Just Energy Group Inc. (TSX:JE) -
Highlights for the three months ended March 31, 2011 included:
-- Customer additions through marketing were 232,000, up 77% from 131,000
in Q4 of fiscal 2010.
-- Net customer additions were 73,000 in Q4, up 462% from 13,000.
-- Sales (seasonally adjusted) were $808.4 million, up 16% compared to
fiscal 2010. Gross Margin (seasonally adjusted) of $144.0 million, up
18%.
-- Distributable cash after gross margin replacement was $78.6 million, up
19% from $66.0 million.
-- Distributable cash after all marketing was $70.6 million, up 21% from
$58.4 million.
-- Adjusted EBITDA of $118.3 million, up 9% from $109.0 million.
-- Earnings of $1.27 per share versus a loss of ($0.59) per unit in Q4 of
fiscal 2010 which includes the impact of mark to market gains and
losses on future supply positions.
Highlights for the year ended March 31, 2011 included:
-- Gross additions through marketing were a record 999,000 up 98% from the
previous record 505,000 added in fiscal 2010 and 372,000 in fiscal
2009.
-- Net customer additions through marketing were 361,000 for the year, up
395% from 73,000 last year.
-- Customer base reached 3,314,000 RCEs, up 45% year over year including
both additions through marketing and the Hudson acquisition.
-- Sales up 28% to $3.0 billion.
-- Gross margin (seasonally adjusted) of $480.5 million, up 13% year over
year (6% per share/unit).
-- Distributable cash after gross margin replacement of $229.7 million
flat versus $230.0 million in fiscal 2010.
-- Distributable cash after all marketing of $193.2 million down 2% from
$197.0 million.
-- Adjusted EBITDA of $267.2 up 13% year over year (6% per share/unit)
-- Earnings per share of $3.73 in fiscal 2011, up 108% from $1.79 per unit
which includes the impact of mark to market gains and losses on future
supply positions.
-- Payout ratio on dividends/distributions of 88%, up from 82% (excluding
the Special Distribution) in fiscal 2010.
-- Continued success of JustGreen with 36% of new residential customers
taking an average 90% green supply under the program.
Just Energy Fiscal 2011 Results
Just Energy announced its results for the year ended March 31, 2011.
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Three months ended March 31,
($ millions except per Per Per
share/unit) 2011 share/unit 2010 share/unit
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Sales(1) $ 808.4 $ 5.79 $ 694.8 $ 5.13
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Gross Margin(1) 144.0 $ 1.03 121.9 $ 0.90
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Distributable Cash(1)
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- After Gross Margin Replacement 78.6 $ 0.56 66.0 $ 0.49
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- After Marketing Expenses 70.6 $ 0.51 58.4 $ 0.43
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Adjusted EBITDA 118.3 $ 0.85 109.0 $ 0.81
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Net Income (Loss) 177.1 $ 1.27 (79.2) ($0.59)
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Distributions 44.3 $ 0.32 41.5 $ 0.31
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Long Term Customers 3,314,000 2,293,000
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Year ended March 31,
($ millions except per Per Per
share/unit) 2011 share/unit 2010 share/unit
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Sales(1) $ 2,938.7 $ 21.28 $ 2,344.2 $ 18.12
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Gross Margin(1) 480.5 $ 3.48 425.9 $ 3.29
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Distributable Cash(1)
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- After Gross Margin Replacement 229.7 $ 1.66 230.0 $ 1.78
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- After Marketing Expenses 193.2 $ 1.40 197.0 $ 1.52
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Adjusted EBITDA 267.2 $ 1.93 236.3 $ 1.83
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Net Income 515.3 $ 3.73 231.5 $ 1.79
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Regular Distribution 170.0 $ 1.24 160.7 $ 1.24
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Special Distribution 26.7 $ 0.21
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Annual Dividend/Distribution $ 1.24 $ 1.24
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(1)Seasonally adjusted (Non-GAAP measure).
Just Energy Group converted to a TSX-listed corporation from an Income Trust on
January 1, 2011. In the past, the Company reported in its Management's
Discussion and Analysis, a detailed calculation of distributable cash after
gross margin replacement, and after all marketing. In the future as a
corporation, it will report Adjusted EBITDA as its measure of operating
performance. Both measures are analyzed within this year's Management's
Discussion and Analysis.
Customer Aggregation
As a marketing company, the most important driver of Just Energy's growth is its
ability to grow its customer base. Fiscal 2011 saw record customer additions on
both a gross and net basis. This growth was driven by continued success in
residential sales, particularly in the United States as well as continued
success of the Commercial division and, in particular, the recently acquired
Hudson commercial broker network.
April 1, 2010 Additions Acquired Attrition
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Natural gas
Canada 734,000 53,000 - (73,000)
United States 408,000 224,000 81,000 (123,000)
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Total gas 1,142,000 277,000 81,000 (196,000)
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Electricity
Canada 760,000 106,000 - (77,000)
United States 391,000 616,000 579,000 (171,000)
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Total electricity 1,151,000 722,000 579,000 (248,000)
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Combined 2,293,000 999,000 660,000 (444,000)
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Failed to March 31, % increase
renew 2011 (decrease)
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Natural gas
Canada (58,000) 656,000 (11)%
United States (16,000) 574,000 41%
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Total gas (74,000) 1,230,000 7%
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Electricity
Canada (53,000) 736,000 (3)%
United States (67,000) 1,348,000 245%
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Total electricity (120,000) 2,084,000 81%
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Combined (194,000) 3,314,000 45%
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Overall, the customer base grew 45% year over year reaching more than 3.3
million. The chart on the following page shows the positive trend in customer
additions.
To view the chart, please visit the following link:
http://media3.marketwire.com/docs/JE-Chart1.pdf
Profitability
The fiscal 2011 growth in the customer base translated into 13% margin and 13%
Adjusted EBITDA growth. This rate of growth was tempered by the lower relative
margin on commercial customers and the impact of reconciliation and balancing
costs of the record warm 2009-10 winter which reduced margin by $35 million in
Q1 and Q2. Further, the margins were reduced by a further $16.3 million due the
impact of a 7% year over year decline in the U.S. dollar exchange rate.
Customer attrition rates were at or below target levels in all markets for the
first time in several years. Heavy focus on retention of customers and a
stronger U.S. economy resulted in reduced customer loss despite stable low
commodity prices. Bad debt expense, which applies to approximately 35% of Just
Energy revenues, was 2.7% down from 2.8% and within the target range of 2% to 3%
of relevant sales.
Overall, both gross margin and Adjusted EBITDA increased by 6% per share in
Fiscal 2011. Earnings per share (which includes non-cash mark to market on
future supply) was $3.73 up 108% from $1.79 per unit in fiscal 2010. The payout
ratio for the year was 74% after margin replacement and 88% after all marketing,
comfortably supporting the dividends/distributions for the year.
The table below highlights the 20% growth in embedded future margins on Just
Energy's customer base. During the year, Just Energy both replaced the $450.5
million realized in fiscal 2011 but also added a further $238.5 million of
future margin through its marketing efforts and customer acquisitions. Without
the decline in the U.S. dollar year over year, the future margins would have
increased by a further $38.6 million.
March 31, 2011 March 31, 2010 Increase
-------------------------------------------------
Future Contracted Gross Margin
Canada (Cdn$) $ 632.6 million $ 783.1 million (19%)
United States (US$) 835.6 million 414.6 million 102%
Total (Cdn$) $ 1,442.8 million $ 1,204.3 million 20%
JustGreen product sales continued to grow. Although JustGreen is a premium
priced product, 36% of our new residential customers took an average of 90% of
their supply from green sources. Also during fiscal 2011, Just Energy introduced
JustClean, a Green product which allows customers to reduce their carbon
footprint in markets without purchasing the commodity. This product can be
offered in all states and provinces and is not dependent on energy deregulation.
Early customer response to this product has been very positive. Total Green
customers now total 10% of the Company's electricity book (up from 5%) and 6% of
the gas book (up from 3%).
Fourth Quarter Results
The fourth quarter operating results showed a return to strong profitability
following the effects of the record warm winter in earlier quarters. The results
were driven by strong customer additions and benefitted from comparison to a
warm weather quarter a year earlier. Margins and reported cashflow were
adversely impacted by a 5% decline in the U.S. dollar exchange rate year over
year.
Customer additions through marketing were 232,000 up 77% from the comparable
quarter of fiscal 2010. Net additions were 73,000 up 462% from a year prior.
These additions translated into a 16% increase in sales, an 18% increase in
gross margin and a 9% increase in adjusted EBITDA. Net income was $1.27 per
share, up from a loss of $0.59 per share in Q4 fiscal 2010.
Gross margin percentage (seasonally adjusted) for the quarter was 17.8% versus
17.5% a year prior. Lower margins on new commercial customers were offset by
higher winter gas consumption and improved margins for the Home Services and the
Ethanol divisions.
Guidance for Fiscal 2011
In the past, Just Energy provided guidance with respect to expected growth in
gross margin and distributable cash after margin replacement. As a corporation,
Just Energy will no longer report distributable cash. As discussed in past
quarters, the Company will move to analyzing Adjusted EBITDA, a non-GAAP measure
used by companies who similarly are required to mark to market long term supply.
Management expects gross margin and Adjusted EBITDA growth of approximately 5%
per share for the year ended March 31, 2012. It is expected that strong customer
growth will more than offset the lower margin per customer from the fast growing
Commercial division. In addition, Management expects that cash income tax for
the year will be reduced due to accelerated depreciation on Hudson Solar
projects and tax planning within Canada. Overall cash tax payable is expected to
be approximately equal to that paid in fiscal 2011.
Chief Executive Officer Ken Hartwick stated: "I am very pleased with Just
Energy's record operating results in the fourth quarter of fiscal 2011. We have
sustained our record level of customer additions through marketing driven by
continued strong performance by our Hudson commercial broker network. As we had
hoped, our customer attrition has fallen back below target levels and the result
is 361,000 net additions for the year through marketing over and above customers
acquired with Hudson. Overall, our customer base is up 45% for the year closing
at more than 3.3 million."
"Our annual results reflect the positive benefit of our steps toward product and
geographic diversification. We have overcome a $35 million margin shortfall due
to a record warm winter in Q1 and Q2 as well as a year long period of low
commodity prices and very low volatility which is the worst scenario for both
new customer sales and renewals. Also, there was a 7% decline in the U.S. dollar
exchange rate reducing margins by a further $16 million. By aggressively
marketing JustGreen, JustClean and shorter term or variable products, we have
maintained our growth and profitability under challenging market conditions."
"Our sale of energy related products through National Home Services also showed
the growth we had looked for in this business. Sales were up 154% with margin up
123%. Our installed base of water heaters grew to 115,200, a net increase of
50%, with 2,600 new furnaces and 800 air-conditioning systems also installed
during the year. We are pleased to announce that we will be adding Hudson Solar
to our product offering taking advantage of a very attractive program for solar
installations in New Jersey."
"I want to announce Scott Gahn's decision to step down as our Chief Operating
Officer, effective June 10, 2011. Scott was a founder of Just Energy's Texas
operations and directed our U.S. business through a period of rapid growth.
James Lewis will be appointed COO effective that date. I want to thank Scott for
his tremendous contribution to Just Energy."
Executive Chair Rebecca MacDonald added: "The year just completed saw some
substantial positive changes in Just Energy. Over and above product and
geographic diversification, we also completed our conversion from an Income
Trust to a Corporation on January 1, 2011. The transition has gone smoothly and
we are proud of the fact that we are one of very few Trusts who have sustained
their previous level of distribution as a dividend."
"Looking forward, we are providing all of our annual guidance as to management's
growth expectations for fiscal 2012. We currently expect per share growth of
approximately 5% in both gross margin and Adjusted EBITDA. We believe this is a
healthy growth rate in a low inflation environment and the growth is driven by
expected customer growth rather than increased margins per customer. For
customer attrition, management believes that trends will continue to decline in
the U.S. in the coming periods given that all new customers signed over the past
three years are at rates consistent with current commodity rates. Management
also believes that if commodity price volatility remains low, renewal rates will
remain at 70% overall. Lastly, overall bad debt levels are expected to be within
our target range of 2 to 3% next fiscal year. Just Energy is well positioned as
a market leader in a key North American industry. Management has carefully
placed the Company in a strong position to continue and expand on the profitable
market leadership we have seen throughout our history."
Just Energy Group Inc.
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts and green energy products. 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. Just Energy also offers
"green" products through its JustGreen program. The electricity JustGreen
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 JustGreen product offers carbon offset credits which
will allow the customer to reduce or eliminate the carbon footprint of their
home or business. Management believes that the JustGreen products will not only
add to profits, but also increase sales receptivity and improve renewal rates.
In addition, through National Home Services, Just Energy sells and rents high
efficiency and tankless water heaters, air conditioners and furnaces to Ontario
residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and
sells wheat-based ethanol. Just Energy has also begun offering solar panel
installation opportunities in New Jersey through its subsidiary, Hudson Solar.
Forward-Looking Statements
Just Energy'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, general and
administrative expenses, 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 Just
Energy's operations, financial results or distribution levels are included in
Just Energy'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 Just Energy's website at
www.justenergygroup.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - May 19, 2011
Overview
The following discussion and analysis is a review of the financial condition and
results of operations of Just Energy Group Inc. ("JEGI" or "Just Energy" or "the
Company") (formerly Just Energy Income Fund, the "Fund") for the year ended
March 31, 2011, and has been prepared with all information available up to and
including May 19, 2011. This analysis should be read in conjunction with the
audited consolidated financial statements for the year ended March 31, 2011. 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 on our corporate website at
www.justenergygroup.com. Additional information can be found on SEDAR at
www.sedar.com.
Effective January 1, 2011, Just Energy completed the conversion from an income
trust, Just Energy Income Fund to a corporation, Just Energy Group Inc. (the
"Conversion"). As part of the Conversion, Just Energy Exchange Corp. ("JEEC")
was amalgamated with JEGI and, like the unitholders of the Fund, the holders of
JEEC's Exchangeable Shares received common shares of JEGI on a one for one
basis. JEGI also assumes all of the obligations under the $90m convertible
debentures and $330m convertible debentures.
Just Energy is a corporation established under the laws of Canada 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., Alberta Energy Savings L.P. ("AESLP"), Just Energy
Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just
Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp.,
Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy
Inc. ("Commerce" or "CEI"), National Energy Corp. (which operates under the
trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and
Hudson Energy Canada Corp. ("Hudson" or "HES"), Momentis Canada Corp. and
Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels, Inc. ("TGF"),
and Hudson Energy Solar Corp.
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts and green energy products. 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 price at which it is
able to sell the commodities to its customers and the price at which it
purchases the associated volumes from its suppliers. Just Energy also offers
green products through its JustGreen program. The electricity JustGreen product
offers the customer the option of having all or a portion of their electricity
sourced from renewable green sources such as wind, solar, run of the river hydro
or biomass. The gas JustGreen product offers carbon offset credits, which will
allow the customer to reduce or eliminate the carbon footprint of their home or
business. Management believes that the JustGreen products will not only add to
profits but also increase sales receptivity and improve renewal rates.
In addition, through NHS, Just Energy sells and rents high efficiency and
tankless water heaters and other heating, ventilating and air conditioning
("HVAC") products. TGF, an ethanol producer, operates a wheat-based ethanol
facility in Belle Plaine, Saskatchewan. Just Energy indirectly acquired Hudson,
effective May 1, 2010, a marketer of natural gas and electricity that primarily
sells to commercial customers.
Forward-looking information
This MD&A contains certain forward-looking information pertaining to customer
additions and renewals, customer consumption levels, distributable cash, EBITDA
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, extreme weather conditions, rates of customer additions and
renewals, customer attrition, fluctuations in natural gas and electricity
prices, changes in regulatory regimes, decisions by regulatory authorities and
competition, and dependence on certain suppliers. Additional information on
these and other factors that could affect Just Energy's operations, financial
results or distribution levels are included in the Annual Information Form and
other reports on file with Canadian security regulatory authorities, which can
be accessed on our corporate website at www.justenergygroup.com or through the
SEDAR website at www.sedar.com.
Key terms
"Attrition" means customers whose contracts were terminated early or cancelled
by Just Energy due to delinquent accounts.
"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 the sale of excess commodity supply.
"$90m convertible debentures" represents the $90 million in convertible
debentures issued by Universal Energy Group Ltd. ("UEG") in October 2007. Just
Energy assumed the obligations of the debentures as part of the UEG acquisition
on July 1, 2009. See "Long-term debt and financing" on page 23 for further
details.
"$330m convertible debentures" represents the $330 million in convertible
debentures issued by Just Energy to finance the purchase of Hudson, effective
May 1, 2010. See "Long-term debt and financing" on page 23 for further details.
"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
m(3) (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.
"Large commercial customer" means customers representing more than 15 RCEs.
Non-GAAP financial measures
Just Energy converted from an income trust to a corporation on January 1, 2011.
Under the income trust structure, management believed that distributable cash
was the best basis for analyzing the results. Under the corporate structure,
management believes that Adjusted EBITDA will be the best basis for analyzing
the financial results of Just Energy.
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
As Just Energy was an income trust up until December 31, 2010, management
believed that the best basis for analyzing the financial results under such
structure and the amount available for distribution was to focus on amounts
actually received ("seasonally adjusted") because this figure provides the
margin earned on all deliveries to the utilities. Seasonally adjusted sales and
gross margin are not defined performance measures under Canadian GAAP.
Seasonally adjusted analysis applies solely to the gas markets and specifically
to Ontario, Quebec, Manitoba and Michigan.
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 under the income trust structure. Seasonally
adjusted gross margin is the principal contributor to Cash Available for
Distribution. Distributable cash is calculated by Just Energy 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
have been 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 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 Just Energy because it includes all expenditures necessary for the retention
of existing customers and the addition of new margin to replace those customers
that have not been renewed. This non-GAAP measure may not have been 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 8.
EBITDA
"EBITDA" represents earnings before interest, taxes, depreciation and
amortization. This is a non-GAAP measure which reflects the pre-tax
profitability of the business.
Adjusted EBITDA
"Adjusted EBITDA" represents EBITDA adjusted to exclude the impact of mark to
market gains (losses) arising from Canadian GAAP requirements for derivative
financial instruments on future supply positions. In addition, the Adjusted
EBITDA calculation deducts marketing costs sufficient to maintain existing
levels of gross margin and maintenance capital expenditures necessary to sustain
existing operations. This adjustment results in the exclusion of the marketing
that Just Energy carried out and the capital expenditures that it had made to
add to its future productive capacity. Management believes this is a useful
measure of operating performance for investors.
Just Energy ensures that customer margins are protected by entering into
fixed-price supply contracts. Under Canadian 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
Just Energy and have therefore excluded it from the Adjusted EBITDA calculation.
Embedded gross margin
Embedded gross margin is a rolling five-year measure of management's estimate of
future contracted gross margin. It is the difference between existing customer
contract prices and the cost of supply for the remainder of term, with
appropriate assumptions for customer attrition and renewals. It is assumed that
expiring contracts will be renewed at target margin and renewal rates.
Financial highlights
For the year ended March 31
(thousands of dollars, except where indicated and per unit/share amounts)
Fiscal 2011 Per unit/
Per share
share change
--------------------------------------
Sales $2,953,192 $21.38 20%
Net income (loss)(1) 515,347 3.73 108%
Gross margin (seasonally
adjusted)(2) 480,478 3.48 6%
Adjusted EBITDA(2) 267,186 1.93 6%
Distributable cash
- After gross margin replacement 229,660 1.66 (6)%
- After marketing expense 193,232 1.40 (8)%
Distributions (including Special
Distribution(3)) 170,004 1.24 (14)%
Distributions (excluding Special
Distribution) 170,004 1.24 0%
General and administrative 109,407 0.79 16%
Distributable cash payout ratio
(including Special Distribution)
- After gross margin replacement 74%
- After marketing expense 88%
Distributable cash payout
ratio(4)(excluding Special
Distribution)
- After gross margin replacement 74%
- After marketing expense 88%
Fiscal 2010
Per
unit
Per unit change
--------------------------------------
Sales $2,299,231 $17.77 4%
Net income (loss)(1) 231,496 1.79 NMF(5)
Gross margin (seasonally
adjusted)(2) 425,882 3.29 16%
Adjusted EBITDA(2) 236,304 1.83 (1)%
Distributable cash
- After gross margin replacement 230,000 1.78 2%
- After marketing expense 197,033 1.52 0%
Distributions (including Special
Distribution(3)) 187,418 1.45 4%
Distributions (excluding Special
Distribution) 160,722 1.24 0%
General and administrative 88,423 0.68 28%
Distributable cash payout ratio
(including Special Distribution)
- After gross margin replacement 81%
- After marketing expense 95%
Distributable cash payout
ratio(4)(excluding Special
Distribution)
- After gross margin replacement 70%
- After marketing expense 82%
Fiscal 2009
Per
unit
-------------------------
Sales $1,899,213 $17.03
Net income (loss)(1) (1,107,473) (10.03)
Gross margin (seasonally
adjusted)(2) 315,193 2.83
Adjusted EBITDA(2) 204,636 1.84
Distributable cash
- After gross margin replacement 195,520 1.75
- After marketing expense 169,353 1.52
Distributions (including Special
Distribution(3)) 156,604 1.40
Distributions (excluding Special
Distribution) 138,030 1.24
General and administrative 59,586 0.53
Distributable cash payout ratio
(including Special Distribution)
- After gross margin replacement 80%
- After marketing expense 92%
Distributable cash payout
ratio(4)(excluding Special
Distribution)
- After gross margin replacement 71%
- After marketing expense 82%
(1)Net income 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 realizable impact of mark to market gains and losses.
(2)See the discussion of non-GAAP financial measures on page 2.
(3)No Special Distribution was paid in fiscal 2011. Fiscal 2010 and 2009
include a one-time Special Distribution of $26.7 million and $18.6 million,
respectively.
(4)Management targets an annual payout ratio after all marketing expenses,
excluding any Special Distribution, of less than 100%.
(5)Not a meaningful figure.
Acquisition of Hudson Energy Services, LLC
In May 2010, Just Energy completed the acquisition of all of the equity
interests of Hudson Parent Holdings, LLC, and all of the common shares of Hudson
Energy Corp., thereby indirectly acquiring Hudson, with an effective date of May
1, 2010.
The acquisition of Hudson was accounted for using the purchase method of
accounting. The Company allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
(thousands of dollars)
Net assets acquired:
Current assets (including cash of $24,003) $ 88,696
Current liabilities (107,817)
Electricity contracts and customer relationships 200,653
Gas contracts and customer relationships 26,225
Broker network 84,400
Brand 11,200
Information technology system development 17,954
Contract initiation costs 20,288
Other intangible assets 6,545
Goodwill 33,574
Property, plant and equipment 2,559
Unbilled revenue 15,092
Notes receivable - long term 1,312
Security deposits - long term 3,544
Other assets - current 124
Other assets - long term 100
Other liabilities - current (74,683)
Other liabilities - long term (40,719)
---------------
$ 289,047
---------------
---------------
Consideration:
Purchase price $ 287,790
Transaction costs 1,257
---------------
$ 289,047
---------------
---------------
All contracts and intangible assets, excluding brand, are amortized over the
average remaining life at the time of acquisition. The gas and electricity
contracts and customer relationships are amortized over 30 months and 35 months,
respectively. Other intangible assets, excluding brand, are amortized over
periods of three to five years. The brand value is considered to be indefinite
and, therefore, not subject to amortization. The purchase price allocation is
considered preliminary and, as a result, may be adjusted during the 12-month
period following the acquisition.
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 Limited ("Universal") pursuant to a plan
of arrangement (the "Arrangement"). Under the Arrangement, the Universal
shareholders received 0.58 of an exchangeable share ("Exchangeable Share") of
Just Energy Exchange Corp ("JEEC"), a former subsidiary of Just Energy, for each
Universal common share held. In aggregate, 21,271,804 Exchangeable Shares were
issued pursuant to the Arrangement. Each Exchangeable Share was exchangeable for
a unit of the Just Energy Income Fund 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 and/or Special Distribution paid by Just Energy
on a unit of the Fund. Just Energy also assumed all the covenants and
obligations of Universal in respect of Universal's outstanding $90m convertible
debentures. On conversion of the $90m convertible debentures, holders will be
entitled to receive 0.58 of an Exchangeable Share/share of JEGI in lieu of each
Universal common share that the holder was previously entitled to receive on
conversion.
On January 1, 2011, in conjunction with the Conversion, all exchangeable shares
of JEEC were exchanged for JEGI common shares on a one for one basis. JEGI also
assumed all of the covenants and obligations under the outstanding $90m
convertible debentures.
The acquisition of Universal was accounted for using the purchase method of
accounting. Just Energy allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
(thousands of dollars)
Net assets acquired:
Working capital (including cash of $10,319) $ 63,614
Electricity contracts and customer relationships 229,586
Gas contracts and customer relationships 243,346
Water heater contracts and customer relationships 22,700
Other intangible assets 2,721
Goodwill 77,494
Property, plant and equipment 171,693
Future tax liabilities (50,475)
Other liabilities - current (164,148)
Other liabilities - long-term (140,857)
Long-term debt (183,079)
Non-controlling interest (22,697)
--------------
$ 249,898
--------------
--------------
Consideration:
Transaction costs $ 9,952
Exchangeable Shares 239,946
--------------
$ 249,898
--------------
--------------
All contracts, customer relationships and intangible assets are amortized over
the average remaining life at the time of acquisition. The gas and electricity
contracts acquired, including customer relationships, are amortized over periods
ranging from 8 to 57 months. The water heater contracts and customer
relationships are amortized over 174 months and the other intangible assets are
amortized over six months. The non-controlling interest represents 33.3%
ownership of TGF held by EllisDon Corporation at the time of acquisition which
was subsequently and separately acquired. The purchase price for this
acquisition is final and no longer subject to change.
Operations
Natural gas
Just Energy offers natural gas customers a variety of products ranging from
five-year fixed-price contracts to month-to-month variable-price offerings. For
fixed-price contracts, Just Energy purchases gas supply through physical or
financial transactions with market counterparts in advance of marketing, based
on forecast customer aggregation for residential and small commercial customers.
For larger commercial customers, gas supply is generally purchased concurrently
with the execution of a contract. The LDC provides historical customer usage
which, when normalized to average weather, enables Just Energy to purchase the
expected normal customer load. Furthermore, Just Energy mitigates exposure to
weather variations through active management of the gas portfolio which involves
but is not limited to, the purchase of options including weather derivatives.
Our ability to mitigate weather effects is limited by the severity of weather
from normal. To the extent that balancing requirements are outside the forecast
purchase, Just Energy bears the financial responsibility for fluctuations in
customer usage. Volume variances may result in either excess or short supply. In
the case of under consumption by the customer, excess supply is sold in the spot
market resulting in either a gain or loss compared to the weighted average cost
of supply. Further, customer margin is lowered proportionately to the decrease
in consumption. In the case of greater than expected gas consumption, Just
Energy must purchase the short supply in the spot market resulting in either a
gain or loss compared to the weighted average cost of supply. Consequently,
customer margin increases proportionately to the increase in consumption. To the
extent that supply balancing is not fully covered through active management or
the options employed, Just Energy's customer gross margin may be reduced or
increased depending upon market conditions at the time of balancing. Under some
commercial contract terms, this balancing may be passed onto the customer.
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 that 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.
New York, Illinois, Indiana, Ohio, California and Pennsylvania
In New York, Illinois, Indiana, Ohio, California and Pennsylvania, 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 cash
is normally received from the LDCs in the same period as customer consumption
Electricity
In Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey,
Maryland, Michigan, California and Massachusetts, Just Energy offers a variety
of solutions to its electricity customers, including fixed-price and
variable-price products on both short-term and longer-term electricity
contracts. Some of these products provide customers with price-protection
programs for the majority of their electricity requirements. The customers
experience either a small balancing charge or credit (pass-through) on each bill
due to fluctuations in prices applicable to their volume requirements not
covered by a fixed price. Just Energy uses historical usage data for all
enrolled customers to predict future customer consumption and to help with
long-term supply procurement decisions.
Just Energy purchases power supply through physical or financial transactions
with market counterparties in advance of marketing for residential and small
commercial customers based on forecast customer aggregation. Power supply is
generally purchased concurrently with the execution of a contract for larger
commercial customers. The LDC provides historical customer usage which, when
normalized to average weather, enables Just Energy to purchase to expected
normal customer load. Furthermore, Just Energy mitigates exposure to weather
variations through active management of the power portfolio. The expected cost
of this strategy is incorporated into the price to the customer. Our ability to
mitigate weather effects is limited by the severity of weather from normal. To
the extent that balancing requirements are outside the forecast purchase, Just
Energy bears the financial responsibility for excess or short supply caused by
fluctuations in customer usage. In the case of under consumption by the
customer, excess supply is sold in the spot market resulting in either a gain or
loss in relation to the original cost of supply. Further, customer margin is
lowered proportionately to the decrease in consumption. In the case of greater
than expected power consumption, Just Energy must purchase the short supply in
the spot market resulting in either a gain or loss in relation to the fixed cost
of supply. Customer margin increases proportionately to the increase in
consumption. To the extent that supply balancing is not fully covered through
customer pass-throughs, active management or the options employed, Just Energy's
customer gross margin may be impacted depending upon market conditions at the
time of balancing.
JustGreen
Customers have the ability to choose an appropriate JustGreen program to
supplement their electricity and natural gas contracts, providing an effective
method to offset their carbon footprint associated with the respective commodity
consumption.
JustGreen programs for electricity customers involve the purchase of power from
green generators (such as wind, solar, run of the river hydro or biomass) via
power purchase agreements of renewable energy certificates. JustGreen programs
for gas customers involve the purchase of carbon offsets from green sources such
as methane capture.
JustClean
In addition to its traditional commodity marketing business, Just Energy allows
customers to effectively manage their carbon footprint without buying energy
commodity products by signing a JustClean contract. The JustClean products are
essentially carbon offsets from carbon capture and reduction projects as well as
green power renewable energy certificates from green generators. This product
can be offered in all states and provinces and is not dependent on energy
deregulation.
Blend and Extend program
As part of Just Energy's retention efforts, electricity and natural gas
customers may be contacted for early renewal of their contracts under a Blend
and Extend offer. These customers are offered a lower rate, compared to their
current contracted rate, but the term of their contract is extended up to five
more years. Consequently, Just Energy may experience a reduction in margins in
the short term but will gain additional future margins.
Consumer (Residential) Energy division
The sale of gas and electricity to customers of 15 RCEs and less is undertaken
by the Consumer Energy division. The marketing of this division is primarily
done door-to-door through 850 independent contractors, the Momentis network
marketing operation and Internet based telemarketing efforts. Total independent
contractors declined during the quarter as a result of a continued effort to
ensure resources are focused on those markets that provide the best long term
return such as NHS water heater rentals. Overall, weaker residential sales in
these markets were more than offset by strong sales in other markets as well as
sales from the Commercial Energy division. Approximately 60% of Just Energy's
customers and energy revenues are generated by the Consumer Energy division,
which is currently focused on longer term price-protected offerings of both
JustGreen and commodity products. To the extent that certain markets are better
served by shorter-term or enhanced variable rate products, the Consumer Energy
independent contractors also offer these products.
Commercial Energy division
Customers with annual consumption over 15 RCEs are served by the Commercial
Energy division. These sales are made through three main channels, door to door
commercial independent contractors, inside commercial sales representatives,
established by Just Energy in its recent expansion into this channel, and sales
through the broker channel using the commercial platform acquired with the
Hudson purchase. Commercial customers make up about 40% of Just Energy's
customer base and energy sales. Products offered to commercial customers can
range from standard fixed offerings to "one off" offerings, which are tailored
to meet the customer's specific needs. These products can be either fixed or
floating rate or a blend of the two, and normally have terms of less than five
years. Margin per RCE for this division is lower than residential margins but
customer aggregation cost and ongoing customer care costs are lower as well on a
per RCE basis. Commercial customers tend to have combined attrition and
failed-to-renew rates which are lower than those of residential customers.
Home Services division
NHS began operations in April 2008 and provides Ontario residential customers
with a long-term water heater rental, offering high efficiency conventional and
power vented tanks and tankless water heaters. In fiscal 2010, NHS began
offering the rental of HVAC products to Ontario residents. NHS markets through
approximately 210 independent contractors in Ontario. See page 17 for additional
information.
Ethanol division
Just Energy owns and operates TGF, a 150-million-litre capacity wheat-based
ethanol plant located in Belle Plaine, Saskatchewan. The plant produces
wheat-based ethanol and high protein distillers' dried grain ("DDG"). On January
4, 2011, Just Energy acquired the 33.3% interest in TGF that was previously
owned by EllisDon Design Build Inc. ("EllisDon") pursuant to a put option
exercised by EllisDon. See page 18 for additional information on TGF.
Reconciliation of net income (loss) to Adjusted EBITDA
(thousands of dollars)
Fiscal 2011 Fiscal 2010 Fiscal 2009
--------------------------------------------------------------
Per Per Per
share unit unit
Net income
(loss) $ 515,347 $ 3.73 $ 231,496 $ 1.79 $ (1,107,473) $(9.93)
Add:
Interest 50,437 16,134 3,857
Tax expense
(recovery) 32,142 (100,260) (57,460)
Capital tax 188 522 220
Amortization 150,863 70,826 8,694
--------------------------------------------------------------
EBITDA $ 748,977 $ 5.42 $ 218,718 $ 1.69 $ (1,152,162)$(10.33)
--------------------------------------------------------------
Add
(subtract):
Change in fair
value of
derivative
instruments (509,401) 1,282 1,336,976
Marketing
expenses to
add gross
margin 36,428 32,967 26,167
Maintenance
capital
expenditures (8,818) (16,663) (6,345)
--------------------------------------------------------------
Adjusted
EBITDA $ 267,186 $ 1.93 $ 236,304 $ 1.83 $ 204,636 $ 1.84
--------------------------------------------------------------
Adjusted fully
diluted
average
number of
units/shares
outstanding 138.1m 129.4m 111.5m
--------------------------------------------------------------
--------------------------------------------------------------
Adjusted EBITDA differs from EBITDA in that the impact of the mark to market
gains (losses) from the financial instruments and the marketing expenses used
for increasing gross margin are removed along with maintenance capital
expenditures being deducted. With the conversion from an income trust to a
corporation effective January 1, 2011, management believes that Adjusted EBITDA
is the best measure of operating performance.
Adjusted EBITDA amounted to $267.2 million ($1.93 per share) in fiscal 2011, an
increase of 5% per share per unit from $236.3 million ($1.83 per unit) in fiscal
2010. This increase is attributable to higher gross margin resulting from the
20% increase in per unit sales as a result of the expanded customer base year
over year. This increase is offset by a decline in margin percentage due to the
residual impact of a record warm winter in fiscal 2010 which had an aggregate
negative impact on margins of $35 million in the first and second quarters as
well as a 7% decrease in U.S. annual exchange rates year over year. As well, the
more rapid growth of the lower margin Commercial Energy division compared to the
Consumer Energy division reduced margin percentage. Higher general and
administrative, bad debt and marketing expenses to service the growing customer
base also reduced growth in adjusted EBITDA.
Cash Available for Distribution and distributions/dividends
For the year ended March 31
(thousands of dollars, except per unit/share amounts)
Fiscal 2011 Fiscal 2010 Fiscal 2009
-------------------------------------------------------------
Per Per Per
share unit unit
------- -------- -------
Reconciliation
to statements
of cash flow
Cash inflow
from
operations $ 153,360 $ 158,273 $ 172,767
Add:
Increase in
non-cash
working
capital 38,213 35,523 (6,181)
Other 354 - -
Tax adjustments 1,305 3,237 2,767
------------- ------------- -------------
Cash Available
for
Distribution $ 193,232 $ 197,033 $ 169,353
------------- ------------- -------------
------------- ------------- -------------
Cash Available
for
Distribution
Gross margin
per financial
statements $ 482,203 $ 3.49 $ 415,333 $ 3.21 $ 322,816 $ 2.90
Adjustments
required to
reflect net
cash receipts
from gas sales (1,725) 10,549 (7,623)
------------- ------------- -------------
Seasonally
adjusted gross
margin $ 480,478 $ 3.48 $ 425,882 $ 3.29 $ 315,193 $ 2.83
------------- ------------- -------------
Less:
General and
administrative (109,407) (88,423) (59,586)
Capital tax
expense (188) (522) (220)
Bad debt
expense (27,650) (17,940) (13,887)
Income tax
expense (8,183) (18,517) (3,861)
Interest
expense (50,437) (16,134) (3,857)
Other items 29,797 8,447 3,664
------------- ------------- -------------
(166,068) (133,089) (77,747)
------------- ------------- -------------
Distributable
cash before
marketing
expenses 314,410 $ 2.28 292,793 $ 2.27 237,446 $ 2.13
Marketing
expenses to
maintain gross
margin (84,750) (62,793) (41,926)
------------- -------------
Distributable
cash after
gross margin
replacement 229,660 $ 1.66 230,000 $ 1.78 195,520 $ 1.75
Marketing
expenses to
add new gross
margin (36,428) (32,967) (26,167)
------------- ------------- -------------
Cash Available
for
Distribution $ 193,232 $ 1.40 $ 197,033 $ 1.52 $ 169,353 $ 1.52
------------- ------------- -------------
------------- ------------- -------------
Cash distributions/dividends
(includes Special Distribution)
Distributions
and dividends $ 161,585 $ 175,517 $ 146,731
Class A
preference
share
distributions 4,896 7,580 8,460
Unit
appreciation
rights/
restricted
share grants
and deferred
unit/share
grants
distributions 3,523 2,108 1,503
------------- ------------- -------------
Total
distributions/
dividends $ 170,004 $ 1.24 $ 185,205 $ 1.43 $ 156,694 $ 1.40
------------- ------------- -------------
------------- ------------- -------------
Cash distributions/dividends
(excludes Special Distribution)
Distributions
and dividends $ 161,585 $ 150,170 $ 129,205
Class A
preference
share
distributions 4,896 6,527 7,592
Unit
appreciation
rights/
restricted
share grants
and deferred
unit/share
grants
distributions 3,523 1,812 1,324
------------- ------------- -------------
Total
distributions/
dividends $ 170,004 $ 1.24 $ 158,509 $ 1.24 $ 138,121 $ 1.24
------------- ------------- -------------
------------- ------------- -------------
Adjusted fully
diluted
average number
of
units/shares
outstanding 138.1m 129.4m 111.5m
Distributable cash
In fiscal 2011, there was significant expansion of the Just Energy customer
base. Much of this expansion took place through i) the acquisition of Hudson in
the first quarter, which diversified Just Energy's product line to include
specialized offerings for commercial customers and the subsequent expansion of
the commercial broker network to seven states and two new provinces; ii) the
launch of the Momentis network marketing division in Ontario, New York,
Illinois, Indiana, Ohio and California; and iii) new residential launches in
Massachusetts (May), two new utility territories in New York (September) and
Pennsylvania (March). In addition, NHS committed expenditures to facilitate its
expansion into the Union Gas territory in Ontario and its rollout of HVAC
offerings.
The result of this expansion was record customer additions of 999,000 through
marketing for the year, up 98% from 505,000 in fiscal 2010. Net additions
through marketing were 361,000, up 395% from 73,000 in fiscal 2010. Including
the customers acquired with Hudson, net customer additions were 1,021,000,
resulting in a 45% increase in customers year over year. Sales increased 20% and
seasonally adjusted gross margins were up 6% per unit/share year over year. The
increase in gross margin was lower than the increase in sales due to impact from
Blend and Extend (postponing margins to future periods), a $35 million decline
in margin due to reduced customer consumption and balancing related to the
warmer weather from last winter and lower customer margin realized on the
faster-growing base of commercial customers.
Distributable cash after gross margin replacement for the year ended March 31,
2011, was $229.7 million ($1.66 per share), effectively unchanged from $230.0
million ($1.78 per unit) in fiscal 2010. The higher gross margin was offset by
increased interest expenses, general and administrative costs and bad debt
expenses. Interest costs relate primarily to the $330m and $90m convertible
debentures related to the Hudson and Universal acquisitions, funding for water
heater and HVAC purchases, and the debt associated with TGF. Bad debt expense
increased by 54% in fiscal 2011 compared to 2010, due to the 59% increase in
sales in those markets where Just Energy bears the credit risk. Overall, bad
debt percentage of relevant sales was 2.7% for the year, within the target range
of 2% to 3%.
Just Energy spent $84.8 million in marketing expenses for the year resulting in
the addition and renewal of customers sufficient to maintain its current level
of gross margin. This represents 70% of the total marketing expense, excluding
the amortization of contract initiation costs. A further $36.4 million was spent
to increase future gross margin within the 999,000 new customers added and
263,000 customers renewed in the year. General and administrative costs
increased by 16% per share year over year reflecting continued geographic and
product expansion as well as the larger customer base.
Management's estimate of the future embedded gross margin is as follows:
As at As at Mar 11 As at Mar 10
(millions of Mar 31, Mar 31, vs. Mar 10 Mar 31, vs. Mar 09
dollars) 2011 2010 Variance 2009 Variance
-------------------------------------------------------------
Canada (CAD$) $ 632.6 $ 783.1 (19)% $ 697.1 12%
United States
(US$) $ 835.6 $ 414.6 102% $ 278.5 49%
Total (CAD$) $ 1,442.8 $ 1,204.3 20% $ 1,020.3 18%
Management's estimate of the future contracted gross margin increased to
$1,442.8 million from $1,204.3 million at the end of fiscal 2010. The
substantial net increase in future margins was seen from the expanded customer
base, however the financial statement impact of this growth in customers was
offset by the 5% decline in U.S. exchange rates year over year. There was a
decline in embedded margins at year-end in comparison to that reported at the
end of the third quarter. The decline was largely due to the decline in the U.S.
dollar versus the Canadian dollar in the quarter. The embedded margins in Canada
declined year over year due to a challenging price environment for renewals and
new customer additions. This was more than offset by the strong growth in the
U.S.
Distributable cash after all marketing expenses was $193.2 million ($1.40 per
share) for fiscal 2011, a per share/unit decrease of 8% from $197.0 million
($1.52 per unit) in the prior comparable year. The 13% increase in seasonally
adjusted gross margin was dampened by a $35 million impact in the first and
second quarters from the prior year record warm winter, the higher interest,
general and administrative and bad debt expenses noted above as well as higher
marketing costs to maintain gross margin. The payout ratio after gross margin
replacement was 74% versus 70% in fiscal 2010 (excluding Special Distribution)
and payout after deduction of all marketing expenses for the current year was
88% versus 82%.
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", which are further clarified on pages 19 to 21.
Selected consolidated financial data
(thousands of dollars except where indicated and per unit/share amounts)
The consolidated financial statements of Just Energy are prepared in accordance
with Canadian GAAP and are expressed in Canadian dollars. The following table
provides selected financial information for the last three fiscal years.
Statements of Operations Data
For the years ended March
31 2011 2010 2009
-------------------------------------------------
Sales (seasonally adjusted) $ 2,938,688 $ 2,344,172 $ 1,888,733
Gross margin (seasonally
adjusted) $ 480,478 $ 425,882 $ 315,193
Net income (loss) $ 515,347 $ 231,496 $ (1,107,473)
Net income (loss) per
unit/share - basic $ 3.81 $ 1.81 $ (10.03)
Net income (loss) per
unit/share - diluted $ 3.73 $ 1.79 $ (10.03)
Balance Sheet Data
As at March 31 2011 2010 2009
-------------------------------------------------
Total assets $ 1,588,644 $ 1,310,827 $ 535,755
Long-term liabilities $ 867,151 $ 824,393 $ 480,602
2011 compared with 2010
Seasonally adjusted sales increased by 25% in fiscal 2011 due to a 45% net
increase in customers as a result of record new additions and the acquisition of
Hudson. Effective May 1, 2010, Just Energy completed the acquisition of 660,000
largely commercial Hudson customers and issued $330 million of convertible
debentures in order to finance the acquisition. For further information on the
acquisition, see page 4. Commercial customers now make up 40% of the Just Energy
customer base, and while there are lower margins associated with these
customers, the associated expenses to acquire and maintain are lower on a per
RCE basis. Seasonally adjusted gross margin increased to $480.5 million or 13%
over fiscal 2010.
Net income increased by 123% from $231.5 million ($1.79 per unit) in fiscal 2010
to $515.3 million ($3.73 per share) in fiscal 2011. The change in net income
relates primarily to the change in fair value of the derivative instruments
which showed a gain in fiscal 2011 of $509.4 million versus a loss of $1.3
million in the prior comparable year as well as strong operating results for the
year. Offsetting this increase is the income tax provision of $32.1 million for
the current fiscal year, versus an income tax recovery of $100.3 million in the
prior fiscal year.
Total assets increased by 21% to $1.6 billion in fiscal 2011. The largest
components of this change relate to the property, plant and equipment,
intangible assets, goodwill and contract initiation costs recorded as part of
the Hudson acquisition.
Total long-term liabilities of $900.2 million represent a 9% increase over the
prior fiscal year. Just Energy funded the Hudson acquisition by issuing $330
million in convertible debentures, which as at March 31, 2011, were valued at
$286.4 million in long-term debt. Other long-term liabilities have also
decreased in fiscal 2011 primarily due to the change in mark to market valuation
of future supply positions.
2010 compared with 2009
Sales increased by 24% in fiscal 2010 due to a 28% net increase in customers as
a result of record new additions and the acquisition of Universal. On July 1,
2009, Just Energy completed the acquisition of 430,000 Universal customers in
consideration for Exchangeable Shares valued at $239.9 million. For further
information on the acquisition, see page 4. Seasonally adjusted gross margin
increased to $425.9 million or 35% over fiscal 2009 due to higher margin per
customer, continued strong acceptance of the JustGreen product as well as
improved supply management.
The change in net income relates primarily to the change in fair value of the
derivative instruments which has improved substantially from the $1.3 billion
loss recorded last year. Also, an increase in the income tax recovery of $42.8
million relates to Just Energy's conversion to a taxable Canadian corporation in
December 2010 and the future tax benefits of the mark to market losses expected
to be realized post conversion. This increase is partially offset by a higher
current tax provision related to the Universal entities.
Total assets increased by 145% to $1.3 billion in fiscal 2010. The largest
components of this change relate to the property, plant and equipment,
intangible assets and goodwill recorded as part of the Universal acquisition.
The TGF ethanol plant was acquired totaling over $155.2 million in capital
assets on July 1, 2009. Also, future income tax assets of $114.3 million were
recorded which relate primarily to the conversion of Just Energy to a
corporation.
Total long-term liabilities of $824.4 million represent a 72% increase over the
prior fiscal year. On July 1, 2009, in connection with the acquisition of
Universal, Just Energy increased its credit facility from $170.0 million to
$250.0 million. Also, as part of the Universal acquisition, the Company acquired
the debt obligations of TGF which is comprised of three separate facilities
noted on page 24. Long-term liabilities have also increased in fiscal 2010
primarily due to the change in mark to market valuation of our derivative
instruments.
Summary of quarterly results
(thousands of dollars, except per unit/share amounts)
Fiscal Fiscal Fiscal Fiscal
2011 Q4 2011 Q3 2011 Q2 2011 Q1
------------------------------------------
------------------------------------------
Sales (seasonally adjusted) $808,394 $741,817 $748,480 $639,997
Gross margin (seasonally adjusted) 143,977 132,212 115,356 88,933
General and administrative expense 28,341 26,283 25,511 29,272
Net income (loss) 177,111 217,407 (154,480) 275,309
Net income (loss) per unit/share -
basic 1.30 1.61 (1.15) 2.05
Net income (loss) per unit/share -
diluted 1.27 1.39 (1.15) 1.85
Adjusted EBITDA 118,309 78,220 39,375 31,282
Amount available for distribution
After gross margin replacement 78,624 63,811 53,442 33,783
After marketing expense 70,559 52,518 45,753 24,402
Payout ratio(1)
After gross margin replacement 56% 67% 79% 125%
After marketing expense 63% 81% 92% 172%
Fiscal Fiscal Fiscal Fiscal
2010 Q4 2010 Q3 2010 Q2 2010 Q1
------------------------------------------
------------------------------------------
Sales (seasonally adjusted) $694,788 $654,686 $562,133 $432,565
Gross margin (seasonally adjusted) 121,872 121,722 107,519 74,769
General and administrative expense 22,405 24,767 25,634 15,617
Net income (loss) (79,211) 97,390 110,690 102,627
Net income (loss) per unit - basic (0.59) 0.73 0.83 0.92
Net income (loss) per unit -
diluted (0.59) 0.73 0.82 0.91
Adjusted EBITDA 108,961 60,563 36,598 30,182
Amount available for distribution
After gross margin replacement 66,023 69,455 52,303 42,219
After marketing expense 58,359 61,242 41,345 36,087
Payout ratio(1)
After gross margin replacement 103%(2) 59% 78% 83%
After marketing expense 117%(2) 67% 99% 97%
(1) The payout ratios have been calculated using cash distributions paid
during the quarter.
(2) Includes a one-time Special Distribution of $26.7 million paid in the
fourth quarter of fiscal 2010. No Special Distribution was paid in
fiscal 2011.
Just Energy'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 Distributions.
Analysis of the fourth quarter
The 16% increase in seasonally adjusted sales compared to the prior comparable
quarter is attributable to new customer additions over the past year including
the Hudson customers acquired effective May 1, 2010. The customer base has
increased by 45% since March 31, 2010. The increase in sales was less than the
increase in customers due to the lower average customer contract prices for
recently added commercial customers and variable-rate contracts as well as the
decline in the U.S. dollar exchange rate. Improved sales and gross margin from
TGF and NHS contributed to the growth quarter over quarter.
Seasonally adjusted gross margin increased by 18% in the fourth quarter of
fiscal 2011 to $144.0 million, up from $121.9 million in the same period last
year. The gross margin increase was higher than the sales increase due to the
prior comparable quarter experiencing record warm winter weather. The fourth
quarter of fiscal 2011's colder than normal weather impact was offset somewhat
by Just Energy's use of weather options to mitigate the cost of unseasonably
warm winter weather in the future. These options will reduce margins in
abnormally cold conditions but increase them during warm winters. Management
believes the result of this hedging policy will be more stable results in the
future. General and administrative costs were $28.3 million, an increase of 27%
for the quarter, from the same period last year. The 27% increase has allowed
Just Energy to support a 45% increase in customers, as well as geographic
expansion for both energy marketing and NHS.
In the fourth quarter of fiscal 2011, 224,000 gross customer additions were
added in the quarter, up 71% from 131,000 during the same period in fiscal 2010.
Net customer additions in the fourth quarter were 67,000, up 415% compared with
13,000 in the three months ended March 31, 2010.
The distributable cash after customer gross margin replacement was $78.6
million, up 19% from $66.0 million in the prior comparable quarter. Gross margin
increased by 18% compared to a 45% increase in customer base. The percentage
margin increase was higher than that of sales due to comparison to the record
warm winter quarter in fiscal 2010 and improved results of the Home Services and
Ethanol divisions in fiscal 2011. Higher gross margins were matched by increased
administrative, bad debt and interest expenses versus the prior comparable
quarter.
After the deduction of all marketing expenses, distributable cash totalled $70.6
million, an increase of 21% from $58.4 million in the fourth quarter of fiscal
2010. Distributions for the quarter were $43.2 million, reflecting an annual
rate of $1.24, unchanged from a year ago. The payout ratio after payment of all
marketing costs for the fourth quarter of fiscal 2011 was 61% versus 117% (71%
excluding Special Distribution) for the same period last year.
Gas and electricity marketing
Sales and gross margin - Per financial statements
For the years ended March 31
(thousands of dollars)
Fiscal 2011
Sales Canada United States Total
Gas $660,036 $525,714 $1,185,750
Electricity 619,985 1,015,347 1,635,332
----------------------------------------------------------------------------
$1,280,021 $1,541,061 $2,821,082
----------------------------------------------------------------------------
Increase (decrease) (10)% 91% 26%
Fiscal 2010
Sales Canada United States Total
Gas $788,661 $425,975 $1,214,636
Electricity 637,580 381,674 1,019,254
----------------------------------------------------------------------------
$1,426,241 $807,649 $2,233,890
----------------------------------------------------------------------------
Increase (decrease)
Fiscal 2011
Gross Margin Canada United States Total
Gas $94,200 $78,563 $172,763
Electricity 94,749 183,922 278,671
----------------------------------------------------------------------------
$188,949 $262,485 $451,434
----------------------------------------------------------------------------
Increase (decrease) (18)% 52% 12%
Fiscal 2010
Gross Margin Canada United States Total
Gas $124,105 $81,520 $205,625
Electricity 107,042 91,107 198,149
----------------------------------------------------------------------------
$231,147 $172,627 $403,774
----------------------------------------------------------------------------
Increase (decrease)
On a financial statement basis, sales increased by 26% in fiscal 2011 to $2.8
billion from $2.2 billion in fiscal 2010. Gross margins increased by 12% from
$403.8 million in fiscal 2010 to $451.4 million in the current fiscal year. On a
per share/unit basis, financial statement gross margin increased by 9% per
share/unit year over year, compared with a 6% increase in seasonally adjusted
gross margin. Financial statement gross margin includes approximately $5 million
in additional revenue from the Ontario gas market relating to the increased
consumption associated with the colder winter weather in fiscal 2011. This
amount will be included in seasonally adjusted gross margin in seasonally
adjusted gross margin in the first and second quarters of fiscal 2012.
Canada
Sales and gross margin for the year ended March 31, 2011, were $1.3 billion and
$188.9 million, respectively, a decrease of 10% and 18%, respectively, from the
prior comparable year. Total sales and gross margin for the prior year were $1.4
billion and $231.1 million, respectively.
United States
Sales and gross margin in the U.S. were $1.5 billion and $262.5 million,
respectively, for fiscal 2011, an increase of 91% and 52%, respectively, from
the same period last year. Total sales and gross margin for the year ended March
31, 2010, were $807.6 million and $172.6 million, respectively.
Sales and gross margin - Seasonally adjusted(1)
For the years ended March 31
(thousands of dollars)
Fiscal 2011
Sales Canada United States Total
Gas $660,036 $525,714 $1,185,750
Adjustments(1) (9,504) (5,000) (14,504)
----------------------------------------------------------------------------
$650,532 $520,714 $1,171,246
Electricity 619,985 1,015,347 1,635,332
----------------------------------------------------------------------------
$1,270,517 $1,536,061 $2,806,578
----------------------------------------------------------------------------
Increase (decrease) (13)% 89% 23%
Fiscal 2010
Sales Canada United States Total
Gas $788,661 $425,975 $1,214,636
Adjustments(1) 40,935 4,005 44,940
----------------------------------------------------------------------------
$829,596 $429,980 $1,259,576
Electricity 637,580 381,674 1,019,254
----------------------------------------------------------------------------
$1,467,176 $811,654 $2,278,830
----------------------------------------------------------------------------
Increase (decrease)
Fiscal 2011
Gross margin Canada United States Total
Gas $94,200 $78,563 $172,763
Adjustments(1) (1,532) (193) (1,725)
----------------------------------------------------------------------------
$92,668 $78,370 $171,038
Electricity 94,749 183,922 278,671
----------------------------------------------------------------------------
$187,417 $262,292 $449,709
----------------------------------------------------------------------------
Increase (decrease) (23)% 52% 9%
Fiscal 2010
Gross margin Canada United States Total
Gas $124,105 $81,520 $205,625
Adjustments(1) 10,804 (255) 10,549
----------------------------------------------------------------------------
$134,909 $81,265 $216,174
Electricity 107,042 91,107 198,149
----------------------------------------------------------------------------
$241,951 $172,372 $414,323
----------------------------------------------------------------------------
Increase (decrease)
(1) For Ontario, Manitoba, Quebec and Michigan gas markets.
On a seasonally adjusted basis, sales increased by 23% in fiscal 2011 to $2.8
billion as compared to $2.3 billion in fiscal 2010. Gross margins were $449.7
million for the year, up 9% from the prior comparable year. The lower increase
in margin versus sales is a result of a $35 million adverse margin impact from
utility reconciliations during the first and second quarters of the year due to
record warm winter temperatures in fiscal 2010. In addition, margin percentages
were lower due to lower margins on large numbers of commercial and variable-rate
customers added during the year as well as an active Blend and Extend marketing
program which reduces short-term gross margins to increase gross margin in the
long term. During the year, Blend and Extend offers and other customer contract
renegotiations resulted in a $12.1 million reduction on what would have
otherwise been collected as gross margin. These retention efforts have resulted
in $20.8 million in increased future gross margin for the extension period.
Canada
Seasonally adjusted sales were $1.3 billion for the year, down 13% from $1.5
billion in fiscal 2010. Seasonally adjusted gross margins were $187.4 million in
fiscal 2011, a decrease of 23% from $242.0 million in the prior year.
Gas
Canadian gas sales were $650.5 million, a decrease of 22% from $830.0 million in
fiscal 2010. During fiscal 2011, total customer delivered gas volume reflected
both an 11% decrease in RCEs flowing and a 13% decrease in consumption per
customer due to lower utility delivery requirements as a result of the prior
year warm winter. Gross margin totalled $92.7 million, down 31% from fiscal
2010, reflecting both these factors as well as the effects of the Blend and
Extend contracts signed by customers and the introduction of lower margin
variable-rate products in Ontario. In addition, although the winter months were
colder than the prior year, Just Energy had put in place a policy of hedging
through weather index derivatives. This was intended to reduce gross margin
fluctuations from extreme weather and these derivatives reduced the potential
benefit of cold winter weather during the current fiscal year. Management
believes that this hedging strategy will reduce volatility in Just Energy's
results in future periods.
After allowance for balancing and inclusive of acquisitions, realized average
gross margin per customer ("GM/RCE") for the year ended March 31, 2011, amounted
to $150/RCE compared to $191/RCE for the prior comparable year, reflecting the
adverse weather impact in the first and second quarters and the impact of Blend
and Extend. The GM/RCE value includes an appropriate allowance for the bad debt
expense in Alberta.
Electricity
Electricity sales were $620.0 million for the year, a decrease of 3% from fiscal
2010 due to a 3% decline in flowing RCEs. Gross margin decreased by 11% for
fiscal 2011 to $94.7 million versus $107.0 million in the prior year. The Blend
and Extend program contributed to the gross margin decrease year over year.
Also, expiring higher margin customers are being replaced with new lower margin
customers due to competitive pressures from low utility prices in Ontario.
Realized average gross margin per customer after all balancing and including
acquisitions for the year ended March 31, 2011, in Canada amounted to $127/RCE,
a decrease from $149/RCE in the prior year due to the cumulative effect of new
lower margin contracts necessary to compete against the very low utility price
in the Ontario market. Increased JustGreen sales had a positive impact on
margins per customer but this was more than offset by discounts required to
compete against the regulated utility floating rate in Ontario. In addition,
commercial customers added during the year generate lower margins than the
previous predominantly residential customer base. Again, the success of Blend
and Extend reduced margins in the short term in exchange for higher margins in
the future. The GM/RCE value includes an appropriate allowance for the bad debt
expense in Alberta.
United States
Sales for fiscal 2011 were $1.5 billion, an increase of 89% from $811.7 million
in the prior year. Seasonally adjusted gross margin was $262.3 million, up 52%
from $172.4 million from the prior year.
Gas
For fiscal 2011, gas sales and gross margin in the U.S. totalled $520.7 million
and $78.4 million, respectively, versus $430.0 million and $81.3 million,
respectively, in fiscal 2010. The sales increase of 21% was due to a 41%
increase in customers largely through successful marketing and the acquisition
of Hudson. Sales growth was less than customer growth due to a lower U.S. dollar
exchange rate and reduced contract prices associated with commercial sales.
Gross margin decreased by 4% year over year compared to the 21% increase in
sales primarily as a result of the third party losses in Michigan related to
fiscal 2010 warm winter financial reconciliations as well as reconciliations in
other states and the lower U.S. dollar. In addition, there was an impact from
the weather index derivatives put in place in the fourth quarter which mitigated
what would otherwise have been margin increases in the third and fourth quarters
associated with the relatively cold winter.
Average realized gross margin after all balancing costs for the year ended March
31, 2011, was $141/RCE, a decrease of 33% over the prior year amount of
$212/RCE. This is due to lower per customer consumption, utility
reconciliations, losses on sale of excess gas and the inclusion of lower margin
commercial customers acquired with Hudson. The GM/RCE value includes an
appropriate allowance for bad debt expense in Illinois and California.
Electricity
U.S. electricity seasonally adjusted sales and gross margin for the year were
$1.0 billion and $183.9 million, respectively, versus $381.7 million and $91.1
million, in fiscal 2010. Sales were up 166% due to an increase in flowing
customers year over year attributable to the Hudson acquisition and strong
marketing growth. Sales were up more than gross margin due to the lower margins
on commercial customers. Total customer demand increased by 224%, which is
slightly lower than the 245% increase in the customer base. Margins were up 102%
year over year. The majority of customers added over the period were commercial
customers with lower per customer margins than the largely residential book in
place a year prior. Also impacting the lower gross margin growth were the
extreme weather variances experienced in Texas during the fourth quarter, which
resulted in a $2.0 million reduction in gross margin.
Average gross margin per customer for electricity during the current year
decreased to $149/RCE, compared to $238/RCE in the prior year, as a result of a
lower U.S. dollar exchange rate and lower margins per RCE for commercial
customers added. The GM/RCE value for Texas, Pennsylvania, Massachusetts and
California includes an appropriate allowance for the bad debt expense.
Customer aggregation
Long-term customers
April 1, 2010 Additions Acquired Attrition
----------------------------------------------------------------------------
Natural gas
Canada 734,000 53,000 - (73,000)
United States 408,000 224,000 81,000 (123,000)
----------------------------------------------------------------------------
Total gas 1,142,000 277,000 81,000 (196,000)
----------------------------------------------------------------------------
Electricity
Canada 760,000 106,000 - (77,000)
United States 391,000 616,000 579,000 (171,000)
----------------------------------------------------------------------------
Total electricity 1,151,000 722,000 579,000 (248,000)
----------------------------------------------------------------------------
Combined 2,293,000 999,000 660,000 (444,000)
----------------------------------------------------------------------------
% increase
Failed to renew March 31, 2011 (decrease)
----------------------------------------------------------------------------
Natural gas
Canada (58,000) 656,000 (11)%
United States (16,000) 574,000 41%
----------------------------------------------------------------------------
Total gas (74,000) 1,230,000 7%
----------------------------------------------------------------------------
Electricity
Canada (53,000) 736,000 (3)%
United States (67,000) 1,348,000 245%
----------------------------------------------------------------------------
Total electricity (120,000) 2,084,000 81%
----------------------------------------------------------------------------
Combined (194,000) 3,314,000 45%
----------------------------------------------------------------------------
Gross customer additions for the year were 999,000, up 98% from the 505,000
customers added through marketing during fiscal 2010. This was due to very
strong additions in both the Consumer Energy division and the Commercial Energy
division. Of the total, 571,000 were commercial customers, showing the continued
positive impact of both the new broker channel and Just Energy's internal
efforts to expand its share of the commercial market. Commercial customers now
represent approximately 40% of the total customer base. Total net customer
additions through marketing for the year were 361,000, up from 73,000 net
customer additions last year. Overall, there has been a 45% increase in total
customers over the past year.
Total gas customers excluding acquired customers, remained virtually unchanged
during the last year, reflecting a difficult price environment with a large
disparity between utility spot prices and the five-year prices. The extended
period of low, stable gas prices has reduced the customer appetite for the
stability of higher priced long-term fixed contracts. This continues to impact
new customer additions and renewals. To respond, profitable new variable-rate
contracts are being sold while spot market prices remain stable. Including
acquired customers, the natural gas base increased by 7% year over year.
Total electricity customers excluding acquired customers were up 31% during
fiscal 2011, with strong growth in our U.S. markets and a 3% decrease in total
customers in our Canadian markets. Including acquired customers, the electricity
customer base increased 81% year over year.
As at March 31, 2011, there are an additional 30,000 RCEs categorized as
variable and short term in nature and, accordingly, have not been included in
the long-term customer aggregation reported above. The majority of these
short-term customers were acquired as part of the Hudson acquisition earlier in
the year.
JustGreen
Sales of the JustGreen products remain strong despite premium pricing in a
low-price environment. The JustGreen 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, 2010 through December 31, 2010, validating the match of
Just Energy's renewable energy and carbon offset purchases against customer
contracts. Just Energy is a participant in over 25 carbon offset and renewable
energy projects across North America and is actively pursuing new projects to
meet our growing demand for green energy alternatives. Just Energy purchases
carbon offsets and renewable energy credits for the current and future use of
our customers. Our purchases help developers finance the projects.
The Company currently sells JustGreen gas in the eligible markets of Ontario,
British Columbia, Alberta, Michigan, New York, Ohio, Illinois and Pennsylvania.
JustGreen electricity is sold in Ontario, Alberta, New York, Texas and
Pennsylvania. Of all consumer customers who contracted with Just Energy in the
year ended March 31, 2011, 36% took JustGreen for some or all of their energy
needs. On average, these customers elected to purchase 90% of their consumption
as green supply, which compares with a 39% take-up, for an average of 81% of
consumption, during the prior fiscal year.
Overall, JustGreen supply now makes up 6% of the overall gas portfolio, up from
2% a year ago. JustGreen supply makes up 10% of the electricity portfolio, up
from 5% on the same date last year.
Attrition
Fiscal 2011 Targeted
Fiscal 2011 Attrition attrition
Natural gas
Canada 10% 10%
United States 23% 30%
Electricity
Canada 10% 10%
United States 17% 20%
The year saw a material improvement in attrition rates across all markets.
Improved economic conditions, diligent credit reviews and offering Blend and
Extends resulted in attrition rates that were at or below target rates in all
markets for the first time in several years. With all new customers signed over
the past three years being at rates consistent with current commodity rates,
management believes that these attrition trends will continue. Management is
confident that continued improvements in attrition rates in the United States
will be seen in coming periods.
Natural gas
The annual natural gas attrition in Canada was 10% for the year, in line with
management's target of 10%. In the U.S., annual gas attrition was 23%, below
management's annual target of 30%. This reflects continued improvement in the
U.S. results due to new product offerings and greater economic stability within
the U.S. customer base.
Electricity
The annual electricity attrition rate in Canada for the year was 10%, in line
with management's expectations. Electricity attrition in the U.S. was 17% for
the trailing 12 months, below management's target of 20%.
Failed to renew
Fiscal 2011 Targeted
Fiscal 2011 Renewal rates renewals
Natural gas
Canada 65% 70%
United States 73% 75%
Electricity
Canada 61% 70%
United States 66% 75%
The Just Energy renewal process is a multifaceted program and aims to maximize
the number of customers who choose to renew their contract prior to the end of
their existing contract term. Efforts begin up to 15 months in advance, allowing
a customer to renew for an additional four or five years. Renewals in fiscal
2011 were the most challenging in the Company's history. Extended periods of
depressed gas prices (and their direct impact on electricity pricing) combined
with very low perceived future price volatility have resulted in lower than
targeted renewals. Management believes if commodity price volatility remains
low, targeted renewal rates will be in the range of 70% overall.
Natural gas
The fiscal 2011 annual renewal rate for all Canadian gas customers was 65%,
below management's target of 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. Of the total Canadian gas customer renewals
during the year, 31% were renewed for a one-year term. Canadian gas markets
lagged the 2011 target of 70%, largely due to the current high spread between
the Just Energy five-year price and the utility spot price. The long period of
stable low gas prices has reduced customer interest in renewing at higher fixed
prices. Management will continue to focus on increasing renewals, and a return
to rising market pricing should result in an improvement in Canadian gas renewal
rates to target levels.
In the U.S. markets, Just Energy had primarily Illinois and a small number of
Indiana and New York gas customers up for renewal. Gas renewals for the U.S.
were 73%, slightly below management's target of 75% due to lower renewal rates
in Indiana and New York.
Electricity
The electricity renewal rate for Canadian customers was 61% for the year, which
is below the targeted level. There continues to be solid demand for JustGreen
products, supporting renewals in Canadian electricity customers but due to the
disparity between the spot and five-year prices and low volatility in the spot
prices, customers have been reluctant to again lock into fixed-priced products.
Just Energy has introduced some enhanced variable-price offerings to improve
renewal rates.
During the year, Just Energy had Texas, Illinois and New York electricity
customers up for renewal. The electricity renewal rate was 66%, below our target
rate of 75% due to lower renewal rates in Illinois and New York. In each of
these markets, our green product is being developed for renewing customers,
which should further strengthen the profitability and proclivity to renew.
Gas and electricity contract renewals
This table shows the percentage of customers up for renewal in each of the
following years:
Canada - U.S. -
Canada - gas electricity U.S. - gas electricity
--------------------------------------------------------
2012 28% 21% 21% 29%
2013 22% 24% 23% 22%
2014 17% 17% 11% 21%
2015 14% 12% 14% 13%
Beyond 2015 19% 26% 31% 15%
--------------------------------------------------------
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. To the extent there is continued customer
take-up on blend and extend offers, some renewals scheduled for 2012 and 2013
will move back to 2015 and beyond.
Gross margin earned through new marketing efforts
Annual gross margin per customer for new and renewed customers
The table below depicts the annual margins on contracts of residential and
commercial customers signed during the year. This table reflects all margin
earned on new additions and renewals including both the brown commodity and
JustGreen. Customers added through marketing were at or above the margins of
customers lost through attrition or failure to renew. Renewing customers were at
lower margins largely due to lesser take-up of JustGreen on renewal. However,
JustGreen is beginning to be aggressively marketed for renewals, with the
expectation that rates similar to those for new customers can be achieved. Sales
of the JustGreen products remained very strong with approximately 36% of all
residential customers added in the past year taking some or all green energy
supply. Customers that have purchased the JustGreen product elected, on average,
to take 90% of their consumption in green supply. For large commercial
customers, the average gross margin for new customers added was $88/RCE. The
aggregation cost of these customers is commensurately lower per RCE than a
residential customer.
Number of
Annual gross margin per customer(1) Fiscal 2011 customers
------------------------------
------------------------------
Residential and small commercial customers
added in the year
- Canada - gas $209 25,000
- Canada - electricity $161 49,000
- United States - gas $217 124,000
- United States - electricity $189 222,000
Average annual margin $195
Residential and small commercial customers
renewed in the year
- Canada - gas $166 98,000
- Canada - electricity $120 98,000
- United States - gas $196 35,000
- United States - electricity $177 32,000
Average annual margin $154
Residential and small commercial customers
lost in the year
- Canada - gas $204 130,000
- Canada - electricity $150 129,000
- United States - gas $208 113,000
- United States - electricity $227 92,000
Average annual margin $195
Large commercial customers added in the year $88 571,000
Large commercial customers lost in the year $118 172,000
(1) Customer sales price less cost of associated supply and allowance for
bad debt and U.S. working capital.
Home Services division (NHS)
NHS provides Ontario residential customers with long-term water heater rental
programs that offer conventional tanks, power vented tanks and tankless water
heaters in a variety of sizes, in addition to leasing HVAC products. NHS had
continued strong customer growth and as at March 31, 2011, had a cumulative
installed base of 115,200 water heaters, 2,600 furnaces, and 800 air
conditioners in residential homes. The water heater installed base has increased
by 50% in the past year, from 77,000 as at March 31, 2010. Management is
confident that NHS will contribute to the long-term profitability of Just Energy
and continue to contribute to diversification. NHS currently markets through
approximately 210 independent contractors.
As NHS is a high growth, relatively capital-intensive business, Just Energy's
management believes that, in order to maintain stability of dividends, separate
non-recourse financing of this capital is appropriate. NHS announced that it had
entered into a long-term financing agreement with Home Trust Company ("HTC") for
the funding of the water heaters and HVAC products in the Enbridge gas (January
2010) and Union Gas (July 2010) distribution territories. Under the agreements,
NHS receives funds equal to the amount of the five-, seven- or ten-year cash
flow (at its option) of the water heater and HVAC contracts discounted at the
contracted rate, which is currently 7.99%. HTC is then paid an amount which is
equal to the customer rental payments on the water heaters for the next five,
seven or ten years. The funding received from HTC up to March 31, 2011 was
$105.7 million.
Management's strategy for NHS is to self-fund the business through its growth
phase, building value within the customer base. This way, NHS will not require
significant cash from Just Energy's core operations nor will Just Energy rely on
NHS's cash flow to fund dividends. The result should be a valuable asset, which
will generate strong cash returns following repayment of the HTC financing.
The 2011 fiscal year saw significant geographic and product expansions for NHS.
The division began marketing its products in Union Gas territory in Ontario,
expanding its reach to the entire province. It also rolled out an offering of
furnace and air conditioner rentals and sales. These expansions were funded by
increased general and administrative costs but are expected to substantially
increase the growth and profitability of NHS in the future.
Selected financial information
For the year ended March 31
(thousands of dollars, except where indicated)
Fiscal 2011 Fiscal 2010(1)
Sales per financial statements $22,566 $8,886
Cost of sales 6,869 1,837
--------------------------------
Gross margin 15,697 7,049
Marketing expenses 3,302 2,824
General and administrative expense 12,083 5,789
Interest expense 6,468 818
Capital expenditures 30,625 24,544
Amortization 1,902 1,975
Ending total number of water heaters
installed 115,200 77,000
(1) Represents results from the date of acquisition, July 1, 2009 through to
March 31, 2010.
Results of operations
For the year ended March 31, 2011, NHS had sales of $22.6 million, up 154% year
over year, and gross margin of $15.7 million, up 123% from the comparable
period. The cost of sales for the year was $6.9 million, of which $4.6 million
represents the non-cash amortization of the installed water heaters for the
customer contracts signed to date. Marketing expenses for fiscal 2011 were $3.3
million and include the amortization of commission costs paid to the independent
agents, sales-related automotive fleet costs, advertising and promotion, and
telecom and office supplies expenses. General and administrative costs, which
relate primarily to administrative staff compensation and warehouse expenses,
were $12.1 million for the year ended March 31, 2011, up 109% year over year.
The higher level of general and administrative costs relative to the past year
was largely due to the expansion into Union Gas territory and the rollout of
furnace and air conditioner offerings. The infrastructure has now been put in
place to allow for strong growth in the Union Gas territory.
Interest expense amounted to $6.5 million as a result of the financing
arrangement with HTC. Capital expenditures, including installation costs,
amounted to $30.6 million for the year ended March 31, 2011. Amortization costs
were $1.9 million for the current year and include both the depreciation on
non-tank-related capital assets noted above and the amortization of the
purchased water heater contracts.
For the prior comparable period, which represents operations from the date of
acquisition, July 1, 2009 through March 31, 2010, sales and gross margin
amounted to $8.9 million and $7.0 million, respectively. Marketing expenses were
$2.8 million and general and administrative expenses amounted to $5.8 million.
Interest expense for the nine months was $0.8 million as a result of the HTC
financing just being secured in January, 2010.
The growth of NHS has been rapid and, combined with the HTC financing, is
expected to be self-sustaining on a cash flow basis.
Ethanol division (TGF)
TGF continues to remain focused on improving the plant production and run time
of the Belle Plaine, Saskatchewan, wheat-based ethanol facility. For the year
ended March 31, 2011, the plant achieved an average production capacity of 78%,
a significant increase from average production capacity of 62% in the prior
comparative period. The Phase 1 grain-milling upgrade done in late fiscal 2010
has allowed the plant to achieve daily milling rates exceeding nameplate
capacity from time to time. In the fourth quarter, the plant achieved average
production capacity of 86%. In the first quarter of fiscal 2012, the plant will
complete scheduled maintenance, resulting in production downtime.
Ethanol prices were, on average, $0.57 per litre for the year and wheat prices
averaged $168 per metric tonne for the year. As at March 31, ethanol was priced
at $0.68 per litre. The ethanol division has separate non-recourse financing in
place such that capital requirements and operating losses will not impact Just
Energy's core business and its ability to pay dividends.
Selected financial information
For the year ended March 31
(thousands of dollars, except where indicated)
Fiscal 2011 Fiscal 2010(1)
Sales per financial statements $108,526 $56,455
Cost of sales 94,260 51,945
--------------------------------
Gross margin 14,266 4,510
General and administrative expense 11,231 9,089
Interest expense 6,862 5,107
Capital expenditures 266 4,599
Amortization 1,193 1,079
(1) Represents results from the date of acquisition, July 1, 2009 through to
March 31, 2010.
Results of operations
For fiscal 2011, TGF had sales and gross margin of $108.5 million and $14.3
million, respectively. During the fiscal year, the plant produced 117.7 million
litres of ethanol and 111,417 metric tonnes of DDG. For the year ended March 31,
2011, TGF incurred $11.2 million in general and administrative expenses and $6.9
million in interest charges. Fiscal 2011 is the first year in which the ethanol
facility has generated positive EBITDA.
For the prior comparable period, which represents results from the date of
acquisition, July 1, 2009 to March 31, 2010, sales and gross margin totalled
$56.5 million and $4.5 million, respectively. The plant produced 69.4 million
litres of ethanol and 66,487 metric tonnes of DDG. General and administrative
expenses were $9.1 million and interest expense was $5.1 million. Capital
expenditures were $4.6 million in fiscal 2010, primarily relating to the milling
upgrade completed near year end.
TGF receives a federal subsidy related to the ecoEnergy for Biofuels Agreement
signed on February 17, 2009, as amended from time to time, based on the volume
of ethanol produced. From July 1, 2009 to March 31, 2010, the subsidy was ten
cents per litre, and throughout fiscal 2011, this subsidy was nine cents per
litre. The subsidy will be eight cents per litre for fiscal 2012. The subsidy
amount declines through time to five cents per litre of ethanol produced in
fiscal 2015, the last year of the agreement.
Overall consolidated results - Just Energy
General and administrative expenses
General and administrative costs were $109.4 million for the year ended March
31, 2011, representing a 24% increase from $88.4 million in fiscal 2010. This
was primarily due to the inclusion of a full year of administrative costs for
NHS and TGF as well as the addition of Hudson's commercial energy marketing
administrative costs.
Fiscal 2011 Fiscal 2010 % Increase
----------------------------------------
Energy marketing $86,093 $73,545 17%
NHS 12,083 5,789 109%
TGF 11,231 9,089 24%
----------------------------------------
Total general and administrative
expenses $109,407 $88,423 24%
Energy marketing general and administrative costs were $86.1 million in fiscal
2011, an increase of 17% from $73.5 million for the year ended March 31, 2010.
The 17% increase has allowed Just Energy to support a 45% increase in customers
as well as fund one-time costs for the conversion to a corporate structure. In
addition, the increase versus the prior year is a result of a full year of
Universal-related expenses (versus nine months in the prior year) offset by
realized synergies as well as the inclusion of Hudson administrative costs. Just
Energy obtained a new commercial license in Pennsylvania and incurred costs to
prepare to enter Pennsylvania for residential sales and Saskatchewan for the
commercial business. Just Energy expects continued general and administrative
spending to support geographic market expansion but management believes that
costs per customer will continue to decline over the long term.
Marketing expenses
Marketing expenses, which consist of commissions paid to independent sales
contractors, brokers and independent representatives for signing new customers,
as well as sales-related corporate costs, were $133.6 million, an increase of
40% from $95.8 million in fiscal 2010. New customers signed by our marketing
sales force were 999,000 during fiscal 2011, up 98% compared to 505,000
customers added through our sales offices in the prior year. The increase in the
current year expense reflects the cost of a 98% gross and a 395% net increase in
customer additions, offset by the lower total aggregation cost per customer and
a lower U.S. dollar exchange rate.
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 were $84.8 million for year, an increase of 35% from $62.8 million in
fiscal 2010.
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 year ended March 31, 2011
totalled $36.4 million, a 10% increase from $33.0 million in fiscal 2010.
Although there was a large increase in the net customer additions through
marketing of 361,000 for the current year, up from 73,000 in fiscal 2010, the
blend of commercial and residential customers added resulted in a 20% increase
in embedded margin, lower than the 45% increase in total customers.
Commissions related to obtaining and renewing Hudson commercial contracts are
paid all or partially upfront or as residual payments over the life of the
contract. If the commission is paid all or partially upfront, the amortization
is included in marketing expenses as the associated revenue is earned. If the
commission is paid as a residual payment, the amount is expensed as earned. Of
the current total commercial customer base, approximately 60% are commercial
broker customers and 55% of these commercial brokers are being paid recurring
residual payments.
Marketing expenses included in distributable cash exclude amortization related
to the contract initiation costs for Hudson and NHS. For the year ended March
31, 2011, the amortization amounted to $14.5 million. Capitalized marketing
costs associated with maintaining margin are reflected as maintenance capital in
Adjusted EBITDA.
The actual aggregation costs for the year ended March 31, 2011, per customer for
residential and commercial customers signed by independent representatives and
commercial customers signed by brokers were as follows:
Residential Commercial Commercial broker
customers customers customers
Natural gas
Canada $277/RCE $157/RCE $31/RCE
United States $177/RCE $126/RCE $19/RCE
Electricity
Canada $213/RCE $157/RCE $31/RCE
United States $150/RCE $85/RCE $40/RCE
Total aggregation costs $173/RCE $122/RCE $35/RCE
The actual aggregation per customer added for all energy marketing for the year
ended March 31, 2011, was $102. The $35 average aggregation cost for the
commercial broker customers is based on the expected average annual cost for the
respective customer contracts. It should be noted that commercial broker
contracts are paid further commissions averaging $35 per year for each
additional year that the customer flows. Assuming an average life of 2.8 years,
this would add approximately $63 (1.8 X $35) to the fiscal 2011 $35 average
aggregation cost for commercial broker customers reported above.
For the prior comparable year, aggregation costs per customer in the Canadian
and U.S. gas markets were $215/RCE and $174/RCE, respectively, with a combined
cost of $182/RCE. In the Canadian and U.S. electricity markets, the aggregation
costs per customer amounted to $188/RCE and $161/RCE, respectively, with the
combined cost amounting to $168/RCE.
Share-based compensation
Compensation in the form of stock (non-cash) granted by Just Energy to the
directors, officers, full-time employees and service providers of the Company
and its subsidiaries and affiliates pursuant to the 2010 Share Option Plan
(formerly the 2001 Unit Option Plan), the 2010 Restricted Share Grant Plan
(formerly the 2004 unit appreciation rights plan) and the Directors'
Compensation Plan amounted to $5.5 million, an increase of 16% from the $4.8
million paid in fiscal 2010. The increase relates primarily to additional fully
paid long-term retention restricted share grants awarded to the senior
management of the Company.
Bad debt expense
In Illinois, Alberta, Texas, Pennsylvania, California and Massachusetts, Just
Energy assumes the credit risk associated with the collection of customer
accounts. In addition, for commercial direct-billed accounts in B.C., New York
and Ontario, Just Energy is responsible for the bad debt risk. NHS has also
assumed credit risk for customer account collection for certain territories
within Ontario. 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. During the year, Just
Energy was exposed to the risk of bad debt on 35% of its sales.
Bad debt expense for fiscal 2011 was $27.7 million, up 54% from $17.9 million
expensed last year. The bad debt expense increase was entirely related to the
59% increase in total revenues for the current year to $1,033.5 million, in the
markets where Just Energy assumes the risk for accounts receivable collections.
These markets also now include incremental commercial customers. 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 year ended March 31, 2011, the bad debt expense of
$27.7 million represents approximately 2.7% of revenue, slightly lower than the
bad debt for fiscal 2010, which represented 2.8% of relevant revenue.
Credit losses in Texas as a percentage of total revenues have declined due to
aggressive collection efforts and quicker disconnection for delinquent
customers. Continued improvements in the Illinois collection efforts and lower
default rates for acquired Hudson commercial customers have also contributed to
the improvement in the bad debt rate versus the prior year. Management expects
that bad debt expense will remain in the range of 2% to 3% for the next fiscal
year assuming that the housing market in the U.S. continues to show signs of
improvement.
For each of Just Energy's other markets, the LDCs provide collection services
and assume the risk of any bad debt owing from Just Energy's customers for a
regulated fee.
Interest expense
Total interest expense for the year ended March 31, 2011, amounted to $50.4
million, a 213% increase from $16.1 million in fiscal 2010. The large increase
in costs primarily relates to the interest expense for the $330 convertible
debentures associated with the Hudson acquisition as well as interest costs
associated with the NHS financing.
This increase also reflects a full year compared to the inclusion of nine months
in the prior comparable year of interest relating to the JEEC convertible
debentures and TGF financing in the prior comparable year.
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. For the year ended March 31,
2011, a foreign exchange unrealized gain of $0.3 million was reported in other
comprehensive income (loss) versus a $26.6 million gain reported in the prior
fiscal year.
Overall, a weaker U.S. dollar decreases the value of sales and gross margin in
Canadian dollars but this is partially offset by lower operating costs
denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to
support ongoing growth and surplus cash is repatriated to Canada. U.S. cross
border cash flow is forecasted annually, and hedges for cross border cash flow
are entered into. Just Energy hedges between 25% and 90% of the next 12 months'
cross border cash flows depending on the level of certainty of the cash flow.
During fiscal 2011, a total of $28.0 million in U.S. funds was repatriated back
to Canada, versus $23.0 million in the prior fiscal year.
Class A preference share cash distributions
On January 1, 2011, as part of the conversion from an income trust to a
corporation, the remaining Class A preference shares of Just Energy Corp.
("JEC") were converted into JEGI common shares. Prior to this, the holder of the
JEC Class A preference shares was entitled to receive, on a quarterly basis, a
payment equal to the amount paid to a unitholder on an equal number of units.
The total amount paid for the nine months ended December 31, 2010, including
tax, amounted to $4.9 million. The distributions on the Class A preference
shares are reflected in the consolidated statement of unitholders'/shareholders'
deficiency in the consolidated financial statements, net of tax.
Provision for (recovery of) income tax
(thousands of dollars) Fiscal 2011 Fiscal 2010
-------------------------------
-------------------------------
Current income tax provision $8,182 $19,253
Amount credited to unitholders'/shareholders'
equity 1,305 2,501
Future tax expense (recovery) 22,655 (122,014)
-------------------------------
Provision for (recovery of) income tax $32,142 $(100,260)
-------------------------------
-------------------------------
Just Energy recorded a current income tax expense of $8.2 million for the year
versus $19.3 million of expense in fiscal 2010. The change is mainly
attributable to lower Canadian income taxes as a result of the integration of
the Universal entities into the income fund structure during the first three
quarters of the current fiscal year.
Also included in the income tax provision is an amount relating to the tax
deduction for JEC relating to Class A preference share distributions. 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 consolidated statement of unitholders' deficiency, net
of tax. For the year ended March 31, 2011, the tax impact of these
distributions, based on a tax rate of 30%, amounted to $1.3 million, versus an
amount of $2.5 million based on the 33% tax rate last year. The decrease of this
tax impact in the current year is due to the combined effect of the cessation of
such distributions to the Class A preference shareholder at the time that Just
Energy converted to a taxable Canadian corporation effective January 1, 2011,
and a decline in the corporate tax rate in Canada during the current year.
As noted in Just Energy's 2010 Annual Report, a future tax recovery of $122.0
million was recorded in fiscal 2010 to recognize the significant temporary
differences attributed to mark to market losses from financial instruments which
are expected to be realized subsequent to the Conversion on January 1, 2011.
During this fiscal year, these mark to market losses declined as a result of a
change in fair value of these derivative instruments, and as a result, a future
tax expense of $22.7 million has been recorded for this year.
After the Conversion on January 1, 2011, Just Energy has been taxed as a taxable
Canadian corporation. Therefore, the future tax asset or liability associated
with Canadian liabilities and assets recorded on the consolidated balance sheets
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 are accrued to
the extent that there is taxable income in Just Energy and its underlying
corporations. Canadian corporations under Just Energy are subject to a tax rate
of approximately 28% after the Conversion.
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. During
the year, the U.S. subsidiaries had fully utilized their combined operating
losses for tax purposes carried over from prior years, and after taking these
tax losses into effect, recorded a $3.1 million current U.S. income tax for the
year.
Just Energy 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 in which the
change occurs.
Liquidity and capital resources
Summary of cash flows
(thousands of dollars) Fiscal 2011 Fiscal 2010
--------------------------------
--------------------------------
Operating activities $153.360 $158,273
Investing activities (318,847) (37,466)
Financing activities, excluding
distributions/dividends 346,266 46,666
Effect of foreign currency translation (891) (3,861)
--------------------------------
Increase in cash before
distributions/dividends 179,888 163,612
Distributions/dividends (cash payments) (142,387) (162,574)
--------------------------------
Increase in cash 37,501 1,038
Cash - beginning of year 60,132 59,094
--------------------------------
Cash - end of year $97,633 $60,132
--------------------------------
--------------------------------
Operating activities
Cash flow from operating activities for the year ended March 31, 2011, was
$153.4 million, a decrease from $158.3 million in the prior year. The decrease
is a result of the higher gross margin being offset by an increase in short term
working capital, general and administrative, marketing, bad debt and interest
expenses.
Investing activities
Just Energy purchased capital assets totalling $36.6 million during the year, a
decrease from $41.2 million in the prior year. In fiscal 2011 to date, Just
Energy's capital spending related primarily to the home services business and
costs related to purchases of office equipment and IT software.
Financing activities
Financing activities, excluding distributions/dividends, relates primarily to
the issuance of the $330 million in convertible debentures in relation to the
Hudson acquisition. Long-term debt, amounting to $484.8 million, was issued
(related to the convertible debentures, NHS financing and the credit facility)
with repayment during the year of $148.3 million. In the prior comparable year,
$243.8 million was issued in long-term debt while $207.5 million was repaid.
As of March 31, 2011, Just Energy had a credit facility of $350 million. In
connection with the Conversion on January 1, 2011, Just Energy increased its
credit facility with repayment of the facility due on December 31, 2013. The
syndicate of lenders now includes the Canadian Imperial Bank of Commerce, Royal
Bank of Canada, National Bank of Canada, Societe Generale, Bank of Nova Scotia,
Toronto-Dominion Bank and Alberta Treasury Branches.
As Just Energy continues to expand in the U.S. markets, the need to fund working
capital and collateral posting requirements will increase, driven primarily by
the number of customers aggregated, and to a lesser extent, by the number of new
markets. Based on the markets in which Just Energy currently operates and others
that management expects the Company to enter, funding requirements will be fully
supported through the credit facility.
Just Energy's liquidity requirements are driven by the delay from the time that
a customer contract is signed until cash flow is generated. For residential
customers, approximately 60% of an independent sales contractor's commission
payment is made following reaffirmation or verbal verification of the customer
contract, with most of the remaining 40% being paid after the energy commodity
begins flowing to the customer. For commercial customers, commissions are paid
either as the energy commodity flows throughout the contract or partially
upfront once the customer begins to flow.
The elapsed period between the time 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 nine 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/Dividends (cash payments)
In conjunction with the Conversion, investors began receiving dividends as of
January 31, 2011 instead of distributions. Just Energy maintains its annual
dividend rate at $1.24/share, the same rate that was previously paid for
distributions. Investors should note that due to the dividend reinvestment plan
("DRIP"), a portion of dividends (and prior to January 1, 2011, distributions)
declared are not paid in cash. Under the program, shareholders can elect to
receive their dividends in shares at a 2% discount to the prevailing market
price rather than the cash equivalent. For the fiscal year ended March 31, 2011,
$26.0 million of the distributions/dividends were paid in shares/units under the
DRIP, a 30% increase from $20.0 million in the prior comparable year. During the
year ended March 31, 2011, Just Energy made cash distributions/dividends to its
unitholders/shareholders and the Class A preference shareholder in the amount of
$142.4 million compared to $162.6 million in the prior comparable periods.
Just Energy will continue to utilize its cash resources for expansion into new
markets, growth in its existing energy marketing customer base, JustGreen
products and Home Services division, and also to make accretive acquisitions of
customers as well as dividends to its shareholders.
At the end of the year, the annual rate for distributions per unit was $1.24.
The current dividend policy provides that shareholders of record on the 15th of
each month receive dividends at the end of the month.
Balance sheet as at March 31, 2011, compared to March 31, 2010
Cash increased from $60.1 million as at March 31, 2010, to $97.6 million.
Restricted cash, which includes cash collateral posted related to supply
procurement and credit support for Universal, Commerce and the TGF entities, has
decreased to $0.8 million on March 31, 2011, from $18.7 million. The utilization
of the credit facility decreased slightly from $57.5 million to $51.0 million as
a result of normal working capital requirements. Working capital requirements in
the U.S. and Alberta are a result of 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.
As at March 31, 2011, accounts receivable and unbilled revenue amounted to
$281.7 million and $125.1 million, respectively, compared to a year earlier when
the accounts receivable and unbilled revenue amounted to $232.6 million and
$74.0 million. Accounts payable and accrued liabilities have increased from
$184.7 million to $282.8 million in the past year. Both increases in accounts
receivable and payable are related to added consumption as a result of the
Hudson customers acquired and strong net additions in fiscal 2011 as well as the
colder winter temperatures in the current fiscal year compared with fiscal 2010.
As at March 31, 2011, Just Energy had delivered less gas to the LDCs than had
been consumed by customers in Ontario, Manitoba, Quebec and Michigan, resulting
in accrued gas receivable and payable balances of $26.5 million and $19.4
million, respectively. At March 31, 2010, Just Energy had accrued gas receivable
and payable amounting to $20.8 million and $15.1 million, respectively and gas
delivered in excess of consumption and deferred revenue of $7.4 million and $7.2
million, respectively.
Contract initiation costs relate to the commissions paid by both Hudson and NHS
for contracts sold and will be amortized over the life of the contract. The
balance increased to $29.7 million from $5.6 million at the end of the last
fiscal year mainly due to the Hudson acquisition. The March 31, 2010, balance
related to contract initiation costs for NHS only.
Other assets and other liabilities relate entirely to the fair value of the
financial derivatives. The mark to market gains and losses can result in
significant changes in net income and, accordingly, shareholders' equity from
quarter to quarter due to commodity price volatility. Given that Just Energy has
purchased this supply to cover future customer usage at fixed prices, management
believes that these non-cash quarterly changes are not meaningful.
Intangible assets include the acquired customer contracts as well as other
intangibles such as brand, broker network and information technology systems,
primarily related to the Hudson and Universal purchases. The total intangible
asset and goodwill balances increased to $413.0 million and $211.4 million,
respectively, from $342.0 million and $177.9 million, respectively, as at March
31, 2010.
Long-term debt excluding the current portion has increased to $507.5 million in
the year ended March 31, 2011, from $231.8 million and is detailed below.
Long-term debt and financing
(thousands of dollars)
As at March 31, 2011 As at March 31, 2010
===================== ---------------------
Just Energy credit facility $51,035 $57,500
TGF credit facility 36,680 41,313
TGF debentures 37,001 37,001
TGF term loan - 10,000
$90m convertible debentures 84,706 83,417
NHS financing 105,716 65,435
$330m convertible debentures 286,439 -
Just Energy credit facility
Just Energy holds a $350 million credit facility to meet working capital
requirements. The syndicate of lenders now includes Canadian Imperial Bank of
Commerce, Royal Bank of Canada, National Bank of Canada, Societe Generale, Bank
of Nova Scotia, Alberta Treasury Branches and Toronto Dominion Bank. Under the
terms of the credit facility, Just Energy was able to make use of Bankers'
Acceptances and LIBOR advances at stamping fees that vary between 3.25% and
3.75%, prime rate advances at rates of interest that vary between bank prime
plus 2.25% and 2.75%, and letters of credit at rates that vary between 3.25% and
3.75%. Just Energy's obligations under the credit facility are supported by
guarantees of certain subsidiaries and affiliates, excluding among others, TGF
and NHS, 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 March
31, 2011 and 2010, all of these covenants had been met.
TGF credit facility
A credit facility of up to $50 million was established with a syndicate of
Canadian lenders led by Conexus Credit Union and was arranged to finance the
construction of the ethanol plant in 2007. The facility was revised on March 18,
2009, and was converted to a fixed repayment term of ten years commencing March
1, 2009, which includes interest costs at a rate of prime plus 3%, with
principal repayments commencing on March 1, 2010. 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 facility was further revised on March
31, 2010, postponing the principal payments due for April 1, 2010 to June 1,
2010, and to amortize them over the six-month period commencing October 1, 2010,
and ending March 31, 2011. The credit facility includes certain financial
covenants, the more significant of which relate to current ratio, debt to equity
ratio, debt service coverage and minimum shareholders' equity. The lenders had
deferred compliance with the financial covenants until April 1, 2011.TGF is in
discussions with the lenders with respect to the language and compliance of such
general covenants.
TGF has separate non-recourse financing in place such that capital requirements
and operating losses will not impact Just Energy's core business and its ability
to pay dividends.
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.
Interest is to be paid quarterly with quarterly principal payments commencing
October 1, 2009, in the amount of $1.0 million per quarter. The agreement
includes certain financial covenants, the more significant of which relate to
current ratio, debt to capitalization ratio, debt service coverage, debt to
EBITDA and minimum shareholders' equity. The lender has deferred compliance with
the financial covenants until April 1, 2011. TGF entered into an agreement with
the holders of the debentures to defer scheduled principal payments owing under
the debenture until April 1, 2011. The current debenture agreement matures in
the second quarter of fiscal 2012. TGF is in negotiations with the debenture
holders to renew the financing terms and with respect to the terms of the
financial covenants.
TGF term/operating facilities
TGF had a term loan for $10,000 with a third party lender bearing interest at
prime plus 1%, which was due in full on December 31, 2010. As at December 31,
2010, the $10,000 amount was repaid. In addition, TGF has a working capital
operating line bearing interest at prime plus 2% of which $0.3 million of
letters of credit have also been issued.
$90m convertible debentures
In conjunction with the acquisition of Universal on July 1, 2009, Just Energy
assumed the obligations of the convertible unsecured subordinated debentures
issued by Universal in October 2007, which have a face value of $90 million. The
fair value of the convertible debenture was estimated by discounting the
remaining contractual payments at the time of acquisition. This discount will be
accreted using an effective interest rate of 8%. These instruments 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. As at March 31, 2011, each $1,000 principal amount of the $90m convertible
debentures is convertible at any time prior to maturity or on the date fixed for
redemption, at the option of the holder, into approximately 30.87 JEGI shares,
representing a conversion price of $32.40 per share. Pursuant to the $90m
convertible debentures, if JEGI fixes a record date for the making of a dividend
on its shares, the conversion price shall be adjusted in accordance therewith.
On and after October 1, 2010, but prior to September 30, 2012, the $90m
convertible debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at Just Energy'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 $90m convertible debentures are
redeemable, in whole or in part, at a price equal to the principal amount
thereof, plus accrued and unpaid interest, at Just Energy's sole option on not
more than 60 days' and not less than 30 days' prior notice.
NHS financing
In fiscal 2010, NHS entered into a long-term financing agreement with HTC for
the funding of new and existing rental water heater and HVAC contracts in the
Enbridge Gas distribution territory. On July 16, 2010, the financing arrangement
was expanded to the Union Gas territory. Pursuant to the agreement, NHS will
receive financing of an amount equal to the net present value of the first five,
seven or ten years (at its option) of monthly rental income, discounted at the
agreed upon financing rate of 7.99%, and is required to remit an amount
equivalent to the rental stream from customers on the water heater and HVAC
contracts for the first five, seven or ten years, respectively. Under the
agreement, up to one third of rental agreements may be financed for each of the
seven or ten year terms. As at March 31, 2011, the average term of the HTC
funding was 5.4 years.
The financing agreement is subject to a holdback provision, whereby 3% in the
Enbridge territory and 5% in the Union Gas territory of the outstanding balance
of the funded amount is deducted and deposited to a reserve account in the event
of default. Once all of the obligations of NHS are satisfied or expired, the
remaining funds in the reserve account will immediately be released to NHS. HTC
holds security over the contracts and equipment it has financed. NHS is required
to meet a number of covenants under the agreement and, as at March 31, 2011, all
of these covenants have been met.
$330m convertible debentures
To fund the acquisition of Hudson, Just Energy entered into an agreement with a
syndicate of underwriters for $330 million of convertible extendible unsecured
subordinated debentures issued on May 5, 2010. The $330m convertible debentures
bear an interest rate of 6.0% per annum payable semi-annually in arrears on June
30 and December 31 of each year, with maturity on June 30, 2017. Each $1,000 of
principal amount of the $330m convertible debentures is convertible at any time
prior to maturity or on the date fixed for redemption, at the option of the
holder, into approximately 55.6 shares of JEGI, representing a conversion price
of $18 per unit.
The $330m convertible debentures are not redeemable prior to June 30, 2013,
except under certain conditions after a change of control has occurred. On or
after June 30, 2013, but prior to June 30, 2015, the debentures may be redeemed
by JEGI, in whole or in part, on not more than 60 days' and not less than 30
days' prior notice, at a redemption price equal to the principal amount thereof,
plus accrued and unpaid interest, 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 or after June 30, 2015, and prior to the maturity date, the
debentures may be redeemed by JEGI, in whole or in part, at a redemption price
equal to the principal amount thereof, plus accrued and unpaid interest.
Contractual obligations
In the normal course of business, Just Energy is obligated to make future
payments for contracts and other commitments that are known and non-cancellable.
Payments due by period
(thousands of dollars)
Less than 1 4 - 5 After 5
Total year 1 - 3 years years years
----------------------------------------------------------------------------
Accounts payable,
accrued liabilities
and unit distribution
payable $282,805 $282,805 $- $- $-
Bank indebtedness 2,314 2,314 - - -
Long-term debt
(contractual cash
flow) 652,397 94,117 99,099 119,684 339,497
Interest payments 173,609 45,430 61,282 45,470 21,427
Property and equipment
lease agreements 30,662 8,333 10,955 6,533 4,841
EPCOR billing,
collections and
supply commitments 4,974 4,974 - - -
Grain production
contracts 9,181 7,082 2,099 - -
Commodity
supply purchase
commitments 3,173,789 1,498,293 1,405,699 267,505 2,292
----------------------------------------------------------------------------
$4,329,731 $1,943,348 $1,579,134 $439,192 $368,057
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other obligations
In the opinion of management, Just Energy has no material pending actions,
claims or proceedings that have not been included in either its accrued
liabilities or in the financial statements. In the normal course of business,
Just Energy could be subject to certain contingent obligations that become
payable only if certain events were to occur. The inherent uncertainty
surrounding the timing and financial impact of any events 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.
Transactions with related parties
Just Energy does not have any material transactions with any individuals or
companies that are not considered independent to Just Energy or any of its
subsidiaries and/or affiliates.
Critical accounting estimates
The consolidated financial statements of Just Energy 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. Just Energy 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's obligation to the LDC with
respect to gas consumed by customers in excess of that delivered and 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, Texas, Pennsylvania, California and
Massachusetts. In addition, for large direct-billed accounts in B.C., New York
and Ontario, Just Energy is responsible for the bad debt risk. NHS has also
assumed credit risk for customer accounts within certain territories in Ontario.
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's future cash flow. If the estimates change in the
future, Just Energy may be required to record impairment charges related to
goodwill. An impairment review of goodwill was performed as at March 31, 2011,
and as a result of the review, it was determined that no impairment of goodwill
existed.
Fair value of derivative financial instruments and risk management
Just Energy has entered into a variety of derivative financial instruments as
part of the business of purchasing and selling gas, electricity and JustGreen
supply. 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 to cover its estimated fixed-price delivery or green commitment
obligations.
Just Energy's business model's objective is to minimize commodity risk, other
than consumption changes, usually attributable to weather. Accordingly, it is
Just Energy's policy to hedge the estimated fixed-price 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 Just Energy'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's policy is not to use derivative instruments for speculative purposes.
Just Energy's expansion in the U.S. has introduced foreign-exchange-related
risks. Just Energy enters into foreign exchange forwards in order to hedge the
exposure to fluctuations in cross border cash flows.
The financial statements are in compliance with Section 3855 of the CICA
Handbook, which requires 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 portions of the hedge. This calculation permitted the change in fair
value to be accounted for predominantly in the consolidated statements of
comprehensive income. As of July 1, 2008, management decided that the increasing
complexity and costs of maintaining this accounting treatment outweighed the
benefits. This fair value (and when it was applicable, the ineffectiveness) was
determined using market information at the end of each quarter. Management
believes Just Energy remains economically hedged operationally across all
jurisdictions.
JEGI common shares and Preference shares of JEC
As at May 19, 2011, there were 137,192,802 common shares of JEGI outstanding. As
of January 1, 2011, Just Energy converted from an income trust to a corporation
and all Class A preference shares of JEC were converted on a one-for-one basis
for JEGI common shares.
Taxability of distributions
Distributions received in calendar 2010 were allocated 100% to other income.
Additional information can be found on our website at www.justenergygroup.com.
With the conversion to a corporation effective January 1, 2011, all future
payments to shareholders will be in the form of dividends.
Recently issued accounting standards
The following are new standards, not yet in effect, which are required to be
adopted by the Company 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 Company will not adopt the new standards prior to
adopting IFRS as described below.
International Financial Reporting Standards
In February 2008, CICA announced that GAAP for publicly accountable enterprises
will be replaced by IFRS for fiscal years beginning on or after January 1, 2011.
IFRS uses a conceptual framework similar to GAAP, but there are significant
differences in recognition, measurement and disclosures. The conversion to IFRS
will impact the way we present our financial results, however, we do not expect
IFRS to impact the overall revenue and underlying profitability trends of our
operating performance.
Just Energy will transition to IFRS effective April 1, 2011, and intends to
issue its first interim financial statements 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. The first financial statements prepared
under IFRS will include numerous notes disclosing extensive transitional
information and full disclosure of all new IFRS accounting policies.
Based on the initial assessment of the differences between Canadian GAAP and
IFRS relevant to Just Energy, an internal project team was assembled and a
conversion plan was developed in March 2009 to manage the transition to IFRS.
Project status reporting is provided to senior executive management and to the
Audit Committee on a regular basis.
Our project consisted of three phases: IFRS diagnostic assessment, solution
development and implementation. The diagnostic phase, which was completed in
2009, involved a high-level review and the identification of major accounting
differences between current Canadian GAAP and IFRS applicable to Just Energy.
Phase 2, the solution development phase, which included the completion of all
policy papers, was completed and discussed with the external auditors in 2010.
The IFRS project team has recently completed the implementation phase, which was
the final phase of the project. This phase involved approving the accounting
policy choices, completing the collection of data required to prepare the
financial statements, implementing changes to systems and business processes
relating to financial reporting, administering key personnel training and
monitoring standards currently being amended by the International Accounting
Standard Board ("IASB"). Just Energy has also analyzed the IFRS financial
statement presentation and disclosure requirements. These assessments will
continue to be analyzed and evaluated throughout the transition to IFRS.
The areas with the highest quantitative or business system impact to Just Energy
include, but are not limited to, the following:
IAS 16: Property, plant and equipment
IAS 16 reinforces the requirement under Canadian GAAP that requires each part of
property, plant and equipment that has a cost, which is significant in relation
to the overall cost of the item, be depreciated separately. The Company will
adopt this revised accounting policy with respect to the componentization of the
ethanol plant on transition to IFRS. The carrying value of the ethanol plant and
corresponding depreciation expense will differ upon transition to IFRS. The
quantification of the impact is approximately $0.6 million.
IAS 36: Impairment of assets
IAS 36 uses a one-step approach to both testing and measuring impairment, with
asset carrying values compared directly to the higher of fair value less costs
to sell and value in use (which uses discounted future cash flows). Canadian
GAAP, however, uses a two-step approach to impairment testing, first comparing
asset carrying values with undiscounted future cash flows to determine whether
impairment exists, and then measuring any impairment by comparing asset carrying
values with fair values. Just Energy does not expect any material impairment
upon transition to IFRS.
IAS 37: Provisions, contingent liabilities and contingent assets
Provisions are measured at the discounted present value using a pre-tax discount
rate that reflects the current market assessments of the time value of money and
the risks specific to the liability. The discounting of significant litigation
accruals results in an adjustment of approximately $0.7 million.
IAS 12: Income taxes
Other than recording the tax effect of the various other transitional
adjustments and the reclassification of certain tax balances, the Company does
not expect to record any significant tax-related adjustments on the transition
to IFRS.
IAS 39: Financial instruments: Recognition and measurement
The Company enters into fixed-term contracts with customers to provide
electricity and gas at fixed prices. These customer contracts expose the Company
to changes in market prices of electricity and gas consumption. To reduce the
exposure to movements in commodity prices arising from the acquisition of
electricity and gas at floating rates, the Company routinely enters into
derivative contracts. Under Canadian GAAP, all supply contracts are remeasured
at fair value at each reporting date. The requirements for normal purchase and
normal sale exemption (own-use exemption) are similar under Canadian GAAP and
IFRS; however, several small differences exist. There is no specific guidance
either in Canadian GAAP or IFRS with respect to eligibility of the own-use
exemption of energy supply contracts entered into by energy retailers. The
Company has concluded that the own-use exemption does not apply and the amounts
will continue to be marked to market as is the current practice.
IAS 39 also requires that transaction costs incurred upon initial acquisition of
a financial instrument be deferred and amortized into profit and loss over the
life of the instrument. Initial application of IAS 39 will result in an opening
balance sheet adjustment to reduce long-term debt on the date of transition.
This adjustment of approximately $2.4 million will be offset through opening
retained earnings. IAS 39 is to be replaced by IFRS 9 and Just Energy is closely
monitoring the exposure draft for any possible impact.
IFRS 2: Share-based payments
Under IFRS, when stock option awards vest gradually, each tranche is to be
considered as a separate award; whereas under Canadian GAAP, the gradually
vested tranches are considered as a single award. This will result in expenses
relating to share-based payments being recognized over the expected term of each
vested tranche. IFRS also requires Just Energy to estimate forfeitures up front
in the valuation of stock options; whereas, under Canadian GAAP, they can be
recorded upfront or recorded as they occur. Currently, the Company accounts for
forfeitures as they occur. On transition the adjustment to opening retained
earnings is not significant and the impact is approximately $0.5 million.
Just Energy has analyzed the optional exemptions available under IFRS 1,
First-time Adoption of International Financial Reporting. IFRS generally
requires an entity to apply standards on a retrospective basis; however, IFRS 1
provides both mandatory exceptions and optional exemptions from this general
requirement. First-time adoption exemptions relevant to the Company are
discussed below.
Business Combinations
Under this exemption, Just Energy may elect not to retrospectively apply IFRS 3
to past business combinations. The standard may be prospectively applied from
the date of the opening IFRS balance sheet. Just Energy intends to use this
exemption.
Share-based payment transactions
Just Energy may not elect to apply IFRS 2 to equity instruments that were
granted on or before November 7, 2002, or which are vested before the Company's
date of transition to IFRS. Just Energy may also not elect to apply IFRS 2 to
liabilities arising from share-based payment transactions, which settled before
the date of transition to IFRS. Just Energy intends to apply these exemptions.
Cumulative translation adjustment
The exemption permits the Company to reset the cumulative translation
adjustments to zero by recognizing the full amount in the retained earnings of
the opening IFRS balance sheet. Just Energy is currently not expected to elect
this exemption.
Borrowing costs
The exemption allows Just Energy to adopt IAS 23, which requires the
capitalization of borrowing costs on all qualifying assets, prospectively from
the date of the opening IFRS balance sheet. Just Energy intends to use this
exemption.
Just Energy has prepared an IFRS 1 transition note and full set of annual
financial statements under IFRS, which will be disclosed in fiscal 2012.
We have evaluated the impact of the conversion on our accounting systems. Based
on the differences identified to date, we believe our systems can accommodate
the required changes. We believe our internal and disclosure control processes
will not need significant modifications as a result of our transition to IFRS.
We have assessed the impacts of adoption on our debt covenants and other
contractual arrangements, and have not identified any material compliance
issues.
Just Energy continues to evaluate the impacts of current and prospective IFRS on
all of our business activities, including those of our subsidiaries and the
impact on our entity-wide information system.
Risk Factors
Described below are the principal risks and uncertainties that Just Energy can
foresee. It is not an exhaustive list, as some future risks may be as yet
unknown and other risks, currently regarded as immaterial, could turn out to be
material.
Credit, commodity and other market related risks
Availability of supply
The risk of supply default is mitigated through credit and supply diversity
arrangements. The Just Energy business model is based on contracting for supply
to lock in margin. There is a risk that counterparties could not deliver due to
business failure, supply shortage or be otherwise unable to perform their
obligations under their agreements with Just Energy, or that Just Energy could
not identify alternatives to existing counterparties. Just Energy continues to
investigate opportunities to identify or secure additional gas suppliers and
electricity suppliers. Just Energy's commodity contracts are predominantly with
Shell, BP, Bruce Power, Constellation, Societe Generale, EDF Trading North
America, LLC, National Bank of Canada and CP Energy Marketing (formerly and also
known as EPCOR Merchant and Capital). Other suppliers represent less than 5% of
commodity supply.
Volatility of commodity prices - enforcement
A key risk to Just Energy's business model is a sudden and significant drop in
the market price of gas or electricity resulting in some customers renouncing
their contracts. Just Energy may encounter difficulty or political resistance
for enforcement of liquidated damages and/or enactment of force majeure
provisions in such a situation and be exposed to spot prices with a material
adverse impact to cash flow. Continual monitoring of margin and exposure allows
management of Just Energy time to adjust strategies, pricing and communications
to mitigate this risk.
Availability of credit
In several of the markets in which Just Energy operates, payment is provided by
LDCs only when the customer has paid for the consumed commodity (rather than
when the commodity is delivered). Also, in some markets, Just Energy must inject
gas inventory into storage in advance of payment. These factors, along with the
seasonality of customer consumption, create working capital requirements
necessitating the use of Just Energy's available credit. In addition, some of
Just Energy's subsidiaries and affiliates are required to provide credit
assurance, by means of providing guarantees or posting collateral, in connection
with commodity supply contracts, license obligations and obligations owed to
certain LDCs. Cash flow could be impacted by the ability of Just Energy to fund
such requirements or to provide other satisfactory credit assurance for such
obligations. To mitigate credit availability risk and its potential impact to
cash flows, Just Energy has security arrangements in place pursuant to which
commodity suppliers and the lenders under the Credit Facility hold security over
substantially all of the assets of Just Energy (other than AESLP, NEC and TGF).
AESLP, in turn, has similar arrangements in place solely with EPCOR. Other
commodity suppliers' security requirements are met through cash margining,
guarantees and letters of credit. The most significant assets of Just Energy
consist of its contracts with customers, which may not be suitable as security
for some creditors and commodity suppliers. To date, the Credit Facility and
related security agreements have met the collateral posting and operational
requirements of the business. Just Energy continues to monitor its credit and
security requirements. Just Energy's business may be adversely affected if it is
unable to meet cash obligations for operational requirements or its collateral
posting requirements.
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. Although Just
Energy manages its estimated customer requirements, net of contracted commodity
to zero, it is exposed to market risks associated with commodity prices and
market volatility where estimated customer requirements do not match actual
customer requirements or where it has not been able to exactly purchase the
estimated customer requirements. Just Energy is also exposed to interest rates
associated with its credit facility and foreign currency exchange rates
associated with the repatriation of U.S. dollar denominated funds for Canadian
dollar denominated distributions. Just Energy's exposure to market risk is
affected by a number of factors, including accuracy of estimation of customer
commodity requirements, commodity prices, volatility and liquidity of markets,
and the absolute and relative levels of interest rates and foreign currency
exchange rates. Just Energy enters into derivative instruments in order to
manage exposures to changes in commodity prices and foreign currency rates;
current exposure to interest rates does not economically warrant the use of
derivative instruments. The derivative instruments that are used are designed to
fix the price of supply for estimated customer commodity demand and thereby fix
margins such that the payment of dividends to shareholders can be appropriately
established. Derivative instruments are generally transacted over-the-counter.
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 flow of
Just Energy.
Market risk governance
Just Energy has adopted a corporate-wide Risk Management Policy governing its
market risk management and any derivative trading activities. An internal Risk
Committee, consisting of senior officers of Just Energy monitors company-wide
energy risk management activities as well as foreign exchange and interest rate
activities. There is also a Risk Committee of the Board that oversees
management. The Risk Office and the internal Risk Committee monitor the results
and ensure compliance with the Risk Management Policy. The Risk Office is
responsible for ensuring that Just Energy manages the market, credit and
operational risks within limitations imposed by the Board of Directors in
accordance with its Risk Management Policy. Market risks are monitored by the
Risk Office and internal Risk Committee utilizing industry accepted
mark-to-market techniques and analytical methodologies in addition to company
specific measures. The Risk Office operates and reports independently of the
traders. The failure or inability of Just Energy to comply with and monitor its
Risk Management Policy could have an adverse effect on the operations and cash
flow of Just Energy.
Energy trading inherent risks
Energy trading subjects Just Energy to some inherent risks associated with
future contractual commitments, including market and operational risks,
counterparty credit risk, product location differences, market liquidity and
volatility. There is continuous monitoring and reporting of the valuation of
identified risks to the internal Risk Committee, Executive Committee and the
Risk Committee of the Board of Directors. The failure or inability of Just
Energy to monitor and address the energy trading inherent risks could have a
material adverse effect on its operations and cash flow.
Customer credit risk
In Alberta, Pennsylvania, Massachusetts, California, Texas and Illinois, credit
review processes have been implemented to manage customer default as Just Energy
has credit risk in these markets. The processes are also applied to commercial
customers in all of Just Energy's jurisdictions. In addition, there is a Credit
Policy that has been established to govern these processes. If a significant
number of residential customers or a collection of larger commercial customers
for which Just Energy has the credit risk were to default on their payments, it
could have a material adverse affect on the operations and cash flow of Just
Energy. Management factors default from credit risk in its margin expectations
for all customers in these markets and for commercial customers where Just
Energy has that credit risk.
For the remaining customers, 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 cash flows. Counterparty limits are established within the
Risk Management Policy. Any exception to these limits requires approval from the
Board of Directors of JEGI. The Risk Office and internal Risk Committee monitor
current and potential credit exposure to individual counterparties and also
monitor overall aggregate counterparty exposure. The failure of a counterparty
to meet its contractual obligations could have a material adverse effect on the
operations and cash flow of Just Energy.
Electricity supply - balancing risk
It is Just Energy's policy to procure the estimated electricity requirements of
its customers with offsetting electricity derivatives in advance of obtaining
customers. Depending on several factors, including weather, Just Energy's
customers may use more or less electricity than the volume purchased by Just
Energy for delivery to them. Just Energy is able to invoice some of its existing
electricity customers for balancing charges or credits when the amount of energy
used is greater than or less than the amount of energy that Just Energy has
estimated. For certain customers, Just Energy bears the risk of fluctuation in
customer consumption. Just Energy monitors consumption and has a balancing and
pricing strategy to accommodate the estimated associated costs. In certain
circumstances, there can be balancing issues for which Just Energy is
responsible when customer aggregation forecasts are not realized.
Natural gas supply - balancing risk
It is Just Energy's policy to procure the estimated gas requirements of its
customers with offsetting gas derivatives in advance of obtaining customers.
Depending on several factors including weather, Just Energy's customers may use
more or less gas than the volume purchased by Just Energy for delivery to them.
Just Energy does not invoice its natural gas customers for balancing and,
accordingly, bears the risk of fluctuation in customer consumption. Just Energy
monitors gas consumption and actively manages forecast differences in customer
consumption due to weather variations as well as forecast LDC balancing
requirements. To the extent that forecast balancing requirements are beyond
initial estimates, Just Energy will bear financing responsibility, be exposed to
market risk and, furthermore, may also be exposed to penalties by the LDCs. The
inability or failure of Just Energy to manage and monitor these balancing risks
could have a material adverse effect on its operations and cash flow. Just
Energy has developed a policy of entering into weather-related derivative
contracts which are intended to reduce margin volatility in situations of
materially higher or lower than forecast consumer consumption. In addition, for
certain commercial customers, Just Energy bears the risk of fluctuation in
customer consumption. Just Energy monitors consumption and has a balancing and
pricing strategy to accommodate for the estimated associated costs.
JustGreen - balancing risk
It is Just Energy's policy to procure the estimated carbon offsets or renewable
energy requirements of its customers in advance of obtaining the customers. The
balancing risk associated with this product is different in that there is no
utility reconciliation of the requirements and public perception of the product
is a more significant risk. The Risk Management Policy requires that there be no
short positions for this product and management ensures that there is an
independent review performed annually of the match of purchased supply to
committed delivery.
Operational risks
Information technology systems
Just Energy operates in a high-volume business with an extensive array of data
interchanges and market requirements. Just Energy is dependent on its management
information systems to track, monitor and correct or otherwise verify a high
volume of data to ensure the reported financial results are accurate. Management
also relies on its management information systems to provide its independent
contractors with compensation information, provide its brokers with pricing and
compensation information and to electronically record each customer telephone
interaction. Just Energy's information systems also help management forecast new
customer enrollments and their energy requirements, which helps ensure that Just
Energy is able to supply its new customers' estimated average energy
requirements without exposing the Company to the spot market beyond the risk
tolerances established by the Risk Management Policy. The failure of Just Energy
to install and maintain these systems could have a material adverse effect on
the operations and cash flow of Just Energy.
Reliance on third party service providers
In most jurisdictions in which Just Energy operates, the LDCs currently perform
billing and collection services. In some areas, Just Energy is required to
invoice and receive payments directly from its customers; in others, Just Energy
is responsible for collection of defaulted amounts; in others, Just Energy is
required to invoice and receive payments from certain commercial customers and
in others, Just Energy is responsible for collection of defaulted amounts. If
the LDCs cease to perform these services, Just Energy would have to seek a third
party billing provider or develop internal systems to perform these functions.
There is no assurance that the LDCs will continue to provide these services in
the future.
Outsourcing arrangements
Just Energy has outsource arrangements to support the call centre's requirements
for business continuity plans and independence for regulatory purposes, billing
and settlement arrangements for certain jurisdictions and operation support for
its multi-level marketing efforts. Contract data input is also outsourced as is
some business continuity and disaster recovery. As with any contractual
relationship, there are inherent risks to be mitigated and these are actively
managed, predominantly through quality control measures and regular reporting.
Competition
A number of companies (including Direct Energy, Reliant, Superior Energy,
Constellation NewEnergy, FirstEnergy Solutions and Sempra Energy Solutions) and
incumbent utility subsidiaries compete with Just Energy in the residential,
commercial and small industrial market. It is possible that new entrants may
enter the market as marketers and compete directly for the customer base that
Just Energy targets, slowing or reducing its market share. If the LDCs are
permitted by changes in the current regulatory framework to sell natural gas at
prices other than cost, their existing customer bases could provide them with a
significant competitive advantage. This may limit the number of customers
available for marketers including Just Energy.
Dependence on independent sales contractors and brokers
Just Energy must retain qualified independent sales contractors to conduct its
door-to-door sales as well as brokers and inside salespeople to market to
commercial customers despite competition for these sales professionals from Just
Energy's competitors. If Just Energy is unable to attract a sufficient number of
independent sales contractors or brokers, Just Energy's customer additions and
renewals may decrease and the Company may not be able to execute its business
strategy. The continued growth of Just Energy is reliant on distribution
channels, including the services of its independent sales contractors and
brokers. There can be no assurance that competitive conditions will allow these
independent contractors and brokers, who are not employees of Just Energy or its
affiliates, to achieve these customer additions. Lack of success in these
marketing programs would limit future growth of the cash flow of Just Energy.
Just Energy has consistently taken the position that its independent sales
contractors act independently pursuant to their contracts for service, which
provide that Just Energy does not control how, where or when they provide their
services. On occasion, an independent contractor may make a claim that they are
entitled to employee benefits pursuant to legislation even though they have
entered into a contract with Just Energy that provides that they are not
entitled to benefits normally available to employees and Just Energy must
respond to these claims. Just Energy's position has been confirmed by regulatory
bodies in many instances, but some of these decisions are under appeal. Should
regulatory bodies be ultimately successful, Just Energy would be required to
remit unpaid tax amounts plus interest and might be assessed a penalty. It could
also mean that Just Energy would have to reassess its position in respect of
other regulatory matters affecting its independent sales contractors such as
income tax treatment. Such a decision could have a material adverse effect on
the operations and cash flow of Just Energy.
Electricity and gas contract renewals and attrition rates
As at March 31, 2011, Just Energy held long-term electricity and gas contracts
reflecting approximately 3,314,000 long-term RCEs and the renewal schedule for
the contracts is noted on page 16. In fiscal 2011, Just Energy experienced
contract attrition rates of approximately 10% in Canada and 23% in the U.S. for
gas with rates of 10% and 17% being realized for Canada and the U.S.,
respectively, for electricity. Management forecasts using a combination of
experienced and expected attrition per year, however there can be no assurance
that these rates of annual attrition will not increase in the future or that
Just Energy will be able to renew its existing electricity and gas contracts at
the expiry of their terms. Changes in customer behaviour, government regulation
or increased competition may affect (potentially adversely) attrition and
renewal rates in the future, and these changes could adversely impact the future
cash flow of Just Energy. See page 16 for further discussion on "Failed to
renew". Just Energy's fiscal 2011 experience was that approximately 65% and 73%
of its Canadian and U.S. gas customers, respectively, and 61% and 66% of its
Canadian and U.S. electricity customers, respectively, have renewed at the
expiry of the term of their contract.
Cash dividends are not guaranteed
The ability to pay dividends and the actual amount of dividends will depend upon
numerous factors, including profitability, fluctuations in working capital, debt
service requirements (including compliance with Credit Facility obligations),
the sustainability of margins, the ability of Just Energy to procure, at
favourable prices, its estimated commitment to supply natural gas and
electricity to its customers, the ability of Just Energy to secure additional
gas and electricity contracts and other factors beyond the control of Just
Energy. Management of Just Energy cannot make any assurances that the Company's
affiliates will be able to pass any additional costs arising from legislative
changes (or any amendments) on to customers. Cash dividends are not guaranteed
and will fluctuate with the performance of the Company's affiliates and other
factors.
Earnings volatility
Just Energy's business is seasonal in nature. In addition to regular seasonal
fluctuations in its earnings, there is significant volatility in its earnings
associated with the requirement to mark its commodity contracts to market. The
earnings volatility associated with seasonality and mark to market accounting
may be misconstrued as instability, thereby impacting access to capital.
Management ensures there is adequate disclosure for both the mark to market and
seasonality to mitigate this risk.
Model risk
The approach to calculation of market value and customer forecasts requires data
intensive modeling used in conjunction with certain assumptions when
independently verifiable information is not available. Although Just Energy uses
industry standard approaches and validates its internally developed models,
results could change significantly should underlying assumptions prove incorrect
or an embedded modeling error go undetected in the vetting process.
Commodity alternatives
To the extent that natural gas and electricity enjoy a price advantage over
other forms of energy, such price advantage may be transitory and consumers may
switch to the use of another form of energy. The inherent volatility of natural
gas and electricity prices could result in these other sources of energy
providing more significant competition to Just Energy.
Capital asset and replacement risk
The retail business does not invest in a significant capital asset program
however the water heater business and the ethanol plant are more capital
intensive businesses. The risk associated with water heater replacement is
considered minimal as there are several suppliers of high efficiency tanks to
source replacements and individually, the units are not material. The risk
associated with the capital assets of the ethanol plant are more significant as
parts are not standard, components have a significant value associated and
capital asset replacements could significantly impact operations during periods
of upgrade or repair. Management monitors this risk in the ethanol business to
ensure continuity of operations as demonstrated through the recent hammer mill
project that replaced the roller mill technology.
Credit facilities and other debt arrangements
The credit facility maintained by Just Energy Ontario L.P. and JEUSC is in the
amount of $350 million. The lenders under such credit facility together with
certain of the suppliers of Just Energy and its affiliates are parties to an
intercreditor agreement and related security agreements which provide for a
joint security interest over all customer contracts (except for those owned by
AESLP). There are various covenants pursuant to the credit facility that govern
the activities of Just Energy and its subsidiaries and affiliates. The borrowers
are required to submit monthly reports addressing, among other things,
mark-to-market exposure, their borrowing base and a supply/demand projection. To
date, Just Energy's subsidiaries have met the requirements of the credit
facility; however, should those subsidiaries default under the credit facility,
it becomes unavailable and could have a significant material adverse effect on
the business of those subsidiaries and on the results of operations and
financial performance of Just Energy if it is not able to obtain other financing
on satisfactory terms.
TGF also has a credit facility of up to $50 million and a debenture purchase
agreement providing for the issuance of up to $40 million associated with the
Belle Plaine facility. Security for these facilities includes a first priority
security interest on all assets and undertaking of TGF. These facilities include
certain financial covenants. The debenture holders also agreed to defer certain
principal payments during fiscal 2011. In addition, there was a term loan for
$10 million which was repaid at December 31, 2010 and a working capital
operating line of $7 million. There is a risk that these credit facilities,
including the debenture purchase agreement, may not continue to be available on
the same terms or at all given the compliance issues that TGF has previously
experienced and the inability of TGF and the lender and debenture holders to
reach an agreement regarding the financial covenants for fiscal 2012, which
could result in the Belle Plaine facility ceasing to operate and a loss of the
security pledged by TGF as security for advances under such credit facilities.
NHS has also entered into a long-term financing agreement with respect to the
installation of water heaters (see page 25 for more information.) In the event
this financing became unavailable, it could have a material adverse affect on
the Company's home services business.
Disruptions to infrastructure
Customers are reliant upon the LDCs to deliver their contracted commodity. LDCs
are reliant upon the continuing availability of the distribution infrastructure.
Any disruptions in this infrastructure would result in counterparties and
thereafter Just Energy enacting the force majeure clauses of their contracts.
Under such severe circumstances there would be no revenue or associated cost of
sales to report for the affected areas.
Expansion strategy and future acquisitions
The Company plans to grow its business by expansion into additional deregulated
markets through organic growth and acquisitions. The expansion into additional
markets is subject to a number of risks, any of which could prevent the Company
from realizing its business strategy.
Acquisitions involve numerous risks, any one of which could harm the Company's
business, including difficulties in integrating the operations, technologies,
products, existing contracts, accounting processes and personnel of the target
and realizing the anticipated synergies of the combined businesses; difficulties
in supporting and transitioning customers, if any, or assets of the target
company may exceed the value the Company realizes, or the value it could have
realized if it had allocated the purchase price or other resources to another
opportunity; risks of entering new markets or areas in which Just Energy has
limited or no experience or are outside its core competencies; potential loss of
key employees, customers and strategic alliances from either Just Energy's
current business or the business of the target; assumption of unanticipated
problems or latent liabilities, such as problems with the quality of the
products of the target; and inability to generate sufficient revenue to offset
acquisition costs.
Future acquisitions or expansion could result in the incurrence of additional
debt and related interest expense, as well as unforeseen liabilities, all of
which could have a material adverse effect on business, results of operations
and financial condition. The failure to successfully evaluate and execute
acquisitions or otherwise adequately address the risks associated with
acquisitions could have a material adverse effect on Just Energy's business,
results of operations and financial condition. Just Energy may require
additional financing should an appropriate acquisition be identified and it may
not have access to the funding required for the expansion of its business or
such funding may not be available to Just Energy on acceptable terms. There is
no assurance that Just Energy will determine to pursue any acquisition or that
such an opportunity, if pursued, will be successful.
Legal, regulatory and securities risks
Legislative and regulatory environment
Just Energy operates in the highly regulated natural gas and electricity retail
sales industry in all of its jurisdictions. It must comply with the legislation
and regulations in these jurisdictions in order to maintain its licensed status
and to continue its operations. There is potential for change to this
legislation and these regulatory measures that may, favourably or unfavourably,
impact Just Energy's business model. As part of doing business door-to-door,
Just Energy receives complaints from consumers which may involve sanctions from
regulatory and legal authorities including those which issue marketing licenses.
Similarly, changes to consumer protection legislation in those provinces and
states where Just Energy markets to non-commercial customers may, favourably or
unfavourably, impact Just Energy's business model. Just Energy has a dedicated
team of in-house regulatory advisors to ensure adequate knowledge of the
legislation and regulations in order that operations may be advised of
regulations pursuant to which procedures are required to be implemented and
monitored to maintain license status. When new markets are entered, the team
assesses the market and determines if additional expertise (internal or
external) is required. There is also a team that monitors and addresses
complaints with a view to mitigating underlying causes of complaints.
In addition to the litigation referenced herein and occurring in the ordinary
course of business, Just Energy may in the future be subject to class actions,
other litigation and other actions arising in relation to its consumer contracts
and marketing practices. See the "Legal proceedings" section on page 38 of this
report. This litigation is, and any such additional litigation could be, time
consuming and expensive and could distract our executive team from the conduct
of Just Energy' daily business. The adverse resolution or reputational damage of
any specific lawsuit could have a material adverse effect on our ability to
favourably resolve other lawsuits and on the Company's financial condition and
liquidity.
The Company may issue additional shares diluting existing shareholders' interests
The Company may issue additional common shares and up to 50,000,000 preferred
shares without the approval of shareholders.
Financial markets
Significant events or volatility in the financial markets could result in the
lack of (i) sufficient capital to absorb the impact of unexpected losses and/or
(ii) sufficient liquidity or financing to fund operations and strategic
initiatives. Furthermore, significant volatility in exchange rates and interest
rates could have an adverse impact on product pricing, gross margins and net
interest expense. In addition, inappropriate hedging strategies for mitigating
foreign exchange, interest rate and equity exposures could cause a significant
impact on earnings.
TGF's dependence on commodity prices
TGF's results of operations, financial position and business outlook are
substantially dependent on commodity prices, especially prices for wheat,
natural gas, ethanol and distillers' grains. Prices for these commodities are
generally subject to significant volatility and uncertainty. As a result, TGF's
results may fluctuate substantially, and TGF may experience periods of declining
prices for TGF's products and increasing costs for TGF's raw materials, which
could result in operating losses. TGF may attempt to offset a portion of the
effects of such fluctuations by entering into forward contracts to supply
ethanol or to purchase wheat, natural gas or other items or by engaging in other
hedging transactions, however, the amount and duration of these hedging and
other risk mitigation activities may vary substantially over time. In addition,
these activities involve substantial costs and substantial risks and may be
ineffective to mitigate these fluctuations.
Ethanol is marketed both as a fuel additive to reduce vehicle emissions from
gasoline and as an octane enhancer to improve the octane rating of gasoline with
which it is blended. As a result, ethanol prices are influenced by the supply
and demand for gasoline (which is itself influenced by the supply and demand for
crude oil).
TGF's dependence on federal and provincial legislation and regulation
Various laws, regulations and programs of the United States federal government
and certain provincial and state governments are intended to lead to increased
use of ethanol in gasoline. For example, certain existing and proposed laws,
regulations and programs provide (or if implemented will provide) economic
incentives to ethanol producers and users, however, existing and proposed laws
may be influenced by those who believe that the use of ethanol does not create
the benefits suggested by proponents of increased ethanol usage. These existing
and proposed laws, regulations and programs are constantly changing. In both the
U.S. and Canada legislators and environmental regulators could adopt or modify
existing or proposed laws, regulations or programs that could adversely affect
the use of ethanol. There can be no assurance that existing laws, regulations or
programs will continue in the future, or that proposed laws, regulations or
programs will be adopted or implemented as currently anticipated or at all. In
addition, certain jurisdictional governments may oppose the use of ethanol
because those jurisdictions might have to acquire ethanol from other
jurisdictions, which could increase gasoline prices in those jurisdictions.
Environmental, health and safety laws, regulations and liabilities
TGF owns the land on which it has built the Belle Plaine facility. TGF is
subject to various federal, provincial and local environmental laws and
regulations, including those relating to the discharge of materials into the
air, water and ground, the generation, storage, handling, use, transportation
and disposal of hazardous materials, and the health and safety of TGF's
employees. These laws and regulations require TGF to maintain and comply with
numerous environmental permits to operate its Belle Plaine facility. These laws,
regulations and permits can often require expensive pollution control equipment
or operational changes to limit actual or potential impacts on the environment.
A violation of these laws, regulations or permit conditions or contamination to
the land or neighbouring lands can result in substantial fines, natural resource
damages, criminal sanctions, permit revocations, litigation and/or facility
shutdowns. In addition, new laws, new interpretations of existing laws,
increased governmental enforcement of environmental laws or other developments
could require TGF to make additional significant expenditures. Continued
government and public emphasis on environmental issues may result in increased
future investments for environmental controls at the Belle Plaine Facility.
The hazards and risks associated with producing and transporting TGF's products
(such as fires, natural disasters, explosions, and abnormal pressures and
blowouts) may also result in personal injury claims by employees, third-parties
or damage to property owned by TGF or by third parties. As protection against
operating hazards, TGF maintains insurance coverage against some, but not all,
potential losses. However, TGF could sustain losses for uninsurable or uninsured
events, or in amounts in excess of existing insurance coverage.
Technological advances
TGF expects that technological advances in the processes and procedures for
processing ethanol will continue to occur. It is possible that those advances
could make the processes and procedures that TGF intends to utilize at the Belle
Plaine facility less efficient or obsolete, or cause the ethanol TGF intends to
produce to be of a lesser quality. These advances could also allow TGF's
competitors to produce ethanol at a lower cost than TGF. If TGF is unable to
adopt or incorporate technological advances, TGF's ethanol production methods
and processes could be less efficient than those of its competitors, which could
cause the Belle Plaine facility to become less competitive.
In addition, alternative fuels, additives and oxygenates are continually under
development. Alternative fuel additives that can replace ethanol may be
developed, which may decrease the demand for ethanol. It is also possible that
technological advances in engine and exhaust system design and performance could
reduce the use of oxygenates, which would lower the demand for ethanol, in which
case TGF's business, results of operations and financial condition may be
materially adversely affected.
Social or technological changes affecting the water heater market
Within Canada, the Ontario marketplace is unique in that the vast majority of
homeowners rent their water heaters; however, there can be no assurance that
NHS' customers will continue to rent their water heaters. It is also possible
that more economical or efficient water heating technology than that which is
currently used by customers will be developed or that the economic conditions in
which the current technology is applied will change resulting in a reduction in
the number of installed water heaters.
The Canadian water heater rental market is primarily limited to the Province of
Ontario. A prolonged downturn in the Ontario economy and a corresponding
slowdown in new home construction could have an adverse effect on the demand for
additional water heaters in Ontario.
Concentration of water heater suppliers and product faults
Although there are a number of manufacturers of water heaters, NHS relies
principally on GSW Inc. ("GSW") for its supply of water heaters. Should this
supplier fail to deliver in a timely manner, delays or disruptions in the supply
and installation of water heaters could result.
In addition, different water heater manufacturers may, from time to time, source
components from the same manufacturers for use in their water heaters. As a
result, a parts defect relating to a commonly sourced component could affect
water heaters produced by more than one manufacturer. Although NHS maintains
what it believes to be suitable product liability insurance, there can be no
assurance that NHS will be able to maintain such insurance on acceptable terms
or that any such insurance will provide adequate protection against potential
liabilities, including with respect to product recalls.
Legal proceedings
Just Energy's subsidiaries are party to a number of legal proceedings. Just
Energy believes that each proceeding constitutes a routine legal matter
incidental to the business conducted by Just Energy and that the ultimate
disposition of the proceedings will not have a material adverse effect on its
consolidated earnings, cash flows or financial position.
In addition to the routine legal proceedings of Just Energy, the State of
California has filed a number of complaints to the Federal Energy Regulatory
Commission ("FERC") against many suppliers of electricity, including Commerce
with respect to events stemming from the 2001 energy crisis 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
facilities, the State of California is claiming that CEI was unjustly enriched
by the run-up in charges caused by the alleged market manipulation of other
market participants. On March 18, 2010, the Administrative Law Judge in the
matter granted a motion to strike the claim for all parties in one of the
complaints, holding that California did not prove that the reporting errors
masked the accumulation of market power. California has appealed the decision.
CEI continues to vigorously contest this matter and it is not expected to have a
material impact on the financial condition of the Company.
Controls and procedures
Disclosure controls and procedures
Except for the limitation on scope of design of disclosure controls and
procedures as noted below, Just Energy maintains appropriate information
systems, procedures and controls to ensure that information disclosed externally
is complete, reliable and timely. Just Energy's Chief Executive Officer and
Chief Financial Officer evaluated, or caused an evaluation under their direct
supervision of, the design and operating effectiveness of the Company's
disclosure controls and procedures (as defined in National Instrument 52-109,
Certification of Disclosure in Issuer's Annual and Interim Filings) as at March
31, 2011, and have concluded that such disclosure controls and procedures were
appropriately designed and were operating effectively.
Internal control over financial reporting
Except for the limitation on scope of the internal controls over financial
reporting as noted below, Just Energy has established adequate internal controls
over financial reporting to provide reasonable assurance regarding the
reliability of its financial reporting and the preparation of the financial
statements for external purposes in accordance with GAAP. Just Energy's Chief
Executive Officer and Chief Financial Officer assessed, or caused an assessment
under their direct supervision of the design and operating effectiveness of its
internal controls over financial reporting (as defined in National Instrument
52-109, Certification of Disclosure in Issuer's Annual and Interim Filings) as
at March 31, 2011 using the Internal Control over Financial Reporting - Guidance
for Smaller Public Companies published by The Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on the assessment it was
concluded that Just Energy's internal controls over financial reporting were
appropriately designed and were operating effectively.
It should be noted that a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues, including instances of fraud, if any, have been
detected. These inherent limitations include, among other items: (i) that
management's assumptions and judgments could ultimately prove to be incorrect
under varying conditions and circumstances; (ii) the impact of any undetected
errors; and (iii) that controls may be circumvented by the unauthorized acts of
individuals, by collusion of two or more people, or by management override.
The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
Changes in internal control over financial reporting
There have been no changes in Just Energy's policies and procedures that
comprise its internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting during the year ended March 31, 2011.
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 Just Energy 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, Just Energy's Chief Executive Officer and Chief Financial Officer
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 Hudson subsidiaries acquired on
May 1, 2010.
Summary financial information pertaining to the Hudson acquisition that was
included in the consolidated financial statements of the Company for the 11
months ended March 31, 2011, is as follows:
(thousands of dollars)
Sales(1) $654,802
Net income(1) 5,670
Current assets 123,322
Non-current assets 293,967
Current liabilities 114,578
Non-current liabilities 20,544
(1) Results from May 1, 2010 to March 31, 2011.
Just Energy, as part of the acquisition of the above noted subsidiaries,
acquired commitments to office leases in the amount of $1.4 million which has
been included in the consolidated notes to the financial statements.
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.justenergy.com and is included in Just Energy's May 20, 2011 management
information circular. Just Energy actively monitors the corporate governance and
disclosure environment to ensure timely compliance with current and future
requirements.
Outlook
Fiscal 2011 saw the continued benefit of Just Energy's ongoing diversification
beyond its core business of five year fixed rate residential gas and
electricity. Sales to this core customer group have faced very difficult market
conditions during the past two years, with very stable low commodity prices
limiting the attraction of a fixed price product both for new customers and
renewals. As this situation became clear, Just Energy's management took a number
of steps intended to use new products and markets to provide growth that would
not otherwise be available.
Foremost among these diversifications is the expansion of Just Energy's
commercial offerings through the acquisition of Hudson and the expansion of the
Company's in-house commercial sales capability. The result is a second
consecutive year of record gross and net new customer additions with the
majority of these coming from the commercial division. Going forward, the
Company will continue to broaden its product offering with more flexible terms
for both residential and commercial customers. The availability of shorter term
contracts and variable and/or fixed rate blended options added to existing
JustGreen offerings will broaden the base of potential customers for Just Energy
and ease renewals at contract end.
The short term impact of these diversifications can be seen in gross customer
additions which were 999,000 (excluding those acquired with Hudson), up 98% from
the previous record of 505,000 in fiscal 2010. This strong growth was combined
with improvements in customer attrition leading to net additions through
marketing of 361,000, up 395% from 73,000 in fiscal 2010. Commercial customers
are currently approximately 40% of Just Energy's base, and management expects
this to increase to 50% over time. Commercial customers are typically subject to
less weather volatility than residential customers. This may translate into more
predictable results from the natural gas book. Also, commercial customers do not
ordinarily move, reducing overall attrition, and making balancing of the supply
book less complex.
New product offerings and further geographic expansion will also contribute to
growth in the coming years. A major product will be the JustClean offering which
results in comparable margins per RCE to traditional residential customer
contracts and can be offered in all states and provinces and is not dependent on
energy deregulation. Early response to JustClean has been very positive and
product rollout across North America is expected in the coming fiscal year.
Geographic expansion is expected in the coming year into Pennsylvania,
Saskatchewan and two new utility territories in New York. Equally important will
be an expansion of the very successful Hudson broker network. Broadening this
commercial footprint to existing Just Energy markets will be a major contributor
to growth in fiscal 2012. Recently developed telemarketing and Internet sales as
well as the Momentis network marketing unit are further diversifications of the
Company's sales platform which should also contribute to growth.
The year also saw improved operations and growth in the Home Services and
Ethanol divisions. These product line diversifications are now beginning to
contribute to current EBITDA as well as future growth. The coming year will see
the addition of Hudson Solar, a solar project development platform, which has
begun operations in New Jersey. Just Energy continues to monitor opportunities
to enhance growth by adding related products to its offering to customers.
Management has, in past years, provided guidance on growth expected for the
coming fiscal year. For fiscal 2012, management expects growth of approximately
5% per share in gross margin and Adjusted EBITDA. Customer growth should exceed
these levels but the shift toward lower aggregation cost/lower margin commercial
customers will result in a lower relative growth of margin. Management
anticipates that accelerated deductibility of Hudson solar capital expenditures
combined with tax planning for Canadian operations should result in a cash tax
expenditure for fiscal 2012 very similar to that of fiscal 2011.
Just Energy's recent growth has been, and will continue to be predominantly in
U.S. markets. The decline in the U.S. dollar versus the Canadian has had an
adverse impact on the reported results of Just Energy. The 7% decline in the
U.S. annual exchange rates seen year over year reduced reported gross margin by
$16.3 million and distributable cash by $10.6 million. It is expected that
sales, margins and distributable cash will be subject to more volatility during
times of currency fluctuations. U.S. cross border cash flow is forecasted
annually, and hedges for cross border cash flow are entered into. Just Energy
hedges between 25% and 90% of the next 12 months' cross border cash flows
depending on the level of certainty of the cash flows.
Just Energy margins were reduced by $35 million in the first and second quarters
of fiscal 2011 due to balancing cost and utility financial reconciliations
related to the record warm winter of 2009-10. In an attempt to reduce exposure
to further weather variance, management has increased the usage of weather
options as part of the overall hedge positions. The impact of this will be to
increase margins toward expected levels when weather related consumption
declines and reduce margins toward expected levels when weather related
consumption is high. The existence of these options had a small adverse effect
on gross margin in the fourth quarter but the longer-term result of the policy
should be more stable, predictable operating results.
Just Energy has partnered on a power-purchase-agreement basis with a number of
green energy projects and plans to enter into more such partnerships
concentrated in jurisdictions where the Company has an established customer
base. Just Energy continues to monitor the progress of the deregulated markets
in various jurisdictions, which may create the opportunity for further
geographic expansion.
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
CONSOLIDATED BALANCE SHEETS
As at March 31
(thousands of Canadian dollars)
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2011 2010
ASSETS
CURRENT
Cash $ 97,633 $ 60,132
Restricted cash (Note 4) 833 18,650
Accounts receivable 281,685 232,579
Unbilled revenue 125,122 74,045
Accrued gas receivable 26,535 20,793
Gas delivered in excess of consumption 3,481 7,410
Gas in storage 6,133 4,058
Inventory (Note 5) 6,906 6,323
Prepaid expenses and deposits 6,079 20,038
Current portion of future income tax assets (Note
10) 36,375 29,139
Corporate tax recoverable 9,135 -
Other assets - current (Note 14(a)) 3,846 2,703
----------------------------------------------------------------------------
603,763 475,870
FUTURE INCOME TAX ASSETS (Note 10) 85,899 85,197
PROPERTY, PLANT AND EQUIPMENT (Note 7) 234,906 217,223
CONTRACT INITIATION COSTS 29,654 5,587
INTANGIBLE ASSETS (Note 8) 413,035 342,022
GOODWILL 211,434 177,887
LONG-TERM RECEIVABLE 4,569 2,014
OTHER ASSETS - LONG TERM (Note 14(a)) 5,384 5,027
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$ 1,588,644 $ 1,310,827
----------------------------------------------------------------------------
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LIABILITIES
CURRENT
Bank indebtedness $ 2,314 $ 8,236
Accounts payable and accrued liabilities 282,805 184,682
Unit distribution payable - 13,182
Corporate taxes payable 9,788 6,410
Current portion of future income tax liabilities
(Note 10) 13,216 6,776
Deferred revenue - 7,202
Accrued gas accounts payable 19,353 15,093
Current portion of long-term debt (Note 9) 94,117 62,829
Other liabilities - current (Note 14(a)) 485,406 685,200
----------------------------------------------------------------------------
906,999 989,610
LONG-TERM DEBT (Note 9) 507,460 231,837
FUTURE INCOME TAX LIABILITIES (Note 10) 2,657 -
DEFERRED LEASE INDUCEMENTS 1,622 1,984
OTHER LIABILITIES - LONG TERM (Note 14(a)) 355,412 590,572
----------------------------------------------------------------------------
1,774,150 1,814,003
----------------------------------------------------------------------------
NON-CONTROLLING INTEREST - 20,603
----------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
Deficit $(1,063,179)$(1,423,698)
Accumulated other comprehensive income (Note 11) 123,804 221,969
----------------------------------------------------------------------------
(939,375) (1,201,729)
Unitholders' capital (Note 12) - 659,118
Shareholders' capital (Note 12) 697,052 -
Equity component of convertible debenture (Note
9(e)) 33,914 -
Contributed surplus (Note 13(d)) 22,903 18,832
----------------------------------------------------------------------------
Shareholders' deficiency (185,506) (523,779)
----------------------------------------------------------------------------
$ 1,588,644 $ 1,310,827
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Guarantees (Note 18) Commitments (Note 19) Contingencies (Note 20)
Subsequent events (Note 24)
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars, except per share amounts)
2011 2010
SALES $ 2,953,192 $ 2,299,231
COST OF SALES 2,470,989 1,883,898
----------------------------------------------------------------------------
GROSS MARGIN 482,203 415,333
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EXPENSES
General and administrative expenses 109,407 88,423
Marketing expenses 133,607 95,760
Bad debt expense 27,650 17,940
Amortization of intangible assets and related supply
contracts 120,841 60,951
Amortization of property, plant and equipment 5,698 5,494
Share based compensation 5,509 4,754
Capital tax expense 188 522
----------------------------------------------------------------------------
402,900 273,844
----------------------------------------------------------------------------
INCOME BEFORE THE UNDERNOTED 79,303 141,489
INTEREST EXPENSE (Note 9) 50,437 16,134
CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS (Note
14(a)) (509,401) 1,282
OTHER INCOME (7,235) (3,515)
----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 545,502 127,588
PROVISION FOR (RECOVERY OF) INCOME TAXES (Note 10) 32,142 (100,260)
NON-CONTROLLING INTEREST (1,987) (3,648)
----------------------------------------------------------------------------
NET INCOME $ 515,347 $ 231,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
Net income per share/unit (Note 16)
Basic $ 3.81 $ 1.81
Diluted $ 3.73 $ 1.79
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
2011 2010
ACCUMULATED EARNINGS/(DEFICIT)
Accumulated deficit, beginning of year $ (480,931) $ (712,427)
Net income 515,347 231,496
----------------------------------------------------------------------------
Accumulated earnings (deficit), end of year 34,416 (480,931)
----------------------------------------------------------------------------
DISTRIBUTIONS AND DIVIDENDS
Distributions and dividends, beginning of year (942,767) (757,850)
Distributions and dividends (151,782) (179,839)
Class A preference share distributions - net of
income taxes of $1,305 (2010 - $2,501) (3,046) (5,078)
----------------------------------------------------------------------------
Distributions and dividends, end of year (1,097,595) (942,767)
----------------------------------------------------------------------------
DEFICIT (1,063,179) (1,423,698)
----------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 11)
Accumulated other comprehensive income, beginning of
year 221,969 364,566
Other comprehensive loss (98,165) (142,597)
----------------------------------------------------------------------------
Accumulated other comprehensive income, end of year 123,804 221,969
----------------------------------------------------------------------------
SHAREHOLDERS'/UNITHOLDERS' CAPITAL (Note 12)
Shareholders' capital, beginning of year 659,118 398,454
Shares exchanged 23,231 187,063
Shares issued on exercise/exchange of share
compensation 1,559 682
Shares issued 10,328 -
Distribution reinvestment plan 26,047 20,036
Exchangeable Shares issued - 239,946
Exchangeable Shares exchanged (23,231) (187,063)
----------------------------------------------------------------------------
Shareholders'/Unitholders' capital, end of year 697,052 659,118
----------------------------------------------------------------------------
EQUITY COMPONENT OF CONVERTIBLE DEBENTURE (Note
9(e)) 33,914 -
CONTRIBUTED SURPLUS (Note 13(d)) 22,903 18,832
----------------------------------------------------------------------------
Shareholders' deficiency, end of year $ (185,506) $ (523,779)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2011 2010
NET INCOME $ 515,347 231,496
----------------------------------------------------------------------------
Unrealized gain on translation of self sustaining
operations 334 26,626
Amortization of deferred unrealized gain of
discontinued hedges, net of income taxes of $21,384
(2010 - $34,339) (Note 14a) (98,499) (169,223)
----------------------------------------------------------------------------
OTHER COMPREHENSIVE LOSS (98,165) (142,597)
----------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 417,182 88,899
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net inflow (outflow) of cash related to the
following activities 2011 2010
OPERATING
Net income $ 515,347 $ 231,496
----------------------------------------------------------------------------
Items not affecting cash
Amortization of intangible assets and related
supply contracts 120,841 60,951
Amortization of property, plant and equipment 5,698 5,494
Amortization of contract initiation costs 12,429 -
Stock based compensation 5,509 4,754
Non-controlling interest (1,987) (3,648)
Future income taxes 22,655 (122,014)
Financing charges, non-cash portion 6,151 902
Other 16,056 4,030
Change in fair value of derivative instruments (509,401) 1,282
----------------------------------------------------------------------------
(322,049) (48,249)
----------------------------------------------------------------------------
Adjustments required to reflect net cash receipts
from gas sales (Note 21) (1,725) 10,549
----------------------------------------------------------------------------
Net change in non-cash working capital (Note 22) (38,213) (35,523)
----------------------------------------------------------------------------
Cash inflow from operating activities 153,360 158,273
----------------------------------------------------------------------------
FINANCING
Distributions and dividends paid (138,796) (157,495)
Distributions to Class A preference shareholder (4,896) (7,580)
Tax impact on distributions to Class A preference
shareholder 1,305 2,501
Increase/(decrease) in bank indebtedness (5,922) 8,236
Issuance of long-term debt 484,844 243,797
Repayment of long-term debt (148,292) (207,493)
Debt issuance costs (2,157) -
Funding from minority interest holder of TGF - 1,500
Restricted cash 17,793 626
----------------------------------------------------------------------------
Cash inflow (outflow) from financing activities 203,879 (115,908)
----------------------------------------------------------------------------
INVESTING
Purchase of property, plant and equipment (36,641) (41,207)
Purchase of other intangible assets (2,555) (6,348)
Acquisitions (Note 6) (262,673) 9,799
Proceeds from long-term receivable 2,232 290
Contract initiation costs (19,210) -
----------------------------------------------------------------------------
Cash outflow from investing activities (318,847) (37,466)
----------------------------------------------------------------------------
Effect of foreign currency translation on cash
balances (891) (3,861)
----------------------------------------------------------------------------
NET CASH INFLOW 37,501 1,038
CASH, BEGINNING OF YEAR 60,132 59,094
----------------------------------------------------------------------------
CASH, END OF YEAR $ 97,633 $ 60,132
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information
Interest paid $ 39,167 $ 14,621
Income taxes paid $ 8,651 $ 27,886
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements
JUST ENERGY GROUP INC.
(Formerly JUST ENERGY INCOME FUND)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2011
(thousands of Canadian dollars except where indicated and per share amounts)
1. ORGANIZATION
Effective January 1, 2011, Just Energy completed the conversion from an income
trust (Just Energy Income Fund (the "Fund")) to a corporation (the "Conversion")
pursuant to a plan of arrangement approved by unitholders on June 29, 2010 and
by the Alberta Court of the Queen's Bench on June 30, 2010 and going forward,
operates under the name, Just Energy Group Inc. ("JEGI", "Just Energy" or "the
Company"). JEGI was a newly incorporated entity for the purpose of acquiring the
outstanding units of the Fund, exchangeable shares of Just Energy Exchange Corp
("JEEC") and the Class A Preference Shares of Just Energy Corp ("JEC") on a
one-for-one basis for common shares of JEGI. There was no change in the
ownership of the business and therefore, there is no impact to the consolidated
financial statements except for the elimination of unitholders' equity and the
recording of shareholders' equity in the same amount.
Just Energy is a corporation established under the laws of Canada 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., Alberta Energy Savings L.P. ("AESLP"), Just Energy
Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just
Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp.,
Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy
Inc. ("Commerce" or "CEI"), National Energy Corp. (which operates under the
trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and
Hudson Energy Canada Corp. ("Hudson" or "HES"), Momentis Canada Corp. and
Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels, Inc. ("TGF"),
and Hudson Energy Solar Corp.
2. OPERATIONS
Just Energy's business primarily involves the sale of natural gas and/or
electricity to residential and commercial customers under long-term fixed-price,
price-protected or variable-priced contracts and green energy products. 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 price at which it is
able to sell the commodities to its customers and the price at which it
purchases the associated volumes from its suppliers. Just Energy also offers
green products through its JustGreen program. The JustGreen electricity 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 JustGreen gas product offers carbon offset credits, which will
allow the customer to reduce or eliminate the carbon footprint of their home or
business. Management believes that the JustGreen products will not only add to
profits but also increase sales receptivity and improve renewal rates.
In addition, through NHS, Just Energy sells and rents high efficiency and
tankless water heaters and other heating, ventilating and air conditioning
("HVAC") products. TGF, an ethanol producer, operates a wheat-based ethanol
facility in Belle Plaine, Saskatchewan. Just Energy indirectly acquired Hudson,
effective May 1, 2010, a marketer of natural gas and electricity that primarily
sells to commercial customers.
3. (I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements have been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"), and include the
accounts of Just Energy and its directly or indirectly owned subsidiaries and
affiliates.
(b) Cash and cash equivalents
All highly liquid temporary cash investments with an original maturity of three
months or less when purchased are considered to be cash equivalents.
(c) Accrued gas receivable/accrued gas accounts payable or gas delivered in
excess of consumption/deferred revenues
Accrued gas receivables are stated at estimated realizable value and result when
customers consume more gas than has been delivered by Just Energy to local
distribution companies ("LDCs"). Accrued gas accounts payable represents the
obligation to the LDCs with respect to gas consumed by customers in excess of
that delivered to the LDCs.
Gas delivered to LDCs in excess of consumption by customers is stated at the
lower of cost and net realizable value. Collections from customers in advance of
their consumption of gas result in deferred revenues.
Due to the seasonality of our operations, during the winter months, customers
will have consumed more than what was delivered resulting in the recognition of
unbilled revenues/accrued gas accounts payable; however, in the summer months,
customers will have consumed less than what was delivered, resulting in the
recognition of gas delivered in excess of consumption/deferred revenues.
These adjustments are applicable solely to the Ontario, Manitoba, Quebec and
Michigan gas markets.
(d) Gas in storage
Gas in storage primarily represents the gas delivered to the LDCs in the States
of Illinois, Indiana, New York, Ohio and California. The balance will fluctuate
as gas is injected or withdrawn from storage. Injections typically occur from
April through November and withdrawals occur from December through March.
In addition, a portion of the gas in storage relates to operations in the
Province of Alberta. In Alberta, there is a month to month carryover, which
represents the difference between the gas delivered to the LDC within a month
and customer consumption. The delivery volumes in the following month are
adjusted accordingly.
Gas in storage is stated at the lower of cost and net realizable value.
(e) Inventory
Inventory consists of water heaters, furnaces and air conditioners as well as
ethanol, ethanol in process and grain inventory. Water heaters, furnaces and air
conditioners are stated at the lower of cost and net realizable value with cost
being determined on a weighted average basis. 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.
(f) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
amortization. Cost for water heaters, furnaces and air conditioners includes the
cost of installation.
Amortization is provided over the estimated useful lives of the assets, with the
half year rule applied to additions, as follows:
----------------------------------------------------------------------------
Asset Basis Rate
----------------------------------------------------------------------------
Furniture and fixtures Declining balance 20%
Office equipment Declining balance 20%
Computer equipment Declining balance 30%
Water heaters, furnaces and
air conditioners Straight line 15 years
Leasehold improvements Straight line Term of lease
Vehicles Straight line 5 years
Ethanol plant and equipment Straight line 25 years
Building Straight line 39 years
----------------------------------------------------------------------------
(g) Goodwill
Goodwill is the residual amount that results when the purchase price of an
acquired business exceeds the sum of the amounts allocated to the tangible and
intangible assets acquired, less liabilities assumed, based on their fair
values. Goodwill is allocated as of the date of the business combination of the
Company's reporting subsidiaries that are expected to benefit from the synergies
of the business combination.
Goodwill is not amortized however; it is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might
be impaired. The impairment test is carried out in two steps, in the first step,
the carrying amount of the reporting unit including goodwill is compared with
its fair value. When the fair value of a reporting unit including goodwill
exceeds its carrying amount, goodwill of the reporting unit is not considered to
be impaired and the second step of the impairment test is unnecessary. The
second step is carried out when the carrying amount of a reporting unit exceeds
its fair value, in which case the implied fair value of the reporting unit's
goodwill is compared with its carrying amount to measure the amount of the
impairment loss, if any. The implied fair value of goodwill is determined in the
same manner as the value of goodwill is determined in a business combination.
(h) Gas contracts and customer relationships
Gas contracts represent the original fair value of existing sales and supply
contracts acquired by Just Energy on the acquisition of various gas contracts
and expected renewals. These contracts are amortized over their average
estimated remaining life of up to five years on a straight line basis which
approximates the life of the assets.
(i) Electricity contracts and customer relationships
Electricity contracts represent the original fair value of existing sales and
supply contracts acquired by Just Energy on the acquisition of various
electricity contracts and expected renewals. These contracts are amortized over
their average estimated remaining life of up to six years on a straight line
basis which approximates the life of the assets.
(j) Water heater contracts and customer relationships
Water heater contracts represent the fair value of rental contracts on the
acquisition of various water heater contracts and expected renewals. These
contracts are operating leases and are amortized over their average estimated
remaining life of up to 15 years on a straight line basis which approximates the
life of the assets.
(k) Impairment of long-lived assets
Just Energy reviews long-lived assets, which include property, plant and
equipment, contract initiation costs and intangible assets with finite lives,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to the estimated
undiscounted future cash flows expected to be generated by the asset, through
use and eventual disposition. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized for the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
(l) Other assets (liabilities) - current/long term, change in fair value of
derivative instruments and other comprehensive income (loss)
Just Energy's various derivative instruments have been accounted for using the
Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3855,
Financial Instruments - Recognition and Measurement. Effective July 1, 2008,
Just Energy ceased the utilization of hedge accounting. In accordance with CICA
Handbook Section 3865, Hedges, Just Energy is amortizing the accumulated gains
and losses to June 30, 2008 from other comprehensive income in the same period
in which the original hedged item affects the Consolidated Statements of
Operations. No retrospective restatement is required for this change. The
derivatives are measured at fair value and booked to the consolidated balance
sheets. Effective July 1, 2008, all changes in fair value between periods are
booked to change in fair value of derivative instruments on the consolidated
statements of operations.
Just Energy enters into contracts with the intent of moderating its exposure to
risks affecting the cost of sales for fixed price electricity and JustGreen
electricity sales. The contracts include fixed for floating electricity swap
contracts and physical forward contracts, unforced capacity contracts, heat rate
swap contracts, heat rate options, renewable energy certificates and financial
and physical forward gas contracts (to fulfill obligations under the heat rate
swaps) with electricity and natural gas suppliers. These swaps and forwards are
accounted for in accordance with CICA Handbook Section 3855.
Just Energy enters into hedges of its cost of sales relating to its fixed-price
gas and JustGreen gas contracts by entering into a combination of physical gas
forwards, financial gas forwards, physical transportation forwards, carbon
offset contracts and option contracts. Physical gas forwards and transportation
forwards are accounted for in accordance with CICA Handbook Section 3855. Option
contracts and financial gas forwards are accounted for in accordance with CICA
Handbook Section 3855.
Just Energy enters into hedges for its foreign exchange risk relating to its
anticipated repatriation of U.S. dollar denominated currency by entering into
foreign exchange forward contracts with its lender. Just Energy accounts for
these forward contracts in accordance with CICA Handbook Section 3855 by
recording them on the consolidated balance sheets as either other assets or
other liabilities measured at fair value, with changes in fair value booked to
change in fair value of derivative instruments.
(m) Financial instruments
Financial instruments are classified into a defined category, namely,
held-for-trading financial assets or financial liabilities, held-to-maturity
investments, loans and receivables, available-for-sale financial assets, or
other financial liabilities. Financial instruments are included on Just Energy's
consolidated balance sheets and measured at fair value, except for loans and
receivables, held-to-maturity financial assets and other financial liabilities
which are measured at cost or amortized cost. Financial assets and financial
liabilities have been initially remeasured as at April 1, 2009 to take into
account the appropriate credit risk and counterparty credit risk (see Note 13c).
Gains and losses on held-for-trading financial assets and financial liabilities
are recognized in net earnings in the period in which they arise. Unrealized
gains and losses, including those related to changes in foreign exchange rates
on available-for-sale financial assets, are recognized in accumulated other
comprehensive loss until the financial asset is derecognized or determined to be
impaired, at which time any unrealized gains or losses are recorded in net
earnings. Transaction costs other than those related to financial instruments
classified as held-for-trading, which are expensed as incurred, are amortized
using the effective interest method. The following classifications have been
applied:
-- cash and restricted cash as held-for-trading, which is measured at fair
value;
-- accounts receivable and unbilled revenues are classified as loans and
receivables, which are measured at amortized cost; and
-- long-term debt, accounts payable and accrued liabilities, unit
distribution payable and bank indebtedness are classified as other
financial liabilities, which are measured at amortized cost.
Financial instruments measured at fair value on the consolidated balance sheets
are based on a hierarchy that reflects the significance of the inputs used in
the fair value measurements. The fair value hierarchy is disclosed in note 13 of
the financial statements.
Electricity:
Just Energy has entered into contracts with customers to provide electricity and
renewable energy at fixed prices ("customer electricity contracts"). Customer
electricity contracts include requirements contracts and contracts with fixed or
variable volumes at fixed prices. The customer electricity contracts expose Just
Energy to changes in market prices of electricity, renewable energy certificates
and consumption. To reduce its exposure to movements in commodity prices arising
from the acquisition of electricity and renewable energy certificates at
floating rates, Just Energy uses electricity derivative contracts ("electricity
derivative contracts"). These electricity derivative contracts are fixed for
floating swaps, physical electricity forward contracts, unforced capacity
contracts, renewable energy certificates or a combination of heat rate swaps,
heat rate options and physical or financial forward gas contracts.
Just Energy agrees to exchange the difference between the variable or indexed
price and the fixed price on a notional quantity of electricity for a specified
time frame in the fixed for floating contract arrangements. Just Energy takes
title to the renewable energy certificate volumes to satisfy customer contracts.
Just Energy takes title to electricity and unforced capacity at a fixed price
for scheduling into the power grid under the forward contracts. Just Energy
agrees to pay for certain quantities of power based on the floating price of
natural gas under heat rate swaps. In order to cover the floating price of gas
under these arrangements, prices for gas are fixed through either physical or
financial forward gas contracts with a protection against weather variation
achieved through the purchase of heat rate options. These contracts are expected
to be effective as economic hedges of the electricity price exposure.
The premiums and settlements for these derivative instruments are recognized in
cost of sales, when incurred.
The fair value of the electricity derivative contracts is recorded in the
consolidated balance sheets with changes in the fair value being recorded in
change in fair value of derivative instruments on the consolidated statements of
operations.
Gas:
Just Energy has entered into contracts with customers to provide gas and carbon
offsets at fixed prices ("customer gas contracts"). Customer gas contracts
include requirements contracts and contracts with fixed or variable volumes at
fixed prices. The customer gas contracts expose Just Energy to changes in market
prices of gas and consumption. To reduce its exposure to movements in commodity
prices and usage, Just Energy uses carbon offset, options and gas physical and
financial contracts ("gas supply contracts"). These gas supply contracts are
expected to be effective as economic hedges of the gas price exposure.
Just Energy uses physical forwards, carbon offset transportation forwards
(together "physical gas supply contracts") and other gas financial instruments
to fix the price of its gas supply. Under the physical gas supply contracts,
Just Energy agrees to pay a specified price per volume of gas or transportation.
Other financial instruments are comprised of financial puts and calls that fix
the price of gas in jurisdictions where Just Energy has scheduling
responsibilities and therefore is exposed to commodity price risk on volumes
above or below its base supply.
The fair value of physical gas contracts is recorded in the consolidated balance
sheets with changes in the fair value being recorded in change in fair value of
derivative instruments on the consolidated statements of operations.
Foreign exchange:
To reduce its exposure to movements in foreign exchange rates, Just Energy uses
foreign exchange forwards ("foreign exchange contracts"). These derivative
financial instruments are recorded on the consolidated balance sheets as either
other assets or other liabilities measured at fair value, with changes in fair
value recognized in income as change in fair value of derivative instruments.
(n) Revenue recognition
Just Energy delivers gas and/or electricity to end-use customers who have
entered into long-term fixed-price contracts. Revenue is recognized when the
commodity is consumed by the end-use customer or sold to third parties. The
Company assumes credit risk in Illinois, Alberta, Texas, Pennsylvania, Maryland,
Massachusetts and California, and for large volume customers in British Columbia
and Ontario. In these markets, the Company ensures that credit review processes
are in place prior to commodity flowing to the customer.
Just Energy recognizes revenue upon delivery to customers at terminals or other
locations for ethanol and dried distillers' grain.
Just Energy recognizes revenue from the monthly rental of water heaters,
furnaces and air conditioners commencing from the installation date.
(o) Marketing expenses and contract initiation costs
Commissions and various other costs related to obtaining and renewing customer
contracts are charged to income in the period incurred except as disclosed
below:
Commissions related to obtaining and renewing Hudson customer contracts are paid
in one of the following ways: all or partially upfront or as a residual payment
over the life of the contract. If the commission is paid all or partially
upfront, it is recorded as contract initiation costs and amortized in marketing
expenses over the term for which the associated revenue is earned. If the
commission is paid as a residual payment, the amount is expensed as earned.
In addition, commissions related to obtaining customer contracts signed under
NHS are recorded as contract initiation costs and amortized in marketing
expenses over the remaining life of the contract.
(p) Foreign currency translation
The operations of Just Energy's U.S-based subsidiaries are self-sustaining
operations. Accordingly, the assets and liabilities of foreign subsidiaries are
translated into Canadian dollars at the rate of exchange at the consolidated
balance sheet dates. Revenues and expenses are translated at the average rate of
exchange for the period. The resulting gains and losses are accumulated as a
component of Shareholders' equity within AOCI.
(q) Per common share amounts
The computation of income per common share is based on the weighted average
number of shares outstanding during the year. Diluted earnings per share is
computed in a similar way to basic earnings per share except that the weighted
average shares outstanding are increased to include additional shares assuming
the exercise of options, restricted share grants and deferred restricted share
grants, and conversion of convertible debentures, if dilutive.
(r) Share-based compensation plans
The Company accounts for all of its share-based compensation awards using the
fair value based method.
Awards are valued at the grant date and are not subsequently adjusted for
changes in the prices of the underlying shares and other measurement
assumptions. Compensation for awards without performance conditions is
recognized as an expense and a credit to contributed surplus over the related
vesting period of the awards. Compensation for awards with performance
conditions is recognized based on management's best estimate of whether the
performance condition will be achieved.
When options, restricted share grants ("RSGs") and deferred share grants
("DSGs") are exercised or exchanged, the amounts previously credited to
contributed surplus are reversed and credited to Shareholders' capital. The
amount of cash, if any, received from participants is also credited to
Shareholders' capital.
(s) Employee future benefits
Just Energy established a long term incentive plan (the "Plan") for the
permanent full time and part time employees (working more than 20 hours per
week) in Canada. The Plan consists of two components, a Deferred Profit Sharing
Plan ("DPSP") and an Employee Profit Sharing Plan ("EPSP"). For participants of
the DPSP, Just Energy contributes an amount equal to a maximum of 2% per annum
of an employee's base earnings. For the EPSP, Just Energy contributes an amount
up to a maximum of 2% per annum of an employee's base earnings towards the
purchase of common shares of Just Energy, on a matching one for one basis.
For the U.S. employees, Just Energy has established a 401(k) plan to provide
employees the potential for future financial security for retirement. Employees
may participate in the 401(k) plan subject to all the terms and conditions of
the plan. They may join the plan on the first of any month, once they have
completed six months of employment. The 401(k) savings plan is an employer
matching plan. Just Energy will match an amount up to 4% of their base earnings.
Employees may contribute from 1% to 25% of their total salary with Just Energy
on a beforehand basis with a 2011 calendar year maximum of $17.
Participation in either plan in Canada or the U.S. is voluntary. The Plan has a
two year vesting period beginning from the later of the Plan's effective date
and the employee's starting date. During the year, Just Energy contributed
$1,572 (2010 - $1,096) to both plans, which was paid in full during the year and
recognized as an expense in the consolidated statements of operations.
(t) Exchangeable Securities
Just Energy followed the recommendations of the Emerging Issues Committee
relating to the presentation of exchangeable securities, which includes the
Class A preference shares, issued by subsidiaries of income funds. The
recommendations require that the exchangeable securities issued by a subsidiary
of an income fund be presented on the consolidated balance sheets of the income
fund as a part of shareholders' capital if the following criteria have been met:
-- the holders of the exchangeable securities are entitled to receive
distributions of earnings economically equivalent to distributions
received on units of the income fund; and
-- the exchangeable securities ultimately are required to be exchanged for
units of the income fund as a result of the passage of fixed periods of
time or the non-transferability to third parties of the exchangeable
securities without first exchanging them for units of the income fund.
The exchangeable shares and Class A preference shares met these criteria and
were classified as Unitholders' capital for the year ended March 31, 2010. All
distributions paid to JEEC shareholders were included in Unitholders' capital.
All distributions paid to the Class A preference shareholder were in
Unitholders' capital, net of tax. The management incentive program, which is a
bonus equal to the dividend amount received by a Shareholder, is additional
compensation to senior management of JEC, a wholly owned subsidiary of Just
Energy.
As a result of the Conversion to a corporation, the exchangeable shares of JEEC
and Class A preference shares were converted into 3,794,154 and 5,263,738 common
shares, respectively.
(u) Use of estimates
The preparation of the financial statements, in conformity with Canadian GAAP,
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates and assumptions. Significant areas
requiring the use of management estimates include allowance for doubtful
accounts, estimate of the useful life and estimated fair value of property,
plant and equipment and impairments thereon, valuation of goodwill and
intangibles and the impairment thereon, valuation allowances for future tax
assets, the determination of the fair values of financial instruments, as the
aggregate fair value amounts represent point in time estimates only and should
not be interpreted as being realizable in an immediate settlement of the supply
contracts, and the determination of share based compensation.
(v) Income taxes
The Company 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
expected to apply when the asset is realized or the liability settled. A
valuation allowance is recorded against a future income tax asset if it is
determined that it is more likely than not that the future tax assets will not
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.
(w) Other intangible assets
Computer software is amortized on a declining basis at a rate of 100% and the
commodity billing and settlement systems are amortized on a straight line basis
over five years which approximates the life of the assets.
(II) RECENTLY ISSUED ACCOUNTING STANDARDS
The following are new standards, not yet in effect, which are required to be
adopted by the company on the effective date:
Business Combinations
In October 2008, 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. Just Energy will not adopt the new standards prior to
adopting International Financial Reporting Standards ("IFRS") as described
below.
International Financial Reporting Standards
In February 2008, CICA announced that Canadian GAAP for publicly accountable
enterprises will be replaced by 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 consolidated financial statements under IFRS for the
three-month period ending June 30, 2011, and a complete set of consolidated
financial statements under IFRS for the year ending March 31, 2012.
Just Energy has developed a changeover plan, which includes diagnostic
assessment, solution development and implementation phases. Just Energy has
completed the initial assessment and solution development phases. These included
certain training initiatives, researching and documenting the significant
differences between Canadian GAAP and IFRS, assessing the impact on Just Energy,
and a preliminary assessment of the information technology systems. The IFRS
team is currently engaged in the implementation phase, which is the final phase
of the project.
Significant differences exist which may impact Just Energy's financial
reporting. Those areas include, but are not limited to, property, plant and
equipment, impairment of assets, accounting for income taxes, financial
instruments, share-based payments, business combinations, provisions and the
first-time adoption of IFRS ("IFRS 1").
As part of the Conversion, Just Energy is in the process of analyzing the
detailed impacts of these identified differences and developing solutions to
bridge these differences. Although the full impact of the adoption of IFRS on
Just Energy's financial position and results of operations is not yet reasonably
determinable or estimable, Just Energy expects a significant increase in
financial statement disclosure requirements resulting from the adoption of IFRS.
Just Energy is currently on target with its conversion plan.
4. RESTRICTED CASH
Restricted cash and customer rebates payable represent; (i) rebate monies
received from LDCs in Ontario as provided by the Independent Electricity System
Operator ("IESO") and (ii) Newten Home Comfort Inc.
i. JE Ontario is obligated to disperse the monies to eligible end-use
customers in accordance with the Ontario Power Generation Rebate as part
of Just Energy Ontario L.P.'s Retailer License conditions.
ii. As part of the acquisition of Newten Home Comfort Inc. (Note 6(c)) the
Company is required to transfer cash into a trust account, in trust for
the vendors, as part of the contingent consideration.
5. INVENTORY
The amount of inventories recognized as an expense during the year was $77,376.
There has not been a write down of inventory to date. Inventory is made up of
the following:
2011 2010
-----------------------
Raw materials $ 2,224 $ 2,308
Work in progress 518 463
Finished goods 4,164 3,552
-----------------------
$ 6,906 $ 6,323
-----------------------
-----------------------
6. ACQUISITIONS
(a) Acquisition of Hudson Energy Services, LLC
On May 7, 2010, Just Energy completed the acquisition of all of the equity
interests of Hudson Parent Holdings, LLC, and all the common shares of Hudson
Energy Corp., thereby indirectly acquiring Hudson Energy Services, LLC, with an
effective date of May 1, 2010. The acquisition was funded by an issuance of $330
million in convertible debentures issued on May 5, 2010 (see Note 9(e)).
The acquisition of Hudson was accounted for using the purchase method of
accounting. Just Energy allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
Net assets acquired
Current assets (including cash of $24,003) $ 88,696
Current liabilities (107,817)
Electricity contracts and customer relationships 200,653
Gas contracts and customer relationships 26,225
Broker network 84,400
Brand 11,200
Information technology system development 17,954
Contract initiation costs 20,288
Other intangible assets 6,545
Goodwill 33,574
Property, plant and equipment 2,559
Unbilled revenue 15,092
Notes receivable - long term 1,312
Security deposits - long term 3,544
Other assets - current 124
Other assets - long term 100
Other liabilities - current (74,683)
Other liabilities - long term (40,719)
------------
$ 289,047
------------
------------
Consideration
Purchase price $ 287,790
Transaction costs 1,257
------------
$ 289,047
------------
------------
All contracts and intangible assets, excluding brand, are amortized over the
average remaining life at the time of acquisition. The gas and electricity
contracts and customer relationships are amortized over 30 months and 35 months,
respectively. Other intangible assets, excluding brand, are amortized over
periods of three to five years. The brand value is considered to be indefinite
and, therefore, not subject to amortization. The purchase price allocation is
considered preliminary and, as a result, it may be adjusted during the 12-month
period following the acquisition.
(b) 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" or "Universal") 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 was exchangeable for a trust unit on a one for one basis at
any time at the option of the holder, and entitled 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 UEG's outstanding 6% convertible unsecured subordinated debentures.
The acquisition of UEG was accounted for using the purchase method of
accounting. Just Energy allocated the purchase price to the identified assets
and liabilities acquired based on their fair values at the time of acquisition
as follows:
Net assets acquired
Working capital (including cash of $10,319) $ 63,614
Electricity contracts and customer relationships 229,586
Gas contracts and customer relationships 243,346
Water heater contracts and customer relationships 22,700
Other intangible assets 2,721
Goodwill 77,494
Property, plant and equipment 171,693
Future tax liabilities (50,475)
Other liabilities - current (164,148)
Other liabilities - long term (140,857)
Long-term debt (183,079)
Non-controlling interest (22,697)
------------
$ 249,898
------------
Consideration
Transaction costs $ 9,952
Exchangeable Shares 239,946
------------
$ 249,898
------------
Non-controlling interest represented a 33.3% ownership of TGF held by EllisDon
Corporation. The non-controlling interest was subsequently acquired by JEGI on
January 4, 2011 (Note 12).
All contracts and intangible assets are amortized over the average remaining
life at the time of acquisition. The gas and electricity contracts and customer
relationships are amortized over periods ranging from eight to 57 months. The
water heater contracts and customer relationships are amortized over 174 months,
and the intangible assets were amortized over six months. An adjustment in the
amount of $10,700 was made to increase goodwill and decrease working capital
during the three months ended June 30, 2010. The purchase price for this
acquisition is final and no longer subject to change.
(c) Newten Home Comfort Inc.
On July 2, 2009, NHS, a wholly owned subsidiary of Just Energy, 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, of which $520 was paid in cash and
determined to be the purchase price consideration. The purchase price
consideration excludes contingent payments to the 20% interest holders that will
become payable in July 2012 based on the number of completed water heater
installations. Any contingent payments made will result in an increase to the
balance of goodwill generated by the acquisition.
7. PROPERTY PLANT AND EQUIPMENT
Accumulated
As at March 31, 2011 Cost Amortization Net Book Value
----------------------------------------------------------------------------
Furniture and fixtures $ 6,090 $ 3,561 $ 2,529
Office equipment 17,976 9,520 8,456
Computer equipment 7,750 4,958 2,792
Water heaters 78,223 6,887 71,336
Furnaces and air conditioners 3,813 179 3,634
Leasehold improvements 8,567 5,077 3,490
Vehicles 215 88 127
Ethanol plant and equipment 157,842 16,222 141,620
Building 640 17 623
Land 299 - 299
----------------------------------------------------------------------------
$ 281,415 $ 46,509 $ 234,906
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
As at March 31, 2010 Cost Amortization Net Book Value
----------------------------------------------------------------------------
Furniture and fixtures $ 5,581 $ 2,972 $ 2,609
Office equipment 14,810 5,930 8,880
Computer equipment 6,417 3,763 2,654
Water heaters 51,059 2,481 48,578
Furnaces and air conditioners 317 4 313
Leasehold improvements 8,409 4,116 4,293
Vehicles 197 46 151
Ethanol plant and equipment 159,500 10,054 149,446
Land 299 - 299
----------------------------------------------------------------------------
$ 246,589 $ 29,366 $ 217,223
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. INTANGIBLE ASSETS
Accumulated
As at March 31, 2011 Cost amortization Net book value
----------------------------------------------------------------------------
Gas contracts and customer
relationships $ 248,828 $ 144,568 $ 104,260
Electricity contracts and customer
relationships 436,339 248,673 187,666
Water heater contracts and
customer relationships 23,164 2,813 20,351
Computer software 9,540 6,616 2,924
Commodity billing and settlement
systems 6,743 6,450 293
Broker network 80,561 14,770 65,791
Brand 10,692 - 10,692
Information technology system
development 19,691 3,478 16,213
Other intangible assets 9,061 4,216 4,845
----------------------------------------------------------------------------
$ 844,619 $ 431,584 $ 413,035
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
As at March 31, 2010 Cost amortization Net book value
----------------------------------------------------------------------------
Gas contracts and customer
relationships $ 228,827 $ 63,484 $ 165,343
Electricity contracts and customer
relationships 245,617 92,779 152,838
Water heater contracts and
customer relationships 23,081 1,218 21,863
Computer software 5,562 4,198 1,364
Commodity billing and settlement
systems 6,544 6,515 29
Other intangible assets 2,982 2,397 585
----------------------------------------------------------------------------
$ 512,613 $ 170,591 $ 342,022
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. LONG-TERM DEBT AND FINANCING
March 31, March 31,
2011 2010
--------------------------
Credit facility (a) $ 51,035 $ 57,500
TGF credit facility (b)(i) 36,680 41,313
TGF debentures (b)(ii) 37,001 37,001
TGF term/operating facilities (b)(iii) - 10,000
NHS financing (c) 105,716 65,435
$90 million convertible debentures (d) 84,706 83,417
$330 million convertible debentures (e) 286,439 -
----------------------------------------------------------------------------
601,577 294,666
Less: current portion (94,117) (62,829)
----------------------------------------------------------------------------
$ 507,460 $ 231,837
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Future annual minimum principal repayments are as follows:
2012 2013 2014 2015
Credit Facility (a) - - 51,035 -
TGF Credit Facility (b)(i) 36,680 - - -
TGF Debentures (b)(ii) 37,001 - - -
NHS HTC financing (c) 20,436 22,132 23,967 23,442
$90 million Convertible debentures (d) - - - 90,000
$330 million Convertible debentures (e) - - - -
------------------------------------
94,117 22,132 75,002 113,442
------------------------------------
Future annual minimum principal repayments are as follows:
2016 2017-2021 Total
Credit Facility (a) - - 51,035
TGF Credit Facility (b)(i) - - 36,680
TGF Debentures (b)(ii) - - 37,001
NHS HTC financing (c) 6,242 9,497 105,716
$90 million Convertible debentures (d) - - 90,000
$330 million Convertible debentures (e) - 330,000 330,000
------------------------------------
6,242 339,497 650,432
------------------------------------
The following table details the interest expense.
Interest is expensed at the effective interest
rate.
2011 2010
-------------------------
Credit facility (a) $ 7,848 $ 5,258
TGF Credit facility (b)(i) 2,013 1,365
TGF Debentures (b)(ii) 4,269 3,049
TGF wheat production financing - 10
TGF Operating facilities (b)(iii) 515 683
NHS financing (c) 6,464 817
$90 million Convertible debentures (d) 6,690 4,952
$330 million Convertible debentures (e) 22,638 -
----------------------------------------------------------------------------
$ 50,437 $ 16,134
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) As at March 31, 2011, Just Energy holds a $350 million credit facility to
meet working capital requirements. The syndicate of lenders includes Canadian
Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada,
Societe Generale, Bank of Nova Scotia, The Toronto-Dominion Bank and Alberta
Treasury Branches. The repayment of the facility is due on December 31, 2013.
Interest is payable on outstanding loans at rates that vary with Bankers'
Acceptances, 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 that vary between 3.25% and
3.75% . Prime rate advances at rates of interest that vary between bank prime
plus 2.25% and 2.75% and letters of credit at rates that vary between 3.25% and
3.75%. Interest rates are adjusted quarterly based on certain financial
performance indicators.
As at March 31, 2011, the Canadian prime rate was 3.0% and the U.S. prime rate
was 3.25%. As at March 31, 2011, Just Energy had drawn $51,035 (March 31, 2010 -
$57,500) against the facility and total letters of credit outstanding amounted
to $78,209 (March 31, 2010 - $49,444). As at March 31, 2011, Just Energy has
$218,791 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 and securities 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 March 31, 2011
and 2010, all of these covenants have been met.
(b) In connection with the acquisition of UEG on July 1, 2009, Just Energy
acquired the debt obligations of TGF, which currently comprise the following
separate facilities:
i. TGF credit facility
A credit facility of up to $50,000 was established with a syndicate of
Canadian lenders led by Conexus Credit Union and was arranged to finance
the construction of the ethanol plant in 2007. The facility was revised
on March 18, 2009, and was converted to a fixed repayment term of ten
years, commencing March 1, 2009, which includes interest costs at a rate
of prime plus 3% with principal repayments scheduled to commence on
March 1, 2010. 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. As a result, the facility is fully
classified as a current obligation. The facility was further revised on
April 5, 2010, to postpone the principal payments due for April 1 to
June 1, 2010, and to amortize them over the six-month period commencing
October 1, 2010, and ending March 1, 2011. The credit facility includes
certain financial covenants, the most significant of which relate to
current ratio, debt to equity ratio, debt service coverage and minimum
shareholders' capital. The lenders deferred compliance with the
financial covenants until April 1, 2011. TGF is currently in discussions
with the lenders over future covenants. As at March 31, 2011, the amount
owing under this facility amounted to $36,680.
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. The interest rate is 10.5% per
annum, compounded annually. Quarterly principal payments commenced
October 1, 2009, in the amount of $1,000 per quarter. On April 5, 2010,
TGF entered into an agreement with the holders of the debenture to defer
scheduled principal payments owing under the debenture until April 1,
2011. The agreement includes certain financial covenants, the more
significant of which relate to current ratio, debt to capitalization
ratio, debt service coverage, debt to EBITDA and minimum shareholders'
capital. The lender deferred compliance with the financial covenants
until April 1, 2011. The current debenture agreement matures in the
second quarter of fiscal 2012. TGF is in negotiations with the lender
to renew the financial covenants and to extend the maturity date. As at
March 31, 2011, the amount owing under this debenture agreement amounted
to $37,001.
iii. TGF term/operating facilities
TGF's term loan for $10,000 with a third party lender bearing interest
at prime plus 1% was due in full on December 31, 2010. This facility
was secured by liquid investments on deposit with the lender. As of
December 31, 2010, the amount owing under the facility for $10,000
was repaid in full.
iv. TGF has a working capital operating line of $7,000 bearing interest at a
rate of prime plus 2%. In addition, total letters of credit issued
amounted to $250.
(c) In fiscal 2010, NHS entered into a long-term financing agreement for the
funding of new and existing rental water heater and HVAC contracts in the
Enbridge gas distribution territory. On July 16, 2010, NHS expanded this
facility to cover the Union Gas territory. Pursuant to the agreement, NHS
receives financing of an amount equal to the present value of the first five,
seven or ten years of monthly rental income, discounted at the agreed upon
financing rate of 7.99% and, as settlement, it is required to remit an amount
equivalent to the rental stream from customers on the water heater and HVAC
contracts for the first five, seven or ten years. As security for performance of
the obligation, NHS has pledged the water heaters, HVAC equipment and rental
contracts, subject to the financed rental agreement, as collateral.
The financing agreement is subject to a holdback provision, whereby 3% in the
Enbridge territory and 5% in the Union Gas territory of the outstanding balance
of the funded amount is deducted and deposited into a reserve account in the
event of default. Once all obligations of NHS are satisfied or expired, the
remaining funds in the reserve account will immediately be released to NHS.
NHS has $105,716 owing under this agreement, including $3,978 relating to the
holdback provision, included in long term receivable, as at March 31, 2011. NHS
is required to meet a number of covenants under the agreement. As at March 31,
2011, all of these covenants have been met.
(d) In conjunction with the acquisition of Universal on July 1, 2009, the
Company also acquired the obligations of the convertible unsecured subordinated
debentures (the "$90 million convertible debentures") issued by Universal in
October 2007. The fair value of the convertible debenture was estimated by
discounting the remaining contractual payments at the time of acquisition. This
discount will be accreted using an effective interest rate of 8%. These
instruments have a face value of $90,000 and 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 $90 million convertible debentures is convertible at any
time prior to maturity or on the date fixed for redemption, at the option of the
holder, into approximately 30.87 shares, representing a conversion price of
$32.40 per common share as at March 31, 2011. Pursuant to the $90 million
convertible debentures, if the Company fixes a record date for the payment of a
dividend, the conversion price shall be adjusted in accordance therewith. During
the year, interest expense amounted to $6,464.
On and after October 1, 2010, but prior to September 30, 2012, the $90 million
convertible debentures are redeemable, in whole or in part, at a price equal to
the principal amount thereof, plus accrued and unpaid interest, at Just Energy'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 $90 million convertible debentures
are redeemable, in whole or in part, at a price equal to the principal amount
thereof, plus accrued and unpaid interest, at Just Energy's
sole option on not more than 60 days' and not less than 30 days' prior notice.
On January 1, 2011 as part of the Conversion, JEGI assumed all of the
obligations under the $90 million convertible debentures.
(e) In order to fund the acquisition of Hudson, on May 5, 2010, Just Energy
entered into an agreement with a syndicate of underwriters for $330 million of
convertible extendible unsecured subordinated debentures (the "$330 million
convertible debentures"). The $330 million convertible debentures bear interest
at a rate of 6.0% per annum payable semi-annually in arrears on June 30 and
December 31, with a maturity date of June 30, 2017. Each $1,000 principal amount
of the $330 million convertible debentures is convertible at any time prior to
maturity or on the date fixed for redemption, at the option of the holder, into
approximately 55.6 shares of the Company, representing a conversion price of $18
per share. During the year, interest expense amounted to $22,638.
The $330 million convertible debentures are not redeemable prior to June 30,
2013, except under certain conditions after a change of control has occurred. On
or after June 30, 2013, but prior to June 30, 2015, the $330 million convertible
debentures may be redeemed by the Company, in whole or in part, on not more than
60 days' and not less than 30 days' prior notice, at a redemption price equal to
the principal amount thereof, plus accrued and unpaid interest, provided that
the current market price (as defined herein) on the date on which notice of
redemption is given is not less than 125% of the conversion price. On and after
June 30, 2015, and prior to maturity, the $330 million convertible debentures
may be redeemed by Just Energy, in whole or in part, at a redemption price equal
to the principal amount thereof, plus accrued and unpaid interest.
The Company may, at its own option, on not more than 60 days' and not less than
40 days' prior notice, subject to applicable regulatory approval and provided
that no event of default has occurred and is continuing, elect to satisfy its
obligation to repay all or any portion of the principal amount of the $330
million convertible debentures that are to be redeemed or that are to mature, by
issuing and delivering to the holders thereof that number of freely tradable
units determined by dividing the principal amount of the $330 million
convertible debentures being repaid by 95% of the current market price on the
date of redemption or maturity, as applicable.
The conversion feature of the $330 million convertible debentures has been
accounted for as a separate component of Shareholders' deficiency in the amount
of $33,914. The remainder of the net proceeds of the $330 million convertible
debentures has been recorded as long-term debt, which will be accreted up to the
face value of $330,000 over the term of the $330 million convertible debentures
using an effective interest rate of 8.8%. If the $330 million convertible
debentures are converted into common shares, the value of the conversion will be
reclassified to share capital along with the principal amount converted. On
January 1, 2011, as part of the Conversion, JEGI assumed all of the obligations
under the $330 million convertible debentures.
10. INCOME TAXES
Just Energy was a mutual fund trust for income tax purposes up to December 31,
2010. Until the Conversion, Just Energy was only subject to current income taxes
on any taxable income not distributed to unitholders. Subsequent to the
Conversion, JEGI is subject to current income taxes on all of its taxable
income. The Fund distributed all of its taxable income earned prior to the
Conversion. Accordingly, Just Energy did not provide for future income taxes on
its temporary differences and those of its flow-through subsidiary trust and
partnerships expected to reverse prior to 2011 as it was considered tax exempt
for accounting purposes.
JEGI has recognized future income taxes for the temporary differences between
the carrying amount and tax values of assets and liabilities in respect of the
proportion of its income taxed directly to the unitholders that are expected to
reverse in or after 2011. A valuation allowance that was provided against future
tax assets of certain subsidiaries in the past year has been eliminated in full
this year, as JEGI determines that it is more likely than not that all of those
future tax assets will be realized in the future years.
Canadian based corporate subsidiaries are subject to tax on their taxable income
at a rate of 30% (2010 - 33%). U.S. based corporate subsidiaries are subject to
tax on their taxable income at a rate of 40% (2010 - 40%).
The following table reconciles the difference between the income taxes that
would result solely by applying statutory tax rates to the pre-tax income for
Just Energy and the income tax provision in the consolidated financial
statements.
2011 2010
----------------------
Income before income taxes $ 545,502 $ 127,588
----------------------
----------------------
Income tax expense at the combined basic rate of 30%
(2010 - 33%) 163,651 42,104
Taxes on income attributable to shareholders (15,456) (42,045)
Benefit of mark to market and other tax losses not
previously recognized (119,556) (100,459)
Variance between combined basic rate and rate
applicable to US subsidiaries 1,910 -
Non-deductible expenses 1,593 140
----------------------
Provision for (recovery of) income taxes $ 32,142 $ (100,260)
----------------------
----------------------
Components of Just Energy's income tax provision
(recovery) are as follows: 2011 2010
----------------------
Income tax provision $ 8,182 $ 19,253
Amount credited to Shareholders' capital 1,305 2,501
----------------------
Current income tax provision 9,487 21,754
Future tax provision (recovery) 22,655 (122,014)
----------------------
Provision for (recovery of) income taxes $ 32,142 $ (100,260)
----------------------
----------------------
Components of Just Energy's net future income tax
asset are as follows: 2011 2010
----------------------
Partnership income deferred for tax purposes and book
carrying amount of investments in partnerships in
excess of tax cost $(14,046) $ (483)
Excess of book basis over tax basis on customer
contracts (49,141) (84,840)
Excess of tax basis over book basis 36,700 28,339
Mark to market losses on derivative instruments 132,888 245,237
----------------------
106,401 188,253
Less: valuation allowance - 80,693
----------------------
Future income tax assets (net) $ 106,401 $ 107,560
----------------------
----------------------
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
2011
Foreign
currency
translation Cash flow
adjustment hedges Total
Balance, beginning of year $ 28,918 $ 193,385 $ 221,969
Unrealized foreign currency translation
adjustment 334 - 334
Amortization of deferred unrealized gain
on discontinued hedges after July 1,
2008, net of income taxes of $21,384 - (98,499) (98,499)
-----------------------------------
$ 28,918 $ 94,886 $ 123,804
-----------------------------------
-----------------------------------
Foreign
currency
translation Cash flow
2010 adjustment hedges Total
Balance, beginning of year $ 1,958 $ 362,608 $ 364,566
Unrealized foreign currency translation
adjustment 26,626 - 26,626
Amortization of deferred unrealized gain
on discontinued hedges after July 1,
2008, net of income taxes of $34,339 - (169,223) (169,223)
-----------------------------------
$ 28,584 $ 193,385 $ 221,969
-----------------------------------
-----------------------------------
12. SHAREHOLDERS' CAPITAL
(a) Common Shares of the Company
Effective January 1, 2011, the issued and outstanding units of the Fund, Class A
preference shares of JEC and exchangeable shares of JEEC were exchanged on a
one-for-one basis for common shares of JEGI. An unlimited number of common
shares and 50,000,000 preferred shares have been authorized to be issued.
Details of issued unitholders' capital and share capital are as follows:
2011
Issued and outstanding Units/Shares
Trust units
-----------------------------------------------
Balance, beginning of year 124,325,307 $ 593,075
Unit based awards exercised/exchanged 38,989 462
Distribution reinvestment plan 1,324,834 17,935
Exchanged from Exchangeable Shares 894,018 10,085
Units exchanged pursuant to Conversion (126,583,148) (621,557)
-----------------------------
Balance, end of year - -
-----------------------------
Class A preference shares
-----------------------------------------------
Balance, beginning of year 5,263,728 13,160
Class A preference shares exchanged pursuant to
Conversion (5,263,728) (13,160)
-----------------------------
Balance, end of year - -
-----------------------------
Exchangeable Shares
-----------------------------------------------
Balance, beginning of year 4,688,172 52,883
Exchangeable Shares issued - -
Exchanged into units (894,018) (10,085)
Exchangeable Shares exchanged pursuant to
Conversion (3,794,154) (42,798)
-----------------------------
Balance, end of year - -
-----------------------------
Unitholders' capital, end of year - -
-----------------------------
-----------------------------
2010
Issued and outstanding Units/Shares
Trust units
-----------------------------------------------
Balance, beginning of year 106,138,523 $ 385,294
Unit based awards exercised/exchanged 49,078 682
Distribution reinvestment plan 1,554,074 20,036
Exchanged from Exchangeable Shares 16,583,632 187,063
Units exchanged pursuant to Conversion - -
-----------------------------
Balance, end of year 124,325,307 593,075
-----------------------------
Class A preference shares
-----------------------------------------------
Balance, beginning of year 5,263,728 13,160
Class A preference shares exchanged pursuant to
Conversion - -
-----------------------------
Balance, end of year 5,263,728 13,160
-----------------------------
Exchangeable Shares
-----------------------------------------------
Balance, beginning of year - -
Exchangeable Shares issued 21,271,804 239,946
Exchanged into units (16,583,632) (187,063)
Exchangeable Shares exchanged pursuant to
Conversion - -
-----------------------------
Balance, end of year 4,688,172 52,883
-----------------------------
Unitholders' capital, end of year 134,277,207 $ 659,118
-----------------------------
-----------------------------
2011 Number
Share capital of shares Amount
----------------------------------------------------------------------------
Shares issued pursuant to the Conversion;
Trust units 126,583,148 $ 621,557
Class A preference shares 5,263,728 13,160
Exchangeable Shares 3,794,154 42,798
----------------------------
Balance on Conversion, January 1, 2011 135,641,030 677,515
Dividend reinvestment plan (i) 546,382 8,112
Share based awards exercised 86,374 1,097
Shares issued to minority shareholder in
exchange for interest in TGF (ii) 689,940 10,328
----------------------------------------------------------------------------
Share capital, end of year 136,963,726 $ 697,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2010 Number
Share capital of shares Amount
--------------------------------------------------------------------------
Shares issued pursuant to the Conversion;
Trust units - -
Class A preference shares - -
Exchangeable Shares - -
--------------------------
Balance on Conversion, January 1, 2011 - -
Dividend reinvestment plan (i) - -
Share based awards exercised - -
Shares issued to minority shareholder in
exchange for interest in TGF (ii)
--------------------------------------------------------------------------
Share capital, end of year - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(i) Dividend reinvestment plan
Under Just Energy's dividend reinvestment plan ("DRIP"), shareholders holding a
minimum of 100 shares can elect to receive their dividends in shares rather than
cash at a 2% discount to the simple average closing price of the shares for five
trading days preceding the applicable dividend payment date, providing the
shares are issued from treasury and not purchased on the open market.
(ii) Shares issued
During the year ended March 31, 2011, Just Energy issued 689,940 shares to
acquire the share interest held by the minority shareholder of TGF. The shares
were valued at $10,328. The difference between $18,616 representing the value of
the minority interest of TGF at the time of issuance and the value of the shares
has been recorded as a reduction to goodwill on the original acquisition of UEC.
Just Energy issued 894,018 (2010 - 16,583,632) units relating to the exchange of
Exchangeable Shares of JEEC. The Exchangeable Shares were issued pursuant to
Just Energy's acquisition of UEG.
13. SHARE BASED COMPENSATION PLANS
(a) Stock option plan
Just Energy grants awards under its 2010 share option plan (formerly the 2001
Unit Option Plan) to directors, officers, full-time employees and service
providers (non-employees) of Just Energy and its subsidiaries and affiliates. In
accordance with the share option plan, Just Energy may grant options to a
maximum of 11,300,000 shares. As at March 31, 2011, there were 1,179,166 options
still available for grant under the plan. Of the options issued, 135,000 options
remain outstanding at year-end. The exercise price of the share options equals
the closing market price of the Company's shares on the last business day
preceding the grant date. The share options vest over periods ranging from three
to five years from the grant date and expire after five or ten years from the
grant date. No share options have been granted since June 2008.
A summary of the changes in Just Energy's option plan during the year and status
at March 31, 2011 is outlined below.
Outstanding Range of exercise Weighted average
options prices exercise price(1)
Balance, beginning of
year 352,500 $ 15.09 - $17.47 $ 15.92
Forfeited/cancelled 217,500 $ 15.63 $ 15.63
------------------------------------------------------
Balance, end of year 135,000 $ 15.09 - $17.47 $ 16.38
------------------------------------------------------
------------------------------------------------------
(1) The weighted average exercise price is calculated by dividing the
exercise price of options granted by the number of options granted.
2011 Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$15.09-17.47 135,000 0.59 $ 16.38 98,000$ 16.51
-------------------------------------------------------
2010 Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$15.09 - $15.63 267,500 0.49 $ 15.53 200,000$ 15.63
$16.65 - $17.47 85,000 1.20 17.13 51,000 17.13
-------------------------------------------------------
Balance, end of year 352,500 0.66 $ 15.92 251,000$ 15.94
-------------------------------------------------------
-------------------------------------------------------
Options available for grant 2011 2010
------------------------
Balance, beginning of year 961,666 758,666
Add: canceled/forfeited during the year 217,500 203,000
------------------------
Balance, end of year 1,179,166 961,666
------------------------
------------------------
(b) Restricted share grants
Just Energy grants awards under the 2010 Restricted Share Grants Plan (formerly
the 2004 unit appreciation rights) to senior officers, employees and service
providers of its subsidiaries and affiliates in the form of fully paid RSGs. On
June 29, 2010, the unitholders of Just Energy approved a 2,000,000 increase in
the number of RSGs available for grant. As at March 31, 2011, there were
1,969,883 (2010 - 74,472) RSGs still available for grant under the plan. Of the
RSGs issued, 2,711,494 remain outstanding at March 31, 2011 (2010 - 2,640,723).
Except as otherwise provided, (i) the RSGs vest from one to five years from the
grant date providing, in most cases, on the applicable vesting date the RSG
grantee continues as a senior officer, employee or service provider of Just
Energy or any affiliate thereof; (ii) the RSGs expire no later than ten years
from the grant date; (iii) a holder of RSGs is entitled to payments at the same
rate as dividends paid to JEGI shareholders; and (iv) when vested, the holder of
an RSG may exchange one RSG for one common share. On January 1, 2011 as part of
the Conversion, all unit appreciation rights outstanding on that date were
replaced by RSGs.
RSGs available for grant 2011 2010
--------------------------
Balance, beginning of year 74,472 374,668
Less: granted during the year (234,620) (1,307,192)
Add: increase in RSGs available for grant 2,000,000 1,000,000
Add: cancelled/forfeited during the year 4,668 6,996
Add: exercised during the year 125,363 -
--------------------------
Balance, end of year 1,969,883 74,472
--------------------------
--------------------------
(c) Deferred share grants
Just Energy grants awards under its 2010 Directors' Compensation Plan (formerly
the 2004 Directors' deferred compensation plan) to all independent directors on
the basis each director is required to receive annually $15 of his compensation
entitlement in deferred share grants ("DSGs") and may elect to receive all or
any portion of the balance of his annual compensation in DSGs and/or common
shares. The holders of DSGs and/or common shares are also granted additional
DSGs/common shares on a monthly basis equal to the monthly dividends paid to the
shareholders of Just Energy. The DSGs vest on the earlier of the date of the
Director's resignation or three years following the date of grant and expire ten
years following the date of grant. As at March 31, 2011, there were 84,118 (2010
- 108,248) DSGs available for grant under the plan. Of the DSGs issued, 109,655
DSGs remain outstanding at March 31, 2011. In accordance with the Conversion,
all outstanding Directors' deferred unit grants were replaced with DSGs.
DSGs Available for Grant 2011 2010
------------------------
Balance, beginning of year 108,248 31,568
Add: increase in DSGS available for grant - 100,000
Less: granted during the year (24,130) (23,320)
------------------------
Balance, end of year 84,118 108,248
------------------------
------------------------
(d) Contributed surplus
Amounts credited to contributed surplus include share based compensation awards,
restricted share grants and deferred share grants. Amounts charged to
contributed surplus are awards exercised during the year.
Contributed Surplus 2011 2010
----------------------------
Balance, beginning of year $ 18,832 $ 14,671
Add: Share based compensation awards 5,509 4,754
non-cash deferred share grant distributions 121 89
Less: share based awards exercised (1,559) (682)
----------------------------
Balance, end of year $ 22,903 $ 18,832
----------------------------
----------------------------
Total amounts credited to shareholders' capital in respect of share options,
restricted share grants and deferred share grants exercised or exchanged during
the year ended March 31, 2011, amounted to $1,559 (2010 - $682).
14. FINANCIAL INSTRUMENTS
(a) Fair value
Just Energy has a variety of gas and electricity supply contracts that are
captured under CICA Handbook 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, unforced capacity, heat
rates, heat rate options, and renewable 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, Just Energy ceased the utilization of hedge accounting.
Accordingly, all the mark to market changes on Just Energy's derivative
instruments are recorded on a single line on the consolidated statements of
operations. Due to the commodity volatility and size of Just Energy, the
quarterly swings in mark to market on these positions will increase the
volatility in Just Energy's earnings.
The following tables illustrate (gains)/losses related to Just Energy'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 year ended March 31, 2011:
Change In Fair Value of Derivative Instruments
For the year For the year
ended March 31, ended March 31,
2011 2011 (USD)
Canada
Fixed-for-floating electricity swaps (i) $ (232,806) n/a
Renewable energy certificates (ii) 987 n/a
Verified emission-reduction credits (iii) 952 n/a
Options (iv) (333) n/a
Physical gas forward contracts (v) (138,623) n/a
Transportation forward contracts (vi) (11,365) n/a
Fixed financial swaps (vii) 1,217 n/a
United States
Fixed-for-floating electricity swaps
(viii) (45,009) (44,913)
Physical electricity forwards (ix) (46,472) (46,421)
Unforced capacity forward contracts (x) 416 388
Unforced capacity physical contracts (xi) 1,955 1,908
Renewable energy certificates (xii) 1,077 1,032
Verified emission-reduction credits (xiii) 140 136
Options (xiv) (1,160) (1,142)
Physical gas forward contracts (xv) (118,077) (116,831)
Transportation forward contracts (xvi) (568) (578)
Heat rate swaps (xvii) 1,789 1,592
Fixed financial swaps (xviii) 47,792 45,967
Foreign exchange forward contracts (xix) (1,116) n/a
Ethanol physical forward (xx) (135) -
Amortization of deferred unrealized gains
on discontinued hedges (119,883) n/a
Amortization of derivative financial
instruments related to acquisitions 149,821 n/a
----------------------------------------------------------------------------
Change In Fair Value of Derivative
Instruments $ (509,401)$ 1,282
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change In Fair Value of Derivative Instruments
For the year For the year
ended March 31, ended March
2010 31, 2010 (USD)
Canada
Fixed-for-floating electricity swaps (i) $ 5,041 n/a
Renewable energy certificates (ii) (480) n/a
Verified emission-reduction credits (iii) (9) n/a
Options (iv) (1,593) n/a
Physical gas forward contracts (v) 70,568 n/a
Transportation forward contracts (vi) 21,353 n/a
Fixed financial swaps (vii) - n/a
United States
Fixed-for-floating electricity swaps
(viii) 11,295 11,761
Physical electricity forwards (ix) 2,332 4,737
Unforced capacity forward contracts (x) (423) (274)
Unforced capacity physical contracts (xi) 563 544
Renewable energy certificates (xii) 1,856 1,744
Verified emission-reduction credits (xiii) 644 604
Options (xiv) 1,082 879
Physical gas forward contracts (xv) (30,742) (25,350)
Transportation forward contracts (xvi) 1,303 1,287
Heat rate swaps (xvii) (4,264) (3,965)
Fixed financial swaps (xviii) 34,201 33,370
Foreign exchange forward contracts (xix) 3,322 n/a
Ethanol physical forward (xx) - -
Amortization of deferred unrealized gains
On discontinued hedges (203,562) n/a
Amortization of derivative financial
instruments related to acquisitions 88,795 n/a
----------------------------------------------------------------------------
Change In Fair Value of Derivative
Instruments
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the financial statements as at March 31, 2011:
Other assets Other assets
(current) (long term)
Canada
Fixed-for-floating electricity swaps (i) $ - $ -
Renewable energy certificates (ii) 194 196
Verified emission-reduction credits (iii) - -
Options (iv) 815 692
Physical gas forward contracts (v) - -
Transportation forward contracts (vi) - 24
Fixed financial swaps (vii) - 1,037
United States
Fixed-for-floating electricity swaps (viii) 125 45
Physical electricity forwards (ix) - 310
Unforced capacity forward contracts (x) 309 177
Unforced capacity physical contracts (xi) 100 410
Renewable energy certificates (xii) 44 49
Verified emission-reduction credits (xiii) 13 36
Options (xiv) 1 -
Physical gas forward contracts (xv) 40 -
Transportation forward contracts (xvi) - -
Heat rate swaps (xvii) 639 2,408
Fixed financial swaps (xviii) 40 -
Foreign exchange forward contracts (xix) 1,391 -
Ethanol physical forward contracts (xx) 135 -
---------------------------------------------------------------------------
As at March 31, 2011 $ 3,846 $ 5,384
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Other Other
liabilities liabilities
(current) (long term)
Canada
Fixed-for-floating electricity swaps (i) $ 131,279 $ 93,397
Renewable energy certificates (ii) 158 417
Verified emission-reduction credits (iii) 315 628
Options (iv) 4,403 -
Physical gas forward contracts (v) 166,634 134,847
Transportation forward contracts (vi) 5,301 2,858
Fixed financial swaps (vii) 2,235 19
United States
Fixed-for-floating electricity swaps (viii) 29,028 25,719
Physical electricity forwards (ix) 55,548 37,535
Unforced capacity forward contracts (x) 581 118
Unforced capacity physical contracts (xi) 1,606 1,280
Renewable energy certificates (xii) 1,037 1,610
Verified emission-reduction credits (xiii) 275 491
Options (xiv) 1,056 165
Physical gas forward contracts (xv) 32,883 19,354
Transportation forward contracts (xvi) 1,526 1,281
Heat rate swaps (xvii) 180 131
Fixed financial swaps (xviii) 51,361 35,562
Foreign exchange forward contracts (xix) - -
Ethanol physical forward contracts (xx) - -
----------------------------------------------------------------------------
As at March 31, 2011 $ 485,406 $ 355,412
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the financial statements as at March 31, 2010:
Other assets Other assets
(current) (long term)
Canada
Fixed-for-floating electricity swaps (i) $ - $ -
Renewable energy certificates (ii) 350 621
Verified emission-reduction credits (iii) 2 7
Options (iv) 757 416
Physical gas forward contracts (v) - -
Transportation forward contracts (vi) - -
Fixed financial swaps (vii) - -
United States
Fixed-for-floating electricity swaps (viii) - -
Physical electricity forwards (ix) - -
Unforced capacity forward contracts (x) 523 102
Unforced capacity physical contracts (xi) 33 146
Renewable energy certificates (xii) 107 130
Verified emission-reduction credits (xiii) - -
Options (xiv) - -
Physical gas forward contracts (xv) - -
Transportation forward contracts (xvi) - -
Heat rate swaps (xvii) 654 3,605
Fixed financial swaps (xviii) - -
Foreign exchange forward contracts (xix) 277 -
Ethanol physical forward contracts (xx) - -
----------------------------------------------------------------------------
As at March 31, 2010 $ 2,703 $ 5,027
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other Other
liabilities liabilities
(current) (long term)
Canada
Fixed-for-floating electricity swaps (i) $ 244,563$ 212,920
Renewable energy certificates (ii) 30 139
Verified emission-reduction credits (iii) - -
Options (iv) - -
Physical gas forward contracts (v) 237,145 203,088
Transportation forward contracts (vi) 11,060 8,439
Fixed financial swaps (vii) - -
United States
Fixed-for-floating electricity swaps (viii) 31,291 30,464
Physical electricity forwards (ix) 38,015 39,035
Unforced capacity forward contracts (x) 445 9
Unforced capacity physical contracts (xi) 731 -
Renewable energy certificates (xii) 918 945
Verified emission-reduction credits (xiii) 167 447
Options (xiv) 912 915
Physical gas forward contracts (xv) 96,938 75,142
Transportation forward contracts (xvi) 1,265 2,262
Heat rate swaps (xvii) - -
Fixed financial swaps (xviii) 21,720 16,767
Foreign exchange forward contracts (xix) - -
Ethanol physical forward contracts (xx) - -
----------------------------------------------------------------------------
As at March 31, 2010 $ 685,200$ 590,572
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes financial instruments classified as held for
trading as at March 31, 2011 to which Just Energy has committed:
Total remaining
Contract type Notional volume volume Maturity date
Canada
--------------------------------------------------------------------------
(i) Fixed-for-floating 0.0001-85 MWh 9,688,499 MWh April 30, 2011
electricity swaps - October 11,
(i) 2018
--------------------------------------------------------------------------
(ii) Renewable energy 10-90,000 MWh 1,106,558 MWh December 31,
certificates 2011 - December
31, 2015
--------------------------------------------------------------------------
(iii) Verified emission 6,000-55,000 527,000 Tonnes December 31,
reduction credits Tonnes 2011 - December
31, 2014
--------------------------------------------------------------------------
(iv) Options 46-40,500 3,098,430 GJ April 30, 2011
GJ/month - February 28,
2014
--------------------------------------------------------------------------
(v) Physical gas 1-28,558 GJ/day 105,394,304 GJ April 30, 2011
forward contracts - March 31,
2016
--------------------------------------------------------------------------
(vi) Transportation 74-20,000 43,307,681 GJ April 30, 2011
forward contracts GJ/day - May 31, 2015
--------------------------------------------------------------------------
(vii) Fixed financial 14,500-139,500 9,684,500 GJ April 30, 2011
swaps GJ/month - July 31, 2016
--------------------------------------------------------------------------
United States
--------------------------------------------------------------------------
(viii) Fixed-for-floating 0.10-57 MWh 7,522,842 MWh April 30, 2011
electricity swaps - December 31,
(i) 2015
--------------------------------------------------------------------------
(ix) Physical 1-55 MWh 9,253,968 MWh April 30, 2011
electricity - May 31, 2016
forwards
--------------------------------------------------------------------------
(x) Unforced capacity 5-36 MWCap 571 MWCap April 30, 2011
forward contracts - November 30,
2012
--------------------------------------------------------------------------
(xi) Unforced capacity 1-50 MWCap 2,369 MWCap April 30, 2011
physical contracts - May 31, 2014
--------------------------------------------------------------------------
(xii) Renewable energy 5,000-160,000 2,220,400 MWh December 31,
certificates MWh 2011 - December
31, 2015
--------------------------------------------------------------------------
(xiii) Verified emission- 10,000-50,000 585,000 Tonnes December 31,
reduction credits Tonnes 2011 - December
31, 2016
--------------------------------------------------------------------------
(xiv) Options 5-90,000 3,287,880 mmBTU April 30, 2011
mmBTU/month - December 31,
2014
--------------------------------------------------------------------------
(xv) Physical gas 1-7,700 16,890,058 April 30, 2011
forward contracts mmBTU/day mmBTU - July 31, 2014
--------------------------------------------------------------------------
(xvi) Transportation 3-15,500 39,949,590 April 30, 2011
forward contracts mmBTU/day mmBTU - August 31,
2015
--------------------------------------------------------------------------
(xvii) Heat rate swaps 1-30 MWh 3,924,952 MWh April 30, 2011
- September 30,
2015
--------------------------------------------------------------------------
(xviii) Fixed financial 930-380,000 62,881,529 April 30, 2011
swaps mmBTU/month mmBTU - May 31, 2017
--------------------------------------------------------------------------
(xix) Foreign exchange ($569-$4,460) n/a April 01, 2011
forward contracts (US$587-$4,600) - January 03,
2012
--------------------------------------------------------------------------
(xx) Ethanol forward 396,258 Gallons 7,132,645 April 01, 2011
physical contracts Gallons - December 01,
2011
--------------------------------------------------------------------------
Fair value
Contract type favourable/(unf
Fixed price avourable) Notional value
Canada
---------------------------------------------------------------------------
(i) Fixed-for-floating $28.75-$128.13 ($224,677) $623,260
electricity swaps
(i)
---------------------------------------------------------------------------
(ii) Renewable energy $3.00-$26.00 ($184) $7,149
certificates
---------------------------------------------------------------------------
(iii) Verified emission $6.25-$11.50 ($943) $4,964
reduction credits
---------------------------------------------------------------------------
(iv) Options $7.16-$12.39 $1,507 $5,500
---------------------------------------------------------------------------
(v) Physical gas $3.39-$10.00 ($301,481) $759,167
forward contracts
---------------------------------------------------------------------------
(vi) Transportation $0.01-$1.57 ($8,134) $33,686
forward contracts
---------------------------------------------------------------------------
(vii) Fixed financial $4.47-$8.79 ($1,217) $46,196
swaps
---------------------------------------------------------------------------
United States
---------------------------------------------------------------------------
(viii) Fixed-for-floating $23.56-$132.59 ($52,917) $393,405
electricity swaps (US$24.30- (US($54,576)) (US$405,739)
(i) $136.75)
---------------------------------------------------------------------------
(ix) Physical $14.54-$106.90 ($89,953) $480,536
electricity (US$15.00- (US($92,773)) (US$495,602)
forwards $110.25)
---------------------------------------------------------------------------
(x) Unforced capacity $824-$7,757 ($207) $2,677
forward contracts (US$850-$8,000) ((US$213)) (US$2,761)
---------------------------------------------------------------------------
(xi) Unforced capacity $630-$8,484 ($2,305) $11,037
physical contracts (US$650-$8,750) ((US$2,377)) (US$11,383)
---------------------------------------------------------------------------
(xii) Renewable energy $2.62-$24.00 ($2,476) $13,716
certificates (US$2.70- (US($2,554)) (US$14,146)
$24.75)
---------------------------------------------------------------------------
(xiii) Verified emission- $4.36-$8.48 ($696) $4,097
reduction credits (US$4.50-$8.75) (US$(718)) (US$4,225)
---------------------------------------------------------------------------
(xiv) Options $7.51-$13.38 ($617) $4,245
(US$7.75- (US($636)) (US$4,378)
$13.80)
---------------------------------------------------------------------------
(xv) Physical gas $3.98-$11.52 ($50,609) $136,499
forward contracts (US$4.10- (US($52,196)) (US$140,779)
$11.88)
---------------------------------------------------------------------------
(xvi) Transportation $0.0048-$1.2100 ($2,721) ($84,548)
forward contracts (US$0.0050- (US($2,806)) (US$87,199)
$1.2500)
---------------------------------------------------------------------------
(xvii) Heat rate swaps $18.85-$75.02 $2,653 $165,659
(US$19.44- (US$2,736) (US$170,853)
$77.37)
---------------------------------------------------------------------------
(xviii) Fixed financial $3.93-$9.11 ($84,243) $397,449
swaps (US$4.05-$9.40) (US($86,884)) (US$409,910)
---------------------------------------------------------------------------
(xix) Foreign exchange $0.9750-$1.0457 $1,391 $28,413
forward contracts (US$27,733)
---------------------------------------------------------------------------
(xx) Ethanol forward $2.34-$2.65 $136 $17,860
physical contracts
---------------------------------------------------------------------------
(i) The electricity fixed-for-floating contracts related to the Province of
Alberta are predominantly load-following and some contracts in Ontario are also
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 these and the rest of Just Energy's electricity
markets wherein the quantity of electricity is established but varies throughout
the term of the contracts.
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
$68,946.
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
consolidated financial statements.
Fair value ("FV") hierarchy
Level 1
The fair value measurements are classified as Level 1 in the FV Hierarchy if the
fair value is determined using quoted, unadjusted market prices. Just Energy
values its cash, restricted cash, accounts receivable, bank indebtedness,
accounts payable and accrued liabilities and long-term debt under Level 1.
Level 2
Fair value measurements which require inputs other than quoted prices in Level
1, either directly or indirectly are classified as Level 2 in the FV hierarchy.
This could include the use of statistical techniques to derive the FV curve from
observable market prices. However, in order to be classified under Level 2,
inputs must be substantially observable in the market. Just Energy values its
New York Mercantile Exchange ("NYMEX") financial gas fixed for floating swaps
under Level 2.
Level 3
Fair value measurements which require unobservable market data or use
statistical techniques to derive forward curves from observable market data and
unobservable inputs are classified as Level 3 in the FV hierarchy. For the
electricity supply contracts, Just Energy uses quoted market prices as per
available market forward data and applies a price shaping profile to calculate
the monthly prices from annual strips and hourly prices from block strips for
the purposes of mark to market calculations. The profile is based on historical
settlements with counterparties or with the system operator and is considered an
unobservable input for the purposes of establishing the level in the hierarchy.
For the natural gas supply contracts, Just Energy uses three different market
observable curves: 1) Commodity (predominantly NYMEX), 2) Basis and 3) Foreign
Exchange. NYMEX curves extend for over five years (thereby covering the length
of Just Energy's contracts); however, most basis curves only extend 12-15 months
into the future. In order to calculate basis curves for remaining years, Just
Energy uses extrapolation which leads to natural gas supply contracts to be
classified under Level 3.
Fair value measurement input sensitivity
The main cause of changes in the fair value of derivative instruments is changes
in the forward curve prices used for the fair value calculations. Just Energy
provides a sensitivity analysis of these forward curves under the commodity
price risk section of this note. Other inputs, including volatility and
correlations, are driven off historical settlements.
The following table illustrates the classification of financial
assets/(liabilities) in the FV hierarchy as at March 31, 2011:
March 31, 2011
Level 1 Level 2 Level 3 Total
Financial assets
Trading assets $ 98,466 $ - $ - $ 98,466
Loans and receivable 286,254 - - 286,254
Derivative financial
assets - 1,077 8,153 9,230
Financial liabilities
Derivative financial
liabilities - (89,177) (751,641) (840,818)
Other financial
liabilities (886,696) - - (886,696)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (501,976) $ (88,100) $ (743,488) $ (1,333,564)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the changes in net fair value of financial
assets/(liabilities) classified as Level 3 in the FV hierarchy for the year
ended March 31, 2011:
March 31, 2011
Opening balance, April 1, 2010 $ (1,229,555)
Total gain/(losses) - Net Income 6,891
Purchases (256,294)
Sales 3,795
Settlements 731,675
Transfer out of Level 3 -
----------------------------------------------------------------------------
Closing Balance, March 31, 2011 $ (743,488)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Classification of financial assets and liabilities
The following table represents the fair values and carrying amounts of financial
assets and liabilities measured at amortized cost.
Carrying
As at March 31, 2011 amount Fair value
Cash and restricted cash $ 98,466 $ 98,466
Accounts receivable $ 281,685 $ 281,685
Long-term receivable $ 4,569 $ 4,569
Other assets $ 9,230 $ 9,230
Bank indebtedness, accounts payable and accrued
liabilities, and unit distributions payable $ 285,119 $ 285,119
Long-term debt $ 601,577 $ 663,407
Other liabilities $ 840,818 $ 840,818
For the years ended March 31
2011 2010
Interest expense on financial liabilities not
held for trading $ 50,437 $ 16,134
The carrying value of cash, restricted cash, accounts receivable, accounts
payable and accrued liabilities, and unit distributions payable approximates
their fair value due to their short-term liquidity.
The carrying value of long-term debt approximates its fair value as the interest
payable on outstanding amounts is at rates that vary with Bankers' Acceptances,
LIBOR, Canadian bank prime rate or U.S. prime rate, with the exception of the
$90 million and $330 million convertible debentures, which are fair valued,
based on market value.
(c) Management of risks arising from financial instruments
The risks associated with Just Energy'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 Just Energy 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 income 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 income. Due to
its growing operations in the U.S. and its recent acquisition of Hudson, Just
Energy expects to have a greater exposure to U.S. fluctuations in the future
than in prior years. Just Energy has hedged between 25% and 90% of certain
forecasted cross border cash flows that are expected to occur within the next
year. The level of hedging is dependent on the source of the cash flow and the
time remaining until the cash repatriation occurs.
Just Energy may, from time to time, experience losses resulting from
fluctuations in the values of its foreign currency transactions, which could
adversely affect its operating results. Translation risk is not hedged.
With respect to translation exposure, as at March 31, 2011, 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 year ended would
have been $4,823 higher/lower and other comprehensive income would have been
$3,365 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. Just Energy's
exposure to interest rate risk is relatively immaterial and temporary in nature.
Just Energy does not currently believe that this long-term debt exposes it to
material financial risks but has set out parameters to actively manage this risk
within its Risk Management Policy.
A 1% increase (decrease) in interest rates would have resulted in a decrease
(increase) in income before income taxes for the year ended March 31, 2011, of
approximately $1,023.
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. Management actively monitors these positions on a daily
basis in accordance with its Risk Management Policy. This policy sets out a
variety of limits, most importantly thresholds for open positions in the gas and
electricity portfolios which also feed a Value at Risk limit; should any of the
limits be exceeded, they are closed expeditiously or express approval to
continue to hold is obtained. Just Energy's exposure to market risk is affected
by a number of factors, including accuracy of 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 and thereby fix
margins such that Shareholder dividends can be appropriately established.
Derivative instruments are generally transacted over-the-counter. 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 flow of Just Energy.
Commodity price sensitivity - all derivative financial instruments
As at March 31, 2011, if the energy prices including natural gas, electricity,
verified emission reduction credits, and renewable energy certificates, had
risen (fallen) by 10%, assuming that all the other variables had remained
constant, income before taxes for the quarter ended March 31, 2011 would have
increased (decreased) by $193,338 ($192,492) primarily as a result of the change
in the fair value of Just Energy's derivative instruments.
Commodity price sensitivity - Level 3 derivative financial instruments
As at March 31, 2011, if the energy prices including natural gas, electricity,
verified emission reduction credits, and renewable energy certificates, had
risen (fallen) by 10%, assuming that all the other variables had remained
constant, income before taxes for the quarter ended March 31, 2011 would have
increased (decreased) by $169,292 ($168,613) primarily as a result of the change
in the fair value of Just Energy's derivative instruments.
(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, Pennsylvania, California, Maryland, New York and
New Jersey, 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 flows of Just Energy. Management factors default from credit risk in its
margin expectations for all the above markets.
As at March 31, the aging of the accounts receivable from the above markets was
as follows:
2011 2010
------------- -------------
Current $ 61,695 $ 44,531
1 - 30 days 15,088 13,873
31 - 60 days 5,533 4,598
61 - 90 days 5,652 1,768
Over 91 days 10,322 3,973
---------------------------
$ 98,290 $ 68,743
------------- -------------
------------- -------------
For the year ended March 31, 2011, changes in the allowance for doubtful
accounts were as follows:
Balance, beginning of year $ 23,110
Provision for doubtful accounts 27,627
Bad debts written off (23,801)
Others (1,821)
Balance, end of year $ 25,115
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. Counterparty limits are
established within the Risk Management Policy. Any exceptions to these limits
require approval from the Board of Directors of JEGI. The Risk Department 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 March 31, 2011, the maximum counterparty credit risk exposure amounted to
$107,520, representing the risk relating to its derivative financial assets and
accounts receivable.
(iii) Liquidity risk
Liquidity risk is the potential inability to meet financial obligations as they
fall due. Just Energy 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.
The following are the contractual maturities, excluding interest payments,
reflecting undiscounted disbursements of Just Energy's financial liabilities as
at March 31, 2011.
Carrying Contractual Less than 1
amount cash flows year
Accounts payable and accrued
liabilities $ 282,805 $ 282,805 $ 282,805
Bank indebtedness 2,314 2,314 2,314
Long-term debt (i) 601,577 652,397 94,117
Derivative instruments 840,818 3,173,789 1,498,293
----------------------------------------------------------------------------
$ 1,727,514 $ 4,111,305 $ 1,877,529
----------------------------------------------------------------------------
----------------------------------------------------------------------------
More than 5
1 to 3 years 4 to 5 years years
Accounts payable and accrued
liabilities $ - $ - $ -
Bank indebtedness - - -
Long-term debt (i) 99,099 119,684 339,497
Derivative instruments 1,405,699 267,505 2,292
----------------------------------------------------------------------------
$ 1,504,798 $ 387,189 $ 341,789
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Included in long-term debt is $330,000 and $90,000 relating to convertible
debentures, which may be settled through the issuance of shares at the option of
the holder.
In addition to the amounts noted above, at March 31, 2011, net interest payments
over the life of the long-term debt and bank credit facility are as follows:
More
than 5
Less than 1 year 1 to 3 years 4 to 5 years years
----------------------------------------------------------------------------
Interest payments $ 45,430 $ 61,282 $ 45,470 $ 21,427
----------------------------------------------------------------------------
(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 $1,207 to
accommodate for its counterparties' risk of default.
15. CAPITAL DISCLOSURE
Just Energy defines capital as Shareholders' equity (excluding accumulated other
comprehensive income) and long-term debt. Just Energy's objectives when managing
capital are to maintain flexibility between:
a) enabling it to operate efficiently;
b) providing liquidity and access to capital for growth opportunities; and
c) providing returns and generating predictable cash flow for dividend payments
to shareholders
Just Energy manages the capital structure and makes adjustments to it in light
of changes in economic conditions and the risk characteristics of the underlying
assets. The Board of Directors does not establish quantitative return on capital
criteria for management; but rather promotes year over year sustainable
profitable growth. Just Energy's capital management objectives have remained
unchanged from the prior year. Just Energy is not subject to any externally
imposed capital requirements other than financial covenants in its credit
facilities and as at March 31, 2011 and 2010, all of these covenants have been
met.
16. INCOME PER SHARE
2011 2010
------------- -------------
Basic income per share
---------------------------------------------
Net income available to shareholders $ 515,347 $ 231,496
-------------------------------
Weighted average number of shares outstanding 128,171,630 117,674,180
Weighted average number of Class A preference
shares 4,009,086 5,263,728
Weighted average number of Exchangeable
Shares 3,098,124 5,027,626
-------------------------------
Basic units and shares outstanding 135,278,840 127,965,534
-------------------------------
Basic income per share/unit $ 3.81 $ 1.81
--------------- ---------------
--------------- ---------------
Diluted income per share(1)
---------------------------------------------
Net income available to Shareholders $ 515,347 231,496
-------------------------------
Basic units and shares outstanding 135,278,840 127,965,534
Dilutive effect of:
Restricted share grants 2,737,214 1,392,423
Deferred share grants 93,231 71,137
-------------------------------
Shares outstanding on a diluted basis 138,109,285 129,429,094
-------------------------------
Diluted income per share/unit $ 3.73 $ 1.79
--------------- ---------------
--------------- ---------------
(1) The $90 million and $330 million convertible debentures and stock option
rights are anti-dilutive for fiscal 2011 and 2010.
17. 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. The gas and electricity business segments
have operations in both Canada and the United States.
Just Energy evaluates segment performance based on geographic segments and
operating segments.
The following tables present Just Energy's results by geographic segments and
operating segments.
2011
Gas and electricity Home
marketing Ethanol services
-----------------------------------------------
United
Canada States Canada Canada Consolidated
--------------------------------------------------------------
Sales gas $ 660,457 $ 526,311 $ - $ - $ 1,186,768
Sales
electricity 619,985 1,015,347 - - 1,635,332
Ethanol - - 108,526 - 108,526
Home services - - - 22,566 22,566
----------------------------------------------------------------------------
Sales $ 1,280,442 $ 1,541,658 $ 108,526 $ 22,566 $ 2,953,192
----------------------------------------------------------------------------
Gross margin $ 188,949 $ 263,291 $ 14,266 $ 15,697 $ 482,203
Amortization
of property,
plant and
equipment (3,726) (494) (1,171) (307) (5,698)
Amortization
of intangible
assets (47,392) (71,832) (22) (1,595) (120,841)
Other
operating
expenses (68,653) (179,524) (11,164) (17,020) (276,361)
----------------------------------------------------------------------------
Income (loss)
before the
undernoted 69,178 11,441 1,909 (3,225) 79,303
Interest
expense 34,720 2,387 6,862 6,468 50,437
Change in fair
value of
derivative
instruments (370,083) (139,345) 27 - (509,401)
Other income (7,036) (132) (42) (25) (7,235)
Non-
controlling
interest - - (1,987) - (1,987)
Provision
(recovery) of
income taxes 13,636 21,007 - (2,501) 32,142
----------------------------------------------------------------------------
Net income
(loss) $ 397,941 $ 127,524 $ (2,951) $ (7,167) $ 515,347
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additions to
property,
plant and
equipment $ 3,091 $ 2,659 $ 266 $ 30,625 $ 36,641
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total goodwill $ 153,043 $ 58,108 $ - $ 283 $ 211,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets $ 596,738 $ 698,502 $ 165,244 $128,160 $ 1,588,644
----------------------------------------------------------------------------
2010
Gas and electricity Home
marketing Ethanol services
-----------------------------------------------
United
Canada States Canada Canada Consolidated
--------------------------------------------------------------
Sales gas $ 788,661 $ 425,975 $ - $ - $ 1,214,636
Sales
electricity 637,580 381,674 - - 1,019,254
Ethanol - - 56,455 - 56,455
Home Service - - - 8,886 8,886
----------------------------------------------------------------------------
Sales $ 1,426,241 $ 807,649 $ 56,455 $ 8,886 $ 2,299,231
----------------------------------------------------------------------------
Gross margin $ 231,147 $ 172,627 $ 4,510 $ 7,049 $ 415,333
Amortization
of property,
plant and
equipment (3,418) (251) (1,059) (766) (5,494)
Amortization
of intangible
assets (37,309) (22,413) (20) (1,209) (60,951)
Other
operating
expenses (68,156) (121,394) (9,089) (8,760) (207,399)
----------------------------------------------------------------------------
Income before
the
undernoted 122,264 28,569 (5,658) (3,686) 141,489
Interest
expense 9,079 1,130 5,107 818 16,134
Change in fair
value of
derivative
instruments 37,058 (35,776) - - 1,282
Other income (3,122) (82) (311) - (3,515)
Non-
controlling
interest - - (3,593) (55) (3,648)
Provision
(recovery)
for income
tax (123,113) 24,415 - (1,562) (100,260)
----------------------------------------------------------------------------
Net income
(loss) $ 202,362 $ 38,882 $ (6,861) $ (2,887) $ 231,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additions to
property,
plant and
equipment $ 11,267 $ 797 $ 4,599 $ 24,544 $ 41,207
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total goodwill $ 138,905 $ 31,053 $ - $ 7,929 $ 177,887
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets $ 727,395 $ 330,912 $ 161,028 $ 91,492 $ 1,310,827
----------------------------------------------------------------------------
18. GUARANTEES
(a) Officers and Directors
Corporate indemnities have been provided by Just Energy to all directors and
certain officers of its subsidiaries and affiliates for various items including,
but not limited to, all costs to settle suits or actions due to their
association with Just Energy and its subsidiaries and/or affiliates, subject to
certain restrictions. Just Energy has purchased directors' and officers'
liability insurance to mitigate the cost of any potential future suits or
actions. Each indemnity, subject to certain exceptions, applies for so long as
the indemnified person is a director or officer of one of Just Energy's
subsidiaries and/or affiliates. The maximum amount of any potential future
payment cannot be reasonably estimated.
(b) Operations
In the normal course of business, Just Energy and/or Just Energy's subsidiaries
and affiliates have entered into agreements that include guarantees in favour of
third parties, such as purchase and sale agreements, leasing agreements and
transportation agreements. These guarantees may require Just Energy and/or its
subsidiaries to compensate counterparties for losses incurred by the
counterparties as a result of breaches in representation and regulations or as a
result of litigation claims or statutory sanctions that may be suffered by the
counterparty as a consequence of the transaction. The maximum payable under
these guarantees is estimated to be $88,282.
19. COMMITMENTS
Commitments for each of the next five years and thereafter are as follows:
Premises and Grain Master Services Commodity
equipment production agreement with contracts with
leasing contracts EPCOR various suppliers
2012 $ 8,333 $ 7,082 $ 4,974 $ 1,498,293
2013 6,222 1,703 - 915,844
2014 4,733 396 - 489,855
2015 3,855 - - 209,069
2016 2,678 - - 58,436
Thereafter 4,841 - - 2,292
------------- ----------- ---------------- -------------------
$ 30,662 $ 9,181 $ 4,974 $ 3,173,789
------------- ----------- ---------------- -------------------
------------- ----------- ---------------- -------------------
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.
20. CONTINGENCIES
The State of California has filed a number of complaints to the Federal Energy
Regulatory Commission ("FERC") against many suppliers of electricity, including
Commerce, a subsidiary of Just Energy, with respect to events stemming from the
2001 energy crisis in California. Pursuant to the complaints, the State of
California is challenging the FERC's enforcement of its market-based rate
system. Although Commerce did not own generation, the State of California is
claiming that Commerce was unjustly enriched by the run-up caused by the alleged
market manipulation by other market participants. The proceedings are currently
ongoing. On March 18, 2010, the Administrative Law Judge granted the motion to
strike for all parties in one of the complaints holding that California did not
prove that the reporting errors masked the accumulation of market power.
California has appealed the decision.
At this time, the likelihood of damages or recoveries and the ultimate amounts,
if any, with respect to this litigation is not determinable.
21. ADJUSTMENTS REQUIRED TO REFLECT NET CASH RECEIPTS FROM GAS SALES
Changes in: 2011 2010
-------------- --------------
Accrued gas accounts payable $ 4,266 $ (26,286)
Unbilled revenues (5,749) 36,986
Gas delivered in excess of consumption 3,763 (8,508)
Deferred revenue (4,005) 8,357
-----------------------------
$ (1,725) $ 10,549
-------------- --------------
-------------- --------------
22. NET CHANGE IN NON-CASH WORKING CAPITAL
2011 2010
--------------- ---------------
Accounts receivable $ 4,513 $ (60,021)
Gas in storage (2,355) 2,430
Inventory (583) (41)
Prepaid expenses 15,511 25,869
Accounts payable and accrued liabilities (49,637) 5,931
Corporate taxes recoverable (5,662) (8,303)
Other - (1,388)
-------------------------------
$ (38,213) $ (35,523)
--------------- ---------------
--------------- ---------------
23. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain figures from the comparative consolidated financial statements have been
reclassified from statements previously presented to conform to the presentation
of the current year's consolidated financial statements.
24. SUBSEQUENT EVENTS
(i) Declared dividends
On April 4, 2011, the Board of Directors of Just Energy declared a dividend in
the amount of $0.10333 per common share ($1.24 annually). The dividend will be
paid on April 30, 2011, to shareholders of record at the close of business on
April 15, 2011.
On May 3, 2011, the Board of Directors of Just Energy declared a dividend in the
amount of $0.10333 per common share ($1.24 annually). The dividend will be paid
on May 31, 2011, to shareholders of record at the close of business on May 15,
2011.
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