TransAlta Corporation: 2002 Full Year and Q4 2002 Financial Summary
Business Context and Reporting Period
This Form 6-K, filed on January 31, 2003, reports TransAlta Corporation's full-year 2002 results and fourth-quarter 2002 performance. TransAlta is Canada's largest non-regulated electric generation and marketing company, operating hydro, coal, and gas-fired plants with approximately 9,000 MW of capacity. The reporting period covers the three and twelve months ended December 31, 2002, compared to the same periods in 2001.
Key Financial Metrics
| Metric (CAD Millions) | Q4 2002 | Q4 2001 | Full Year 2002 | Full Year 2001 |
|---|---|---|---|---|
| Revenue (Continuing Ops) | $517.6 | $434.4 | $1,723.9 | $2,319.4 |
| Net Earnings (Loss) - Continuing Ops | $(64.3) | $33.2 | $57.1 | $169.5 |
| Net Earnings (Loss) - Total | $(54.3) | $46.5 | $189.9 | $214.6 |
| Earnings Per Share (Diluted) | $(0.32) | $0.27 | $1.12 | $1.25 |
| Cash Flow from Operating Activities | $189.5 | $131.7 | $437.7 | $715.6 |
| Production (GWh) | 12,545 | 11,579 | 46,877 | 44,136 |
| Plant Availability | 87.2% | 89.9% | 88.4% | 86.9% |
Note: Full-year 2002 Net Earnings include a one-time gain of $120.0 million from the sale of the Transmission business.
Material Changes vs. Prior Period
- Q4 Loss vs. Profit: The fourth quarter 2002 resulted in a net loss of $54.3 million compared to a profit of $46.5 million in Q4 2001. This reversal was driven by significant one-time charges.
- One-Time Charges (Q4 2002):
- Wabamun Decommissioning: A pre-tax impairment charge of $110.0 million was recorded for the phased decommissioning of the 569 MW coal-fired Wabamun plant.
- Turbine Cancellation: A pre-tax charge of $42.5 million for cancelling orders for four gas turbines.
- Accelerated Maintenance: Advancing 2003 maintenance into Q4 2002 reduced pre-tax earnings by $27.7 million.
- Revenue Growth: Q4 revenue increased by $71.1 million year-over-year due to higher production from the Centralia plant, increased long-term contracted prices, and higher Energy Marketing revenues.
- Discontinued Operations: The Transmission business was sold in April 2002, resulting in a $120.0 million after-tax gain recognized in 2002. No earnings from discontinued operations were recorded in Q4 2002.
Guidance, Outlook, and Risks
- 2003 Outlook:
- Capacity: Generating capacity is expected to increase in 2003 due to the Sarnia plant (575 MW), Vision Quest wind additions, and Mexican plants (Campeche and Chihuahua), partially offset by the Wabamun unit three shutdown.
- Production: Expected to be higher than 2002 due to increased capacity.
- Market Prices: Electricity spot prices in Alberta expected to be similar to 2002; higher in the Pacific Northwest. However, spark spreads are expected to compress due to rising natural gas costs.
- Capital Expenditures: Forecast at approximately $830 million for 2003, including $275 million for the Genesee Phase three project and $170 million for Mexican plants.
- Recent Acquisitions (Post-Period):
- Acquired 50% interest in CE Generation LLC (820 MW capacity) for ~$312 million plus assumption of ~$762 million debt.
- Acquired 50% interest in EPCOR's Genesee Phase three project for $395.0 million.
- Risks and Contingencies:
- Regulatory/Litigation: Ongoing inquiries from U.S. regulators (FERC) regarding 2000-2001 California trading activities. Two class-action lawsuits initiated in Oregon and Washington in December 2002; TransAlta intends to defend vigorously.
- California Receivables: US$24.2 million receivable reclassified to long-term; collection timing remains uncertain despite a proposed FERC ruling for ~US$44.0 million.
- Kyoto Protocol: Ratified by Canada in Dec 2002. Impact on Canadian operations is currently unquantifiable, though Power Purchase Agreements (PPAs) may allow cost recovery.
Investor Verification Checklist
- One-Time Charge Impact: Verify the sustainability of earnings excluding the $152.5 million in Q4 impairment and cancellation charges.
- Wabamun Decommissioning: Confirm the timeline and cost implications for the remaining units (1, 2, and 4) scheduled for retirement in 2004 and 2010.
- California Exposure: Monitor the final FERC ruling on the US$44.0 million receivable and the status of the class-action lawsuits in Oregon and Washington.
- Debt Levels: Review the impact of the new US$300 million senior notes issued in June 2002 and the assumption of US$500 million debt in the CE Gen acquisition on leverage ratios.
- Spark Spread Compression: Assess the risk of margin compression in 2003 due to the divergence between electricity prices and rising natural gas costs.