Just Energy Income Fund (TSX:JE.UN) -
Highlights for the three months ended September 30, 2009 included:
- Sales (seasonally adjusted) of $562.1 million, up 46% year over year.
- Gross margin (seasonally adjusted) of $107.5 million, up 74% year over year
(43% per unit).
- Distributable cash after gross margin replacement of $52.3 million ($0.39 per
unit), 50% year over year (26% per unit).
- Distributable cash after all marketing expenses of $41.3 million ($0.31 per
unit), up 19% per unit.
- Net income of $110.7 million ($0.82 per unit) which includes the impact of the
mark-to-market gain on financial instruments.
- Addition of 430,000 long term customers through the Universal Energy Group
acquisition.
- Gross customer additions through marketing of 140,000, the highest quarter in
the history of Just Energy.
- Net customer additions of 36,000 up from 9,000 marketed additions in Q2 F2009
and 11,000 in Q1 F2010.
- Continued strong GEO product sales with penetration of 41% of new customers
taking an average of 78% GEO supply.
- Expect to declare a Special Distribution of $0.10 to $0.15 on December 31.
Just Energy Second Quarter Fiscal 2010 Results
Just Energy Income Fund announced its results for the three months and six
months ended September 30, 2009.
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Three Months ended September 30, F2010 Per Unit F2009 Per Unit
($ millions except per Unit)
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Sales(1) $562.1 $4.19 $386.2 $3.47
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Gross Margin(1) 107.5 $0.80 61.8 $0.56
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Distributable Cash(1)
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- After Margin Replacement 52.3 $0.39 34.8 $0.31
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- After all Marketing Expense 41.3 $0.31 28.4 $0.26
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Net Income (Loss) 110.7 $0.82 (924.0) $(8.31)
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Distributions 42.8 $0.32 34.6 $0.31
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(1) Seasonally adjusted
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Six Months ended September 30, F2010 Per Unit F2009 Per Unit
($ millions except per Unit)
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Sales(1) $994.7 $8.04 $788.0 $7.12
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Gross Margin(1) 182.3 1.47 121.5 $1.10
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Distributable Cash(1)
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- After Margin Replacement 94.5 $0.76 65.8 $0.59
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- After all Marketing Expense 77.4 $0.63 58.7 $0.53
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Net Income (Loss) 213.3 $1.72 (889.8) $(8.04)
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Distributions 77.9 $0.63 68.3 $0.62
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(1) Seasonally adjusted
Just Energy has completed a strong quarter of growth. A highlight was the smooth
merger of our business with that of our most recent acquisition, Universal
Energy Group. The second quarter results are the first that consolidate the
Universal business and they demonstrate the accretion inherent in that
transaction.
Operating measures showed strong results with growth in all key financial
measures. There were two reasons for this, accretion from the acquisition of
Universal Energy Group ("Universal") and very successful marketing by our team
of independent sales contractors.
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Operating Measure Q2 F2010 Growth Q2 F2010 Growth
Year over Year per Unit
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Sales(1) 46% 21%
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Gross Margin(1) 74% 43%
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Distributable Cash after
Margin Replacement 50% 26%
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Distributable Cash after
Marketing 46% 19%
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Customers 29% 19%
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(1)Seasonally adjusted
Just Energy acquired Universal and its 430,000 long term customers by issuing
16% of the Fund's total units to Universal shareholders. Accordingly, growth of
more than 16% year over year would be accretive. The table above shows Just
Energy's growth which for the second quarter, exceeds 16%. The first column
shows nominal year over year growth and the second shows growth per unit which
better shows actual accretion. Overall, our growth is higher than 16% in every
category.
To date, the merger of Universal operations is proceeding smoothly. The
consolidation of administrative functions and elimination of overlap is well
underway and synergies will be achieved of $10 million in general and
administrative cost savings. The combination of our two sales forces is also
ahead of expectations with few key sales contractors lost in the transition.
Early results from the merged National Home Services water heater division have
also been strong.
The tables shown earlier detail the operating results of the Fund for the three
and six months ended September 30, 2009. Margin per customer remained strong
aided by newly added customer margins of $204 per year, reflecting the very
strong take-up of the Green Energy Option product.
The numbers include operating losses at Terra Grain Fuels, the ethanol plant
acquired as part of the Universal acquisition, and the start up of National Home
Services, our water heater sales and rental business. Both these businesses are
expected to be self financing by fiscal year end which should enhance our growth
in future periods.
Distributable cash has grown less than gross margin due to the onset of
significant cash tax on the Fund's growing US operations and Universal. Just
Energy is actively looking for opportunities to minimize this impact.
To view the "Customers Added Through Marketing" graph, please visit the
following link: http://media3.marketwire.com/docs/je1106.pdf
The Universal acquisition was not the only driver of growth in the second
quarter. Management's efforts to reenergize our salesforce over the past year
continue to be successful. Gross customer additions of 140,000 achieved by our
sales forces was the strongest quarter in the history of Just Energy.
Net customer additions through marketing for the quarter were 36,000, again the
highest total of any recent quarter. While this was up more than 200% versus the
comparable quarter of fiscal 2009 and Q1 of fiscal 2010, it was adversely
affected by continued high attrition in foreclosure impacted US natural gas
markets. There was a small improvement in this attrition for the quarter moving
from an annualized 31% to an annualized 28% and management is hopeful that this
trend will continue. Attrition in our other markets was in line with company
targets.
Sales of Green Energy Option ("GEO") electricity and natural gas products
continue to be a major success. Year to date, 41% of our new customers have
elected green supply taking, on average, 78% of their consumption through GEO.
In regards to the second quarter, CEO Ken Hartwick noted: "For the second
consecutive quarter, Just Energy has delivered substantial growth in the face of
a continued deep recession. This is the seventh consecutive year of double digit
growth for our company."
Mr. Hartwick added: "Recently acquired Universal Energy has shown its potential
as a contributor to our future growth. Merging the two operations has been a
tremendous challenge to our team and I want to congratulate them on the success
of their efforts to date."
"Our other main success was marketing. We signed more customers in the second
quarter than any quarter in the history of the company. Combining this with
higher margins on these new customers driven by very strong take up of our GEO
product, it is difficult not to be optimistic about the future of Just Energy."
Chair Rebecca MacDonald added: "We have provided guidance that per unit growth
in gross margin and distributable cash will be 5% to 10% in fiscal 2010. We are
maintaining this forecast at this point in time, despite the fact that the first
six months have seen growth of 34% and 29% respectively. The Universal
acquisition brought with it 145,000 customers in markets where we will not
operate or with short term contracts which we do not expect to renew. These
customers generated margin of approximately $9.5 million in the second quarter
which will not continue in future periods. Further, there will be more merger
realization costs for the remainder of the year. Universal is an accretive
transaction but the true accretion will not be seen until fiscal 2011."
"The growth we have noted in the second quarter is another step toward our goal
of growing our cash flow by the 2011 trust tax conversion date with the
expectation that a converted Just Energy would be able to pay $1.24 in dividends
replacing the more heavily taxed $1.24 distribution. This cannot be assured but
we continue to be optimistic that it is a realistic expectation. It appears
clear that we will need another special distribution to offset undistributed
profits for calendar 2009. We expect that this distribution will be in the range
of $0.10 to $0.15 per unit and will be paid early next year."
The Fund
Just Energy's business involves the sale of natural gas and/or electricity to
residential and commercial customers under long-term fixed-price and
price-protected contracts. By fixing the price of natural gas or electricity
under its fixed-price or price-protected program contracts for a period of up to
five years, Just Energy's customers offset their exposure to changes in the
price of these essential commodities. Just Energy, which commenced business in
1997, derives its margin or gross profit from the difference between the fixed
price at which it is able to sell the commodities to its customers and the fixed
price at which it purchases the associated volumes from its suppliers.
The Fund also offers "green" products through its Green Energy Option (GEO)
program. The electricity GEO product offers the customer the option of having
all or a portion of his or her electricity sourced from renewable green sources
such as wind, run of the river hydro or biomass. The gas GEO product offers
carbon offset credits which will allow the customer to reduce or eliminate the
carbon footprint for their home or business. Management believes that these
products will not only add to profits, but also increase sales receptivity and
improve renewal rates.
In addition, through National Home Services, the Fund sells and rents high
efficiency and tankless water heaters and produces and sells wheat-based ethanol
through its subsidiary Terra Grain Fuels.
Non GAAP Measures
Adjusted net income (loss) represents the net income (loss) excluding the impact
of mark-to-market gains (losses) arising from Canadian GAAP requirements for
derivative financial instruments on our future supply positions. Just Energy
ensures that customer margins are protected by entering into fixed-price supply
contracts. In accordance with GAAP, the customer margins are not
marked-to-market but there is a requirement to mark-to-market the future supply
contracts. This creates unrealized gains (losses) depending upon current supply
pricing volatility. Management believes that these short-term mark-to-market
non-cash gains (losses) do not impact the long-term financial performance of the
Fund.
Management also believes the best basis for analyzing both the Fund's operating
results and the amount available for distribution is to focus on amounts
actually received ("seasonally adjusted"). Seasonally adjusted analysis applies
solely to the Canadian gas market (excluding Alberta and B.C.). Just Energy
receives payment from the LDCs upon delivery of the commodity not when the
customer actually consumes the gas. Seasonally adjusted analysis eliminates
seasonal commodity consumption variances and recognizes amount available for
distribution based on cash received from the LDCs.
Forward-Looking Statements
The Fund's press releases may contain forward-looking statements including
statements pertaining to customer revenues and margins, customer additions and
renewals, customer attrition, customer consumption levels, distributable cash
and treatment under governmental regulatory regimes. These statements are based
on current expectations that involve a number of risks and uncertainties which
could cause actual results to differ from those anticipated. These risks
include, but are not limited to, levels of customer natural gas and electricity
consumption, rates of customer additions and renewals, rates of customer
attrition, fluctuations in natural gas and electricity prices, changes in
regulatory regimes and decisions by regulatory authorities, competition and
dependence on certain suppliers. Additional information on these and other
factors that could affect the Fund's operations, financial results or
distribution levels are included in the Fund's annual information form and other
reports on file with Canadian securities regulatory authorities which can be
accessed through the SEDAR website at www.sedar.com or through the Fund's
website at www.justenergy.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - November 5, 2009
Overview
The following discussion and analysis is a review of the financial condition and
results of operations of Just Energy Income Fund ("Just Energy" or the "Fund")
for the three and six months ended September 30, 2009 and has been prepared with
all information available up to and including November 5, 2009. This analysis
should be read in conjunction with the unaudited interim consolidated financial
statements for the three and six months ended September 30, 2009, as well as the
audited consolidated financial statements and related MD&A for the year ended
March 31, 2009, contained in the Fund's 2009 Annual Report. The financial
information contained herein has been prepared in accordance with Canadian
Generally Accepted Accounting Principles ("GAAP"). All dollar amounts are
expressed in Canadian dollars. Quarterly reports, the annual report and
supplementary information can be found under "reports and filings" on our
corporate website at www.justenergy.com. Additional information can be found on
SEDAR at www.sedar.com.
Just Energy is an open-ended, limited-purpose trust established under the laws
of the Province of Ontario to hold securities and to distribute the income of
its directly or indirectly owned operating subsidiaries and affiliates: Just
Energy Ontario L.P., Just Energy Manitoba L.P., Just Energy Quebec L.P., Just
Energy (B.C.) Limited Partnership, Just Energy Alberta L.P. ("JE Alberta"),
Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp. ("JEIC"), Just
Energy New York Corp. ("JENYC"), Just Energy Indiana Corp., Just Energy Texas
L.P., Just Energy Exchange Corp. ("JEEC"), Universal Energy Corp., Universal Gas
and Electric Corp., Commerce Energy, Inc. ("Commerce"), National Energy Corp.
("NEC") operating under the trade name of National Home Services ("NHS"), Newten
Home Comfort L.P. ("NHCLP"), and Terra Grain Fuels Inc. ("TGF"), collectively,
the "Just Energy Group".
Just Energy's business involves the sale of natural gas and/or electricity to
residential and commercial customers under long-term fixed-price and
price-protected contracts. By fixing the price of natural gas or electricity
under its fixed-price or price-protected program contracts for a period of up to
five years, Just Energy's customers offset their exposure to changes in the
price of these essential commodities. Just Energy, which commenced business in
1997, derives its margin or gross profit from the difference between the fixed
price at which it is able to sell the commodities to its customers and the fixed
price at which it purchases the associated volumes from its suppliers. In
addition, through NEC and NHCLP, the Fund sells and rents high efficiency and
tankless water heaters. TGF, an ethanol producer, operates an ethanol facility
in Belle Plaine, Saskatchewan.
The Fund also offers "green" products through its Green Energy Option ("GEO")
program. The electricity GEO product offers the customer the option of having
all or a portion of their electricity sourced from renewable green sources such
as wind, run of the river hydro or biomass. The gas GEO product offers carbon
offset credits which will allow the customer to reduce or eliminate the carbon
footprint for their home or business. Management believes that these new
products will not only add to profits, but also increase sales receptivity and
improve renewal rates.
Forward-looking information
This MD&A contains certain forward-looking information statements pertaining to
customer additions and renewals, customer consumption levels, distributable cash
and treatment under governmental regulatory regimes. These statements are based
on current expectations that involve a number of risks and uncertainties which
could cause actual results to differ from those anticipated. These risks
include, but are not limited to, levels of customer natural gas and electricity
consumption, rates of customer additions and renewals, fluctuations in natural
gas and electricity prices, changes in regulatory regimes and decisions by
regulatory authorities, competition and dependence on certain suppliers.
Additional information on these and other factors that could affect the Fund's
operations, financial results or distribution levels are included in the Fund's
annual information form and other reports on file with Canadian security
regulatory authorities which can be accessed on our corporate website at
www.justenergy.com or through the SEDAR website at www.sedar.com.
Policy Change
Effective July 1, 2008, the Fund changed its practice from treating future
supply hedging positions as hedges for accounting purposes. Accordingly, all
mark to market adjustments for supply contracts are reflected in the
consolidated statements of operations. In the view of management, the previous
practice offered no greater clarity for the financial statement user and was
very labour intensive and costly to produce. The new accounting practice
consolidates all the unrealized, non-cash changes in value of future supply into
a single line on the consolidated statements of operations. The Fund's MD&A
reports the adjusted net income excluding all non-cash mark to market
adjustments for all supply-related derivative instruments and the related tax
effect. The expected future net margin is set based on the derivative
instruments and is effectively unchanged with commodity market movements. Given
commodity volatility and the size of the Fund, the annual swings in mark to
market on these positions can be in the hundreds of millions of dollars.
Just Energy believes that the result of this practice change and the associated
MD&A disclosure is that actual period operating results will be more transparent
for investors.
Key terms
"Attrition" means customers whose contracts were terminated primarily due to
relocation or death, or cancelled by Just Energy due to delinquent accounts.
"Delivered volume" represents the actual volume of gas and electricity provided
on behalf of customers to the LDCs for the period.
"Failed to renew" means customers who did not renew expiring contracts at the
end of their term.
"Gross margin per RCE" represents the gross margin realized on Just Energy's
customer base, including both low margin customers acquired through various
acquisitions and gains/losses from sales of excess commodity supply.
"LDC" means a local distribution company, the natural gas or electricity
distributor for a regulatory or governmentally defined geographic area.
"RCE" means residential customer equivalent or the "customer", which is a unit
of measurement equivalent to a customer using, as regards natural gas, 2,815 m3
(or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis
and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual
basis, which represents the approximate amount of gas and electricity,
respectively, used by a typical household in Ontario.
Non-GAAP financial measures
All non-GAAP financial measures do not have standardized meanings prescribed by
GAAP and are therefore unlikely to be comparable to similar measures presented
by other issuers.
Seasonally adjusted sales and seasonally adjusted gross margin
Management believes the best basis for analyzing both the Fund's results and the
amount available for distribution is to focus on amounts actually received
("seasonally adjusted") because this figure provides the margin earned on actual
customer consumption. Seasonally adjusted sales and gross margin are not defined
performance measures under Canadian GAAP. Seasonally adjusted analysis applies
solely to the Canadian gas market and specifically to Ontario, Quebec and
Manitoba.
No seasonal adjustment is required for electricity as the supply is balanced
daily. In the other gas markets, payments for supply by the LDCs are aligned
with customer consumption.
Cash Available for Distribution
"Distributable cash after marketing expense" refers to the net cash available
for distribution to Unitholders. Seasonally adjusted gross margin is the
principal contributor to cash available for distribution. Distributable cash is
calculated by the Fund as seasonally adjusted gross margin, adjusted for cash
items including general and administrative expenses, marketing expenses, bad
debt expense, interest expense, corporate taxes, capital taxes and other items.
This non-GAAP measure may not be comparable to other income funds.
"Distributable cash after gross margin replacement" represents the net cash
available for distribution to Unitholders as defined above. However, only the
marketing expenses associated with maintaining the Fund's gross margin at a
stable level equal to that in place at the beginning of the period are deducted.
Management believes that this is more representative of the ongoing operating
performance of the Fund because it includes all expenditures necessary for the
retention of existing customers and the addition of new margin to replace those
of customers that have not been renewed. This non-GAAP measure may not be
comparable to other income funds.
For reconciliation to cash from operating activities please refer to the "Cash
Available for Distribution and distributions" analysis on page 6.
Adjusted net income
"Adjusted net income" represents the net income (loss) excluding the impact of
mark to market gains (losses) arising from derivative financial instruments on
our future supply. Just Energy ensures that customer margins are protected by
entering into fixed-price supply contracts. In accordance with GAAP, the
associated customer contracts are not marked to market, but there is a
requirement to mark to market the future supply contracts. This creates
unrealized gains (losses) that are not offset by the related customer gains
(losses).
Management believes that these short-term mark to market non-cash gains (losses)
do not impact the long-term financial performance of the Fund. The related
future supply has been sold under long-term customer contracts at fixed prices;
therefore the annual movement in the theoretical value of this future supply is
not an appropriate measure of current or future operating performance.
Standardized Distributable Cash
Standardized Distributable Cash is a non-GAAP measure developed to provide a
consistent and comparable measurement of distributable cash across entities.
"Standardized Distributable Cash" is defined as cash flows from operating
activities, as reported in accordance with GAAP, less an adjustment for total
capital expenditures as reported in accordance with GAAP and restrictions on
distributions arising from compliance with financial covenants restrictive at
the date of the calculation of Standardized Distributable Cash.
For reconciliation to cash from operating activities please refer to the
"Standardized Distributable Cash and Cash Available for Distribution" analysis
on page 10.
Financial highlights
For the three months ended September 30
(thousands of dollars except where indicated and per unit amounts)
Fiscal 2010 Per Fiscal 2009
$ Per Unit $ Per
unit(5) Change unit(5)
(5)
Sales 434,659 $3.24 23% 294,122 $2.64
Net income (loss)(1) 110,690 $0.82 NMF(6) (923,990) $(8.31)
Adjusted net income (loss)(2) (9,682) $(0.07) (217)% 6,872 $0.06
Gross margin (seasonally
adjusted)(3) 107,519 $0.80 43% 61,793 $0.56
General and administrative 25,634 $0.19 58% 13,236 $0.12
Distributable cash
- After gross margin replacement 52,303 $0.39 26% 34,755 $0.31
- After marketing expense 41,345 $0.31 19% 28,394 $0.26
Distributions 42,839 $0.32 3% 34,609 $0.31
Distributable cash payout
ratio(4)
- After gross margin replacement 82% 100%
- After marketing expense 104% 122%
For the six months ended September 30
(thousands of dollars except where indicated and per unit amounts)
Fiscal 2010 Per Fiscal 2009
$ Per Unit $ Per
unit(5) Change unit(5)
(5)
Sales 833,669 $6.74 11% 672,032 $6.07
Net income (loss)(1) 213,317 $1.72 NMF (889,758) $(8.04)
Adjusted net income (loss)(2) 14,870 $0.12 (61)% 34,503 $0.31
Gross margin (seasonally
adjusted)(3) 182,288 $1.47 34% 121,496 $1.10
General and administrative 41,251 $0.33 38% 26,683 $0.24
Distributable cash
- After gross margin replacement 94,522 $0.76 29% 65,801 $0.59
- After marketing expense 77,432 $0.63 19% 58,676 $0.53
Distributions 77,853 $0.63 2% 68,290 $0.62
Distributable cash payout ratio(4)
- After gross margin replacement 82% 104%
- After marketing expense 101% 116%
(1)Net income (loss) includes the impact of unrealized gains (losses) which
represent the mark to market of future commodity supply acquired to cover
future customer demand. The supply has been sold to customers at fixed
prices minimizing any impact of quarter end mark to market gains and
losses.
(2)Adjusted net income (loss) is a more appropriate measure of the
performance of the Fund since the underlying supply is held to its
maturity, and therefore, mark to market gains and losses do not impact
the long-term financial performance of the Fund.
(3)See discussion of non-GAAP measures on page 2.
(4)Management targets an annual payout ratio after all marketing expenses,
excluding any Special Distribution, of less than 100%.
(5)The per unit calculation is done on a fully diluted basis. Year over year
change is calculated on a per unit basis.
(6)Not a meaningful number.
Reconciliation For the three For the three For the six For the six
of net income months ended months ended months ended months ended
to adjusted net September 30, September 30, September 30, September 30,
income 2009 2008 2009 2008
---- ---- ---- ----
Net income (loss) $110,690 $(923,990) $213,317 $(889,758)
Change in fair
value of
derivative
instruments (138,515) 1,022,628 (226,395) 1,011,514
Tax impact on
change in fair
value of
derivative
instruments 18,143 (91,766) 27,948 (87,252)
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Adjusted net
Income (loss) $(9,682) $6,872 $14,870 $34,504
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Acquisition of Universal Energy Group
On July 1, 2009, Just Energy completed the acquisition of all of the outstanding
common shares of Universal Energy Group Ltd. ("UEG") pursuant to a plan of
arrangement (the "Arrangement"). Under the Arrangement, UEG shareholders
received 0.58 of an exchangeable share ("Exchangeable Share") of JEEC, a
subsidiary of Just Energy, for each UEG common share held. In aggregate,
21,271,804 Exchangeable Shares were issued pursuant to the Arrangement. Each
Exchangeable Share is exchangeable for a Trust Unit on a one-for-one basis at
any time at the option of the holder and entitles the holder to a monthly
dividend equal to 66 2/3% of the monthly distribution paid by Just Energy on a
Trust Unit. JEEC also assumed all the covenants and obligations of UEG in
respect of the UEG's outstanding 6% convertible unsecured subordinated
debentures (the "Debentures"). On conversion of the Debentures, holders will be
entitled to receive 0.58 of an Exchangeable Share in lieu of each UEG common
share that the holder was previously entitled to receive on conversion.
The acquisition of UEG was accounted for using the purchase method of
accounting. The Fund allocated the purchase price to the identified assets and
liabilities acquired based on their fair values at the time of acquisition as
follows:
CAD$
Net assets acquired:
Working capital (including cash of $10,319) $ 75,391
Electricity contracts and customer relationships 230,963
Gas contracts and customer relationships 247,189
Water heater contracts and customer relationships 22,700
Other intangible assets 2,721
Goodwill 59,294
Property, plant and equipment 171,918
Future tax liabilities (51,971)
Other liabilities - current (164,148)
Other liabilities - long-term (140,857)
Long-term debt (180,440)
Non-controlling interest (22,697)
--------
$ 250,063
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Consideration:
Transaction costs $ 10,117
Exchangeable shares 239,946
---------
$ 250,063
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All contract and intangible assets are amortized over the average remaining life
at the time of acquisition. The gas and electricity contracts acquired are
amortized over periods ranging from 8 to 57 months. The water heater contracts
are amortized over 174 months and the intangible assets are amortized over 6
months. The purchase price allocation is considered preliminary and as a result,
it may be adjusted during the year.
Operations
Gas
In each of the markets that Just Energy operates, it is required to deliver gas
to the LDCs for its customers throughout the year. Gas customers are charged a
fixed price for the full term of their contract. For our residential customers,
Just Energy purchases gas supply in advance of marketing. The LDC provides
historical customer usage to enable Just Energy to purchase an approximation of
matched supply. Furthermore, in many markets, Just Energy mitigates exposure to
customer usage by purchasing options that cover potential differences in
customer consumption due to weather variations. The cost of this strategy is
incorporated in the price to the customer. To the extent that balancing
requirements are outside the options purchased, Just Energy bears the financial
responsibility for fluctuations in customer usage. Volume variances may result
in either excess or short supply. Excess supply is sold in the spot market
resulting in either a gain or loss compared to the weighted average cost of
supply. In the case of greater than expected gas consumption, Just Energy must
purchase the short supply at the market price, which may reduce or increase the
customer gross margin typically realized. For our commercial customers, Just
Energy purchases gas supply that matches the forecasted new customer volume
required.
Ontario, Quebec, British Columbia and Michigan
In Ontario, Quebec, British Columbia and Michigan, the volumes delivered for a
customer typically remain constant throughout the year. Just Energy does not
recognize sales until the customer actually consumes the gas. During the winter
months, gas is consumed at a rate which is greater than delivery and in the
summer months, deliveries to LDCs exceed customer consumption. Just Energy
receives cash from the LDCs as the gas is delivered, which is even throughout
the year.
Manitoba and Alberta
In Manitoba and Alberta, the volume of gas delivered is based on the estimated
consumption for each month. Therefore, the amount of gas delivered in winter
months is higher than in the spring and summer months. Consequently, cash
received from customers and LDCs will be higher in the winter months.
Alberta's regulatory environment is different from the other Canadian provincial
markets. In Alberta, Just Energy is required to invoice and receive payments
directly from customers. AESLP entered into an agreement with EPCOR Utilities
Inc. ("EPCOR") for the provision of billing and collection services in Alberta
which was amended and extended in December 2008. Pursuant to the amended
agreement, EPCOR will continue to provide billing and collection services for
AESLP until November 30, 2011 with respect to AESLP's existing customers. In
September 2009, Just Energy, through JE Alberta, began billing and collection
services directly for all new customers signed as well as renewing customers.
New York, Illinois, Indiana, Ohio and California
In New York, Illinois, Indiana, Ohio and California, the volume of gas delivered
is based on the estimated consumption and storage requirements for each month.
Therefore the amount of gas delivered in winter months is higher than in the
spring and summer months. Consequently, cash flow received from these States' is
greatest during the third and fourth (winter) quarters, as normally, cash is
received from the LDCs in the same period as customer consumption.
Electricity
Ontario, Alberta, New York, Texas, Pennsylvania, New Jersey, Maryland, Michigan
and California
Just Energy does not bear the risk for variations in customer consumption in any
of the electricity markets in which it operates other than for certain customers
in Texas and the customers acquired in the Universal acquisition (customers
located in Pennsylvania, New Jersey, Maryland, Michigan and California). In
Ontario and New York, Just Energy provides customers with price protection for
the majority of their electricity requirements. The customers experience either
a small balancing charge or credit on each bill due to fluctuations in prices
applicable to their volume requirements not covered by a fixed price. In
Alberta, Just Energy offers a load-following product for which it has acquired
load-following supply and therefore does not have exposure to variances in
customer consumption. To the extent possible given the competitive nature and
market knowledge of customers, future offerings for Texas customers will be a
load balanced product and Just Energy will not bear the risk for variations in
customer consumption.
Cash flow from electricity operations is greatest during the second and fourth
quarters (summer and winter), as electricity consumption is typically highest
during these periods.
Water heaters
NHCLP commenced providing Ontario residential customers with a long term water
heater rental program in the summer of 2008, offering tankless water heaters,
high efficiency conventional and power vented tanks. On July 2, 2009, NEC, a
wholly owned home services subsidiary of UEG, acquired Newten Home Comfort Inc.,
an arm's length third party that held a 20% interest of NHCLP. Accordingly,
NHCLP became a wholly owned subsidiary of Just Energy. NEC, which began
operations in April 2008, operates under the trade name of National Home
Services ("NHS"). On September 30, 2009, NEC acquired substantially all of the
assets of NHCLP, including all of NHCLP's customer water heater rental
agreements. See page 18 for additional information on NEC.
Ethanol division
Just Energy, through JEEC also owns a 66.7% interest in TGF, a 150-million-litre
capacity wheat-based ethanol plant located in Belle Plaine, Saskatchewan. The
plant produces ethanol and high protein distillers dried grain ("DDG") from the
wheat supply. See page 19 for additional information on TGF.
Cash Available for Distribution and distributions
For the three months ended September
(thousands of dollars except per unit amounts)
Fiscal 2010 Fiscal 2009
---------- -----------
Per unit Per unit
-------- --------
Reconciliation to statements of cash
flow
Cash inflow from operations $24,708 $17,743
Add:
Increase in non-cash working capital 16,098 10,062
Tax impact on distributions to Class A
preference shareholders 539 589
--------- ---------
Cash available for distribution $41,345 $28,394
--------- ---------
--------- ---------
Cash available for distribution
Gross margin per financial statements $81,496 $0.61 $44,126 $0.40
Adjustments required to reflect net
cash receipts from gas sales 26,023 17,667
--------- ---------
Seasonally adjusted gross margin $107,519 $0.80 $61,793 $0.56
--------- ---------
Less:
General and administrative (25,634) (13,236)
Capital tax recovery (expense) (48) 66
Bad debt expense (3,856) (2,462)
Income tax provision (6,106) (615)
Interest expense (4,946) (965)
Other items 1,523 1,065
--------- ---------
(39,067) (16,147)
--------- ---------
Distributable cash before marketing
expenses 68,452 $0.51 45,646 $0.41
Marketing expenses to maintain gross
margin (16,149) (10,891)
--------- ---------
Distributable cash after gross margin
replacement 52,303 $0.39 34,755 $0.31
Marketing expenses to add new gross
margin (10,958) (6,361)
--------- ---------
Cash available for distribution $41,345 $0.31 $28,394 $0.26
--------- ---------
--------- ---------
Distributions
Unitholder distributions $40,760 $32,639
Class A preference share distributions 1,632 1,632
Unit appreciation rights and deferred
unit grants
distributions 447 338
--------- ---------
Total distributions $42,839 $0.32 $34,609 $0.31
--------- ---------
--------- ---------
Diluted average number of units
outstanding 134.3m 111.2m
Cash Available for Distribution and distributions
For the six months ended September 30
(thousands of dollars except per unit amounts)
Fiscal 2010 Fiscal 2009
----------- -----------
Per unit Per unit
-------- --------
Reconciliation to statements of cash
flow
Cash inflow from operations $62,503 $63,005
Add:
Decrease in non-cash working capital 13,852 (5,603)
Tax impact on distributions to Class A
preference shareholders 1,077 1,274
--------- ---------
Cash available for distribution $77,432 $58,676
--------- ---------
--------- ---------
Cash available for distribution
Gross margin per financial statements $147,571 $1.19 $99,347 $0.90
Adjustments required to reflect net
cash receipts from gas sales 34,717 22,149
--------- ---------
Seasonally adjusted gross margin $182,288 $1.47 $121,496 $1.10
--------- ---------
Less:
General and administrative (41,251) (26,683)
Capital tax expense (128) -
Bad debt expense (7,685) (3,525)
Income tax provision (6,066) (758)
Interest expense (5,426) (1,856)
Other items 2,192 842
--------- ---------
(58,364) (31,980)
--------- ---------
Distributable cash before marketing
expenses 123,924 $1.00 89,516 $0.81
Marketing expenses to maintain gross
margin (29,402) (23,715)
--------- ---------
Distributable cash after gross margin
replacement 94,522 $0.76 65,801 $0.59
Marketing expenses to add new gross
margin (17,090) (7,125)
--------- ---------
Cash available for distribution $77,432 $0.63 $58,676 $0.53
--------- ---------
--------- ---------
Distributions
Unitholder distributions $73,695 $64,100
Class A preference share distributions 3,263 3,528
Unit appreciation rights and deferred
unit grants distributions 895 662
--------- ---------
Total distributions $77,853 $0.63 $68,290 $0.62
--------- ---------
--------- ---------
Diluted average number of units
outstanding 123.7m 110.7m
Distributable cash
Distributable cash after gross margin replacement for the current quarter ended
September 30, 2009 was $52.3 million ($0.39 per unit), up 50% from $34.8 million
($0.31 per unit) in fiscal 2009. The growth reflects a 74% increase in
seasonally adjusted gross margin. Factors contributing to margin growth include
a 29% year over year increase in total customers, of which 24% related to the
430,000 acquired customers from Universal. The new Universal customers, higher
margin per customer due to opportunistic pricing and continued strong acceptance
of the GEO product as well as improved supply management, particularly in Texas,
resulted in increased distributable cash. On a per unit basis (reflecting the
units issued to acquire Universal), distributable cash after gross margin
replacement and gross margin were up 26% and 43% respectively reflecting solid
operating performance and per unit accretion due to the price paid for
Universal.
The higher gross margins in the quarter were offset to a degree by increased
general and administrative costs and bad debt expenses. Increased general and
administrative costs of 93% over the prior year comparable quarter were
primarily due to the Universal acquisition, staffing costs in our corporate
office to support our current and future growth, and an increase in telecom and
collection costs. As administrative overlap efficiencies continue to be realized
in future quarters, growth in general and administrative costs should track
margin growth. Bad debt expense increased in the second quarter of fiscal 2010
compared to 2009 primarily due to the increased volumes in those markets where
the Fund bears the credit risk as well as the weak economic conditions in the
U.S. markets.
Just Energy spent $16.1 million in marketing expenses to maintain its current
level of gross margin, which represents 60% of the total marketing expense for
the quarter. A further $11.0 million was spent to increase future gross margin
resulting in the 36,000 net RCE additions for the quarter. Management's estimate
of the future contracted gross margin increased to $1,213.8 million from
$1,003.2 million at the end of the first quarter of fiscal 2010.
Distributable cash after all marketing expenses amounted to $41.3 million ($0.31
per unit) for the second quarter of fiscal 2010, an increase of 19% per unit
from $28.4 million ($0.26 per unit) in the prior year comparable quarter. The
increase is due to accretion from the Universal purchase and net customer
additions offset by increased expenditures noted above. The lower rate of
increase for distributable cash was due to the higher marketing costs associated
with the significant increase in net customer additions (excluding acquired
customers) quarter over quarter. The payout ratio after deduction of all
marketing expenses for the current quarter was 104% versus 122% in fiscal 2009.
Distributable cash after gross margin replacement for the six months ended
September 30, 2009 was $94.5 million ($0.76 per unit), an increase of 29% per
unit from $65.8 million ($0.59 per unit) in the prior year comparable period.
Distributable cash after marketing expenses was $77.4 million ($0.63 per unit)
for the first six months of fiscal 2010, an increase of 19% per unit from $58.7
million ($0.53 per unit) for the same period last year. The payout ratio after
all marketing expenses for the six month period of fiscal 2010 was 101% versus
116% for the six months ended September 30, 2009.
For further information on the changes in the gross margin, please refer to
"Sales and gross margin - Seasonally adjusted" on page 13 and "General and
administrative expenses", "Marketing expenses", "Bad debt expense" and "Interest
expense" are further clarified on pages 19 and 20.
Adjusted net income
Adjusted net loss was $(9.7) million for the quarter ($(0.07) per unit) down
from net income of $6.9 million ($0.06 per unit) in the second quarter of fiscal
2009. Adjusted net income was negatively impacted by the amortization of the
Universal acquired customer contracts and the increased general and
administrative costs incurred for Universal as Just Energy works towards
consolidating various processes. Also contributing to the change are losses from
NHS and TGF as both businesses are in start-up phases. For the six months ended
September 30, 2009, adjusted net income was $14.9 million ($0.12 per unit) as
compared to $36.9 million or $0.33 per unit in the same period last year.
Discussion of Distributions
(thousands of dollars)
For the three For the three For the six For the six
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Cash flow from
operations(1)(A) $24,708 $17,743 $62,503 $63,005
Net income
(loss)(B) $110,690 $(923,990) $213,317 $(889,758)
Total
distributions(C) $42,839 $34,609 $77,853 $68,290
Shortfall of
cash flows from
operating
activities over
distributions
paid (A-C) $(18,131) $(16,866) $(15,350) $(5,285)
Excess
(shortfall) of
net income
(loss) over
distributions
paid (B-C) $67,851 $(958,599) $135,464 $(958,048)
(1)Includes non-cash working capital balances
Net income (loss) includes non-cash gains and losses associated with the changes
in the current market value of Just Energy's derivative instruments. These
instruments form part of the Fund's requirement to purchase commodity according
to estimated demand and, as such, changes in value do not impact the
distribution policy or the long-term financial performance of the Fund.
Effective July 1, 2008, Just Energy elected to discontinue the practice of hedge
accounting and all gains and losses on derivative instruments have been recorded
in Change in fair value of derivative instruments.
The change in fair value associated with these derivatives included in the net
income for the second quarter of fiscal 2010 was a gain of $138.5 million versus
a loss of $1,022.6 million for the quarter ended September 30, 2008.
The Fund has, in the past, paid out distributions that were higher than both
financial statement net income and operating cash flow. In the view of
management, the non-GAAP measure, distributable cash, is an appropriate measure
of the Fund's ability to distribute funds, as the cost of carrying incremental
working capital necessary for the growth of the business has been deducted in
the distributable cash calculation. Further, investment in the addition of new
customers intended to increase cash flow is expensed in the financial statements
while the original customer base was capitalized. In addition, the capital
expenditures for NHS and TGF are funded through the credit facility and debt
instruments. Management believes that the current level of distributions is
sustainable in the foreseeable future.
The timing differences between distributions and cash flow from operations
created by the cost of carrying incremental working capital due to business
seasonality and expansion are funded by the operating credit facility.
Standardized Distributable Cash and Cash Available for Distribution
(thousands of dollars except per unit amounts)
For the three months For the six months
ended September 30, ended September 30,
Fiscal 2010 Fiscal 2009 Fiscal 2010 Fiscal 2009
----------- ----------- ----------- -----------
Reconciliation to
statements of cash flow
Cash inflow from
operations $24,708 $17,743 $62,503 $63,005
Capital expenditures(1) (12,477) (1,118) (19,883) (1,326)
---------------------------------------------------
Standardized
Distributable Cash $12,231 $16,625 $42,620 $61,679
---------------------------------------------------
Adjustments to
Standardized
Distributable
Cash
Change in non-cash
working capital(2) $16,098 $10,062 $13,852 $(5,603)
Tax impact on
distributions to Class A
preference shareholders(3) 539 589 1,077 1,274
Capital expenditures(1) 12,477 1,118 19,883 1,326
---------------------------------------------------
Cash available for
distribution $41,345 $28,394 $77,432 $58,676
---------------------------------------------------
Standardized
Distributable Cash - per
unit basic 0.09 0.15 0.32 0.56
Standardized
Distributable Cash - per
unit diluted 0.10 0.15 0.34 0.56
Payout Ratio based on
Standardized
Distributable Cash 350% 208% 183% 111%
(1)Capital expenditures incurred in the quarter are effectively funded out
of the credit facility. The majority of capital expenditures in the
current quarter related to the purchase of water heaters for subsequent
rental. These expenditures expand the productive capacity of the
business.
(2)Change in non-cash working capital is excluded from the calculation of
Cash Available for Distribution as the Fund has a $250.0 million credit
facility which is available for use to fund working capital requirements.
This eliminates the potential impact of timing distortions relating to
the respective items.
(3)Payments to the holders of Class A preference shares are equivalent to
distributions. The number of Class A preference shares outstanding is
included in the denominator of any per unit calculation.
In accordance with the CICA July 2007 interpretive release "Standardized
Distributable Cash in Income Trusts and other Flow-Through Entities" the Fund
has presented the distributable cash calculation to conform to this guidance. In
summary, for the purposes of the Fund, Standardized Distributable Cash is
defined as the periodic cash flows from operating activities, including the
effects of changes in non-cash working capital less total capital expenditures
as reported in the GAAP financial statements.
Financing Strategy
The Fund's $250.0 million credit facility will be sufficient to meet the Fund's
short-term working capital and capital expenditure requirements for the gas and
electricity business. As part of the acquisition of Universal additional credit
facilities and debt were recorded and are explained further on page 23. Working
capital requirements can vary widely due to seasonal fluctuations and planned
U.S.-related growth. In the long-term, the Fund may be required to access the
equity or debt markets in order to fund significant acquisitions.
Productive Capacity
Just Energy's business involves the sale of natural gas and/or electricity to
residential and commercial customers under long-term, fixed-price contracts. As
such, the Fund's productive capacity is determined by the gross margin earned
from the contract price and the related supply cost.
The productive capacity of Just Energy is achieved through the retention of
existing customers and the addition of new customers to replace those that have
not been renewed. The productive capacity is maintained and grows through
independent contractors, call centre renewal efforts and various mail campaigns.
Effectively all of the marketing costs related to customer contracts are
expensed immediately but fall into two categories. The first represents
marketing expenses to maintain gross margin at pre-existing levels and by
definition maintain productive capacity. The second category is marketing
expenditures to add new margin which therefore expands productive capacity. As
noted above, capital expenditures by the Fund are utilized to expand the
productive capacity of the business.
Summary of quarterly results
(thousands of dollars except per unit amounts)
F2010 F2010 F2009 F2009
Q2 Q1 Q4 Q3
-- -- -- --
Sales per financial statements $434,659 $399,010 $713,573 $513,608
Gross margin (seasonally
adjusted) 107,519 74,769 106,143 87,554
General and administrative
expense 25,634 15,617 18,150 14,753
Net income (loss) 110.690 102,627 (168,621) (49,094)
Net income (loss) per unit -
basic $0.83 0.92 (1.57) (0.44)
Net income (loss) per unit -
diluted 0.82 0.91 (1.57) (0.44)
Adjusted net income (loss) (9,682) 24,552 88,744 46,682
Adjusted net income per unit -
basic (0.07) 0.22 0.81 0.42
Adjusted net income per unit -
diluted (0.07) 0.22 0.79 0.42
Amount available for distribution
After gross margin replacement $52,303 42,219 72,244 57,475
After marketing expense 41,345 36,087 62,515 48,162
Payout ratio
After gross margin replacement 81% 83% 48% 93%(1)
After marketing expense 104% 97% 56% 111%(1)
F2009 F2009 F2008 F2008
Q2 Q1 Q4 Q3
-- -- -- --
Sales per financial statements $294,122 $377,910 $652,617 $449,673
Gross margin (seasonally
adjusted) 61,793 59,703 87,960 71,247
General and administrative
expense 13,236 13,447 17,138 12,416
Net income (loss) (923,990) 34,232 94,025 28,064
Net income per unit - basic $(8.33) $0.31 $0.87 $0.26
Net income per unit - diluted (8.31) 0.31 0.87 0.26
Adjusted net income 6,872 27,631 87,663 34,890
Adjusted net income per unit -
basic 0.06 0.25 0.81 0.32
Adjusted net income per unit -
diluted 0.06 0.25 0.80 0.32
Amount available for distribution
After gross margin/customer
replacement $34,755 $31,046 $54,334 $47,242
After marketing expense 28,394 30,282 53,992 42,462
Payout ratio
After gross margin/customer
replacement 100% 108% 61% 164%(1)
After marketing expense 122% 111% 61% 183%(1)
(1)Includes a one-time Special Distribution of $18.6 million in Q3, fiscal
2009 and $44.7 million in Q3, fiscal 2008.
The Fund's results reflect seasonality as consumption is greatest during the
third and fourth quarters (winter quarters). While year over year quarterly
comparisons are relevant, sequential quarters will vary materially. The main
impact of this will be higher distributable cash with a lower payout ratio in
the third and fourth quarters and lower distributable cash with a higher payout
ratio in the first and second quarters excluding any special distribution.
Analysis of the second quarter
Sales are typically lower in the first and second quarters because gas
consumption is highest during the winter months and approximately 52% of the
current customer base is gas customers. The 48% increase in sales compared to
the prior comparable quarter is primarily attributable to the acquisition of
Universal and strong U.S. growth in our existing markets. The adjusted net loss
was $(9.7) million for the three months ended September 30, 2009. Lower adjusted
net income was attributable to margin growth due to the amortization recorded on
the acquired Universal contracts and customer relationships in the quarter.
The distributable cash after customer gross margin replacement was $52.3 million
up 50% from $34.8 million in the prior comparable quarter. The increase in gross
margin was due to the margin earned on the acquired customers from Universal,
net customer additions through marketing and higher per customer margins.
Distributable cash after marketing expenses was $41.3 million, an increase of
46% from $28.4 million in the prior comparable quarter. Distributions for the
quarter were $42.8 million, up 24% over the same period last year reflecting a
3% per unit increase quarter over quarter. The payout ratio in a seasonally slow
quarter was 104% versus 122% in the second quarter of fiscal 2009.
Gas and Electricity Marketing
Financial Statement Analysis
Sales and gross margin - Per financial statements
For the three months ended September 30
(thousands of dollars)
Fiscal 2010 Fiscal 2009
----------- -----------
United United
Sales Canada States Total Canada States Total
-----
Gas $91,636 $37,724 $129,360 $87,052 $23,347 $110,399
Electricity 174,457 111,919 286,376 128,197 55,526 183,723
---------------------------------------------------------------------------
$266,093 $149,643 $415,736 $215,249 $78,873 $294,122
---------------------------------------------------------------------------
Increase 24% 90% 41%
United United
Gross Margin Canada States Total Canada States Total
------------
Gas $6,496 $8,795 $15,291 $14,816 $3,174 $17,990
Electricity 31,741 30,283 62,024 19,646 6,490 26,136
---------------------------------------------------------------------------
$38,237 $39,078 $77,315 $34,462 $9,664 $44,126
---------------------------------------------------------------------------
Increase 11% 304% 75%
For the six months ended September 30
(thousands of dollars)
Fiscal 2010 Fiscal 2009
----------- -----------
United United
Sales Canada States Total Canada States Total
-----
Gas $241,333 $88,158 $329,491 $246,545 $63,310 $309,855
Electricity 297,948 187,307 485,255 259,019 103,158 362,177
----------------------------------------------------------------------------
$539,281 $275,465 $814,746 $505,564 $166,468 $672,032
----------------------------------------------------------------------------
Increase 7% 65% 21%
United United
Gross Margin Canada States Total Canada States Total
------------
Gas $29,210 $19,489 $48,699 $44,965 $9,154 $54,119
Electricity 51,380 43,311 94,691 39,220 6,008 45,228
----------------------------------------------------------------------------
$80,590 $62,800 $143,390 $84,185 $15,162 $99,347
----------------------------------------------------------------------------
Increase (4)% 314% 44%
Canada
Sales and gross margin for the three months ended September 30, 2009, were
$266.1 million and $38.2 million, an increase of 24% and 11%, respectively, from
the prior year comparative period. Total sales and gross margin for the six
month period of fiscal 2010 were $539.3 million and $80.6 million, respectively.
United States
Sales and gross margin in the U.S. were $149.6 million and $39.1 million for the
second quarter, an increase of 90% and 304%, respectively, from the same period
last year. Total sales and gross margin for the six months ended September 30,
2009 were $275.5 million and $62.8 million, respectively.
For additional information, see "Sales and gross margin - Seasonally adjusted"
below.
Sales and gross margin - Seasonally adjusted(1)
For the three months ended September 30
(thousands of dollars)
Fiscal 2010 Fiscal 2009
----------- -----------
United United
Sales Canada States Total Canada States Total
----
Gas $91,636 $37,724 $129,360 $87,052 $23,347 $110,399
Adjustments(1) 103,686 23,788 127,474 92,036 - 92,036
----------------------------------------------------------------------------
$195,322 $61,512 $256,834 $179,088 $23,347 $202,435
Electricity 174,457 111,919 286,376 128,197 55,526 183,723
----------------------------------------------------------------------------
$369,779 $173,431 $543,210 $307,285 $78,873 $386,158
----------------------------------------------------------------------------
Increase 20% 120% 41%
United United
Gross Margin Canada States Total Canada States Total
------------
Gas $6,496 $8,795 $15,291 $14,816 $3,174 $17,990
Adjustments(1) 23,760 2,263 26,023 17,667 - 17,667
----------------------------------------------------------------------------
$30,256 $11,058 $41,314 $32,483 $3,174 $35,657
Electricity 31,741 30,283 62,024 19,646 6,490 26,136
----------------------------------------------------------------------------
$61,997 $41,341 $103,338 $52,129 $9,664 $61,793
----------------------------------------------------------------------------
Increase 19% 328% 67%
(1)For Ontario, Manitoba, Quebec and Michigan gas markets.
Sales and gross margin - Seasonally adjusted(1)
For the six months ended September 30
(thousands of dollars)
Fiscal 2010 Fiscal 2009
----------- -----------
United United
Sales Canada States Total Canada States Total
-----
Gas $241,333 $88,158 $329,491 $246,545 $63,310 $309,855
Adjustments(1) 137,241 23,788 161,029 115,952 - 115,952
----------------------------------------------------------------------------
$378,574 $111,946 $490,520 $362,497 $63,310 $425,807
Electricity 297,948 187,307 485,255 259,019 103,158 362,177
----------------------------------------------------------------------------
$676,522 $299,253 $975,775 $621,516 $166,468 $787,984
----------------------------------------------------------------------------
Increase 9% 80% 24%
United United
Gross Margin Canada States Total Canada States Total
------------
Gas $29,210 $19,489 $48,699 $44,965 $9,154 $54,119
Adjustments(1) 32,454 2,263 34,717 22,149 - 22,149
----------------------------------------------------------------------------
$61,664 $21,752 $83,416 $67,114 $9,154 $76,268
Electricity 51,380 43,311 94,691 39,220 6,008 45,228
----------------------------------------------------------------------------
$113,044 $65,063 $178,107 $106,334 $15,162 $121,496
----------------------------------------------------------------------------
Increase 6% 329% 47%
(1)For Ontario, Manitoba, Quebec and Michigan gas markets.
On a seasonally adjusted basis, sales and gross margin increased by 41% and 67%,
respectively, to $543.2 million and $103.3 million for the three months ended
September 30, 2009 over the second quarter of fiscal 2009. The 41% increase in
sales was due to a 29% increase in customers (24% of which were acquired with
Universal) and favourable weather-based consumption, largely in Texas. Gross
margin increased at a greater rate than sales due to higher realized margin per
customer, particularly in the U.S.
Total sales and gross margin for the first six months of fiscal 2010 totaled
$975.8 million and $178.1 million versus $788.0 million and $121.5 million for
the same period last year.
Canada
Seasonally adjusted sales were $369.8 million for the quarter, up 20% from
$307.3 million for the comparable quarter in fiscal 2009. Seasonally adjusted
gross margins were $62.0 million in the second quarter of fiscal 2010, an
increase of 19% from $52.1 million in the same quarter last year.
Gas
Gas sales increased by 9% to $195.3 million and gross margin decreased by 7% to
$30.3 million, versus the second quarter of fiscal 2009. Customer consumption
increased due to a 3% increase in number of customers (including Universal) and
slightly colder temperatures in Ontario. Gross margin was down quarter over
quarter due to a decline in average margin per customer reflecting lower margin
per customer on the acquired Universal and CEG customers. CEG was a Western
Canadian marketer of natural gas wholly owned by SemCanada Energy Company
("SemCanada"). For the six months ended September 30, 2009, sales and gross
margins were $378.6 million and $61.7 million, an increase of 4% and decrease of
8%, respectively, over the prior year comparable period.
After allowance for balancing and inclusive of acquisitions, average gross
margin per customer ("GM/RCE") for the three months ended September 30, 2009
amounted to $175/RCE, compared to $214/RCE from the prior year comparable
period. The GM/RCE value includes an appropriate allowance for the bad debt
expense in Alberta.
Electricity
Electricity sales were $174.4 million for the quarter, an increase of 36% from
the second quarter of fiscal 2009. The increased sales are attributable to the
acquisition of 215,000 Universal customers. Gross margin increased by 62% from
the prior year comparable quarter to $31.7 million due to the increase in
customers and increased margin per customer resulting from improved supply
management processes. Gross margin also benefitted in the quarter from the
Universal load-following customers which produced higher margins. Just Energy
anticipates moving these customers to a balanced product when system
integrations are completed.
For the six months ended September 30, 2009, sales and gross margins were $297.9
million and $51.4 million, an increase of 15% and 31%, respectively, over the
same period last year.
Average gross margin per customer after all balancing and including acquisitions
for the quarter ended September 30, 2009 in Canada amounted to $164/RCE compared
to $136/RCE from the prior comparable quarter. The GM/RCE value includes an
appropriate allowance for the bad debt expense in Alberta.
United States
Sales for the second quarter of fiscal 2010 were $149.6 million, an increase of
90% from $78.9 million in the prior year comparable quarter. Seasonally adjusted
gross margin was $39.1 million, up 304% from $9.7 million from the same quarter
last year.
Gas
Gas sales in the U.S. increased by 163% from $23.3 million to $61.5 million for
the second quarter ended September 30, 2009. This increase reflects the addition
of 120,000 customers acquired as part of the Universal transaction, net customer
growth through marketing and higher selling prices. Gas margin increased 248%
for the second quarter of fiscal 2010 to $11.1 million from $3.2 million. The
increase in gross margin for the quarter resulted from increased customers, as
well as substantially higher per customer margins. Just Energy also benefitted
from changes in utility storage capacity in the Midwest markets which allowed
improved supply management by reducing the need for daily settlements with
current depressed commodity prices.
Sales and gross margins for the six months ended September 30, 2009 totaled
$111.9 million and $21.8 million, respectively.
Average gross margin after all balancing costs for the three months ended
September 30, 2009 was $267/RCE, an increase of 48% over the prior year
comparable period of $180/RCE. The GM/RCE value includes an appropriate
allowance for bad debt expense in Illinois.
Electricity
Electricity sales and gross margin for the quarter were $111.9 million and $30.3
million, respectively, versus the comparable period of fiscal 2009 in which,
sales and gross margin amounted to $55.5 million and $6.5 million, respectively.
Electricity customers increased by 73%, driving the 102% sales growth. Unlike
other markets, the Universal acquisition contributed only 2,000 of the 127,000
year over year net additions. Customer additions added through marketing have
been the largest contributor to US electricity growth.
The gross margin increase of 367% reflected the 73% growth in customers and very
high margins per customer in Texas due to weather related consumption. New York
profitability rose due to improved supply management.
For the six months ended September 30, 2009, the sales and gross margins were
$187.3 million and $43.3 million, respectively.
Average gross margin per customer for electricity during the current quarter was
$282/RCE compared to $126/RCE from the prior year comparable period. The GM/RCE
value for Texas includes an appropriate allowance for the bad debt expense.
Customer aggregation
Long-term customers
%Incr-
Failed ease
June 30, to September (Decr-
2009 Acquired Additions Attrition renew 30, 2009 ease)
----------------------------------------------------------------------------
Natural gas
Canada 727,000 93,000 12,000 (22,000) (19,000) 791,000 9%
United
States 238,000 120,000 52,000 (21,000) (4,000) 385,000 62%
----------------------------------------------------------------------------
Total gas 965,000 213,000 64,000 (43,000) (23,000) 1,176,000 22%
----------------------------------------------------------------------------
Electricity
Canada 574,000 215,000 23,000 (24,000) (3,000) 785,000 37%
United
States 262,000 2,000 53,000 (10,000) (1,000) 306,000 17%
----------------------------------------------------------------------------
Total
electri-
city 836,000 217,000 76,000 (34,000) (4,000) 1,091,000 31%
----------------------------------------------------------------------------
Combined 1,801,000 430,000 140,000 (77,000) (27,000) 2,267,000 26%
----------------------------------------------------------------------------
As part of the Universal acquisition Just Energy acquired 430,000 customers that
have similar profiles to our existing book of customers. Another 145,000
customers included in the Universal RCEs previously reported are variable in
nature or are located in regions that Just Energy has no current plans to expand
in or actively renew customers at this time. Therefore, the 145,000 customers
mainly related to Commerce are not expected to renew and have not been included
in the long-term customer aggregation reported above.
Gross customer additions signed by our offices for the second quarter were
140,000, up 54% from the 91,000 customers added in the second quarter of fiscal
2009. Total net customer additions for the quarter were 36,000 well above the
9,000 net customer additions in the comparable quarter. Overall, there was a 29%
increase in total customers at September 30, 2009 versus September 30, 2008.
For the quarter ended September 30, 2009, total gas customer numbers increased
by 22% due to the Universal acquisition of 213,000 customers.
Total electricity customers were up 31% for the second quarter of fiscal 2010.
U.S. electricity customers were up 17% with strong customer additions in both
New York and Texas. All customer growth excluding the acquisition was in the
United States with Canada lagging due to high relative five-year prices in
Ontario. In the interim, the Fund has modified its electricity offering to focus
on GEO supply. The take-up of the GEO product has been strong despite a
significantly higher cost of green electricity to the customer. The Canadian
electricity growth of 37% is due to the 215,000 acquired Universal customers.
Delivered volumes in the quarter
Delivered volumes details the change in the actual growth of volumes delivered
to customers for the second quarter of fiscal 2010 as compared to fiscal 2009.
This measure tracks our actual financial results and reflects weather and other
volume variances.
The following table shows the actual delivered volumes for the second quarter of
fiscal 2010 and the prior year comparable quarter:
For the three months % Increase
ended September 30 Fiscal 2010 Fiscal 2009 (Decrease)
----------- ----------- -----------
Natural gas (GJ)
Canada 18,253,835 15,993,939 14%
United States 5,718,462 1,585,258 261%
--------------------------------------------------------
Total gas(1) 23,972,297 17,579,197 36%
--------------------------------------------------------
Electricity (MWh)
Canada 1,968,131 1,435,337 37%
United States 1,052,029 451,536 133%
--------------------------------------------------------
Total electricity(2) 3,020,160 1,886,873 60%
--------------------------------------------------------
(1)Includes 192,000 GJs of Green Energy Option ("GEO")
gas in fiscal 2010 versus 174,000 GJs in the second
quarter of last year.
(2)A total of 118,000 MWh of GEO electricity was delivered
in the second quarter of fiscal 2010 versus 35,000 MWh
of electricity delivered for the same period last year.
Gas deliveries increased by 36% in the three months ended September 30, 2009 due
to a 17% increase in customers as a result of the Universal acquisition.
Electricity volumes increased by 60% over the prior year comparable quarter due
to strong customer additions in Texas and New York and acquired Universal
customers, resulting in 72% growth of the customer base.
Green Energy Option ("GEO")
Sales of the GEO product continue to support and reaffirm the strong demand for
the green energy products in all markets. The GEO program allows customers to
choose to purchase units of green energy in the form of renewable energy or
carbon offsets, in an effort to reduce greenhouse gas emissions. When a customer
purchases a unit of green energy, it creates a contractual obligation for Just
Energy to purchase a supply of green energy at least equal to the demand created
by the customer's purchase. A review was conducted by Grant Thornton LLP of Just
Energy's Renewable Energy and Carbon Offsets Sales and Purchases report for the
period from January 1, 2007 through December 31, 2008 validating the Fund's
renewables and carbon offset purchases.
Just Energy sells GEO gas in Ontario, British Columbia, New York, Illinois and
Indiana currently and GEO electricity in Ontario, Alberta, New York and Texas.
Of all customers who contracted with Just Energy in the last twelve months, 41%
took GEO for some or all of their energy needs. On average, these customers
elected to purchase 78% GEO supply.
Attrition
Natural gas
The trailing 12-month natural gas attrition in Canada was 9% for the quarter,
below management's target of 10%. In the U.S., gas attrition for the trailing 12
months was 28%, above management's annual target of 20% but decreased from the
31% noted in the first quarter of fiscal 2010. High U.S. gas attrition is a
residual effect of the North American recession. While the rate of foreclosures
is slowing, the first two quarters are periods where customers who have not paid
their heavy winter gas bills are cut-off by the utility. The level of cut-off
was the highest seen in the Fund's history and resulted in continued high
attrition.
Electricity
The trailing 12-month electricity attrition rate in Canada for the year was 11%,
slightly above management's target of 10%. Electricity attrition in the United
States was 17% over the last twelve months, below management's target of 20%.
Failed to renew
The Just Energy renewal process is a multi-faceted program and aims to maximize
the number of customers who choose to sign a new contract prior to the end of
their existing contract term. Efforts begin up to 15 months in advance allowing
a customer to re-contract for an additional four or five years.
The trailing 12-month renewal rate for all Canadian gas customers was 70%. In
the Ontario gas market, customers who do not positively elect to renew or
terminate their contract receive a one-year fixed price for the ensuing year. A
total of 58,200 gas customers were renewed in the last twelve months and, of
these, 14,500 were renewed for a one-year term.
Electricity renewals for Canadian customers in Ontario and Alberta were 73%. In
the Ontario electricity market, there is no opportunity to renew a residential
or small volume customer for a one-year term should the customer fail to
positively renew or terminate his or her contract. Management targets a renewal
rate for electricity customers of 65%.
In the U.S. markets, Just Energy currently only has Illinois gas and Texas
electricity customers up for renewal. Gas renewals for the U.S. were 35% (based
on only 6,500 customers up for renewal), below our target of 50%. The Texas
electricity renewal rate was 78%, significantly better than our target rate of
60% based on over 43,000 customers.
The table below shows actual renewal rates for the last twelve months versus target:
F2010 Target F2010
----- ------------
Natural gas
Canada 70% 70%
United States 35% 50%
Electricity
Canada 73% 65%
United States 78% 60%
Gas and electricity contract renewals
This table shows the percentage of customers up for renewal in each of the
following years:
Canada - Canada - U.S. - U.S. -
Fiscal period gas electricity gas electricity
-------------------------------------------
Remainder of 2010 10% 1% 19% 14%
2011 24% 15% 15% 8%
2012 19% 33% 18% 5%
2013 21% 31% 18% 11%
2014 16% 14% 14% 27%
Beyond 2014 10% 6% 16% 35%
-------------------------------------------
Total 100% 100% 100% 100%
Just Energy continuously monitors its customer renewal rates and continues to
modify its offering to existing customers in order to maximize the number of
customers who renew their contracts.
Gross margin earned through new marketing efforts
Annual gross margin per customer for new and renewed customers (includes GEO impact)
In the second quarter of fiscal 2010, the Fund continued to see the positive
impact of continued efforts to maintain strong margin per customer during
challenging marketing periods. Overall, average gross margin per RCE increased
by 7% quarter over quarter primarily due to the impact of strong GEO sales which
are partially offset by lower margin Universal and CEG acquired gas customers.
The table below depicts the annual margins on contracts of customers signed in
the quarter. This table reflects only the margins on "brown" energy purchased by
customers. To the extent that customers elected green electricity, margins per
customer are materially higher. Sales of the GEO products have been very strong
with approximately 41% of all customers added in the past year taking some of
all green energy supply. Those who purchased the GEO product elect on average to
purchase 78% of their consumption.
Annual
Annual gross margin per customer(1) Target
Fiscal 2010 Fiscal 2010
-----------------------
Customers added in the quarter
- Canada - gas $162 $170
- Canada - electricity $146 $143
- United States - gas $201 $170
- United States - electricity $241 $143
Customers lost in the quarter
- Canada - gas $210
- Canada - electricity $131
- United States - gas $259
- United States - electricity $133
(1)Customer sales price less cost of associated supply and allowance
for bad debt and U.S. working capital. This table excludes the
margin impact of the sale of GEO products.
Annual margin on new customers added in the quarter including GEO was $204 and
margin earned on renewing customers was $154.
National Home Services Division
NHS was acquired on July 1, 2009 as part of the Universal acquisition and on
July 2, 2009, NHS acquired Newten Home Comfort Inc. and on September 30, 2009,
acquired substantially all of the assets of NHCLP (see Page 5 for additional
information). NHS provides Ontario residential customers long-term water heater
rental programs offering conventional tanks, power vented tanks and tankless
water heaters in a variety of sizes. The combined installed water heater base on
July 1 was 37,687 and NHS continues to ramp up its operations and, as at
September 30, 2009, had installed 55,464 water heaters in residential homes and
has commenced earning revenue from its installed base. The RCE equivalent for
installed water heaters to date from a gross margin standpoint is 36,976.
Because NHS is a high growth, relatively capital intensive business, Just Energy
management is examining opportunities to separately finance water heater
installations. Accordingly, capital required for this business will not impact
distributable cash generated by the core natural gas and electricity business.
NHS will continue to generate losses due to the rapid projected growth and
start-up expenses which will be offset by long term cash flows.
Selected financial information
(thousands of dollars)
Three months ended
-------------------
September 30, 2009
-------------------
Sales per financial statements $2,474
Selling, general and administrative expense 3,266
Amortization 1,025
Other expense 885
Income tax recovery 457
Net loss $(1,537)
Capital expenditures $11,094
Total water heaters installed 55,464
Results of Operations
For the three months ended September 30, 2009 NHS had sales of $2.5 million and
incurred a net loss of $2.5 million. Commission costs paid to the independent
agents have been capitalized along with the costs of the water heaters. Selling
and general and administrative costs, which relate primarily to staff
compensation and warehouse expenses, amounted to $3.3 million for the quarter
ended September 30, 2009. Capital expenditures, including installation costs,
for the quarter amounted to $9.7 million.
Ethanol Division (TGF)
TGF continues to improve plant production and runtime of the Belle Plaine wheat
based ethanol facility. For the quarter ended September 30, 2009, the plant had
achieved an average production capacity of 62% with capacity rising to 70% in
the month of September. Sales of distillers dried grain ("DDGs") have been
steady while margins for ethanol decreased in the quarter as the general
economic conditions resulted in softer pricing for energy products including
ethanol. TGF's wheat supply portfolio continues to provide steady feedstock
supplies to meet plant requirements.
The ethanol division has separate non-recourse financing in place such that
capital requirements and possible operating losses will not impact distributable
cash from Just Energy's core business.
Selected financial information
(thousands of dollars)
Three months ended
-------------------
September 30, 2009
-------------------
Sales per financial statements $16,449
Cost of sales 14,583
Gross margin 1,866
General and administrative expense 3,819
Amortization 621
Other expense 1,874
Income tax recovery 0
Net loss $(2,960)
Capital Expenditures $100
Results of Operations
For the three months ended September 30, 2009 TGF had sales of $16.4 million and
realized gross margin of $1.9 million. During the quarter the plant produced
23.4 million litres of ethanol and 17,683 metric tones of DDGs. For the three
months ended September 30, 2009 TGF realized a net loss of $3.0 million,
incurring amortization charges of $0.6 million, $1.9 million in debt obligations
and $3.8 million in general and administrative expenses. Capital expenditures,
including installation costs, for the quarter amounted to $0.1 million.
Production levels continue to be below the 150 million litre annual plant design
capacity as a result of production challenges in grain milling. New grain
milling equipment is being installed by year end to address this production
bottleneck and enable production to achieve the design capacity. TGF is expected
to realize net income once the milling equipment installation is complete.
Overall Consolidated Results
General and administrative expenses
General and administrative costs were $25.6 million for the three months ended
September 30, 2009, representing a 93% increase from $13.2 million in the second
quarter of fiscal 2009. Increased general and administrative costs were
primarily due to the Universal acquisition, staffing costs in our corporate
office to support our current and future growth, and an increase in telecom and
collection costs. As administrative overlap efficiencies continue to be realized
in future quarters, growth in general and administrative costs should track
margin growth. While operating headcount increased significantly due to the
Universal acquisition, management expects that after continued future
administrative consolidation, total corporate headcount will have increased by
20% to a total of 852 full-time employees. This will not only support the 24%
increase in customers brought by Universal but will also allow for the new
Alberta customers to be billed internally and continued commercial sales
expansion.
Expenditures for general and administrative costs for the six months ended
September 30, 2009 were $41.3 million, an increase of 55% from $26.7 million in
the prior comparable period as a result of the additional costs noted above.
Marketing expenses
Marketing expenses, which consist of commissions paid to independent sales
contractors for signing new customers as well as an allocation of corporate
marketing costs, were $27.1 million, an increase of 57% from $17.3 million in
the second quarter of fiscal 2009. Total gross customer additions were up by 54%
in the current quarter versus the same period last year.
For the six months ended September 30, 2009, marketing expenses were $46.5
million, an increase of 51% from the $30.8 million reported in the same period
last year. This reflects higher than expected customer additions, increased
recruiting and corporate marketing overhead.
Marketing expenses to maintain gross margin are allocated based on the ratio of
gross margin lost from attrition as compared to the gross margin signed from new
and renewed customers during the period. Marketing expenses to maintain gross
margin increased by 48% to $16.1 million, as compared to, $10.9 million in the
second quarter of fiscal 2009. The increase resulted from higher customer
attrition and renewal costs versus the comparable quarter.
Marketing expenses to add new gross margin are allocated based on the ratio of
net new gross margin earned on the customers signed, less attrition, as compared
to the gross margin signed from new and renewed customers during the period.
Marketing expenses to add new gross margin in the second quarter totaled $11.0
million, an increase of 72% from $6.4 million in the prior year comparable
quarter. The large increase is consistent with the increase in the net customer
additions of 36,000 in the second quarter of fiscal 2010 versus 9,000 net
customers added through our sales offices during fiscal 2009. All marketing
costs related to the GEO product offerings are allocated against new margin and
there has been a substantial increase in the sale of GEO products in the current
quarter.
The actual aggregation costs per customer added were as follows:
Six months ended Six months ended
September 30, 2009 September 30, 2008
Natural gas
Canada $197/RCE
United States $180/RCE
Total gas $183/RCE $215/RCE
Electricity
Canada $161/RCE
United States $169/RCE
Total electricity $167/RCE $177/RCE
Actual total aggregation costs for gas and electricity customers to date for
fiscal 2010 were $183 per customer for gas and $167 per customer for
electricity. For the six months ended September 30, 2008, the gas and
electricity aggregation costs were $215 and $177 per customer, respectively.
In the second quarter of fiscal 2010, customer additions were above targeted
levels and therefore, lower corporate, marketing and customer service costs were
allocated to each new customer. Approximately 40% of the total marketing expense
relates to the costs associated with corporate, marketing and customer service
overhead. The reduction in the aggregation cost per customer reflects the
leveraging of the fixed marketing costs as customer additions increase.
Unit based compensation
Compensation in the form of units (non-cash) granted by the Fund to the
directors, officers, full-time employees and service providers of its
subsidiaries and affiliates pursuant to the 2001 unit option plan, the 2004 unit
appreciation rights plan and the directors' deferred compensation plan for the
second quarter amounted to $1.0 million, effectively unchanged from the $0.9
million paid in the prior comparable quarter. Total costs for the six months
ended September 30, 2009 totaled $1.6 million, versus $1.8 million for the same
period last year.
Bad debt expense
In Illinois, Alberta, Texas, Pennsylvania, Maryland and California, Just Energy
assumes the credit risk associated with the collection of all customer accounts.
In addition, for large direct billed accounts in B.C. and Ontario, the Fund is
responsible for the bad debt risk. Credit review processes have been established
to manage the customer default rate. Management factors default from credit risk
into its margin expectations for all of the above noted markets.
Bad debt expense for the second quarter of fiscal 2010 was $3.9 million up from
$2.5 million expensed in the same quarter of last year, an increase of 57%. The
bad debt expense increase was mainly due to the 48% increase in total revenues
for the quarter in the markets where Just Energy assumes the risk for accounts
receivable collections and higher percentage losses in the Texas market.
Management integrates its default rate for bad debts within its margin targets
and continuously reviews and monitors the credit approval process to mitigate
customer delinquency.
For the six months ended September 30, 2009, the bad debt expense was $7.7
million, representing approximately 3.5% of $217.0 million in revenues. In
fiscal 2009, the total bad debt expense was $3.5 million or 2% of $172.9 million
in revenue for the six-month period. Management continues to target bad debt
expense of approximately 2% to 3% during fiscal 2010 in all other markets with
the exception of Texas. Just Energy has recorded a substantial increase in
margins in the Texas electricity market due to warm weather and large growth of
our residential book. As a result of the growth and propensity of customers to
default on larger billing months, the Fund has increased our bad debt expense
forecast for Texas to 4% to 5% for the year. This default rate has been built
into our margins and it has been determined an acceptable range to maximize
profitability for the market.
For each of Just Energy' other markets, the LDCs provide collection services and
assume the risk of any bad debt owing from Just Energy' customers for a fee.
Interest expense
Total interest expense for the three months ended September 30, 2009 amounted to
$4.9 million up from $1.0 million in the prior year comparable period. The large
increase noted in the second quarter relates to the $1.3 million in interest
paid on the acquired convertible debenture now held in JEEC and interest
payments of $1.8 million made on debt held by Terra Grain Fuels. For the
six-month period of fiscal 2010, the total interest cost was $5.4 million versus
$1.9 million paid in fiscal 2009. See page 24 for additional information on the
current and long term debt financing.
Foreign exchange
Just Energy has an exposure to U.S. dollar exchange rates as a result of its
U.S. operations and any changes in the applicable exchange rate may result in a
decrease or increase in Other Comprehensive Income (Loss) for fiscal 2010. For
the quarter, a foreign exchange unrealized gain of $6.8 million was reported in
Other Comprehensive Income (Loss) versus $8.4 million reported in the prior year
comparable period. For the six months ended September 30, 2009, the foreign
exchange unrealized gain was $25.0 million versus a gain of $8.1 million for the
same period in fiscal 2009. In fiscal 2010 to date, a total of $23.0 million in
U.S. funds was repatriated to back to Canada. It is expected that all future
monies earned in the U.S. will be redeployed in the U.S. to fund continued
growth, therefore the Fund is not hedging our U.S. currency at this time.
Overall, the high U.S. dollar increases sales and gross margin but this is
partially offset by higher operating costs denominated in U.S. dollars. While
there can be quarterly fluctuations because of relative inflows and outflows,
the overall annual impact on adjusted net income is currently not material,
given the high growth of the U.S. markets.
Class A preference share distributions
The remaining holder of the Ontario Just Energy Corp. ("OESC") Class A
preference shares (which are exchangeable into units on a 1:1 basis) is entitled
to receive, on a quarterly basis, a payment equal to the amount paid or payable
to a Unitholder on an equal number of units. The total amount paid for the three
and six months ended September 30, 2009 including tax amounted to $1.6 million
and $3.3 million, respectively. In fiscal 2009, the distribution paid for the
three and six month periods were $1.6 million and $3.5 million, respectively.
These distributions on the Class A preference shares are reflected in the
Statement of Unitholders' Equity of the Fund's consolidated financial
statements, net of tax.
Provision for (recovery of) income tax
(thousands of dollars)
For the three For the six months
months ended ended
September 30, September 30,
Fiscal Fiscal Fiscal Fiscal
2010 2009 2010 2009
---------------------------------------
Current income tax
expense (recovery) $6,106 $ 615 $6,066 $758
Amount credited to
Unitholders' equity 539 589 1,077 1,274
Future tax provision
(recovery) 19,141 (90,752) 28,946 (91,766)
---------------------------------------
Provision for
(recovery of)
income tax $25,786 $(89,548) $36,089 $(89,734)
---------------------------------------
---------------------------------------
The Fund recorded a current income tax expense for the quarter of $6.1 million
versus $0.6 million in the same period last year. A tax provision of $6.1
million has been recorded for the six month period of fiscal 2010 versus a
provision of $0.8 million for the same period last year. The change is mainly
due to additional income tax expense incurred by the newly acquired Universal
entities and state income taxes that our U.S. entities paid. Also included in
the income tax provision is an amount relating to the tax impact of the
distributions paid to the Class A preference shareholders of OESC. In accordance
with EIC 151, "Exchangeable Securities Issued by Subsidiaries of Income Trusts",
all Class A preference shares are included as part of Unitholders' equity and
the distributions paid to the shareholders are included as distributions on the
Statement of Unitholders' equity, net of tax. For the three and six months ended
September 30, 2009, the tax impact of these distributions, based on a tax rate
of 32.75%, amounted to $0.5 million and $1.1 million, respectively. In addition,
future tax expense of $19.1 million and $28.9 million was recorded for the three
and six months ended September 30, 2009 respectively. These future tax expenses
resulted from the change in fair value of derivative instruments with a
corresponding tax recovery being recorded in other comprehensive income.
Effective January 1, 2011, the Fund will be taxed as a specified investment
flow-through ("SIFT") trust on Canadian income that has not been subject to a
Canadian corporate income tax in the Canadian operating entities. Therefore, the
future tax asset or liability associated with Canadian assets recorded on the
balance sheet as at that date will be realized over time as the temporary
differences between the carrying value of assets in the consolidated financial
statements and their respective tax bases are realized. Current Canadian income
taxes will be accrued at that time to the extent that there is taxable income in
the Fund or its underlying operating entities.
The U.S. based corporate subsidiaries are subject to U.S. income taxes on their
taxable income determined under U.S. income tax rules and regulations. The U.S.
subsidiaries (other than the newly acquired Commerce Energy Inc) had combined
operating losses for tax purposes at September 30, 2009, no provision for
current U.S. federal income tax has been made by those U.S. entities. On the
other hand, Commerce Energy Inc. had no operating losses carried forward and
generated taxable income during the quarter and as a result, an income tax
expense of $2.6 million was recorded during the quarter, which has been included
in the current income tax expense amounts as noted above.
The Fund follows the liability method of accounting for income taxes. Under this
method, income tax liabilities and assets are recognized for the estimated tax
consequences attributable to the temporary differences between the carrying
value of the assets and liabilities on the consolidated financial statements and
their respective tax bases, using substantively enacted income tax rates. A
valuation allowance is recorded against a future income tax asset if it is not
anticipated that the asset will be realized in the foreseeable future. The
effect of a change in the income tax rates used in calculating future income tax
liabilities and assets is recognized in income during the period that the change
occurs.
Liquidity and Capital Resources
(thousands of dollars)
For the three months For the six months
ended September 30, ended September 30,
----------------------------------------------------------------------------
Fiscal 2010 Fiscal 2009 Fiscal 2010 Fiscal 2009
Operating activities $24,708 $17,743 $62,503 $63,005
Investing activities (5,089) (3,460) (12,495) (3,668)
Financing activities,
excluding distributions 5,609 20,299 (5,587) 15,574
Gain on foreign exchange (5,829) 492 (6,928) 470
----------------------------------------------------------------------------
Increase in cash before
distributions 19,399 35,074 37,493 75,381
Distributions (cash
payments) (34,930) (26,952) (66,907) (53,525)
----------------------------------------------------------------------------
Increase in cash (15,531) 8,122 (29,414) 21,856
Cash - beginning of
period 45,211 41,044 62,289 27,310
----------------------------------------------------------------------------
Cash - end of period $29,680 $49,166 $29,680 $49,166
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating activities
Cash flow from operating activities for the three and six months ended September
30, 2009 was $24.7 million and $62.5 million, as compared to $17.7 million and
$63.0 million, respectively, for the same periods last year. The increase for
the current quarter resulted from increased net income that was partially offset
by higher amortization on the acquired customer contracts from Universal.
Investing activities
The Fund purchased capital and recorded intangible assets totaling $14.9 million
during the quarter, an increase from $1.1 million in the prior year comparable
quarter. Capital asset purchases and intangibles amounted to $22.3 million for
the six months ended September 30, 2009, compared with $1.3 million in the same
period last year. During the quarter a total of $11.1 million was spent on water
heater purchases for NEC. For the period ended September 30, 2009, the Fund
completed the acquisition of Universal Energy Group Ltd. in consideration for
JEEC exchangeable shares valued at $239.9 million. For further information on
the acquisition see page 4. On July 2, 2009, NEC, a wholly owned home services
subsidiary of UEG, acquired Newten Home Comfort Inc., an arm's length third
party that held a 20% interest of NHCLP. Accordingly, NHCLP became a wholly
owned subsidiary of Just Energy. NEC, which began operations in April 2008,
operates under the trade name of National Home Services ("NHS"). In the second
quarter of fiscal 2009, Just Energy purchased substantially all of the
commercial and residential customer contracts of CEG in British Columbia for
$1.8 million. CEG was a Western Canadian marketer of natural gas wholly owned by
SemCanada Energy Company ("SemCanada"), both of which filed for creditor
protection under the Companies' Creditors Arrangement Act on July 30, 2008. As
well, in fiscal 2009 the Fund entered into a limited partnership to form NHCLP
for an investment of $0.5 million.
Financing activities
Financing activities excluding distributions relate primarily to the drawdown of
the operating line for working capital requirements. During the three months
ended September 30, 2009, Just Energy had drawn a total of $7.1 million against
the credit facility versus $16.3 million drawn in the second quarter of fiscal
2009. See page 24 for additional discussion on Long term debt and financing.
The Fund's liquidity requirements are driven by the delay from the time that a
customer contract is signed until cash flow is generated. Approximately 50% of
an independent sales contractor's commission payment is made following
reaffirmation or verbal verification of the customer contract with most of the
remaining 50% being paid after the energy commodity begins flowing to the
customer.
The elapsed period between the times when a customer is signed to when the first
payment is received from the customer varies with each market. The time delays
per market are approximately two to six months. These periods reflect the time
required by the various LDCs to enroll, flow the commodity, bill the customer
and remit the first payment to Just Energy. In Alberta and Texas, Just Energy
receives payment directly from the customer.
Distributions (cash payments)
Investors should note that due to the institution of a distribution reinvestment
program ("DRIP") on December 20, 2007, a portion of dividends declared are not
paid in cash. Under the program, Unitholders can elect to receive their
distributions in units at a 2% discount to the prevailing market price rather
than the cash equivalent.
During the quarter, the Fund made cash distributions to its Unitholders in the
amount of $34.9 million, compared to $27.0 million in the prior year comparable
period, an increase of 30%. The increase in distributions is a result of the
JEEC exchangeable shares that were converted into units during the quarter. For
the six months ended September 30, 2009, cash distributions totaled $66.9
million compared to $53.5 million in the same period during fiscal 2009.
Just Energy will continue to utilize its cash resources for expansion into new
markets, growth in its existing customer base, as well as distributions to its
Unitholders.
At the end of the quarter, the annual rate for distributions per unit was $1.24.
The Fund intends to make distributions to its Unitholders, based upon cash
receipts of the Fund, excluding proceeds from the issuance of additional Fund
units, adjusted for costs and expenses of the Fund. The Fund's intention is for
Unitholders of record on the 15th day of each month to receive distributions at
the end of the month.
Balance Sheet as at September 30, 2009 compared to March 31, 2009
Cash decreased from $59.1 million as at March 31, 2009 to $29.7 million at
September 30, 2009. Long term debt has increased to $203.9 million from $76.5
million as a result of the Universal acquisition and is detailed on page 24. The
Just original credit facility increased to $78.7 million as a result of normal
injection of gas into storage, water heater funding and various other working
capital requirements. Working capital requirements in the U.S. and Alberta
result from the timing difference between customer consumption and cash
receipts. For electricity, working capital is required to fund the lag between
settlements with the suppliers and settlement with the LDCs. Restricted cash has
increased to $22.5 million from $7.6 million as at March 31, 2009 due to
additional cash collateral postings related to supply procurement related to the
Universal, Commerce and TGF entities.
The increase in accounts receivable from $249.5 million to $268.7 million is
primarily attributable to the increase in sales during the period as a result of
the Universal acquisition. Accounts payable and accrued liabilities has also
increased from $165.4 million to $192.1 million relating to added consumption as
a result of the 430,000 acquired Universal customers.
Gas in storage has increased from $6.7 million to $44.2 million for the second
quarter of fiscal 2010. The increased balance reflects injections into storage
for the expanding Illinois, New York and Indiana customer base, which occur from
April to November.
At the end of the quarter, Just Energy had delivered more gas to the LDCs in
Ontario and Quebec than customers had consumed. Since Just Energy is paid for
this gas when delivered yet recognizes revenue when the gas is consumed by the
customer, the balance sheet includes deferred revenue of $104.0 million and gas
delivered in excess of consumption of $85.6 million. At March 31, 2009,
customers had consumed more than had been delivered to the LDCs, thereby
resulting in unbilled revenues amounting to $0.8 million and accrued gas
accounts payable of $0.8 million.
Prepaid expenses have increased from $2.0 million to $25.1 million for the
second quarter of fiscal 2010. The increased balance relates to tax, rent and
various prepayments from the Commerce, Universal, TGF and NEC entities.
Current and long term debt and financing
(thousands of dollars)
Six months ended Six months ended
September 30, 2009 September 30, 2008
------------------ ------------------
Original Credit facility 78,672 76,500
TGF Credit facility 43,699 -
TGF Debentures 39,000 -
TGF Wheat production financing 421 -
TGF Operating facility 10,000 -
JEEC convertible debentures 80,271 -
Original Credit Facility
On July 1, 2009, in connection with the acquisition of UEG, Just Energy
increased its credit facility from $170 million to $250 million. As part of the
increase in the credit facility, Societe Generale and Alberta Treasury Branches
jointed Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank
of Canada and Bank of Nova Scotia as the syndicate of the lenders thereunder.
Under the new terms of the credit facility, effective July 1, 2009, Just Energy
is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees
of 4.0%, prime rate advances at Canadian and U.S. prime plus 3.0% and letters of
credit at 4.0%. As at September 30, 2009, the Canadian prime rate was 2.25% and
the U.S. prime rate was 3.25%. As at September 30, 2009, Just Energy had drawn
$78.7 million against the facility, versus $79.9 million drawn for the six
months of fiscal 2009. Just Energy's obligations under the credit facility are
supported by guarantees of certain subsidiaries and affiliates and secured by a
pledge of the assets of Just Energy and the majority of its operating
subsidiaries and affiliates. Just Energy is required to meet a number of
financial covenants under the credit facility agreement. As at September 30,
2009 and 2008, all of these covenants have been met.
TGF Credit facility
A credit facility of up to $50 million was established with a syndicate of
Canadian lenders was arranged to finance the construction of the ethanol plant
in 2007. The facility was further revised on March 18, 2009, and was converted
to a fixed repayment term of 10 years commencing March 1, 2009 which includes
interest costs at a rate of prime plus 2%, with principal repayments commencing
on March 1, 2010. To date, $5.0 million of the principal has been repaid. The
credit facility is secured by a demand debenture agreement, a first priority
security interest on all assets and undertakings of TGF and a general security
interest on all other current and acquired assets of TGF. The credit facility
includes certain financial covenants the more significant of which relate to
working capital, debt to equity ratio, debt service coverage and minimum
shareholder's equity. As at September 30, 2009 the amount owing under this
facility amounted to $43.7 million. During the three months ended September 30,
2009 interest costs under this facility amounted to $0.6 million. TGF is not in
compliance with its minimum working capital ratio of 0.85:1 with respect to its
$50 million senior debt obligation. This non-compliance may result in a fee of
up to 0.25% of the loan amount, at the Senior Lender's discretion.
TGF Debentures
A debenture purchase agreement with a number of private parties providing for
the issuance of up to $40 million aggregate principal amount of debentures was
entered into in 2006. The interest rate is 10.5% per annum, compounded annually
and payable quarterly. Interest is to be paid quarterly with quarterly principal
payments commencing October 1, 2009 in the amount of $1.0 million per quarter.
As at September 30, 2009 the amount owing under this facility amounted to $39.0
million. During the three months ended September 30, 2009, interest costs under
this facility amounted to $1.1 million. The credit facility includes certain
financial covenants the more significant of which relate to working capital,
debt service coverage and minimum shareholder's equity. On January 1, 2009, TGF
entered into an Agreement with its lenders to defer the compliance with the
financial covenants and the scheduled principal payments owing under the
Debenture until October 1, 2009.
TGF Wheat production financing
There is a credit facility under which wheat growers receive a cash advance
under the production contracts from a third party lender. As at September 30,
2009 $0.4 million was outstanding under this facility. TGF is also required to
pay the interest cost of the advances at a rate of prime plus 3%. During the
three months ended September 30, 2009, interest expense under this facility
amounted to $10 thousand dollars.
TGF Operating facilities
TGF also maintains a working capital facility for $10 million with a third party
lender bearing interest at prime plus 1% due in full on December 31, 2010. This
facility is secured by liquid investments on deposit with the lender. As at
September 30, 2009 the amount owing under the facility amounted to $10.0
million. A further operating facility of $7 million bearing interest at prime
plus 1% was arranged which is secured by inventory and accounts receivable of
which $4.1 million is available. As at September 30, 2009, the amount owing
under this facility amounted to $4.1 million. During the three months ended
September 30, 2009, interest expense under this facility amounted to $87
thousand dollars.
JEEC Convertible debentures
In conjunction with the acquisition of UEG on July 1, 2009, JEEC also acquired
the obligations of the convertible unsecured subordinated debentures issued by
Universal in October 2007 which have a face value of $90 million. The debentures
mature on September 30, 2014 unless converted prior to that date and bear
interest at an annual rate of 6% payable semi-annually on March 31 and September
30 of each year. Each $1,000 principal amount of the debentures is convertible
at any time prior to maturity or on the date fixed for redemption, at the option
of the holder, into approximately 27.3 units of the Fund representing a
conversion price of $36.63 per exchangeable share. During the three months ended
September 30, 2009, interest expense amounted to $1.7 million.
The debentures are not redeemable prior to October 1, 2010. On and after October
1, 2010, but prior to September 30, 2012, the debentures are redeemable, in
whole or in part, at a price equal to the principal amount thereof, plus accrued
and unpaid interest, at the Fund's sole option on not more than 60 days and not
less than 30 days prior notice, provided that the current market price on the
date on which notice of redemption is given is not less than 125% of the
conversion price. On and after September 30, 2012, but prior to the maturity
date, the debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at the Fund's
sole option on not more than 60 days and not less than 30 days prior notice.
Contractual Obligations
In the normal course of business, the Fund is obligated to make future payments
for contracts and other commitments that are known and non-cancelable.
Payments due by
period
(thousands of Total Less than 1 1 - 3 years 4 - 5 years After 5
dollars) year years
----------------------------------------------------------------------------
Property and
equipment lease
agreements $30,804 $6,804 $12,079 $6,159 $5,762
EPCOR billing,
collections and
supply commitments 27,007 5,913 21,094 - -
Grain production
contracts 31,781 19,548 11,537 696 -
Gas and electricity
supply purchase
commitments 4,142,830 888,805 2,375,882 834,581 43,562
----------------------------------------------------------------------------
$4,232,422 $ 921,070 $2,420,592 $841,436 $49,324
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other obligations
The Fund is also subject to certain contingent obligations that become payable
only if certain events or rulings were to occur. The inherent uncertainty
surrounding the timing and financial impact of these events or rulings prevents
any meaningful measurement, which is necessary to assess any material impact on
future liquidity. Such obligations include potential judgments, settlements,
fines and other penalties resulting from actions, claims or proceedings. In the
opinion of management, the Fund has no material pending actions, claims or
proceedings that have not been either included in its accrued liabilities or in
the financial statements.
Transactions with Related Parties
The Fund does not have any material transactions with any individuals or
companies that are not considered independent to the Fund or any of its
subsidiaries and/or affiliates.
Critical Accounting Estimates
The consolidated financial statements of the Fund have been prepared in
accordance with Canadian GAAP. Certain accounting policies require management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, cost of sales, marketing and general and administrative
expenses. Estimates are based on historical experience, current information and
various other assumptions that are believed to be reasonable under the
circumstances. The emergence of new information and changed circumstances may
result in actual results or changes to estimated amounts that differ materially
from current estimates.
The following assessment of critical accounting estimates is not meant to be
exhaustive. The Fund might realize different results from the application of new
accounting standards promulgated, from time to time, by various rule-making
bodies.
Unbilled revenues/Accrued gas accounts payable
Unbilled revenues result when customers consume more gas than has been delivered
by Just Energy to the LDCs. These estimates are stated at net realizable value.
Accrued gas accounts payable represents Just Energy' obligation to the LDC with
respect to gas consumed by customers in excess of that delivered. This
obligation is also valued at net realizable value. This estimate is required for
the gas business unit only, since electricity is consumed at the same time as
delivery. Management uses the current average customer contract price and the
current average supply cost as a basis for the valuation.
Gas delivered in excess of consumption/Deferred revenues
Gas delivered to LDCs in excess of consumption by customers is valued at the
lower of cost and net realizable value. Collections from LDCs in advance of
their consumption results in deferred revenues which are valued at net
realizable value. This estimate is required for the gas business unit only since
electricity is consumed at the same time as delivery. Management uses the
current average customer contract price and the current average supply cost as a
basis for the valuation.
Allowance for doubtful accounts
Just Energy assumes the credit risk associated with the collection of customers'
accounts in Alberta, Illinois and Texas. In addition, for large direct billed
accounts in B.C. and Ontario the Fund is responsible for the bad debt risk.
Management estimates the allowance for doubtful accounts in these markets based
on the financial conditions of each jurisdiction, the aging of the receivables,
customer and industry concentrations, the current business environment and
historical experience.
Goodwill
In assessing the value of goodwill for potential impairment, assumptions are
made regarding Just Energy' future cash flow. If the estimates change in the
future, the Fund may be required to record impairment charges related to
goodwill. An impairment review of goodwill was performed during fiscal 2009 and
as a result of the review, it was determined that no impairment of goodwill
existed at March 31, 2009. There were no events during the quarter which
triggered the requirement of an impairment test to be performed as at September
30, 2009.
Fair Value of Derivative Financial Instruments and Risk Management
The Fund has entered into a variety of derivative financial instruments
effectively all related to future supply contracts as part of the business of
purchasing and selling gas, electricity and the green energy option. Just Energy
enters into contracts with customers to provide electricity and gas at fixed
prices and provide comfort to certain customers that a specified amount of
energy will be derived from green generation. These customer contracts expose
Just Energy to changes in market prices to supply these commodities. To reduce
the exposure to the commodity market price changes, Just Energy uses derivative
financial and physical contracts to secure fixed price commodity supply matching
its delivery or green commitment obligations.
The Fund's business model objective is to minimize commodity risk other than
consumption changes, usually attributable to weather. Accordingly, it is Just
Energy' policy to hedge the estimated requirements of its customers with
offsetting hedges of natural gas and electricity at fixed prices for terms equal
to those of the customer contracts. The cash flow from these supply contracts is
expected to be effective in offsetting the Fund's price exposure and serves to
fix acquisition costs of gas and electricity to be delivered under the fixed
price or price protected customer contracts. Just Energy' policy is not to use
derivative instruments for speculative purposes.
The financial statements are in compliance with Section 3855 of the CICA
Handbook, which require a determination of fair value for all derivative
financial instruments. Up to June 30, 2008, the financial statements also
applied Section 3865 of the CICA Handbook which permitted a further calculation
for qualified and designated accounting hedges to determine the effective and
ineffective portion of the hedge. This calculation permitted the change in fair
value to be predominantly accounted for in the Statement of Other Comprehensive
Income. As of July 1, 2008, management decided that the increasing complexity
and costs of maintaining this treatment outweigh the benefits. This fair value,
(and when it was applicable, the ineffectiveness) is determined using market
information at the end of each quarter. Management believes the Fund remains
economically hedged operationally across all jurisdictions.
Preference shares of OESC and Trust units
As at November 5, 2009, there were 5,263,728 Class A preference shares of JEC
outstanding and 122,271,694 units of the Fund outstanding.
JEEC Exchangeable Shares
A total of 21,271,804 exchangeable shares of JEEC were issued on July 1 for the
purchase of Universal. JEEC shareholders have voting rights equivalent to fund
Unitholders and their shares are exchangeable on a 1:1 basis. As at November 5,
2009, 15,453,385 shares had been converted and there were 5,818,419 exchangeable
shares outstanding.
Taxability of distributions
Cash and unit distributions received in calendar 2008 were allocated as 100%
other income. Additional information can be found on our website at
www.justenergy.com. Management estimates the distributions for calendar 2009 to
be allocated in a similar manner to that of 2008.
Adoption of new accounting policies
As of April 1, 2009, the Fund adopted a new accounting standard that was issued
by the CICA; Handbook Section 3064, Goodwill and Intangible Assets, which
establishes revised standards for recognition, measurement, presentation and
disclosure of goodwill and intangible assets. Just Energy adopted this standard
retroactively as required by the standards.
Recently issued accounting standards
The following are new standards, not yet in effect, which are required to be
adopted by the Fund on the effective date:
Business combinations
In October 2008, the CICA issued Handbook Section 1582, Business Combinations
("CICA 1582"), concurrently with CICA Handbook Section 1601, Consolidated
Financial Statements ("CICA 1601"), and CICA Handbook Section 1602,
Non-controlling Interest ("CICA 1602"). CICA 1582, which replaces CICA Handbook
Section 1581, Business Combinations, establishes standards for the measurement
of a business combination and the recognition and measurement of assets acquired
and liabilities assumed. CICA 1601, which replaces CICA Handbook Section 1600,
carries forward the existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition other than
non-controlling interests. CICA 1602 establishes guidance for the treatment of
non-controlling interests subsequent to acquisition through a business
combination. These new standards are effective for fiscal years beginning on or
after January 1, 2011. The Fund has not yet determined the impact of these
standards on its consolidated financial statements.
International Financial Reporting Standards
In February 2008, the CICA announced that GAAP for publicly accountable
enterprises will be replaced by International Financial Reporting Standards
("IFRS") for fiscal years beginning on or after January 1, 2011.
Just Energy will transition to IFRS effective April 1, 2011, and intends to
issue, its first interim financial statement under IFRS for the three-month
period ending June 30, 2011, and a complete set of financial statements under
IFRS for the year ending March 31, 2012.
Just Energy has identified differences between Canadian GAAP and IFRS relevant
to the Fund and an initial assessment has been made of the impact of the
required changes to accounting systems, business processes, and requirements for
personnel training and development. A conversion plan was developed in March
2009 to manage the transition to IFRS.
As part of the conversion plan, the Fund is in the process of analyzing the
detailed impacts of these identified differences and developing solutions to
bridge these differences. Just Energy is currently on target with its conversion
plan.
Legal Proceedings
On March 3, 2008, the Citizen's Utility Board, AARP and Citizen Action/Illinois
filed a complaint before the Illinois Commerce Commission ("ICC") alleging that
independent sales agents used deceptive practices in the sale of Just Energy
contracts to Illinois customers. On October 14, 2009, the complaint proceeded to
a hearing by the ICC, which is currently ongoing.
On March 20, 2008, an Indiana resident filed a proposed consumer class action
against JEIC in Illinois also based on allegations similar to those made by the
Illinois Attorney General. The court dismissed the action and ordered the
plaintiff to refile in the proper jurisdiction. The action has been restricted
to Indiana plaintiffs on a limited basis.
On April 4, 2008, NYESC was served with a complaint initiated by a commercial
customer in New York that proposed a class action against NYESC, the Fund and
the LDC (Consolidated Edison) on behalf of residents of New York City. On
December 16, 2008, the court dismissed the complaint against the Fund, and the
complaint against NYESC was referred to arbitration. The plaintiff's
representative filed an appeal but let the appeal lapse. The plaintiff may
pursue a class action through arbitration.
The State of California has filed a number of complaints to the Federal
Regulatory Energy Commission ("FERC") against many suppliers of electricity,
including Commerce, a subsidiary of the Fund, with respect to events stemming
from the 2001 energy crises in California. Pursuant to the complaints, the State
of California is challenging the FERC's enforcement of its market-based rate
system. Although CEI did not own generation, the State of California is claiming
that CEI was unjustly enriched by the run-up caused by the alleged market
manipulation by other market participants. The proceedings are currently
ongoing.
Just Energy will resolve or vigorously contest the claims in these matters.
Management believes that the pending legal actions against JEIC, NYESC and
Commerce are not expected to have a material impact on the financial condition
of the Fund at this time.
Controls and Procedures
Except for the limitations on scope of design as noted below, during the most
recent interim period, there have been no changes in the Fund's policies and
procedures that comprise its internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
Limitation on Scope of Design
Section 3.3(1) of National Instrument 52-109, "Certification of Disclosure in
Issuer's Annual and Interim Filings", states that the Fund may limit its design
of disclosure controls and procedures and internal controls over financial
reporting for a business that it acquired not more than 365 days before the end
of the financial period to which the certificate relates. Under this section,
the Fund's CEO and CFO have limited the scope of the design, and subsequent
evaluation, of disclosure controls and procedures and internal controls over
financial reporting to exclude controls, policies and procedures of the
subsidiaries TGF and NEC acquired on July 1, 2009 as part of the UEG
acquisition.
Summary financial information pertaining to the UEG acquisition that was
included in the consolidated financial statements of the Fund as at September
30, 2009 is as follows (in thousands of dollars):
----------------------------------------------------------------------------
TGF NEC Total
----------------------------------------------------------------------------
Revenue (i) $16,449 $2,169 $18,618
----------------------------------------------------------------------------
Net loss(i) (2,960) (1,537) (4,497)
----------------------------------------------------------------------------
Current assets(ii) 10,630 6,748 17,378
----------------------------------------------------------------------------
Non-current assets(ii) 158,036 41,117 199,153
----------------------------------------------------------------------------
Current liabilities(ii) 55,922 1,162 57,084
----------------------------------------------------------------------------
Non-current liabilities(ii) 48,269 54,523 102,792
----------------------------------------------------------------------------
(i) Results from July 1, 2009 to September 30, 2009
(ii)Balance Sheet as at September 30, 2009
Corporate governance
Just Energy is committed to transparency in our operations and our approach to
governance meets all recommended standards. Full disclosure of our compliance
with existing corporate governance rules is available on our website at
www.esif.ca and is included in the Fund's May 15, 2009 management proxy
circular. Just Energy actively monitors the corporate governance and disclosure
environment to ensure timely compliance with current and future requirements.
Outlook
The major near-term activity of management is the continued consolidation of the
Universal operations into Just Energy. To date, the transition has proceeded
smoothly with significant accretion seen to the consolidated financial results
on a per unit basis. Management continues to rationalize overlap and has
identified certain Universal customers who will either not be renewed or who are
unlikely to elect renewal. These 145,000 customers generated margin of
approximately $9.5 million in the quarter and it is important to note that this
margin will no longer be generated in coming quarters. Further, there are
remaining non-recurring merger costs which will fall into the third and fourth
quarter of fiscal 2010. Accordingly, as noted in the first quarter, the very
high year to date rate of growth per unit for gross margin (34%) and
distributable cash (36%) will not be sustained during the third and fourth
quarters.
Management's continued best estimation is that Just Energy will see significant
growth its key operating measures on a per unit basis during fiscal 2010. Gross
margin and distributable cash after gross margin replacement per unit are
expected to grow by approximately 5 to 10%. Distributable cash after marketing
expenses is expected to grow at a slightly lower rate due to increased marketing
expenses associated with the continued strong customer additions and GEO product
growth. Investors will be updated in future quarters on growth expectations.
Overall, management believes that these operating results are exceptional based
on two quarters of extreme recessionary conditions.
The financial positions of the Fund's commodity suppliers remain sound based on
analysis by management as are those of the banks participating in the Credit
Facility. Management does not believe that weakness in the global credit markets
will have any near term impact on either existing business or the Fund's ability
to grow in the future.
Sales of the GEO products have been very strong with approximately 41% of all
customers added in the trailing 12 months taking some or all green energy
supply. Continued sales of GEO at these levels will alter the economics of Just
Energy as GEO customers are much more profitable than past five year fixed rate
customers. As these new GEO customers become a higher and higher percentage of
the overall Just Energy customer base, the results should be higher margins per
customer and improved renewal rates.
The economies of Just Energy's markets remain in a continued recession. The very
weak North American economic conditions and the turmoil in the credit and
financial markets have not affected Just Energy's growth rates or its ability to
realize high margin per customer. The major impact of the recession has been
higher customer attrition in the United States due to high levels of utility
shutoff following the winter billing period. These shutoffs not only maintained
attrition at a high level but combined with a mandated moratorium on Texas
electricity cut-offs, increased bad debt losses above the target range of 2-3%.
Management is confident that bad debt loss will be in the target range for the
year with the exception of Texas which is expected to be in the range of 4 to
5%. The Fund does not bear bad debt risk in Ontario, Quebec, Manitoba, British
Columbia (excluding large volume customers), New York, Indiana, Michigan, Ohio,
Pennsylvania, New Jersey and Maryland. These markets contain approximately 78%
of Just Energy's customers.
The Fund intends to continue its geographic expansion into new markets in the
United States both through organic growth and focused acquisitions. The Fund is
actively reviewing a number of further possible acquisitions. Just Energy
continues to actively monitor the progress of the deregulated markets in various
jurisdictions.
Changes made to the Income Tax Act require certain income trusts, including Just
Energy, to pay taxes after 2010, similar to those paid by taxable Canadian
corporations. The payment of such taxes will, in the future, reduce the cash
flow of the Fund, thereby reducing the amount available for distributions to
Unitholders. Just Energy is actively analyzing potential restructuring options
in preparation for conversion from a trust to a corporation on or before 2011.
Based on operations to date, it appears clear that the Fund will again have to
make a Special Distribution to avoid tax at the Trust level for calendar 2009.
The amount of the distribution is currently expected to be in the range of $0.10
to $0.15 per unit. The final amount will be declared on December 31, 2008 and
paid through a single distribution in early 2009. The final amount of the
distribution may vary based on financial performance in the third quarter.
JUST ENERGY INCOME FUND
CONSOLIDATED BALANCE SHEETS
(Unaudited - thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SEPTEMBER MARCH
30, 2009 31, 2009
ASSETS
CURRENT
Cash and cash equivalents $ 29,680 $ 59,094
Restricted cash 22,505 7,609
Accounts receivable 268,712 249,480
Gas delivered in excess of consumption 85,654 -
Gas in storage 44,229 6,690
Inventory 9,823 257
Unbilled revenues 770 57,779
Prepaid expenses and deposits 25,112 2,020
Corporate taxes recoverable 1,729 -
Current portion of future tax 42,065 -
Other assets -- current (Note 8a) 5,123 5,544
----------------------------------------------------------------------------
535,402 388,473
INTANGIBLE ASSETS (Note 6) 449,179 5,097
FUTURE INCOME TAX ASSETS 5,538 -
GOODWILL 171,994 117,061
PROPERTY, PLANT AND EQUIPMENT (less accumulated
amortization - $23,698; March 31, 2009 -
$19,790) 205,267 19,971
OTHER ASSETS -- LONG TERM (Note 9a) 10,681 5,153
----------------------------------------------------------------------------
$ 1,378,061 $ 535,755
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 192,121 $ 165,431
Customer rebates payable 7,013 7,309
Management incentive program payable 576 1,093
Unit distribution payable 13,028 10,977
Corporate taxes payable 14,718 1,906
Deferred revenue 104,020 -
Accrued gas accounts payable 721 41,379
Current portion of long-term debt (Note 7) 48,119 -
Other liabilities -- current (Note 9a) 547,126 519,352
----------------------------------------------------------------------------
927,442 747,447
LONG TERM DEBT (Note 7) 203,944 76,500
DEFERRED LEASE INDUCEMENTS 2,173 2,382
FUTURE INCOME TAX LIABILITIES 109,658 -
OTHER LIABILITIES -- LONG TERM (Note 9a) 484,894 401,720
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1,728,111 1,228,049
----------------------------------------------------------------------------
NON CONTROLLING INTEREST 21,209 292
----------------------------------------------------------------------------
EQUITY (DEFICIT)
Deficit $ (1,333,736) $ (1,470,277)
Accumulated other comprehensive income 299,961 364,566
----------------------------------------------------------------------------
(1,033,775) (1,105,711)
Unitholders' capital 646,711 398,454
Contributed surplus 15,805 14,671
----------------------------------------------------------------------------
Unitholders' deficit (371,259) (692,586)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 1,378,061 $ 535,755
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Commitments (Note 12)
JUST ENERGY INCOME FUND
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED SEPTEMBER 30
(Unaudited - thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009 2008
ACCUMULATED EARNINGS (DEFICIT)
Accumulated earnings (deficit), beginning
of period $ (712,427) $ 392,082
Net income (loss) 213,317 (889,758)
----------------------------------------------------------------------------
Accumulated earnings (deficit), end of period (499,110) (497,676)
----------------------------------------------------------------------------
DISTRIBUTIONS
Distributions, beginning of period (757,850) (604,013)
Distributions and dividends (74,590) (64,762)
Class A preference share distributions - net
of income taxes of $1,077 (2008 - $1,274) (2,186) (2,254)
----------------------------------------------------------------------------
Distributions, end of period (834,626) (671,029)
----------------------------------------------------------------------------
DEFICIT (1,333,736) (1,168,705)
----------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income,
beginning of period 364,566 40,789
Other comprehensive income (loss) (64,605) 459,252
----------------------------------------------------------------------------
Accumulated other comprehensive income, end of
period 299,961 500,041
----------------------------------------------------------------------------
UNITHOLDERS' CAPITAL (Note 8)
Unitholders' capital, beginning of period 398,454 358,103
Trust units exchanged 172,027 3,606
Trust units issued on exercise/exchange of
unit compensation (Note 8b) 536 4,981
Trust units issued 7,775 29,137
Exchangeable shares issued 239,946 -
Exchangeable shares exchanged (172,027)
Class A preference shares exchanged - (3,606)
----------------------------------------------------------------------------
Unitholders' capital, end of period 646,711 392,221
----------------------------------------------------------------------------
CONTRIBUTED SURPLUS (Note 8b) 15,805 13,094
----------------------------------------------------------------------------
Unitholders' deficit, end of period $ (371,259) $ (263,349)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY INCOME FUND
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - thousands of dollars except per unit amount)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2009 2008 2009 2008
SALES $ 434,659 $ 294,122 $ 833,669 $ 672,032
COST OF SALES 353,163 249,996 686,098 572,685
----------------------------------------------------------------------------
GROSS MARGIN 81,496 44,126 147,571 99,347
----------------------------------------------------------------------------
EXPENSES
General and
administrative
expenses 25,634 13,236 41,251 26,683
Capital tax expense
(recovery) 48 (66) 128 -
Marketing expenses 27,107 17,252 46,492 30,840
Unit based
compensation 976 897 1,633 1,754
Bad debt expense 3,856 2,462 7,685 3,525
Amortization of
intangible assets and
related supply
contracts (Note 6) 20,487 401 21,081 2,368
Amortization of
property, plant
and equipment 2,527 1,125 3,721 2,341
----------------------------------------------------------------------------
80,635 35,307 121,991 67,511
----------------------------------------------------------------------------
INCOME BEFORE THE
UNDERNOTED 861 8,819 25,580 31,836
INTEREST EXPENSE 4,946 965 5,426 1,856
CHANGE IN FAIR VALUE
OF DERIVATIVE
INSTRUMENTS (Note 9a) (138,515) 1,022,629 (226,395) 1,011,514
OTHER INCOME (558) (1,237) (1,314) (2,042)
----------------------------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAX 134,988 (1,013,538) 247,863 (979,492)
PROVISION FOR
(RECOVERY OF) INCOME
TAX 25,786 (89,548) 36,089 (89,734)
NON-CONTROLLING
INTEREST (1,488) - (1,543) -
----------------------------------------------------------------------------
NET INCOME (LOSS) $ 110,690 $ (923,990) $ 213,317 $ (889,758)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Income (loss) per
unit (Note 10)
Basic $ 0.83 $ (8.39) $ 1.75 $ (8.12)
Diluted $ 0.82 $ (8.39) $ 1.72 $ (8.12)
JUST ENERGY INCOME FUND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited - thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2009 2008 2009 2008
NET INCOME (LOSS) $ 110,690 $ (923,990) $ 213,317 $ (889,758)
----------------------------------------------------------------------------
Unrealized gain on
translation of self
sustaining operations 6,775 8,386 25,021 8,098
Unrealized and realized
gain on
derivative instruments
designated as cash flow
hedges prior to July
1, 2008 net of income
taxes of $89,256 (Note
9a) - - - 498,654
Amortization of deferred
unrealized gain of
discontinued hedges net
of income taxes of $7,918
(2008 - $11,214)
and $17,724 (2008 -
$11,127) for the three
and six months
respectively (Note 9a) (40,296) (51,962) (89,626) (47,500)
----------------------------------------------------------------------------
OTHER COMPREHENSIVE
INCOME (LOSS) (33,521) (43,576) (64,605) 459,252
----------------------------------------------------------------------------
COMPREHENSIVE INCOME
(LOSS) $ 77,169 $ (967,566) $ 148,712 $ (430,506)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
JUST ENERGY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - thousands of dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
Net inflow (outflow) of cash
related to the following
activities 2009 2008 2009 2008
OPERATING
Net income (loss) $ 110,690 $ (923,990) $ 213,317 $ (889,758)
----------------------------------------------------------------------------
Items not affecting cash
Amortization of intangible
assets and related supply
contracts 20,487 401 21,081 2,368
Amortization of property,
plant and equipment 2,527 1,125 3,721 2,341
Unit based compensation 976 897 1,633 1,754
Non controlling interest (1,488) - (1,543) -
Future income taxes 19,141 (90,752) 28,946 (91,766)
Financing charges,
non-cash portion 396 - 396 -
Other 569 (172) 482 (1,200)
Change in fair value of
derivative instruments (138,515) 1,022,629 (226,395) 1,011,514
----------------------------------------------------------------------------
(95,907) 934,128 (171,679) 925,011
----------------------------------------------------------------------------
Adjustments required to
reflect net cash receipts
from gas sales 26,023 17,667 34,717 22,149
----------------------------------------------------------------------------
Changes in non-cash
working capital (16,098) (10,062) (13,852) 5,603
----------------------------------------------------------------------------
24,708 17,743 62,503 63,005
----------------------------------------------------------------------------
FINANCING
Exercise of trust unit
options (Note 8a) - 3,955 - 4,293
Distributions and dividends
paid to Unitholders and
holders of Exchangeable
shares (33,837) (25,645) (64,721) (50,471)
Distributions to
Class A preference
shareholders (1,632) (1,896) (3,263) (4,328)
Tax impact on
distributions to
Class A preference
shareholders 539 589 1,077 1,274
Issuance of long-term
debt and increase in
bank indebtedness 12,718 21,098 20,244 23,598
Repayment of long-term
debt and bank
indebtedness (6,000) (4,754) (25,000) (12,308)
Restricted cash (1,109) - (831) (9)
----------------------------------------------------------------------------
(29,321) (6,653) (72,494) (37,951)
----------------------------------------------------------------------------
INVESTING
Purchase of capital assets (12,477) (1,118) (19,883) (1,326)
Water heater customer
acquisition costs and
other intangible
assets (2,411) - (2,411) -
Acquisitions (Note 5) 9,799 (2,342) 9,799 (2,342)
----------------------------------------------------------------------------
(5,089) (3,460) (12,495) (3,668)
----------------------------------------------------------------------------
Effect of foreign currency
translation on cash
balances (6,223) 492 (7,323) 470
----------------------------------------------------------------------------
NET CASH INFLOW (OUTFLOW) (15,531) 8,122 (29,414) 21,856
CASH, BEGINNING OF PERIOD 45,211 41,044 59,094 27,310
----------------------------------------------------------------------------
CASH, END OF PERIOD $ 29,680 $ 49,166 $ 29,680 $ 49,166
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental information
Interest paid $ 3,770 $ 974 $ 4,209 $ 1,915
Income taxes paid $ 5,502 $ 66 $ 6,479 $ 132
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
JUST ENERGY INCOME FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009
(thousands of dollars except where indicated and per unit amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements do not conform in all
respects to the requirements of Canadian generally accepted accounting
principles ("GAAP") for annual financial statements and should therefore be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Fund's annual report for fiscal 2009. The unaudited
interim consolidated financial statements have been prepared by management in
accordance with Canadian GAAP applicable to interim consolidated financial
statements and follow the same accounting policies and methods in their
applications as the most recent annual financial statements, except as described
in note 3.
2. ORGANIZATION
Just Energy Income Fund ("Just Energy" or the "Fund"), formerly known as Energy
Savings Income Fund, changed its name effective June 1, 2009.
Just Energy is an open-ended, limited-purpose trust established under the laws
of the Province of Ontario to hold securities and to distribute the income of
its directly or indirectly owned operating subsidiaries and affiliates: Just
Energy Ontario L.P. ("JE Ontario"), Just Energy Manitoba L.P. ("JE Manitoba"),
Just Energy Quebec L.P. ("JE Quebec"), Just Energy (B.C.) Limited Partnership
("JE BC"), Alberta Energy Savings L.P. ("AESLP"), Just Energy Alberta L.P. ("JE
Alberta"), Just Energy Illinois Corp. ("JEIC"), Just Energy New York Corp.
("JENYC"), Just Energy Indiana Corp. ("JEINC"), Just Energy Texas L.P.
("JETLP"), Just Energy Exchange Corp. ("JEEC"), Universal Energy Corporation
("UEC"), Universal Gas and Electric Corp. ("UGEC"), Commerce Energy Inc.
("CEI"), National Energy Corp. ("NEC"), Terra Grain Fuels ("TGF") and Newten
Home Comfort Inc. ("NHC") (collectively the "Just Energy Group").
3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
(A) ADOPTION OF NEW ACCOUNTING STANDARDS
On April 1, 2009, the Fund adopted a new accounting standard that was issued by
the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064,
Goodwill and Intangible Assets, which establishes revised standards for
recognition, measurement, presentation and disclosure of goodwill and intangible
assets. Just Energy adopted this standard retroactively as required by the
standards with no impact on the financial statements.
(B) RECENTLY ISSUED ACCOUNTING STANDARDS
The following are the new standards, not yet in effect, which are required to be
adopted by the Fund on the effective date:
Business combinations
In October 2008, the CICA issued Handbook Section 1582, Business Combinations
("CICA 1582"), concurrently with CICA Handbook Section 1601, Consolidated
Financial Statements ("CICA 1601"), and CICA Handbook Section 1602,
Non-controlling Interest ("CICA 1602"). CICA 1582, which replaces CICA Handbook
Section 1581, Business Combinations, establishes standards for the measurement
of a business combination and the recognition and measurement of assets acquired
and liabilities assumed. CICA 1601, which replaces CICA Handbook Section 1600,
carries forward the existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition other than
non-controlling interests. CICA 1602 establishes guidance for the treatment of
non-controlling interests subsequent to acquisition through a business
combination. These new standards are effective for fiscal years beginning on or
after January 1, 2011. The Fund has not yet determined the impact of these
standards on its consolidated financial statements.
International Financial Reporting Standards
In February 2008, CICA announced that GAAP for publicly accountable enterprises
will be replaced by International Financial Reporting Standards ("IFRS") for
fiscal years beginning on or after January 1, 2011.
Just Energy will transition to IFRS effective April 1, 2011, and intends to
issue its first interim financial statement under IFRS for the three-month
period ending June 30, 2011, and a complete set of financial statements under
IFRS for the year ending March 31, 2012.
Just Energy has identified differences between Canadian GAAP and IFRS relevant
to the Fund and an initial assessment has been made of the impact of the
required changes to accounting systems, business processes, and requirements for
personnel training and development. A conversion plan was developed in March
2009 to manage the transition to IFRS.
As part of the conversion plan, the Fund is in the process of analyzing the
detailed impacts of these identified differences and developing solutions to
bridge these differences. Just Energy is currently on target with its conversion
plan.
(C) ACCOUNTING POLICIES ADOPTED UPON ACQUISITION OF UNIVERSAL ENERGY GROUP LTD.
(NOTE 5)
(i) Inventory
Ethanol, ethanol in process and grain inventory are valued at the lower of cost
and net realizable value with cost being determined on a weighted average basis.
(ii) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
amortization. Amortization for property, plant and equipment related to the
Fund's ethanol plant is provided over estimated useful lives of 15 to 25 years
using the straight line method.
(iii) Water heater contracts
Water heater contracts represent the fair value of rental contracts on the
acquisition of various water heater contracts. These contracts are amortized
over their average estimated remaining life. The Fund regularly evaluates these
water heater contracts including the estimates of useful lives.
(iv) Effective interest rate method/Deferred financing charges
Deferred financing charges are included on loan balances and are recognized in
interest expense over the life of the resulting loan. The Fund uses the
effective interest rate method to recognize deferred financing charges whereby
the amount recognized varies over the life of the loan based on principal
outstanding.
4. SEASONALITY OF OPERATIONS
Just Energy's operations are seasonal. Gas consumption by customers is typically
highest in October through March and lowest in April through September.
Electricity consumption is typically highest in January through March and July
through September. Electricity consumption is lowest in October through December
and April through June.
5. ACQUISITIONS
(a) Acquisition of Universal Energy Group Ltd.
On July 1, 2009, Just Energy completed the acquisition of all of the outstanding
common shares of Universal Energy Group Ltd. ("UEG") pursuant to a plan of
arrangement (the "Arrangement"). Under the Arrangement, UEG shareholders
received 0.58 of an exchangeable share ("Exchangeable Share") of JEEC, a
subsidiary of Just Energy, for each UEG common share held. In aggregate,
21,271,804 Exchangeable Shares were issued pursuant to the Arrangement. Each
Exchangeable Share is exchangeable for a Trust Unit on a one-for-one basis at
any time at the option of the holder and entitles the holder to a monthly
dividend equal to 66 2/3% of the monthly distribution paid by Just Energy on a
Trust Unit. JEEC also assumed all the covenants and obligations of UEG in
respect of the UEG's outstanding 6% convertible unsecured subordinated
debentures (the "Debentures"). On conversion of the Debentures, holders will be
entitled to receive 0.58 of an Exchangeable Share in lieu of each UEG common
share that the holder was previously entitled to receive on conversion.
The acquisition of UEG was accounted for using the purchase method of
accounting. The Fund allocated the purchase price to the identified assets and
liabilities acquired based on their fair values at the time of acquisition as
follows:
CAD$
Net assets acquired:
Working capital (including cash of $10,319) $ 75,391
Electricity contracts and customer relationships 230,963
Gas contracts and customer relationships 247,189
Water heater contracts and customer relationships 22,700
Other intangible assets 2,721
Goodwill 59,294
Property, plant and equipment 171,918
Future tax liabilities (51,971)
Other liabilities -- current (164,148)
Other liabilities -- long-term (140,857)
Long-term debt (180,440)
Non-controlling interest (22,697)
--------------
$ 250,063
--------------
--------------
Consideration:
Transaction costs $ 10,117
Exchangeable shares 239,946
--------------
$ 250,063
--------------
--------------
All contracts and intangible assets are amortized over the average remaining
life at the time of acquisition. The gas and electricity contracts are amortized
over periods ranging from 8 to 57 months. The water heater contracts are
amortized over 174 months and the intangible assets are amortized over 6 months.
The purchase price allocation is considered preliminary and as a result it may
be adjusted during the year.
(b) Newten Home Comfort Inc.
On July 2, 2009, NEC, a wholly owned subsidiary of the Fund, acquired Newten
Home Comfort Inc., an arm's length third party that held a 20% interest in
Newten Home Comfort L.P. for $3.2 million, subject to adjustments based on
completed installations. Accordingly, Newten Home Comfort L.P. became a wholly
owned subsidiary of Just Energy. NEC carries on the business of renting and
selling water heaters. Prior to this, the Fund held an 80% equity interest in
Newten Home Comfort L.P.
(c) Acquisition of CEG's natural gas customers
During the prior fiscal year, Just Energy purchased substantially all of the
commercial and residential customer contracts of CEG Energy Options Inc. ("CEG")
in British Columbia. CEG was a Western Canada marketer of natural gas wholly
owned by SemCanada Energy Company, both of which filed for creditor protection
under the Companies' Creditors Arrangement Act on July 30, 2008. The customer
contracts had annualized volumes of approximately 4.9 million GJs.
The purchase price was allocated as follows:
Net assets acquired:
Gas contracts $ 1,842
--------------
--------------
Consideration:
Cash $ 1,842
--------------
--------------
The entire purchase price is being amortized over the average remaining life of
the contracts, which at the time of the acquisition was 20 months.
6. INTANGIBLE ASSETS
Accumulated Net Book
As at September 30, 2009 Cost Amortization Value
----------------------------------------------------------------------------
Gas contracts and customer relationships $ 240,219 $ 23,877 $ 216,342
Electricity contracts and customer
relationships 242,613 36,115 206,498
Water heater contracts 23,081 424 22,657
Other intangible assets 4,916 1,234 3,682
----------------------------------------------------------------------------
$ 510,829 $ 61,650 $ 449,179
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated Net Book
As at March 31, 2009 Cost Amortization Value
----------------------------------------------------------------------------
Gas contracts and customer relationships $ 2,223 $ 710 $ 1,513
Electricity contracts and customer
relationships 14,379 10,795 3,584
----------------------------------------------------------------------------
$ 16,602 $ 11,505 $ 5,097
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. LONG TERM DEBT AND FINANCING
September 30, March 31,
2009 2009
Credit facility (a) $ 78,672 $ 76,500
TGF Credit facility (b)(i) 43,699 -
TGF Debentures (b)(ii) 39,000 -
TGF Wheat production financing (b)(iii) 421 -
TGF Operating facilities (b)(iv) 10,000 -
JEEC Convertible debentures (c) 80,271 -
UEC Commodity trade financing (d) - -
---------------------------------------------------------------------------
252,063 76,500
Less: current portion (48,119) -
---------------------------------------------------------------------------
$ 203,944 $ 76,500
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The following table details the interest expense for the three and six months
ended September 30, 2009. Interest is expensed at the effective interest rate
For the three For the three For the six For the six
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
----------------------------------------------------------------------------
Credit
facility (a) $ 1,357 $ 965 $ 1,837 $ 1,856
TGF Credit
facility (b)(i) 618 - 618 -
TGF Debentures
(b)(ii) 1,128 - 1,128 -
TGF Wheat
production
financing
(b)(iii) 10 - 10 -
TGF Operating
facilities
(b)(iv) 87 - 87 -
JEEC Convertible
debentures (c) 1,746 - 1,746 -
UEC Commodity
trade
financing (d) - - - -
----------------------------------------------------------------------------
$ 4,946 $ 965 $ 5,426 $ 1,856
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) On July 1, 2009, in connection with the acquisition of UEG, Just Energy
increased its credit facility from $170 million to $250 million. The credit
facility is available to Just Energy to meet working capital requirements. As
part of the increase in the credit facility, Societe Generale and Alberta
Treasury Branches joined Canadian Imperial Bank of Commerce, Royal Bank of
Canada, National Bank of Canada and Bank of Nova Scotia as the syndicate of
lenders thereunder.
Interest is payable on outstanding loans at rates that vary with Bankers'
Acceptance, LIBOR, Canadian bank prime rate or U.S. prime rate. Under the terms
of the operating credit facility, Just Energy is able to make use of Bankers'
Acceptances and LIBOR advances at stamping fees of 4.0%, prime rate advances at
bank prime plus 3.0%, and letters of credit at 4.0%. As at September 30, 2009,
the Canadian prime rate was 2.25% and the U.S. prime rate was 3.25%. As at
September 30, 2009, Just Energy had drawn $78,672 (March 31, 2009 - $76,500)
against the facility and total letters of credit outstanding amounted to $21,244
(March 31, 2009 - $8,459). Just Energy has $150,084 of the facility remaining
for future working capital and security requirements. Just Energy's obligations
under the credit facility are supported by guarantees of certain subsidiaries
and affiliates and secured by a pledge of the assets of Just Energy and the
majority of its operating subsidiaries and affiliates. Just Energy is required
to meet a number of financial covenants under the credit facility agreement. As
at September 30, 2009 and 2008, all of these covenants have been met.
(b) In connection with the acquisition of UEG on July 1, 2009, the Fund acquired
the debt obligations of TGF, which is currently comprised of four separate
facilities, outlined below:
(i) TGF Credit facility
A credit facility of up to $50,000 with a syndicate of Canadian lenders was
arranged to finance construction of the ethanol plant in 2007. This facility was
further revised on March 18, 2009. The facility was converted to a fixed
repayment term of 10 years commencing March 1, 2009 and bears interest at a rate
of prime plus 2%, with principal repayments commencing on March 1, 2010. To
date, $5,000 of principal has been repaid. The credit facility is secured by a
demand debenture agreement, a first priority security interest on all assets and
undertakings of TGF and a general security interest on all other current and
after acquired assets of TGF. The credit facility includes certain financial
covenants the more significant of which relate to working capital, debt to
equity ratio, debt service coverage and minimum shareholder's equity. TGF is not
in compliance with its minimum working capital ratio of 0.85:1 with respect to
its $50,000 senior debt obligation. This non-compliance may result in a fee of
up to 0.25% of the loan amount, at the Senior Lender's discretion. As at
September 30, 2009 the amount owing under this facility amounted to $43,699. The
facility also provides for $2,000 of cash to be held for debt servicing
shortfalls.
(ii) TGF Debentures
A debenture purchase agreement with a number of private parties providing for
the issuance of up to $40,000 aggregate principal amount of debentures was
entered into in 2006 to provide funding for the construction of the ethanol
plant. The interest rate is 10.5% per annum, compounded annually and payable
quarterly. Interest is to be paid quarterly with quarterly principal payments
commencing October 1, 2009 in the amount of $1,000 per quarter. Security for the
debentures includes a security interest in all of TGF's present and after
acquired property, second in priority to the lenders in Note 10(a)(i). The
debenture agreeement includes certain financial covenants, the more significant
of which relate to working capital, debt service coverage and minimum
shareholder's equity. As at September 30, 2009, the amount owing under this
debenture agreement amounted to $39,000.
On January 1, 2009, TGF has entered into an Agreement ("Covenant Modification
Agreement") with its lenders to defer the compliance with the financial
covenants and the scheduled principal payments owing under the Debenture until
October 1, 2009.
(iii) TGF Wheat production financing
In 2006, TGF established a credit facility under which wheat growers receive a
cash advance under the production contracts from a third party lender (see Note
16(e)). Each wheat grower is limited to advances totaling $300 per signed
production contract. TGF will repay the cash advances to the lender upon
delivery of wheat to TGF by the grower. Should the grower fail to deliver the
wheat as specified in the production contract, TGF is obligated to repay any
outstanding cash advances plus interest to the lender. As at September 30, 2009,
$421 was outstanding under this facility. TGF is also required to pay the
interest cost of the advances at a rate of prime plus 3%.
(iv) TGF Operating facilities
TGF also maintains a working capital facility for $10,000 with a third party
lender bearing interest at prime plus 1% due in full on December 31, 2010. This
facility is secured by liquid investments on deposit with the lender. As at
September 30, 2009, the amount owing under the facility amounted to $10,000. A
further operating facility of $7,000 bearing interest at prime plus 1% was
arranged which is secured by inventory and accounts receivable of which 4,100 is
available. As at September 30, 2009, the amount owing under this facility
amounted to $4,050. In addition, unsecured letters of credit amounting to $1,700
were issued by the third party lender on behalf of TGF.
(c) In conjunction with the acquisition of UEG on July 1, 2009, JEEC also
acquired the obligations of the convertible unsecured subordinated debentures
issued by UEG in October, 2007. These instruments have a face value of $90,000.
The debentures mature on September 30, 2014 unless converted prior to that date
and bear interest at an annual rate of 6% payable semi-annually on March 31 and
September 30 of each year. Each $1,000 principal amount of the debentures is
convertible at any time prior to maturity or on the date fixed for redemption,
at the option of the holder, into approximately 27.3 Exchangeable Shares of Just
Energy Exchange Corp. representing a conversion price of $36.63 per Exchangeable
Share. During the three months ended September 30, 2009, interest expense
amounted to $1,746.
The debentures are not redeemable prior to October 1, 2010. On and after October
1, 2010, but prior to September 30, 2012, the debentures are redeemable, in
whole or in part, at a price equal to the principal amount thereof, plus accrued
and unpaid interest, at the Fund's sole option on not more than 60 days and not
less than 30 days prior notice, provided that the current market price on the
date on which notice of redemption is given is not less than 125% of the
conversion price. On and after September 30, 2012, but prior to the maturity
date, the debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at the Fund's
sole option on not more than 60 days and not less than 30 days prior notice.
(d) Commodity trade financing
Sempra Energy Trading Corp. ("Sempra") is a related party through which UEC and
UGEC purchases their natural gas supply and enters into electricity swap
agreements. In addition, Sempra provides commodity trade financing to UEC. The
commodity financing includes a facility of $5,000 for amounts deemed due for
payment under electricity swap contracts, which bears interest at LIBOR plus 2%.
The amount owing under this facility as at September 30, 2009 is $nil.
8. UNITHOLDERS' CAPITAL
(a) Trust units of the Fund
An unlimited number of units may be issued. Each unit is transferable, voting
and represents an equal undivided beneficial interest in any distributions from
the Fund whether of net income, net realized capital gains or other amounts, and
in the net assets of the Fund in the event of termination or winding-up of the
Fund.
The Fund intends to make distributions to its Unitholders based on the cash
receipts of the Fund, excluding proceeds from the issuance of additional Fund
units, adjusted for costs and expense of the Fund, amount which may be paid by
the Fund in connection with any cash redemptions or repurchases of units and any
other amount that the Board of Directors considers necessary to provide for the
payment of any costs which have been or will be incurred in the activities and
operations of the Fund. The Fund's intention is for Unitholders of record on the
15(th) day of each month to receive distributions at the end of the month,
excluding any special distributions.
Class A preference shares of Just Energy Corp. ("JEC")
The terms of the unlimited Class A preference shares of JEC are non-voting,
non-cumulative and exchangeable into trust units in accordance with the JEC
shareholders' agreement as restated and amended, with no priority on
dissolution. Pursuant to the amended and restated Declaration of Trust which
governs the Fund, the holders of Class A preference shares are entitled to vote
in all votes of Unitholders as if they were the holders of the number of units
that they would receive if they exercised their shareholder exchange rights.
Class A preference shareholders have equal entitlement to distributions from the
Fund as Unitholders.
Exchangeable shares of JEEC
On July 1, 2009, Just Energy completed the acquisition of all of the outstanding
common shares of Universal Energy Group Ltd. ("UEG") pursuant to a plan of
arrangement (the "Arrangement"). Under the Arrangement, UEG shareholders
received 0.58 of an exchangeable share ("Exchangeable Share") of Just Energy
Exchange Corp. ("JEEC"), a subsidiary of Just Energy, for each UEG common share
held. In aggregate, 21,271,804 Exchangeable Shares were issued pursuant to the
Arrangement. Each Exchangeable Share is exchangeable for a Trust Unit on a
one-for-one basis at any time at the option of the holder and entitles the
holder to a monthly dividend equal to 66 2/3% of the monthly distribution paid
by Just Energy on a Trust Unit.
Issued and Units/Shares 2009 Units/Shares 2008
Outstanding
Trust units
-----------
Balance, beginning of
period 106,138,523 $ 385,294 102,152,194 $ 341,337
Options exercised - - 30,000 378
Unit appreciation
rights exchanged 37,979 536 6,336 89
Distribution
reinvestment plan 641,806 7,775 485,568 6,440
Units issued - - 406,917 6,796
Exchanged from
Exchangeable shares 15,250,593 172,027 - -
Exchanged from Class
A preference shares - - 1,442,484 3,606
-----------------------------------------------------
Balance, end of
period 122,068,901 565,632 104,523,499 358,646
-----------------------------------------------------
Class A preference
shares
------------------
Balance, beginning of
period 5,263,728 13,160 6,706,212 16,766
Exchanged into units - - (1,442,484) (3,606)
-----------------------------------------------------
Balance, end of
period 5,263,728 13,160 5,263,728 13,160
-----------------------------------------------------
Exchangeable shares
-------------------
Balance, beginning of
period - - - -
Exchangeable shares
issued 21,271,804 239,946 - -
Exchanged into units (15,250,593) (172,027) - -
-----------------------------------------------------
Balance, end of
period 6,021,211 67,919 - -
-----------------------------------------------------
Unitholders' capital,
end of period 133,353,840 $ 646,711 109,787,227 $ 371,806
-----------------------------------------------------
-----------------------------------------------------
Distribution reinvestment plan
Under the Fund's distribution reinvestment program ("DRIP"), Unitholders holding
a minimum of 100 units can elect to receive their distributions (both regular
and special) in units rather than cash at a 2% discount to the simple average
closing price of the units for five trading days preceding the applicable
distribution payment date, providing the units are issued from treasury and not
purchased on the open market.
Units cancelled
During the prior fiscal year, the Fund obtained approval from its Board of
Directors to make a normal course issuer bid to purchase up to 9,000,000 units,
for the 12-month period commencing November 21, 2008 and ending November 20,
2009. A maximum of 44,754 units can be purchased during any trading day. No
units were purchased and cancelled during the six months ended September 30,
2009.
Units issued
During the six months ended September 30, 2009, the Fund issued 15,250,593 units
relating to the exchange of exchangeable shares. The exchangeable shares were
issued pursuant to Just Energy's acquisition of Universal Energy Group Ltd.
During the prior comparable period, the Fund issued 406,917 units relating to a
portion of the special distribution declared on December 31, 2007, payable in
units.
(b) Contributed surplus
Amounts credited to contributed surplus include unit based compensation awards,
unit appreciation rights ("UARs") and deferred unit grants ("DUGs"). Amounts
charged to contributed surplus are awards exercised during the year.
Contributed Surplus 2009 2008
---- ----
Balance, beginning of period $ 14,671 $ 12,004
Add: unit based compensation awards 1,633 857
non-cash deferred unit grants distributions 37 11
Less: unit based awards exercised (536) (130)
---------- ----------
Balance, end of period $ 15,805 $ 12,742
---------- ----------
---------- ----------
Total amounts credited to Unitholders' capital in respect of unit options and
deferred unit grants exercised or exchanged during the three and six months
ended September 30, 2009 amounted to $339 (2008 - $4,513) and $536 (2008 -
$4,981).
Cash received from options exercised for the three and six months ended
September 30, 2009 amounted to $nil (2008 - $3,955) and $nil (2008 - $4,293).
9. FINANCIAL INSTRUMENTS
(a) Fair value
The Fund has a variety of gas and electricity supply contracts that are captured
under section 3855, Financial Instruments -- Measurement and Recognition. Fair
value is the estimated amount that Just Energy would pay or receive to dispose
of these supply contracts in an arm's length transaction between knowledgeable,
willing parties who are under no compulsion to act. Management has estimated the
value of electricity and gas swap and forward contracts using a discounted cash
flow method which employs market forward curves that are either directly sourced
from third parties or are developed internally based on third party market data.
These curves can be volatile thus leading to volatility in the mark to market
with no impact to cash flows. Gas options have been valued using the Black
option value model using the applicable market forward curves and the implied
volatility from other market traded gas options.
Effective July 1, 2008, the Fund ceased the utilization of hedge accounting.
Accordingly, all the mark to market changes on the Fund's derivative instruments
are recorded on a single line on the consolidated statements of operations. Due
to the commodity volatility and size of the Fund, the quarterly swings in mark
to market on these positions will increase the volatility in the Fund's
earnings.
The following tables illustrates (gains)/losses related to the Fund's derivative
financial instruments classified as held-for-trading, recorded against other
assets and other liabilities with their offsetting values recorded in change in
fair value derivative instruments, for the three and six months ended September
30, 2009
Change In Fair Value of Derivative Instruments
For the For the For the For the
three three three three
months months months months
ended ended ended ended
September September September September
30, 30, 30, 30,
2009 2009 (USD) 2008 2008 (USD)
Canada
Fixed-for-floating electricity
swaps (i) $ (16,995) n/a $ 153,986 n/a
Renewable energy certificates
(ii) (1,585) n/a 248 n/a
Verified emission-reduction
certificates (iii) - n/a - n/a
Options (iv) 168 n/a 2,885 n/a
Physical gas forward contracts
(v) (44,301) n/a 569,760 n/a
Transportation forward
contracts (vi) 4,232 n/a 4,035 n/a
United States
Fixed-for-floating electricity
swaps (vii) (7,571) (7,000) 55,609 52,546
Physical electricity forwards
(viii) (10,975) (10,146) 77,939 73,646
Unforced capacity forward
contracts (ix) 1,449 1,340 3,544 3,349
Unforced capacity physical
contracts (x) 301 279 - -
Renewable energy certificates
(xi) 974 900 59 56
Verified emission-reduction
certificates (xii) 7 7 (59) (56)
Options (xiii) 962 889 13,891 13,126
Physical gas forward contracts
(xiv) (44,026) (40,701) 203,833 192,604
Transportation forward
contracts (xv) (623) (576) (832) (787)
Heat rate swaps (xvi) (74) (68) (230) (218)
Fixed financial swaps (xvii) (2,940) (2,718) - -
Foreign exchange forward
contracts (xviii) 816 n/a 833 n/a
Other 304
Amortization of deferred
unrealized gains of
discontinued hedges (48,214) n/a (63,176) n/a
Amortization of opening
fair value assigned to
derivative
financial instruments
acquired from
UEG 29,880 - n/a
---------------------------------------------------------------------------
Change In Fair Value of
Derivative Instruments $ (138,515) $ 1,022,629
---------------------------------------------------------------------------
Change In Fair Value of Derivative Instruments
For the For the For the For the
six six six six
months months months months
ended ended ended ended
September September September September
30, 30, 30, 30,
2009 2009 (USD) 2008 2008 (USD)
Canada
Fixed-for-floating
electricity swaps (i) $ 14,152 n/a $ 153,875 n/a
Renewable energy
certificates (ii) (1,839) n/a $ 720 n/a
Verified emission-reduction
certificates (iii) - n/a - n/a
Options (iv) 960 n/a $ 391 n/a
Physical gas forward
contracts (v) (54,114) n/a $ 569,760 n/a
Transportation forward
contracts (vi) 7,488 n/a $ 4,035 n/a
United States
Fixed-for-floating
electricity swaps (vii) (11,173) (10,196) 52,906 50,050
Physical electricity
forwards (viii) (33,155) (29,834) 77,939 73,646
Unforced capacity forward
contracts (ix) (1,191) (1,004) 3,488 3,294
Unforced capacity physical
contracts (x) 301 279 - -
Renewable energy
certificates (xi) 1,386 1,266 117 113
Verified emission-reduction
certificates (xii) 216 192 (59) (56)
Options (xiii) 2,265 2,046 5,179 4,557
Physical gas forward
contracts (xiv) (70,312) (64,034) 203,833 192,604
Transportation forward
contracts (xv) (706) (649) (832) (787)
Heat rate swaps (xvi) (1,537) (1,368) (228) (216)
Fixed financial swaps (xvii) (3,339) (3,073) - -
Foreign exchange forward
contracts (xviii) 1,671 n/a (674) n/a
Other
Amortization of deferred
unrealized gains of
discontinued hedges (107,348) n/a (58,627) n/a
Amortization of opening fair
value assigned to derivative
financial instruments
acquired from UEG $ 29,880 n/a - n/a
----------------------------------------------------------------------------
Change In Fair Value of
Derivative Instruments $ (226,395) $ 1,011,823
----------------------------------------------------------------------------
The following table illustrates (gains)/losses representing the ineffective
portion of the Fund's designated hedges prior to July 1, 2008, recorded against
other assets and other liabilities with their offsetting values recorded in
change in fair value of derivative instruments:
Change In Fair Value of Derivative Instruments
For the For the For the For the
six six six six
months months months months
ended ended ended ended
September September September September
30, 30, 30, 30,
2009 2009 (USD) 2008 2008 (USD)
Canada
Fixed-for-floating
electricity swaps (i) $ - n/a $ (476) n/a
United States
Fixed-for-floating
electricity swaps (vii) - - 167 164
----------------------------------------------------------------------------
Change In Fair Value of
Derivative Instruments $ - $ (309)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Change In Fair value
of Derivative Instruments $ (226,395) $1,011,514
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates (gains)/losses to the Fund's designated hedges
prior to July 1, 2008, recorded against other assets and other liabilities with
their offsetting values recorded in other comprehensive income:
Other Comprehensive Income
For the For the
six six
months months
ended ended
September September
30, 30,
2008 2008 (USD)
Canada
Fixed-for-floating
electricity swaps (i) $ (75,354) n/a
Renewable energy
certificates (ii) - n/a
Verified emission-reduction
certificates (iii) - n/a
Options (iv) - n/a
Physical gas forward
contracts (v) (313,071) n/a
Transportation forward
contracts (vi) (5,958) n/a
United States
Fixed-for-floating
electricity swaps (vii) (40,473) (39,808)
Physical electricity
forwards (viii) (30,573) (30,071)
Unforced capacity forward
contracts (ix) (4,743) (4,665)
Renewable energy
certificates (xi) - -
Verified emission-reduction
certificates (xii) - -
Options (xiii) - -
Physical gas forward
contracts (xiv) (124,760) (122,711)
Transportation forward
contracts (xv) 7,022 6,907
Heat rate swaps (xvi) - -
Fixed financial swaps (xvii) - -
Foreign exchange forward
contracts (xviii) - -
Amortization of deferred
unrealized gains of
discontinued hedges (4,550) -
----------------------------------------------------------------------------
Other Comprehensive Income $ (592,460)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the financial statements as at September 30, 2009:
Other Other Other Other
assets assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps (i) $ - $ - $ 238,902 $ 227,691
Renewable energy
certificates (ii) 1,093 1,121 - 53
Verified emission-reduction
certificates (iii) - - - -
Options (iv) - - 426 953
Physical gas forward
contracts (v) 25 - 169,743 145,835
Transportation forward
contracts (vi) 5 1,165 3,179 3,624
United States
Fixed-for-floating
electricity swaps (vii) - - 23,957 17,626
Physical electricity
forwards (viii) 468 1,285 22,305 23,647
Unforced capacity forward
contracts (ix) 441 520 - -
Unforced capacity
physical contracts (x) - - 298 -
Renewable energy
certificates (xi) 36 36 531 745
Verified emission-reduction
certificates (xii) - - 40 166
Options (xiii) - - 1,705 1,469
Physical gas forward
contracts (xiv) - - 77,958 62,003
Transportation forward
contracts (xv) 240 19 821 1,082
Heat rate swaps (xvi) 887 1,430 609 -
Fixed financial swaps (xvii) - 5,105 6,652 -
Foreign exchange forward
contracts (xviii) 1,928 - - -
----------------------------------------------------------------------------
As at September 30, 2009 $ 5,123 $ 10,681 $ 547,126 $ 484,894
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the financial statements as at March 31, 2009:
Other Other Other Other
assets assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps (i) $ - $ - $ 149,476 $ 158,289
Renewable energy
certificates (ii) 94 251 - 23
Verified emission-reduction
certificates (iii) - - - -
Options (iv) 792 23 237 997
Physical gas forward
contracts (v) - - 198,329 103,734
Transportation forward
contracts (vi) 787 2,160 927 163
United States
Fixed-for-floating
electricity swaps (vii) - - 34,997 24,577
Physical electricity
forwards (viii) - - 48,242 41,456
Unforced capacity forward
contracts (ix) 19 213 366 -
Unforced capacity physical
contracts (x) - - - -
Renewable energy
certificates (xi) 57 191 19 48
Verified emission-reduction
certificates (xii) - - - -
Options (xiii) 395 - 204 1,349
Physical gas forward
contracts (xiv) - - 84,010 69,627
Transportation forward
contracts (xv) 4 - 961 1,457
Heat rate swaps (xvi) 72 1,171 956 -
Fixed financial swaps (xvii) - 869 628 -
Foreign exchange forward
contracts (xviii) 3,324 275 - -
----------------------------------------------------------------------------
As at March 31, 2009 $ 5,544 $ 5,153 $ 519,352 $ 401,720
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes financial instruments classified as held for
trading as at September 30, 2009 to which the Fund is committed.
Total
Contract Type Notional Remaining Maturity Date
Volume Volume
Canada
-----------------------------------------------------------------------
(i) Fixed-for-floating 0.0001-50 16,269,370 October 1, 2009 -
electricity swaps (1) MWh MWh August 18, 2016
-----------------------------------------------------------------------
(ii) Renewable energy 10-90,000 1,369,922 December 31, 2009 -
certificates MWh MWh December 31, 2014
-----------------------------------------------------------------------
(iii) Verified emission 50,000 250,000 December 31, 2009 -
reduction certificates Tonnes Tonnes December 31, 2013
-----------------------------------------------------------------------
(iv) Options 46-40,500 7,418,480 October 31, 2009 -
GJ/month GJ February 28, 2014
-----------------------------------------------------------------------
(v) Physical gas forward 5-12,900 174,921,092 October 31, 2009 -
contracts GJ/day GJ April 30, 2015
-----------------------------------------------------------------------
(vi) Transportation forward 12-50,000 76,937,238 October 31, 2009 -
contracts GJ/day GJ October 31, 2013
-----------------------------------------------------------------------
Fair Value Notional
Contract Type Fixed Price Favourable/ Value
(Unfavourable)
Canada
--------------------------------------------------------------------------
(i) Fixed-for-floating $ 41.50-$128.13 ($466,594) $ 1,183,669
electricity swaps (1)
--------------------------------------------------------------------------
(ii) Renewable energy $3.00-$26.00 $2,161 $8,244
certificates
--------------------------------------------------------------------------
(iii) Verified emission $11.50 $- $2,875
reduction certificates
--------------------------------------------------------------------------
(iv) Options $5.50-$13.20 ($1,379) $13,345
--------------------------------------------------------------------------
(v) Physical gas forward $3.35-$10.00 ($315,553) $ 1,378,662
contracts
--------------------------------------------------------------------------
(vi) Transportation forward $0.01-$1.68 ($5,634) $61,958
contracts
--------------------------------------------------------------------------
Total
Contract Type Notional Remaining Maturity Date
Volume Volume
United States
---------------------------------------------------------------------------
(vii) Fixed-for-floating 0.10-14.70 2,132,591 October 31, 2009 -
electricity swaps (1) MW/h MWh September 30, 2014
---------------------------------------------------------------------------
(viii) Physical electricity 1-75 4,864,891 October 1, 2009 -
forwards MW/h MWh September 30, 2014
---------------------------------------------------------------------------
(ix) Unforced capacity 5-40 1,710 October 31, 2009 -
forward contracts MWCap MWCap November 30, 2012
---------------------------------------------------------------------------
(x) Unforced capacity 0.9-132.80 399 October 31, 2009 -
physical contracts MWCap MWCap December 31, 2009
---------------------------------------------------------------------------
(xi) Renewable energy 936-110,000 1,350,903 December 31, 2009 -
certificates MWh MWh December 31, 2014
---------------------------------------------------------------------------
(xii) Verified emission 10,000-40,000 170,000 December 31, 2009 -
reduction certificates Tonnes Tonnes December 31, 2012
---------------------------------------------------------------------------
(xiii) Options 5-170,000 8,816,025 October 31, 2009 -
mmBTU/month mmBTU December 31, 2014
---------------------------------------------------------------------------
(xiv) Physical gas forward 5-6,000 65,839,551 October 1, 2009 -
contracts mmBTU/day mmBTU July 31, 2014
---------------------------------------------------------------------------
(xv) Transportation forward 62-9,000 38,302,732 October 1, 2009 -
contracts mmBTU/day mmBTU January 31, 2013
---------------------------------------------------------------------------
(xvi) Heat rate swaps 1-30 2,488,666 October 31, 2009 -
MWh MWh September 30, 2014
---------------------------------------------------------------------------
(xvii) Fixed financial swap 100-238,700 27,471,140 October 31, 2009 -
mmBTU/month mmBTU November 30, 2014
---------------------------------------------------------------------------
(xviii) Foreign exchange $ 1,981-$2,258 N/A October 7, 2009 -
forward contracts(2) (US $2,000) April 7, 2010
---------------------------------------------------------------------------
Fair Value Notional
Contract Type Fixed Price Favourable/ Value
(Unfavourable)
United States
----------------------------------------------------------------------------
(vii) Fixed-for-floating $46.04-$146.42 ($41,582) $196,296
electricity swaps(1) (US$43.00-$136.75) (US($38,837)) (US$183,334)
----------------------------------------------------------------------------
(viii) Physical electricity $23.55-$118.04 ($44,200) $323,085
forwards (US$22.00-$110.25) (US($41,281)) (US$301,751)
----------------------------------------------------------------------------
(ix) Unforced capacity $3,212-$8,566 $961 $9,695
forward contracts (US$3.000-$8,000) (US$898) (US$9,055)
----------------------------------------------------------------------------
(x) Unforced capacity $1,071-$8,159 ($298) $1,844
physical contracts (US$1,000-$7,620) (US($279)) (US$1,722)
----------------------------------------------------------------------------
(xi) Renewable energy $1.39-$35.33 ($1,203) $8,054
certificates (US$1.30-$33.00) (US($1,124)) (US$7,522)
----------------------------------------------------------------------------
(xii) Verified emission $8.57-$9.10 ($206) $1,490
reduction certificates (US$8.00-$8.50) (US$(192)) (US$1,392)
----------------------------------------------------------------------------
(xiii) Options $6.53-$14.78 ($3,174) $14,715
(US$6.10-$13.80) (US($2,965)) (US$13,743)
----------------------------------------------------------------------------
(xiv) Physical gas forward $3.58-$12.72 ($139,961) $604,646
contracts (US$3.34-$11.88) (US($130,719)) (US$564,720)
----------------------------------------------------------------------------
(xv) Transportation forward $0.01-$0.64 ($1,644) ($5,175)
contracts (US$0.01-$0.60) (US($1,536)) (US($4,833))
----------------------------------------------------------------------------
(xvi) Heat rate swaps $28.14-$96.87 $1,708 $143,002
(US$26.28-$90.47) (US$1,595) (US$133,559)
----------------------------------------------------------------------------
(xvii) Fixed financial swap $3.82-$8.90 ($1,548) $196,420
(US$3.57-$8.31) (US($1,446)) (US$183,450)
----------------------------------------------------------------------------
(xviii) Foreign exchange $0.9906-$1.1289 $1,928 $29,980
forward contracts(2) (US$28,000)
----------------------------------------------------------------------------
(1) The electricity fixed-for-floating contracts related to the Province of
Alberta are predominantly load-following, wherein the quantity of
electricity contained in the supply contract "follows" the usage of
customers designated by the supply contract. Notional volumes
associated with these contracts are estimates and subject to change
with customer usage requirements. There are also load shaped
fixed-for-floating contracts in Ontario, New York, and Texas wherein
the quantity of electricity is established but varies throughout the
term of the contracts.
(2) Hedge accounting was applied to most of these forwards up to September
30, 2006. However, the hedge was de-designated and a loss of $195 for
the year ended March 31, 2007 was recorded in other liabilities. As the
required hedge accounting effectiveness was achieved for certain
quarters of fiscal 2007, a $1,933 gain was deferred and recorded in
AOCI and is being recognized in the Statement of Operations over the
remaining term of each hedging relationship.
The following table summarizes the nature of financial assets and liabilities
recorded in the financial statements for the six months ended September 30,
2009.
September 30, 2009 September 30, 2008
Loss on cash Loss on cash
flow hedges Unrealized flow hedges Unrealized
transferred gain transferred gain
from Other recorded from Other recorded
Comprehensive in Other Comprehensive in Other
Income to the Compre- Income to the Compre-
Statement of hensive Statement of hensive
Operations Income Operations Income
Canada
Fixed-for-floating
electricity swaps (i) $ - $ - $ (19,208) $ 94,562
Physical gas forward
contracts and
transportation forward
contracts (v) - - (135,808) 454,838
United States
Fixed-for-floating
electricity swaps (vii) - - (13,826) 54,299
Physical electricity
contracts (viii) - - (30,659) 61,232
Unforced capacity
forward contracts (ix) - - - 4,743
Physical gas forward
contracts and
transportation forward
contracts (xiii) - - (26,184) 143,922
Amortization of deferred
unrealized gains of
discontinued hedges (107,348) - (58,627) -
----------------------------------------------------------------------------
Total realized and
unrealized
gains/(losses) $ (107,348) $ - $ (284,312) $ 813,596
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The estimated amortization of deferred gains and losses reported in AOCI that is
expected to be amortized to net income within the next 12 months is a gain of
$161,442.
(b) Classification of Financial Assets and Liabilities
The following table represents the fair values and carrying amounts of financial
assets and liabilities measured at fair value or amortized cost:
As at September 30, 2009 Carrying amount Fair value
Cash and cash equivalents and restricted cash $ 52,185 $ 52,185
Accounts receivable $ 268,712 $ 268,712
Accounts payable and accrued liabilities,
customer rebates payable, management incentive
program payable and unit distribution payable $ 212,738 $ 212,738
Long-term debt $ 252,063 $ 256,167
For the three For the three
months ended months ended
September 30, 2009 September 30, 2008
Gain on accounts payable and
accrued liabilities $ - $ (298)
Interest expense on financial
liabilities not held for trading $ 4,946 $ 965
For the six For the six
months ended months ended
September 30, 2009 September 30, 2008
Interest expense on financial
liabilities not held for trading $ 5,426 $ 1,844
The carrying value of cash, restricted cash, accounts receivable, accounts
payable and accrued liabilities, management incentive program payable and unit
distribution payable approximates their fair value due to their short term
liquidity.
The carrying value of the long-term debt approximates its fair value as the
interest payable on outstanding amounts at rates that vary with Bankers'
Acceptance, LIBOR, Canadian bank prime rate or U.S. prime rate.
(c) Management of risks arising from financial instruments
The risks associated with the Fund's financial instruments are as follows:
(i) Market risk
Market risk is the potential loss that may be incurred as a result of changes in
the market or fair value of a particular instrument or commodity. Components of
market risk to which the Fund is exposed are discussed below:
Foreign currency risk
Foreign currency risk is created by fluctuations in the fair value or cash flows
of financial instruments due to changes in foreign exchange rates and exposure
as a result of investment in U.S. operations.
A portion of Just Energy's earnings is generated in U.S. dollars and is subject
to currency fluctuations. The performance of the Canadian dollar relative to the
U.S. dollar could positively or negatively affect Just Energy's earnings. Due to
its growing operations in the U.S. and recent acquisition of UEG, Just Energy
expects to have a greater exposure in the future to U.S. fluctuations than in
prior years.
The Fund may, from time to time, experience losses resulting from fluctuations
in the values of its foreign currency, which could adversely affect operating
results.
With respect to translation exposure, as at September 30, 2009, if the Canadian
dollar had been 5% stronger or weaker against the U.S. dollar, assuming that all
the other variables had remained constant, net income for the three months ended
September 30, 2009 would have been $7,540 lower/higher and other comprehensive
income would have been $13,100 lower/higher.
Interest rate risk
Just Energy is also exposed to interest rate fluctuations associated with its
floating rate credit facility. Just Energy's current exposure to interest rates
does not economically warrant the use of derivative instruments. The Fund's
exposure to interest rate risk is relatively immaterial and temporary in nature.
As such, the Fund does not believe that this long-term debt exposes it to
material financial risks and has determined that there is no need to set out
parameters to actively manage this risk.
A 1% increase (decrease) in interest rates would have resulted in a decrease
(increase) in income before taxes for the three and six months ended September
30, 2009 of approximately $180 (2008 - $195) and $342 ($352), respectively.
Commodity price risk
Just Energy is exposed to market risks associated with commodity prices and
market volatility where estimated customer requirements do not match actual
customer requirements. Just Energy's exposure to market risk is affected by a
number of factors, including accuracy of the estimation of customer commodity
requirements, commodity prices, volatility and liquidity of markets. Just Energy
enters into derivative instruments in order to manage exposures to changes in
commodity prices. The derivative instruments that are used are designed to fix
the price of supply for estimated customer commodity demand in Canadian dollars
and thereby fix margins such that Unitholder distributions can be appropriately
established. Derivative instruments are generally transacted over-the-counter.
These derivative financial instruments create a credit risk for Just Energy
since they have been transacted with a limited number of counterparties. Should
any counterparty be unable to fulfill its obligations under the contracts, Just
Energy may not be able to realize the other asset balance recognized in the
financial statements. The inability or failure of Just Energy to manage and
monitor the above market risks could have a material adverse effect on the
operations and cash flows of Just Energy.
Other assets and Other liabilities on the Consolidated Balance Sheets represent
the fair value of the derivative instruments. As a result of commodity
volatility and the size of the Fund, annual swings in the mark to market on the
Fund's positions could have a significant impact on these balances.
As at September 30, 2009, if the electricity prices had risen (fallen) by 10%,
assuming that all the other variables had remained constant, income before taxes
for the six months ended September 30, 2009 would have increased (decreased) by
$107,436 ($107,336) primarily as a result of the change in the fair value of the
Fund's derivative instruments.
As at September 30, 2009, if the natural gas prices had risen (fallen) by 10%,
assuming that all the other variables had remained constant, income before taxes
for the six months ended September 30, 2009 would have increased (decreased) by
$167,134 ($166,627) primarily as a result of the change in the fair value of the
Fund's derivative instruments.
Changes in gas and electricity prices will not significantly impact the Fund's
gross margin percentage due to its fixed-price contracts with its customers.
(ii) Credit risk
Credit risk is the risk that one party to a financial instrument fails to
discharge an obligation and causes financial loss to another party. Just Energy
is exposed to credit risk in two specific areas: Customer Credit Risk and
Counterparty Credit Risk.
Customer Credit Risk
In Alberta, Texas, Illinois, Pennsylvannia, California and Maryland, Just Energy
has customer credit risk and therefore, credit review processes have been
implemented to perform credit evaluations of customers and manage customer
default. If a significant number of customers were to default on their payments,
it could have a material adverse effect on the operations and cash flow of Just
Energy. Management factors default from credit risk in its margin expectations
for all the above markets.
As at September 30, 2009, accounts receivables from Alberta, Texas, Illinois,
Pennsylvania, California and Maryland with a carrying value of $18,919 (March
31, 2009 - $17,022) were past due but not doubtful. As at September 30, 2009 the
aging of the accounts receivables from Alberta, Texas, Illinois, Pennsylvania,
California and Maryland was as follows:
Current $ 27,666
1 - 30 days 12,046
31 - 60 days 3,786
61 - 90 days 2,352
Over 90 days 22,105
--------------
$ 67,955
--------------
For the six months ended September 30, 2009, changes in the allowance for
doubtful accounts were as follows:
Balance, beginning of period $ 8,657
Provision for doubtful accounts 7,685
Provision for receivable acquired (73)
Bad debts written off (8,275)
Others (1,260)
--------------
Balance, end of period $ 6,807
--------------
For the remaining markets, the LDCs provide collection services and assume the
risk of any bad debts owing from Just Energy's customers for a fee. Management
believes that the risk of the LDCs failing to deliver payment to Just Energy is
minimal. There is no assurance that the LDCs that provide these services will
continue to do so in the future.
Counterparty Credit Risk
Counterparty credit risk represents the loss that Just Energy would incur if a
counterparty fails to perform under its contractual obligations. This risk would
manifest itself in Just Energy replacing contracted supply at prevailing market
rates thus impacting the related customer margin or replacing contracted foreign
exchange at prevailing market rates impacting the related Canadian dollar
denominated distributions. Counterparty limits are established within the Risk
Management Policy. Any exception to these limits requires approval from the
Board of Directors of JEC. The Risk Office and Risk Committee monitor current
and potential credit exposure to individual counterparties and also monitor
overall aggregate counterparty exposure. However, the failure of a counterparty
to meet its contractual obligations could have a material adverse effect on the
operations and cash flows of Just Energy.
As at September 30, 2009, the maximum credit risk exposure amounted to
$4,225,806, representing the notional value of its derivative financial
instruments and accounts receivable.
(iii) Liquidity risk
Liquidity risk is the potential inability to meet financial obligations as they
fall due. The Fund manages this risk by monitoring detailed weekly cash flow
forecasts covering a rolling six-week period, monthly cash forecasts for the
next 12 months, and quarterly forecasts for the following two-year period to
ensure adequate and efficient use of cash resources and credit facilities.
(iv) Supplier risk
Just Energy purchases the majority of the gas and electricity delivered to its
customers through long term contracts entered into with various suppliers. Just
Energy has an exposure to supplier risk as the ability to continue to deliver
gas and electricity to its customers is reliant upon the ongoing operations of
these suppliers and their ability to fulfill their contractual obligations. Just
Energy has discounted the fair value of its financial assets by $1,098 to
accommodate for its counterparties' risk of default. A significant portion of
these gas and electricity purchases is from Shell Energy North America and its
affiliates.
10. INCOME (LOSS) PER UNIT
Three months ended Six months ended
September 30 September 30
2009 2008 2009 2008
Basic income (loss) per unit
----------------------------
Net income (loss) available
to Unitholders $ 110,690 $ (923,990) $ 213,317 $ (889,758)
---------- ------------ --------- ------------
Weighted average number of
units outstanding 118,294 104,893 112,303 103,628
Weighted average number of
Class A preference shares 5,263 5,263 5,263 5,981
Weighted average number of
Exchangeable shares 9,268 - 4,659 -
---------- ------------ --------- ------------
Basic units and shares
outstanding 132,825 110,156 122,225 109,609
---------- ------------ --------- ------------
Basic income (loss) per unit $ 0.83 $ (8.39) $ 1.75 $ (8.12)
---------- ------------ --------- ------------
---------- ------------ --------- ------------
Diluted income (loss) per
unit
-------------------------
Net income (loss) available
to Unitholders $ 110,690 $ (923,990) $ 213,317 $ (889,758)
---------- ------------ --------- ------------
Basic units and shares
outstanding 132,825 110,156 122,225 109,609
Dilutive effect of:
Unit options - 22 - 31
Unit appreciation rights 1,387 1,021 1,385 1,023
Deferred unit grants 69 42 66 40
---------- ------------ --------- ------------
Units outstanding on a
diluted basis 134,281 111,241 123,676 110,703
---------- ------------ --------- ------------
Diluted income (loss) per
unit $ 0.82 $ (8.39) $ 1.72 $ (8.12)
---------- ------------ --------- ------------
---------- ------------ --------- ------------
11. REPORTABLE BUSINESS SEGMENTS
Just Energy operates in two reportable geographic segments, Canada and the
United States. Reporting by geographic region is in line with Just Energy's
performance measurement parameters. Both the Canadian and the U.S. operations
have gas and electricity business segments.
Just Energy evaluates segment performance based on gross margin.
The following tables present Just Energy's results by geographic segment and
operating segments:
Three months ended September 30, 2009
Home Consol-
Gas and Electricity Marketing Ethanol Services idated
----------------------------- ------- -------- ------
United
Canada States Canada Canada
------ --------- ------ ------
Sales gas $ 91,635 $ 37,724 $ - $ - $ 129,359
Sales electricity 174,457 111,920 - - 286,377
Ethanol - - 16,449 - 16,449
Home Services - - - 2,474 2,474
------------------------------------------------------------------------
Sales $ 266,092 $ 149,644 $ 16,449 $ 2,474 $ 434,659
------------------------------------------------------------------------
Gross margin $ 38,237 $ 39,079 $ 1,866 $ 2,314 $ 81,496
Amortization of
property, plant
and equipment 1,232 53 621 621 2,527
Amortization of
intangible assets
and related
supply contracts 11,892 8,191 - 404 20,487
Other operating
expenses 42,283 8,236 3,819 3,283 57,621
------------------------------------------------------------------------
Income (loss) before
the undernoted (17,170) 22,599 (2,574) (1,994) 861
Interest expense 2,689 414 1,843 - 4,946
Change in fair value
of derivative
instruments (67,752) (70,763) - - (138,515)
Other expense
(income) (9,191) 8,602 31 - (558)
Non-controlling
interest - - (1,488) - (1,488)
Provision for
(recovery of)
income tax 8,934 17,309 - (457) 25,786
------------------------------------------------------------------------
Net income (loss) $ 48,150 $ 67,037 $ (2,960) $ (1,537) $ 110,690
------------------------------------------------------------------------
------------------------------------------------------------------------
Additions to
capital assets $ 1,249 $ 34 $ 100 $ 11,094 $ 12,477
------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended September 30, 2008
Gas and Electricity Marketing
Canada United States Consolidated
------------ -------------- ---------------
Sales gas $ 87,052 $ 23,347 $ 110,399
Sales electricity 128,197 55,526 183,723
----------------------------------------------------------------------------
Sales $ 215,249 $ 78,873 $ 294,122
----------------------------------------------------------------------------
Gross margin $ 34,462 $ 9,664 $ 44,126
Amortization of electricity
contracts - (263) (263)
Amortization of gas contracts (138) - (138)
Amortization of capital assets (1,049) (76) (1,125)
Other operating expenses (16,856) (16,925) (33,781)
----------------------------------------------------------------------------
Income (loss) before the
undernoted 16,419 (7,600) 8,819
Interest expense (643) (322) (965)
Change in fair value of
derivative instruments (696,656) (325,973) (1,022,629)
Other income 779 458 1,237
Recovery of income tax 4,547 85,001 89,548
----------------------------------------------------------------------------
Net loss $ (675,554) $ (248,436) $ (923,990)
----------------------------------------------------------------------------
Additions to capital assets $ 1,059 $ 59 $ 1,118
----------------------------------------------------------------------------
Six months ended September 30, 2009
Home Consol-
Gas and Electricity Marketing Ethanol Services idated
----------------------------- ------- -------- ------
United
Canada States Canada Canada
------ --------- ------ ------
Sales gas $ 241,333 $ 88,158 $ - $ - $ 329,491
Sales electricity 297,948 187,307 - - 485,255
Ethanol - - 16,449 - 16,449
Home Services - - - 2,474 2,474
----------------------------------------------------------------------------
Sales $ 539,281 $ 275,465 $ 16,449 $ 2,474 $ 833,669
----------------------------------------------------------------------------
Gross margin $ 80,590 $ 62,800 $ 1,866 $ 2,315 $ 147,571
Amortization of
property, plant
and equipment 2,358 121 621 621 3,721
Amortization of
intangible assets
and related
supply contracts 12,175 8,502 - 404 21,081
Other operating
expenses 64,328 25,759 3,819 3,283 97,189
----------------------------------------------------------------------------
Income (loss) before
the undernoted 1,729 28,418 (2,574) (1,993) 25,580
Interest expense 3,105 478 1,843 - 5,426
Change in fair value
of derivative
instruments (76,027) (150,368) - - (226,395)
Other expense
(income) (9,936) 8,591 31 - (1,314)
Non-controlling
interest - - (1,488) (55) (1,543)
Provision for
(recovery of)
income tax 9,221 27,325 - (457) 36,089
----------------------------------------------------------------------------
Net income (loss) $ 75,366 $ 142,392 $ (2,960) $ (1,481) $ 213,317
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additions to
capital assets $ 4,498 $ 133 $ 100 $ 15,152 $ 19,883
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total goodwill $ 135,745 $ 33,552 $ - $ 2,697 $ 171,994
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets $ 799,323 $ 368,269 $ 159,790 $ 50,679 $ 1,378,061
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended September 30, 2008
Gas and Electricty Marketing
Canada United States Consolidated
-------------- -------------- ---------------
Sales gas $ 246,545 $ 63,310 $ 309,855
Sales electricity 259,019 103,158 362,177
----------------------------------------------------------------------------
Sales $ 505,564 $ 166,468 $ 672,032
----------------------------------------------------------------------------
Gross margin $ 84,185 $ 15,162 $ 99,347
Amortization of electricity
contracts (178) (2,052) (2,230)
Amortization of gas contracts (138) - (138)
Amortization of capital
assets (2,102) (239) (2,341)
Other operating expenses (33,146) (29,656) (62,802)
----------------------------------------------------------------------------
Income (loss) before the
undernoted 48,621 (16,785) 31,836
Interest expense (1,274) (582) (1,856)
Change in fair value of
derivative instruments (696,804) (314,710) (1,011,514)
Other income (expense) 2,047 (5) 2,042
Recovery of income tax 5,295 84,439 89,734
----------------------------------------------------------------------------
Net loss $ (642,115) $ (247,643) $ (889,758)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additions to capital assets $ 1,237 $ 89 $ 1,326
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total goodwill $ 94,957 $ 18,971 $ 113,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets $ 340,414 $ 123,626 $ 464,040
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. COMMITMENTS
Commitments for each of the next five years and thereafter are as follows:
Long-term
gas and
Master electricity
Premises and Grain Services contracts
equipment production agreement with various
leasing contracts with EPCOR suppliers
2010 $ 6,804 $ 19,548 $ 5,913 $ 888,805
2011 6,801 9,088 13,233 1,429,218
2012 5,278 2,449 7,861 946,664
2013 3,823 696 - 568,263
2014 2,336 - - 266,318
Thereafter 5,762 - - 43,562
------------ ----------- ------------ --------------
$ 30,804 $ 31,781 $ 27,007 $ 4,142,830
------------ ----------- ------------ --------------
------------ ----------- ------------ --------------
Just Energy is also committed under long-term contracts with customers to supply
gas and electricity. These contracts have various expiry dates and renewal
options.
13. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain figures from comparative financial statements have been reclassified
from statements previously presented to conform to the presentation of the
current year's consolidated financial statements.
Universal Energy (Tier2) (TSXV:UEC)
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