ) | (1,186,618 | ) | ||||||||
Costs to be depreciated in future years | 561,050 | 628,426 | ||||||||||
Plant sites at cost | 3,335 | 3,549 | ||||||||||
564,385 | 631,975 | |||||||||||
Timber, at cost less depletion | 202,953 | 198,462 | ||||||||||
Roads, at cost less amortization | 8,613 | 8,967 | ||||||||||
Timberlands, at cost | 25,213 | 24,807 | ||||||||||
236,779 | 232,236 | |||||||||||
Total capital assets | 801,164 | 864,211 | ||||||||||
Pension and other noncurrent assets | 14 | 123,724 | 155,010 | |||||||||
Total assets | $ | 1,137,118 | $ | 1,210,263 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Payable to bank resulting from checks in transit | $ | 827 | $ | 5,115 | ||||||||
Trade accounts payable | 52,648 | 48,414 | ||||||||||
Dividends payable | 7 | 15,125 | — | |||||||||
Advisory fees and REIT-related expenses payable | 3,443 | 1,063 | ||||||||||
Short-term borrowings | 9 | 6,000 | — | |||||||||
Accrued payroll liabilities | 17,938 | 15,940 | ||||||||||
Other taxes payable | 6,779 | 6,782 | ||||||||||
Other accrued liabilities | 8 | 14,461 | 17,587 | |||||||||
Current portion of long-term debt | 9 | 2,987 | — | |||||||||
Total current liabilities | 120,208 | 94,901 | ||||||||||
Long-term debt | 19 | 510,202 | 428,918 | |||||||||
Deferred tax liabilities — net | 13 | 158,407 | 205,698 | |||||||||
Postretirement and other liabilities | 14 | 47,241 | 36,677 | |||||||||
Commitments and contingencies | 19 | — | — | |||||||||
Total liabilities | 836,058 | 766,194 | ||||||||||
Shareholders’ equity: | ||||||||||||
Preferred stock; authorized 2,000,000 shares | — | — | ||||||||||
Common stock | 98,639 | 76,615 | ||||||||||
Additional paid-in capital | 289,577 | 3,306 | ||||||||||
Retained earnings (deficit) | (60,345 | ) | 364,148 | |||||||||
Accumulated other comprehensive loss | (26,811 | ) | — | |||||||||
Total shareholders’ equity | 301,060 | 444,069 | ||||||||||
Total liabilities and shareholders’ equity | $ | 1,137,118 | $ | 1,210,263 | ||||||||
F-150
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Year Ended | Two Months Ended | |||||||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||||||
Note | 2006 | 2005 | 2005 | 2004 | ||||||||||||||||
CASH PROVIDED BY (USED FOR) OPERATIONS: | ||||||||||||||||||||
Net income (loss) | $ | 18,975 | $ | (5,853 | ) | $ | 10,354 | $ | 13,901 | |||||||||||
Adjustments to income (loss) not requiring (providing) cash: | ||||||||||||||||||||
Depreciation | 70,696 | 12,051 | 71,729 | 70,906 | ||||||||||||||||
Depletion and amortization | 9,964 | 1,078 | 10,775 | 8,612 | ||||||||||||||||
Deferred tax liabilities — net | (35,218 | ) | (3,333 | ) | 4,492 | 8,877 | ||||||||||||||
Loss (gain) on impairment and disposition of assets | 7,229 | (1,348 | ) | 10,590 | 5,039 | |||||||||||||||
Loss (gain) on extinguishment of debt | (742 | ) | 1,013 | — | — | |||||||||||||||
Change in: | ||||||||||||||||||||
Accounts and notes receivable — net | (10,925 | ) | (4,670 | ) | 4,529 | (11,969 | ) | |||||||||||||
Refundable income taxes | 3,579 | 33 | (3,931 | ) | — | |||||||||||||||
Inventories | (10,058 | ) | 6,383 | 11,413 | (18,175 | ) | ||||||||||||||
Prepaid expenses and other assets | 7 | (424 | ) | (1,315 | ) | (195 | ) | |||||||||||||
Pension and other noncurrent assets | 4,503 | (77 | ) | (4,776 | ) | (1,775 | ) | |||||||||||||
Trade accounts payable, payroll and other taxes payable, and other accrued liabilities | 3,956 | 1,313 | (2,618 | ) | 14,254 | |||||||||||||||
Advisory fees and REIT-related expenses payable | 2,380 | — | — | — | ||||||||||||||||
Postretirement and other liabilities | 1,597 | 92 | (283 | ) | 2,436 | |||||||||||||||
Cash provided by operations | 65,943 | 6,258 | 110,959 | 91,911 | ||||||||||||||||
CASH PROVIDED BY (USED FOR) INVESTING: | ||||||||||||||||||||
Additions to: Plant and equipment | (22,245 | ) | (4,654 | ) | (31,968 | ) | (44,052 | ) | ||||||||||||
Timber and timberlands | (14,762 | ) | (2,932 | ) | (10,180 | ) | (24,946 | ) | ||||||||||||
Proceeds from sale of capital assets | 11,312 | 47 | 2,655 | 3,269 | ||||||||||||||||
Cash used for investing | (25,695 | ) | (7,539 | ) | (39,493 | ) | (65,729 | ) | ||||||||||||
CASH PROVIDED BY (USED FOR) FINANCING: | ||||||||||||||||||||
Additions to long-term debt | 9 | 314,086 | 200,032 | 191 | 192 | |||||||||||||||
Reduction in long-term debt | 9 | (230,311 | ) | (124,500 | ) | (30,000 | ) | — | ||||||||||||
Short-term borrowings, net | 6,000 | (63,500 | ) | (35,500 | ) | (25,000 | ) | |||||||||||||
Debt issue costs | (4,542 | ) | (3,959 | ) | — | — | ||||||||||||||
Payable to bank resulting from checks in transit | (4,288 | ) | (5,184 | ) | (2,071 | ) | 1,180 | |||||||||||||
Cash dividends paid: | ||||||||||||||||||||
Regular dividends | (43,214 | ) | — | (4,086 | ) | (2,554 | ) | |||||||||||||
REIT E&P Dividend Distribution | 3 | (77,012 | ) | — | — | — | ||||||||||||||
Proceeds from sale of common stock | 178 | — | — | — | ||||||||||||||||
Cash provided by (used for) financing | (39,103 | ) | 2,889 | (71,466 | ) | (26,182 | ) | |||||||||||||
Change in cash position | 1,145 | 1,608 | — | — | ||||||||||||||||
Cash position, beginning of year | 1,608 | — | — | — | ||||||||||||||||
Cash position, end of year | $ | 2,753 | $ | 1,608 | $ | — | $ | — | ||||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||
Interest (net of amount capitalized) | $ | 43,467 | $ | 4,957 | $ | 37,604 | $ | 36,822 | ||||||||||||
Capitalized interest | 545 | 59 | 610 | 876 | ||||||||||||||||
Income taxes | 12 | — | 5,782 | 113 |
F-151
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(a) | Nature of business |
(b) | Principles of consolidation |
(c) | Accounts receivable and allowance for doubtful accounts |
(d) | Inventories |
(e) | Property and depreciation |
(f) | Timberlands, depletion and amortization |
F-152
Table of Contents
(g) | Financial instruments |
(h) | Earnings per share |
(i) | Revenue recognition |
(j) | Recent accounting pronouncements and developments |
F-153
Table of Contents
(k) | Reclassifications |
(l) | Use of estimates |
After | ||||||||||||
Before Application | Application of | |||||||||||
of SFAS 158 | Adjustments | SFAS 158 | ||||||||||
(dollars in thousands) | ||||||||||||
Pension and other assets | $ | 152,656 | $ | (28,932 | ) | $ | 123,724 | |||||
Total assets | 1,166,050 | (28,932 | ) | 1,137,118 | ||||||||
Deferred tax liabilities — net | 171,725 | (13,318 | ) | 158,407 | ||||||||
Other liabilities | 39,684 | 7,557 | 47,241 | |||||||||
Total liabilities | 841,819 | (5,761 | ) | 836,058 | ||||||||
Accumulated other comprehensive loss | (3,640 | ) | (23,171 | ) | (26,811 | ) | ||||||
Total shareholders’ equity | $ | 324,231 | $ | (23,171 | ) | $ | 301,060 |
F-154
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Pension | Postretirement | Total | ||||||||||
(dollars in thousands) | ||||||||||||
Unrecognized net actuarial (gain) loss | $ | (6,848 | ) | $ | 4,653 | $ | (2,195 | ) | ||||
Unrecognized prior service cost | 35,780 | — | 35,780 | |||||||||
Unrecognized transition obligation | — | 2,904 | 2,904 | |||||||||
Total | $ | 28,932 | $ | 7,557 | $ | 36,489 | ||||||
Pension | Postretirement | Total | ||||||||||
(dollars in thousands) | ||||||||||||
Amortization of net actuarial loss | $ | — | $ | 34 | $ | 34 | ||||||
Prior service cost amortization | 7,936 | — | 7,936 | |||||||||
Amortization of transition obligation | — | 499 | 499 | |||||||||
Total | $ | 7,936 | $ | 533 | $ | 8,469 | ||||||
F-155
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Year Ended | Two Months Ended | |||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||
2006 | 2005 | 2005 | 2004 | |||||||||||||
(in thousands, except per share) | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 18,975 | $ | (5,853 | ) | $ | 10,354 | $ | 13,901 | |||||||
Cash dividends paid: | ||||||||||||||||
Regular dividends | $ | 43,214 | $ | — | $ | 4,086 | $ | 2,554 | ||||||||
REIT-Special Earnings and Profits Distribution (Note 3) | $ | 77,012 | $ | — | $ | — | $ | — | ||||||||
Denominator: | ||||||||||||||||
Basic and diluted shares | 65,752 | 65,750 | 65,750 | 65,750 | ||||||||||||
Per share: | ||||||||||||||||
Net income (loss) | $ | 0.29 | $ | (0.09 | ) | $ | 0.16 | $ | 0.21 | |||||||
Cash dividends paid: | ||||||||||||||||
Regular dividends | $ | 0.65 | $ | — | $ | 0.06 | $ | 0.04 | ||||||||
REIT-Special Earnings and Profits | ||||||||||||||||
Distribution(a) | $ | 1.17 | $ | — | $ | — | $ | — |
(a) | The computation of the cash distribution per share made in REIT-Special Earnings and Profits Distribution (see Note 3) includes the 14,673,663 shares issued in the special cash-and-stock distribution. The total number of common shares used in the computation was 65,750,230. |
F-156
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As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Finished goods | $ | 37,806 | $ | 30,909 | ||||
Goods in process | 37,786 | 32,479 | ||||||
Raw materials | 11,050 | 6,525 | ||||||
Supplies (at average cost) | 45,259 | 41,180 | ||||||
131,901 | 111,093 | |||||||
LIFO reserve | (56,116 | ) | (45,366 | ) | ||||
Total inventories | $ | 75,785 | $ | 65,727 | ||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Buildings | $ | 133,689 | $ | 137,484 | ||||
Machinery and equipment | 1,623,403 | 1,677,560 | ||||||
Total buildings, machinery and equipment | $ | 1,757,092 | $ | 1,815,044 | ||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Workers’ compensation liabilities | $ | 9,135 | $ | 7,513 | ||||
Accrued interest on debt | 1,971 | 10,074 | ||||||
Current portion of accumulated postretirement health care benefit obligation(a) | 2,955 | — | ||||||
Other | 400 | — | ||||||
Total other accrued liabilities | $ | 14,461 | $ | 17,587 | ||||
(a) | The current portion of the accumulated postretirement health care benefit obligation was reclassified for 2006 in accordance with the requirements of SFAS 158. For 2005, the amount was included in “Postretirement and other liabilities” and is not material. |
F-157
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As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Credit agreement | ||||||||
Revolving line of credit facility (floating rates, 9.0%)(a)(b) | $ | 6,000 | $ | — | ||||
Term Loan A Facility (floating rates, 7.11%)(a) | 200,000 | 200,000 | ||||||
Term Loan B Facility (floating rates, 7.11%)(a) | 298,689 | — | ||||||
Revenue bonds payable through 2018 (floating rates, 3.92% to 4.07%)(a) | 14,500 | 14,500 | ||||||
Senior subordinated notes due 2009 (10.00% fixed interest rate) | — | 215,000 | ||||||
Total line of credit and long-term debt | 519,189 | 429,500 | ||||||
Less Revolving Credit Facility reported as short-term borrowings in consolidated balance sheet | (6,000 | ) | — | |||||
Less unamortized discount | — | (582 | ) | |||||
Total long-term debt | 513,189 | 428,918 | ||||||
Less current portion of Term Loan B Facility | (2,987 | ) | — | |||||
Net long-term debt | $ | 510,202 | $ | 428,918 | ||||
Scheduled maturities of long-term debt (dollars in thousands) | ||||||||
2007 | $ | 2,987 | ||||||
2008 | 2,957 | |||||||
2009 | 2,927 | |||||||
2010 | 202,898 | |||||||
2011 | 2,869 | |||||||
2012-2018 | 298,551 | |||||||
Total | $ | 513,189 | ||||||
(a) | Interest rates as of December 31, 2006. | |
(b) | Interest rate does not include a commitment fee of 0.4% on the unused portion of the revolving line of credit facility. |
F-158
Table of Contents
Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
December 31, 2006 | December 31, 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Current: | ||||||||||||||||
Federal | $ | — | $ | (14 | ) | $ | 725 | $ | — | |||||||
State | (4 | ) | 47 | 963 | 123 | |||||||||||
Total current tax | (4 | ) | 33 | 1,688 | 123 | |||||||||||
Deferred: | ||||||||||||||||
Federal | (36,474 | ) | (3,086 | ) | 4,475 | 8,200 | ||||||||||
State | 1,256 | (247 | ) | 17 | 677 | |||||||||||
Total deferred tax | (35,218 | ) | (3,333 | ) | 4,492 | 8,877 | ||||||||||
Total provision (benefit) for taxes on income | $ | (35,222 | ) | $ | (3,300 | ) | $ | 6,180 | $ | 9,000 | ||||||
F-159
Table of Contents
Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
December 31, 2006 | December 31, 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Expected federal income tax provision (benefit) at statutory rate | $ | (5,686 | ) | $ | (3,204 | ) | $ | 5,787 | $ | 8,015 | ||||||
REIT income and gains not subject to corporate income taxes | (21,242 | ) | — | — | — | |||||||||||
Elimination of pre-conversion net deferred tax liabilities | (7,994 | ) | — | — | — | |||||||||||
State income taxes less federal income tax benefit | (1,077 | ) | (147 | ) | 630 | 520 | ||||||||||
Credits | (284 | ) | — | (551 | ) | (200 | ) | |||||||||
Other | 1,061 | 51 | 314 | 665 | ||||||||||||
Income tax (benefit) provision | $ | (35,222 | ) | $ | (3,300 | ) | $ | 6,180 | $ | 9,000 | ||||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Deferred tax assets: | ||||||||
Alternative minimum tax | $ | — | $ | (398 | ) | |||
State credits and other assets | (10,633 | ) | (8,465 | ) | ||||
Total deferred tax assets | (10,633 | ) | (8,863 | ) | ||||
Deferred tax liabilities: | ||||||||
Depreciation/depletable assets | 142,355 | 173,267 | ||||||
Employee benefit plans | 19,376 | 36,622 | ||||||
Other liabilities | 204 | 213 | ||||||
Total deferred tax liabilities | 161,935 | 210,102 | ||||||
Deferred income taxes — net | $ | 151,302 | $ | 201,239 | ||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Deferred tax liabilities-net | $ | 158,407 | $ | 205,698 | ||||
Less: deferred tax assets included in “Prepaid expenses and other assets” | 7,105 | 4,459 | ||||||
Total | $ | 151,302 | $ | 201,239 | ||||
14. | RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS |
Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
December 31, 2006 | December 31, 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Benefit obligation at beginning of year | $ | 444,733 | $ | 428,953 | $ | 415,210 | $ | 376,616 | ||||||||
Service cost | 10,441 | 1,583 | 9,403 | 8,499 | ||||||||||||
Interest cost | 26,269 | 4,271 | 24,413 | 23,986 | ||||||||||||
Amendments | 19,750 | — | 82 | 21 | ||||||||||||
Change in assumptions | 1,575 | 13,326 | — | 24,280 | ||||||||||||
Actuarial (gain) loss | 2,904 | — | 1,538 | 1,708 | ||||||||||||
Benefits paid | (28,657 | ) | (3,400 | ) | (21,693 | ) | (19,900 | ) | ||||||||
Benefit projected obligation at end of year | $ | 477,015 | $ | 444,733 | $ | 428,953 | $ | 415,210 | ||||||||
F-160
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Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
December 31, 2006 | December 31, 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 521,500 | $ | 500,918 | $ | 462,167 | $ | 437,193 | ||||||||
Actual return on plan assets | 88,749 | 23,982 | 60,444 | 41,872 | ||||||||||||
Employee contribution | — | — | — | 2 | ||||||||||||
Employer contributions | — | — | — | 3,000 | ||||||||||||
Benefits paid | (28,657 | ) | (3,400 | ) | (21,693 | ) | (19,900 | ) | ||||||||
Fair value of plan assets at end of year | $ | 581,592 | $ | 521,500 | $ | 500,918 | $ | 462,167 | ||||||||
As of December 31, | ||||||||
2006(a) | 2005 | |||||||
(dollars in thousands) | ||||||||
Funded status | $ | 104,577 | $ | 76,767 | ||||
Unrecognized net actuarial loss | — | 38,266 | ||||||
Unrecognized prior service cost | — | 23,226 | ||||||
Pension assets included in “Pension and other assets” in consolidated balance sheets | $ | 104,577 | $ | 138,259 | ||||
(a) | As required by SFAS 158, we recorded in Accumulated Other Comprehensive Loss as of December 31, 2006 the unrecognized net actuarial loss and unrecognized prior service costs—See Note 2. |
As of | ||||||||
December 31, | ||||||||
Pension benefit obligation (as used in computation of consolidated balance sheet amounts) | 2006 | 2005 | ||||||
Discount rate | 6.00 % | 5.75 % | ||||||
Rate of compensation increase | 3.81 % | 4.75 % |
Year Ended | ||||||||||||
December 31, | Year Ended October 31, | |||||||||||
Net periodic pension expense (income) | 2006 | 2005 | 2004 | |||||||||
Discount rate | 5.75% | 6.00% | 6.50% | |||||||||
Rate of compensation increase | 4.75% | 4.75% | 4.75% | |||||||||
Expected long-term rate of return on plan assets | 8.50% | 8.75% | 9.00% |
Year Ended | Two Months Ended | |||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||
2006 | 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Service cost — benefits earned during the year | $ | 10,441 | $ | 1,583 | $ | 9,403 | $ | 8,499 | ||||||||
Interest cost on projected benefit obligation | 26,269 | 4,271 | 24,413 | 23,986 | ||||||||||||
Expected return on plan assets | (40,784 | ) | (6,933 | ) | (43,830 | ) | (45,234 | ) | ||||||||
Recognized net actuarial loss | 1,626 | 43 | — | — | ||||||||||||
Amortization of prior service cost | 7,197 | 933 | 5,887 | 5,950 | ||||||||||||
Net periodic benefit (income) expense | $ | 4,749 | $ | (103 | ) | $ | (4,127 | ) | $ | (6,799 | ) | |||||
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Plan assets |
As of December 31, | ||||||||
Asset Classes | 2006 | 2005 | ||||||
Large Cap U.S. Equity | 27% | 40% | ||||||
Small/Mid Cap U.S. Equity | 22 | 23 | ||||||
International Equity | 22 | 13 | ||||||
Private Equity | 3 | 4 | ||||||
Real Estate | 10 | 7 | ||||||
Other | 16 | 13 | ||||||
Total | 100% | 100% | ||||||
Target Asset | ||||
Allocation as of | ||||
December 31, | ||||
Asset Classes | 2006 | |||
Large Cap U.S. Equity | 28% | |||
Small/Mid Cap U.S. Equity | 20 | |||
International Equity | 20 | |||
Private Equity | 5 | |||
Real Estate | 12 | |||
Other | 15 | |||
Total | 100% | |||
Payments | ||||
(dollars in thousands) | ||||
2007 | $ | 22,499 | ||
2008 | 23,680 | |||
2009 | 25,588 | |||
2010 | 27,687 | |||
2011 | 29,552 | |||
2012-2016 | 177,341 | |||
Total | $ | 306,347 | ||
Postretirement benefits other than pensions |
F-162
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Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
December 31, 2006 | December 31, 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Change in accumulated benefit obligation: | ||||||||||||||||
Accumulated benefit obligation at beginning of year | $ | 41,430 | $ | 40,996 | $ | 39,569 | $ | 32,780 | ||||||||
Service cost | 1,448 | 243 | 1,377 | 1,266 | ||||||||||||
Interest cost | 2,268 | 399 | 2,308 | 2,297 | ||||||||||||
Change in assumptions | (272 | ) | — | — | — | |||||||||||
Actuarial (gain) loss | (632 | ) | 206 | (237 | ) | 5,010 | ||||||||||
Benefits paid | (2,686 | ) | (414 | ) | (2,021 | ) | (1,784 | ) | ||||||||
Accumulated benefit obligation at end of year | $ | 41,556 | $ | 41,430 | $ | 40,996 | $ | 39,569 | ||||||||
As of | ||||||||
December 31, | ||||||||
Accumulated postretirement health care benefit obligation | 2006(a) | 2005 | ||||||
(dollars in thousands) | ||||||||
Unfunded status | $ | 41,556 | $ | 41,430 | ||||
Unrecognized net loss | — | (5,613 | ) | |||||
Unrecognized transition obligation | — | (3,403 | ) | |||||
Postretirement health care benefit liabilities included in “Postretirement and other liabilities” in the consolidated balance sheets | $ | 41,556 | $ | 32,414 | ||||
(a) | As required by SFAS 158, we recorded in Accumulated Other Comprehensive Loss as of December 31 2006 the unrecognized net loss and unrecognized transition obligation — see Note 2. |
As of December 31, | ||||||||
Accumulated postretirement health care benefit obligation | 2006 | 2005 | ||||||
Discount rate | 6.0% | 6.0% | ||||||
Health care cost trend rate | ||||||||
Indemnity plan | 11.0% | 13.0% | ||||||
HMO plan | 5.5% | 5.5% | ||||||
Ultimate trend rate | ||||||||
Indemnity plan | 5.5% | 5.5% | ||||||
HMO Plan | 5.5% | 5.5% | ||||||
Year ultimate trend rate reached | ||||||||
Indemnity plan | 2010 | 2009 | ||||||
HMO Plan | 2000 | 2000 |
Year Ended | Two Months Ended | Year Ended October 31, | ||||||||||||||
Net periodic postretirement health care benefit cost | December 31, 2006 | December 31, 2005 | 2005 | 2004 | ||||||||||||
(dollars in thousands) | ||||||||||||||||
Service cost — benefits earned during the year | $ | 1,448 | $ | 243 | $ | 1,377 | $ | 1,266 | ||||||||
Interest cost on accumulated benefit obligation | 2,268 | 399 | 2,308 | 2,297 | ||||||||||||
Amortization of transition obligation | 499 | 87 | 499 | 499 | ||||||||||||
Amortization of net loss | 56 | 10 | 113 | 45 | ||||||||||||
Net periodic postretirement health care benefit cost | $ | 4,271 | $ | 739 | $ | 4,297 | $ | 4,107 | ||||||||
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Year Ended | ||||||||||||
December 31, | Year Ended October 31, | |||||||||||
Net periodic postretirement health care benefit cost | 2006 | 2005 | 2004 | |||||||||
Discount rate | 5.75% | 6.0% | 6.0% | |||||||||
Health care cost trend rate | ||||||||||||
Indemnity plan | 11.00% | 13.0% | 15.0% | |||||||||
HMO plan | 5.50% | 5.5% | 5.5% | |||||||||
Ultimate trend rate | ||||||||||||
Indemnity plan | 5.50% | 5.5% | 5.5% | |||||||||
HMO Plan | 5.50% | 5.5% | 5.5% | |||||||||
Year ultimate trend rate reached | ||||||||||||
Indemnity plan | 2010 | 2009 | 2009 | |||||||||
HMO Plan | 2000 | 2000 | 2000 |
1-Percent | 1-Percent | |||||||
Increase | Decrease | |||||||
(dollars in thousands) | ||||||||
Effect on accumulated postretirement health care benefit obligation | $ | 3,810 | $ | (3,371 | ) | |||
Effect on aggregate service and interest cost components of net periodic postretirement health care benefit cost | $ | 596 | $ | (343 | ) |
Postretirement | ||||
Health Care | ||||
Benefit Payments | ||||
(dollars in thousands) | ||||
2007 | $ | 2,955 | ||
2008 | 3,005 | |||
2009 | 3,346 | |||
2010 | 3,717 | |||
2011 | 4,104 | |||
2012-2016 | 19,525 | |||
Total | $ | 36,652 | ||
Savings plans |
Savings Plans | ||||
Matching | ||||
Contributions | ||||
(dollars in thousands) | ||||
2007 | $ | 2,690 | ||
2008 | 2,800 | |||
2009 | 2,910 | |||
2010 | 3,030 | |||
2011 | 3,150 | |||
2012-2016 | 16,900 | |||
Total | $ | 31,480 | ||
15. | IMPAIRMENT ASSESSMENT-LEAVENWORTH SAWMILL AND POSSIBLE DIVESTITURE OF CONVERTING PLANTS |
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(a) | Impairment loss and closure of Leavenworth sawmill |
(b) | Permanent shut down of paper machines in 2005 |
16. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
17. | SHAREHOLDER RIGHTS PLAN |
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18. | DIVIDEND REINVESTMENT PLAN |
• | On the open market, at the weighted-average price per share of all shares purchased by the plan administrator on the investment date; or | |
• | From us, at a price per share equal to the average of the high and low sales prices of our common stock on the New York Stock Exchange on the investment date. |
19. | COMMITMENTS AND CONTINGENCIES |
20. | SEGMENT INFORMATION AND CHANGE IN REPORTING OF SEGMENTS |
1. Assets used wholly within a segment are assigned to that segment. |
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2. Assets used jointly are allocated to each segment on a percentage determined by dividing total cost of product produced for the two segments into cost of product produced for each segment. |
Year Ended | Two Months Ended | |||||||||||||||
December 31, | December 31, | Year Ended October 31, | ||||||||||||||
2006 | 2005 | 2005 | 2004 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net sales: | ||||||||||||||||
Timber | $ | 193,021 | $ | 27,425 | $ | 186,783 | $ | 192,840 | ||||||||
Manufacturing | 757,645 | 116,121 | 711,309 | 638,326 | ||||||||||||
Total net sales | 950,666 | 143,546 | 898,092 | 831,166 | ||||||||||||
Operating profit (loss): | ||||||||||||||||
Timber | 78,595 | 14,310 | 84,792 | 90,039 | ||||||||||||
Manufacturing | (46,486 | ) | (12,247 | ) | (32,637 | ) | (31,095 | ) | ||||||||
Total operating profit | 32,109 | 2,063 | 52,155 | 58,944 | ||||||||||||
Depreciation, depletion and amortization: | ||||||||||||||||
Timber | 12,650 | 1,590 | 13,729 | 11,618 | ||||||||||||
Manufacturing | 68,010 | 11,539 | 68,775 | 67,900 | ||||||||||||
Total depreciation, depletion and amortization | 80,660 | 13,129 | 82,504 | 79,518 | ||||||||||||
Additions to capital assets: | ||||||||||||||||
Timber | 14,762 | 4,654 | 31,968 | 24,946 | ||||||||||||
Manufacturing | 22,245 | 2,932 | 10,180 | 44,052 | ||||||||||||
Total additions to capital assets | $ | 37,007 | $ | 7,586 | $ | 42,148 | $ | 68,998 | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
(dollars in thousands) | ||||||||
Identifiable assets at balance sheet date: | ||||||||
Timber | $ | 267,979 | $ | 278,276 | ||||
Manufacturing | 869,139 | 931,987 | ||||||
Total assets | $ | 1,137,118 | $ | 1,210,263 | ||||
21. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
Quarters | ||||||||||||||||||||
1st | 2nd | 3rd | 4th | Total | ||||||||||||||||
(dollars in thousands, except per share) | ||||||||||||||||||||
Year ended December 31, 2006: | ||||||||||||||||||||
Net sales | $ | 220,057 | $ | 246,501 | $ | 245,617 | $ | 238,491 | $ | 950,666 | ||||||||||
Gross profit | 29,780 | 52,550 | 40,385 | 26,954 | 149,669 | |||||||||||||||
Net income (loss) | (11,019 | ) | 5,501 | 21,379 | 3,114 | 18,975 | ||||||||||||||
Net income (loss) per share(a) | (0.17 | ) | 0.08 | 0.33 | 0.05 | 0.29 | ||||||||||||||
Year ended October 31, 2005: | ||||||||||||||||||||
Net sales | $ | 224,080 | $ | 224,409 | $ | 224,919 | $ | 224,684 | $ | 898,092 | ||||||||||
Gross profit | 34,770 | 44,747 | 41,181 | 34,708 | 155,406 | |||||||||||||||
Net income (loss) | 2,621 | 8,759 | 5,849 | (6,875 | ) | 10,354 | ||||||||||||||
Net income (loss) per share(a) | 0.04 | 0.13 | 0.09 | (0.10 | ) | 0.16 | ||||||||||||||
Year ended October 31, 2004: | ||||||||||||||||||||
Net sales | $ | 169,927 | $ | 213,383 | $ | 220,486 | $ | 227,370 | $ | 831,166 | ||||||||||
Gross profit | 14,074 | 39,449 | 42,029 | 46,144 | 141,696 | |||||||||||||||
Net income (loss) | (9,283 | ) | 5,947 | 7,905 | 9,332 | 13,901 | ||||||||||||||
Net income (loss) per share(a) | (0.14 | ) | 0.09 | 0.12 | 0.14 | 0.21 | ||||||||||||||
(a) | Net income (loss) per share has been retroactively restated for all periods presented for the 14.7 million shares issued as part of the REIT E&P Special Dividend Distribution on August 7, 2006 (see Note 3). |
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22. | PENDING SALE OF THE COMPANY |
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for the three months ended March 31, 2007 and 2006
(Unaudited)
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2007 | 2006 | |||||||
Net sales | ||||||||
Timber | $ | 41,649 | $ | 41,849 | ||||
Manufacturing | 187,029 | 178,208 | ||||||
228,678 | 220,057 | |||||||
Cost of products sold, including outward freight | 213,758 | 191,073 | ||||||
Gross profit | 14,920 | 28,984 | ||||||
Selling, administrative and general expenses | 22,666 | 24,467 | ||||||
Loss (gain) on impairment and disposition of assets | 44,680 | (84 | ) | |||||
Advisory fees and REIT-related expenses | 24,737 | 11,108 | ||||||
Operating profit (loss) | ||||||||
Timber | 17,134 | 17,569 | ||||||
Manufacturing | (94,297 | ) | (24,076 | ) | ||||
(77,163 | ) | (6,507 | ) | |||||
Interest income | 247 | 119 | ||||||
Interest expense | (9,819 | ) | (8,567 | ) | ||||
Other income (expense) | (3,995 | ) | (2,371 | ) | ||||
Income (loss) before taxes | (90,730 | ) | (17,326 | ) | ||||
Provision (benefit) for taxes | ||||||||
Current | 15 | 15 | ||||||
Deferred | (30,026 | ) | (6,322 | ) | ||||
(30,011 | ) | (6,307 | ) | |||||
Net income (loss) | $ | (60,719 | ) | $ | (11,019 | ) | ||
Per share data | ||||||||
Net income (loss) per share | $ | (0.92 | ) | $ | (0.17 | ) | ||
Cash dividends paid | ||||||||
Regular dividends | $ | 0.23 | $ | — | ||||
Weighted average shares outstanding | 65,779 | 65,750 |
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March 31, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 806 | $ | 2,753 | ||||
Accounts and notes receivable | 103,937 | 122,194 | ||||||
Allowance for doubtful accounts | (625 | ) | (755 | ) | ||||
Refundable income taxes | 95 | 319 | ||||||
Inventories | 67,840 | 75,785 | ||||||
Prepaid expenses and other assets | 11,337 | 11,934 | ||||||
Current assets held for sale | 28,825 | — | ||||||
Total current assets | 212,215 | 212,230 | ||||||
Capital assets: | ||||||||
Buildings, machinery and equipment at cost | 1,500,162 | 1,757,092 | ||||||
Accumulated depreciation | (1,034,867 | ) | (1,196,042 | ) | ||||
Costs to be depreciated in future years | 465,295 | 561,050 | ||||||
Plant sites at cost | 2,001 | 3,335 | ||||||
467,296 | 564,385 | |||||||
Timber at cost less depletion | 203,022 | 202,953 | ||||||
Roads at cost less amortization | 8,408 | 8,613 | ||||||
Timberlands at cost | 25,213 | 25,213 | ||||||
236,643 | 236,779 | |||||||
Capital assets held for sale | 41,028 | — | ||||||
Total capital assets | 744,967 | 801,164 | ||||||
Pension and other assets | 121,633 | 123,724 | ||||||
Pension and other assets — held for sale | 119 | — | ||||||
$ | 1,078,934 | $ | 1,137,118 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Payable to bank resulting from checks in transit | $ | 9,843 | $ | 827 | ||||
Trade accounts payable | 52,721 | 52,648 | ||||||
Dividends payable | 15,129 | 15,125 | ||||||
Advisory fees and REIT-related expenses payable | 24,608 | 3,443 | ||||||
Short term borrowings | 14,200 | 6,000 | ||||||
Accrued payroll liabilities | 20,448 | 17,938 | ||||||
Accrued payroll liabilities — held for sale | 706 | — | ||||||
Other taxes payable | 8,283 | 6,779 | ||||||
Other accrued liabilities | 19,159 | 14,461 | ||||||
Current portion of long-term debt | 2,979 | 2,987 | ||||||
Total current liabilities | 168,076 | 120,208 | ||||||
Long-term debt | 509,463 | 510,202 | ||||||
Deferred tax liabilities — net | 129,364 | 158,407 | ||||||
Postretirement and other liabilities | 42,423 | 47,241 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock | ||||||||
Common stock | 98,669 | 98,639 | ||||||
Additional paid-in capital | 289,991 | 289,577 | ||||||
Retained earnings (deficit) | (135,881 | ) | (60,345 | ) | ||||
Accumulated other comprehensive loss | (23,171 | ) | (26,811 | ) | ||||
Total shareholders’ equity | 229,608 | 301,060 | ||||||
Total liabilities and shareholders’ equity | $ | 1,078,934 | $ | 1,137,118 | ||||
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(dollars in thousands)
2007 | 2006 | |||||||
Cash provided by (used for) operations: | ||||||||
Net income (loss) | $ | (60,719 | ) | $ | (11,019 | ) | ||
Adjustments to income (loss) not requiring (providing) cash: | ||||||||
Depreciation | 16,962 | 18,095 | ||||||
Depletion and amortization | 1,755 | 1,845 | ||||||
Deferred taxes — net | (30,026 | ) | (6,322 | ) | ||||
Loss (gain) on impairment and disposition of assets | 44,684 | (84 | ) | |||||
Change in: | ||||||||
Accounts and notes receivable — net | 928 | (1,204 | ) | |||||
Refundable income taxes | 119 | 2,674 | ||||||
Inventories | (3,659 | ) | 1,395 | |||||
Prepaid expenses and other assets | 597 | 471 | ||||||
Pension and other noncurrent assets | 1,972 | 2,143 | ||||||
Trade accounts payable, payroll and other taxes payable, and other accrued liabilities | 8,933 | 5,402 | ||||||
Dividends payable | 5 | — | ||||||
Advisory fees and REIT-related expenses payable | 21,165 | 10,524 | ||||||
Postretirement and other liabilities | 223 | 66 | ||||||
Cash provided by operations | 2,939 | 23,986 | ||||||
Cash provided by (used for) investing: | ||||||||
Additions to: Plant and equipment | (5,183 | ) | (4,862 | ) | ||||
Timber and timberlands | (1,662 | ) | (1,666 | ) | ||||
Proceeds from sale of capital assets | 197 | 290 | ||||||
Cash used for investing | (6,648 | ) | (6,238 | ) | ||||
Cash provided by (used for) financing: | ||||||||
Additions to long-term debt | — | 48 | ||||||
Reduction in long-term debt | (747 | ) | — | |||||
Short-term borrowings, net | 8,200 | — | ||||||
Payable to bank resulting from checks in transit | 9,016 | (5,115 | ) | |||||
Cash dividends paid | (15,129 | ) | — | |||||
Proceeds from sale of common stock | 444 | — | ||||||
Cash used for financing | 1,784 | (5,067 | ) | |||||
Less cash held for sale | (22 | ) | — | |||||
Change in cash position | (1,947 | ) | 12,681 | |||||
Cash position, beginning of period | 2,753 | 1,608 | ||||||
Cash position, end of period | $ | 806 | $ | 14,289 | ||||
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(dollars in thousands)
Note | 2007 | 2006 | ||||||||||
Net income (loss) | $ | (60,719 | ) | $ | (11,019 | ) | ||||||
Other comprehensive loss, net of tax | ||||||||||||
Unrealized loss on derivatives | 9 | 3,640 | — | |||||||||
Comprehensive income (loss), net of tax | $ | (57,079 | ) | $ | (11,019 | ) | ||||||
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Additional | Retained | Accumulated | Total | |||||||||||||||||||||
Common Stock | Paid-in | Earnings | Comprehensive | Shareholders’ | ||||||||||||||||||||
Shares | Amount | Capital | (Deficit) | Loss | Equity | |||||||||||||||||||
Balance at December 31, 2006 | 65,759 | $ | 98,639 | $ | 289,577 | $ | (60,345 | ) | $ | (26,811 | ) | $ | 301,060 | |||||||||||
Fin 48 Adoption | — | — | — | 312 | — | 312 | ||||||||||||||||||
(60,033 | ) | 301,372 | ||||||||||||||||||||||
Cash dividends of $0.23 per share paid on April 3, 2007 | — | — | — | (15,129 | ) | — | (15,129 | ) | ||||||||||||||||
Purchase of common stock (DRIP) | 20 | 30 | 414 | — | — | 444 | ||||||||||||||||||
Net loss | — | — | — | (60,719 | ) | — | (60,719 | ) | ||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | 3,640 | 3,640 | ||||||||||||||||||
Balance at March 31, 2007 | 65,779 | $ | 98,669 | $ | 289,991 | $ | (135,881 | ) | $ | (23,171 | ) | $ | 229,608 | |||||||||||
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1. | BASIS OF PRESENTATION |
(a) | Reclassifications |
(b) | Recent accounting pronouncements and developments |
2. | EARNINGS PER SHARE |
Three Months Ended March 31, | ||||||||
2007 | 2006 | |||||||
(in thousands, except per share) | ||||||||
Numerator: | ||||||||
Net income (loss) | $ | (60,719 | ) | $ | (11,019 | ) | ||
Cash dividends paid | $ | 15,129 | $ | — | ||||
Denominator: | ||||||||
Basic and diluted | 65,779 | 65,750 | ||||||
Per share: | ||||||||
Net income per share | $ | (0.92 | ) | $ | (0.17 | ) | ||
Cash dividends paid per share | $ | 0.23 | $ | — |
3. | INVENTORIES |
March 31, 2007 | December 31, 2006 | |||||||
(in thousands) | ||||||||
Finished Goods | $ | 38,586 | $ | 37,806 | ||||
Goods in process | 34,672 | 37,786 | ||||||
Raw materials | 21,122 | 11,050 | ||||||
Supplies (at average cost) | 47,265 | 45,259 | ||||||
141,645 | 131,901 | |||||||
LIFO reserve | (62,201 | ) | (56,116 | ) | ||||
Total inventories | $ | 79,444 | $ | 75,785 | ||||
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4. | DIVIDENDS PAYABLE |
5. | OTHER ACCRUED LIABILITIES |
March 31, 2007 | December 31, 2006 | |||||||
(in thousands) | ||||||||
Workers’ compensation liabilities | $ | 8,303 | $ | 9,135 | ||||
Accrued interest on debt | 1,907 | 1,971 | ||||||
Current portion of accumulated postretirement health care benefit obligation | 2,955 | 2,955 | ||||||
Fixed interest rate swap liabilities | 5,594 | — | ||||||
Other | 400 | 400 | ||||||
Total other accrued liabilities | $ | 19,159 | $ | 14,461 | ||||
6. | ADVISORY FEES AND REIT-RELATED EXPENSES |
7. | OTHER INCOME (EXPENSE) |
8. | LONG-TERM DEBT |
(a) | Credit Agreement |
9. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
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10. | INCOME TAXES |
11. | RETIREMENT AND POSTRETIREMENT BENEFIT PLANS |
Pension | Postretirement | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Components of net periodic income: | ||||||||||||||||
Service cost — benefits earned during year | $ | 2,841 | $ | 2,629 | $ | 378 | $ | 379 | ||||||||
Interest cost on benefit obligation | 6,943 | 6,246 | 601 | 590 | ||||||||||||
Expected return on plan assets | (10,847 | ) | (10,196 | ) | — | — | ||||||||||
Amortization of prior service cost | 1,984 | 1,080 | — | — | ||||||||||||
Amortization of actuarial losses | — | 397 | 9 | 38 | ||||||||||||
Amortization of transition obligation | — | — | 125 | 124 | ||||||||||||
Net periodic expense | $ | 921 | $ | 156 | $ | 1,113 | $ | 1,131 | ||||||||
12. | PENDING SALE OF THE COMPANY |
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13. | SALE OF CONVERTING FACILITIES AND IMPAIRMENT OF CERTAIN ASSETS |
(in thousands) | ||||
Current assets: | ||||
Cash | $ | 22 | ||
Accounts receivable — net | 17,199 | |||
Inventories | 11,604 | |||
Total current assets | 28,825 | |||
Capital assets: | ||||
Buildings, machinery and equipment at cost | 117,672 | |||
Accumulated depreciation | (77,974 | ) | ||
Plant sites at cost | 1,330 | |||
Total capital assets | 41,028 | |||
Other long-term assets | 119 | |||
Total assets held for sale | $ | 69,972 | ||
14. | DIVIDEND REINVESTMENT PLAN |
15. | SUBSEQUENT EVENTS |
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Toronto, Ontario May 30, 2007 | (Signed) Deloitte & Touche LLP Chartered Accountants Licensed Public Accountants |
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Notes | 2006 | 2005 | ||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | $ | 4,937 | $ | 1,960 | ||||||
Accounts receivable | 3,512 | 5,595 | ||||||||
Due from related parties | 3 | 8,500 | 6,505 | |||||||
Prepaid expenses and other | 157 | 109 | ||||||||
Taxes receivable | — | 711 | ||||||||
Current portion of regulatory asset | 6 | 1,649 | 1,649 | |||||||
18,755 | 16,529 | |||||||||
Deferred financing fees | 998 | 1,035 | ||||||||
Regulatory asset | 6 | 3,299 | 4,948 | |||||||
Property, plant and equipment, net | 4 | 195,954 | 182,182 | |||||||
$ | 219,006 | $ | 204,694 | |||||||
LIABILITIES AND CAPITAL ACCOUNT | ||||||||||
Current liabilities | ||||||||||
Accounts and other payables | $ | 5,159 | $ | 10,356 | ||||||
Taxes payable | 4,307 | — | ||||||||
Due to related parties | 3 | 7,179 | 2,092 | |||||||
16,645 | 12,448 | |||||||||
Future income taxes | 9 | 21,707 | 23,364 | |||||||
First mortgage bonds | 5 | 115,750 | 115,750 | |||||||
154,102 | 151,562 | |||||||||
Capital account | 64,904 | 53,132 | ||||||||
$ | 219,006 | $ | 204,694 | |||||||
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2006 | 2005 | |||||||
Balance, beginning of year | $ | 53,132 | $ | 44,154 | ||||
Net income | 11,772 | 8,978 | ||||||
Balance, end of year | $ | 64,904 | $ | 53,132 | ||||
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Notes | 2006 | 2005 | ||||||||||
Revenues | $ | 34,686 | $ | 28,909 | ||||||||
Expenses | ||||||||||||
Operating and administrative | 4,277 | 4,558 | ||||||||||
Maintenance | 1,475 | 968 | ||||||||||
Taxes, other than income taxes | 482 | 519 | ||||||||||
6,234 | 6,045 | |||||||||||
Net operating income | 28,452 | 22,864 | ||||||||||
Interest | 8 | 6,555 | 2,565 | |||||||||
Depreciation | 5,530 | 4,425 | ||||||||||
Amortization | 37 | — | ||||||||||
Loss on disposal of property, plant and equipment, net | 6 | 1,436 | 1,671 | |||||||||
Other income | (179 | ) | (90 | ) | ||||||||
Net income before income taxes | 15,073 | 14,293 | ||||||||||
Income taxes — current | 9 | 4,958 | 5,318 | |||||||||
Income taxes — future | 9 | (1,657 | ) | (3 | ) | |||||||
Net income | $ | 11,772 | $ | 8,978 | ||||||||
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Notes | 2006 | 2005 | ||||||||
Operating activities | ||||||||||
Net income | $ | 11,772 | $ | 8,978 | ||||||
Items not affecting cash | ||||||||||
Depreciation and amortization | 5,567 | 4,425 | ||||||||
Future income taxes | (1,657 | ) | (3 | ) | ||||||
Loss on disposal of property, plant and equipment, net | 6 | 1,436 | 1,671 | |||||||
Net change in non-cash working capital | 7 | 6,943 | 7,481 | |||||||
24,061 | 22,552 | |||||||||
Investing activities | ||||||||||
Due from related parties | (1,995 | ) | (6,405 | ) | ||||||
Proceeds on disposition of property, plant and equipment | 250 | — | ||||||||
Additions to property, plant and equipment | (19,339 | ) | (44,079 | ) | ||||||
(21,084 | ) | (50,484 | ) | |||||||
Financing activities | ||||||||||
Due to related parties | — | 27,000 | ||||||||
— | 27,000 | |||||||||
Increase (decrease) in cash | 2,977 | (932 | ) | |||||||
Cash, beginning of year | 1,960 | 2,892 | ||||||||
Cash, end of year | $ | 4,937 | $ | 1,960 | ||||||
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1. | NATURE AND DESCRIPTION OF BUSINESS |
General Corporate Expenses |
Income taxes |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Property, plant and equipment |
Method | Rate | |||||||
Buildings | Straight-line | 40 years | ||||||
Transmission stations, towers and related fixtures | Straight-line | 25 to 40 years | ||||||
Equipment | Straight-line | 5 to 40 years |
(b) | Impairment of long-lived assets |
(c) | Deferred financing fees |
(d) | Capitalization of interest |
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(e) | Revenue recognition |
(f) | Income taxes |
(g) | Use of estimates |
(h) | Rate Regulation |
3. | RELATED PARTY TRANSACTIONS |
(a) | The Division has provided advances to and received advances from entities under common control in the normal course of operations. The Division has also provided advances to and received advances from other divisions of GLPL. These advances are non-interest bearing, unsecured and due on demand. | |
(b) | In the normal course of operations, Riskcorp Inc., an insurance broker related through common control, entered into transactions with GLPL to provide insurance. These transactions have been measured at exchange value. The total cost allocated to the Division in 2006 for these services was $117 (2005 — $124) and no amount remains outstanding at year end (2005 — $nil). | |
(c) | As a result, the following balances are receivable (payable) at December 31: |
2006 | 2005 | |||||||
Due from related parties | ||||||||
Advances to other divisions of GLPL | $ | 8,500 | $ | 6,505 | ||||
Due to related parties | ||||||||
Advances from other divisions of GLPL | $ | (6,898 | ) | $ | (2,087 | ) | ||
Advances from entities under common control | (281 | ) | (5 | ) | ||||
$ | (7,179 | ) | $ | (2,092 | ) | |||
4. | PROPERTY, PLANT AND EQUIPMENT |
2006 | 2005 | |||||||||||||||
Accumulated | Net Book | Net Book | ||||||||||||||
Cost | Depreciation | Value | Value | |||||||||||||
Land | $ | 544 | $ | — | $ | 544 | $ | 544 | ||||||||
Buildings | 15,466 | 4,475 | 10,991 | 11,318 | ||||||||||||
Transmission stations, towers and related fixtures | 231,568 | 49,342 | 182,226 | 147,349 | ||||||||||||
Equipment | — | — | — | 350 | ||||||||||||
Construction work in progress | 2,193 | — | 2,193 | 22,621 | ||||||||||||
$ | 249,771 | $ | 53,817 | $ | 195,954 | $ | 182,182 | |||||||||
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5. | FIRST MORTGAGE BONDS |
2006 | 2005 | |||||||
Series 1 First Mortgage Bonds | $ | 384,000 | $ | 384,000 | ||||
Subordinated First Mortgage Bonds | 115,000 | 115,000 | ||||||
$ | 499,000 | $ | 499,000 | |||||
6. | EFFECT OF RATE REGULATION |
2006 | 2005 | |||||||
Regulatory assets | ||||||||
Deferred loss on disposal of transmission assets | $ | 4,948 | $ | 6,597 | ||||
Less: current portion | (1,649 | ) | (1,649 | ) | ||||
Long-term portion | $ | 3,299 | $ | 4,948 | ||||
Deferred loss on disposal of transmission assets |
7. | STATEMENT OF CASH FLOWS |
2006 | 2005 | |||||||
Accounts receivable | $ | 2,083 | $ | (3,310 | ) | |||
Prepaid expenses and other | (48 | ) | 375 | |||||
Due to related parties | 5,087 | 169 | ||||||
Taxes receivable / payable | 5,018 | 5,181 | ||||||
Accounts and other payables | (5,197 | ) | 5,066 | |||||
$ | 6,943 | $ | 7,481 | |||||
2006 | 2005 | |||||||
Regulatory asset recorded as a result of loss on disposal of transmission assets (note 6) | $ | — | $ | 8,246 | ||||
Due to related parties settled through the allocation of First Mortgage Bonds | $ | — | $ | 27,000 | ||||
Taxes payable settled through the allocation of First Mortgage Bonds | $ | — | $ | 20,000 | ||||
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8. | INTEREST AND FINANCING FEES |
2006 | 2005 | |||||||
Interest expense incurred | $ | 7,659 | $ | 4,687 | ||||
Capitalized interest | (1,104 | ) | (2,122 | ) | ||||
$ | 6,555 | $ | 2,565 | |||||
9. | INCOME TAXES |
2006 | 2005 | |||||||
Net income before income taxes | $ | 15,073 | $ | 14,293 | ||||
Computed income tax recovery at Canadian statutory rate | 5,444 | 5,163 | ||||||
Increase resulting from: | ||||||||
Large corporation tax | — | 205 | ||||||
Impact of future rate change on future income tax liability | (2,018 | ) | — | |||||
Other | (125 | ) | (53 | ) | ||||
Income tax provision | $ | 3,301 | $ | 5,315 | ||||
Future income tax liabilities | ||||||||
CCA in excess of book depreciation | $ | 21,792 | $ | 23,437 | ||||
Other | (85 | ) | (73 | ) | ||||
$ | 21,707 | $ | 23,364 | |||||
10. | FINANCIAL INSTRUMENTS |
(a) | Interest rate risk |
(b) | Fair value |
(c) | Credit risk |
11. | COMMITMENTS, CONTINGENCIES AND GUARANTEES |
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12. | NEW FINANCIAL INSTRUMENTS STANDARDS |
13. | DIFFERENCE FROM UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
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Toronto, Ontario May 30, 2007 | (Signed) Deloitte & Touche LLP Chartered Accountants Licensed Public Accountants |
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Notes | 2005 | 2004 | ||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | $ | 1,960 | $ | 2,892 | ||||||
Accounts receivable | 5,595 | 2,285 | ||||||||
Due from related parties | 3 | 6,505 | 100 | |||||||
Taxes receivable | 711 | — | ||||||||
Prepaid expenses and other | 109 | 484 | ||||||||
Current portion of regulatory asset | 6 | 1,649 | — | |||||||
16,529 | 5,761 | |||||||||
Deferred financing fees | 1,035 | — | ||||||||
Regulatory asset | 6 | 4,948 | — | |||||||
Property, plant and equipment, net | 4 | 182,182 | 150,796 | |||||||
$ | 204,694 | $ | 156,557 | |||||||
LIABILITIES AND CAPITAL ACCOUNT | ||||||||||
Current liabilities | ||||||||||
Accounts and other payables | $ | 10,356 | $ | 5,290 | ||||||
Taxes payable | — | 14,108 | ||||||||
Due to related parties | 3 | 2,092 | 917 | |||||||
12,448 | 20,315 | |||||||||
Future income taxes | 9 | 23,364 | 23,338 | |||||||
First mortgage bonds | 5 | 115,750 | 68,750 | |||||||
151,562 | 112,403 | |||||||||
Capital account | 53,132 | 44,154 | ||||||||
$ | 204,694 | $ | 156,557 | |||||||
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2005 | 2004 | |||||||
Balance, beginning of year | $ | 44,154 | $ | 41,266 | ||||
Net income | 8,978 | 2,888 | ||||||
Balance, end of year | $ | 53,132 | $ | 44,154 | ||||
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Notes | 2005 | 2004 | ||||||||||
Revenues | $ | 28,909 | $ | 24,574 | ||||||||
Expenses | ||||||||||||
Operating and administrative | 4,558 | 4,045 | ||||||||||
Maintenance | 968 | 1,863 | ||||||||||
Taxes, other than income taxes | 519 | 419 | ||||||||||
6,045 | 6,327 | |||||||||||
Net operating income | 22,864 | 18,247 | ||||||||||
Interest | 8 | 2,565 | 3,949 | |||||||||
Depreciation | 4,425 | 3,957 | ||||||||||
Loss on disposal of property, plant and equipment, net | 6 | 1,671 | 5,745 | |||||||||
Other income | (90 | ) | (28 | ) | ||||||||
Net income before income taxes | 14,293 | 4,624 | ||||||||||
Income taxes — current | 9 | 5,318 | 4,154 | |||||||||
Income taxes — future | 9 | (3 | ) | (2,418 | ) | |||||||
Net income | $ | 8,978 | $ | 2,888 | ||||||||
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Notes | 2005 | 2004 | ||||||||
Operating activities | ||||||||||
Net income | $ | 8,978 | $ | 2,888 | ||||||
Items not affecting cash | ||||||||||
Depreciation | 4,425 | 3,957 | ||||||||
Future income taxes | (3 | ) | (2,418 | ) | ||||||
Loss on disposal of property, plant and equipment, net | 6 | 1,671 | 5,745 | |||||||
Net change in non-cash working capital | 7 | 7,481 | 17,715 | |||||||
22,552 | 27,887 | |||||||||
Investing activities | ||||||||||
Due from related parties | (6,405 | ) | (100 | ) | ||||||
Proceeds on disposition of property, plant and equipment | — | 76 | ||||||||
Additions to property, plant and equipment | (44,079 | ) | (35,560 | ) | ||||||
(50,484 | ) | (35,584 | ) | |||||||
Financing Activities | ||||||||||
Due to related parties | 27,000 | 10,500 | ||||||||
27,000 | 10,500 | |||||||||
(Decrease) increase in cash | (932 | ) | 2,803 | |||||||
Cash, beginning of year | 2,892 | 89 | ||||||||
Cash, end of year | $ | 1,960 | $ | 2,892 | ||||||
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1. | NATURE AND DESCRIPTION OF BUSINESS |
General Corporate Expenses |
Income taxes |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Property, plant and equipment |
Method | Rate | |||
Buildings | Straight-line | 40 years | ||
Transmission stations, towers and related fixtures | Straight-line | 25 to 40 years | ||
Equipment | Straight-line | 5 to 40 years |
(b) | Impairment of long-lived assets |
(c) | Deferred financing fees |
(d) | Capitalization of interest |
(e) | Revenue recognition |
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(f) | Income taxes |
(g) | Use of estimates |
(h) | Rate Regulation |
3. | RELATED PARTY TRANSACTIONS |
(a) The Division has provided advances to and received advances from entities under common control in the normal course of operations. The Division has also provided advances to and received advances from other divisions of GLPL. These advances are non-interest bearing, unsecured and due on demand. | ||
(b) In the normal course of operations, Riskcorp Inc., an insurance broker related through common control, entered into transactions with GLPL to provide insurance. These transactions have been measured at exchange value. The total cost allocated to the Division in 2005 for these services was $124 (2004 — $138) and no amount remains outstanding at year end (2004 — $nil). | ||
(c) As a result, the following balances are receivable (payable) at December 31: |
2005 | 2004 | |||||||
Due from related parties | ||||||||
Advances to other divisions of GLPL | $ | 6,505 | $ | 100 | ||||
Due to related parties | ||||||||
Advances from other divisions of GLPL | $ | (2,087 | ) | $ | (917 | ) | ||
Advances from entities under common control | (5 | ) | — | |||||
$ | (2,092 | ) | $ | (917 | ) | |||
4. | PROPERTY, PLANT AND EQUIPMENT |
2005 | 2004 | |||||||||||||||
Accumulated | Net Book | Net Book | ||||||||||||||
Cost | Depreciation | Value | Value | |||||||||||||
Land | $ | 544 | $ | — | $ | 544 | $ | 544 | ||||||||
Buildings | 15,466 | 4,148 | 11,318 | 11,496 | ||||||||||||
Transmission stations, towers and related fixtures | 189,919 | 42,570 | 147,349 | 103,699 | ||||||||||||
Equipment | 3,164 | 2,814 | 350 | 451 | ||||||||||||
Construction work in progress | 22,621 | — | 22,621 | 34,606 | ||||||||||||
$ | 231,714 | $ | 49,532 | $ | 182,182 | $ | 150,796 | |||||||||
5. | FIRST MORTGAGE BONDS |
2005 | 2004 | |||||||
Series 1 First Mortgage Bonds | $ | 384,000 | $ | 384,000 | ||||
Subordinated First Mortgage Bonds | 115,000 | 115,000 | ||||||
$ | 499,000 | $ | 499,000 | |||||
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6. | EFFECT OF RATE REGULATION |
2005 | 2004 | |||||||
Regulatory assets | ||||||||
Deferred loss on disposal of transmission assets | $ | 6,597 | $ | — | ||||
Less: current portion | (1,649 | ) | — | |||||
Long-term portion | $ | 4,948 | $ | — | ||||
Deferred loss on disposal of transmission assets |
7. | STATEMENT OF CASH FLOWS |
2005 | 2004 | |||||||
Accounts receivable | $ | (3,310 | ) | $ | (116 | ) | ||
Prepaid expenses and other | 375 | (286 | ) | |||||
Due to related parties | 169 | 11,206 | ||||||
Taxes receivable / payable | 5,181 | 4,079 | ||||||
Accounts and other payables | 5,066 | 2,832 | ||||||
$ | 7,481 | $ | 17,715 | |||||
2005 | 2004 | |||||||
Regulatory asset recorded as a result of loss on disposal of transmission assets (note 6) | $ | 8,246 | $ | — | ||||
Due to related parties settled through the allocation of First Mortgage Bonds | $ | 27,000 | $ | — | ||||
Taxes payable settled through the allocation of First Mortgage Bonds | $ | 20,000 | $ | — | ||||
8. | INTEREST AND FINANCING FEES |
2005 | 2004 | |||||||
Interest expense incurred | $ | 4,687 | $ | 4,813 | ||||
Capitalized interest | (2,122 | ) | (864 | ) | ||||
$ | 2,565 | $ | 3,949 | |||||
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9. | INCOME TAXES |
2005 | 2004 | |||||||
Net income before income taxes | $ | 14,293 | $ | 4,624 | ||||
Computed income tax expense at Canadian statutory rate | 5,163 | 1,665 | ||||||
Increase resulting from: | ||||||||
Large corporation tax | 205 | 38 | ||||||
Other | (53 | ) | 33 | |||||
Income tax provision | $ | 5,315 | $ | 1,736 | ||||
Future income tax liabilities | ||||||||
CCA in excess of book depreciation | $ | 23,437 | $ | 23,383 | ||||
Other | (73 | ) | (45 | ) | ||||
$ | 23,364 | $ | 23,338 | |||||
10. | FINANCIAL INSTRUMENTS |
(a) | Interest rate risk |
(b) | Fair value |
(c) | Credit risk |
11. | COMMITMENTS, CONTINGENCIES AND GUARANTEES |
12. | DIFFERENCE FROM UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
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for the three and nine months ended September 30, 2007 and 2006
(Unaudited)
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September 30 | December 31 | |||||||||
Note | 2007 | 2006 | ||||||||
(unaudited) | ||||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash | $ | 2,189 | $ | 4,937 | ||||||
Accounts receivable | 3,488 | 3,512 | ||||||||
Due from related parties | 17,829 | 8,500 | ||||||||
Prepaid expenses and other | 199 | 157 | ||||||||
Current portion of regulatory asset | 1,649 | 1,649 | ||||||||
25,354 | 18,755 | |||||||||
Deferred financing fees | 3 | — | 998 | |||||||
Regulatory asset | 2,062 | 3,299 | ||||||||
Property, plant and equipment, net | 207,080 | 195,954 | ||||||||
$ | 234,496 | $ | 219,006 | |||||||
LIABILITIES AND CAPITAL ACCOUNT | ||||||||||
Current liabilities | ||||||||||
Accounts and other payables | $ | 12,851 | $ | 5,159 | ||||||
Regulatory liability | 2,109 | — | ||||||||
Taxes payable | 8,294 | 4,307 | ||||||||
Due to related parties | 2,435 | 7,179 | ||||||||
25,689 | 16,645 | |||||||||
First mortgage bonds | 3 | 114,780 | 115,750 | |||||||
Future income taxes | 21,596 | 21,707 | ||||||||
162,065 | 154,102 | |||||||||
Capital account | 72,431 | 64,904 | ||||||||
$ | 234,496 | $ | 219,006 | |||||||
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(thousands of CDN dollars)
2007 | 2006 | |||||||
Balance, beginning of period | $ | 64,904 | $ | 53,132 | ||||
Net Income | 7,527 | 9,699 | ||||||
Balance, end of period | $ | 72,431 | $ | 62,831 | ||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | September 30 | September 30 | |||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenues | $ | 9,445 | $ | 9,249 | $ | 27,017 | $ | 26,503 | ||||||||
Expenses | ||||||||||||||||
Operating and administration | 861 | 1,107 | 3,220 | 3,193 | ||||||||||||
Maintenance | 336 | 603 | 962 | 866 | ||||||||||||
Taxes, other than income taxes | 86 | 94 | 333 | 334 | ||||||||||||
1,283 | 1,804 | 4,515 | 4,393 | |||||||||||||
Net operating income | 8,162 | 7,445 | 22,502 | 22,110 | ||||||||||||
Interest | 1,823 | 1,802 | 5,563 | 4,871 | ||||||||||||
Depreciation | 1,466 | 1,326 | 4,561 | 3,979 | ||||||||||||
Amortization | — | 9 | — | 28 | ||||||||||||
Loss on disposal of property, plant and equipment | 412 | 412 | 1,237 | 1,237 | ||||||||||||
Other income | (30 | ) | (29 | ) | (90 | ) | (89 | ) | ||||||||
Net income before income taxes | 4,491 | 3,925 | 11,231 | 12,084 | ||||||||||||
Current | 1,511 | 1,439 | 3,815 | 4,175 | ||||||||||||
Future | 98 | 4 | (111 | ) | (1,790 | ) | ||||||||||
Net income and comprehensive income | $ | 2,882 | $ | 2,482 | $ | 7,527 | $ | 9,699 | ||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30 | September 30 | September 30 | September 30 | |||||||||||||||||
Note | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Operating activities | ||||||||||||||||||||
Net income | $ | 2,882 | $ | 2,482 | $ | 7,527 | $ | 9,699 | ||||||||||||
Items not affecting cash | ||||||||||||||||||||
Depreciation and amortization | 1,466 | 1,335 | 4,561 | 4,007 | ||||||||||||||||
Non-cash interest expense | 3 | 10 | — | 28 | — | |||||||||||||||
Future income taxes | 98 | 4 | (111 | ) | (1,790 | ) | ||||||||||||||
Loss on disposal of property, plant and equipment | 412 | 412 | 1,237 | 1,237 | ||||||||||||||||
Net change in non-cash working capital and other | ||||||||||||||||||||
Accounts receivable | 236 | 1,343 | 24 | 1,605 | ||||||||||||||||
Prepaid expenses and other | 72 | (178 | ) | (42 | ) | (271 | ) | |||||||||||||
Accounts and other payables | 1,769 | (1,673 | ) | (832 | ) | (6,204 | ) | |||||||||||||
Regulatory liability | 848 | — | 2,109 | — | ||||||||||||||||
Due from related parties | (4,318 | ) | (4,552 | ) | (4,744 | ) | (448 | ) | ||||||||||||
Taxes payable/receivable (net) | 1,510 | 4,269 | 3,987 | 4,314 | ||||||||||||||||
4,985 | 3,442 | 13,744 | 12,149 | |||||||||||||||||
Investing activities | ||||||||||||||||||||
Due from related party | (967 | ) | 1,205 | (9,329 | ) | (3,083 | ) | |||||||||||||
Additions to property, plant and equipment | (3,365 | ) | (6,981 | ) | (7,163 | ) | (10,940 | ) | ||||||||||||
(4,332 | ) | (5,776 | ) | (16,492 | ) | (14,023 | ) | |||||||||||||
Increase (decrease) in cash | 653 | (2,334 | ) | (2,748 | ) | (1,874 | ) | |||||||||||||
Cash, beginning of period | 1,536 | 2,420 | 4,937 | 1,960 | ||||||||||||||||
Cash, end of period | $ | 2,189 | $ | 86 | $ | 2,189 | $ | 86 | ||||||||||||
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1. | NATURE AND DESCRIPTION OF BUSINESS |
2. | BASIS OF PRESENTATION |
3. | CHANGE IN ACCOUNTING POLICY |
Handbook Section 1530, Comprehensive Income |
Handbook Section 3251, Equity |
Handbook Section 3855, Financial Instruments — Recognition and Measurement |
December 31 | January 1 | Net | ||||||||||
2006 | 2007 | Impact | ||||||||||
First mortgage bonds | 115,750 | 114,752 | 998 | |||||||||
Deferred financing fees | 998 | — | (998 | ) |
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4. | DIFFERENCE FROM UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
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By: | By: | |||||
Co-Chief Executive Officer of its manager, Brookfield Infrastructure Group Inc. | Chief Financial Officer of its manager, Brookfield Infrastructure Group Inc. |
By: | By: | |||||
Director | Director |
General Counsel
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With a focus on global infrastructure, Brookfield Infrastructure Partners is distinguished by unique investment dynamics that include: High quality assets in demand by investors Strong external growth prospects Proprietary access to opportunities through Brookfield Asset Management Ability to leverage Brookfield’s operating platforms |
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