Review of Consolidated Results

Foreign Exchange Gains and Losses

As required by GAAP, U.S. denominated monetary balances are revalued at the foreign exchange rate at each period end, and the translation gains or losses are recorded in the current period’s net income.

During 2006 and 2005, we had US$944 million of U.S. denominated long-term debt. Foreign exchange gains in each of those years are mainly the result of revaluations of this U.S. dollar denominated debt caused by fluctuations in U.S. and Canadian exchange rates. Unrealized foreign exchange gains on long-term debt of $1 million and $36 million were recorded in 2006 and 2005, respectively, as the Canadian dollar strengthened from the prior year-end in each of these years. We also have U.S. denominated cash, accounts receivable, and interest payable accounts that are revalued at the end of each period. Transactions on these accounts give rise to realized foreign exchange gains and losses, which comprise the remaining balance of the foreign exchange gains on the income statement.