Filed pursuant to General Instruction II.L. of Form F-10;
File No. 333-87762
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 14, 2002)
[TRANSALTA LOGO]
US$300,000,000
5.750% SENIOR NOTES DUE 2013
TRANSALTA CORPORATION
-----
The notes will bear interest at the rate of 5.750% per annum. Interest on
the notes is payable on June 15 and December 15 of each year, beginning on
June 15, 2004. The notes will mature on December 15, 2013. We may redeem some or
all of the notes at any time at the redemption price described in this
prospectus supplement. We will also have the option to redeem the notes in whole
and not in part at 100% of the aggregate principal amount of the notes plus
accrued interest to the date of redemption in the event of certain changes to
Canadian withholding tax laws or the enforcement or interpretation thereof.
The notes will be direct unsecured obligations and will rank equally and
ratably with all of our other unsubordinated and unsecured indebtedness.
----------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 42 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE ARE PERMITTED, UNDER A MULTI-JURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY
THE UNITED STATES AND CANADA, TO PREPARE THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IN ACCORDANCE WITH CANADIAN DISCLOSURE REQUIREMENTS
WHICH ARE DIFFERENT FROM THOSE OF THE UNITED STATES. WE PREPARE OUR FINANCIAL
STATEMENTS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
AND THEY MAY BE SUBJECT TO CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS.
THEY MAY NOT BE COMPARABLE TO THE FINANCIAL STATEMENTS OF UNITED STATES
COMPANIES.
OWNING THE SECURITIES DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN THE
UNITED STATES AND CANADA. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS MAY NOT DESCRIBE THESE TAX CONSEQUENCES FULLY. YOU SHOULD READ THE
TAX DISCUSSION CONTAINED IN THIS PROSPECTUS SUPPLEMENT.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
MAY BE AFFECTED ADVERSELY BECAUSE WE ARE A CANADIAN CORPORATION, SOME OF OUR
OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS
SUPPLEMENT ARE RESIDENTS OF CANADA, AND THE MAJORITY OF OUR ASSETS AND
OPERATIONS ARE LOCATED, AND THE MAJORITY OF OUR REVENUES ARE DERIVED, OUTSIDE
THE UNITED STATES.
----------------
PER SENIOR NOTE TOTAL
--------------- ----------------
Public Offering Price 99.882% US$299,646,000
Underwriting Commission 0.650% US$ 1,950,000
Proceeds to TransAlta (before expenses) 99.232% US$297,696,000
The public offering price of the notes will also include accrued interest,
if any, from November 25, 2003 to the date of delivery.
----------------
The underwriters expect to deliver the notes to purchasers on or about
November 25, 2003.
----------------
JOINT BOOK-RUNNING MANAGERS
CITIGROUP MERRILL LYNCH & CO.
---------
HSBC ABN AMRO INCORPORATED
CIBC WORLD MARKETS RBC CAPITAL MARKETS SCOTIA CAPITAL
November 18, 2003
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this prospectus supplement
("Prospectus Supplement"), which describes the specific terms of the senior
notes we are offering (the "Notes"). The second part, the base shelf prospectus,
gives more general information. The accompanying base shelf prospectus is
referred to as the "Prospectus" in this Prospectus Supplement.
Except as set forth under "The Offering" and "Description of the Notes" in
this Prospectus Supplement, or "Description of Debt Securities" in the
Prospectus, and unless the context otherwise requires, all references in this
Prospectus Supplement to "TransAlta", the "Corporation", "we", "us" and "our"
mean TransAlta Corporation and its consolidated subsidiaries including any
consolidated partnerships of which the Corporation or any of its subsidiaries
are partners.
IF THE DESCRIPTION OF THE NOTES VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND CONTAINED IN THE PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THE NOTES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT OR CONTAINED IN THE PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
In this Prospectus Supplement, all capitalized terms used and not otherwise
defined herein have the meanings provided in the Prospectus. In the Prospectus
and this Prospectus Supplement, unless otherwise specified or the context
otherwise requires, all dollar amounts are expressed in Canadian dollars.
"U.S. dollars" or "US$" means the lawful currency of the United States. Unless
otherwise indicated, all financial information included and incorporated by
reference in the Prospectus and this Prospectus Supplement is determined using
Canadian generally accepted accounting principles ("Canadian GAAP").
"U.S. GAAP" means generally accepted accounting principles in the
United States. The significant differences between Canadian GAAP and U.S. GAAP
are summarized in note 27 to our consolidated annual financial statements which
are incorporated by reference herein.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
--------
Exchange Rate Information................................... S-4
Special Note Regarding Forward-Looking Statements........... S-4
Documents Incorporated by Reference......................... S-5
The Offering................................................ S-7
The Corporation............................................. S-9
Recent Developments......................................... S-10
Use of Proceeds............................................. S-10
Consolidated Capitalization................................. S-11
Selected Consolidated Financial Data........................ S-13
Description of the Notes.................................... S-17
Pro Forma Interest Coverage................................. S-21
Credit Ratings.............................................. S-21
Certain Income Tax Considerations........................... S-22
Underwriting................................................ S-25
Legal Matters............................................... S-26
Consent of Ernst & Young LLP................................ S-27
Index to Pro Forma Consolidated Statements of Earnings...... F-1
PROSPECTUS
About this Prospectus....................................... 2
Glossary.................................................... 3
Where You Can Find More Information; Documents Incorporated
by Reference.............................................. 3
Special Note Regarding Forward-Looking Statements........... 5
The Corporation............................................. 5
Business of the Corporation................................. 6
Selected Consolidated Financial Data........................ 21
Management.................................................. 23
Use of Proceeds............................................. 23
Interest Coverage........................................... 23
Description of Share Capital................................ 24
Description of Debt Securities.............................. 27
Description of Warrants..................................... 40
Certain Income Tax Considerations........................... 41
Plan of Distribution........................................ 41
Risk Factors................................................ 42
Legal Matters............................................... 48
Experts..................................................... 48
Auditors.................................................... 48
Documents Filed as Part of the Registration Statement....... 48
Enforcement of Civil Liabilities............................ 48
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EXCHANGE RATE INFORMATION
The following table sets forth certain exchange rates based on the noon
buying rate for cable transfers payable in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York (the "noon buying
rate"). These rates are set forth as U.S. dollars per $1.00 and are the inverse
of rates quoted by the Federal Reserve Bank of New York for Canadian dollars per
US$1.00. On November 18, 2003, the inverse of the noon buying rate was US$0.7678
equals $1.00.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
2003 2002 2002 2001 2000
---------- ---------- ---------- ---------- ----------
High for period....................... US$0.7492 US$0.6619 US$0.6619 US$0.6697 US$0.6969
Low for period........................ US$0.6349 US$0.6200 US$0.6200 US$0.6241 US$0.6410
Rate at end of period................. US$0.7404 US$0.6304 US$0.6329 US$0.6279 US$0.6669
Average rate for the period(1)........ US$0.7049 US$0.6369 US$0.6370 US$0.6446 US$0.6727
------------
(1) The average of the inverse of the noon buying rate on the last day of each
month during the applicable period.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the Prospectus contain both historical and
forward-looking statements within the meaning of Section 27A of the
United States Securities Act of 1933, as amended (the "U.S. Securities Act"),
and Section 21E of the United States Securities Exchange Act of 1934, as amended
(the "U.S. Exchange Act"). These forward-looking statements are not facts, but
only predictions and generally can be identified by the use of statements that
include phrases such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee" or other words or phrases of similar import. Similarly, statements
that describe the Corporation's objectives, plans or goals also are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those currently anticipated. Certain factors that could materially affect
these forward-looking statements are described below and can be found in this
Prospectus Supplement and the Prospectus, including under the heading "Risk
Factors" in the Prospectus. Potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking statements
and are cautioned not to place undue reliance on these forward-looking
statements. The forward-looking statements included in this document are made
only as of the date of this Prospectus Supplement and the Corporation does not
undertake to publicly update these forward-looking statements to reflect new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events might or might not occur. The
Corporation cannot assure you that projected results or events will be achieved.
Factors that may adversely impact the Corporation's forward-looking
statements include: (i) the rules and regulations in the various markets in
which the Corporation operates are subject to change; (ii) future expenditures
and allowances relating to environmental requirements and changes in, or
liabilities under, these requirements; (iii) risks under the power purchase
arrangements pursuant to which the Corporation operates most of its facilities
in Alberta, including risks associated with unplanned outages; (iv) changes in
the market prices and availability of fuel supplies required to generate
electricity, and in the price of electricity; (v) risks relating to the
operation of the Corporation's facilities; (vi) currency rate risk and political
uncertainty; (vii) trading risks and counterparty risks; (viii) future debt
levels; (ix) rapid change and competition in the wholesale power industry; and
(x) future sources of capital funding for the Corporation's capital program.
Many of these factors are beyond the Corporation's control and each contributes
to the possibility that the Corporation's forward-looking statements will not
occur or that actual results, levels of activity and achievements may differ
materially from those expressed or implied by such statements. The impact of any
one risk, uncertainty or factor on a particular forward-looking statement is not
determinable with certainty as these risks, uncertainties and factors are
interdependent and management's future course of action depends upon its
assessment of all information available at that time.
These and additional factors are described in more detail under the heading
"Risk Factors" in the Prospectus and in the annual information form dated
April 3, 2003 (the "Annual Information Form") and
S-4
the Corporation's management's discussion and analysis of financial condition
and results of operations incorporated by reference in this Prospectus
Supplement.
DOCUMENTS INCORPORATED BY REFERENCE
This Prospectus Supplement is deemed to be incorporated by reference into
the Prospectus solely for the purposes of the offering of the Notes. The
following documents of the Corporation or of CE Generation, LLC ("CE
Generation"), as applicable, filed with the Alberta Securities Commission and
with the United States Securities and Exchange Commission ("SEC"), are
specifically incorporated by reference in, and form an integral part of, this
Prospectus Supplement provided that such documents are not incorporated by
reference to the extent that their contents are modified or superseded by a
statement contained in this Prospectus Supplement or in any other subsequently
filed document that is also incorporated by reference in this Prospectus
Supplement:
(a) consolidated annual financial statements and auditors' report for the
years ended December 31, 2002 and 2001;
(b) management's discussion and analysis of financial condition and results
of operations for the years ended December 31, 2002 and 2001;
(c) material change report dated February 3, 2003 with respect to the
acquisition by the Corporation of a 50 per cent interest in CE
Generation;
(d) Annual Information Form;
(e) management proxy circular dated March 14, 2003 prepared in connection
with the Corporation's annual meeting of shareholders held on April 30,
2003 (excluding the sections entitled "Report on Executive Compensation",
"Comparative Shareholder Return" and "Corporate Governance", which shall
be deemed not to be incorporated by reference in this Prospectus
Supplement);
(f) unaudited consolidated interim financial statements for the three and
nine month periods ended September 30, 2003 and 2002;
(g) management's interim discussion and analysis of the financial condition
and results of operations for the three and nine month periods ended
September 30, 2003 and 2002;
(h) consolidated annual financial statements and auditors' report thereon of
CE Generation for the year ended December 31, 2002; and
(i) reconciliation to U.S. GAAP of the unaudited consolidated interim
financial statements of the Corporation for the three and nine month
periods ended September 30, 2003 and 2002.
Any documents of the type referred to above (excluding confidential material
change reports) subsequently filed by the Corporation with the Alberta
Securities Commission after the date of this Prospectus Supplement and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference into this Prospectus Supplement and the Prospectus. These documents
are available through the internet on the System for Electronic Document
Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com. In
addition, any similar documents filed on Form 6-K or Form 40-F by the
Corporation with the SEC after the date of this Prospectus Supplement shall be
deemed to be incorporated by reference into this Prospectus Supplement and the
Prospectus, if and to the extent expressly provided in such report. The
Corporation's reports on Forms 6-K and 40-F are available on the SEC's website
at www.sec.gov.
ANY STATEMENT CONTAINED IN THE PROSPECTUS, IN THIS PROSPECTUS SUPPLEMENT OR
IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE INTO THE
PROSPECTUS FOR THE PURPOSE OF THE OFFERING OF THE NOTES SHALL BE DEEMED TO BE
MODIFIED OR SUPERSEDED, FOR THE PURPOSES OF THIS PROSPECTUS SUPPLEMENT, TO THE
EXTENT THAT A STATEMENT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR IN ANY OTHER
SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS OR IS DEEMED TO BE INCORPORATED BY
REFERENCE IN THE PROSPECTUS MODIFIES OR SUPERSEDES THAT STATEMENT. ANY STATEMENT
SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR
SUPERSEDED, TO CONSTITUTE PART OF THIS PROSPECTUS SUPPLEMENT.
S-5
Copies of the documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents) may be obtained on request without charge from
the Corporate Secretary of TransAlta, 110 - 12th Avenue S.W., Calgary, Alberta,
Canada, T2R 0G7, Telephone (403) 267-7110.
The Corporation is subject to the information requirements of the
U.S. Exchange Act, and in accordance therewith files reports and other
information with the SEC. Under the multi-jurisdictional disclosure system
adopted by the United States and Canada, such reports and other information may
be prepared in accordance with the disclosure requirements of Canada, which
requirements are different from those of the United States. The Corporation is
exempt from the rules under the U.S. Exchange Act prescribing the furnishing and
content of proxy statements, and its officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the U.S. Exchange Act. Under the
U.S. Exchange Act, the Corporation is not required to publish financial
statements as promptly as United States companies. Such reports and other
information may be inspected without charge, and copied upon payment of
prescribed fees, at the public reference facility maintained by the SEC at
500 West Madison Street, Chicago, Illinois 60661; and copies of such material
may also be obtained from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
S-6
THE OFFERING
THE FOLLOWING IS A BRIEF SUMMARY OF SOME OF THE TERMS OF THIS OFFERING. FOR
A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE NOTES, SEE "DESCRIPTION OF THE
NOTES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF DEBT SECURITIES" IN THE
PROSPECTUS.
ISSUER: TransAlta Corporation, a Canadian corporation.
NOTES OFFERED: US$300,000,000 aggregate principal amount of 5.750% Senior
Notes due 2013.
INTEREST RATE: The Notes will bear interest at the rate of 5.750% per annum
from November 25, 2003 or from the most recent date to which
interest has been paid or provided for.
INTEREST PAYMENT DATES: June 15 and December 15 of each year, commencing June 15,
2004.
MATURITY DATE: December 15, 2013.
RANKING: The Notes will be direct unsecured obligations of the
Corporation and will rank equally and ratably with all other
unsubordinated and unsecured indebtedness of the
Corporation. The Notes will be effectively subordinate to
all indebtedness and other liabilities of the Corporation's
subsidiaries, except to the extent the Corporation is a
creditor of such subsidiaries ranking at least pari passu
with such other creditors. As at September 30, 2003, the
Corporation's subsidiaries had approximately $835.0 million
of long-term debt outstanding (excluding intercompany
indebtedness).
USE OF PROCEEDS: The net proceeds to the Corporation from this offering are
estimated to be approximately US$297.2 million after
deduction of estimated expenses of the offering and the
underwriting commission. The net proceeds received by the
Corporation from the sale of the Notes will be used for
general corporate purposes, including the repayment of
indebtedness and the financing of the Corporation's
long-term investment plan. Pending such application, the net
proceeds may be invested in short-term securities.
SINKING FUND: None.
OPTIONAL AND TAX REDEMPTION: The Corporation may redeem the Notes, in whole or in part,
at any time, at the "make-whole" price described in this
Prospectus Supplement. See "Description of the
Notes--Optional Redemption" in this Prospectus Supplement.
The Corporation may also redeem all of the Notes in whole,
but not in part, at the redemption price described in this
Prospectus Supplement at any time in the event certain
changes affecting Canadian withholding taxes occur. See
"Description of the Notes--Tax Redemption" in this
Prospectus Supplement.
CERTAIN COVENANTS: The indenture pursuant to which the Notes will be issued
contains certain covenants that, among other things, limit:
- the ability of the Corporation and its subsidiaries to
create liens;
- the ability of the Corporation to enter into sale and
leaseback transactions; and
- the ability of the Corporation to merge, amalgamate or
consolidate with, or sell all or substantially all of its
assets to, any other person.
See "Description of Debt Securities--Covenants" in the
Prospectus. These covenants are subject to important
exceptions and qualifications which are
S-7
described under the caption "Description of Debt Securities"
in the Prospectus.
CREDIT RATINGS: The Corporation's senior unsecured long-term debt has been
rated BBB- by Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies Inc. ("S&P") and Baa2 by
Moody's Investor Service, Inc. ("Moody's") (Moody's and S&P
are each, a "Rating Agency"). The rating outlook from S&P is
stable. Moody's has assigned a negative outlook to its
rating. Credit ratings are intended to provide investors
with an independent measure of credit quality of an issue of
securities. The credit ratings accorded to the Notes by S&P
and Moody's are not recommendations to purchase, hold or
sell the Notes inasmuch as such ratings do not comment as to
market price or suitability for a particular investor. There
is no assurance that the ratings will remain in effect for
any given period or that a rating will not be revised or
withdrawn entirely by a Rating Agency in the future if, in
its judgment, circumstances so warrant.
ADDITIONAL AMOUNTS: Any payments made by the Corporation with respect to the
Notes will be made without withholding or deduction for
Canadian taxes unless required to be withheld or deducted by
law or by the interpretation or administration thereof.
Subject to the exceptions and limitations set forth in the
Prospectus, if the Corporation is required to withhold or
deduct for Canadian taxes with respect to a payment to the
holders of Notes, the Corporation will pay to any holder of
Notes that is a non-resident of Canada under the INCOME TAX
ACT (Canada), such additional amounts as may be necessary so
that every net payment on the Notes after such withholding
or deduction will not be less than the amount provided in
the Notes to be then due and payable. See "Description of
Debt Securities--Payment of Additional Amounts" in the
Prospectus.
FORM: The Notes will be represented by one or more fully
registered global notes deposited in book-entry form with,
or on behalf of, The Depository Trust Company, and
registered in the name of its nominee. See "Description of
the Notes--Book-Entry System" in this Prospectus Supplement.
Except as described under "Description of the Notes" in this
Prospectus Supplement and "Description of Debt Securities"
in the Prospectus, Notes in certificated form will not be
issued.
GOVERNING LAW: The Notes and the indenture governing the Notes will be
governed by the laws of the State of New York.
RISK FACTORS: See "Risk Factors" in the Prospectus and in the Annual
Information Form and the Corporation's management's interim
discussion and analysis of financial condition and results
of operations for the three and nine months ended
September 30, 2003 and 2002 which are incorporated by
reference in this Prospectus Supplement, for a discussion of
certain factors that you should carefully consider before
investing in the Notes.
S-8
THE CORPORATION
TransAlta Corporation is a corporation amalgamated under the CANADA BUSINESS
CORPORATIONS ACT. The registered office and principal place of business of
TransAlta are at 110 - 12th Avenue S.W., Calgary, Alberta, Canada, T2R 0G7.
The principal subsidiaries of the Corporation and their respective
jurisdictions of formation are set out below.
[CORPORATION ORGANIZATIONAL FLOWCHART]
------------
(1) Reflects the ownership interest of TransAlta Energy Corporation ("TransAlta
Energy") in TransAlta Power, L.P. ("TransAlta Power") as at October 31,
2003. The remaining limited partnership interest in TransAlta Power is held
by the public, other than a 0.01 per cent interest held by TransAlta
Power Ltd., the general partner of TransAlta Power. On July 31, 2003,
TransAlta Power issued to TransAlta Energy an aggregate of 17,750,000
limited partnership units ("TransAlta Power Units") of TransAlta Power
(representing approximately 25 per cent of the outstanding TransAlta Power
Units). Pursuant to a delivery agreement (the "Delivery Agreement") dated
July 18, 2003 among TransAlta Power, TransAlta Energy and CIBC Mellon Trust
Company, as TransAlta Power Unit purchase warrants ("Warrants") that were
issued to the public by TransAlta Power on July 31, 2003 are exercised,
TransAlta Energy will sell to TransAlta Power that number of the TransAlta
Power Units held by it equal to the number of TransAlta Power Units issued
upon exercise of the Warrants. The Warrants expire on August 3, 2004.
TransAlta Energy is expected to hold at that time the number of TransAlta
Power Units equal to the number of Warrants that were not exercised by the
holders thereof prior to expiry.
TransAlta and its predecessors have been engaged in the production and sale
of electric energy since 1911. The Corporation is among Canada's largest
non-regulated electric generation and energy marketing companies with an
aggregate net ownership interest of over 8,500 megawatts ("MW") of generating
capacity operating or under construction (of which approximately 225 MW is under
construction) in facilities having approximately 10,200 MW of aggregate
generating capacity. The Corporation is focused on generating electricity in
Canada, the United States, Mexico and Australia through its diversified
portfolio of facilities fuelled by coal, gas, hydroelectric, wind and geothermal
resources. The following is a brief overview of the Corporation's principal
facilities.
In Alberta, the Corporation holds a net ownership interest of over 4,980 MW
of generating capacity in coal-fired, gas-fired, wind-powered and hydroelectric
facilities which are operating or under construction (of which approximately
225 MW is under construction). On January 1, 2001, the Corporation's Alberta
coal-fired and hydroelectric generating plants began operating under the Alberta
government mandated power purchase arrangements which established committed
capacity and electrical energy generation requirements and availability targets
to be achieved by each coal-fired plant, energy and ancillary services
obligations for the hydroelectric plants, and the price at which power would be
supplied. The Corporation
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believes that it has positioned itself to capitalize on opportunities created by
the deregulation of the Alberta energy market with its extensive facilities
located in Alberta and its experience as a developer of non-regulated
independent power projects. The Corporation also has several gas-fired
cogeneration facilities in Ontario, including a 575 MW facility in Sarnia.
In the United States, the Corporation's principal facilities include the
1,404 MW coal-fired plant in Centralia, Washington and the nearby 248 MW Big
Hanaford gas-fired facility, both of which supply electricity to the Pacific
Northwest. In January 2003, the Corporation completed the acquisition of a
50 per cent interest in CE Generation which has an aggregate net ownership
interest of approximately 756 MW of operating electrical generating capacity in
facilities in California, Texas, Arizona and New York.
In Mexico, the Corporation has two facilities with a combined capacity of
511 MW. The 252 MW Campeche facility commenced commercial operations in May
2003, and the 259 MW Chihuahua facility commenced commercial operations in
September 2003.
The Corporation also has an aggregate net ownership interest of 280 MW of
electrical generating capacity in Australia.
The Corporation is organized into two business segments: generation and
energy marketing. The generation group is responsible for constructing,
operating and maintaining power generation facilities. The energy marketing
group is responsible for managing the sale of production and market risks
associated with the Corporation's generation assets (the financial results and
costs of which are included in the generation segment) and for non-asset backed
trading activities. Both segments are supported by a corporate group which
includes finance, treasury, legal, human resources and other administrative
functions. The corporate group is also responsible for the Corporation's
sustainable development initiatives, including investments in renewable energy
resources.
RECENT DEVELOPMENTS
THIRD QUARTER HIGHLIGHTS
On October 23, 2003, the Corporation announced third quarter 2003 earnings
from continuing operations of $118.4 million ($0.62 per share), compared to
$70.3 million ($0.42 per share) for the third quarter 2002. Earnings included
$145.8 million of after-tax gains related to the sale of the coal-fired
Sheerness Generating Station which closed on July 31, 2003 and a $55.4 million
after-tax asset impairment charge related to its gas turbines. Earnings from
continuing operations for the nine months ended September 30, 2003 were
$190.4 million ($1.04 per share), compared to $128.8 million ($0.76 per share)
for the same period in 2002, while net earnings for the same periods were
$190.4 million ($1.04 per share) and $251.6 million ($1.48 per share),
respectively. Financial results for the third quarter reflect increased
maintenance at the Alberta thermal plants, the addition of several new power
plants and lower hydro production.
Production at the Corporation's facilities was 13,687 gigawatt-hours during
the third quarter 2003, up 16 per cent (1,937 gigawatt-hours) compared to the
same period in 2002, due to the acquisition of CE Generation and the new power
plant additions, which was partially offset by increased maintenance at the
Alberta thermal plants and lower water levels for the Corporation's hydro
plants. Average availability of the Corporation's facilities for the third
quarter 2003 was 88.8 per cent, down from 89.4 per cent in the third quarter
2002, primarily due to planned maintenance.
Cash generated from operating activities for the third quarter 2003 was
$147.0 million, compared to cash used in operating activities of $14.2 million
in the third quarter 2002. This increase was primarily due to the impact on
earnings in 2002 of the settlement of a disputed ancillary services revenue
issue with the Balancing Pool of Alberta ($49.9 million) and certain cash tax
obligations ($55.6 million).
USE OF PROCEEDS
The net proceeds to the Corporation from this offering are estimated to be
approximately US$297.2 million after deduction of estimated expenses of the
offering and the underwriting commission. The net proceeds received by the
Corporation from the sale of the Notes will be used for general corporate
purposes, including the repayment of indebtedness and the financing of the
Corporation's long-term investment plan. Pending such application, the net
proceeds may be invested in short-term securities.
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CONSOLIDATED CAPITALIZATION
The following table sets forth the Corporation's consolidated capitalization
as at September 30, 2003 on an actual basis and as adjusted to give effect to
this offering and to the application of the net proceeds as described under the
heading "Use of Proceeds". This table has been prepared in accordance with
Canadian GAAP and should be read in conjunction with the Corporation's
consolidated interim financial statements as at and for the nine months ended
September 30, 2003 and 2002 which are incorporated by reference in this
Prospectus Supplement. For the purposes of the following table, U.S. dollar
amounts have been converted to Canadian dollars at an exchange rate of US$0.7415
equals $1.00.
AS AT SEPTEMBER 30, 2003
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN MILLIONS)
Long-term debt:
Debentures due 2003 to 2033(1)............................ $1,863.3 $1,513.3
Notes payable--Windsor-Essex facility due 2003 to
2014(2)................................................. 59.5 59.5
Capital lease obligation due 2004(3)...................... 7.3 7.3
Preferred securities due 2048 and 2050(4)................. 15.8 15.8
Commercial paper--US$76.2 million(5)...................... 102.8 52.0
Bank credit facilities--Campeche(6)....................... 180.2 180.2
Senior Notes due 2012--US$300.0 million(7)................ 404.6 404.6
CE Generation non-recourse notes and
bonds--US$449.5 million(8).............................. 606.3 606.3
Senior Notes offered hereby............................... -- 404.6
-------- --------
3,239.8 3,243.6
Less current portion(1)..................................... (415.4) (14.6)
-------- --------
Total long-term debt.................................... 2,824.4 3,229.0
Non-controlling interests(9)................................ 446.6 446.6
Preferred securities, due 2048 and 2050(4).................. 451.0 451.0
Common shareholders' equity:
Common shares(10)......................................... 1,540.1 1,540.1
Retained earnings(11)(12)................................. 937.8 934.0
Cumulative translation adjustment......................... (26.1) (26.1)
-------- --------
Total common shareholders' equity........................... 2,451.8 2,448.0
-------- --------
Total capitalization........................................ $6,589.2 $6,589.2
======== ========
------------
(1) The debentures bear interest at fixed rates. TransAlta Utilities
Corporation, a wholly-owned subsidiary of the Corporation, has issued
$798.4 million principal amount of the debentures and has granted a floating
charge on its assets and property as security for repayment of these
debentures. Debentures of TransAlta Utilities Corporation of $100.0 million
principal amount maturing in 2023 and $50.0 million principal amount
maturing in 2033 are redeemable at the option of the holders in 2008 and
2009, respectively. Debentures of the Corporation of $150.0 million
principal amount maturing in 2005 are extendible until 2030 at the option of
the holders. Debentures in the aggregate principal amount of $350.0 million
mature on December 15, 2003.
(2) The notes payable are secured by the Windsor Essex facility, bear interest
at fixed rates and are recourse to the Corporation through a standby letter
of credit.
(3) Certain coal mining assets of TransAlta Utilities Corporation have been
provided as collateral for a capital lease obligation. The obligation bears
interest at a fixed rate.
(4) The debt component amount of the preferred securities represents the present
value of the aggregate principal amount of $300.0 million due in 2048 and
$175.0 million due in 2050. Interest accretion at the coupon rate is
included in interest expense. Under U.S. GAAP, the entire amount of these
preferred securities would be classified as debt, with no equity component.
(5) A total of $198.2 million in commercial paper was outstanding as at
September 30, 2003. As part of its hedging strategy, the Corporation has
designated US$77.3 million of its U.S. dollar commercial paper as a
long-term hedge against its net investment in its U.S. operations.
S-11
(6) In December 2000, the Corporation established a US$133.6 million,
sixteen-year credit facility for the financing of the construction of its
Campeche plant in Mexico. As at September 30, 2003, the borrowing totalled
US$133.6 million bearing interest at LIBOR plus 2.25%, increasing to LIBOR
plus 3.25% by 2016. Of the credit facility LIBOR position, 70 per cent has
been effectively converted to a fixed interest rate of 7.4% per annum
through a swap agreement.
(7) In June 2002, the Corporation issued debt of US$300.0 million under the
Prospectus and a related prospectus supplement dated June 20, 2002, of which
US$297.0 million of net proceeds was received by the Corporation after
expenses and payment of the underwriting commission. The notes bear interest
at 6.75% per annum and mature on July 15, 2012. This debt has been
designated as a hedge against the Corporation's net investment in its U.S.
and Mexican operations.
(8) The CE Generation non-recourse loans, notes and bonds represent the
Corporation's proportionate share of CE Generation debt instruments. For
further information, refer to the CE Generation consolidated annual
financial statements for the year ended December 31, 2002, incorporated by
reference herein.
(9) TransAlta Energy holds a direct 50.00 per cent interest in TransAlta
Cogeneration, L.P. ("TransAlta Cogeneration"), an Ontario limited
partnership. The remaining interest in TransAlta Cogeneration is held by its
general partner, TransAlta Cogeneration Ltd., which is a wholly-owned
subsidiary of TransAlta Energy, as to 0.01 per cent, and by TransAlta Power,
as to 49.99 per cent. On July 31, 2003, TransAlta Power issued to TransAlta
Energy an aggregate of 17,750,000 TransAlta Power Units (representing
approximately 25 per cent of the outstanding TransAlta Power Units).
Pursuant to the Delivery Agreement, as Warrants are exercised, TransAlta
Energy will sell to TransAlta Power that number of the TransAlta Power Units
held by it equal to the number of TransAlta Power Units issued upon exercise
of the Warrants. The Warrants expire on August 3, 2004. TransAlta Energy is
expected to hold at that time the number of TransAlta Power Units equal to
the number of Warrants that were not exercised by the holders thereof prior
to expiry.
(10) The Corporation is authorized to issue an unlimited number of voting common
shares ("Common Shares") without nominal or par value. The Corporation has a
performance share ownership plan and a share option plan which together
currently permit an aggregate of 13.0 million Common Shares to be reserved
for issuance pursuant to agreements with and options granted to employees
and officers of the Corporation. As at September 30, 2003, options to
purchase an aggregate of 3.0 million Common Shares were outstanding at
prices ranging from $13.12 to $27.70 per Common Share.
(11) Effective January 1, 2003, the Corporation adopted one year early, as
encouraged by the Canadian Institute of Chartered Acccountants ("CICA"), the
new CICA standard for accounting for asset retirement obligations. The
impact of this standard on the December 31, 2002 balance sheet is disclosed
in note 1 to the unaudited consolidated interim financial statements of the
Corporation for the three and nine month periods ended September 30, 2003,
which are incorporated by reference herein.
(12) Under U.S. GAAP, the retained earnings balance was $943.4 million as at
September 30, 2003.
S-12
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as at and for each of the two years
ended December 31, 2002 and 2001 have been derived from the Corporation's annual
consolidated financial statements which are incorporated by reference in this
Prospectus Supplement. The Corporation's selected consolidated financial data as
at and for the nine months ended September 30, 2003 and 2002 has been derived
from its interim consolidated financial statements incorporated by reference in
this Prospectus Supplement. The interim financial results reflect all
adjustments which, in the opinion of management, are necessary for a fair
statement of the results. Historical and interim results are not necessarily
indicative of the results to be expected in the future.
The Corporation's consolidated financial statements are prepared in
accordance with Canadian GAAP. Canadian GAAP conforms in all material respects
with U.S. GAAP, except as described in note 27 to the Corporation's consolidated
financial statements as at and for the year ended December 31, 2002, and the
U.S. GAAP reconciliation for the interim consolidated financial statements of
the Corporation as at and for the nine months ended September 30, 2003 and 2002,
both of which are incorporated by reference in this Prospectus Supplement. The
selected consolidated financial data should be read in conjunction with the
Corporation's annual consolidated financial statements and interim consolidated
financial statements, and the notes thereto, and management's discussion and
analysis of financial condition and results of operations related thereto, all
of which are incorporated by reference in this Prospectus Supplement.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------
2001(1) 2002(1) 2002(1) 2003(1)
--------- -------- ---------- --------
(IN MILLIONS)
(RESTATED)
INCOME STATEMENT ITEMS:
REVENUES.................................................. $ 2,319.4 $1,723.9 $1,206.3 $1,787.2
Fuel and purchased power.................................. (1,230.6) (703.6) (447.3) (784.3)
--------- -------- -------- --------
GROSS MARGIN.............................................. $ 1,088.8 $1,020.3 $ 759.0 $1,002.9
Operations, maintenance and administration................ 392.2 420.5 285.4 412.7
Depreciation and amortization............................. 191.2 219.0 174.5 246.6
Asset impairment and equipment cancellation charges....... 118.8 152.5 -- 84.7
Gain on sale of Sheerness Generating Station.............. -- -- -- (191.5)
Taxes, other than income taxes............................ 18.7 27.4 19.8 17.5
--------- -------- -------- --------
Total operating expenses.................................. 720.9 819.4 479.7 570.0
OPERATING INCOME.......................................... $ 367.9 $ 200.9 $ 279.3 $ 432.9
Other income/(expense).................................... 1.5 0.1 (0.9) (2.2)
Foreign exchange gains/(losses)........................... 0.8 1.2 0.3 (6.7)
Net interest expense...................................... (88.1) (82.7) (58.7) (132.2)
Prior period regulatory decisions......................... 11.0 (3.3) (3.3) --
--------- -------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND NON-CONTROLLING INTERESTS........................... $ 293.1 $ 116.2 $ 216.7 $ 291.8
Income taxes.............................................. 89.9 18.1 57.2 64.5
Non-controlling interests................................. 20.6 20.1 14.5 19.8
--------- -------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS....................... $ 182.6 $ 78.0 $ 145.0 $ 207.5
Earnings from discontinued operations, net of tax......... 45.1 12.8 12.8 --
Gain on disposal of discontinued operations, net of tax... -- 120.0 110.0 --
--------- -------- -------- --------
NET EARNINGS.............................................. $ 227.7 $ 210.8 $ 267.8 $ 207.5
Preferred securities distributions, net of tax............ 13.1 20.9 16.2 17.1
--------- -------- -------- --------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS............ $ 214.6 $ 189.9 $ 251.6 $ 190.4
========= ======== ======== ========
Diluted net earnings per share............................ $ 1.25 $ 1.12 $ 1.48 $ 1.04
S-13
AS AT DECEMBER 31, AS AT SEPTEMBER 30,
---------------------- ---------------------
2001(1) 2002(1) 2002(1) 2003(1)
--------- ---------- --------- ---------
(IN MILLIONS)
(RESTATED)
BALANCE SHEET ITEMS:
Current assets............................................ $ 1,055.6 $ 948.6 $ 990.0 $ 788.6
Property, plant and equipment (net of accumulated
depreciation)........................................... 6,094.8 6,094.2 6,013.6 6,913.0
Total assets.............................................. 7,606.4 7,414.9 7,397.4 8,333.0
Current liabilities....................................... 1,437.7 1,351.4 796.9 1,145.2
Long-term debt (excluding current portion)................ 2,406.8 2,351.2 2,732.5 2,824.4
Total liabilities......................................... 4,883.1 4,608.1 4,555.0 4,983.6
Common shareholders' equity............................... 1,989.7 2,092.1 2,113.2 2,451.8
Total shareholders' equity................................ 2,442.3 2,543.8 2,565.2 2,902.8
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------
2001(1) 2002(1) 2002(1) 2003(1)
--------- -------- ---------- --------
(IN MILLIONS)
(RESTATED)
CASH FLOW STATEMENT ITEMS:
Cash flow from operating activities before change in
non-cash operating working capital(2)................... $ 650.0 $ 487.1 $ 391.5 $ 399.9
Capital expenditures...................................... 1,246.5 945.8 751.2 505.0
Acquisitions.............................................. 9.8 40.1 -- 323.4
KEY RATIOS:
Cash flow to interest(2)(3)............................... 5.4x 3.5x 3.9x 3.1x
Cash flow to average total debt(2)(4)..................... 23% 16% 20% 16%
Net debt to invested capital(5)........................... 52% 50% 49% 49%
------------
(1) As discussed in note 1 to the interim consolidated financial statements of
the Corporation for the three and nine month periods ended September 30,
2003, which are incorporated by reference herein, effective January 1, 2003,
the Corporation adopted one year early, as encouraged by the CICA, the new
CICA standard for accounting for asset retirement obligations. The selected
consolidated balance sheet data as at December 31, 2002 and the selected
consolidated income statement data for the nine months ended September 30,
2002 have been restated for the impact of the adoption of this accounting
standard. Had the selected consolidated financial data for the other periods
presented been restated, the impact would be as follows:
Year ended December 31, 2001:
Fuel and purchased power would have decreased by $43.5 million, depreciation
and amortization would have increased by $21.6 million, operating income and
earnings from continuing operations before income taxes and non-controlling
interests would have each increased by $21.9 million, income taxes would
have increased by $7.7 million and earnings from continuing operations, net
earnings and net earnings applicable to common shareholders would have each
increased by $14.2 million.
As at December 31, 2001:
As at December 31, 2001, property, plant and equipment (net of accumulated
depreciation) and total assets would have each decreased by $27.3 million
and total liabilities would have decreased by $70.1 million and common
shareholders' equity and total shareholders' equity would have each
increased by $42.8 million.
Year ended December 31, 2002:
Fuel and purchased power would have decreased by $39.0 million, depreciation
and amortization would have increased by $24.0 million, operating income and
earnings from continuing operations before income taxes and non-controlling
interests would have each increased by $15.0 million, income taxes would
have increased by $5.3 million and earnings from continuing operations, net
earnings and net earnings applicable to common shareholders would have each
increased by $9.7 million.
As at September 30, 2002:
As at September 30, 2002, plant and equipment (net of accumulated
depreciation) and total assets would have each decreased by $4.6 million and
total liabilities would have decreased by $54.8 million and common
shareholders' equity and total shareholders' equity would have each
increased by $50.2 million.
(2) Cash flow from operating activities before change in non-cash operating
working capital is one measure used by the Corporation to assess operating
results. Cash flow from operating activities before change in non-cash
operating working capital should not be
S-14
considered an alternative to, or more meaningful than, cash flow from
operating activities, cash flow from operating, investing and financing
activities or net income as determined in accordance with Canadian GAAP as
an indicator of the Corporation's performance or liquidity. Cash flow from
operating activities before change in non-cash operating working capital may
not be comparable to similarly titled measures reported by other companies.
Cash flow from operating activities before change in non-cash operating
working capital has been calculated on a consistent basis for the years
ended December 31, 2002 and 2001 and the nine months ended September 30,
2003 and 2002 and is reconciled, as required by Regulation G promulgated by
the SEC as required by the Sarbanes-Oxley Act of 2002 ("Regulation G"), to
cash flow from operating activities below.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
2001 2002 2002 2003
-------- -------- -------- --------
Cash flow from operating activities before change in
non-cash operating working capital........................ $650.0 $487.1 $391.5 $399.9
Change in non-cash operating working capital................ 65.6 (49.4) (143.3) 191.2
------ ------ ------ ------
Cash flow from operating activities......................... $715.6 $437.7 $248.2 $591.1
====== ====== ====== ======
(3) Cash flow from operating activities before change in non-cash operating
working capital and net interest expense divided by gross interest expense,
in each case, for the years ended and the nine months ended, as applicable.
Gross interest expense reflects the Corporation's net interest expense plus
capitalized interest. Gross interest expense should not be considered an
alternative to, or more meaningful than, net interest expense as determined
in accordance with Canadian GAAP. Gross interest expense may not be
comparable to similarily titled measures reported by other companies.
Gross interest expense has been calculated on a consistent basis for the
years ended December 31, 2002 and 2001 and the nine months ended
September 30, 2003 and 2002 and is reconciled, as required by Regulation G,
to net interest expense below.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------------
2001 2002 2002 2003
-------- -------- -------- --------
Net interest expense........................................ $ 88.1 $ 82.7 $ 58.7 $132.2
Capitalized interest........................................ 48.3 79.1 58.1 40.6
------ ------ ------ ------
Gross interest expense...................................... $136.4 $161.8 $116.8 $172.8
====== ====== ====== ======
Cash flow from operating activities divided by gross
interest expense.......................................... 5.2x 2.7x 2.1x 3.4x
(4) Cash flow from operating activities before change in non-cash operating
working capital for the twelve months ended divided by the average of
total debt.
Average of total debt is calculated using the opening and closing total debt
as of each twelve month period presented. Total debt reflects the
Corporation's short-term and long-term debt, including the current portion
of long-term debt. Average total debt and total debt should not be
considered alternatives to, or more meaningful than, short-term debt,
long-term debt or current portion of long-term debt as determined in
accordance with Canadian GAAP as an indicator of the Corporation's
liquidity. Average of total debt and total debt may not be comparable to
similarily titled measures reported by other companies.
Average of total debt and total debt have been calculated on a consistent
basis for and as at the years ended December 31, 2002 and 2001 and for and
as at the twelve months ended September 30, 2003 and 2002. Total debt is
reconciled, as required by Regulation G, to long-term debt below.
AS AT DECEMBER 31, AS AT SEPTEMBER 30,
------------------------------ ------------------------------
2000 2001 2002 2001 2002 2003
-------- -------- -------- -------- -------- --------
Total debt.............................................. $2,674.1 $3,048.3 $2,996.6 $2,924.2 $2,839.2 $3,339.2
Short-term debt......................................... (472.7) (537.2) (290.0) (543.0) (1.5) (99.4)
Current portion of long-term debt....................... (79.6) (104.3) (355.4) (4.2) (105.2) (415.4)
-------- -------- -------- -------- -------- --------
Long-term debt.......................................... $2,121.8 $2,406.8 $2,351.2 $2,377.0 $2,732.5 $2,824.4
======== ======== ======== ======== ======== ========
Average of long-term debt............................... $2,264.3 $2,379.0 $2,554.8 $2,778.5
======== ======== ======== ========
Cash flow from operating activities for the twelve
months ended divided by average of long-term debt..... 32% 18% 15% 28%
S-15
(5) Net debt divided by the sum of net debt, non-controlling interests,
preferred securities and common shareholders' equity.
Net debt is calculated as the Corporation's total debt less cash and cash
equivalents for the periods presented. Net debt should not be considered an
alternative to, or more meaningful than, long-term debt as determined in
accordance with Canadian GAAP as an indicator of the Corporation's
liquidity. Net debt may not be comparable to similarily titled measures
reported by other companies.
Net debt has been calculated on a consistent basis as at December 31, 2002
and 2001 and September 30, 2003 and 2002 and is reconciled, as required by
Regulation G, to long-term debt below.
AS AT AS AT
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
2001 2002 2002 2003
-------- -------- -------- --------
Net debt.................................................... $2,986.3 $2,853.3 $2,718.6 $3,223.9
Cash and cash equivalents................................... 62.0 143.3 120.6 115.3
Short-term debt............................................. (537.2) (290.0) (1.5) (99.4)
Current portion of long-term debt........................... (104.3) (355.4) (105.2) (415.4)
-------- -------- -------- --------
Long-term debt.............................................. $2,406.8 $2,351.2 $2,732.5 $2,824.4
======== ======== ======== ========
Long-term debt divided by the sum of long-term debt,
non-controlling interests, preferred securites and common
shareholders' equity...................................... 47% 46% 49% 46%
S-16
DESCRIPTION OF THE NOTES
The following description of the terms of the Notes supplements, and to the
extent inconsistent therewith replaces, the description set forth under the
heading "Description of Debt Securities" in the Prospectus and should be read in
conjunction with such description. In this section, "Corporation" refers only to
TransAlta Corporation without any of its subsidiaries, unless otherwise stated.
All capitalized terms used under this heading "Description of the Notes" and not
otherwise defined herein have the meanings provided for in the Prospectus.
GENERAL
The Notes will be direct unsecured obligations of the Corporation and will
rank equally and ratably with all other unsubordinated and unsecured
indebtedness of the Corporation.
Payment of the principal, premium, if any, and interest on the Notes will be
made in U.S. dollars.
The provisions of the Indenture relating to the payment of additional
amounts in respect of Canadian withholding taxes in certain circumstances
(described under the heading "Description of Debt Securities--Payment of
Additional Amounts" in the Prospectus) and the provisions of the Indenture
relating to the redemption of Notes in the event of specified changes in
Canadian withholding tax laws or the enforcement or interpretation thereof on or
after the date of this Prospectus Supplement (described under the heading
"Description of The Notes--Tax Redemption" below) will apply to the Notes.
The Notes will be effectively subordinate to all indebtedness and other
liabilities of the Corporation's subsidiaries, except to the extent the
Corporation is a creditor of such subsidiaries ranking at least pari passu with
such other creditors. As at September 30, 2003, the Corporation's subsidiaries
had approximately $835.0 million of long-term debt outstanding (excluding
intercompany indebtedness).
The Notes will initially be issued in an aggregate principal amount of
US$300,000,000 and will mature on December 15, 2013. The Notes will bear
interest at the rate of 5.750% per annum from November 25, 2003 or from the most
recent date to which interest has been paid or provided for, payable
semi-annually on June 15 and December 15 of each year, commencing June 15, 2004,
to the persons in whose names the Notes are registered at the close of business
on the preceding June 1 or December 1, respectively. Interest shall be computed
assuming a 360-day year consisting of twelve 30-day months.
The Corporation may from time to time, without the consent of the holders of
the Notes, create and issue additional Notes after this offering. The Notes and
any additional Notes subsequently issued under the Indenture will be treated as
a single class for all purposes under the Indenture (except in respect of the
payment of interest accruing prior to the issue date of the additional Notes and
the first payment of interest following the issue date of the additional Notes),
including, without limitation, waivers, amendments, redemptions and offers to
purchase.
The Notes will not be entitled to the benefits of any sinking fund.
OPTIONAL REDEMPTION
The Notes will be redeemable as a whole, or in part, at the option of the
Corporation at any time, at a redemption price equal to the greater of:
(i) 100% of the principal amount of such Notes and (ii) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
(exclusive of interest accrued to the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 25 basis points, plus in each
case, accrued interest thereon to the date of redemption.
"TREASURY RATE" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity or interpolated (on
a day count basis) of the Comparable Treasury Issue, assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date.
S-17
"COMPARABLE TREASURY ISSUE" means the United States Treasury security or
securities selected by an Independent Investment Banker as having an actual or
interpolated maturity comparable to the remaining term of the Notes to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of a comparable maturity to the remaining term of such Notes.
"INDEPENDENT INVESTMENT BANKER" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Corporation.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date,
(i) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and ask prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Trustee by such Reference Treasury Dealer at 3:30 p.m. New York time on the
third business day preceding such redemption date.
"REFERENCE TREASURY DEALER" means each of Citigroup Global Markets Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, HSBC Securities (USA) Inc.
and ABN AMRO Incorporated, plus one other to be determined by the Corporation,
or their respective affiliates which are primary U.S. Government securities
dealers, and their respective successors; provided, however, that if any of the
foregoing or their respective affiliates shall cease to be a primary
U.S. Government securities dealer in The City of New York (a "Primary Treasury
Dealer"), the Corporation shall substitute therefor another Primary
Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Notes to be redeemed.
Unless the Corporation defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
TAX REDEMPTION
The Notes will be subject to redemption at any time, in whole but not in
part, at the option of the Corporation, at a redemption price equal to the
principal amount thereof together with accrued and unpaid interest to the date
fixed for redemption, upon the giving of a notice as described below, if
(1) TransAlta determines that (a) as a result of any change in or amendment to
the laws (or any regulations or rulings promulgated thereunder) of Canada or of
any political subdivision or taxing authority thereof or therein affecting
taxation, or any change in official position regarding application or
interpretation of such laws, regulations or rulings (including a holding by a
court of competent jurisdiction), which change or amendment is announced or
becomes effective on or after the date of this Prospectus Supplement, TransAlta
has or will become obligated to pay, on the next succeeding date on which
interest is due, additional amounts with respect to the Notes as described under
"Payment of Additional Amounts" in the Prospectus; or (b) on or after the date
of this Prospectus Supplement, any action has been taken by any taxing authority
of, or any decision has been rendered by a court of competent jurisdiction in,
Canada or any political subdivision or taxing authority thereof or therein,
including any of those actions specified in (a) above, whether or not such
action was taken or decision was rendered with respect to TransAlta, or any
change, amendment, application or interpretation shall be officially proposed,
which, in any such case, in the written opinion to TransAlta of legal counsel of
recognized standing, will result in TransAlta becoming obligated to pay, on the
next succeeding date on which interest is due, additional amounts with respect
to the Notes and (2) in any such case, TransAlta in its business judgment
determines that such obligation cannot be avoided by the use of reasonable
measures available to TransAlta; provided however, that (i) no such notice of
redemption may be given earlier than 60 days prior to the earliest date on which
TransAlta would be obligated to pay such additional amounts were a payment in
respect of the Notes then due, and (ii) at the time such notice of
S-18
redemption is given, such obligation to pay such additional amounts remains in
effect; and provided further, that any such notice of redemption shall be given
no later than 30 days prior to such redemption.
In the event that TransAlta elects to redeem the Notes pursuant to the
provisions set forth in the preceding paragraph, TransAlta shall deliver to the
Trustee a certificate, signed by an authorized officer, stating that TransAlta
is entitled to redeem the Notes pursuant to their terms.
BOOK-ENTRY SYSTEM
The Depository Trust Company ("DTC") will act as securities depository for
the Notes. The Notes will be issued as fully registered Notes registered in the
name of Cede & Co. (as nominee of DTC). One or more fully registered global
Notes (the "Global Notes") will be issued for each of the Notes, in the
aggregate principal amount of the issue, and will be deposited with DTC. The
provisions set forth under the heading "Description of Debt Securities--Global
Securities" in the Prospectus will be applicable to the Notes. Accordingly,
beneficial interests in the Notes will be shown on, and transfers of the Notes
will be effected, only through, records maintained by DTC and its Direct and
Indirect Participants (defined below). Except as described under the heading
"Description of Debt Securities--Registered Global Securities" in the
accompanying Prospectus, owners of beneficial interests in the Registered Global
Securities representing the Notes will not be entitled to receive Notes in
definitive form and will not be considered Holders of Notes under the Indenture.
The following is based on information furnished by DTC:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the U.S. Exchange Act.
DTC holds securities that its participants ("Direct Participants") deposit with
DTC. DTC also facilitates the settlement among participants of notes
transactions, such as transfers and pledges, in deposited notes through
electronic computerized book-entry charges in participants' accounts, thereby
eliminating the need for physical movement of notes certificates. Direct
Participants include:
- securities brokers and dealers;
- banks;
- trust companies;
- clearing corporation; and
- certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its participants are on file with the SEC.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of Notes represented by the Global
Notes (a "Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participant's records. Beneficial Owners will not receive written
confirmation from DTC of their purchases but Beneficial Owners are expected to
receive written confirmation providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners entered into the transaction. Transfers of
ownership interests in the Global Notes representing the Notes are to be
accomplished by entries made on the books of participants acting on behalf of
Beneficial Owners. Beneficial Owners of the Global Notes representing Notes will
not receive certificated Notes representing their ownership interests, except in
the event that use of the book-entry system for the
S-19
Notes is discontinued or upon the occurrence of certain other events described
in the Prospectus. Any certificated notes representing ownership interests in
the Notes will be in registered form.
To facilitate subsequent transfers, the Global Notes representing Notes
which are deposited with, or on behalf of, DTC are registered in the name of
DTC's nominee, Cede & Co. or such other name as may be requested by an
authorized representative of DTC. The deposit of the Global Notes with DTC and
their registration in the name of Cede & Co. or such other nominee does not
effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Global Notes representing the Notes. DTC's records
reflect only the identity of the Direct Participants to whose accounts the Notes
are credited, which may or may not be the Beneficial Owners. The Direct
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote
with respect to the Global Notes representing the Notes. Under its usual
procedures, DTC mails an omnibus proxy (an "Omnibus Proxy") to the Corporation
as soon as possible after the applicable record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the applicable record date (identified in a
listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Notes representing the Notes
will be made to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts on the applicable payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payment on that date. Payments by Direct and Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name", and will be the
responsibility of the Direct or Indirect Participant and not of DTC, the Trustee
or the Corporation, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal and interest to
Cede & Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Corporation or the Trustee.
Disbursement of these payments to Direct Participants shall be the
responsibility of DTC, and disbursement of these payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants. Neither
the Corporation nor the Trustee will have any responsibility or liability for
disbursements of payments in respect of ownership interest in the Notes by DTC
or the Direct or Indirect Participants or for maintaining or reviewing any
records of DTC or the Direct or Indirect Participants relating to ownership
interests in the Notes or the disbursement of payments in respect of the Notes.
DTC may discontinue providing its services as depository with respect to the
Notes at any time by giving reasonable notice to the Corporation or the Trustee.
Under these circumstances, and in the event that a successor depository is not
obtained, certificated Notes are required to be printed and delivered. The
Corporation may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depository). In that event, certificated Notes will
be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Corporation believes to be reliable, but the
Corporation takes no responsibility for the accuracy thereof. The information in
this section is subject to any changes to the arrangements between the
Corporation and DTC and any changes to these procedures that may be instituted
unilaterally by DTC.
S-20
PRO FORMA INTEREST COVERAGE
The following pro forma coverage ratios have been prepared in accordance
with Canadian securities law requirements and are included in this Prospectus
Supplement in accordance with Canadian disclosure requirements.
The following pro forma interest coverage ratios have been calculated on a
consolidated basis for the respective 12 month periods ended December 31, 2002
and September 30, 2003 and are based on audited financial information, in the
case of the 12 month period ended December 31, 2002, and unaudited financial
information, in the case of the 12 month period ended September 30, 2003. In
each case, the ratios have been calculated after giving effect to the issuance
of the Notes offered hereby and the application of the net proceeds therefrom as
described under "Use of Proceeds". The pro forma interest coverage ratios set
forth below do not purport to be indicative of the actual interest coverage
ratios that would have occurred on the foregoing dates, nor to be indicative of
interest coverage ratios for any future periods. The ratios have been calculated
based on Canadian GAAP.
DECEMBER 31, 2002 SEPTEMBER 30, 2003
------------------ -------------------
Interest coverage on debt................................... 1.96 times 1.54 times
Interest coverage on debt is equal to net earnings before net interest
expense on debt and income taxes divided by gross interest expense on debt. For
purposes of calculating the above ratios, long-term debt includes the current
portion of long-term debt. Additionally, the above ratios have been calculated
without including the annual carrying charges relating to the equity component
of the $175 million aggregate principal amount of 7.50% preferred securities due
April 13, 2048, the $125 million aggregate principal amount of 8.15% preferred
securities due December 31, 2048 and the $175 million aggregate principal amount
of 7.75% preferred securities due December 31, 2050 of the Corporation
(collectively, the "Preferred Securities"). If the equity component of the
Preferred Securities was classified as debt, as required under U.S. GAAP, the
entire carrying charges of the Preferred Securities would be included in
interest expense. If these annual carrying charges had been included in the
calculations, the interest coverage would have been 1.59 times for the 12 month
period ended December 31, 2002 and 1.32 times for the 12 month period ended
September 30, 2003.
CREDIT RATINGS
The Corporation's senior unsecured long-term debt has been rated BBB- by S&P
and Baa2 by Moody's. The ratings for debt instruments range from a high of AAA
to a low of D, in the case of S&P, and from a high of Aaa to a low of C, in the
case of Moody's. The rating outlook from S&P is stable. Moody's has assigned a
negative outlook to its rating.
According to the S&P rating system, debt securities rated BBB exhibit
adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on such obligations than on obligations in higher
rating categories. The ratings from AA to B may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the major rating
categories.
According to the Moody's rating system, debt securities rated Baa are
subject to moderate credit risk. They are considered medium-grade and as such
may possess certain speculative characteristics. Numerical modifiers 1, 2 and 3
are applied to each rating category, with 1 indicating that the obligation ranks
in the higher end of the category, 2 indicating a mid-range ranking and 3
indicating a ranking in the lower end of the category.
Credit ratings are intended to provide investors with an independent measure
of credit quality of an issue of securities. The credit ratings accorded to the
Notes by S&P and Moody's are not recommendations to purchase, hold or sell the
Notes inasmuch as such ratings do not comment as to market price or suitability
for a particular investor. There is no assurance that the ratings will remain in
effect for any given period or that a rating will not be revised or withdrawn
entirely by a Rating Agency in the future if, in its judgment, circumstances so
warrant.
S-21
CERTAIN INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE
INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY
PARTICULAR INVESTOR IS MADE. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX
CONSEQUENCES TO THEM HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES,
INCLUDING ANY CONSEQUENCES OF AN INVESTMENT IN THE NOTES ARISING UNDER STATE,
PROVINCIAL OR LOCAL TAX LAWS IN THE UNITED STATES OR CANADA OR TAX LAWS OF
JURISDICTIONS OUTSIDE THE UNITED STATES OR CANADA.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of McCarthy Tetrault LLP, Calgary, Alberta, Canada, Canadian
counsel to the Corporation, the following summary addresses the material
Canadian federal income tax considerations generally applicable to an initial
purchaser of Notes under this offering (a "Holder") who, at all relevant times,
for purposes of the INCOME TAX ACT (Canada) (the "Tax Act") and any applicable
tax treaty, is not, and is not deemed to be, resident in Canada, deals at arm's
with the Corporation, is not an insurer that carries on an insurance business in
Canada and elsewhere, holds the Notes as capital property, and does not use or
hold, and is not deemed to use or hold, the Notes in carrying on a business in
Canada. For the purposes of the Tax Act, related persons (as defined therein)
are deemed not to deal at arm's length and it is a question of fact whether
persons not related to each other deal at arm's length.
This summary is based on the current provisions of the Tax Act and the
regulations thereunder, the understanding of McCarthy Tetrault LLP of the
current assessing and administrative practices of the Canada Customs and Revenue
Agency (the "CCRA") and all specific proposals to amend the Tax Act and the
regulations thereunder publicly announced by the Minister of Finance (Canada)
before the date of this Prospectus Supplement. This summary does not otherwise
take into account or anticipate changes in the law or in the assessment and
administrative practices of the CCRA, whether by judicial, governmental or
legislative decision or action nor does it take into account tax legislation or
considerations of any province or territory of Canada or any jurisdiction other
than Canada. This summary is of a general nature only and is not intended to be,
and should not be interpreted as, legal or tax advice to any particular Holder
of Notes.
The payment of interest, premium, if any, and principal by the Corporation
to a Holder will not be subject to non-resident withholding tax under the
Tax Act. No other tax on income (including capital gains) will be payable by a
Holder under the Tax Act in respect of the holding, repayment, redemption or
disposition of the Notes, or the receipt of interest, premium, if any, or
principal thereon.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences of the acquisition, ownership and disposition of a Note by an
initial purchaser thereof who is a United States person (as defined below) who
purchases Notes at the issue price set forth on the cover of this Prospectus
Supplement and who will hold the Note as a "capital asset" within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code") (such
purchaser a "U.S. Holder"). This summary is intended for general information
only and does not address all potentially relevant U.S. federal income
tax matters.
This summary does not address the tax consequences to U.S. Holders subject
to special provisions of the Code including, without limitation, financial
institutions, tax-exempt organizations, insurance companies, regulated
investment companies, holders subject to the alternative minimum tax, dealers in
securities or foreign currencies, holders holding Notes as a hedge against
currency risks or as part of a straddle with other investments or as a part of a
"conversion transaction" within the meaning of Section 1258 of the Code, holders
with a "functional currency" other than the U.S. dollar and holders who are not
U.S. Holders. This summary also does not cover any state, local or foreign tax
consequences. This summary is based upon provisions of the Code, Treasury
regulations, rulings and judicial decisions in effect on the date hereof, all of
which are subject to change (possibly with retroactive effect) and differing
interpretations, so as to result in U.S. federal income tax consequences
different from those described herein.
S-22
As used herein, the term "United States person" means a beneficial owner of
a Note that is (i) an individual citizen or resident of the United States,
(ii) a corporation, or other entity treated as a corporation for U.S. federal
income tax purposes, created or organized under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to U.S. federal income tax without regard to its source, or (iv) a trust
if a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust or if the trust has
made a valid election to be treated as a United States person.
If a partnership holds Notes, the U.S. federal income tax treatment of a
partner in the partnership will depend on the status of the partner and the
activities of the partnership. Partners in partnerships holding Notes should
consult their tax advisors regarding the tax consequences, under the Code and
the laws of any other taxing jurisdiction, of the ownership of the Notes by such
partnerships.
PAYMENTS OF INTEREST
Interest on the Notes will generally be taxable to a U.S. Holder as ordinary
income at the time received or accrued, in accordance with such holder's method
of accounting for U.S. federal income tax purposes. Such interest will
constitute income from sources outside the United States and will generally be
treated as "passive" or "financial services" income (or, if Canadian withholding
tax at a rate of 5% or more were to be imposed, as "high withholding tax
interest" income) for purposes of computing the foreign tax credit allowable to
a U.S. Holder. In certain circumstances (see "Description of the Notes--Optional
Redemption") the Corporation may be obligated to make payments on the Notes in
excess of stated principal and interest. The Corporation intends to take the
position that the Notes should not be treated as contingent payment debt
instruments because of these additional payments. Assuming such position is
respected, a U.S. Holder would be required to include in income the amount of
any such additional payments at the time such payments are received or accrued
in accordance with such holder's method of accounting for U.S. federal income
tax purposes. If the Internal Revenue Service successfully challenged this
position, and the Notes were treated as contingent payment debt instruments,
U.S. Holders could be required to accrue interest income at a rate higher than
the stated interest rate on the note and to treat as ordinary income, rather
than capital gain, any gain recognized on a sale, exchange or redemption of
a Note.
As discussed above, the Corporation expects that payments of interest on the
Notes will not be subject to Canadian withholding tax. See "--Certain Canadian
Federal Income Tax Considerations". If, however, the interest payments become
subject to Canadian withholding taxes as the result of a change in Canadian tax
law, U.S. Holders will be treated for U.S. federal income tax purposes as having
actually received the amount of the taxes withheld as interest and as having
paid that amount to the Canadian taxing authorities. As a result, the amount of
interest income included in gross income by a U.S. Holder generally will be
greater than the amount of cash actually received by the U.S. Holder. A
U.S. Holder may be able, subject to applicable limitations, to claim a foreign
tax credit or take a deduction for Canadian withholding taxes imposed on
interest payments (including withholding taxes imposed on Additional Amounts).
SALE, EXCHANGE, RETIREMENT OR REDEMPTION OF NOTES
Upon the sale, exchange, retirement, redemption or other taxable disposition
of a Note, a U.S. Holder generally will recognize gain or loss equal to the
difference between the amount realized on such sale, exchange, retirement or
redemption (other than amounts received that are attributable to accrued
interest not previously included in income, which amounts will be taxable as
ordinary income) and such U.S. Holder's adjusted tax basis in the Note, which
generally is its cost. Such gain or loss generally will constitute capital gain
or loss and will be long-term capital gain or loss if the Note was held by such
U.S. Holder for more than one year. The deductibility of capital losses is
subject to limitations. In the case of a U.S. Holder who is a United States
resident as defined in Section 865 of the Code, any such gain or loss will be
treated as U.S. source, unless it is attributable to an office or other fixed
place of business outside the United States and certain other conditions are
met.
S-23
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply and backup
withholding of U.S. federal income tax, currently at a rate of 28%, may be
required in respect of principal and interest paid to certain U.S. Holders of
Notes who fail to supply accurate taxpayer identification numbers or fail to
establish that they are exempt recipients such as corporations or if the
Secretary of the Treasury determines that the holders have not reported all
interest and dividend income required to be shown on their U.S. federal income
tax returns. The amount of any backup withholding from a payment to a
U.S. Holder generally will be allowed as a credit against such U.S. Holder's
U.S. federal income tax liability and may entitle such U.S. Holder to a refund,
provided that the required information is furnished to the Internal Revenue
Service in a timely manner.
S-24
UNDERWRITING
The Corporation intends to offer the Notes through the underwriters for whom
Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (collectively, the "Representatives") are acting as representatives
of the underwriters named below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this Prospectus Supplement, each underwriter named below has
agreed to purchase, and the Corporation has agreed to sell to that underwriter,
the principal amount of Notes set forth opposite the underwriter's name.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Citigroup Global Markets Inc................................ US$105,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... 105,000,000
HSBC Securities (USA) Inc................................... 33,000,000
ABN AMRO Incorporated....................................... 21,000,000
CIBC World Markets Corp..................................... 12,000,000
RBC Dominion Securities Corporation......................... 12,000,000
Scotia Capital (USA) Inc.................................... 12,000,000
--------------
Total..................................................... US$300,000,000
==============
The underwriting agreement provides that the obligations of the underwriters
to purchase the Notes included in this offering are subject to approval of legal
matters by counsel and to other conditions. The underwriters are obligated to
purchase all the Notes if they purchase any of the Notes.
The underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus Supplement
and to dealers at the public offering price less a concession not to exceed
0.400% of the principal amount of the Notes. The underwriters may allow, and
dealers may reallow a concession not to exceed 0.250% of the principal amount of
the Notes on sales to other dealers. After the initial offering of the Notes to
the public, the Representatives may change the public offering price and
concessions.
The following table shows the underwriting commission that the Corporation
is to pay to the underwriters in connection with this offering (expressed as a
percentage of the principal amount of the Notes).
PAID BY TRANSALTA
-----------------
Per Note.................................................... 0.650%
In connection with this offering, the Representatives, on behalf of the
underwriters, may purchase and sell Notes in the open market. These transactions
may include over-allotment, syndicate covering transactions and stabilizing
transactions. Over-allotment involves syndicate sales of the Notes in excess of
the principal amount of the Notes to be purchased by the underwriters in this
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of the Notes made
for the purpose of preventing or retarding a decline in the market price of the
Notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
Representatives, in covering syndicate short positions or making stabilizing
purchases, repurchases Notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the Notes. They may also cause the price of the
Notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in
S-25
the over-the-counter market or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.
The Corporation estimates that its total expense for this offering will be
approximately US$500,000 (not including the underwriting commission).
The underwriters have performed investment banking and advisory services for
the Corporation from time to time for which the underwriters have received
customary fees and expenses. The underwriters may, from time to time, engage in
transactions with and perform services for the Corporation in the ordinary
course of their business.
The Corporation has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the U.S. Securities Act, or to
contribute to payments the underwriters may be required to make because of any
of those liabilities.
The Notes will not be qualified for sale under the securities laws of Canada
or any province or territory of Canada (other than the Province of Alberta) and
may not be, directly or indirectly, offered, sold or delivered in Canada or to
residents of Canada in contravention of the securities laws of any province or
territory of Canada. Each underwriter has agreed that it will not, directly or
indirectly, offer, sell or deliver any Notes purchased by it in Canada or to
residents of Canada.
Certain of the underwriters are affiliates of banks (the "Banks") which are
lenders to the Corporation and to which the Corporation is presently indebted.
As a consequence of their participation in this offering, the underwriters
affiliated with the Banks will be entitled to share in the underwriting
commission relating to the offering of the Notes. The decision to distribute the
Notes hereunder and the determination of the terms of this offering were made
through negotiations between the Corporation and the underwriters. Although the
Banks did not have any involvement in such decision or determination, a portion
of the net proceeds of this offering may be used to repay indebtedness of the
Corporation to the Banks and certain other lenders. See "Use of Proceeds". As a
result, one or more of the Banks may in the aggregate receive more than 10% of
the net proceeds from the offering of the Notes in the form of the repayment of
such indebtedness. Accordingly, the offering of the Notes is being made pursuant
to Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc.
LEGAL MATTERS
Certain legal matters relating to Canadian law in connection with the
offering of the Notes will be passed upon for the Corporation by McCarthy
Tetrault LLP, Calgary, Alberta, Canada, and certain legal matters relating to
United States law in connection with the offering of the Notes will be passed
upon for the Corporation by Latham & Watkins LLP, New York, New York. In
addition, certain legal matters relating to United States law in connection with
the offering of the Notes will be passed upon for the underwriters by
Shearman & Sterling LLP, Toronto, Ontario, Canada.
The partners and associates of McCarthy Tetrault LLP, as a group
beneficially own, directly or indirectly, less than 1% of the outstanding
securities of any class or series of the Corporation.
S-26
CONSENT OF ERNST & YOUNG LLP
We have read the short form base shelf prospectus of TransAlta Corporation
(the "Corporation") dated May 14, 2002 relating to the sale and issue of up to
US$1,000,000,000 of securities, including common shares, first preferred shares,
debt securities or warrants, as supplemented by a prospectus supplement dated
November 18, 2003 relating to the issue of US$300,000,000 aggregate principal
amount of 5.750% senior notes due 2013 (collectively, the "prospectus"). We have
complied with Canadian generally accepted standards for an auditor's involvement
with offering documents.
We consent to the incorporation by reference in the above-mentioned
prospectus of our report to the shareholders of the Corporation on the balance
sheets of the Corporation as at December 31, 2002 and 2001 and the statements of
earnings, retained earnings and cash flows for each of the years in the
three-year period ended December 31, 2002. Our report is dated February 1, 2003,
except for note 26 which is as of March 15, 2003.
We also consent to the use in the above-mentioned prospectus of our
compilation report to the directors of the Corporation on the pro forma
consolidated statements of earnings of the Corporation for the year ended
December 31, 2002 and nine months ended September 30, 2003. Our report is dated
November 15, 2003.
Calgary, Canada (Signed) ERNST & YOUNG LLP
November 18, 2003 Chartered Accountants
S-27
INDEX TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
PAGE
--------
Compilation Report on Pro Forma Consolidated Statements of
Earnings.................................................. F-2
Comments for United States Readers on Difference Between
Canadian and United States Reporting Standards............ F-3
Pro Forma Consolidated Statement of Earnings for the Year
Ended December 31, 2002................................... F-4
Pro Forma Consolidated Statement of Earnings for the Nine
Months Ended September 30, 2003........................... F-5
Notes to Pro Forma Consolidated Statements of Earnings...... F-6
F-1
COMPILATION REPORT ON PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
To the Directors of TransAlta Corporation
We have read the accompanying unaudited pro forma consolidated statements of
earnings of TransAlta Corporation (the "Company") for the year ended
December 31, 2002 and for the nine months ended September 30, 2003
(collectively, the "Consolidated Pro Forma Financial Statements") and have
performed the following procedures:
1. Compared the figures in the columns captioned "TransAlta Corporation" to the
audited consolidated financial statements of the Company for the year ended
December 31, 2002 and the unaudited consolidated financial statements of the
Company for the nine months ended September 30, 2003, respectively, and
found them to be in agreement.
2. Compared the figures in the columns captioned "CE Generation" to 50% of the
amounts presented in the audited financial statements of CE Generation, LLC
("CE Generation") for the year ended December 31, 2002 and 50% of the
amounts presented in the unaudited financial information of CE Generation
for the 29 days ended January 29, 2003 (after giving effect to translation
from United States to Canadian dollars), respectively, and found them to be
in agreement.
3. Made enquiries of certain officials of the Company who have responsibility
for financial and accounting matters about:
(a) the basis for determination of the pro forma adjustments; and
(b) whether the Consolidated Pro Forma Financial Statements comply as to
form in all material respects with the applicable requirements of the
securities legislation of all of the provinces and territories of Canada.
The officials:
(a) described to us the basis for determination of the pro forma
adjustments, and
(b) stated the Consolidated Pro Forma Financial Statements comply as to form
in all material respects with the applicable requirements of the
securities legislation of all of the provinces and territories of Canada.
4. Read the notes to the Consolidated Pro Forma Financial Statements, and found
them to be consistent with the basis described to us for determination of
the pro forma adjustments.
5. Recalculated the application of the pro forma adjustments to the aggregate
of the amounts in the columns captioned "TransAlta Corporation" and
"CE Generation" for the year ended December 31, 2002 and for the nine months
ended September 30, 2003 and found the amounts in the column captioned
"Pro forma Consolidated" to be arithmetically correct.
A pro forma financial statement is based on management assumptions and
adjustments which are inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the objective of which is
the expression of assurance with respect to management's assumptions, the
pro forma adjustments, and the application of the adjustments to the historical
financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the
Consolidated Pro Forma Financial Statements, and we therefore make no
representation about the sufficiency of the procedures for the purposes of a
reader of such statements.
Calgary, Canada (Signed) ERNST & YOUNG LLP
November 15, 2003 Chartered Accountants
F-2
COMMENTS FOR UNITED STATES READERS ON DIFFERENCE BETWEEN
CANADIAN AND UNITED STATES REPORTING STANDARDS
The above report, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. United States standards do not provide for the issuance of such a report
on the compilation of pro forma financial statements. To report in conformity
with United States standards on the reasonableness of the pro forma adjustments
and their application to the pro forma financial statements requires an
examination or review which would be substantially greater in scope than the
report as to compilation only that we have conducted. Consequently, under
United States standards we would be unable to issue such a compilation report on
the accompanying pro forma consolidated statements of earnings.
Calgary, Canada (Signed) ERNST & YOUNG LLP
November 15, 2003 Chartered Accountants
F-3
TRANSALTA CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 2002
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
TRANSALTA PRO FORMA CONSOLIDATED
CORPORATION CE GENERATION ADJUSTMENTS CANADIAN GAAP
----------- -------------- ----------- -------------
Revenues........................................ $1,723.9 $393.2 $ -- $2,117.1
Fuel and purchased power........................ 703.6 95.6 -- 799.2
-------- ------ ------ --------
GROSS MARGIN.................................... 1,020.3 297.6 -- 1,317.9
Operations, maintenance and administration...... 420.5 110.7 -- 531.2
Depreciation and amortization................... 219.0 64.4 33.6 2(c)(d) 317.0
Taxes, other than income taxes.................. 27.4 -- -- 27.4
Asset impairment and equipment cancellation
charges....................................... 152.5 -- -- 152.5
-------- ------ ------ --------
819.4 175.1 33.6 1,028.1
-------- ------ ------ --------
OPERATING INCOME................................ 200.9 122.5 (33.6) 289.8
Other income.................................... 0.1 7.3 -- 7.4
Foreign exchange gain........................... 1.2 -- -- 1.2
Net interest expense............................ (82.7) (60.2) (5.5) 2(b)(c) (148.4)
-------- ------ ------ --------
119.5 69.6 (39.1) 150.0
Prior period regulatory decision................ (3.3) -- -- (3.3)
-------- ------ ------ --------
116.2 69.6 (39.1) 146.7
Income taxes expense (recovery)................. 18.1 7.5 (15.1) 2(e) 10.5
Non-controlling interests....................... 20.1 16.3 -- 36.4
-------- ------ ------ --------
EARNINGS FROM CONTINUING OPERATIONS............. 78.0 45.8 (24.0) 99.8
Earnings from discontinued operations........... 12.8 -- 12.8
Gain on disposal of discontinued operations..... 120.0 -- -- 120.0
-------- ------ ------ --------
NET EARNINGS BEFORE PREFERRED SECURITIES
DISTRIBUTIONS AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE....................... 210.8 45.8 (24.0) 232.6
Preferred securities distributions, net of
tax........................................... 20.9 -- -- 20.9
-------- ------ ------ --------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS
BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.......................... 189.9 45.8 (24.0) 211.7
-------- ------ ------ --------
Cumulative effect of change in accounting
principle, net of tax......................... -- -- -- --
-------- ------ ------ --------
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS.................................. $ 189.9 $ 45.8 $(24.0) $ 211.7
======== ====== ======
Weighted average shares outstanding............. 169.6 186.9
Earnings per share.............................. $ 1.12 $ 1.13
Earnings per share from continuing operations... $ 0.34 $ 0.42
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS.
F-4
TRANSALTA CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA
TRANSALTA PRO FORMA CONSOLIDATED
CORPORATION CE GENERATION(1) ADJUSTMENTS CANADIAN GAAP
----------- ----------------- ----------- -------------
Revenues...................................... $1,787.2 $ 32.3 $ -- $1,819.5
Fuel and purchased power...................... 784.3 8.8 -- 793.1
-------- ------ ------ --------
GROSS MARGIN.................................. 1,002.9 23.5 -- 1,026.4
Operations, maintenance and administration.... 412.7 8.1 -- 420.8
Depreciation and amortization................. 246.6 5.6 2.6 2(c)(d) 254.8
Taxes, other than income taxes................ 17.5 -- -- 17.5
Gain on sale of Sheerness Generating
Station..................................... (191.5) -- -- (191.5)
Asset impairment charges...................... 84.7 -- -- 84.7
-------- ------ ------ --------
570.0 13.7 2.6 586.3
-------- ------ ------ --------
OPERATING INCOME.............................. 432.9 9.8 (2.6) 440.1
Other income.................................. (2.2) 0.2 -- (2.0)
Foreign exchange loss......................... (6.7) -- -- (6.7)
Net interest expense.......................... (132.2) (4.5) (0.5) 2(b)(c) (137.2)
-------- ------ ------ --------
291.8 5.5 (3.1) 294.2
Income taxes.................................. 64.5 1.3 (1.2) 2(e) 64.6
Non-controlling interests..................... 19.8 1.7 -- 21.5
-------- ------ ------ --------
NET EARNINGS BEFORE PREFERRED SECURITIES
DISTRIBUTIONS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.............. 207.5 2.5 (1.9) 208.1
Preferred securities distributions, net of
tax......................................... 17.1 -- -- 17.1
-------- ------ ------ --------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS
BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE........................ 190.4 2.5 (1.9) 191.0
-------- ------ ------ --------
Cumulative effect of change in accounting
principle, net of tax....................... -- -- -- --
-------- ------ ------ --------
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS................................ $ 190.4 $ 2.5 $ (1.9) $ 191.0
======== ====== ======
Weighted average shares outstanding........... 183.6 188.9
Earnings per share............................ $ 1.04 $ 1.01
-------------
(1) Represents results of operations of CE Generation for the period from
January 1, 2003 to January 29, 2003, the date of acquisition.
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS.
F-5
TRANSALTA CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
1. BASIS OF PRESENTATION
The accompanying pro forma consolidated statements of earnings (the
"Pro Forma Statements") of TransAlta Corporation ("TransAlta") have been
prepared by management of TransAlta for inclusion in the prospectus
supplement to the short form base shelf prospectus of TransAlta dated
May 14, 2002 relating to the issue of senior notes of TransAlta.
Accounting policies used in the preparation of the Pro Forma Statements are
in accordance with those disclosed in TransAlta's audited consolidated
financial statements for the year ended December 31, 2002.
The Pro Forma Statements have been prepared from, and should be read in
conjunction with, the audited consolidated financial statements of TransAlta
and CE Generation, LLC ("CE Generation") as at and for the year ended
December 31, 2002 and the unaudited interim consolidated financial
statements of TransAlta as at and for the nine month period ended
September 30, 2003.
TransAlta acquired CE Generation on January 29, 2003 (the "Acquisition").
TransAlta's results of operations for the nine months ended September 30,
2003 therefore include CE Generation's results of operations for the period
from January 29, 2003 to September 30, 2003. The Pro Forma Statements
include the results of operations as if the acquisition had occurred on
January 1, 2002.
THE PRO FORMA STATEMENTS ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF
OPERATIONS WHICH WOULD HAVE OCCURRED FOR THE YEAR ENDED DECEMBER 31, 2002
NOR THE PERIOD ENDED SEPTEMBER 30, 2003 HAD THE ACQUISITION OF
CE GENERATION BEEN EFFECTED ON JANUARY 1, 2002. IN ADDITION, THE PRO FORMA
STATEMENTS DO NOT REFLECT THE OPERATING ACTIVITIES OF TRANSALTA OR
CE GENERATION SUBSEQUENT TO SEPTEMBER 30, 2003 AND, THEREFORE, MAY NOT BE
REPRESENTATIVE OF THE OPERATING RESULTS OF FUTURE PERIODS.
The pro forma adjustments are based upon available information and contain
certain estimates and assumptions. Management believes the estimates and
assumptions provide a reasonable basis for presenting the significant
effects of the Acquisition, and that the pro forma adjustments give
appropriate effect to these estimates and assumptions and are properly
applied in the Pro Forma Statements. The purchase price allocation is based
on the final purchase price allocation. In the opinion of management, the
accompanying Pro Forma Statements include all material adjustments necessary
for fair presentation in accordance with Canadian generally accepted
accounting principles.
In preparing the Pro Forma Statements, no adjustments have been made to
recognize any operating efficiencies or general and administrative cost
savings that may be expected to occur as a result of the acquisition of
CE Generation.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The Pro Forma Statements give effect to the Acquisition as though it had
occurred at January 1, 2002.
The Pro Forma Statements give effect to the following assumptions and
adjustments:
(a) TransAlta proportionately consolidates its 50% interest in
CE Generation.
(b) TransAlta issued 17.25 million common shares for proceeds of
$265.0 million, net of after tax issue costs of approximately
$11 million. Proceeds from the offering and the option were used to
reduce short-term debt balances.
F-6
TRANSALTA CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (CONTINUED)
(c) The following table summarizes the assumptions made with respect to the
allocation of the aggregate purchase price based on the estimated fair
values of the net assets of CE Generation and the necessary adjustments
to their historical carrying cost.
PURCHASE
ALLOCATION ADJUSTMENT
---------- ----------
(IN MILLIONS)
NET ASSETS ACQUIRED:
Current assets.............................................. $ 111.4 $ --
Restricted cash............................................. 57.9 --
Other assets................................................ -- (7.9)
Note receivable from related party.......................... 90.0 (15.5)
Current liabilities......................................... (33.0) --
Property, plant and equipment............................... 1,025.1 86.1
Price risk management liabilities........................... (15.7) (15.7)
Future income tax liabilities............................... (216.0) (23.1)
Non-controlling interests................................... (44.6) --
Goodwill.................................................... 108.9 (96.4)
--------- -------
$ 1,084.0 $ (72.5)
--------- -------
PURCHASE PRICE:
Members' equity............................................. $ -- $ 384.5
Non-recourse debt assumed................................... (717.4) 54.6
Short-term debt issued...................................... (366.6) (366.6)
--------- -------
$(1,084.0) $ 72.5
========= =======
The above allocation includes the impact of the following:
- Included in property, plant and equipment is the recognition of the
fair value of power purchase agreements of $610.5 million. The amount
is amortized on a straight-line basis over the remaining terms of the
power purchase agreements.
- Property, plant and equipment includes $414.6 million representing the
fair value of the acquired property, plant and equipment.
- Reduction in the carrying amount of non-recourse long-term debt to
reflect the fair value based upon the fair market value of the debt.
This difference is amortized on a yield basis over the remaining term
of the non-recourse debt.
- Included in price risk management liabilities is an interest rate swap
liability in the amount of $15.7 million.
- Future income tax liabilities of $216.0 million account for the tax
effect of the difference between the fair values of the assets acquired
and their associated basis for income tax purposes. In accordance with
CICA recommendations, $107.1 million has been included in property,
plant and equipment, and the remaining balance of $108.9 million has
been recorded as goodwill.
(d) The provision for depreciation and amortization has been adjusted for
the amortization of differences between the fair values assigned to the
assets and liabilities of CE Generation and their carrying amounts as
described in (c) above.
F-7
TRANSALTA CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS (CONTINUED)
(e) The provision for income taxes has been adjusted to reflect the tax
effect of the pro forma adjustments.
3. PRO FORMA FINANCIAL STATEMENTS FOR CE GENERATION
The historical consolidated financial statements of CE Generation were
prepared under generally accepted accounting principles in the United States
("U.S. GAAP") and in U.S. dollars. For the purposes of these Pro Forma
Statements, the historical financial information of CE Generation has been
reconciled to Canadian GAAP, adjusted to reflect TransAlta's 50% interest in
CE Generation and converted to Canadian dollars, using the average exchange
rate for the year ended December 31, 2002 of $1.5706 and $1.5412 to US$1.00
for the period ended January 29, 2003.
The following schedule presents the conversion of TransAlta's interest in
CE Generation's financial information from U.S. GAAP and U.S. dollars to
Canadian GAAP and Canadian dollars.
CE GENERATION, LLC AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
HISTORICAL CANADIAN- HISTORICAL HISTORICAL
U.S. GAAP U.S. GAAP CANADIAN GAAP CANADIAN GAAP
(US$) ADJUSTMENTS (US$) ($)
---------- ----------- ------------- -------------
(IN MILLIONS OF DOLLARS)
Revenues................................... $250.4 $250.4 $393.2
Fuel and purchased power................... 60.9 60.9 95.6
------ ------ ------
GROSS MARGIN............................... 189.5 189.5 297.6
Operations, maintenance and
administration........................... 70.5 70.5 110.7
Depreciation and amortization.............. 41.0 41.0 64.4
------ ------ ------
111.5 111.5 175.1
OPERATING INCOME........................... 78.0 78.0 122.5
Other income............................... 4.7 4.7 7.3
------ ------ ------
Net interest expense....................... (38.3) (38.3) (60.2)
------ ------ ------
44.4 44.4 69.6
Income taxes............................... 4.8 4.8 7.5
Non-controlling interests.................. 10.4 10.4 16.3
------ ------ ------
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS............................... $ 29.2 $ 29.2 $ 45.8
====== ====== ======
F-8
TRANSALTA CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)
4. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Pro Forma Statements have been prepared in accordance with Canadian GAAP
which, in most respects, conform to U.S. GAAP. Significant differences
between Canadian GAAP and U.S. GAAP are as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2002 SEPTEMBER 30, 2003
----------------- ------------------
(IN MILLIONS)
EARNINGS
Earnings from continuing operations -- Canadian GAAP........ $ 99.8 $208.1
Derivative and hedging activities, net of tax............... (3.8) (3.4)
Start up costs, net of tax.................................. (4.5) (4.6)
Preferred securities distributions, net of tax.............. (20.9) (17.1)
Effect of debt extinguishment, net of tax................... 0.8 11.1
Amortization of pension transition adjustment............... (5.8) (4.3)
------ ------
Earnings from continuing operations -- U.S. GAAP............ 65.6 189.8
Earnings from discontinued operations -- Canadian and
U.S. GAAP................................................. 12.8 --
Net gain on disposal of discontinued operations -- Canadian
and U.S. GAAP............................................. 120.0 --
------ ------
Net earnings before change in accounting
principle -- U.S. GAAP.................................... 198.4 189.8
Cumulative effect of change in accounting principle, net of
tax....................................................... -- 52.5
------ ------
Net income -- U.S. GAAP..................................... 198.4 242.3
Foreign currency cumulative translation adjustment.......... (16.8) 16.4
Net gain (loss) on derivative instruments................... (59.1) (1.0)
Registered pension alternate minimum liability.............. (1.7) --
------ ------
Comprehensive income -- U.S. GAAP........................... $120.8 $257.7
====== ======
Earnings per share -- U.S. GAAP
Earnings from continuing operations....................... $ 0.35 $ 1.00
Earnings from discontinued operations..................... 0.07 --
Gain on disposal of discontinued operations............... 0.64 --
Cumulative effect of change in accounting principle....... -- 0.28
------ ------
Net earnings................................................ $ 1.06 $ 1.28
====== ======
Refer to note 27 to the consolidated 2002 annual financial statements of the
Corporation and the reconciliation to U.S. GAAP of the consolidated interim
financial statements of the Corporation for the three and nine month periods
ended September 30, 2003 and 2002, incorporated herein by reference, for a
description of the reconciling items.
Under Canadian GAAP, the fair value of CE Generation's interest rate swap
agreements are not reflected in the financial statements of
the Corporation.
For U.S. GAAP purposes, the fair value of the interest rate swap agreements
are recorded on the balance sheet as current derivative liabilities. The
offset is recorded in accumulated comprehensive income. Changes in the fair
value of the interest rate swap agreements for the year ended December 31,
2002 and the nine months ended September 31, 2003 are recorded as a change
to other comprehensive income.
F-9
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[TRANSALTA LOGO]
US$300,000,000
5.750% SENIOR NOTES DUE 2013
TRANSALTA CORPORATION
----------
PROSPECTUS SUPPLEMENT
NOVEMBER 18, 2003
------------------------
CITIGROUP
MERRILL LYNCH & CO.
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