Just Energy Group Inc. (TSX:JE) -
Highlights for the three months ended June 30, 2011 included:
-- Gross customer additions through marketing of 227,000 and net additions
of 44,000 compared to 232,000 and 73,000 in the fourth quarter and
261,000 and 116,000 in first quarter of fiscal 2011.
-- Just Energy exited the quarter with 3.4 million customers, up 9% from a
year earlier.
-- National Home Services installed base up 50% year over year to 131,600
with gross margin up 120% to $6.2 million.
-- Gross margin of $94.3 million, up 17% (14% per share).
-- Administrative costs down despite the 9% increase in customer base.
-- Adjusted EBITDA of $37.4 million, up 26% (23% per share) reflecting
earnings before growth marketing expenditures.
-- Base EBITDA of $29.9 million, up 36% (34% per share) reflecting earnings
after all marketing.
-- Payout ratio on Adjusted EBITDA was 116% for the quarter, versus 142%
for the three months ended June 30, 2010. First quarter results exceed
published guidance of 5% growth in gross margin and adjusted EBITDA.
Just Energy First Quarter Fiscal 2012 Results
Just Energy Group Inc. announced its results for the three months ended June 30,
2011.
Just Energy is a TSX listed corporation and it reports in the attached
Management's Discussion and Analysis, a detailed review of its operating results
as measured by gross margin, Adjusted EBITDA and Base EBITDA. Just Energy also
reports the profit for the period but Management believes that the inclusion of
non-cash mark to market on future supply positions makes this measure less
valuable in measuring performance as this future supply has been sold at fixed
prices.
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Three months ended June 30,
($ millions except per unit and
customers) F2012 Per share F2011 Per unit
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Sales $626.2 $4.46 $609.7 $4.44
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Gross margin 94.3 0.67 80.4 0.59
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General and administrative 28.3 0.20 28.8 0.21
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Financing costs 13.8 0.10 9.9(1) 0.07
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Profit 51.1 0.36 270.80 1.97
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Adjusted EBITDA 37.4 0.27 29.7 0.22
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Base EBITDA 29.9 0.21 21.8 0.16
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Dividends/distributions 43.6 0.31 42.1 0.31
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Payout ratio - Adjusted EBITDA 116% 142%
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Long Term Customers 3,358,000 3,069,000
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(1) Excludes distributions paid to holders of exchangeable shares prior to
the Conversion included as finance costs under IFRS.
The first quarter of fiscal 2012 displayed positive impacts in several areas
from Just Energy's diversification efforts over the last two years. First, the
Hudson acquisition allowed expansion of Just Energy's presence in the commercial
gas and electricity markets. This commercial expansion has allowed the Company
to match and exceed its past customer growth. Higher customer additions have
allowed Just Energy to offset a difficult price environment and resultant weak
renewals, maintaining its gross margin and EBITDA.
A second diversification was the move into green commodity supply through the
JustGreen and, now, JustClean programs. Over the past 12-months, green takeup
was 32% for new residential customers, who purchased an average of 91% green
supply. Our overall green book is now 9% of the Company's natural gas needs (up
from 3% a year ago) and 10% for electricity (up from 6%). The Green products are
popular with residential customers strengthening long-term margins, building a
stronger customer relationship and allowing employees to be proud of their
contribution to a cleaner environment.
National Home Services water heater rental and sales operation has been a
success with installations growing 50% from 88,000 units to 131,600 year over
year. Margin from this business was up 120% year over year.
The Momentis network marketing channel is now seeing encouraging results.
Network marketing does not overlap traditional sales channels and tends to
generate sales to customers who would not otherwise buy from a door-to-door
salesperson.
These expansions were seen both in continued marketing success in the first
quarter and operating results which currently exceed published growth targets
for the year. Management has set targets of 5% per share growth for both gross
margin and Adjusted EBITDA for fiscal 2012.
In the first quarter, gross margin was $94.3 million up 14% per share year over
year. Administrative costs have been kept under tight control and are beginning
to show the impact of the decreased cost to serve commercial customers declining
5% per share to $28.3 million despite a 9% growth in customer base. Higher
margins and lower operating costs resulted in growth in Adjusted EBITDA to $37.4
million, up 23% per share.
Other aspects of operations such as bad debt were also well under control.
Losses were 2.8% on the 40% of our sales where we bear this risk, unchanged from
a year earlier. Attrition rates were in line with management's expectations and
down significantly from the first quarter of fiscal 2011. U.S. natural gas
attrition (the market most affected by the housing crisis) was down to 21% from
28% over the past year.
Renewal rates were soft, averaging under 70%. The current stable low commodity
price environment is the worst for Just Energy's core products however the
Company has focused on renewals by giving the customer a range of options
including Blend and Extend pricing and our new JustClean products.
The Terra Grain ethanol plant has seen better pricing and improved operating
results with positive margin for the quarter.
The 227,000 customers added were a continuation of the positive results we have
seen since the Hudson acquisition. As can be seen in the chart below, both gross
and net additions continue far above historical levels and the reason is
commercial additions.
To view the Quarterly Customer Additions, please visit the following link:
http://media3.marketwire.com/docs/QCA811.jpg.
Commercial additions made up 148,000 of the 227,000 quarterly additions. These
customers have lower annual margins but their aggregation cost and annual
customer service costs are commensurately lower as well. Overall, as can be seen
below, the Just Energy customer base is up 9% year over year. This is entirely
growth through marketing with no acquired customers in the total.
April 1, Failed to
2011 Additions Attrition renew
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Natural gas
Canada 656,000 15,000 (15,000) (21,000)
United States 574,000 27,000 (29,000) (5,000)
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Total gas 1,230,000 42,000 (44,000) (26,000)
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Electricity
Canada 736,000 19,000 (20,000) (31,000)
United States 1,348,000 166,000 (42,000) (20,000)
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Total electricity 2,084,000 185,000 (62,000) (51,000)
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Combined 3,314,000 227,000 (106,000) (77,000)
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June 30, June 30,
2011 2010
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Natural gas
Canada 635,000 709,000 (10%)
United States 567,000 564,000 1%
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Total gas 1,202,000 1,273,000 (6%)
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Electricity
Canada 704,000 757,000 (7%)
United States 1,452,000 1,039,000 40%
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Total electricity 2,156,000 1,796,000 20%
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Combined 3,358,000 3,069,000 9%
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Company management is maintaining the current guidance of 5% per share growth
for the year for both gross margin and Adjusted EBITDA. While operating results
are far ahead of that level to date, the first quarter seasonally is the lowest
quarter for sales and gross margin. The comparable quarter in fiscal 2011
reflected the impact of a record warm winter with resultant weak operating
results. Further, the adverse impact of the decline of the U.S. dollar versus
the Canadian dollar during and subsequent to the quarter provide grounds for
caution in any forecast. Management intends to update on targets as the year
progresses.
Dividends were $0.31 per share, equal to unit distributions paid in the prior
comparable quarter. Payout ratio on Adjusted EBITDA was 116% down from 142% a
year ago in what is seasonally the weakest quarter of the year. Management's
expectation is that the payout ratio will be below 100% for fiscal 2012 and
allow us to comfortably pay out interest, income tax and dividends.
Executive Chair Rebecca MacDonald stated, "I am very pleased with the double
digit growth seen in our operating results for the first quarter. Just Energy
has been and remains a growth company. While there are always uncertainties at
the end of the first quarter, we are off to a solid start in meeting our
expectations."
CEO Ken Hartwick added, "We have had a two year plan to diversify our business
while remaining within the deregulated energy sector. The success of the plan
can be seen in this quarter where our commercial expansion has bolstered our
Energy Marketing segment. Our success with National Home Services and our Green
Products have also given us new sources of revenue moving forward."
"At the same time, management has focused on controlling costs both in the
administration of our business and through bad debt where we are exposed.
Controlling costs has helped us deliver results even during a period which, for
Just Energy, is one of slower growth."
"We plan to continue to review other opportunities for diversification and
intend to maintain Just Energy as a unique income/growth vehicle moving forward.
I want to thank our team for their efforts this quarter."
About 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. Variable rate products allow customers to maintain
competitive rates while retaining the ability to lock into a fixed price at
their discretion. 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 related price at which it
purchases the associated volumes from its suppliers. Just Energy also offers
"green" products through its JustGreen and JustClean programs. 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.
JustClean products allow customers in certain jurisdictions to offset their
carbon footprint without purchasing commodity from Just Energy. JustClean can be
offered in all states and provinces and is not dependent on energy deregulation.
Management believes that the JustGreen and JustClean 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 launched, Hudson Solar, a solar
project development platform in New Jersey.
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, administrative
expenses, Base EBITDA, adjusted 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, 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 dividends 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") - August 10, 2011
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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 three months
ended June 30, 2011, and has been prepared with all information available up to
and including August 10, 2011. This analysis should be read in conjunction with
the unaudited consolidated financial statements for the three months ended June
30, 2011. The financial information contained herein has been prepared in
accordance with International Financial Reporting Standards ("IFRS"), as issued
by the International Accounting Standards Board. Just Energy's date of
transition to IFRS was April 1, 2010. All dollar amounts are expressed in
Canadian dollars. Quarterly reports, the annual report and supplementary
information can be found on Just Energy's 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 the Fund to
Just Energy (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 assumed all of the obligations under the $90m
convertible debentures and $330m convertible debentures.
Just Energy is a corporation established under the laws of Canada and holds
securities and distributes 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. (collectively "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. Variable rate products allow customers to maintain
competitive rates while retaining the ability to lock into a fixed price at
their discretion. 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 fixed term price at which it
purchases the associated volumes from its suppliers.
Just Energy also offers "green" products through its JustGreen and JustClean
programs. 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. JustClean products
allow customers in certain jurisdictions to offset their carbon footprint
without purchasing commodity from Just Energy. JustClean can be offered in all
states and provinces and is not dependent on energy deregulation. Management
believes that the JustGreen and JustCLean 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 launched Hudson Solar, a solar
project development platform in New Jersey.
Forward-looking information
This MD&A contains certain forward-looking information pertaining to customer
additions and renewals, customer consumption levels, EBITDA, Base EBITDA,
Adjusted 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. ("Universal") in October 2007.
JEEC assumed the obligations of the debentures as part of the UEG acquisition on
July 1, 2009. Just Energy assumed the obligations of the debentures as part of
the Conversion. See "Long-term debt and financing" on page 21 for further
details.
"$330m convertible debentures" represents the $330 million in convertible
debentures issued by the Fund to finance the purchase of Hudson, effective May
1, 2010. Just Energy assumed the obligations of the debentures as part of the
Conversion. See "Long-term debt and financing" on page 21 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 m3
(or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis
and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual
basis, which represents the approximate amount of gas and electricity,
respectively, used by a typical household in Ontario.
"Large commercial customer" means customers representing more than 15 RCEs.
Non-GAAP financial measures
Just Energy's financial statements are prepared in compliance with IFRS. All
non-GAAP financial measures do not have standardized meanings prescribed by IFRS
and are therefore unlikely to be comparable to similar measures presented by
other issuers.
Just Energy converted from an income trust to a corporation on January 1, 2011.
Under the corporate structure, management believes that Adjusted EBITDA is the
best basis for analyzing the financial results of Just Energy.
EBITDA
"EBITDA" represents earnings before finance costs, taxes, depreciation and
amortization. This is a non-GAAP measure which reflects the pre-tax
profitability of the business.
Base EBITDA
"Base EBITDA" represents EBITDA adjusted to exclude the impact of mark to market
gains (losses) arising from IFRS requirements for derivative financial
instruments on future supply positions. This measure reflects operating
profitability as mark to market gains (losses) are associated with supply
already sold at future fixed prices.
Just Energy ensures that customer margins are protected by entering into
fixed-price supply contracts. Under IFRS, 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 Base EBITDA calculation.
Adjusted EBITDA
"Adjusted EBITDA" represents Base EBITDA adjusted to deduct selling and
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.
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 three months ended June 30
(thousands of dollars, except where indicated and per unit/share amounts)
Fiscal 2012 Per unit/ Fiscal 2011
share
Per share change Per unit
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Sales $626,200 $4.46 - $609,684 $4.44
Gross margin 94,261 0.67 14% 80,355 0.59
Administrative expenses 28,284 0.20 (5)% 28,841 0.21
Finance costs 13,792 0.10 43% 9,937(3) 0.07
Net income(1) 51,132 0.36 (82)% 270,789 1.97
Dividends/distributions 43,605 0.31 - 42,070 0.31
Base EBITDA(2) 29,867 0.21 34% 21,798 0.16
Adjusted EBITDA(2) 37,431 0.27 23% 29,726 0.22
Payout ratio on Base
EBITDA 146% 193%
Payout ratio on Adjusted
EBITDA 116% 142%
(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 discussion of non-GAAP financial measures on page 2.
(3) Excludes distributions paid to holders of exchangeable shares prior to
the Conversion included as finance costs under IFRS.
International financial reporting standards
Just Energy has adopted IFRS as the basis for reporting its financial results
commencing with the interim financial statements for the three months ended June
30, 2011 and using April 1, 2010 as the transition date. The comparative figures
for fiscal 2011 have been restated in accordance with the Company's IFRS
accounting policies. The adoption of IFRS did not change Just Energy's business
activities or actual cash flow; however, it has resulted in adjustments to its
financial statements.
In order to allow the users of the financial statements to better understand the
impact of the change to IFRS, the Company's Canadian GAAP consolidated balance
sheets at April 1, 2010, June 30, 2010 and March 31, 2011, the Company's
consolidated statements of earnings (loss) and comprehensive income (loss) for
the three months ended June 30, 2010 and year ended March 31, 2011 have been
reconciled to IFRS, with the resulting differences explained. These
reconciliations are provided in note 24 of the interim financial statements.
The following summarizes the significant financial effects on Just Energy's
consolidated financial statements resulting from the conversion to IFRS and
summarizes the significant accounting policies adopted in preparing the IFRS
consolidated financial statements:
IFRS 1: First-time adoption IFRS
The interim unaudited consolidated financial statements and notes for the three
months ended June 30, 2011 contain the accounting policies adopted under IFRS as
well as reconciliations of the impact on the consolidated financial statements
on transition. IFRS 1 provides guidance for the initial adoption of IFRS and
allows first-time adopters certain exemptions from the general requirements
contained in IFRS. The following are the exemptions that are relevant to Just
Energy and have been applied in preparation of its first financial statements
under IFRS.
Business Combinations
IFRS 1 states that a first-time adopter may elect not to apply IFRS 3, Business
Combinations, retrospectively to business combinations that occurred before the
date of transition to IFRS. Just Energy has elected to apply IFRS to business
acquisitions prospectively, from the date of transition.
Borrowing Costs
Just Energy has elected not to capitalize any borrowing costs on a retrospective
basis for qualifying assets acquired prior to April 1, 2010, the date of
transition to IFRS as it was determined to be not material.
Share-based payments
IFRS 1 states that a first-time adopter may elect not to apply IFRS 2,
Share-based payments, retrospectively 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.
Cumulative translation differences
IFRS 1 allows cumulative translation differences for all foreign operations to
be deemed zero at the date of transition to IFRS, with future gains or losses on
subsequent disposal of any foreign operations to exclude translation differences
arising from periods prior to the date of transition to IFRS. Just Energy has
elected not to apply this exemption.
IFRS 2: Share-based payments
Just Energy amended its accounting policy related to the recognition and
measurement of share based compensation to conform with IFRS. Under IFRS, when
stock option awards vest gradually, each tranche is to be considered as a
separate award with its own vesting period and grant date value. Just Energy
assessed the impact of the recognition and measurement criteria under IFRS.
IAS 12: Income taxes
For the comparative nine month period ended December 31, 2010 when Just Energy
operated under an income trust structure, deferred income taxes were originally
measured at 27%. As a result of adopting IFRS, deferred income taxes were
re-measured at the tax rate of approximately 46.4% applicable to undistributed
profits. The deferred taxes were subsequently re-measured at the applicable
corporate rates on January 1, 2011, the date Just Energy converted to a
corporation.
As a result of additional financial liabilities existing under IFRS, as
discussed below, there was an increase to Just Energy's future tax assets as at
April 1, 2010. Upon conversion to a corporation on January 1, 2011, this future
tax asset has reversed as a result of the financial liability being settled in
shares.
IAS 32: Financial Instruments: Presentation
As at Just Energy's transition date, there were JEEC exchangeable shares, Class
A preference shares of Just Energy Corp. ("JEC") and unit-based awards
outstanding that did not meet the definition of an equity instrument in
accordance with IAS 32, and therefore, were classified as financial liabilities.
These financial liabilities were recorded at redemption value at the transition
date and subsequently adjusted to reflect the redemption value at each reporting
date with the resulting change recorded as a change in fair value of derivative
instruments. All distributions and dividends attributed to these financial
liabilities were recorded as finance costs. As a result of the Conversion, the
JEEC exchangeable shares and Class A preference shares of JEC were exchanged on
a one-for-one basis into common shares of JEGI.
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.
IAS 39: Financial instruments: Recognition and measurement
Just Energy 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 re-measured
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 nevertheless concluded that the own-use exemption does not apply and the
amounts will continue to be marked to market.
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 resulted in an opening
balance sheet adjustment to reduce long-term debt on the date of transition.
This adjustment was offset through opening retained earnings.
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:
Fair value recognized on
acquisition
Current assets (including cash of $24,003) $ 88,696
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
Property, plant and equipment 1,648
Software 911
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
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478,692
Current liabilities (107,817)
Other liabilities - current (74,683)
Other liabilities - long term (40,719)
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(223,219)
Total identifiable net assets acquired 255,473
Goodwill arising on acquisition 32,317
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Total consideration $ 287,790
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Cash outflow on acquisition:
Cash paid $ 287,790
Net cash acquired with the subsidiary (24,003)
Holdback (9,345)
--------------------------
Net cash outflow $ 254,442
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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 final and, as a result, no further adjustments will be made.
Operations
Natural gas
Just Energy offers natural gas customers a variety of products ranging from
month-to-month variable-price offerings to five-year fixed-price contracts. 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. Just Energy's 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, Alberta and Saskatchewan
In Manitoba, Alberta and Saskatchewan, 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 generally increases proportionately to the increase
in consumption. To the extent that supply balancing is not fully covered through
customer pass-throughs or 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 and renewable energy certificates. JustGreen programs
for gas customers involve the purchase of carbon offsets from carbon capture and
reduction projects.
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 energy products of this
division is primarily done door-to-door through 750 independent contractors, the
Momentis network marketing operation and Internet-based and telephone marketing
efforts. The total number of independent contractors declined during the quarter
as a result of Just Energy's decision to close or restructure sales offices that
were not performing well. Since quarter end, a number of new offices were opened
and management anticipates that the number of independent contractors will
increase and, by the end of Q2, return to levels similar to the beginning of the
fiscal year. Approximately 58% of Just Energy's customer base resides within the
Consumer Energy division, which is currently focused on longer-term
price-protected offerings of commodity products, JustGreen and JustClean. 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; and
sales through the broker channel using the commercial platform acquired with the
Hudson purchase. Commercial customers make up about 42% of Just Energy's
customer base. Products offered to commercial customers can range from standard
fixed price 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 costs 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, furnace and air conditioning rental, offering
high efficiency conventional and power vented tanks and tankless water heaters
and high efficiency furnaces and air conditioners. NHS markets through
approximately 235 independent contractors in Ontario. See page 15 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 16 for additional information on TGF.
Adjusted EBITDA
(thousands of dollars)
Fiscal 2012 Fiscal 2011
----------------------------------------------
Per share Per unit
Reconciliation to income
statement
Profit attributable to
shareholders of Just Energy $51,132 $0.36 $273,409 $1.99
Add:
Finance costs 13,792 12,755
Provision for income tax
expense 7,221 37,458
Capital tax - 133
Amortization 37,419 33,590
----------------------------------------------
EBITDA $109,564 $0.78 $357,345 2.60
Subtract:
Change in fair value of
derivative instruments (79,697) (335,547)
----------------------------------------------
Base EBITDA 29,867 $0.21 21,798 $0.16
Add (subtract):
Selling and marketing expenses
to add gross margin 10,131 9,381
Maintenance capital
expenditures (2,567) (1,453)
----------------------------------------------
Adjusted EBITDA $37,431 $0.27 $29,726 $0.22
----------------------------------------------
----------------------------------------------
Adjusted EBITDA
Gross margin per financial
statements $94,261 $0.67 $80,355 $0.59
Add (subtract):
Administrative expenses (28,284) (28,841)
Selling and marketing expenses (34,554) (29,758)
Bad debt expense (6,814) (5,749)
Stock based compensation (1,681) (2,010)
Amortization included in cost
of sales/selling and
marketing expenses 6,774 4,498
Other 165 3,303
----------------------------------------------
Base EBITDA 29,867 $0.21 21,798 $0.16
Selling and marketing expenses
to add gross margin 10,131 9,381
Maintenance capital
expenditures (2,567) (1,453)
----------------------------------------------
Adjusted EBITDA $37,431 $0.27 $29,726 $0.22
----------------------------------------------
----------------------------------------------
Cash dividends/distributions
Distributions and dividends $42,520 $39,592
Class A preference share
distributions - 1,632
Restricted share grants/unit
appreciation rights and
deferred share grant/deferred
unit grant distributions 1,085 846
----------------------------------------------
Total dividends/distributions $43,605 $0.31 $42,070 $0.31
----------------------------------------------
----------------------------------------------
Adjusted fully diluted average
number of units/shares
outstanding(1) 140.4m 137.2m
(1) The per share/unit amounts are calculated on an adjusted fully diluted
basis, removing the impact of the $330m convertible debentures and $90m
convertible debentures as both will be anti-dilutive by fiscal year-end.
Base EBITDA differs from EBITDA in that the impact of the mark to market gains
(losses) from the financial instruments is removed as management believes that
these short-term mark to market non-cash gains (losses) do not impact the
long-term financial performance. For Adjusted EBITDA, selling and marketing
expenses used for increasing gross margin are also 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 $37.4 million ($0.27 per share) in the first quarter
of fiscal 2012, an increase of 23% per share/unit from $29.7 million ($0.22 per
unit) in the prior comparable quarter. This increase is attributable to the 17%
increase in gross margin, primarily attributable to the 9% increase in customer
base year over year. The increase in gross margin was higher than the increase
in customer base due to lower losses on sale of excess gas than that experienced
in the prior comparative quarter and higher margin contribution from NHS and
TGF.
Administrative expenses decreased by 2% to $28.3 million, despite the inclusion
of a full quarter of expenses related to Hudson, as a result of synergies
achieved since the Universal and Hudson acquisitions and lower per RCE costs to
serve the growing commercial customer base. Selling and marketing expenses for
the three months ended June 30, 2011 were $34.6 million, an increase from $29.8
million reported in the prior comparative quarter due to higher residual
payments paid in the current quarter to Hudson commercial brokers. Bad debt
expense increased by 18% to $6.8 million for the three months ended June 30,
2011 as a result of the 17% increase in revenues in markets where Just Energy
bears the credit risk.
Dividends and distributions paid for the three months ended June 30, 2011 were
$43.6 million, an increase of 4% from the prior comparative quarter as a result
of the dividends paid to JEEC shareholders being only 66.67% of that which was
paid to JEGI shareholders. The payout ratio on Base EBITDA was 146% for the
three months ended June 30, 2011, versus 193% in the prior comparative quarter.
For the three months ended June 30, 2011, the payout ratio on Adjusted EBITDA
was 116%, versus 142% in the prior comparative quarter.
For further information on the changes in the gross margin, please refer to "Gas
and electricity marketing" on page 11 and "Administrative expenses", "Selling
and marketing expenses", "Bad debt expense" and "Finance costs", which are
further clarified on pages 17 and 18.
Future embedded gross margin
Management's estimate of the future embedded gross margin is as follows:
June 11 vs. June 11 vs.
(millions of As at June As at March March 11 As at June June 10
dollars) 30, 2011 31, 2011 Variance 30, 2010 Variance
------------------------------------------------------------
Canada (CAD$) $622.1 $632.6 (2)% $757.5 (18)%
United States $851.3 $835.6 2% $698.5 22%
(US$)
Total (CAD$) $1,443.1 $1,442.8 - $1,501.1 (4)%
Management's estimate of the future contracted gross margin amounted to $1,443.1
million at as June 30, 2011, effectively unchanged during the quarter. The
future embedded gross margin for Canada decreased by 2% from $632.6 million at
March 31, 2011 to $622.1 million at June 30, 2011. The embedded margins in
Canada declined over the three months due to a challenging price environment for
renewals and new customer additions. This decline was offset by the 2% growth in
U.S future embedded gross margin from $835.6 million to $851.3 million. The
decline in the U.S. dollar versus the Canadian dollar in the quarter resulted in
a further $4.3 million decline in total future embedded gross margin. The growth
in embedded margins is less than Just Energy's growth in customer base because
commercial customers, which make up a growing percentage of new additions, have
lower margins and shorter contract terms than residential customers. This is
offset by lower customer aggregation cost and lower annual customer servicing
cost.
Total future embedded gross margin decreased by 4% from $1,501.1 million in the
past year. Canadian future embedded gross margin decreased by 18% due to the
challenging price environment while the U.S future embedded gross margin
increased by 22% due to strong customer additions.
Summary of quarterly results
(thousands of dollars, except per unit/share amounts)
Fiscal 2012 Fiscal 2011 Fiscal 2011 Fiscal 2011
Q1 Q4 Q3 Q2
--------------------------------------------------
Sales $626,200 $941,334 $744,296 $657,878
Gross margin 94,261 172,599 132,084 96,719
Administrative expenses 28,284 28,367 26,299 25,963
Finance costs 13,792 13,646 15,679(2) 12,823(2)
Net income (loss) 51,132 (8,454) 216,833 (110,839)
Net income (loss) per
unit/share - basic 0.37 (0.10) 1.72 (0.97)
Net income (loss) per
unit/share - diluted 0.35 (0.10) 1.40 (0.97)
Dividends/distributions
paid 43,605 43,208 42,450 42,276
Base EBITDA 29,867 106,991 67,266 22,116
Adjusted EBITDA 37,431 112,640 75,244 28,174
Payout ratio on Base
EBITDA 146% 40% 63% 191%
Payout ratio on Adjusted
EBITDA 116% 38% 56% 150%
Fiscal 2011 Fiscal 2010 Fiscal 2010 Fiscal 2010
Q1 Q4(1) Q3(1) Q2(1)
--------------------------------------------------
Sales $609,684 $838,596 $629,966 $434,659
Gross margin 80,355 155,815 111,947 81,496
Administrative expenses 28,841 22,405 24,767 25,634
Finance costs 9,937(2) 5,565 5,143 4,946
Net income (loss) 270,789 (79,211) 97,390 110,690
Net income (loss) per unit
- basic 2.19 (0.59) 0.73 0.83
Net income (loss) per unit
- diluted 1.78 (0.59) 0.73 0.82
Distributions paid 42,070 68,161(3) 41,248 40,801
Base EBITDA 21,798 107,036 58,543 27,023
Adjusted EBITDA 29,726 108,962 60,564 36,600
Payout ratio on Base
EBITDA 193% 64% 70% 151%
Payout ratio on Adjusted
EBITDA 142% 63% 68% 111%
(1) Quarterly information prepared using Canadian GAAP as prior to IFRS
transition date.
(2) Excludes distributions paid to holders of exchangeable shares prior to
the Conversion included as finance costs under IFRS.
(3) Includes special distribution of $26.7 million paid in January 2010.
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 Base and Adjusted EBITDA and lower payout ratios
in the third and fourth quarters, and lower Base and Adjusted EBITDA and higher
payout ratios in the first and second quarters.
Analysis of the first quarter
The 3% increase in sales compared to the prior comparable quarter is
attributable primarily to the increase in sales for NHS and TGF as the increase
in flowing gas and electricity customers was offset by lower product price
points on new business. Gross margin increased by 17% quarter over quarter due
to a 9% increase in customer base, higher consumption per customer and lower
losses on sale of excess gas than that experienced in the prior comparative
quarter. Improved sales and gross margin from NHS (TGF was also a significant
contributor to the growth quarter over quarter).
Net income for the three months ended June 30, 2011 was $51.1 million,
representing earnings per share of $0.37 and $0.35 on a basic and diluted basis,
respectively. For the prior comparative quarter, net income was $270.8 million,
representing $2.19 and $1.78 on a basic and diluted per unit basis,
respectively. The change in fair value of derivative instruments was a gain of
$79.7 million for the current quarter, in comparison with a gain of $335.5
million in the first quarter of the prior fiscal year. The fair value of
derivative instruments represents the mark to market of future commodity supply
acquired to cover future customer demand. The supply has been sold to customers
at future fixed prices, minimizing any realizable impact of mark to market gains
and losses.
Adjusted EBITDA increased by 26% to $37.4 million for the three months ended
June 30, 2011. This increase is attributable to the 17% increase in gross margin
and lower administrative costs, offset by the increase in selling and marketing
and bad debt expenses. Base EBITDA (after all selling and marketing costs)
increased by 37% per share to $29.9 million for the three months ended June 30,
2011 up from $21.8 million in the prior comparable quarter.
Dividends/distributions paid were $43.6 million, a 4% increase from $42.1
million paid in the prior comparative quarter. The increase is due to the
increase in outstanding shares as the annual dividend/distribution rate was
unchanged at $1.24 per year. In the prior year, JEEC exchangeable shares were
paid dividends equal to 66.67% of the Fund's distributions. These shares have
now been exchanged for JEGI common shares and receive the $1.24 annual
dividends. Payout ratio on Adjusted EBITDA was 116% for the three months ended
June 30, 2011, compared with 142% in the prior comparable quarter.
Gas and electricity marketing
For the three months ended June 30
(thousands of dollars)
Fiscal 2012 Fiscal 2011
United United
Sales Canada States Total Canada States Total
Gas $123,278 $79,172 $202,450 $129,715 $73,048 $202,763
Electricity 120,049 265,298 385,347 160,629 224,914 385,543
----------------------------------------------------------------------------
$243,327 $344,470 $587,797 $290,344 $297,962 $588,306
----------------------------------------------------------------------------
Increase
(decrease) (16)% 16% -
United United
Gross Margin Canada States Total Canada States Total
Gas $16,847 $8,258 $25,105 $12,131 $5,284 $17,415
Electricity 18,470 41,547 60,017 25,996 36,770 62,766
----------------------------------------------------------------------------
$35,317 $49,805 $85,122 $38,127 $42,054 $80,181
----------------------------------------------------------------------------
Increase
(decrease) (7)% 18% 6%
Sales for the three months ended June 30, 2011 were $587.8 million, in line with
the prior comparative quarter. Gross margins were $85.1 million for the quarter,
up 6% from $80.2 million earned during the three months ended June 30, 2010.
Sales growth was flat due to lower price points on recently signed contracts.
The 6% margin increase was less than the 9% year over year increase in customers
due to the increase in the number of commercial and variable rate customers in
the past year, which are replacing higher-margin customers lost through
attrition and failure to renew.
Canada
Sales were $243.3 million for the three months ended June 30, 2011, down 16%
from $290.3 million in the prior comparable quarter. Gross margins were $35.3
million in the first quarter, a decrease of 7% from $38.1 million in the prior
comparable period.
Gas
Canadian gas sales were $123.3 million, a decrease of 5% from $129.7 million in
the three months ended June 30, 2010. The Canadian gas customer base declined by
11% year over year. Temperatures were 5% colder during the current quarter in
comparison with the prior comparable quarter and resulted in higher consumption
and margin per customer. Gross margin totalled $16.8 million, up 39% from the
prior comparative quarter despite the customer decline. Customer consumption was
far higher due to relatively colder weather. The prior comparable quarter
results also had significant losses on the sale of excess gas at low spot prices
from the warm winter experienced in fiscal 2010.
After allowance for balancing and inclusive of acquisitions, realized average
gross margin per customer ("GM/RCE") for the rolling 12-months ended June 30,
2011, amounted to $165/RCE compared to $180/RCE for the prior comparable
quarter. GM/RCE has been restated for the prior comparable quarter to remove the
seasonal adjustment from gross margin and is now calculated on a rolling
12-month basis. The GM/RCE value includes an appropriate allowance for the bad
debt expense in Alberta.
Electricity
Electricity sales were $120.0 million for the three months ended June 30, 2011,
a decrease of 25% from the prior comparable quarter due to a 7% decline in RCEs
as well as recent product offerings being at lower prices in order to remain
competitive in the current market. Gross margin decreased by 29% quarter over
quarter to $18.5 million versus $26.0 million in the prior three-month period.
The decrease was also a result of expiring higher margin customers are replaced
with new lower margin customers due to competitive pressures from low utility
prices in Ontario.
Realized average gross margin per customer in Canada after all balancing and
including acquisitions for the rolling 12-months ended June 30, 2011, amounted
to $121/RCE, a decrease from $148/RCE in the prior comparative period due to the
cumulative effect of new lower margin contracts necessary to compete against the
very low utility price in the Ontario market. JustGreen sales had a positive
impact on margins per customer but this was more than offset by pricing required
to compete against the regulated utility floating rate in Ontario. In addition,
commercial customers added during the three months generate lower margins than
the previous predominantly residential customer base. The GM/RCE value includes
an appropriate allowance for the bad debt expense in Alberta.
United States
Sales for the first quarter of fiscal 2012 were $344.5 million, an increase of
16% from $298.0 million in the three months ended June 30, 2010. Gross margin
was $49.8 million, up 18% from $42.1 million in the prior comparable period.
Gas
For the three months ended June 30, 2011, gas sales and gross margin in the U.S.
totalled $79.2 million and $8.3 million, respectively, versus $73.0 million and
$5.3 million, respectively, in the prior comparable quarter. The sales increase
of 8% was due to increased consumption quarter over quarter.
Gross margin increased by 18% quarter over quarter despite the number of
long-term customers remaining relatively flat year over year. In the prior
comparable quarter, the U.S gas markets experienced a sharp decline in
consumption due the record warm winter of 2009/2010 and high third party losses
on the sale of the excess gas.
Average realized gross margin after all balancing costs for the rolling
12-months ended June 30, 2011, was $140/RCE, a decrease from 191/RCE. This is
due to the inclusion of lower margin commercial customers offsetting the lower
losss on sale of excess gas. GM/RCE has been restated for the prior comparable
quarter to remove the seasonal adjustment from gross margin and is now
calculated on a rolling 12-month basis. The GM/RCE value includes an appropriate
allowance for bad debt expense in Illinois and California.
Electricity
U.S. electricity sales and gross margin for the three months ended June 30, 2011
were $265.3 million and $41.5 million, respectively, versus $224.9 million and
$36.8 million, in the first quarter of fiscal 2011. Sales increased 18% due to a
40% increase in long-term customers year over year, attributable to the strong
marketing growth. Sales increased by more than gross margin due to the lower
margins on largely commercial customers added. Gross margins were up 13% over
the prior comparable period.
Average gross margin per customer for electricity during the current quarter
decreased to $138/RCE, compared to $205/RCE in the prior comparable quarter, as
a result of 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, Failed June 30, % increase
2011 Additions Attrition to renew 2011 (decrease)
----------------------------------------------------------------------------
Natural gas
Canada 656,000 15,000 (15,000) (21,000) 635,000 (3)%
United
States 574,000 27,000 (29,000) (5,000) 567,000 (1)%
----------------------------------------------------------------------------
Total gas 1,230,000 42,000 (44,000) (26,000) 1,202,000 (2)%
----------------------------------------------------------------------------
Electricity
Canada 736,000 19,000 (20,000) (31,000) 704,000 (4)%
United
States 1,348,000 166,000 (42,000) (20,000) 1,452,000 8%
----------------------------------------------------------------------------
Total
electricity 2,084,000 185,000 (62,000) (51,000) 2,156,000 3%
----------------------------------------------------------------------------
Combined 3,314,000 227,000 (106,000) (77,000) 3,358,000 1%
----------------------------------------------------------------------------
Gross customer additions for the quarter were 227,000, down 13% from the 261,000
customers added through marketing in the prior comparable quarter. Net additions
were 44,000 for the quarter, resulting in a 1% growth in the customer base for
the first quarter.
Consumer customer additions amounted to 79,000, a 9% decrease from the 87,000
customer additions in the prior comparable quarter. Consumer customer additions
were lower than expected in the quarter. The number of independent contractors
decreased throughout the quarter due to the closure of sales offices that were
underperforming. Management is optimistic that Consumer customer additions will
increase in future quarters as new sales offices have opened and the number of
independent contractors is expected to increase accordingly. In addition,
further sales channel diversification is underway through network, telephone and
Internet-based marketing efforts.
Commercial additions were 148,000 for the quarter, a 15% decrease from the
additions recorded in the first quarter of fiscal 2011. Commercial additions,
which consists of customers representing 15 RCEs or higher, will fluctuate
quarterly depending on the size of customers signed. During the first quarter of
the prior fiscal year, commercial additions were at a record high partially due
to a single large 70,000 RCE customer being signed, whereas no customer of
comparable size was signed during the current quarter. Over the past 12-month
period, commercial customer additions have averaged 136,000 RCEs per quarter.
Total gas customers excluding acquired customers decreased by 2% during the last
three months, 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.
Total electricity customers were up 3% during the quarter, with a strong 8%
growth in the U.S. markets and a 4% decrease in customers in the Canadian
markets. The Canadian electricity market, particularly in Ontario, continues to
face competitive challenges due to low utility pricing.
JustGreen and JustClean
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 their projects.
The Company currently sells JustGreen gas in the eligible markets of Ontario,
Quebec, 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 past year, 32% took JustGreen for some or all of their energy needs. On
average, these customers elected to purchase 91% of their consumption as green
supply. Overall, JustGreen supply now makes up 9% of the overall gas portfolio,
up from 3% a year ago. JustGreen supply makes up 10% of the electricity
portfolio, up from 6% as at June 30, 2010.
In addition, JustClean products are being offered in Ontario and Florida.
JustClean products are essentially carbon offsets from carbon capture and
reduction projects as well as green power renewable energy certificates from
green generators. The JustClean product can be offered in all states and
provinces and is not dependent on energy deregulation.
Attrition
Trailing 12-month Trailing 12-month
Attrition - June 30, 2011 Attrition - June 30, 2010
Natural gas
Canada 10% 11%
United States 21% 28%
Electricity
Canada 10% 13%
United States 15% 14%
The past year saw an improvement in attrition rates across all markets with the
exception of a slight increase in U.S. electricity attrition rates from 14% to
15%. The primary contributing factor is that most customers signed in the past
three years are on prices consistent with current market prices. The attrition
from these customers and eventual renewal of the customer will benefit from this
pricing. In addition, improved economic conditions and diligent credit reviews
have resulted in lower attrition rates in Canada and U.S gas markets.
Natural gas
The annual natural gas attrition in Canada was 10% for the trailing 12-months,
slightly lower than the attrition rate reported in the prior comparable quarter.
In the U.S., annual gas attrition was 21%, a decrease from 28% experienced a
year prior due to new product offerings and greater economic stability within
the U.S customer base.
Electricity
The annual electricity attrition rate in Canada was 10%, slightly lower than the
13% reported in the prior comparable quarter. Electricity attrition in the U.S.
was 15% for the trailing 12-months, in line with management's ongoing
expectations.
Failed to renew
Trailing 12-month Trailing 12-month
Renewals - June 30, 2011 Renewals - June 30, 2010
Natural gas
Canada 67% 62%
United States 72% 69%
Electricity
Canada 62% 70%
United States 67% 83%
The Just Energy renewal process is a multifaceted program that 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. Management's targeted
renewal rates are to be in the range of 70% overall, assuming commodity price
volatility remains low. The combined renewal rate for all gas and electricity
markets was 66% for the trailing 12-month period.
Natural gas
The current trailing annual renewal rate for all Canadian gas customers was 67%,
an increase from the prior comparable quarter's trailing 12-month renewal rate
of 62%. 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 quarter, 30% were
renewed for a one-year term. The Canadian gas market continues to be challenged
in renewals 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 should a return to
rising market pricing occur, this would likely result in an improvement in
Canadian gas renewal rates, closer to target levels. Also, Just Energy has
introduced some enhanced variable-price offerings and products like JustGreen
and JustClean to improve renewal rates.
In the U.S. markets, Just Energy had primarily Illinois and New York gas
customers up for renewal. Gas renewals for the U.S. were 72%.
Electricity
The electricity renewal rate for Canadian customers was 62% for the trailing 12
months. There continues to be solid demand for JustGreen products, supporting
renewals in Canadian electricity 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 electricity offerings and JustClean to improve
renewal rates.
During the three months ended June 30, 2011, Just Energy had Texas, Illinois and
New York electricity customers up for renewal. The electricity renewal rate was
67%, with strong renewals in Texas being offset by Illinois and New York. In
each of these markets, our green product is being developed for renewing
customers, which should strengthen the profitability and the 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 20% 22% 33% 31%
2013 29% 32% 21% 11%
2014 18% 16% 10% 13%
2015 15% 9% 13% 20%
Beyond 2015 18% 21% 23% 25%
--------------------------------------------------------
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 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 quarter. This table reflects all margin
earned on new additions and renewals including both the brown commodity and
JustGreen. Customers added through marketing or renewed were lower than the
margins of customers lost through attrition or failure to renew due to the
competitive price environment. However, JustGreen is being 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 32% of all residential customers added in the past 12-months
taking some or all green energy supply. Customers that have purchased the
JustGreen product elected, on average, to take 91% of their consumption in green
supply. For large commercial customers, the average gross margin for new
customers added was $84/RCE. The aggregation cost of these customers is
commensurately lower per RCE than a residential customer.
Annual gross margin per customer(1) Number of
Q1 fiscal 2012 customers
------------------------------
------------------------------
Residential and small commercial customers
added in the quarter
- Canada - gas $136 11,000
- Canada - electricity 135 13,000
- United States - gas 186 22,000
- United States - electricity 160 33,000
Average annual margin 160
Residential and small commercial customers
renewed in the quarter
- Canada - gas $136 19,000
- Canada - electricity 104 18,000
- United States - gas 206 5,000
- United States - electricity 161 5,000
Average annual margin 134
Residential and small commercial customers
lost in the quarter
- Canada - gas $192 26,000
- Canada - electricity 148 39,000
- United States - gas 212 29,000
- United States - electricity 226 12,000
Average annual margin 185
Large commercial customers added in the
quarter $84 148,000
Large commercial customers lost in the quarter $126 78,000
(1) Customer sales price less cost of associated supply and allowance for
bad debt.
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 as well as high efficiency furnaces and air
conditioners. NHS had continued strong customer growth and with installations
for the quarter amounting to 13,000 water heaters, air conditioners and
furnaces, a 25% increase from 10,400 units installed in the prior comparable
quarter. As of June 30, 2011, the cumulative installed customer base was 131,600
units, an increase of 50% from one year prior. Management is confident that NHS
will continue to contribute to the long-term profitability of Just Energy. NHS
currently markets through approximately 235 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 entered into a
long-term financing agreement with Home Trust Company ("HTC") for the funding of
the water heaters, furnaces and air conditioners in the Enbridge Gas (January
2010) and Union Gas (July 2010) distribution territories. Under the HTC
agreements, NHS receives funds equal to the amount of the five-, seven- or
ten-year cash flow (at its option) of the water heater, furnace and air
conditioner 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 as applicable. The
funding received from HTC up to June 30, 2011, was $113.1 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.
Selected financial information
For the three months ended June 30
(thousands of dollars, except where indicated)
Fiscal 2012 Fiscal 2011
Sales per financial statements $7,807 $4,441
Cost of sales 1,575 1,609
--------------------------
Gross margin 6,232 2,832
Selling and marketing expenses 1,300 814
Administrative expenses 2,763 2,885
Finance costs 2,151 1,341
Capital expenditures 9,526 8,154
Amortization 437 521
Total number of water heaters, furnaces and air
conditioners installed 131,600 88,000
Results of operations
For the three months ended June 30, 2011, NHS had sales of $7.8 million for the
quarter, up 76% from $4.4 million reported for the first quarter of fiscal 2011.
Gross margin amounted to $6.2 million for the three months ended June 30, 2011,
up 120% from $2.8 million reported in the comparable period. The cost of sales
for the three months ended June 30, 2011 was $1.6 million, of which $1.5 million
represents the non-cash amortization of the installed water heaters for the
customer contracts signed to date. Selling and marketing expenses for the three
months ended June 30, 2011 were $1.3 million, a 60% increase from the prior
comparable quarter and includes the amortization of commission costs paid to the
independent agents, sales-related automotive fleet costs, advertising and
promotion, and telecom and office supplies expenses. Administrative costs, which
relate primarily to administrative staff compensation and warehouse expenses,
were $2.8 million for the three months ended June 30, 2011, consistent with the
prior comparable quarter.
Finance costs amounted to $2.2 million as a result of the financing arrangement
with HTC. Capital expenditures, including installation costs, amounted to $9.5
million for the three months ended June 30, 2011.
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 three
months ended June 30, 2011, the plant achieved an average production capacity of
67%, an increase from average production capacity of 62% in the prior
comparative period. In the first quarter of fiscal 2012, the plant completed
scheduled maintenance, resulting in production downtime and also experienced
wheat shortages requiring production slowdowns as a result of unusually wet
conditions in Saskatchewan.
Ethanol prices were, on average, $0.68 per litre for the three months and wheat
prices averaged $216 per metric tonne for the three months. For the prior
comparable quarter, ethanol prices averaged $0.57 per litre and wheat prices
were $168 per metric tonne. As at June 30, 2011, ethanol was priced at $0.67 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 three months ended June 30
(thousands of dollars, except where indicated)
Fiscal 2012 Fiscal 2011
Sales per financial statements $30,192 $16,806
Cost of sales 27,647 19,594
---------------------------
Gross margin 2,545 (2,788)
Administrative expenses 2,672 2,467
Finance costs 1,687 1,707
Capital expenditures 27 114
Amortization 298 296
Results of operations
For the first quarter of fiscal 2012, TGF had sales of $30.2 million, an 80%
increase from $16.8 million in the prior comparable quarter. Cost of sales
amounted to $27.6 million, an increase of 41% from $19.6 million in the three
months ended June 30, 2010. During the quarter, the plant produced 25.2 million
litres of ethanol and 23,869 metric tonnes of DDG, an increase of 9% from the
production in the prior comparable quarter. For the three months ended June 30,
2011, TGF incurred $2.7 million in administrative expenses and $1.7 million in
finance costs.
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. The subsidy is $0.08 per litre for fiscal 2012. The subsidy
amount declines through time to $0.05 per litre of ethanol produced in fiscal
2015, the last year of the agreement.
Overall consolidated results - Just Energy
Administrative expenses
Administrative costs were $28.3 million for the three months ended June 30,
2011, representing a 2% decrease from $28.8 million in the first quarter of the
prior fiscal year.
For the three months ended June 30
Fiscal 2012 Fiscal 2011 % Increase
-----------------------------------------------
Energy marketing $22,849 $23,489 (3)%
NHS 2,763 2,885 (4)%
TGF 2,672 2,467 8%
-----------------------------------------------
Total administrative expenses $28,284 $28,841 (2)%
Energy marketing administrative costs were $22.8 million in the first quarter of
fiscal 2012, a decrease of 4% from $23.5 million for the three months ended June
30, 2010. This decrease is primarily related to lower operating costs associated
with servicing commercial customers. During the past year, the majority of the
customer additions have been from the Commercial division whereas the majority
of the customers lost through attrition and failure to renew have been customers
signed by the Consumer division.
Selling and marketing expenses
Selling and 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 $34.6 million, an
increase of 16% from $29.8 million in the first quarter of fiscal 2011. New
customers signed by our sales force were 227,000 during the first quarter of
fiscal 2012, down 13% compared to 261,000 customers added through our sales
offices in the prior comparable quarter. The Hudson acquisition was effective
May 1, 2010 and therefore, the prior comparable quarter included only two months
of Hudson related expenses. The marketing expenses relating to Hudson include
residual payments on commercial broker customers, which increased quarter over
quarter along with the amortization expense included.
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 selling and 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 approximately 60% of these commercial brokers
are being paid recurring residual payments.
During the three months ended June 30, 2011, $3.1 million in commission-related
expenses were capitalized to contract initiation costs. Of the capitalized
commissions, $0.6 million represents commissions paid to maintain gross margin
and therefore, is included in the maintenance capital deducted in the Adjusted
EBITDA calculation.
Selling and 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. Selling and marketing
expenses to maintain gross margin were $20.6 million for the three months ended
June 30, 2011, an increase of 12% from $18.3 million in the first quarter of
fiscal 2011.
Selling and 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 customers during the
period. Selling and marketing expenses to add new gross margin in the three
months ended June 30, 2011, totalled $10.1 million, an 8% increase from $9.4
million in the first quarter of fiscal 2011.
Selling and marketing expenses included in Base EBITDA exclude amortization
related to the contract initiation costs for Hudson and NHS. For the three
months ended June 30, 2011, the amortization amounted to $3.9 million, an
increase of 85% from $2.1 million reported in the prior comparable quarter due
to inclusion of three months of amortization versus two months in the first
quarter of fiscal 2011.
The actual aggregation costs per customer for the three months ended June 30,
2011, 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 $283/RCE $173/RCE $66/RCE
United States $206/RCE $138/RCE $36/RCE
Electricity
Canada $208/RCE $168/RCE $48/RCE
United States $201/RCE $80/RCE $34/RCE
Total aggregation costs $215/RCE $137/RCE $35/RCE
The actual aggregation per customer added for all energy marketing for the three
months ended June 30, 2011, was $107. 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 quarter's $35 average
aggregation cost for commercial broker customers reported above.
For the prior comparable three months, aggregation costs per customer (both
consumer and commercial combined) in the Canadian and U.S. gas markets were
$158/RCE and $75/RCE, respectively, with a combined cost of $84/RCE. In the
Canadian and U.S. electricity markets, the aggregation costs per customer
amounted to $124/RCE and $118/RCE, respectively, with the combined cost
amounting to $95/RCE.
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 British
Columbia, 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 three months ended June 30, 2011, Just Energy was exposed to the risk
of bad debt on approximately 40% of its sales.
Bad debt expense is included in the consolidated income statement under other
operating expenses. Bad debt expense for the three months ended June 30, 2011
was $6.8 million, up 18% from $5.7 million expensed for the three months ended
June 30, 2010. The bad debt expense increase was entirely related to the 17%
increase in total revenues for the current three-month period to $242.5 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 three months ended June 30, 2011, the bad debt
expense of $6.8 million represents approximately 2.8% of revenue, the same
percentage as the prior comparable quarter.
Management expects that bad debt expense will remain in the range of 2% to 3%
for the 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.
Finance costs
Total finance costs for the three months ended June 30, 2011, amounted to $13.8
million, an 8% increase from $12.8 million in the first quarter of fiscal 2011.
The increase in costs primarily relates to the interest expense for the $330m
convertible debentures associated with the Hudson acquisition against the prior
comparable quarter which included only two months of expense, as well as higher
finance costs associated with the growing NHS financing.
In the prior comparable quarter, $2.8 million of dividend payments made to
holders of Just Energy Exchange Corp.'s shares were classified as finance costs
under IFRS.
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 three months ended
June 30, 2011, a foreign exchange unrealized gain of $5.6 million was reported
in other comprehensive income (loss) versus a $14.9 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.
Provision for income tax
For the three months ended June 30
(thousands of dollars) Fiscal 2012 Fiscal 2011
--------------------------------
Current income tax recovery $(2,238) $(1,002)
Future tax expense 9,459 38,460
--------------------------------
Provision for income tax $7,221 $37,458
--------------------------------
--------------------------------
Just Energy recorded a current income tax recovery of $2.2 million for the three
months versus $1.0 million of recovery in the same period of fiscal 2011. The
change is mainly attributable to higher US income tax recovery generated by
operating losses incurred by the U.S. entities in this quarter.
During the first three months of this fiscal year, the mark to market losses
from financial instruments further declined as a result of a change in fair
value of these derivative instruments during this period and, as a result, a
deferred tax expense of $9.5 million has been recorded for this three-month
period. During the same period of fiscal 2011, a deferred tax expense of 30.3
million was recorded, which is a combined result of a significant decline in
mark to market losses from financial instruments during that period and
additional deferred taxes arising from adopting IFRS.
After the Conversion on January 1, 2011, Just Energy has been taxed as a taxable
Canadian corporation. Therefore, the deferred 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.
Under IFRS, Just Energy recognized income tax liabilities and assets based on
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 deferred tax asset will not be recognized 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 deferred 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
For the three months ended June 30
(thousands of dollars) Fiscal 2012 Fiscal 2011
--------------------------------
Operating activities $15,694 $22,876
Investing activities (22,538) (263,586)
Financing activities, excluding
distributions/dividends 19,174 299,428
Effect of foreign currency translation 342 4,701
--------------------------------
Increase in cash before
distributions/dividends 12,672 63,419
Distributions/dividends (cash payments) (34,897) (33,243)
--------------------------------
Increase (decrease) in cash (22,225) 30,176
Cash - beginning of period 98,466 78,782
--------------------------------
Cash - end of period $76,241 $108,958
--------------------------------
--------------------------------
Operating activities
Cash flow from operating activities for the three months ended June 30, 2011,
was $31.1 million, a 6% increase from $29.4 million in the prior comparative
quarter. The increase is a result of the increase in gross margin.
Investing activities
Just Energy purchased capital assets totalling $11.6 million during the first
quarter of the fiscal year, a 21% increase from $9.6 million in the first
quarter of the prior fiscal year. Just Energy's capital spending related
primarily to the home services business and costs related to purchases of office
equipment and IT software. Contract initiation costs relating to Hudson and NHS
amounted to $6.9 million for the three months ended June 30, 2011, an increase
over $3.7 million recorded in the prior comparable quarter due to the inclusion
of three months of activity for Hudson and increased commissions paid by NHS on
water heater and HVAC installations.
Financing activities
Financing activities, excluding distributions/dividends, relates primarily to
the issuance and repayment of long-term debt. Long-term debt issued during the
three months ended June 30, 2011 was $68.9 million with repayments for the same
period amounting to $53.7 million, resulting in a net increase in long-term debt
of $15.2 million. The net increase is primarily related to the credit facility
and NHS financing. In the prior comparable quarter, $349.2 million was issued in
long-term debt, primarily relating to the Hudson acquisition, while $49.4
million was repaid.
As of June 30, 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 the term of the facility expiring 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.
Dividends/distributions (Cash payments)
During the three months ended June 30, 2011, Just Energy made cash
distributions/dividends to its shareholders and holders of restricted share
grants or deferred share grants in the amount of $34.9 million, compared to
$33.2 million in the prior comparable period.
Just Energy maintains its annual dividend rate at $1.24 per 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
three months ended June 30, 2011, $8.7 million of the dividends were paid in
shares under the DRIP.
Just Energy will continue to utilize its cash resources for expansion into new
markets, growth in its existing energy marketing customer base, JustGreen and
JustClean products, Solar and Home Services division, and also to make accretive
acquisitions of customers as well as dividends to its shareholders.
At the end of the quarter, the annual rate for dividends per share 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 June 30, 2011, compared to March 31, 2011
Cash decreased from $98.5 million as at March 31, 2011, to $76.2 million. The
utilization of the credit facility increased from $53.0 million to $63.0 million
as a result of normal seasonal 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 June 30, 2011, accounts receivable and unbilled revenue amounted to $256.7
million and $103.5 million, respectively, compared to three months earlier when
the accounts receivable and unbilled revenue amounted to $281.7 million and
$112.1 million, respectively. Accounts payable and accrued liabilities have
decreased from $275.5 million to $252.5 million in the past three months. Both
decreases in accounts receivable and payable are related to the seasonality of
energy marketing, with consumption being higher during January through March as
opposed to April through June.
As at June 30, 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 $4.4 million and $10.4
million, respectively. At March 31, 2011, Just Energy had accrued gas receivable
and payable amounting to $26.5 million and $19.4 million, respectively. In
addition, gas in storage increased from $6.1 million as at March 31, 2011 to
$26.7 million as at June 30, 2011 due to the seasonality of the customer gas
consumption.
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 goodwill, 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 balance decreased to $574.1 million, from $640.5 million as at
March 31, 2011, primarily as a result of amortization.
Long-term debt (excluding the current portion) has increased from $454.5 million
to $509.2 million in the three months ended June 30, 2011, and is detailed
below.
Long-term debt and financing
(thousands of dollars)
As at June 30 As at March 31
Fiscal 2012 Fiscal 2011
--------------------------------
Just Energy credit facility $63,000 $53,000
less: debt issue costs (1,772) (1,965)
TGF credit facility 35,521 36,680
TGF debentures 36,002 37,001
NHS financing 113,109 105,716
$90m convertible debentures 85,046 84,706
$330m convertible debentures 287,762 286,439
Just Energy credit facility
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, 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 June
30, 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 facility was further
revised on June 30, 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 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, all of which have no recourse to the Company or any
other Just Energy entity. 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 covenants
will be measured as of March 31, 2012, and non-attainment may result in a
non-compliance fee up to 0.25% of the loan balance as of March 31, 2012.
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. TGF was in recent negotiations with the lender and
adjusted the covenant levels. In addition the interest rate was increased to 12%
and quarterly blended principal and interest payments of $1.1 million were
established. 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. Compliance
with the new covenants, which are more favourable than the original covenants,
will be measured annually beginning with the fiscal 2012 year end. The maturity
date was extended to May 15, 2014, with a call right any time after April 1,
2012. The debenture holders have no recourse to the Company or any other Just
Energy entity.
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. In July, 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 June 30, 2011, the average term of the HTC
funding was 5.5 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 June 30, 2011, all
of these covenants have been met.
$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 June 30 and September 30 of each
year. As at June 30, 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 31.53 JEGI shares,
representing a conversion price of $31.72 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.
$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 three months, 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 share.
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 and
accrued liabilities $252,497 $252,497 $- $- $-
Bank indebtedness 6,253 6,253 - - -
Long-term debt
(contractual cash
flow) 667,632 93,718 113,065 117,532 343,317
Interest payments 248,781 39,759 72,901 56,349 79,772
Property and
equipment lease
agreements 31,073 8,333 11,435 6,837 4,468
EPCOR billing,
collections and
supply commitments 2,588 2,588 - - -
Grain production
contracts 5,116 3,849 1,267 - -
Commodity supply
purchase
commitments 2,981,790 1,397,500 1,330,010 251,040 3,240
----------------------------------------------------------------------------
$4,195,730 $1,804,497 $1,528,678 $431,758 $430,797
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 of 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 IFRS. Certain accounting policies require management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, cost of sales, selling and marketing, 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 all
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 June 30, 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.
Just Energy'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 its
exposure to fluctuations in cross border cash flows.
The financial statements are in compliance with IAS 32, Financial instruments:
Presentation, IAS 39, Financial instruments: Recognition and measurement and
IFRS 7, Financial Instruments: Disclosure. 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
As at August 10, 2011, there were 137,813,064 common shares of JEGI outstanding.
Recently issued accounting standards
New accounting pronouncements adopted
The three months ended June 30, 2011 is Just Energy's first reporting period
under IFRS. Accounting standards effective for annual reporting periods ended on
March 31, 2011 have been adopted as part of the transition to IFRS.
Recent pronouncements issued
IFRS 9 Financial Instruments
As of April 1, 2015, Just Energy will be required to adopt IFRS 9, "Financial
Instruments", which is the result of the first phase of the IASB's project to
replace IAS 39, "Financial Instruments: Recognition and Measurement". The new
standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The Company has not
yet assessed the impact of this standard or determined whether it will adopt the
standard early.
IFRS 10 Consolidated Financial Statements
As of April 1, 2013, IFRS 10, "Consolidated Financial Statements" will replace
portions of IAS 27 "Consolidated and Separate Financial Statements" and
interpretation SIC-12, "Consolidation - Special Purpose Entities". The new
standard requires consolidated financial statements to include all controlled
entities under a single control model. The Company will be considered to control
an investee when it is exposed, or has rights to variable returns from its
involvement with the investee and has the current ability to affect those
returns through its power over the investee.
As required by this standard, control is reassessed as facts and circumstances
change. All facts and circumstances must be considered to make a judgment about
whether the Company controls another entity; there are no 'bright lines'.
Additional guidance is given on how to evaluate whether certain relationships
give the Company the current ability to affect its returns, including how to
consider options and convertible instruments, holding less than a majority of
voting rights, how to consider protective rights, and principal-agency
relationships (including removal rights), all of which may differ from current
practice. The Company has not yet assessed the impact of the standard or
determined whether it will adopt the standard early.
IFRS 11 Joint Arrangements
On April 1, 2013, Just Energy will be required to adopt IFRS 11, "Joint
Arrangements", which applies to accounting for interests in joint arrangements
where there is joint control. The standard requires the joint arrangements to be
classified as either joint operations or joint ventures. The structure of the
joint arrangement would no longer be the most significant factor when
classifying the joint arrangement as either a joint operation or a joint
venture. In addition, the option to account for joint ventures (previously
called jointly controlled entities) using proportionate consolidation will be
removed and replaced by equity accounting.
Due to the adoption of this new section, the Company will transition the
accounting for joint ventures from the proportionate consolidation method to the
equity method by aggregating the carrying values of the proportionately
consolidated assets and liabilities into a single line item. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 12 Disclosure of Interests in Other Entities
On April 1, 2013, Just Energy will be required to adopt IFRS 12, "Disclosure of
interests in Other Entities", which includes disclosure requirements about
subsidiaries, joint ventures, and associates, as well as unconsolidated
structured entities and replaces existing disclosure requirements. Due to this
new section, the Company will be required to disclose the following: judgements
and assumptions made when deciding how to classify involvement with another
entity, interests that non-controlling interests have in consolidated entities,
and nature of the risks associated with interests in other entities. The Company
has not yet assessed the impact of the standard or determined whether it will
adopt the standard early.
IFRS 13 Fair Value Measurement
On April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value
Measurement". The new standard will generally converge the IFRS and CGAAP
requirements for how to measure fair value and the related disclosures. IFRS 13
establishes a single source of guidance for fair value measurements, when fair
value is required or permitted by IFRS. Upon adoption, the Company will provide
a single framework for measuring fair value while requiring enhanced disclosures
when fair value is applied. In addition, fair value will be defined as the 'exit
price' and concepts of 'highest and best use' and 'valuation premise' would be
relevant only for non-financial assets and liabilities. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 27 Separate Financial Statements
On April 1, 2013 Just Energy will be required to adopt IAS 27, "Separate
Financial Statements". As a result of the issue of the new consolidation suite
of standards, IAS 27 has been reissued to reflect the change as the
consolidation guidance has recently been included in IFRS 10.
In addition, IAS 27 will now only prescribe the accounting and disclosure
requirements for investments in subsidiaries, joint ventures and associates when
the Company prepares separate financial statements. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 28 Investments in Associates and Joint Ventures
On April 1, 2013, Just Energy will be required to adopt IAS 28, "Investments in
Associates and Joint Ventures".
As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been
amended and will further provide the accounting guidance for investments in
associates and will set out the requirements for the application of the equity
method when accounting for investments in associates and joint ventures.
This standard will be applied by the Company when there is joint control, or
significant influence over an investee.
Significant influence is the power to participate in the financial and operating
policy decisions of the investee but does not include control or joint control
of those policy decisions. When determined that the Company has an interest in a
joint venture, the Company will recognize an investment and will account for it
using the equity method in accordance with IAS 28. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
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 which is not expected to have a
material impact on the financial condition of the Company.
Controls and procedures
At June 30, 2011, the Chief Executive Officer and Chief Financial Officer of the
Company, along with the assistance of senior management, have designed
disclosure controls and procedures to provide reasonable assurance that material
information relating to Just Energy is made known to the CEO and CFO, and have
designed internal controls over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements in accordance with IFRS. During the interim period,
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.
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.justenergygroup.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
Just Energy is in the process of an ongoing diversification beyond its core
business of five-year fixed-price residential gas and electricity contracts.
Sales to this core customer group have faced difficult market conditions during
the recent past, with stable low commodity prices limiting the attraction of a
fixed-rate 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 continued strong
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-price and/or
fixed-price blended options added to existing JustGreen offerings will broaden
the base of potential customers for Just Energy and ease renewals at contract
end. A third diversification is the establishment of the Home Services division
which rents and sells water heaters, furnaces and air conditioners.
The first quarter of fiscal 2012 showed the compound impact of past
diversifications and solid customer growth combined with normal weather
conditions. While commercial customers generate lower margins, the addition of
large numbers of RCEs is a net benefit to the Company, both in terms of higher
gross margin and lower per customer administrative costs. Overall, gross margin
was up 17% (14% per share) versus the prior comparable quarter. Adjusted EBITDA,
which management believes is the best measure of operating performance, was up
26% (23% per share). This reflects the business profit after maintenance capital
and before selling and marketing costs to grow future embedded gross margin.
Base EBITDA (after all selling and marketing costs) was up 37% (31% per share).
Higher gross margin was a result of margin growth in the energy marketing
business driven by growth in the U.S. tied to commercial customer additions. The
Home Services division also contributed to margin growth. EBITDA growth exceeded
margin growth as administrative expenses were lower quarter over quarter due to
the lower costs of servicing commercial customers with the majority of the
growth in the past year from the Commercial division. Overall operating results
were strong on every measure, particularly compared to the weather related weak
performance from first quarter of fiscal 2011. Payout ratio on Adjusted EBITDA
was 116% versus 142% in the prior comparable period. Management anticipates that
the payout ratio for the fiscal year will be under 100% and will allow Just
Energy to comfortably pay out interest, income tax and dividends.
Just Energy has published targets of 5% per share growth in gross margin and
Adjusted EBITDA for fiscal 2012. The Company is well ahead of these targets
after the first quarter. It should be noted that the first quarter is the least
significant in terms of generating annual margin and EBITDA for Just Energy. As
well, as noted above, the comparable first quarter of fiscal 2011 was adversely
impacted by a record warm winter. Also, the decline in the U.S. dollar both
during and subsequent to the quarter will likely have an adverse impact on
fiscal 2012's financial performance. In consideration of these factors,
management believes that it is premature to change its published targets for the
year.
The 227,000 customers added in the quarter was consistent with the additions
seen in the fourth quarter of fiscal 2011 but down 13% from the level seen in
the first quarter of that year. This disparity is due to a single 70,000 RCE
commercial customer added in the prior comparative quarter. Management believes
that the current levels of gross additions are sustainable for the future and
that both gross and net additions should continue to exceed levels seen before
the acquisition of Hudson. Commercial customers are currently approximately 42%
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, can be offered in all states and provinces and is not dependent on
energy deregulation. Product rollout across North America is underway.
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. The Company continues to actively monitor possible acquisition
opportunities within its current business segments.
Geographic expansion continues with potential new markets under review. 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.
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT JUNE 30, 2011
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, March 31, April 1,
Notes 2011 2011 2010
-------------------------------------------------
ASSETS
Non-current assets
Property, plant and
equipment 8 $ 241,353 $ 233,002 $ 216,676
Intangible assets 9 573,821 640,219 528,854
Contract initiation costs 32,570 29,654 5,587
Other non-current
financial assets 10 4,381 5,384 5,027
Non-current receivables 4,827 4,569 2,014
Deferred tax asset 100,570 121,785 265,107
------------------------------------------
957,522 1,035,613 1,023,265
Current assets
Inventories $ 5,634 $ 6,906 $ 6,323
Gas delivered in excess of
consumption 9,451 3,481 7,410
Gas in storage 26,743 6,133 4,058
Current trade and other
receivables 256,667 281,685 232,579
Accrued gas receivable 14,387 26,535 20,793
Unbilled revenues 103,463 112,147 61,070
Prepaid expenses and
deposits 6,010 6,079 20,038
Other current assets 10 8,139 3,846 2,703
Corporate tax recoverable 7,231 9,135 -
Cash and cash equivalents 6 76,241 98,466 78,782
------------------------------------------
513,966 554,413 433,756
------------------------------------------
TOTAL ASSETS $ 1,471,488 $ 1,590,026 $ 1,457,021
------------------------------------------
DEFICIT AND LIABILITIES
Deficit attributable to
equity holders of the
parent
Deficit $ (1,342,401) $ (1,349,928) $ (1,556,669)
Accumulated other
comprehensive income 11 107,157 123,919 221,969
Unitholders' capital - - 777,856
Shareholders' capital 12 973,245 963,982 -
Equity component of
convertible debenture (13e) 18,186 18,186 -
Contributed surplus 12 53,849 52,723 -
------------------------------------------
Shareholders' deficit (189,964) (191,118) (556,844)
Non-controlling interest - - 20,421
------------------------------------------
TOTAL DEFICIT (189,964) (191,118) (536,423)
------------------------------------------
Non-current liabilities
Long-term debt 13 524,950 507,460 231,837
Provisions 14 3,293 3,244 3,124
Deferred lease inducements 1,537 1,622 1,984
Other non-current
financial liabilities 10 310,512 355,412 590,572
Deferred tax liability 7,505 22,919 6,776
Liability associated with
exchangeable shares and
Equity-based compensation 19 - - 181,128
------------------------------------------
847,797 890,657 1,015,421
Current liabilities
Bank indebtedness 6,253 2,314 8,236
Trade and other payables 252,497 275,503 177,368
Accrued gas payable 10,420 19,353 15,093
Deferred revenue 7,205 - 7,202
Unit distribution payable - - 13,182
Income taxes payable 3,803 9,788 6,410
Current portion of long-
term debt 13 93,718 94,117 61,448
Provisions 14 4,061 4,006 3,884
Other current financial
liabilities 10 435,698 485,406 685,200
------------------------------------------
813,655 890,487 978,023
------------------------------------------
TOTAL LIABILITIES 1,661,452 1,781,144 1,993,444
------------------------------------------
TOTAL DEFICIT AND
LIABILITIES $ 1,471,488 $ 1,590,026 $ 1,457,021
------------------------------------------
Commitments (Note 21)
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2011
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes June 30, 2011 June 30, 2010
-----------------------------------------
SALES 15 $ 626,200 $ 609,684
COST OF SALES 16(b) 531,939 529,329
------------------------------------
GROSS MARGIN 94,261 80,355
------------------------------------
EXPENSES
Administrative expenses 28,284 28,841
Selling and marketing expenses 34,554 29,758
Other operating expenses 16(a) 39,140 38,083
------------------------------------
101,978 96,682
------------------------------------
Operating loss (7,717) (16,327)
Finance costs 13 (13,792) (12,755)
Change in fair value of derivative
instruments 10 79,697 335,547
Other income 165 1,782
------------------------------------
Income before income tax 58,353 308,247
Provision for income tax expense 17 7,221 37,458
------------------------------------
PROFIT FOR THE PERIOD $ 51,132 $ 270,789
------------------------------------
Attributable to:
Shareholders/Unitholders of Just
Energy $ 51,132 $ 273,409
Non-controlling interests - (2,620)
------------------------------------
PROFIT FOR THE PERIOD $ 51,132 $ 270,789
------------------------------------
See accompanying notes to the interim consolidated financial statements
Income per share/unit 18
Basic $0.37 $2.19
Diluted $0.35 $1.78
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THREE MONTHS ENDED JUNE 30, 2011
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2011 2010
-------------------------------------------
Profit for the period $ 51,132 $ 270,789
Other comprehensive income 11
Unrealized gain on translation of
foreign operations (3,745) 14,881
Amortization of deferred
unrealized gain of discontinued
hedges net of income taxes of
$7,375 (2010 - $5,850) (13,017) (28,723)
------------------------------------
Other comprehensive loss for the
period, net of tax (16,762) (13,842)
------------------------------------
Total comprehensive income for
the period, net of tax $ 34,370 $ 256,947
------------------------------------
Total comprehensive income
attributable to:
Shareholders/Unitholders of Just
Energy $ 34,370 $ 259,567
Non-controlling interest - (2,620)
------------------------------------
Total comprehensive income for
the period, net of tax $ 34,370 $ 256,947
------------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THREE MONTHS ENDED JUNE 30, 2011
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes 2011 2010
-------------------------------------------
ATTRIBUTABLE TO THE SHAREHOLDERS
Accumulated deficit
Accumulated deficit, beginning of
period $ (315,934) $ (671,010)
Profit for the period,
attributable to the
Shareholders/Unitholders 51,132 273,409
------------------------------------
Accumulated deficit, end of
period (264,802) (397,601)
------------------------------------
DISTRIBUTIONS/DIVIDENDS
Distributions and dividends,
beginning of period (1,033,994) (885,659)
Distributions and dividends (43,605) (39,459)
------------------------------------
Distributions and dividends, end
of period (1,077,599) (925,118)
------------------------------------
DEFICIT $ (1,342,401) $ (1,322,719)
------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
INCOME 11
Accumulated other comprehensive
income, beginning of period $ 123,919 $ 221,969
Other comprehensive loss (16,762) (13,842)
------------------------------------
Accumulated other comprehensive
income, end of period $ 107,157 $ 208,127
------------------------------------
SHAREHOLDERS'/UNITHOLDERS'
CAPITAL
Shareholders'/Unitholders'
capital, beginning of period $ 963,982 $ 777,856
Share units exchanged - 5,903
Share units issued on
exercise/exchange of unit
compensation 587 -
Dividend reinvestment plan 8,676 5,599
------------------------------------
Shareholders'/Unitholders'
capital, end of period $ 973,245 $ 789,358
------------------------------------
CONTRIBUTED SURPLUS 12
Balance, beginning of period $ 52,723 $ -
Add: share-based compensation
awards 1,681 -
non-cash deferred share grant
distributions 32 -
Less: share-based awards
exercised (587) -
------------------------------------
Balance, end of period $ 53,849 $ -
------------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED JUNE 30, 2011
(thousands of Canadian dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities Notes June 30, 2011 June 30, 2010
-------------------------------------------
OPERATING
Income before income tax $ 58,353 $ 308,247
------------------------------------
Items not affecting cash
Amortization of intangible
assets and related supply
contracts 29,304 27,172
Amortization of contract
initiation costs 3,871 2,088
Amortization included in cost
of goods sold 2,903 2,410
Amortization of property, plant
and equipment 1,341 1,920
Share-based compensation 1,681 2,010
Financing charges, non-cash
portion 1,923 1,481
Transaction costs - 1,099
Other (85) (88)
Change in fair value of
derivative instruments (79,697) (335,547)
------------------------------------
(38,759) (297,455)
------------------------------------
Adjustment required to reflect
net cash receipts from gas
sales 22 3,108 8,436
------------------------------------
Changes in non-cash working
capital 23 (4,049) 6,104
------------------------------------
18,653 25,332
Income tax paid (2,959) (2,456)
------------------------------------
Cash inflow from operating
activities 15,694 22,876
------------------------------------
INVESTING
Purchase of property, plant and
equipment (11,595) (9,607)
Purchase of intangible assets (1,597) (362)
Acquisitions of a subsidiary, net
of cash acquired 7 (2,223) (251,972)
Transaction costs on acquisitions - (1,099)
Proceeds of long-term receivable (261) 3,128
Contract initiation costs (6,862) (3,674)
------------------------------------
Cash outflow from investing
activities (22,538) (263,586)
------------------------------------
FINANCING
Dividends paid (34,897) (33,243)
Increase (decrease) in bank
indebtedness 3,939 (383)
Issuance of long-term debt 68,941 349,197
Repayment of long-term debt (53,706) (49,386)
------------------------------------
Cash inflow (outflow) from
financing activities (15,723) 266,185
------------------------------------
Effect of foreign currency
translation on cash balances 342 4,701
------------------------------------
Net cash inflow (outflow) (22,225) 30,176
Cash, beginning of period 98,466 78,782
------------------------------------
Cash, end of period $ 76,241 $ 108,958
------------------------------------
See accompanying notes to the interim consolidated financial statements
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2011
(thousands of Canadian dollars except where indicated and per unit/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"). The plan of arrangement was approved by Unitholders on June 29,
2010, and by the Alberta Court of the Queen's Bench on June 30, 2010 and going
forward from January 1, 2011, 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. (collectively "Hudson" or "HES"), Momentis Canada
Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels Inc.
("TGF"), Hudson Energy Solar Corp. and Just Energy Limited ("JEL").
The registered office of Just Energy is First Canadian Place, 100 King Street
West, Toronto, Ontario, Canada. The consolidated financial statements consist of
Just Energy, its subsidiaries and affiliates. The financial statements were
approved by the Board of Directors on August 11, 2011.
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. Variable rate products allow customers to maintain
competitive rates while retaining the ability to lock into a fixed price at
their discretion. 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 related price at which it
purchases the associated volumes from its suppliers. Just Energy also offers
green products through its JustGreen and JustClean programs. 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. JustClean products allow customers in
certain jurisdictions to offset their carbon footprint without purchasing
commodity from Just Energy. JustClean can be offered in all states and provinces
and is not dependent on energy deregulation. Management believes that the
JustGreen and JustClean 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 launched, Hudson Solar, a solar
project development platform in New Jersey.
3. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
In 2010, the Canadian Institute of Chartered Accountants ("CICA Handbook") was
revised to incorporate International Financial Reporting Standards ("IFRS") and
requires publicly accountable enterprises to apply such standards effective for
years beginning on or after January 1, 2011. Accordingly, the Company has
commenced reporting on this basis in these consolidated financial statements. In
the consolidated financial statements, the term "CGAAP" refers to Canadian
Generally Accepted Accounting Principles before the adoption of IFRS.
These consolidated financial statements have been prepared in accordance with
IFRS applicable to the preparation of interim financial statements, including
International Accounting Standard ("IAS") 34, Interim Financial Reporting, and
IFRS 1, First-time Adoption of International Financial Reporting Standards.
Subject to certain transition elections, the Company has consistently applied
the same accounting policies in its opening IFRS consolidated balance sheet at
April 1, 2010 and throughout all periods presented, as if these policies had
always been in effect. Note 24 discloses the impact of the transition to IFRS on
the Company's reported financial position, financial performance and cash flows,
including the nature and effect of significant changes in accounting policies
from those used in the Company's audited annual consolidated financial
statements for the year ended March 31, 2011 prepared under CGAAP.
The policies applied in these consolidated financial statements are based on
IFRS issued and outstanding as of June 30, 2011. Any subsequent changes to IFRS
pertaining to the Company's annual consolidated financial statements for the
year ending March 31, 2012 could result in a restatement of these consolidated
financial statements, including the transition adjustments recognized on
changeover to IFRS.
The consolidated financial statements should be read in conjunction with the
Company's CGAAP audited annual consolidated financial statements for the year
ended March 31, 2011. Notes 19 and 24 disclose IFRS information for the year
ended March 31, 2011 not provided for in the 2011 annual consolidated financial
statements.
(a) Basis of presentation
The consolidated financial statements are presented in Canadian dollars, the
functional currency of Just Energy, and all values are rounded to the nearest
thousand. The statements are prepared on an historical cost basis except for the
derivative financial instruments, which are stated at fair value.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing
the opening IFRS consolidated statement of financial position as at April 1,
2010, for the purposes of the transition.
(b) Principles of consolidation
The consolidated financial statements include the accounts of Just Energy and
its directly or indirectly owned subsidiaries and affiliates as at June 30,
2011. Subsidiaries and affiliates are consolidated from the date of acquisition
and control, and continue to be consolidated until the date that such control
ceases. The financial statements of the subsidiaries and affiliates are prepared
for the same reporting period as Just Energy, using consistent accounting
policies. All intercompany balances, income, expenses, and unrealized gains and
losses resulting from intercompany transactions are eliminated on consolidation.
(c) 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. For the
purpose of the consolidated statement of cashflows, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of outstanding bank
overdrafts.
(d) Accrued gas receivables/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 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.
(e) Inventory
Inventory consists of water heaters, furnaces and air conditioners for selling
purposes, gas in storage, 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.
Gas in storage represents the gas delivered to the LDCs. The balance will
fluctuate as gas is injected or withdrawn from storage.
Gas in storage, 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. Net realizable value is the estimated selling price in
the ordinary course of business, less the estimated costs of completion and
selling expenses. The cost of inventories is based on the first-in first-out
principle and includes expenditures incurred in acquiring the inventories and
delivering to its existing location and condition.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost, net of any accumulated
depreciation and impairment losses. Cost includes the purchase price and, where
relevant, any costs directly attributable to bringing the asset to the location
and condition necessary and/or the present value of all dismantling and removal
costs. Where major components of property, plant and equipment have different
useful lives, the components are recognized and depreciated separately. Just
Energy recognizes in the carrying amount, the cost of replacing part of an item
when the cost is incurred and if it is probable that the future economic
benefits embodied with the item can be reliably measured. All other repair and
maintenance costs are recognized in the consolidated income statement as an
expense when incurred. Depreciation is provided over the estimated useful lives
of the assets as follows:
----------------------------------------------------------------------------
Asset category Depreciation method Rate/useful life
----------------------------------------------------------------------------
Furniture and fixtures Declining balance 20%
Office equipment Declining balance 20%
Computer equipment Declining balance 30%
Buildings and ethanol plant Straight line 15-35 years
Water heaters Straight line 15 years
Furnaces and air conditioners Straight line 15 years
Leasehold improvements Straight line Term of lease
Vehicles Straight line 5 years
Solar equipment Straight line 15-20 years
----------------------------------------------------------------------------
An item of property, plant and equipment and any significant part initially
recognized is derecognized upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising on derecognition of
the asset is included in the income statement when the asset is derecognized.
The useful lives and methods of depreciation are reviewed at each financial year
end, and adjusted prospectively, if appropriate.
(g) Business combinations and goodwill
Business combinations are accounted for using the purchase method. The cost of
an acquisition is measured as the fair value of the assets given, equity
instruments and liabilities incurred or assumed at the date of exchange.
Acquisition costs for business combinations incurred subsequent to April 1,
2010, are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially
at fair values on the date of acquisition, irrespective of the extent of any
non-controlling interest.
Goodwill is initially measured at cost, which is the excess of the cost of the
business combination over Just Energy's share in the net fair value of the
acquiree's identifiable assets, liabilities and contingent liabilities. Any
negative difference is recognized directly in the consolidated income statement.
If the fair values of the assets, liabilities and contingent liabilities can
only be calculated on a provisional basis, the business combination is
recognized using provisional values. Any adjustments resulting from the
completion of the measurement process are recognized within 12 months of the
date of acquisition.
After initial recognition, goodwill is measured at cost, less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of Just
Energy's operating segments that are expected to benefit from the synergies of
the combination, irrespective of whether other assets and liabilities of the
acquiree are assigned to those segments.
On first-time adoption of the IFRS, Just Energy elected to not apply IFRS 3,
Business Combinations, to transactions that occurred prior to the transition
date. Accordingly, the goodwill associated with acquisitions carried out prior
to April 1, 2010, is carried at the amount reported in the last consolidated
financial statements prepared under CGAAP as at March 31, 2010.
(h) Intangible assets
Intangible assets acquired outside of a business combination are measured at
cost on initial recognition. Intangible assets acquired in a business
combination are recorded at fair value on the date of acquisition. Following
initial recognition, intangible assets are carried at cost less any accumulated
amortization and/or accumulated impairment losses. The useful lives of
intangible assets are assessed as either finite or indefinite.
Intangible assets with finite useful lives are amortized over the useful
economic life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortization method and amortization
period of an intangible asset with a finite useful life is reviewed at least
once annually. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are accounted for
by changing the amortization period or method, as appropriate, and are treated
as changes in accounting estimates. The amortization expense related to
intangible assets with finite lives is recognized in the income statement in the
expense category associated with the function of the intangible assets.
Intangible assets consist of gas customer contracts, electricity customer
contracts, water heaters, furnaces and air conditioners, customer contracts,
broker network and brand, all acquired through business combinations, as well as
software, commodity billing and settlement systems and information technology
system development.
Internally-generated intangible assets are capitalized when the product or
process is technically and commercially feasible and Just Energy has sufficient
resources to complete development. The cost of an internally-generated
intangible asset comprises all directly attributable costs necessary to create,
produce and prepare the asset to be capable of operating in the manner intended
by management.
The brand is considered to have an indefinite useful life and is not amortized,
but rather tested annually for impairment. The assessment of indefinite life is
reviewed annually to determine whether the indefinite life continues to be
supportable.
Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of
the asset, and are recognized in the consolidated income statement when the
asset is derecognized.
A summary of the policies applied to Just Energy's intangible assets is as follows:
----------------------------------------------------------------------------
Asset category Amortization method Rate
----------------------------------------------------------------------------
Customer contracts Straight line Term of contract
Contract initiation costs Straight line Term of contract
Commodity billing and settlement
systems Straight line 5 years
Broker network Straight line 5 years
Information technology system
development Straight line 5 years
Software Declining balance 100%
Brand No amortization Indefinite
Other intangible assets Straight line 5 years
(i) Impairment of non-financial assets
Just Energy assesses whether there is an indication that an asset may be
impaired at each reporting date. If such an indication exists or when annual
testing for an asset is required, Just Energy estimates the asset's recoverable
amount. The recoverable amount of goodwill and intangible assets with an
indefinite useful life, if any, as well as intangible assets not yet available
for use, are estimated at least annually. The recoverable amount is the higher
of an asset's or cash generating unit's fair value less costs to sell and its
value in use. Value in use is determined by discounting estimated future cash
flows using a pre-tax discount rate that reflects the current market assessment
of the time value of money and the specific risks of the asset. In determining
fair value less costs to sell, an appropriate valuation model has to be used.
The recoverable amount of assets that do not generate independent cash flows is
determined based on the cash-generating unit to which the asset belongs.
An impairment loss is recognized in the consolidated income statement if an
asset's carrying amount or that of the cash-generating unit to which it is
allocated is higher than its recoverable amount. Impairment losses of
cash-generating units are first charged against the value of assets, in
proportion to their carrying amount.
In the consolidated income statement, an impairment loss is recognized in the
expense category associated with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as
to whether there is any indication that previously recognized impairment losses
may no longer exist or may have decreased. If such indication exists, Just
Energy estimates the asset's or cash-generating unit's recoverable amount. A
previously recognized impairment loss is reversed only if there has been a
change in the assumptions used to determine the asset's recoverable amount since
the last impairment loss was recognized. The reversal is limited so that the
carrying amount of the asset does not exceed its recoverable amount, nor exceed
the carrying amount that would have been determined, net of amortization, had no
impairment loss been recognized for the asset in prior years. Such a reversal is
recognized in the consolidated income statement.
Goodwill is tested for impairment annually as at March 31 and when circumstances
indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of each segment to which the
goodwill relates. Where the recoverable amount of the segment is less than its
carrying amount, an impairment loss is recognized. Impairment losses relating to
goodwill cannot be reversed in future periods.
(j) Leases
The determination of whether an arrangement is, or contains, a lease is based on
the substance of the arrangement at the inception date and whether fulfilment of
the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
Just Energy as a lessee
Operating lease payments are recognized as an expense in the consolidated income
statement on a straight-line basis over the lease term.
Just Energy as a lessor
Leases where Just Energy does not transfer substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognized over the lease term on the
same basis as rental income.
(k) Financial instruments
Financial assets and liabilities:
Just Energy classifies its financial instruments as either (i) financial assets
at fair value through profit or loss instruments, or (ii) loans and receivables,
and its financial liabilities as either (a) financial liabilities at fair value
through profit or loss or (b) other financial liabilities. Appropriate
classification of financial assets and liabilities is determined at the time of
initial recognition or when reclassified in the consolidated statement of
financial position.
Financial instruments are recognized on the trade date, which is the date on
which Just Energy commits to purchase or sell the asset.
Financial assets at fair value through profit or loss:
Financial assets at fair value through profit or loss include financial assets
held-for-trading and financial assets designated upon initial recognition at
fair value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or repurchasing in the
near term. This category includes derivative financial instruments entered into
that are not designated as hedging instruments in hedge relationships as defined
by IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39").
Included in this class are primarily physical delivered energy contracts, for
which the own-use exemption could not be applied, financially settled energy
contracts and foreign currency forward contracts.
An analysis of fair values of financial instruments and further details as to
how they are measured are provided in Note 10. Related realized and unrealized
gains and losses are included in the consolidated income statement.
Loans and receivables:
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Assets in this
category include receivables. Loans and receivables are initially recognized at
fair value plus transaction costs. They are subsequently measured at amortized
cost using the effective interest method less any impairment. The effective
interest amortization is included in finance costs in the consolidated income
statement.
Derecognition:
A financial asset is derecognized when the rights to receive cash flows from the
asset have expired or when Just Energy has transferred its rights to receive
cash flows from the asset.
Impairment of financial assets:
Just Energy assesses whether there is objective evidence that a financial asset
is impaired at each reporting date. A financial asset is deemed to be impaired
if, and only if, there is objective evidence of impairment as a result of one or
more events that has occurred after the initial recognition of the asset (an
incurred "loss event") and that loss event has an impact on the estimated future
cash flows of the financial asset or the fund of financial assets that can be
reliably estimated.
For financial assets carried at amortized cost, Just Energy first assesses
whether objective evidence of impairment exists individually for financial
assets that are individually significant, or collectively for financial assets
that are not individually significant. If Just Energy determines that no
objective evidence of impairment exists for an individually-assessed financial
asset, it includes the asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. Assets that
are individually assessed for impairment and for which an impairment loss is, or
continues to be, recognized are not included in a collective assessment of
impairment.
If there is objective evidence that an impairment loss has incurred, the amount
of the loss is measured as the difference between the asset's carrying amount
and the present value of estimated future cash flows. The present value of the
estimated future cash flows is discounted at the financial asset's original
effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognized in profit or loss. Interest
income continues to be accrued on the reduced carrying amount and is accrued
using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss. The interest income is recorded as
part of other income in the consolidated income statement.
Loans and receivables, together with the associated allowance, are written off
when there is no realistic prospect of future recovery. If, in a subsequent
year, the amount of the estimated impairment loss increases or decreases because
of an event occurring after the impairment was recognized, the previously
recognized impairment loss is increased or reduced by adjusting the allowance
account. If a write-off is later recovered, the recovery is credited to other
operating costs in the consolidated income statement.
Financial liabilities at fair value through profit or loss:
Financial liabilities at fair value through profit or loss include financial
liabilities held-for-trading and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held-for-trading if they are acquired
for the purpose of selling in the near term. This category includes derivative
financial instruments entered into by Just Energy that are not designated as
hedging instruments in hedge relationships as defined by IAS 39. Included in
this class are primarily physically- delivered energy contracts, for which the
own use exemption could be not applied, financially-settled energy contracts and
foreign currency forward contracts.
Gains or losses on liabilities held-for-trading are recognized in the
consolidated income statement.
Other financial liabilities:
Other financial liabilities are measured at amortized cost using the effective
interest rate method. Financial liabilities include long-term debt issued, which
is initially measured at fair value, which is the consideration received, net of
transaction costs incurred, trade and other payables and bank indebtedness.
Transaction costs related to the long-term debt instruments are included in the
value of the instruments and amortized using the effective interest rate method.
The effective interest expense is included in finance costs in the consolidated
income statement.
Derecognition:
A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying
amounts is recognized in the consolidated income statement.
(l) Derivative instruments
Just Energy enters into fixed-term contracts with customers to provide
electricity and gas at fixed prices. These customer contracts expose Just Energy
to changes in consumption as well as changes in the market prices of gas and
electricity. To reduce its exposure to movements in commodity prices, Just
Energy enters into derivative contracts.
Just Energy analyzes all its contracts, of both a financial and non-financial
nature, to identify the existence of any "embedded" derivatives. Embedded
derivatives are accounted for separately from the host contract at inception
date when their risks and characteristics are not closely related to those of
the host contracts and the host contracts are not carried at fair value.
All derivatives are recognized at fair value on the date on which the derivative
is entered into and are re-measured to fair value at each reporting date.
Derivatives are carried in the consolidated statement of financial position as
other financial assets when the fair value is positive and as other financial
liabilities when the fair value is negative. Just Energy does not utilize hedge
accounting. Therefore, changes in the fair value of these derivatives are taken
directly to the consolidated income statement and are included within change in
fair value of derivative instruments.
(m) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statement of financial position if, and only if,
there is currently an enforceable legal right to offset the recognized amounts
and there is an intention to settle on a net basis, or to realize the assets and
settle the liabilities simultaneously.
(n) Fair value of financial instruments
Fair value is the estimated amount that Just Energy would pay or receive to
dispose of these contracts in an arm's length transaction between knowledgeable,
willing parties who are under no compulsion to act. The fair value of financial
instruments that are traded in active markets at each reporting date is
determined by reference to quoted market prices, without any deduction for
transaction costs.
For financial instruments not traded in an active market, the fair value is
determined using appropriate valuation techniques that are recognized by market
participants. Such techniques may include using recent arm's length market
transactions; reference to the current fair value of another instrument that is
substantially the same; discounted cash flow analysis or other valuation models.
An analysis of fair values of financial instruments and further details as to
how they are measured are provided in Note 10.
(o) Revenue recognition
Revenue is recognized when significant risks and rewards of ownership are
transferred to the customer. In the case of gas and electricity, transfer of
risk and rewards generally coincides with consumption. Ethanol and dried
distillery grain sales are recognized when the risk and reward of ownership
passes, which is typically on delivery. Revenue from sales of water heaters and
HVAC products is recognized upon installation. Just Energy recognizes revenue
from water heater and HVAC leases, based on rental rates over the term
commencing from the installation date.
Revenue is measured at the fair value of the consideration received, excluding
discounts, rebates and sales taxes.
The Company assumes credit risk for all customers in Illinois, 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.
(p) Foreign currency translation
Functional and presentation currency
Items included in the consolidated financial statements of each of the Company's
entities are measured using the currency of the primary economic environment in
which the entity operates (the "functional currency"). The consolidated
financial statements are presented in Canadian dollars, which is the parent
company's presentation and functional currency.
Transactions
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the consolidated income
statement, except when deferred in other comprehensive income (loss) as
qualifying net investment hedges.
Translation of foreign operations
The results and consolidated financial position of all the group entities that
have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- assets and liabilities for each consolidated statement of financial
position presented are translated at the closing rate at the date of
that consolidated statement of financial position; and
-- income and expenses for each consolidated income statement are
translated at the exchange rates prevailing at the dates of the
transactions.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to other
comprehensive income (loss).
When a foreign operation is partially disposed of or sold, exchange differences
that were recorded in accumulated other comprehensive income (loss) are
recognized in the consolidated income statement as part of the gain or loss on
sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
(q) Per unit/share amounts
The computation of income per unit/share is based on the weighted average number
of units/shares outstanding during the period. Diluted earnings per unit/share
is computed in a similar way to basic earnings per unit/share except that the
weighted average units/shares outstanding are increased to include additional
units/shares assuming the exercise of stock options, restricted share grants
("RSGs"), deferred share grants ("DSGs") and convertible debentures, if
dilutive.
(r) Share-based compensation plans
Equity-based compensation liability:
Prior to the Conversion to a corporation on January 1, 2011, Just Energy's
equity-based compensation plans entitled the holders to receive trust units
which under IFRS, were considered puttable financial instruments, and thus the
awards were classified as liability-based awards. The liability was measured at
the redemption value of the instruments and remeasured at each reporting date
with the gain or loss associated with the remeasurement recorded within profit.
When the awards were converted into trust units, the conversions were recorded
as an extinguishment of the liability and accordingly, the remeasured amount at
the date of conversion was then reclassified to equity.
Subsequent to the Conversion, Just Energy accounted for its share-based
compensation as equity-settled transactions as a result of the stock-based plans
that were no longer convertible into a puttable financial liability. The cost of
a share-based compensation is measured by reference to the fair value at the
date on which it was granted. Awards are valued at the grant date and are not
adjusted for changes in the prices of the underlying shares and other
measurement assumptions. The cost of equity-settled transactions is recognized,
together with the corresponding increase in equity, over the period in which the
performance or service conditions are fulfilled, ending on the date on which the
relevant grantee becomes fully entitled to the award. The cumulative expense
recognized for equity-settled transactions at each reporting date until the
vesting period reflects the extent to which the vesting period has expired and
Just Energy's best estimate of the number of the shares that will ultimately
vest. The expense or credit recognized for a period represents the movement in
cumulative expense recognized as at the beginning and end of that period.
When options, RSGs and DSGs are exercised or exchanged, the amounts credited to
contributed surplus are reversed and credited to shareholders' capital.
(s) Employee future benefits
Just Energy established a long-term incentive plan (the "Plan") for all
permanent full-time and part-time Canadian employees of its subsidiaries
(working more than 20 hours per week). 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 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 day 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 the plans in Canada or the U.S is voluntary. The plans have a
two-year vesting period beginning from the later of the plan's effective date
and the employee's starting date. During the period, Just Energy contributed
$466 (2010 - $373) to the plans, which was paid in full during the period.
Obligation for contributions to the plan are recognized as an expense in the
consolidated income statement as incurred.
(t) Trust units of the Fund
Prior to the Conversion which occurred on January 1, 2011, the Fund's
outstanding equity instruments consisted of publicly traded trust units of the
Fund, Class A preference shares of JEC and exchangeable shares of JEEC. Pursuant
to applicable legislation, those trust units included a redemption feature which
required Just Energy to assess the appropriate presentation of those units under
IFRS.
Generally, IFRS requires that financial instruments which include a redemption
feature, making the instruments puttable, should be presented as a financial
liability rather than equity. However, an exception to this requirement is
available if the financial instrument meets certain criteria. Just Energy
determined that its trust units met the requirements for this exception and
accordingly, the trust units are presented as equity for the periods prior to
the Conversion.
Liabilities associated with the Class A preference shares of JEC and the
exchangeable shares of JEEC (collectively the "Exchangeable Shares"):
Prior to the Conversion, the outstanding Exchangeable Shares did not meet the
criteria to be recorded as equity because the Exchangeable Shares were
ultimately required to be exchanged for Trust units, which were considered
puttable financial instruments. Accordingly, the Exchangeable Shares were
recorded as a liability until exchanged for trust units. The liability was
measured at the redemption value of the instruments and remeasured at each
reporting date with the gain or loss associated with the remeasurement recorded
within profit. When the Exchangeable Shares were converted into trust units, the
conversions were recorded as an extinguishment of the liability, and
accordingly, the remeasured amount at the date of conversion was then
reclassified to equity.
Transaction costs
Transaction costs incurred by Just Energy in issuing, acquiring or selling its
own equity instruments are accounted for as a deduction from equity to the
extent that they are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided.
(u) Income taxes
Just Energy follows the liability method of accounting for deferred 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.
Deferred tax assets/liabilities are recognized for all taxable temporary
differences, except:
-- Where the deferred tax asset/liability arises from the initial
recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor taxable profit or loss; and
-- In respect of taxable temporary differences associated with investments
in subsidiaries, where the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all carry-forward of unused tax credits
and unused tax losses, to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the
carry-forward of unused tax credits and unused tax losses, can be utilized
except:
-- Where the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- In respect of deductible temporary differences associated with
investments in subsidiaries, deferred tax assets are recognized only to
the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting date
and are recognized to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered. Deferred tax assets
and liabilities are measured at the tax rates that are expected to apply in the
year when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted at the reporting
date.
Deferred tax relating to items recognized outside profit or loss is recognized
outside profit or loss. Deferred tax items are recognized in correlation to the
underlying transaction either in other comprehensive income or directly in
equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current income
tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
(v) Provisions
Provisions are recognized when Just Energy has a present obligation, legal or
constructive, as a result of a past event and it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Where Just
Energy expects some or all of a provision to be reimbursed, the reimbursement is
recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the consolidated
income statement, net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of
time is recognized as a finance cost in the consolidated income statement.
(w) Selling and 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 selling
and 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 selling and
marketing expenses over the remaining life of the contract.
4. (i) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements requires the use of
estimates and assumptions to be made in applying the accounting policies that
affect the reported amounts of assets, liabilities, income, expenses and the
disclosure of contingent liabilities. The estimates and related assumptions are
based on previous experience and other factors considered reasonable under the
circumstances, the results of which form the basis of making the assumptions
about carrying values of assets and liabilities that are not readily apparent
from other sources.
Significant management judgment is required to determine the amount of deferred
tax assets that can be recognized, based upon the likely timing and the level of
future taxable income realized, including the usage of tax-planning strategies.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised. Judgments made by management in the application of IFRS
that have significant impact on the consolidated financial statements relate to
the following:
Impairment of non-financial assets
Just Energy's impairment test is based on value-in-use calculations that use a
discounted cash flow model. The cash flows are derived from the budget for the
next five years and are sensitive to the discount rate used as well as the
expected future cash inflows and the growth rate used for extrapolation
purposes.
Development costs
Development costs are capitalized in accordance with the accounting policy in
Note 3 (i). Initial capitalization of costs is based on management's judgment
that technical and economical feasibility is confirmed, usually when a project
has reached a defined milestone according to an established project management
model. At June 30, 2011, the carrying amount of capitalized development costs
was $15,635 (June 30, 2010: $19,090). This amount includes primarily costs for
the internal development of software tools for the customer billing and analysis
in the various operating jurisdictions. These software tools are developed by
the internal information technology and operations department, for the specific
regional market requirements.
Useful life of key property, plant and equipment and intangible assets
The amortization method and useful lives reflect the pattern in which management
expects the asset's future economic benefits to be consumed by Just Energy.
Refer to notes 3 (g) and (i) for the estimated useful lives.
Provisions for litigation
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 crises in California. Pursuant to the complaints, the State of
California is challenging the FERC's enforcement of its market-based rate
system. At this time, the likelihood of damages or recoveries and the ultimate
amounts, if any, with respect to this litigation are not certain; however, an
estimated amount has been recorded in these consolidated financial statements as
at June 30, 2011. Refer to Note 14 for further details.
Trade receivables
Just Energy reviews its individually significant receivables at each reporting
date to assess whether an impairment loss should be recorded in the consolidated
income statement. In particular, judgment by management is required in the
estimation of the amount and timing of future cash flows when determining the
impairment loss. In estimating these cash flows, Just Energy makes judgments
about the borrower's financial situation and the net realizable value of
collateral. These estimates are based on assumptions about a number of factors
and actual results may differ, resulting in future changes to the allowance.
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in
the consolidated statement of financial position cannot be derived from active
markets, they are determined using valuation techniques including the discounted
cash flow models. The inputs to these models are taken from observable markets
where possible, but where this is not feasible, a degree of judgment is required
in establishing fair values. The judgment includes consideration of inputs such
as liquidity risk, credit risk and volatility. Changes in assumptions about
these factors could affect the reported fair value of financial instruments.
Refer to Note 10 for further details about the assumptions as well as
sensitivity analysis.
Share-based payments
Just Energy measures the cost of equity-settled transactions by reference to the
fair value of equity instruments at the date at which they are granted.
Estimating fair value for share-based payments requires determining the most
appropriate valuation model for a grant of equity instruments, which is
dependent on the terms and conditions of the grant. This also requires
determining the most appropriate inputs to the valuation model including the
expected life of the option, volatility and dividend yield. Refer to Note 19 for
further details.
Acquisition accounting
For acquisition accounting purposes, all identifiable assets, liabilities and
contingent liabilities acquired in a business combination are recognized at fair
value on the date of acquisition. Estimates are used to calculate the fair value
of these assets and liabilities as at the date of acquisition.
(ii) CHANGES TO ACCOUNTING PRONOUNCEMENTS
(a) New accounting pronouncements adopted
The three months ended June 30, 2011 is Just Energy's first reporting period
under IFRS. Accounting standards effective for annual reporting periods ended on
March 31, 2011 have been adopted as part of the transition to IFRS.
(b) Recent pronouncements issued
IFRS 9 Financial Instruments
As of April 1, 2013, Just Energy will be required to adopt IFRS 9, "Financial
Instruments", which is the result of the first phase of the IASB's project to
replace IAS 39, "Financial Instruments: Recognition and Measurement". The new
standard replaces the current multiple classification and measurement models for
financial assets and liabilities with a single model that has only two
classification categories: amortized cost and fair value. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 10 Consolidated Financial Statements
As of April 1, 2013, IFRS 10, "Consolidated Financial Statements" will replace
portions of IAS 27 "Consolidated and Separate Financial Statements" and
interpretation SIC-12, "Consolidation - Special Purpose Entities". The new
standard requires consolidated financial statements to include all controlled
entities under a single control model. The Company will be considered to control
an investee when it is exposed, or has rights to variable returns from its
involvement with the investee and has the current ability to affect those
returns through its power over the investee.
As required by this standard, control is reassessed as facts and circumstances
change. All facts and circumstances must be considered to make a judgment about
whether the Company controls another entity; there are no 'bright lines'.
Additional guidance is given on how to evaluate whether certain relationships
give the Company the current ability to affect its returns, including how to
consider options and convertible instruments, holding less than a majority of
voting rights, how to consider protective rights, and principal-agency
relationships (including removal rights), all of which may differ from current
practice. The Company has not yet assessed the impact of the standard or
determined whether it will adopt the standard early.
IFRS 11 Joint Arrangements
On April 1, 2013, Just Energy will be required to adopt IFRS 11, "Joint
Arrangements", which applies to accounting for interests in joint arrangements
where there is joint control. The standard requires the joint arrangements to be
classified as either joint operations or joint ventures. The structure of the
joint arrangement would no longer be the most significant factor when
classifying the joint arrangement as either a joint operation or a joint
venture. In addition, the option to account for joint ventures (previously
called jointly controlled entities) using proportionate consolidation will be
removed and replaced by equity accounting.
Due to the adoption of this new section, the Company will transition the
accounting for joint ventures from the proportionate consolidation method to the
equity method by aggregating the carrying values of the proportionately
consolidated assets and liabilities into a single line item. The Company has not
yet assessed the impact of the standard or determined whether it will adopt the
standard early.
IFRS 12 Disclosure of Interests in Other Entities
On April 1, 2013, Just Energy will be required to adopt IFRS 12, "Disclosure of
interests in Other Entities", which includes disclosure requirements about
subsidiaries, joint ventures, and associates, as well as unconsolidated
structured entities and replaces existing disclosure requirements. Due to this
new section, the Company will be required to disclose the following: judgements
and assumptions made when deciding how to classify involvement with another
entity, interests that non-controlling interests have in consolidated entities,
and nature of the risks associated with interests in other entities. The Company
has not yet assessed the impact of the standard or determined whether it will
adopt the standard early.
IFRS 13 Fair Value Measurement
On April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value
Measurement." The new standard will generally converge the IFRS and CGAAP
requirements for how to measure fair value and the related disclosures. IFRS 13
establishes a single source of guidance for fair value measurements, when fair
value is required or permitted by IFRS. Upon adoption, the Company will provide
a single framework for measuring fair value while requiring enhanced disclosures
when fair value is applied. In addition, fair value will be defined as the 'exit
price' and concepts of 'highest and best use' and 'valuation premise' would be
relevant only for non-financial assets and liabilities. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 27 Separate Financial Statements
On April 1, 2013 Just Energy will be required to adopt IAS 27, "Separate
Financial Statements." As a result of the issue of the new consolidation suite
of standards, IAS 27 has been reissued to reflect the change as the
consolidation guidance has recently been included in IFRS 10.
In addition, IAS 27 will now only prescribe the accounting and disclosure
requirements for investments in subsidiaries, joint ventures and associates when
the Company prepares separate financial statements. The Company has not yet
assessed the impact of the standard or determined whether it will adopt the
standard early.
IAS 28 Investments in Associates and Joint Ventures
On April 1, 2013, Just Energy will be required to adopt IAS 28, "Investments in
Associates and Joint Ventures." As a consequence of the issue of IFRS 10, IFRS
11 and IFRS 12, IAS 28 has been amended and will further provide the accounting
guidance for investments in associates and will set out the requirements for the
application of the equity method when accounting for investments in associates
and joint ventures.
This standard will be applied by the Company when there is joint control, or
significant influence over an investee. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but
does not include control or joint control of those policy decisions. When
determined that the Company has an interest in a joint venture, the Company will
recognize an investment and will account for it using the equity method in
accordance with IAS 28. The Company has not yet assessed the impact of the
standard or determined whether it will adopt the standard early.
5. SEASONALITY OF OPERATIONS
Gas consumption by customers is typically highest in October through March and
lowest in April through September. Electricity consumption is typically highest
in January through March and July through September. Electricity consumption is
lowest in October through December and April through June.
6. RESTRICTED CASH
As part of the acquisition of Newten Home Comfort Inc. in 2009, the Company was
required to transfer cash into a trust account, in trust for the vendors, as
part of the contingent consideration. The contingent consideration payments,
which will become payable in July 2012 are 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. As of June 30,
2011 the amount of restricted cash is $827.
7. 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 (Note 13(e)). There is
no contingent consideration involved in the business acquisition.
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:
Fair value recognized on
acquisition
Current assets (including cash of
$24,003) $ 88,696
Property, plant and equipment 1,648
Software 911
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
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
------------------------------------
478,692
Current liabilities (107,817)
Other liabilities - current (74,683)
Other liabilities - long-term (40,719)
------------------------------------
(223,219)
Total identifiable net assets acquired 255,473
Goodwill arising on acquisition 32,317
------------------------------------
Total consideration $ 287,790
------------------------------------
Cash outflow on acquisition:
Cash paid $ 287,790
Net cash acquired with the subsidiary (24,003)
Holdback (9,345)
------------------------------------
Net cash outflow $ 254,442
------------------------------------
The transaction costs related to the acquisition of Hudson have been expensed
and are included in other operating expenses in the consolidated income
statement. The transaction costs related to the issuance of the convertible
debentures have been capitalized and were allocated to the equity and liability
component of the convertible debt in relation to the fair value of both the
components. Goodwill of $32,317 comprises the value of expected synergies from
the acquisition. None of the goodwill recognized is expected to be deductible
for income tax purposes. Goodwill associated with the Hudson acquisition is part
of the U.S. gas and electricity marketing segments. As of June 30, 2011, all
holdbacks have been paid in full.
The fair value of the trade receivables amounted to $62,022 at the date of
acquisition. The gross amount of trade receivables is $67,526. None of the trade
receivables have been impaired and it is expected that the full contractual
amount can be collected.
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 periods of 30 months and
35 months, respectively. Other intangible assets, excluding brand, are amortized
over periods ranging from three to five years. The brand value is considered to
be indefinite and, therefore, not subject to amortization.
From the date of acquisition, Hudson has contributed $117,477 of revenue and
$13,743 to the net profit before tax of Just Energy for the period ended June
30, 2010. If the combination had taken place at the beginning of the fiscal
year, revenue from continuing operations would have been $156,636 and the profit
from continuing operations for Just Energy would have been $18,324.
8. PROPERTY, PLANT AND EQUIPMENT
As at June 30, 2011
Furniture
Computer Buildings and and
equipment ethanol plant Land fixtures Vehicles
-------------------------------------------------------
Cost:
Opening balance -
April 1, 2011 $ 7,750 $ 158,482 $ 299 $ 6,090 $ 215
Additions/(Disposals) 882 - - 33 (23)
Exchange differences (6) (3) - (6) -
-------------------------------------------------------
Ending balance, June
30, 2011 8,626 158,479 299 6,117 192
-------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2011 (4,958) (17,425) - (3,561) (88)
-
Amortization charge
to COGS - (1,438) - - -
Amortization charge
for the period (246) (267) - (136) (11)
Disposals - - - - 16
Exchange differences 2 - - 2 -
-------------------------------------------------------
Ending balance, June
30, 2011 (5,202) (19,130) - (3,695) (83)
-------------------------------------------------------
Net book value, June
30, 2011 $ 3,424 $ 139,349 $ 299 $ 2,422 $ 109
-------------------------------------------------------
Furnaces and Solar
Office Water air Leasehold Equip-
equipment heaters conditioners improvements ment Total
-----------------------------------------------------------------
Cost:
Opening
balance -
April
1, 2011 $ 17,976 $ 78,223 $ 3,813 $ 8,567 $283 $ 281,698
Additions/
(Disposals) 1,101 7,411 2,093 21 77 11,595
Exchange
differences (6) - - (2) (1) (24)
-----------------------------------------------------------------
Ending
balance,
June 30,
2011 19,071 85,634 5,906 8,586 359 293,629
-----------------------------------------------------------------
Accumulated
Amortization:
Opening
balance -
April
1, 2011 (9,521) (6,887) (179) (5,077) - (47,696)
Amortization
charge
to COGS - (1,339) (126) - - (2,903)
Amortization
charge for
the period (436) - - (245) - (1,341)
Disposals - - - - - 16
Exchange
differences 2 - - 2 - 8
-----------------------------------------------------------------
Ending
balance,
June 30,
2011 (9,955) (8,226) (305) (5,320) - (51,916)
-----------------------------------------------------------------
Net book
value,
June 30,
2011 $ 9,116 $ 77,408 $ 5,601 $ 3,266 $359 $241,353
-----------------------------------------------------------------
As at March 31, 2011
Furniture
Computer Buildings and and
equipment ethanol plant Land fixtures Vehicles
-------------------------------------------------------
Cost:
Opening balance -
April 1, 2010 $ 6,417 $ 159,500 $ 299 $ 5,581 $ 197
Additions/(Disposals) 1,137 (1,658) - 468 18
Acquisition of
subsidiary 233 670 - 94 -
Exchange differences (37) (30) - (53) -
-------------------------------------------------------
Ending balance, March
31, 2011 7,750 158,482 299 6,090 215
-------------------------------------------------------
Accumulated
Amortization:
Opening balance -
April 1, 2010 (3,763) (10,601) - (2,972) (46)
-
Amortization charge
to COGS (127) (5,730) - - -
Amortization charge
for the period (1,086) (1,095) - (606) (42)
Exchange differences 18 1 - 17 -
-------------------------------------------------------
Ending balance, March
31, 2011 (4,958) (17,425) - (3,561) (88)
-------------------------------------------------------
Net book value, March
31, 2011 $ 2,792 $ 141,057 $ 299 $ 2,529 $ 127
-------------------------------------------------------
Furnaces and Solar
Office Water air Leasehold Equip-
equipment heaters conditioners improvements ment Total
-----------------------------------------------------------------
Cost:
Opening
balance -
April 1,
2010 $ 14,810 $ 51,059 $ 317 $ 8,409 $ - $ 246,589
Additions/
(Disposals) 2,598 27,164 3,496 148 - 33,371
Acquisition
of
subsidiary 621 - - 30 297 1,945
Exchange
differences (53) - - (20) (14) (207)
-----------------------------------------------------------------
Ending
balance,
March
31, 2011 17,976 78,223 3,813 8,567 283 281,698
-----------------------------------------------------------------
Accumulated
Amortization:
Opening
balance -
April
1, 2010 (5,930) (2,481) (4) (4,116) - (29,913)
Amortization
charge
to COGS (1,691) (4,406) (175) - - (12,129)
Amortization
charge
for the
period (1,917) - - (975) - (5,721)
Exchange
differences 17 - - 14 - 67
-----------------------------------------------------------------
Ending
balance,
March
31, 2011 (9,521) (6,887) (179) (5,077) - (47,696)
-----------------------------------------------------------------
Net book
value,
March
31, 2011 $ 8,455 $ 71,336 $ 3,634 $ 3,490 $ 283 $ 234,002
-----------------------------------------------------------------
9. INTANGIBLE ASSETS
As at June 30, 2011
Electricity Water heater
Gas contracts contracts contracts
----------------------------------------------------
Cost:
Opening balance, April
1, 2011 $ 248,828 $ 436,339 $ 23,164
Write-down of fully
amortized assets (1,842) - -
Additions - Internal
development - - -
Exchange differences (687) (1,096) -
----------------------------------------------------
Ending balance, June 30,
2011 246,299 435,243 23,164
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2011 (144,568) (248,673) (2,813)
Write-down of fully
amortized assets 1,842 - -
Amortization charge for
the period (6,740) (16,166) (399)
Amortization in mark to
market (12,811) (24,323) -
Exchange differences 569 457 -
----------------------------------------------------
Ending balance, June 30,
2011 (161,708) (288,705) (3,212)
----------------------------------------------------
Net book value, June 30,
2011 $ 84,591 $ 146,538 $ 19,952
----------------------------------------------------
Broker
Goodwill network Brand Software
----------------------------------------------------
Cost:
Opening balance, April
1, 2011 $ 227,467 $ 80,561 $ 10,692 $ 9,540
Write-down of fully
amortized assets - - - -
Additions - Internal
development - - - 1,113
Exchange differences (306) (424) (56) (17)
----------------------------------------------------
Ending balance, June 30,
2011 227,161 80,137 10,636 10,636
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2011 - (14,770) - (6,616)
Write-down of fully
amortized assets - - - -
Amortization charge for
the period - (4,020) - (438)
Amortization in mark to
market - - - -
Exchange differences - 91 - 5
----------------------------------------------------
Ending balance, June 30,
2011 - (18,699) - (7,049)
----------------------------------------------------
Net book value, June 30,
2011 $ 227,161 $ 61,438 $ 10,636 $ 3,587
----------------------------------------------------
Commodity
billing and
settlement IT system
systems development Other Total
----------------------------------------------------
Cost:
Opening balance, April
1, 2011 $ 6,515 $ 19,691 $ 9,006 $ 1,071,803
Write-down of fully
amortized assets - - - (1,842)
Additions - Internal
development 13 417 54 1,597
Exchange differences (10) (90) (46) (2,732)
----------------------------------------------------
Ending balance, June 30,
2011 6,518 20,018 9,014 1,068,826
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2011 (6,453) (3,478) (4,213) (431,584)
Write-down of fully
amortized assets - - - 1,842
Amortization charge for
the period (5) (993) (543) (29,304)
Amortization in mark to
market - - - (37,134)
Exchange differences 9 19 25 1,175
----------------------------------------------------
Ending balance, June 30,
2011 (6,449) (4,452) (4,731) (495,005)
----------------------------------------------------
Net book value, June 30,
2011 $ 69 $ 15,566 $ 4,283 $ 573,821
----------------------------------------------------
As at March
31, 2011
Electricity Water heater
Gas contracts contracts contracts
----------------------------------------------------
Cost:
Opening balance - April
1, 2010 $ 472,756 $ 266,700 $ 23,081
Acquisition of a
subsidiary 26,225 200,653 -
Write-down of fully
amortized assets (243,929) (21,083) -
Adjustments to goodwill - - -
Additions - Internal
development - - 83
Exchange differences (6,224) (9,931) -
----------------------------------------------------
Ending balance, March
31, 2011 248,828 436,339 23,164
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2010 (307,413) (113,862) (1,218)
Write-down of fully
amortized assets 243,929 21,083 -
Amortization charge for
the period (31,841) (63,642) (1,595)
Amortization in mark to
market (53,757) (96,064) -
Exchange differences 4,514 3,812 -
----------------------------------------------------
Ending balance, March
31, 2011 (144,568) (248,673) (2,813)
----------------------------------------------------
Net book value, March
31, 2011 $ 104,260 $ 187,666 $ 20,351
----------------------------------------------------
Broker
Goodwill network Brand Software
----------------------------------------------------
Cost:
Opening balance - April
1, 2010 $ 186,832 $ - $ - $ 5,562
Acquisition of a
subsidiary 32,317 84,400 11,200 911
Write-down of fully
amortized assets - - - -
Adjustments to goodwill 9,877 - - -
Additions - Internal
development - - - 3,208
Exchange differences (1,559) (3,839) (508) (141)
----------------------------------------------------
Ending balance, March
31, 2011 227,467 80,561 10,692 9,540
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2010 - - - (4,198)
Write-down of fully
amortized assets - - - -
Amortization charge for
the period - (15,511) - (2,576)
Amortization in mark to
market - - - -
Exchange differences - 741 - 158
----------------------------------------------------
Ending balance, March
31, 2011 - (14,770) - (6,616)
----------------------------------------------------
Net book value, March
31, 2011 $ 227,467 $ 65,791 $ 10,692 $ 2,924
----------------------------------------------------
Commodity
billing and
settlement IT system
systems development Other Total
----------------------------------------------------
Cost:
Opening balance - April
1, 2010 $ 6,545 $ 605 $ 2,377 $964,458
Acquisition of a
subsidiary - 17,954 6,545 380,205
Write-down of fully
amortized assets - - - (265,012)
Adjustments to goodwill - - - 9,877
Additions - Internal
development 54 1,949 490 5,784
Exchange differences (84) (817) (406) (23,509)
----------------------------------------------------
Ending balance, March
31, 2011 6,515 19,691 9,006 1,071,803
----------------------------------------------------
Accumulated
Amortization:
Opening balance, April
1, 2010 (6,515) (21) (2,377) (435,604)
Write-down of fully
amortized assets - - - 265,012
Amortization charge for
the period (22) (3,614) (2,040) (120,841)
Amortization in mark to
market - - - (149,821)
Exchange differences 84 157 204 9,670
----------------------------------------------------
Ending balance, March
31, 2011 (6,453) (3,478) (4,213) (431,584)
----------------------------------------------------
Net book value, March
31, 2011 $ 62 $ 16,213 $ 4,793 $640,219
----------------------------------------------------
The capitalized internally-developed costs relate to the development of new
customer billing and analysis software solutions for the different energy
markets of Just Energy. All research costs and development costs not eligible
for capitalization have been expensed and are recognized in administrative
expenses.
10. FINANCIAL INSTRUMENTS
(a) Fair value
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, 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 income statements.
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 three months ended June 30,
2011:
Change in Fair Value of Derivative Instruments
For the For the For the For the
three months three months three months three months
ended June ended June ended June ended June
30, 2011 30, 2011 30, 2010 30, 2010
(USD) (USD)
Canada
Fixed-for-floating
electricity swaps (i) $ 40,089 n/a $ 138,841 n/a
Renewable energy
certificates (ii) 554 n/a (143) n/a
Verified emission-
reduction credits
(iii) (19) n/a - n/a
Options (iv) 4,324 n/a (837) n/a
Physical gas forward
contracts (v) 28,502 n/a 83,628 n/a
Transportation forward
contracts (vi) 661 n/a 13,349 n/a
Fixed financial swaps
(vii) (2,172) n/a - n/a
United States
Fixed-for-floating
electricity swaps
(viii) 15,504 16,023 24,244 23,518
Physical electricity
forwards (ix) (563) (582) 22,682 21,962
Unforced capacity
forward contracts (x) (1,340) (1,384) (160) (155)
Unforced capacity
physical contracts
(xi) 104 108 (643) (626)
Renewable energy
certificates (xii) 833 861 (680) (661)
Verified emission-
reduction credits
(xiii) (324) (335) (2) (2)
Options (xiv) 647 669 180 175
Physical gas forward
contracts (xv) 5,845 6,040 30,634 29,811
Transportation forward
contracts (xvi) 250 258 156 152
Heat rate swaps (xvii) (1,055) (1,091) (3,058) (2,975)
Fixed financial swaps
(xviii) 5,193 5,367 7,366 7,161
Foreign exchange forward
contracts (xix) (549) n/a (277) n/a
Ethanol physical forward
contracts (xx) (45) -
Amortization of deferred
unrealized gains on
discontinued hedges 20,392 n/a 34,573 n/a
Amortization of
derivative financial
instruments related to
acquisitions (37,134) n/a (35,477) n/a
Liability associated
with exchangeable
shares & equity based
compensation - $- 21,171 n/a
----------------------------------------------------------------------------
Change in Fair Value of
Derivative Instruments $ 79,697 $ 335,547
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at June 30,
2011:
Other Other Other Other
assets assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps (i) $- $- $110,410 $74,178
Renewable energy
certificates (ii) 760 199 160 428
Verified emission-
reduction credits (iii) - - 311 655
Options (iv) 845 582 - -
Physical gas forward
contracts (v) - - 152,783 120,195
Transportation forward
contracts (vi) - - 4,962 2,511
Fixed financial swaps
(vii) - - 2,040 1,349
United States
Fixed-for-floating
electricity swaps (viii) 1,402 1,698 23,470 18,465
Physical electricity
forwards (ix) 95 72 55,595 37,418
Unforced capacity forward
contracts (x) 2,511 3 469 3,593
Unforced capacity physical
contracts (xi) 482 - 1,514 1,229
Renewable energy
certificates (xii) 913 50 1,182 1,492
Verified emission-
reduction credits (xiii) 19 - 359 697
Options (xiv) 5 5 484 95
Physical gas forward
contracts (xv) 11 - 31,054 15,053
Transportation forward
contracts (xvi) - - 1,625 918
Heat rate swaps (xvii) 151 1,772 213 40
Fixed financial swaps
(xviii) 12 - 49,067 32,196
Foreign exchange forward
contracts (xix) 843 - - -
Ethanol physical forward
contracts (xx) 90 - - -
----------------------------------------------------------------------------
As at June 30, 2011 $8,139 $4,381 $435,698 $310,512
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes certain aspects of the financial assets and
liabilities recorded in the consolidated financial statements as at March 31,
2011:
Other Other
Other assets Other assets liabilities liabilities
(current) (long term) (current) (long term)
Canada
Fixed-for-floating
electricity swaps (i) $ - $ - $ 131,279 $ 93,397
Renewable energy
certificates (ii) 194 196 158 417
Verified emission-
reduction credits (iii) - - 315 628
Options (iv) 815 692 4,403 -
Physical gas forward
contracts (v) - - 166,634 134,847
Transportation forward
contracts (vi) - 24 5,301 2,858
Fixed financial swaps
(vii) - 1,037 2,235 19
United States
Fixed-for-floating
electricity swaps (viii) 125 45 29,028 25,719
Physical electricity
forwards (ix) - 310 55,548 37,535
Unforced capacity forward
contracts (x) 309 177 581 118
Unforced capacity
physical contracts (xi) 100 410 1,606 1,280
Renewable energy
certificates (xii) 44 49 1,037 1,610
Verified emission-
reduction credits (xiii) 13 36 275 491
Options (xiv) 1 - 1,056 165
Physical gas forward
contracts (xv) 40 - 32,883 19,354
Transportation forward
contracts (xvi) - - 1,526 1,281
Heat rate swaps (xvii) 639 2,408 180 131
Fixed financial swaps
(xviii) 40 - 51,361 35,562
Foreign exchange forward
contracts (xix) 1,391 - - -
Ethanol physical forward
contracts (xx) 135 - - -
----------------------------------------------------------------------------
As at March 31, 2011 $ 3,846 $ 5,384 $ 485,406 $ 355,412
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes financial instruments classified as held for
trading as at June 30, 2011 to which Just Energy has committed:
Total remaining
Contract type Notional volume volume Maturity date
Canada
----------------------------------------------------------------------------
(i) Fixed-for- 0.0001-85 MWh 9,005,282 MWh July 31, 2011 -
floating August 01, 2017
electricity
swaps (i)
----------------------------------------------------------------------------
(ii) Renewable energy 10-90,000 MWh 1,133,558 MWh December 31, 2011
certificates - December 31,
2015
----------------------------------------------------------------------------
(iii) Verified emission 6,000-55,000 567,667 Tonnes December 31, 2011
reduction Tonnes - December 31,
credits 2014
----------------------------------------------------------------------------
(iv) Options 46-28,500 2,637,154 GJ July 31, 2011 -
GJ/month February 28, 2014
----------------------------------------------------------------------------
(v) Physical gas 1-16,379 GJ/day 94,950,536 GJ July 31, 2011 -
forward March 31, 2016
contracts
----------------------------------------------------------------------------
(vi) Transportation 40-20,000 35,831,082 GJ July 31, 2011 -
forward GJ/day May 31, 2015
contracts
----------------------------------------------------------------------------
(vii) Fixed financial 14,500-139,500 12,335,000 GJ July 31, 2011 -
swaps GJ/month August 31, 2016
----------------------------------------------------------------------------
United States
----------------------------------------------------------------------------
(viii) Fixed-for- 0.10-80 MWh 8,567,591 MWh July 31, 2011 -
floating September 30,
electricity 2016
swaps (i)
----------------------------------------------------------------------------
(ix) Physical 1-129 MWh 9,590,977 MWh July 31, 2011 -
electricity May 31, 2016
forwards
----------------------------------------------------------------------------
(x) Unforced capacity 5-150 MWCap 160,300 MWCap July 31, 2011 -
forward May 31, 2014
contracts
----------------------------------------------------------------------------
(xi) Unforced capacity 2-45 MWCap 2,076 MWCap July 31, 2011 -
physical May 31, 2014
contracts
----------------------------------------------------------------------------
(xii) Renewable energy 300-160,000 MWh 2,676,696 MWh December 31, 2011
certificates - December 31,
2016
----------------------------------------------------------------------------
(xiii) Verified 8,000-50,000 720,948 Tonnes December 31, 2011
emission- Tonnes - December 31,
reduction 2016
credits
----------------------------------------------------------------------------
(xiv) Options 5-90,000 2,808,620 mmBTU July 01, 2011 -
mmBTU/month December 31, 2014
----------------------------------------------------------------------------
(xiv) Heat-rate options 1,600 MWh 294,400 MWh July 01, 2011 -
September 30,
2011
----------------------------------------------------------------------------
(xv) Physical gas 1-4,300 14,324,801 mmBTU July 31, 2011 -
forward mmBTU/day July 31, 2014
contracts
----------------------------------------------------------------------------
(xvi) Transportation 3-15,000 31,727,390 mmBTU July 31, 2011 -
forward mmBTU/day August 31, 2015
contracts
----------------------------------------------------------------------------
(xvii) Heat rate swaps 1-25 MWh 3,636,356 MWh July 31, 2011 -
April 30, 2016
----------------------------------------------------------------------------
(xviii) Fixed financial 930-380,000 54,992,072 mmBTU July 31, 2011 -
swaps mmBTU/month May 31, 2017
----------------------------------------------------------------------------
(xix) Foreign exchange ($485-$4,183) n/a July 06, 2011 -
forward (US$500-$4,000) April 02, 2012
contracts
----------------------------------------------------------------------------
(xx) Ethanol forward 396,258 Gallons 4,755,097 July 01, 2011 -
physical Gallons December 01, 2011
contracts
----------------------------------------------------------------------------
Fair value
favourable/
Contract type Fixed price (unfavourable) Notional value
Canada
----------------------------------------------------------------------------
(i) Fixed-for- $28.75-$128.13 ($184,588) $561,536
floating
electricity
swaps (i)
----------------------------------------------------------------------------
(ii) Renewable energy $3.00-$26.00 $371 $7,284
certificates
----------------------------------------------------------------------------
(iii) Verified emission $6.00-$11.50 ($966) $5,208
reduction
credits
----------------------------------------------------------------------------
(iv) Options $7.16-$12.39 $1,427 $4,904
----------------------------------------------------------------------------
(v) Physical gas $3.19-$10.00 ($272,978) $672,966
forward
contracts
----------------------------------------------------------------------------
(vi) Transportation $0.0025-$1.57 ($7,473) $31,924
forward
contracts
----------------------------------------------------------------------------
(vii) Fixed financial $4.47-$8.79 ($3,389) $58,066
swaps
----------------------------------------------------------------------------
United States
----------------------------------------------------------------------------
(viii) Fixed-for- $23.44-$131.90 ($38,835) $462,720
floating (US$24.30- (US($40,264)) (US$479,751)
electricity $136.75)
swaps (i)
----------------------------------------------------------------------------
(ix) Physical $18.33-$106.34 ($92,846) $462,923
electricity (US$19.00- (US($96,263)) (US$479,962)
forwards $110.25)
----------------------------------------------------------------------------
(x) Unforced capacity $1,752-$7,716 ($1,548) $11,294
forward (US$1,817- ((US$1,605)) (US$11,710)
contracts $8,000)
----------------------------------------------------------------------------
(xi) Unforced capacity $965-$8,439 ($2,261) $9,752
physical (US$1,000- ((US$2,344)) (US$10,111)
contracts $8,750)
----------------------------------------------------------------------------
(xii) Renewable energy $0.940-$23.87 ($1,711) $14,584
certificates (US$0.975- (US($1,774)) (US$15,121)
$24.75)
----------------------------------------------------------------------------
(xiii) Verified $2.89-$8.44 ($1,037) $4,636 (US$4,807)
emission- (US$3.00-$8.75)(US$(1,075))
reduction
credits
----------------------------------------------------------------------------
(xiv) Options $7.47-$13.31 ($534) (US($554)) $3,649 (US$3,783)
(US$7.75-
$13.80)
----------------------------------------------------------------------------
(xiv) Heat-rate options $63.28-$84.74 ($35) (US($36)) $723 (US$750)
(US$65.61-
$87.86)
----------------------------------------------------------------------------
(xv) Physical gas $4.24-$11.46 ($46,096) $114,985
forward (US$4.40- (US($47,793)) (US$119,217)
contracts $11.88)
----------------------------------------------------------------------------
(xvi) Transportation $0.0048-$1.4500($2,543) ($61,164)
forward (US$0.0050- (US($2,637)) (US$63,415)
contracts $1.5000)
----------------------------------------------------------------------------
(xvii) Heat rate swaps $18.69-$81.99 $1,670 (US$1,731) $148,056
(US$19.38- (US$153,505)
$85.01)
----------------------------------------------------------------------------
(xviii) Fixed financial $3.91-$9.07 ($81,251) $372,087
swaps (US$4.05-$9.40)(US($84,242)) (US$358,878)
----------------------------------------------------------------------------
(xix) Foreign exchange $0.955-$1.0457 $843 $27,301
forward (US$27,170)
contracts
----------------------------------------------------------------------------
(xx) Ethanol forward $2.13-$2.55 $90 $10,934
physical
contracts
----------------------------------------------------------------------------
(i) Some of the electricity fixed-for-floating contracts related to the Province
of Alberta and Ontario are 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 accumulated
other comprehensive income that is expected to be amortized to net income within
the next 12 months is a gain of $59,287.
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 and cash equivalent, accounts receivable, unbilled revenue, bank
indebtedness, accounts payable and accrued liabilities, unit distributions
payable, 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 (predominately 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 to 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 are
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 June 30, 2011:
June 30, 2011
Level 1 Level 2 Level 3 Total
Financial assets
Cash and short term
deposits $ 76,241 $ - $ - $ 76,241
Loans and receivable 364,957 - - 364,597
Derivative financial
assets - 12 12,508 12,520
Financial liabilities
Derivative financial
liabilities - (84,652) (661,558) (746,210)
Other financial
liabilities (877,418) - - (877,418)
----------------------------------------------------------------------------
Total net derivative
liabilities $ (436,220) $ (84,640) $ (649,050) $ (1,169,910)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table illustrates the changes in net fair value of financial
assets/(liabilities) classified as Level 3 in the FV hierarchy for the three
months ended June 30, 2011:
June 30, 2011
Opening balance, April 1, 2011 $ (743,488)
Total gain/(losses) - Profit for the period (54,058)
Purchases (7,572)
Sales 1,039
Settlements 155,029
Transfer out of Level 3 -
----------------------------------------------------------------------------
Closing Balance, June 30, 2011 $ (649,050)
----------------------------------------------------------------------------
(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.
As at June 30, 2011 Carrying amount Fair value
Cash and cash equivalents $ 76,241 $ 76,241
Current trade and other receivables $ 256,667 $ 256,667
Unbilled revenues $ 103,463 $ 103,463
Non-current receivables $ 4,827 $ 4,827
Other assets $ 12,520 $ 12,520
Bank indebtedness, trade and other
payables $ 258,750 $ 258,750
Long-term debt $ 618,668 $ 666,396
Other liabilities $ 746,210 $ 746,210
For the periods ended June 30
2011 2010
Interest expense on financial
liabilities not held-for-trading $ 13,792 $ 12,755
The carrying value of cash and cash equivalents, current trade and other
receivables, unbilled revenues and trade and other payables 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., 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 June 30, 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, profit for the period would have been
$20 higher/lower and other comprehensive income would have been $580
higher/lower.
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 period ended June 30, 2011 of
approximately $225.
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 June 30, 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 June 30, 2011 would have
increased (decreased) by $187,308 ($186,315) 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 June 30, 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 June 30, 2011 would have
increased (decreased) by $161,751 ($160,998) 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.
The aging of the accounts receivable from the above markets was as follows:
June 30, 2011 March 31, 2011
Current $61,092 $61,695
1 - 30 days 14,885 15,088
31 - 60 days 5,162 5,533
61 - 90 days 3,105 5,652
Over 91 days 10,419 10,322
-----------------------------------------
$94,663 $98,290
-------------------- --------------------
-------------------- --------------------
For the period ended June 30, 2011, changes in the allowance for doubtful
accounts were as follows:
Balance, beginning of period $ 25,115
Provision for doubtful accounts 6,814
Bad debts written off (5,448)
Other (388)
---------------------
Balance, end of period $ 26,093
---------------------
---------------------
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 June 30, 2011, the maximum counterparty credit risk exposure amounted to
$107,183, 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 June 30, 2011.
Contractual Less than 1
Carrying amount cash flows year
Trade and other payables $ 252,497 $ 252,497 $ 252,497
Bank indebtedness 6,253 6,253 6,253
Long-term debt (i) 618,668 667,632 93,718
Derivative instruments 746,210 2,981,790 1,397,500
----------------------------------------------------------------------------
$ 1,623,628 $ 3,908,172 $ 1,749,968
----------------------------------------------------------------------------
----------------------------------------------------------------------------
More than 5
1 to 3 years 4 to 5 years years
Trade and other payables $ - $ - $ -
Bank indebtedness - - -
Long-term debt (i) 113,065 117,532 343,317
Derivative instruments 1,330,010 251,040 3,240
----------------------------------------------------------------------------
$ 1,443,075 $ 368,572 $ 346,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 June 30, 2011, net interest payments
over the life of the long-term debt and bank credit facility are as follows:
Less than 1 More than 5
year 1 to 3 years 4 to 5 years years
----------------------------------------------------------------------------
Interest payments $ 39,759 $ 72,901 $ 56,349 $ 79,772
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 $1,091 to
accommodate for its counterparties' risk of default.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
For the three months ended June 30,
2011
Foreign
currency
translation Cash flow
adjustment hedges Total
Balance, beginning of period $ 29,033 $ 94,886 $ 123,919
Unrealized foreign currency
translation adjustment (3,745) - (3,745)
Amortization of deferred unrealized
gain on discontinued hedges net of
income taxes of $7,375 - (13,017) (13,017)
-----------------------------------------
$ 25,288 $ 81,869 $ 107,157
-----------------------------------------
For the three months ended June 30,
2010
Foreign
currency
translation Cash flow
adjustment hedges Total
Balance, beginning of period $ 28,584 $ 193,385 $ 221,969
Unrealized foreign currency
translation adjustment 14,881 - 14,881
Amortization of deferred unrealized
gain on discontinued hedges net of
income taxes of $6,259 - (28,723) (28,723)
-----------------------------------------
$ 43,465 $ 164,662 $ 208,127
-----------------------------------------
12. SHAREHOLDERS' CAPITAL AND CONTRIBUTED SURPLUS
Prior to the Conversion
Effective January 1, 2011, Just Energy completed the Conversion from an income
trust to a corporation. As a result of the Conversion Just Energy's trust units,
along with the issued exchangeable and Class A preference shares, were exchanged
on a one-for-one basis into shares of JEGI.
Prior to the Conversion, the trust units were redeemable at the option of the
Fund's Unitholders. The redemption price was calculated as the lower of the
closing price on the day the units were tendered for redemption and 90% of the
market price of the units for the ten days after redemption. The Fund had no
redemptions for the period for which the trust units were outstanding.
IFRS requires financial instruments which include a redemption feature, making
the instruments puttable, to be presented as a financial liability rather than
equity. However, an exception to that requirement is available if the financial
instrument meets certain criteria. Just Energy determined that the Fund's units
met the requirements for this exception and accordingly, the trust units are
presented as equity for the periods prior to the Conversion.
Details of issued unitholders' capital are as follows for the year ended March
31, 2011:
Issued and outstanding Units Amount
Balance, beginning of year 124,325,307 $ 777,856
Unit based awards exercised 38,989 462
Distribution reinvestment plan 1,324,834 17,935
Exchanged from Exchangeable Shares 894,018 12,595
Units exchanged pursuant to
Conversion (126,583,148) (808,848)
------------------------------------------
Balance, end of year - $ -
------------------------------------------
Subsequent to the Conversion
On January 1, 2011 Just Energy issued common shares in exchange for the
outstanding trust units of the Fund. The exchange of the trust units of the Fund
was accounted for as an exchange of equity instruments at carrying value. The
exchange of Exchangeable Shares for common shares was accounted for as an
extinguishment of the liability associated with Exchangeable Shares, at the
redemption value measured on the date of the exchange.
Details of issued shareholders' capital are as follows for the three months
ended June 30, 2011 with comparatives for the year ended March 31, 2011:
Three months ended Year ended
June 30, 2011 March 31, 2011
Issued and outstanding Shares Amount Shares Amount
Balance, beginning of
period 136,963,726 $ 963,982 - -
Shares issued pursuant
to Conversion
Trust units - - 126,583,148 808,848
Class A preference
shares (Note 19) - - 5,263,728 78,798
Exchangeable shares
(Note 19) - - 3,794,154 56,799
Shares issued to
minority shareholder
in exchange for
interest in TGF (i) - - 689,940 10,328
Share-based awards
exercised 39,042 587 86,374 1,097
Dividend reinvestment
plan (ii) 604,162 8,676 546,382 8,112
-----------------------------------------------------
Balance, end of period 137,606,930 $ 973,245 136,963,726 $ 963,982
-----------------------------------------------------
(i) Shares issued
During the year ended March 31, 2011, Just Energy issued 689,940 shares to
acquire the interest held by the minority shareholder of TGF pursuant to the
exercise of the minority holders put right. The shares were valued at $10,328
and the difference between $18,285 representing the value of the minority
interest of TGF at the time of issuance, and the value of the shares has been
recorded as an increase to contributed surplus.
(ii) Dividend reinvestment plan
Under Just Energy's dividend reinvestment plan ("DRIP"), shareholders holding a
minimum of 100 common shares can elect to receive their dividends in common
shares rather than cash at a 2% discount to the simple average closing price of
the common shares for five trading days preceding the applicable dividend
payment date, providing the common shares are issued from treasury and not
purchased on the open market.
Contributed surplus is as follows for the three months ended June 30, 2011 with
comparatives for the year ended March 31, 2011:
Three months ended Year ended
Issued and outstanding June 30, 2011 March 31, 2011
Balance, beginning of period $ 52,723 -
Reclassification resulting from
Conversion (Note 19) - 43,147
Add: Gain on acquisition of
minority interest - 7,957
Share-based compensation 1,681 2,683
Non-cash deferred share grant
distribution 32 33
Less: Share-based awards exercised (587) (1,097)
------------------------------------------
Balance, end of period $ 53,849 $ 52,723
------------------------------------------
13. LONG-TERM DEBT AND FINANCING
June 30, 2011 March 31, 2011
Credit facility (a) $ 63,000 $ 53,000
Less: Debt issue costs (a) (1,772) (1,965)
TGF credit facility (b)(i) 35,521 36,680
TGF debentures (b)(ii) 36,002 37,001
NHS financing (c) 113,109 105,716
$90 million convertible debentures
(d) 85,046 84,706
$330 million convertible
debentures (e) 287,762 286,439
------------------------------------------
618,668 601,577
Less: current portion (93,718) (94,117)
------------------------------------------
$ 524,950 $ 507,460
------------------------------------------
Future annual minimum principal repayments are as follows:
Less than 1 1 to 3 4 to 5 More than 5
year years years years Total
Credit facility (a) $- $63,000 $- $- $63,000
TGF credit facility
(b)(i) 35,521 - - - 35,521
TGF debentures
(b)(ii) 36,002 - - - 36,002
NHS HTC financing
(c) 22,195 50,065 27,532 13,317 113,109
$90 million
convertible
debentures (d) - - 90,000 - 90,000
$330 million
convertible
debentures (e) - - - 330,000 330,000
--------------------------------------------------------
$93,718 $113,065 $117,532 $343,317 $667,632
--------------------------------------------------------
--------------------------------------------------------
The following table details the finance costs for the three months ended June
30. Interest is expensed at the effective interest rate.
June 30, 2011 June 30, 2010
Credit facility (a) $ 1,946 $ 1,359
TGF credit facility (b)(i) 537 447
TGF debentures (b)(ii) 1,130 950
TGF term/operating facilities
(b)(iii) - 311
NHS financing (c) 2,149 1,341
$90 million convertible debentures
(d) 1,690 1,664
$330 million convertible debentures
(e) 6,273 3,800
Provisions (Note 14) 67 65
Dividend classified as interest
(Note 24) - 2,818
----------------------------------------
$ 13,792 $ 12,755
----------------------------------------
(a) As at June 30, 2011, Just Energy has 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 term of the facility expires 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 are at rates of interest that vary between bank prime
plus 2.25% and 2.75% and letters of credit are at rates that vary between 3.25%
and 3.75%. Interest rates are adjusted quarterly based on certain financial
performance indicators.
As at June 30, 2011, the Canadian prime rate was 3.0% and the U.S. prime rate
was 3.25%. As at June 30, 2011, Just Energy had drawn $63,000 (March 31, 2011 -
$53,000) against the facility and total letters of credit outstanding amounted
to $80,671 (March 31, 2011 - $78,209). As at June 31, 2011, debt issue costs
relating to the facility are $1,772 (March 31, 2011 - $1,965). As at June 30,
2011, Just Energy has $206,329 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 general security agreement and a pledge of the assets and
securities of Just Energy and the majority of its operating subsidiaries and
affiliates excluding, among others, NHS and TGF. Just Energy is required to meet
a number of financial covenants under the credit facility agreement. As at June
30, 2011 and 2010, all of these covenants had been met.
(b) In connection with the acquisition of Universal Energy Group Ltd.
("Universal") 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, 2010 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. The covenants will
be measured as of March 31, 2012, and non-attainment may result in a
non-compliance fee up to 0.25% of the loan balance as of March 31, 2012. As at
June 30, 2011, the amount owing under this facility amounted to $35,521.
(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. TGF was in recent negotiations with the lender and
adjusted the covenant levels. In addition the interest rate was increased to 12%
and quarterly blended principal and interest payments of $1,100 were
established. 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. Compliance
with the new covenants will be measured annually beginning with the fiscal 2012
year end. The maturity date was extended to May 15, 2014, with a call right any
time after April 1, 2012. The debenture holders have no recourse to the Company
or any other Just Energy entity. As of June 30, 2011, the amount owing under
this debenture agreement amounted to $36,002.
(iii) 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, 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 10 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 $113,109 owing under this agreement, including $4,398 relating to the
holdback provision, recorded in non- current receivables, as at June 30, 2011.
NHS is required to meet a number of covenants under the agreement. As at June
30, 2011, all of these covenants have been met.
(d) In conjunction with a previous, the Company also acquired the obligations of
a convertible unsecured subordinated debentures (the "$90 million convertible
debentures") issued in October 2007. The fair value of the $90 million
convertible debentures 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 31.53 shares,
representing a conversion price of $31.72 per common share as at June 30, 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 period, interest expense amounted
to $1,690.
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
issued $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 period, interest
expense amounted to $6,273. 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' deficit 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.
As a result of adopting IFRS, Just Energy has recorded a future tax liability of
$15,728 on its convertible debentures and reduced the value of the equity
component of convertible debentures by this amount.
14. PROVISIONS
June 30, 2011 March 31, 2011
Cost:
Opening balance for the period $ 7,250 $ 7,008
Provisions made during the period 134 2,853
Provisions reversed and used
during the period (67) (2,808)
Unwinding of discount 67 462
Foreign exchange (30) (265)
------------------------------------------
Ending balance for the period $ 7,354 $ 7,250
------------------------------------------
Current $ 4,061 $ 4,006
Non-current 3,293 3,244
------------------------------------------
$ 7,354 $ 7,250
------------------------------------------
Legal issues
The provision for legal issues shown above include the expected cash outflows
from major claims and for several smaller litigation matters.
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 FERC against any 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 are not determinable.
15. REPORTABLE BUSINESS SEGMENTS
Just Energy operates in four reportable segments: gas marketing, electricity
marketing, ethanol and home services. Reporting by products and services is in
line with Just Energy's performance measurement parameters.
Transfer prices between operating segments are on an arm's length basis in a
manner similar to transactions with third parties.
No operating segments have been aggregated to form the above reportable
operating segments.
Management monitors the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating profit or loss
and is measured consistently with operating profit or loss in the consolidated
financial statements. Just Energy is not considered to have any key customers.
The following tables present Just Energy's results by operating segments:
For the three
months ended
June 30, 2011
Gas Electricity Home
marketing marketing Ethanol services Consolidated
-----------------------------------------------------------
Revenue $ 202,457 $ 385,744 $ 30,192 $ 7,807 $ 626,200
Gross margin 25,112 60,372 2,545 6,232 94,261
Amortization of
property, plant
and equipment 337 673 293 38 1,341
Amortization of
intangible
assets 8,878 20,022 5 399 29,304
Other operating
expenses 19,948 44,130 2,765 4,490 71,333
-----------------------------------------------------------
Operating profit
(loss) for the
period $ (4,051) $ (4,453) $ (518) $ 1,305 $ (7,717)
Finance costs (3,512) (6,442) (1,687) (2,151) (13,792)
Change in fair
value of
derivative
instruments 51,582 28,160 (45) - 79,697
Other income 40 125 - - 165
Provision for
income tax
expense 2,635 4,586 - - 7,221
-----------------------------------------------------------
Profit for the
period $ 41,424 $ 12,804 $ (2,250) $ (846) $ 51,132
-----------------------------------------------------------
Capital
expenditures $ 687 $ 1,355 $ 27 $ 9,526 $ 11,595
-----------------------------------------------------------
Total goodwill $ 129,517 $ 97,361 $ - $ 283 $ 227,161
-----------------------------------------------------------
Total assets $ 506,644 $ 659,648 $163,203 $ 141,993 $ 1,471,488
-----------------------------------------------------------
Total liabilities $ 702,551 $ 743,385 $ 95,660 $ 119,856 $ 1,661,452
-----------------------------------------------------------
For the three
months ended
June 30, 2010
Gas Electricity Home
marketing marketing Ethanol services Consolidated
-----------------------------------------------------------
Revenue $ 202,763 $ 385,674 $ 16,806 $ 4,441 $ 609,684
Gross margin 17,415 62,896 (2,788) 2,832 80,355
Amortization of
property, plant
and equipment 612 944 296 68 1,920
Amortization of
intangible
assets 10,454 16,320 - 398 27,172
Other operating
expenses 21,695 39,193 2,473 4,229 67,590
-----------------------------------------------------------
Operating profit
(loss) for
the period $ (15,346) $ 6,439 (5,557) $ (1,863) $ (16,327)
Finance costs (3,948) (5,759) (1,707) (1,341) (12,755)
Change in fair
value of
derivative
instruments 157,682 177,865 - - 335,547
Other income
(expense) 2,635 (859) 6 - 1,782
Provision for
income tax
expense 16,959 21,317 - (818) 37,458
-----------------------------------------------------------
Profit for the
period $ 124,064 $ 156,369 $ (7,258) $ (2,386) $ 270,789
-----------------------------------------------------------
Capital
expenditures $ 523 $ 816 $ 114 $ 8,154 $ 9,607
-----------------------------------------------------------
Total goodwill $ 141,643 $ 88,657 $ - $ 283 $ 230,583
-----------------------------------------------------------
Total assets $ 742,930 $ 912,639 $ 156,102 $ 94,981 $ 1,906,652
-----------------------------------------------------------
Total liabilities $ 959,622 $ 1,061,968 $ 100,595 $ 73,714 $ 2,195,899
-----------------------------------------------------------
Geographic information
Revenues from external customers
For the three months For the three months
ended June 30, 2011 ended June 30, 2010
Canada $ 281,415 $ 307,281
United States 344,785 302,403
----------------------------------------------
Total revenue per consolidated
income statement $ 626,200 $ 609,684
----------------------------------------------
The revenue above is based on the location of the customer.
Non-current assets
Non-current assets for this purpose consist of property, plant and equipment and
intangible assets and are summarized as follows:
As at June 30, 2011 As at June 30, 2010
Canada $ 520,930 $ 627,785
United States 294,244 473,265
--------------------------------------------------
Total $ 815,174 $ 1,101,050
--------------------------------------------------
16. OTHER INCOME, EXPENSES AND ADJUSTMENTS
For the three months ended June 30
(a) Other operating expenses
2011 2010
Amortization of gas contracts $ 6,740 $ 8,882
Amortization of electricity contracts 16,166 14,027
Amortization of water heaters 399 398
Amortization of other intangible assets 5,999 3,865
Amortization of property, plant and equipment 1,341 1,920
Bad debt expense 6,814 5,749
Transaction costs - 1,099
Capital tax - 133
Share-based compensation 1,681 2,010
------------------------------
$ 39,140 $ 38,083
------------------------------
(b) Amortization and cost of inventories included in the consolidated income
statement
Included in cost of sales:
2011 2010
Amortization $ 2,903 $ 2,410
Costs of inventories recognized as an expense 529,036 526,919
------------------------------
$ 531,939 $ 529,329
------------------------------
(c) Included in change of fair value of derivative instruments:
2011 2010
Amortization of gas contracts $ 12,765 $ 12,729
Amortization of electricity contracts 24,323 22,748
(d) Employee benefit expense
2011 2010
Wages, salaries and commissions $ 38,203 $ 30,145
Benefits 5,250 4,788
------------------------------
$ 43,453 $ 34,933
------------------------------
17. INCOME TAXES
2011 2010
--------------------------------
Current income tax recovery $ (2,238) $ (1,002)
Future tax expense 9,459 38,460
--------------------------------
Provision for income tax $ 7,221 $ 37,458
--------------------------------
--------------------------------
Just Energy's previous income trust structure required certain temporary
differences to be measured at higher deferred tax rates under IFRS. When Just
Energy converted to a corporation on January 1, 2011, Just Energy re-measured
its deferred tax balances in accordance with IFRS Standing Interpretations
Committee ("SIC") Standards - 25 "Changes in Tax Structure of an Entity" using
the tax rates applicable to a corporation.
18. INCOME PER UNIT/SHARE
2011 2010
Basic income per unit/share
Net income available to shareholders $ 51,132 $273,409
--------------------------------
Basic units and shares outstanding 137,180,059 124,818,132
--------------------------------
Basic income per share/unit $ 0.37 $2.19
--------------- ----------------
--------------- ----------------
Diluted income per unit/share
Net income available to shareholders 51,132 $273,409
Adjusted net income for dilutive impact of
convertible debentures 6,017 3,925
Adjusted net income for financial
liabilities - (8,614)
--------------------------------
Adjusted net income 57,149 268,720
--------------------------------
Basic units and shares outstanding 137,180,059 124,818,132
Dilutive effect of:
Weighted average number of Class A
preference shares - 5,263,728
Weighted average number of Exchangeable
Shares - 4,340,387
Restricted share grants 3,076,129 2,701,377
Deferred share grants 108,335 84,211
Convertible debentures 21,188,081 13,940,519
--------------------------------
Shares outstanding on a diluted basis 161,552,604 151,148,354
--------------------------------
Diluted income per share/unit $ 0.35 $1.78
--------------- ----------------
--------------- ----------------
19. LIABILITY ASSOCIATED WITH EXCHANGEABLE SHARES AND EQUITY-BASED COMPENSATION
PLANS
Liability associated with Exchangeable Shares
Since 2001 and up to and including January 1, 2011, Just Energy had Exchangeable
Shares and unit-based awards outstanding. These shares did not meet the
definition of an equity instrument in accordance with IAS 32, "Financial
Instruments: Presentation" and accordingly, were classified as financial
liabilities. The Exchangeable Shares were recorded upon transition to IFRS at
redemption value and subsequent to transition were adjusted to reflect the
redemption value at each reporting date. The resulting change from carrying
value to redemption value was recorded at transition and at each reporting
period to retained earnings and earnings respectively as a change in fair value
of derivative instruments. All dividends attributable to exchangeable
shareholders were recorded as interest expense in the reporting period for which
the dividends were declared.
As a result of the Conversion, the Exchangeable Shares were exchanged on a one
for one basis into common shares of JEGI. There were no Exchangeable Shares
outstanding following the Conversion.
Equity-based compensation plans
As the award holders were entitled to receive Fund units which under IFRS were
considered puttable financial instruments, the awards were classified as
liability-based awards. The fair value of awards was estimated at each reporting
period using the fair market value of the Fund units at the reporting date. The
resulting measurements of the liability were recorded as change in fair value of
derivative financial instruments.
As a result of the Conversion, Just Energy's equity-based compensation plan
awards are now settled in non-redeemable common shares resulting in equity plan
accounting under IFRS. Accordingly, the fair value of the vested portion of
outstanding awards was reclassified from liability to contributed surplus on
January 1, 2011.
The following table summarizes the changes in the liability associated with the
Exchangeable Shares and the equity-based compensation:
Exchangeable Shares Class A preference
of JEEC shares of JEC
---------------------------------------------------
Shares $-Value Shares $-Value
Opening balance April 1,
2010 4,688,172 66,947 5,263,728 75,166
Exchanged (422,673) (5,903) - -
Issued/forfeited - - - -
Non-cash deferred unit
grant - - - -
Unit-based compensation - - - -
Change in fair value - (7,043) - (8,527)
---------------------------------------------------
Balance June 30, 2010 4,265,499 54,001 5,263,728 66,639
Exchanged (217,716) (2,981) - -
Issued/forfeited - - - -
Non-cash deferred unit
grant - - - -
Unit-based compensation - - - -
Change in fair value - 8,240 - 10,422
---------------------------------------------------
Balance September 30,
2010 4,047,783 59,260 5,263,728 77,061
Exchanged (253,629) (3,711) - -
Issued/forfeited - - - -
Non-cash deferred unit
grant - - - -
Unit-based compensation - - - -
Change in fair value - 1,250 - 1,737
---------------------------------------------------
Balance December 31, 2010 3,794,154 56,799 5,263,728 78,798
Reclassified to share
capital on conversion to
corporation (3,794,154) (56,799) (5,263,728) (78,798)
Reclassified to
contributed surplus on
conversion to
corporation -
---------------------------------------------------
- - - -
---------------------------------------------------
Unit-based awards Total
---------------------------------------------------
Options DDUGS UARs $-Value $-Value
Opening balance April 1,
2010 352,500 84,138 2,640,723 39,015 181,128
Exchanged - - - - (5,903)
Issued/forfeited (217,500) 6,602 65,448 - -
Non-cash deferred unit
grant - - - 26 26
Unit-based compensation - - - 2,010 2,010
Change in fair value - - - (5,601) (21,171)
---------------------------------------------------
Balance June 30, 2010 135,000 90,740 2,706,171 35,450 156,090
Exchanged - - (38,989) (461) (3,442)
Issued/forfeited - 5,823 88,480 - -
Non-cash deferred unit
grant - - - 28 28
Unit-based compensation - - - 2,573 2,573
Change in fair value - - - 4,220 22,882
---------------------------------------------------
Balance September 30,
2010 135,000 96,563 2,755,662 41,810 178,131
Exchanged - - - - (3,711)
Issued/forfeited - 5,937 21,323 - -
Non-cash deferred unit
grant - - - 33 33
Unit-based compensation - - - 2,648 2,648
Change in fair value - - - (1,344) 1,643
---------------------------------------------------
Balance December 31, 2010 135,000 102,500 2,776,985 43,147 178,744
Reclassified to share
capital on conversion to
corporation - - - - (135,597)
Reclassified to
contributed surplus on
conversion to
corporation (135,000) (102,500)(2,776,985) (43,147) (43,147)
---------------------------------------------------
- - - - -
---------------------------------------------------
20. DISTRIBUTIONS AND DIVIDENDS PAID AND PROPOSED
For the three months ended June 30, 2011, dividends of $0.31 (2010 - $0.31) per
unit/share were proposed and paid by Just Energy. This amounted to $43,605 (2010
- $39,459) which was approved throughout the period by the Board of Directors
and was paid out during the quarter.
Declared dividends subsequent to quarter end
On July 5, 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 July 31, 2011 to shareholders of record at the close of business on July
15, 2011.
On August 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 August 31, 2011 to shareholders of record at the close of business on
August 15, 2011.
21. COMMITMENTS
Commitments for each of the next five years and thereafter are as follows:
As at June 30, 2011
Long-term
gas and
Master electricity
Premises and Grain Services contracts
equipment production agreement with various
leasing contracts with EPCOR suppliers
Less than 1 year $ 8,333 $ 3,849 $ 2,588 $ 1,397,500
One to three years 11,435 1,267 - 1,330,010
Four to five years 6,837 - - 251,040
Exceeding five years 4,468 - - 3,240
------------ ------------ ------------ ------------
$ 31,073 $ 5,116 $ 2,588 $ 2,981,790
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
As at June 30, 2010
Long-term
gas and
Master electricity
Premises and Grain Services contracts
equipment production agreement with various
leasing contracts with EPCOR suppliers
Less than 1 year $ 8,256 $ 44,212 $ 8,653 $ 1,712,415
One to three years 11,741 8,254 7,692 1,798,491
Four to five years 6,138 - - 417,250
Exceeding five years 5,021 - - 8,143
------------ ------------ ------------ ------------
$ 31,156 $ 52,466 $ 16,345 $ 3,936,299
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
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. Just Energy has entered into leasing contracts for office buildings and
administrative equipment. These leases have a leasing period between one and
eight years. For the main office building of Just Energy, there is a renewal
option for an additional five years. No purchase options are included in any
major leasing contracts.
22. ADJUSTMENTS REQUIRED TO REFLECT NET CASH RECEIPTS FROM GAS SALES
Changes in: 2011 2010
Accrued gas receivable $ 12,146 $ 17,971
Gas delivered in excess of consumption (7,794) (12,551)
Accrued gas accounts payable (8,932) (12,567)
Deferred revenue 7,688 15,583
--------------------------------
$ 3,108 $ 8,436
--------------------------------
--------------------------------
23. CHANGES IN NON-CASH WORKING CAPITAL
2011 2010
Accounts receivable and unbilled revenues $ 32,537 $ 91,232
Gas in storage (20,686) (33,545)
Prepaid expenses 55 (1,329)
Inventory 2,973 1,687
Trade and other payables (18,965) (51,477)
Provisions 37 (464)
--------------------------------
$ (4,049) $ 6,104
--------------------------------
--------------------------------
24. EXPLANATION OF TRANSITION TO IFRS
For all periods up to and including the year ended March 31, 2011, Just Energy
prepared its financial statements in accordance with Canadian GAAP. These
financial statements, for the three months ended June 30, 2011, are the first
financial statements that Just Energy has prepared in accordance with IFRS.
Accordingly, Just Energy has prepared financial statements which comply with
IFRS for periods beginning on or after April 1, 2011, as described in the
accounting policies set out in Note 3. In preparing these financial statements,
Just Energy's opening consolidated statement of financial position was prepared
as at April 1, 2010 (Just Energy's date of transition).
In preparing the opening IFRS consolidated statement of financial position, Just
Energy has adjusted amounts previously reported in consolidated financial
statements prepared in accordance with Canadian GAAP. An explanation of how the
transition from Canadian GAAP to IFRS has affected Just Energy's financial
position, financial performance and cash flows is set out in the following
tables and the notes that accompany the tables.
(a) Elective exemptions from full retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1,
"First-time adoption of International Financial Reporting Standards" ("IFRS 1"),
Just Energy has applied certain optional exemptions from full retrospective
application of IFRS. The optional exemptions are described below.
(i) Business combinations
Just Energy has applied the business combinations exemption in IFRS 1 to not
apply IFRS 3, "Business Combinations" retrospectively. Accordingly, Just Energy
has not restated business combinations that took place prior to the transition
date.
(ii) Share-based payment transactions
Just Energy has elected to apply IFRS 2, "Share-based Payments" to equity
instruments granted on or before November 7, 2002, or which are vested by the
transition date.
(iii) Borrowing costs
IAS 23, "Borrowing Costs", requires that Just Energy capitalize the borrowing
costs related to all qualifying assets for which the commencement date for
capitalization is on or after April 1, 2010. Just Energy elected not to early
adopt this policy and has, therefore, expensed all borrowing costs prior to
transition.
(b) Mandatory exemptions to retrospective application
In preparing these consolidated financial statements in accordance with IFRS 1,
Just Energy has applied certain mandatory exemptions from full retrospective
application of IFRS. The mandatory exceptions applied from full retrospective
application of IFRS are described below.
(i) Estimates
Hindsight was not used to create or revise estimates and accordingly, the
estimates previously made by Just Energy under Canadian GAAP are consistent with
their application under IFRS.
(ii) Hedge accounting
Hedge accounting can only be applied prospectively from the transition date to
transactions that satisfy the hedge accounting criteria in IAS 39 at that date.
Hedging relationships cannot be designated retrospectively and the supporting
documentation cannot be created prospectively. Just Energy has not applied any
hedge accounting at or after the transition date.
Prior to July 1, 2008, Just Energy utilized hedge accounting for its customer
contracts and formally documented the relationship between hedging instruments
and the hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. Effective July 1, 2008, Just Energy
ceased the utilization of hedge accounting. The balance still remaining in
accumulated other comprehensive income relates to the effective portion of the
hedges that are still expected to occur as of the transition date.
Reconciliation of Financial Position and Equity at April 1, 2010:
----------------------------------------------------------------------------
Canadian
Canadian GAAP GAAP IFRS IFRS
accounts balances adjustments reclassifications IFRS balance
----------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant
and equipment $ 217,223 $ (547) $ - $ 216,676
Intangible assets 342,022 - 186,832 528,854
Goodwill 190,862 (4,030) (186,832) -
Other assets
long-term 5,027 - - 5,027
Long-term
receivables 2,014 - - 2,014
Contract
initiation costs 5,587 5,587
Future income tax
assets 85,197 150,771 29,139 265,107
----------------------------------------------------------
847,932 146,194 29,139 1,023,265
Current assets
Inventory 6,323 - - 6,323
Gas in storage 4,058 - - 4,058
Gas delivered in
excess of
consumption 7,410 - - 7,410
Accounts
receivable 232,579 - - 232,579
Accrued gas
receivable 20,793 - - 20,793
Unbilled revenues 61,070 - - 61,070
Prepaid expenses
and deposits 20,038 - - 20,038
Other assets -
current 2,703 - - 2,703
Current portion
of future income
tax assets 29,139 - (29,139) -
Cash 60,132 - 18,650 78,782
Restricted cash 18,650 - (18,650) -
----------------------------------------------------------
462,895 - (29,139) 433,756
----------------------------------------------------------
TOTAL ASSETS $ 1,310,827 $ 146,194 $ - $ 1,457,021
----------------------------------------------------------
EQUITY AND
LIABILITIES
Unitholders'
deficiency
Deficit $ (1,423,698) $ (132,971) $ - $ (1,556,669)
Accumulated other
comprehensive
income 221,969 - - 221,969
Unitholders'
capital 659,118 118,738 - 777,856
Contributed
surplus 18,832 (18,832) - -
----------------------------------------------------------
Unitholders'
deficiency (523,779) (33,065) - (556,844)
Non-controlling
interest 20,603 (182) - 20,421
----------------------------------------------------------
Total equity (503,176) (33,247) - (536,423)
Liabilities
Non-current
liabilities
Long-term debt 231,837 - - 231,837
Provisions - 3,270 (146) 3,124
Deferred lease
inducements 1,984 - - 1,984
Other liabilities
- long-term 590,572 - - 590,572
Future income
taxes - - 6,776 6,776
Liability
associated with
exchangeable
shares and
equity-based
compensation 181,128 181,128
----------------------------------------------------------
824,393 184,398 (6,630) 1,015,421
Current
liabilities
Bank indebtedness 8,236 - - 8,236
Accounts payable
and accrued
liabilities 184,682 (7,460) 146 177,368
Accrued gas
accounts payable 15,093 - - 15,093
Deferred revenue 7,202 - - 7,202
Unit distribution
payable 13,182 - - 13,182
Corporate taxes
payable 6,410 - - 6,410
Current portion
of long-term
debt 62,829 (1,381) - 61,448
Provisions - 3,884 - 3,884
Current portion
future income
tax liabilities 6,776 - (6,776) -
Other liabilities
- current 685,200 - - 685,200
----------------------------------------------------------
989,610 (4,957) (6,630) 978,023
----------------------------------------------------------
TOTAL LIABILITIES $ 1,814,003 $ 179,441 $ - $ 1,993,444
----------------------------------------------------------
TOTAL EQUITY AND
LIABILITIES $ 1,310,827 $ 146,194 $ - $ 1,457,021
----------------------------------------------------------
----------------------------------------------------------------------------
Canadian GAAP
accounts IFRS accounts
----------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current assets
Property, plant Property, plant and equipment
and equipment
Intangible assets Intangible assets
Goodwill
Other assets Other non-current financial assets
long-term
Long-term Non-current receivables
receivables
Contract Contract initiation costs
initiation costs
Future income tax Deferred tax asset
assets
Current assets Current assets
Inventory Inventories
Gas in storage
Gas delivered in Gas delivered in excess of consumption
excess of
consumption
Accounts Current trade and other receivables
receivable
Accrued gas Accrued gas receivable
receivable
Unbilled revenues Unbilled revenues
Prepaid expenses Prepaid expenses and deposits
and deposits
Other assets - Other current assets
current
Current portion
of future income
tax assets
Cash Cash and cash equivalents
Restricted cash
TOTAL ASSETS TOTAL ASSETS
EQUITY AND EQUITY AND LIABILITIES
LIABILITIES
Unitholders' Equity attributable to equity holders of the parent
deficiency
Deficit Deficit
Accumulated other Accumulated other comprehensive income
comprehensive
income
Unitholders' Unitholders' capital
capital
Contributed Contributed surplus
surplus
Unitholders' Unitholders' deficiency
deficiency
Non-controlling Non-controlling interest
interest
Total equity Total equity
Liabilities LIABILITIES
Non-current Non-current liabilities
liabilities
Long-term debt Long-term debt
Provisions Provisions
Deferred lease Deferred lease inducements
inducements
Other liabilities Other non-current financial liabilities
- long-term
Future income Deferred tax liability
taxes
Liability Liability associated with exchangeable shares and equity-
associated with based compensation
exchangeable
shares and
equity-based
compensation
Current Current liabilities
liabilities
Bank indebtedness Bank indebtedness
Accounts payable Trade and other payables
and accrued
liabilities
Accrued gas Accrued gas accounts payable
accounts payable
Deferred revenue Deferred revenue
Unit distribution Unit distribution payable
payable
Corporate taxes Income taxes payable
payable
Current portion Current portion of long-term debt
of long-term
debt
Provisions Provisions
Current portion
future income
tax liabilities
Other liabilities Other current financial liabilities
- current
TOTAL LIABILITIES TOTAL LIABILITIES
TOTAL EQUITY AND TOTAL EQUITY & LIABILITIES
LIABILITIES
Reconciliation of Consolidated Income Statement for the three months ended
June 30, 2010
----------------------------------------------------------------------------
Canadian GAAP Canadian IFRS IFRS
accounts GAAP Adjustment Reclassifications IFRS
----------------------------------------------------------------------------
SALES $ 609,684 $ - $ - $ 609,684
COST OF SALES 529,187 142 - 529,329
-----------------------------------------------------------
GROSS MARGIN 80,497 (142) - 80,355
EXPENSES
General and
administrative 29,272 (431) - 28,841
Marketing
expenses 29,758 - - 29,758
Other operating
expenses - 1,099 36,984 38,083
Bad debt expense 5,749 - (5,749) -
Amortization of
intangible
assets and
related supply
contracts 27,172 - (27,172) -
Amortization of
property, plant
and equipment 1,920 - (1,920) -
Unit-based
compensation 1,075 935 (2,010) -
Capital tax 133 - (133) -
-----------------------------------------------------------
$ 95,079 $ 1,603 $ - $ 96,682
-----------------------------------------------------------
Income (loss)
before the
undernoted (14,582) (1,745) - (16,327)
Interest expense 9,480 3,275 - 12,755
Change in fair
value of
derivative
instruments (314,376) (21,171) - (335,547)
Other income (1,782) - - (1,782)
-----------------------------------------------------------
Income before
income tax 292,096 16,151 - 308,247
Provision for
income tax
expense 19,360 18,098 - 37,458
-----------------------------------------------------------
NET INCOME (LOSS)
FOR THE PERIOD $ 272,736 $ (1,947) - $ 270,789
-----------------------------------------------------------
Attributable to:
Unitholders of
Just Energy $ 275,309 $ (1,900) - $ 273,409
Non-controlling
interests (2,573) (47) - (2,620)
-----------------------------------------------------------
NET INCOME (LOSS)
FOR THE PERIOD $ 272,736 $ (1,947) $ - $ 270,789
-----------------------------------------------------------
---------------------------------------------------------------------------
Canadian GAAP
accounts IFRS accounts
---------------------------------------------------------------------------
SALES SALES
COST OF SALES COST OF SALES
GROSS MARGIN GROSS MARGIN
EXPENSES EXPENSES
General and
administrative Administrative expenses
Marketing
expenses Selling and marketing expenses
Other operating
expenses Other operating expenses
Bad debt expense
Amortization of
intangible
assets and
related supply
contracts
Amortization of
property, plant
and equipment
Unit-based
compensation
Capital tax
Income (loss)
before the
undernoted Operating profit
Interest expense Finance costs
Change in fair
value of
derivative
instruments Change in fair value of derivative instruments
Other income Other income
Income before
income tax Income before income tax
Provision for
income tax
expense Provision for income tax expense
NET INCOME (LOSS)
FOR THE PERIOD PROFIT FOR THE PERIOD
Attributable to: Attributable to:
Unitholders of
Just Energy Unitholders of Just Energy
Non-controlling
interests Non-controlling interests
NET INCOME (LOSS)
FOR THE PERIOD PROFIT FOR THE PERIOD
Reconciliation of Consolidated Statement of Comprehensive Income for the
three months ended June 30, 2010:
----------------------------------------------------------------------------
Canadian GAAP Canadian IFRS IFRS
accounts GAAP Adjustment Reclassifications IFRS
----------------------------------------------------------------------------
NET INCOME $ 272,736 $ (1,947) $ - $ 270,789
Unrealized gain on
translation of
self-sustaining
operations 14,876 5 - 14,881
Amortization of
deferred
unrealized gain
on discontinued
hedges - net of
income taxes of
$5,850 (28,723) - - (28,723)
----------------------------------------------------------
OTHER
COMPREHENSIVE
LOSS (13,847) 5 - (13,842)
----------------------------------------------------------
COMPREHENSIVE
INCOME $ 258,889 $ (1,942) $ - $ 256,947
----------------------------------------------------------
Attributable to:
Unitholders of
Just Energy $ 261,462 $ (1,895) $ - $ 259,567
Non-controlling
interests (2,573) (47) (2,620)
----------------------------------------------------------
$ 258,889 $ (1,942) $ - $ 256,947
----------------------------------------------------------
----------------------------------------------------------------------------
Canadian GAAP
accounts IFRS accounts
----------------------------------------------------------------------------
NET INCOME NET INCOME
Unrealized gain on
translation of
self-sustaining Unrealized gain on translation of self-sustaining
operations operations
Amortization of
deferred
unrealized gain
on discontinued
hedges - net of
income taxes of Amortization of deferred unrealized gain on discontinued
$5,850 hedges - net of income taxes of $5,850
OTHER
COMPREHENSIVE
LOSS OTHER COMPREHENSIVE LOSS
COMPREHENSIVE
INCOME OTHER COMPREHENSIVE INCOME
Attributable to: Attributable to:
Unitholders of
Just Energy Unitholders of Just Energy
Non-controlling
interests Non-controlling interests
Reconciliation of Financial Position and Equity at June 30, 2010:
----------------------------------------------------------------------------
Canadian
Canadian GAAP GAAP IFRS IFRS
accounts balances adjustments reclassifications IFRS balance
----------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant
and equipment $ 226,593 $ (688) $ (991) $ 224,914
Intangible assets 644,562 - 231,574 876,136
Goodwill 235,740 (5,157) (230,583) -
Other assets
long-term 4,674 - - 4,674
Contract
initiation costs 28,330 - - 28,330
Long-term
receivable 3,898 - - 3,898
Future income tax
assets 88,484 131,913 14,940 235,337
----------------------------------------------------------
1,232,281 126,068 14,940 1,373,289
Current assets
Inventory 4,636 - - 4,636
Gas in storage 38,386 - - 38,386
Gas delivered in
excess of
consumption 21,325 - - 21,325
Accounts
receivable 312,900 - - 312,900
Unbilled revenues 20,978 - - 20,978
Prepaid expenses
and deposits 24,543 - - 24,543
Other assets -
current 1,637 - - 1,637
Current portion
of future income
tax assets 14,940 - (14,940) -
Cash 94,428 - 14,530 108,958
Restricted cash 14,530 - (14,530) -
----------------------------------------------------------
548,303 - (14,940) 533,363
----------------------------------------------------------
TOTAL ASSETS $ 1,780,584 $ 126,068 $ - $ 1,906,652
----------------------------------------------------------
EQUITY AND
LIABILITIES
Unitholders'
deficiency
Deficit $ (1,190,128) $ (132,591) $ - $ (1,322,719)
Accumulated other
comprehensive
income 208,122 5 - 208,127
Unitholders'
capital 664,717 124,641 - 789,358
Equity component 33,914 (15,728) - 18,186
Contributed
surplus 19,933 (19,933) - -
----------------------------------------------------------
(263,442) (43,606) - (307,048)
Non-controlling
interest 18,030 (229) - 17,801
----------------------------------------------------------
Total equity $ (245,412) $ (43,835) $ - $ (289,247)
----------------------------------------------------------
Liabilities
Non-current
liabilities
Long-term debt $ 496,478 $ - $ - $ 496,478
Future income
taxes - 15,506 9,513 25,019
Deferred lease
inducements 1,898 - - 1,898
Other liabilities
- long-term 496,292 - - 496,292
Provisions - 8,492 (5,151) 3,341
Liability
associated with
exchangeable
shares and
equity-based
compensation - 156,090 - 156,090
----------------------------------------------------------
994,668 180,088 4,362 1,179,118
Current
liabilities
Bank indebtedness 7,853 - - 7,853
Accounts payable
and accrued
liabilities 308,412 (9,196) - 299,216
Accrued gas
accounts payable 1,414 - - 1,414
Deferred revenue 25,202 - - 25,202
Unit distribution
payable 13,235 - - 13,235
Corporate taxes
payable 2,838 - - 2,838
Current portion
of long-term
debt 65,108 (989) - 64,119
Provisions - 5,151 - 5,151
Current portion
future income
tax liabilities 9,513 - (9,513) -
Other liabilities
- current 597,753 - - 597,753
----------------------------------------------------------
1,031,328 (5,034) (9,513) 1,016,781
----------------------------------------------------------
TOTAL LIABILITIES $ 2,025,996 $ 175,054 $ (5,151) $ 2,195,899
----------------------------------------------------------
TOTAL EQUITY AND
LIABILITIES $ 1,780,584 $ 131,219 $ (5,151) $ 1,906,652
----------------------------------------------------------
----------------------------------------------------------------------------
Canadian GAAP
accounts IFRS accounts
----------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current assets
Property, plant
and equipment Property, plant and equipment
Intangible assets Intangible assets
Goodwill
Other assets
long-term Other non-current financial assets
Contract
initiation costs Contract initiation costs
Long-term
receivable Non-current receivables
Future income tax
assets Deferred tax asset
Current assets Current assets
Inventory Inventories
Gas in storage
Gas delivered in
excess of
consumption Gas delivered in excess of consumption
Accounts
receivable Current trade and other receivables
Unbilled revenues Unbilled revenues
Prepaid expenses
and deposits Prepaid expenses and deposits
Other assets -
current Other current assets
Current portion
of future income
tax assets
Cash Cash and cash equivalents
Restricted cash
TOTAL ASSETS TOTAL ASSETS
EQUITY AND
LIABILITIES EQUITY AND LIABILITIES
Unitholders'
deficiency Equity attributable to equity holders of the parent
Deficit Deficit
Accumulated other
comprehensive
income Accumulated other comprehensive income
Unitholders'
capital Unitholders' capital
Equity component
Contributed
surplus Contributed surplus
Non-controlling
interest Non-controlling interest
Total equity Total equity
Liabilities LIABILITIES
Non-current
liabilities Non-current liabilities
Long-term debt Long-term debt
Future income
taxes Provisions
Deferred lease
inducements Deferred lease inducements
Other liabilities
- long-term Other non-current financial liabilities
Provisions Deferred tax liability
Liability
associated with
exchangeable
shares and
equity-based Liability associated with exchangeable shares and equity-
compensation based compensation
Current
liabilities Current liabilities
Bank indebtedness Bank indebtedness
Accounts payable
and accrued
liabilities Trade and other payables
Accrued gas
accounts payable Accrued gas accounts payable
Deferred revenue Deferred revenue
Unit distribution
payable Unit distribution payable
Corporate taxes
payable Income taxes payable
Current portion
of long-term
debt Current portion of long-term debt
Provisions Provisions
Current portion
future income
tax liabilities
Other liabilities
- current Other current financial liabilities
TOTAL LIABILITIES TOTAL LIABILITIES
TOTAL EQUITY AND
LIABILITIES TOTAL EQUITY AND LIABILITIES
Reconciliation of Consolidated Income Statement for the year ended March 31,
2011:
Canadian GAAP Canadian IFRS IFRS
accounts GAAP Adjustment Reclassifications IFRS
SALES $ 2,953,192 $ - $ - $ 2,953,192
COST OF SALES 2,470,989 641 - 2,471,630
----------------------------------------------------------
GROSS MARGIN 482,203 (641) - 481,562
EXPENSES
General and
administrative 109,407 (7) - 109,400
Marketing expenses 133,607 - - 133,607
Other operating
expenses - 1,284 164,291 165,575
Bad debt expense 27,650 - (27,650) -
Amortization of
intangible assets
and related
supply contracts 120,841 - (120,841) -
Amortization of
property, plant
and equipment 5,698 - (5,698) -
Unit-based
compensation 5,509 4,405 (9,914) -
Capital tax 188 (188) -
----------------------------------------------------------
402,900 5,682 - 408,582
----------------------------------------------------------
Income (loss)
before the
undernoted 79,303 (6,323) - 72,980
Interest expense 50,437 9,446 - 59,883
Change in fair
value of
derivative
instruments (509,401) 3,354 - (506,047)
Other income (7,235) - - (7,235)
----------------------------------------------------------
Income before
income tax 545,502 (19,123) - 526,379
Provision for
income tax
expense 32,142 141,297 - 173,439
----------------------------------------------------------
NET INCOME FOR THE
PERIOD $ 513,360 $ (160,420) $ - $ 352,940
----------------------------------------------------------
Attributable to:
Shareholders of
Just Energy $ 515,347 $ (160,271) $ - $ 355,076
Non-controlling
interests (1,987) (149) - (2,136)
----------------------------------------------------------
$ 513,360 $ (160,420) $ - $ 352,940
Canadian GAAP
accounts IFRS accounts
SALES SALES
COST OF SALES COST OF SALES
GROSS MARGIN GROSS MARGIN
EXPENSES EXPENSES
General and
administrative Administrative expenses
Marketing expenses Selling and marketing expenses
Other operating
expenses Other operating expenses
Bad debt expense Bad debt expense
Amortization of
intangible assets
and related Amortization of intangible assets and related supply
supply contracts contracts
Amortization of
property, plant
and equipment Amortization of property, plant and equipment
Unit-based
compensation Unit-based compensation
Capital tax Capital tax
Income (loss)
before the
undernoted Operating profit
Interest expense Finance costs
Change in fair
value of
derivative
instruments Change in fair value of derivative instruments
Other income Other income
Income before
income tax Income before income tax
Provision for
income tax
expense Provision for income tax expense
NET INCOME FOR THE
PERIOD PROFIT FOR THE PERIOD
Attributable to: Attributable to:
Shareholders of
Just Energy Shareholders of Just Energy
Non-controlling
interests Non-controlling interests
Reconciliation of consolidated statement of comprehensive income for the
year ended March 31, 2011:
Canadian IFRS IFRS
GAAP Adjustment Reclassifications IFRS
NET INCOME $ 513,360 $ (160,420) $ - $ 352,940
Unrealized gain on
translation of
self-sustaining
operations 334 115 - 449
Amortization of
deferred
unrealized gain on
discontinued
hedges - net of
income taxes of
$21,384 (98,499) - - (98,499)
---------------------------------------------------------
OTHER COMPREHENSIVE
LOSS (98,165) 115 - (98,050)
---------------------------------------------------------
COMPREHENSIVE
INCOME $ 415,195 $ (160,305) $ - $ 254,890
---------------------------------------------------------
Attributable to:
Shareholders of
Just Energy $ 417,182 $ (160,156) $ - $ 257,026
Non-controlling
interests (1,987) (149) - (2,136)
---------------------------------------------------------
$ 415,195 $ (160,305) $ - $ 254,890
NET INCOME NET INCOME
Unrealized gain on Unrealized gain on translation of self-sustaining
translation of operations
self-sustaining
operations
Amortization of Amortization of deferred unrealized gain on discontinued
deferred hedges - net of income taxes of $21,384
unrealized gain on
discontinued
hedges - net of
income taxes of
$21,384
OTHER COMPREHENSIVE OTHER COMPREHENSIVE LOSS
LOSS
COMPREHENSIVE OTHER COMPREHENSIVE INCOME
INCOME
Attributable to: Attributable to:
Shareholders of Shareholders of Just Energy
Just Energy
Non-controlling Non-controlling interests
interests
Reconciliation of Financial Position and Equity at March 31, 2011:
----------------------------------------------------------------------------
Canadian
Canadian GAAP GAAP IFRS IFRS
accounts balances adjustments reclassifications IFRS balance
----------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant
and equipment $ 235,189 $ (1,187) $ - $ 234,002
Intangible assets 412,752 - 227,467 640,219
Goodwill 224,409 3,058 (227,467) -
Other assets long-
term 5,384 - - 5,384
Contract
initiation costs 29,654 - - 29,654
Long-term
receivable 4,569 - - 4,569
Future income tax
assets 85,899 (489) 36,375 121,785
---------------------------------------------------------
997,856 1,382 36,375 1,035,613
Current assets
Inventory 6,906 - - 6,906
Gas in storage 6,133 - - 6,133
Gas delivered in
excess of
consumption 3,481 - - 3,481
Accounts
receivable 281,685 - - 281,685
Unbilled revenues 112,147 - - 112,147
Accrued gas
receivable 26,535 26,535
Prepaid expenses
and deposits 6,079 - - 6,079
Other assets -
current 3,846 - - 3,846
Corporate tax
recoverable 9,135 - 9,135
Current portion of
future income tax
assets 36,375 - (36,375) -
Cash 97,633 - 833 98,466
Restricted cash 833 - (833) -
---------------------------------------------------------
590,788 - (36,375) 554,413
---------------------------------------------------------
TOTAL ASSETS $ 1,588,644 $ 1,382 $ - $ 1,590,026
---------------------------------------------------------
EQUITY AND
LIABILITIES
Shareholders'
deficiency
Deficit $ (1,063,179) $ (286,749) $ - $(1,349,928)
Accumulated other
comprehensive
income 123,804 115 - 123,919
Shareholders'
capital 697,052 266,930 - 963,982
Equity component of
convertible debt 33,914 (15,728) - 18,186
Contributed surplus 22,903 29,820 - 52,723
---------------------------------------------------------
Total equity $ (185,506) $ (5,612) $ - $ (191,118)
---------------------------------------------------------
Liabilities
Non-current
liabilities
Long-term debt $ 507,460 $ - $ - $ 507,460
Future income
taxes 2,657 7,046 13,216 22,919
Deferred lease
inducements 1,622 - - 1,622
Other liabilities
- long-term 355,412 - - 355,412
Provisions - 3,244 - 3,244
---------------------------------------------------------
867,151 10,290 13,216 890,657
Current liabilities
Bank indebtedness 2,314 - - 2,314
Accounts payable
and accrued
liabilities 282,805 (7,302) - 275,503
Accrued gas
accounts payable 19,353 - - 19,353
Corporate taxes
payable 9,788 - - 9,788
Current portion of
long-term debt 94,117 - - 147,117
Provisions 4,006 - 4,006
Current portion
future income tax
liabilities 13,216 - (13,216) -
Other liabilities
- current 485,406 - - 485,406
---------------------------------------------------------
906,999 (3,296) (13,216) 890,487
---------------------------------------------------------
TOTAL LIABILITIES $ 1,774,150 $ 6,994 $ - $ 1,781,144
---------------------------------------------------------
TOTAL EQUITY AND
LIABILITIES $ 1,588,644 $ 1,382 $ - $ 1,590,026
---------------------------------------------------------
----------------------------------------------------------------------------
Canadian GAAP IFRS accounts
accounts
----------------------------------------------------------------------------
ASSETS ASSETS
Non-current assets Non-current assets
Property, plant Property, plant and equipment
and equipment
Intangible assets Intangible assets
Goodwill
Other assets long- Other non-current financial assets
term
Contract Contract initiation costs
initiation costs
Long-term Non-current receivables
receivable
Future income tax Deferred tax asset
assets
Current assets Current assets
Inventory Inventories
Gas in storage Gas in storage
Gas delivered in Gas delivered in excess of consumption
excess of
consumption
Accounts Current trade and other receivables
receivable
Unbilled revenues Unbilled revenues
Accrued gas Accrued gas receivable
receivable
Prepaid expenses Prepaid expenses and deposits
and deposits
Other assets - Other current assets
current
Corporate tax Corporate tax recoverable
recoverable
Current portion of
future income tax
assets
Cash Cash and cash equivalents
Restricted cash
TOTAL ASSETS TOTAL ASSETS
EQUITY AND EQUITY AND LIABILITIES
LIABILITIES
Shareholders' Equity attributable to equity holders of the parent
deficiency
Deficit Deficit
Accumulated other Accumulated other comprehensive income
comprehensive
income
Shareholders' Shareholders' capital
capital
Equity component of Equity component of convertible debt
convertible debt
Contributed surplus Contributed surplus
Total equity Total equity
Liabilities LIABILITIES
Non-current Non-current liabilities
liabilities
Long-term debt Long-term debt
Future income Provisions
taxes
Deferred lease Deferred lease inducements
inducements
Other liabilities Other non-current financial liabilities
- long-term
Provisions Provisions
Current liabilities Current liabilities
Bank indebtedness Bank indebtedness
Accounts payable Trade and other payables
and accrued
liabilities
Accrued gas Accrued gas accounts payable
accounts payable
Corporate taxes Income taxes payable
payable
Current portion of Current portion of long-term debt
long-term debt
Provisions Provisions
Current portion
future income tax
liabilities
Other liabilities Other current financial liabilities
- current
TOTAL LIABILITIES TOTAL LIABILITIES
TOTAL EQUITY AND TOTAL EQUITY AND LIABILITIES
LIABILITIES
Notes to the reconciliation of equity as at June 30, 2011.
A Property, plant and equipment
Canadian GAAP - Component accounting required but typically not practiced in
Canada.
IFRS - Where an item of plant and equipment comprises major components with
different useful lives, the components are accounted for as separate items.
Management has re-assessed the significant parts of the ethanol plant which has
resulted in a decrease in amortization of the ethanol plant.
B Transaction costs
Canadian GAAP - The cost of the purchase includes the direct costs of the
business combination.
IFRS - Transaction costs of the business combination are expensed as incurred.
Transaction costs relating to the acquisition of Hudson have been expensed under
IFRS. In addition, and in accordance with IAS 39, management has allocated
transaction costs directly attributable to the credit facility which were
previously included as part of a business combination, to the related long-term
debt. These costs are now expensed using the effective interest rate method over
the life of the related debt.
C Stock-based compensation and contributed surplus
Canadian GAAP - For grants of share-based awards with graded vesting, the total
fair value of the award is recognized on a straight-line basis over the
employment period necessary to vest the award.
IFRS - Each tranche in an award; graded vesting is considered a separate grant
with a different vesting date and fair value. Each grant is accounted for on
that basis. As a result, Just Energy adjusted its expense for share-based awards
to reflect this difference in recognition.
D Provisions
Canadian GAAP - Accounts payable, accrued liabilities and provisions are
disclosed on the consolidated statement of financial position as a single line
item.
IFRS - Provisions are disclosed separately from liabilities and accrued
liabilities and require additional disclosure. Under IFRS, provisions are also
measured at the present value of the expenditures expected to be required to
settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
This has resulted in an adjustment to Just Energy.
E Deferred tax asset/liability
Canadian GAAP - Deferred taxes are split between current and non-current
components on the basis of either: (1) the underlying asset or liability or (2)
the expected reversal of items not related to an asset or liability.
IFRS - All deferred tax assets and liabilities are classified as non-current.
F Impairment
Canadian GAAP - A recoverability test is performed by first comparing the
undiscounted expected future cash flows to be derived from the asset to its
carrying amount. If the asset does not recover its carrying value, an impairment
loss is calculated as the excess of the asset's carrying amount over its fair
value.
IFRS - The impairment loss is calculated as the excess of the asset's carrying
amount over its recoverable amount, where recoverable amount is defined as the
higher of the asset's fair value less costs to sell and its value-in-use. Under
the value-in-use calculation, the expected future cash flows from the asset are
discounted to their net present value. The change in measurement methodology did
not result in additional impairment to Just Energy under IFRS.
G Exchangeable shares and equity-based compensation
Canadian GAAP - The Class A preference shares and exchangeable shares issued by
a subsidiary of an income fund are presented on the consolidated balance sheets
of the income fund as part of unitholders' capital if certain criteria were met.
Just Energy had met the criteria and the Class A preference shares and
exchangeable shares were recorded as part of unitholders' capital.
IFRS - As a result of the Class A preference shares, exchangeable shares and
equity-based compensation being exchangeable into a puttable liability, the
shares and equity-based compensation did not meet the definition of an equity
instrument in accordance with IAS 32 "Financial Instruments: Presentation" and
accordingly, were classified as financial liabilities. The Exchangeable Shares
and equity-based compensation were recorded upon transition to IFRS at
redemption value and subsequent to transition were adjusted to reflect the
redemption value at each reporting date. The resulting change from carrying
value to redemption value was recorded at transition and at each reporting
period to retained earnings and earnings respectively as a change in fair value
of derivative instruments. All distributions were recorded as interest expense
in the reporting period for which the dividends were declared.
H Deferred taxes
Canadian GAAP - There was an exemption that allowed issuers of convertible
debentures to treat the difference in the convertible debentures as a permanent
difference between tax and accounting. This exemption does not exist under IFRS.
Under CGAAP, Just Energy's deferred tax balances were calculated using the
enacted or substantively enacted tax rates that were expected to apply to the
reporting period(s) when the temporary differences were expected to reverse.
IFRS - The discount on the convertible debentures has been included in assessing
the Company's future tax position. IAS 12 "Income Taxes" requires the
application of an "undistributed tax rate" in the calculation of deferred taxes,
whereby deferred tax balances are measured at the tax rate applicable to Just
Energy's undistributed profits during the periods when Just Energy was an income
trust.
Deferred taxes have been recalculated on the revised accounting values for the
adjustments A - G.
I Acquisition of minority interest
Canadian GAAP - The gain on the acquisition of minority interest which occurred
on January 1, 2011, was treated as a reduction to goodwill on the original
acquisition.
IFRS - The gain was reallocated to contributed surplus as this is considered an
equity transaction under IFRS.
J Cash flow statements
Cash flow statements prepared under IAS 7 "Statement of Cash Flows" present cash
flows in the same manner as under previous GAAP. Other than the adjustments
noted above, reclassifications between net earnings and the adjustments to
compute cash flows from operating activities there were no material changes to
the statement of cash flows.
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