TORONTO, ONTARIO, Nov 06 (MARKET WIRE) --
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
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$ 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
distributionsCopyright $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.
Copyright 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 $ - $ - $ 329,491Sales
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.
The Toronto Stock Exchange has neither approved nor disapproved of the
contents of this release.
Contacts:
Just Energy Income Fund
Ms. Rebecca MacDonald
Executive Chair
(416) 367-2872
Just Energy Income Fund
Mr. Ken Hartwick, C.A.
Chief Executive Officer & President
(905) 795-3557
Just Energy Income Fund
Ms. Beth Summers, C.A.
Chief Financial Officer
(905) 795-4206
Copyright 2009, Market Wire, All rights reserved.
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