## MANAGEMENT ’ S DISCUSSION AND ANALYSIS 

Management’s Discussion and Analysis should be read in conjunction with the audited Consolidated Financial Statements of TransCanada PipeLines Limited (TransCanada or the company) and the notes thereto for the year ended December 31, 2001. 

## CONSOLIDATED FINANCIAL REVIEW 

## HIGHLIGHTS 

Earnings Increase: TransCanada’s net income applicable to common shares from continuing operations (net earnings), before unusual items, increased $78 million or 13 per cent to $670 million or $1.41 per share in 2001 compared to $592 million or $1.25 per share in 2000. There were no unusual items in 2001. In 2000, unusual items included $30 million gains from asset sales from continuing operations and $28 million of positive adjustments related to tax law and income tax rate changes. 

Cash Flow Increase: Funds generated from continuing operations increased $231 million or 18 per cent to $1.514 billion in 2001 compared to 2000. 

Balance Sheet Strengthened: In 2001, TransCanada continued to strengthen its balance sheet through the realization of proceeds of $1.17 billion from the sale of non-core assets and funds generated from operations. The company reduced debt and redeemed preferred securities by approximately $1.1 billion. 

Dividend Increase: On January 29, 2002, the Board of Directors of TransCanada raised the quarterly dividend on the com- pany’s outstanding common shares 11 per cent from $0.225 per share to $0.25 per share for the quarter ended March 31, 2002. 

Divestitures Substantially Complete: At December 31, 2001, TransCanada had sold substantially all of its non-core businesses. 

TransCanada’s strategic direction to capture North American energy growth opportunities by focusing on its core businesses of Transmission and Power and to divest assets of non-core businesses has resulted in increased profitability and strengthened the company’s balance sheet at December 31, 2001. In 2001, proceeds from divestitures and strong internally generated cash flow allowed TransCanada to fund debt maturities of $793 million, redeem preferred securities of $318 million and invest approximately $1.0 billion in its operations. The increases in earnings and cash flow combined with the solid balance sheet provides TransCanada the financial flexibility to continue to grow its core businesses. 

