LISTED FOR TRADING IN UNITED STATES FUNDS ON THE TORONTO STOCK
EXCHANGE/TRADING SYMBOL: CUP.U
GRAND CAYMAN, Cayman Islands, July 31 /CNW/ - Caribbean Utilities
Company, Ltd. ("CUC" or "the Company") announced today its audited financial
results for the year ended April 30, 2006.
Final Return
CUC submitted to the Cayman Islands Government ("Government") today its
Final Return containing its year-end 2006 audited results confirming that the
Company is entitled to a 2.0% rate increase effective August 1, 2006 under its
current Licence. This shortfall on Return on Capital Employed ("ROCE") is
primarily a result of increased operating expenses and infrastructure
investment. CUC will not seek to implement this rate increase, as it agreed
with Government that it would freeze basic rates during the period of the
Hurricane Ivan ("the hurricane") Cost Recovery Surcharge ("CRS") (see "Cost
Recovery Surcharge" below).
Financial and Operational Highlights for the Year Ended April 30
(all figures reported in United States dollars unless otherwise noted)
<<
-------------------------------------------------------------------------
2006 ($) 2005 ($) Change ($) Change %
-------------------------------------------------------------------------
Operating Revenue 135,676,977 92,871,026 42,805,951 46%
-------------------------------------------------------------------------
Electricity Sales 85,686,300 68,892,949 16,793,351 24%
-------------------------------------------------------------------------
Hurricane Ivan Cost
Recovery Surcharge 3,035,493 - 3,035,493 N/A
-------------------------------------------------------------------------
Fuel Factor 46,955,184 23,978,077 22,977,107 96%
-------------------------------------------------------------------------
Business
Interruption
Insurance 6,078,760 8,148,086 (2,069,326) (25%)
-------------------------------------------------------------------------
Earnings for the Year 22,857,662 4,224,302 18,633,360 441%
-------------------------------------------------------------------------
Earnings per Class A
Ordinary Share 0.87 0.13 0.74 569%
-------------------------------------------------------------------------
Dividends Paid per
Class A Ordinary
Share 0.660 0.495 0.165 33%
-------------------------------------------------------------------------
Net Generation (kWh
millions) 485.52 393.51 92.01 23%
-------------------------------------------------------------------------
Peak Load Gross (MW) 79.04 85.03 (5.99) (7%)
-------------------------------------------------------------------------
Kilowatt-hour Sales
(kWh millions) 456.04 375.74 80.30 21%
-------------------------------------------------------------------------
Total Customers 21,115 19,011 2,104 11%
-------------------------------------------------------------------------
>>
Earnings
"Whereas 2005 was considered a restoration year, 2006 was indeed a
challenging recovery year, both for CUC and customers," stated Richard Hew,
CUC President and Chief Executive Officer. "We are pleased to report, however,
that the reconstruction and replacement of CUC's damaged generation facilities
had been substantially completed and the total number of active customers
fully recovered to a year-end level of 21,115 compared to 21,127 at year-end
2004. Monthly energy sales are now exceeding those of the same period prior to
the hurricane as the economy has staged a full recovery."
Earnings for the year were $22.9 million, or $0.87 per share, compared to
$4.2 million, or $0.13 per share, in 2005. The significant year-over-year
increase is a reflection of CUC's recovery from the hurricane in 2005. The
Company's continued post-hurricane sales recovery, business interruption
("BI") insurance proceeds and CRS revenue have positively impacted fiscal 2006
compared to 2005.
Conversely, increased insurance, leased generation, maintenance,
consulting fees and interest expenses negatively impacted earnings compared to
2005. These increased costs were partially offset by a gain on the hurricane
claim settlement of $1.2 million.
Licence Negotiations
Progress continues to be made in the ongoing negotiations with
Government. The Company's current Licence remains in full force and effect
until January 2011 or until replaced by a new Licence by mutual agreement.
Operating Revenues
Operating revenue for 2006 totalled $135.7 million, a $42.8 million, or
46%, increase over $92.9 million last year. The increase is due to
post-hurricane sales recovery, higher fuel factor revenues, implementation of
the CRS and new growth from projects such as the 365-room Ritz-Carlton hotel,
which opened in December 2005. At April 30, 2006, the Company had
approximately 350 fewer total customers than those connected just prior to the
hurricane and is currently connecting more than 100 new customers per month.
Electricity sales in 2006 increased 80.3 million kWh, or 21%, over 2005
to 456 million kWh. This growth is a result of post-hurricane recovery.
Residential electricity sales increased 24% and commercial electricity sales
increased 19% compared to last year. Total customers as at April 30, 2006
increased 11% to 21,115 as compared to 19,011 as at April 30, 2005, and 21,127
as at April 30, 2004. The Company's forecasted sales growth in fiscal 2007 is
10% as a result of the combined effects of continued recovery as well as an
increase in intrinsic demand growth. The CRS is expected to remain on
customers' bills for the three years beginning in August 2005 (see "Cost
Recovery Surcharge" below). CUC's earnings, excluding the CRS impact, would
have been $19.9 million, or $0.75 per share, for the year ended April 30,
2006.
Fuel factor revenue for 2006 of $47.0 million grew by $23 million over
the same period last year due to a combination of kWh sales recovery and
higher fuel prices. Conversely, fuel costs increased from $45.0 million in
2005 to $72.8 million in 2006. The average fuel price for the year ended
April 30, 2006 was $2.82 per imperial gallon ("IG") compared to an average of
$2.19 per IG for the year ended April 30, 2005. CUC's Licence with Government
provides for monthly adjustments to be made to the charges billed to customers
to pass on the variations in the cost of diesel fuel used in the generation of
electricity.
Cost Recovery Surcharge
The Company's Final Return to the Government containing its year-end 2005
audited results indicated that CUC was entitled to a 9.5% rate increase
effective August 1, 2005. This shortfall on ROCE was primarily as a result of
costs related to the write-off of uninsured T&D assets, loss of revenue during
the business interruption (BI) period and the rate base impact of the
reconstruction of T&D assets. In July 2005, CUC and the Government agreed on a
CRS to be implemented by the Company to recover its uninsured
hurricane-related losses, which primarily resulted from damage to the
Company's T&D equipment. These assets were uninsured and remain uninsured, as
T&D coverage is limited in availability and cost prohibitive at prevailing
rates. The CRS commenced with the Company's August 2005 billings. A flat
charge of $0.0089 per kWh is applied to all customers, which equates to a 4.7%
average rate increase over the 2004/2005 rates.
The agreement to forego a part of the permitted 9.5% rate increase
allowed under the Company's Licence was without prejudice to CUC's rights and
privileges under its Licence and is specific to the hurricane-related costs
and losses only. Any costs or losses resulting from any future catastrophic
event would be subject to recovery under the terms of either the existing or
any future Licence or upon terms to be agreed at that time. Under current
projections, the CRS is expected to appear on CUC's customer bills for
approximately three years from August 2005.
CUC's direct uninsured hurricane losses of $14.0 million were as follows:
<<
-------------------------------------------------------------------------
Millions $
-------------------------------------------------------------------------
T&D Property, Plant and Equipment 7.0
-------------------------------------------------------------------------
Other Property, Plant and Equipment 2.0
-------------------------------------------------------------------------
Revenue Losses During Insurance Deductible 5.0
-------------------------------------------------------------------------
Total 14.0
-------------------------------------------------------------------------
>>
The Company will recover $13.4 million of the $14.0 million of uninsured
losses as agreed with the Government. CRS revenues for 2006 were $3 million,
leaving $10.4 million to be recovered.
Hurricane Ivan Claim
The Company has agreed a settlement on the hurricane claim with its
insurance adjustors in the net amount of $31.1 million. Based on this
settlement, the adjustors have issued a final report, and the underwriters
have agreed to these terms. Advanced payments on account totaling
$22.1 million were made as at April 30, 2006, leaving a balance of
$9.0 million to be received. Pursuant to the final settlement, the insurer
made a final payment of $9,075,125 in June 2006.
Overall, the terms of the settlement are:
<<
-------------------------------------------------------------------------
Millions $
-------------------------------------------------------------------------
Property Claim (net of deductible) 16.3
-------------------------------------------------------------------------
Business Interruption Claim 14.8
-------------------------------------------------------------------------
Total 31.1
-------------------------------------------------------------------------
>>
CUC's BI loss claim for 2006 was $6.1 million and a total of
$14.3 million from the end of the deductible period on October 25, 2004. The
remaining balance of $0.5 million on the BI settlement has been offset against
leased generation expenses. There will be no further BI proceeds related to
the hurricane claim in CUC's future earnings. The Company's property insurance
coverage is on a reinstatement basis, except for the pre-1990 assets, which
are covered on an indemnity basis. Due to the nature of the insurance
coverage, the settlement terms resulted in a gain of $1.2 million in fiscal
2006. A total gain of $3.2 million has been recorded on the hurricane property
claim as detailed below:
<<
-------------------------------------------------------------------------
Gain on Insurance Property Settlement
-------------------------------------------------------------------------
Fiscal 2005 Fiscal 2006 Total
Book Value Gain on Gain on Gain on
of Assets Settlement Disposal of Disposal of Disposal of
Disposed ($) ($) Assets ($) Assets ($) Assets ($)
-------------------------------------------------------------------------
T&D and
Substa-
tions 757,796 1,588,585 0 830,789 830,789
-------------------------------------------------------------------------
Mirrlees
Generating
Units 65,193 2,345,200 1,934,807 345,200 2,280,007
-------------------------------------------------------------------------
Inventory
and Other 1,281,043 1,345,685 0 64,642 64,642
-------------------------------------------------------------------------
Total 2,104,032 5,279,470 1,934,807 1,240,631 3,175,438
-------------------------------------------------------------------------
>>
The Company has property, machinery breakdown and BI insurance on its
generation assets, property and substations. Terms and coverages include
$100 million in property insurance; $55.0 million in BI insurance per annum
with a 24-month indemnity period and a 45-day deductible; and $15.0 million in
machinery breakdown insurance. All T&D assets outside of 1,000 feet from the
boundaries of the main plant and substations are excluded, as the cost of such
coverage is not considered economical. There is a single event cap of
$100 million. Each "loss occurrence" is subject to a deductible of $1 million,
except for windstorm (including hurricane) for which the deductible is 2% of
the value of each location that suffers loss, but subject to a minimum
deductible of $1.0 million and maximum deductible of $4.0 million for all
interests combined. The Company has renewed its insurance policy for fiscal
2006/2007 under similar terms and conditions as described above.
Operating Expenses
Power Generation
----------------
Power generation expenses for 2006 increased $28.9 million to
$77.2 million from $48.3 million last year. This was due to increased
production, higher fuel prices and the cost for the lease of standby
generation.
CUC leased 11.4 megaWatts ("MW") of capacity beginning in June 2005.
Total expense related to the rental of these units is $1.7 million for the
year ended April 30, 2006, net of $0.5 million recoverable from the insurers.
CUC expects the temporary generation to be phased out in early first quarter
2007 as CUC-owned generation is brought back online.
<<
-------------------------------------------------------------------------
Power Generation Expenses
Year Ended April 30, 2006
-------------------------------------------------------------------------
2006 2005
(thousands (thousands
$) $) Change %
-------------------------------------------------------------------------
Fuel 74,237 45,783 62%
-------------------------------------------------------------------------
Lube 1,263 1,016 24%
-------------------------------------------------------------------------
Deferred Fuel (2,699) (1,780) 52%
-------------------------------------------------------------------------
Leased Generation 1,684 41 4,007%
-------------------------------------------------------------------------
Other 2,701 3,224 (16%)
----- ----- -----
-------------------------------------------------------------------------
Total 77,186 48,284 60%
-------------------------------------------------------------------------
>>
General and Administration ("G&A")
----------------------------------
G&A expenses for 2006 rose $1.3 million, or 13%, from 2005 to
$11.1 million due to increased insurance premiums, consulting expenses related
to the insurance settlement and pension costs related to the defined benefit
pension plans. Total insurance premium expenses were $3.2 million compared to
$1.9 million for the same period last year. Consulting expenses, primarily
related to the hurricane claim, increased 75% to $0.7 million from
$0.4 million for the same period last year. As the hurricane claim has now
been settled, CUC expects its consulting expenses to return to pre-hurricane
levels.
The Company established a defined benefit pension plan for the retired
Chairman during 2003. CUC's Board of Directors approved the establishment of a
defined benefit pension plan for the retired President and Chief Executive
Officer in May 2005. The pension costs of the defined benefit pension plans
are actuarially determined using the projected benefits method. A defined
pension expense of $0.7 million has been recorded for the 12 months ended
April 30, 2006, a 133% increase over the $0.3 million recorded for the same
period last year.
Customer Service and Promotion
------------------------------
Customer service and promotion expenses declined 13% in 2006 to
$1.3 million from $1.4 million in 2005. The Company expensed an additional
$0.4 million in 2005 for the provision of bad debts in anticipation of losses
related to the hurricane. After a thorough review of the Company s customer
base in 2006, $0.3 million of these expected losses actually materialised and
were subsequently written-off against the provision.
Transmission and Distribution (T&D)
-----------------------------------
T&D expenses for fiscal 2006 totaled $1.6 million compared to
$8.4 million last year, an 80% decline. 2005 T&D expenses which included a
charge of $7.0 million for the writeoff of uninsured impaired T&D assets.
Additionally, in 2006, T&D expenses were adjusted to record gains for the
hurricane settlement on T&D equipment of $0.8 million. CUC property insurance
coverage includes on T&D equipment within 1000 feet of CUC main compound and
named substations (see the "Gain on Insurance Property Settlement" table
above). The hurricane affected 20% of CUC's T&D system.
Depreciation and Amortisation Expenses
--------------------------------------
Depreciation and amortisation ("D&A") expenses for the year totalled
$13.6 million compared to $13.3 million last year. This increase was a result
of new projects, newly constructed T&D assets and assets damaged by the
hurricane being returned to service.
As a result of the hurricane, the Company recognised an impairment of its
property, plant and equipment for assets that were damaged during the
hurricane. In addition, no depreciation charge has been expensed from
September 2004 for various insured assets with a net book value of
$17.3 million. The Company expects to see continued increases in D&A expenses
as assets are brought back into service and based upon current capital
expenditure projections.
Maintenance
-----------
Maintenance costs for the year declined $1.5 million, or 17%, to
$7.5 million from $9 million last year. CUC expensed $2 million in second
quarter 2005 for the insurance deductible net of indemnification for pre-1990
assets damaged during the hurricane. The Company also recognised an additional
gain of $0.3 million in 2006 on the insurance settlement for pre-1990 assets
damaged during the hurricane (see the "Gain on Insurance Property Settlement"
table above).
Interest Expenses
Interest expense for the year increased $0.7 million to $9.2 million from
$8.5 million last year, due primarily to an increase in net borrowings of
$14.5 million. The Company closed in mid-December 2005 on a $30 million
private debt placement of 5.96% Senior Unsecured Notes due December 15, 2020.
The closing consisted of a single $30 million tranche. The debt offering was
privately placed with three institutional investors in the United States.
Proceeds were used to repay $18.5 million in short-term indebtedness and to
finance ongoing additions to CUC's generation capacity and T&D system.
Other Income
Other income for the year increased $0.4 million, or 40%, to $1.4 million
from $1 million for last year. This is primarily due to gains from the
Company's metal recycling programme. More than 100,000 pounds of scrap
aluminium conductor and hurricane-damaged transformers were shipped overseas
for recycling in 2006. A return to normal levels is forecasted for the metal
recycling programme in 2007.
Capital Expenditures and Generating Capacity
Capital expenditures for 2006 were $33.9 million, including $9.7 million
for the reconstruction of the insured assets damaged by the hurricane and
$7.1 million for the 8.4 MW gas turbine.
2006 peak load was 79.04 MW as recorded on September 13, 2005, or
approximately 93% of last year's peak of 85.03 MW. A new post-Ivan peak of
83.40 MW was achieved on June 21, 2006. CUC's generating capacity on April 30,
2006 was 106.83 MW, including the rental of 11.4 MW of generation capacity.
The newly installed 8.4 MW gas turbine unit is currently in the final
testing stage. Commissioning is expected in the August 2006. The repaired
Caterpillar units became available for use in late June. As a result of these
additions, the eight rental units were returned in July.
The gas turbine and Caterpillar projects will return total owned capacity
to approximately 120 MW for summer 2006, or 98% of pre-hurricane capacity of
123 MW. In early May, CUC announced that it entered into a project agreement
with its generation strategic alliance partner, MAN B&W Diesel AG of Germany,
for the purchase and turnkey installation of one 16 MW V48/60 medium-speed
diesel generating unit and auxiliary equipment. This project will cost
approximately $22.2 million to complete. The generating unit will be housed at
the Company's North Sound Plant and will be commissioned in summer 2007.
Liquidity and Capital Resources
Liquidity
---------
<<
-------------------------------------------------------------------------
Cash Flow Summary
-------------------------------------------------------------------------
Year Ended April 30 ($)
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Cash (Beginning of Period) 962,965 18,004,208
-------------------------------------------------------------------------
Cash Provided by (Used in)
-------------------------------------------------------------------------
Operating Activities 34,983,008 25,738,315
-------------------------------------------------------------------------
Investing Activities (33,909,928) (35,665,779)
-------------------------------------------------------------------------
Net Financing Activities (1,460,454) (7,113,779)
----------- -----------
-------------------------------------------------------------------------
Cash (End of Period) 575,591 962,965
-------------------------------------------------------------------------
>>
Operating Activities
--------------------
Cash flow from operations for 2006 increased $9.3 million to $35 million
compared to $25.7 million last year. This increase is primarily driven by
higher 2006 earnings of $22.9 million compared to 2005 earnings of
$4.2 million. 2005 earnings were impacted by the hurricane.
Investing Activities
--------------------
For the year ended April 30, 2006, $33.9 million has been invested in the
purchase of property, plant and equipment, including $9.7 million for the
reconstruction of insured assets damaged by the hurricane. This is a
$5.9 million decline from fiscal 2005, when capital expenditures totaled
$39.8 million. Cash used for investing activities declined $1.8 million for
fiscal 2006 to $33.9 million compared to $35.7 million in fiscal 2005. Capital
expenditures in 2005 were partially offset by the liquidation of CUC's
Hurricane Fund of $4.1 million.
Financing Activities
--------------------
Cash flow used in financing activities declined to $1.5 million compared
to $7.1 million for last year. The decline in these cash outlays is the result
of net borrowings in 2006 of $14.5 million and proceeds from the issuance of
shares of $2.6 million, partially offset by dividends of $17.6 million
compared to net borrowings of $3.2 million in 2005 and proceeds from share
issues of $1.7 million.
Capital Resources
-----------------
CUC's principal activity as the exclusive provider of electricity in
Grand Cayman, a major financial and tourism centre, requires the Company to
have ongoing access to capital to build and maintain the electricity system to
the community it serves. The Company's capital structure as of April 30, 2006
is shown below:
<<
-------------------------------------------------------------------------
2006 2005
(millions $) % (millions $) %
-------------------------------------------------------------------------
Total Debt 156.0 54% 141.5 53%
-------------------------------------------------------------------------
Shareholders' Equity 133.7 46% 125.7 47%
-------------------------------------------------------------------------
Total 289.7 100% 267.2 100%
-------------------------------------------------------------------------
>>
The change in capital structure is the result of a net increase in debt
of $14.5 million partially offset by an increase in shareholders' equity from
positive earnings. CUC's credit facilities reverted to pre-hurricane levels
following the repayment of the Royal Bank of Canada (RBC) loans.
CUC had the following credit facilities at RBC as of April 30, 2006:
<<
-------------------------------------------------------------------------
Description Details
-------------------------------------------------------------------------
Capital Expenditures Line of Credit $10.0 million
-------------------------------------------------------------------------
Operating Line of Credit $5.0 million
-------------------------------------------------------------------------
Catastrophe Standby Loan $5.0 million
-------------------------------------------------------------------------
Total $20.0 million
-------------------------------------------------------------------------
>>
All of the credit facilities were fully available as of April 30, 2006.
In May 2006, the Company drew down $10.0 million against its capital
expenditures credit facility for the interim funding of capital expenditures.
Management constantly reviews its level of credit facilities based on
liquidity needs.
CUC's credit ratings were as follows as at April 30, 2006:
<<
-------------------------------------------------------------------------
Agency Rating
-------------------------------------------------------------------------
Standard and Poor's A/Negative
-------------------------------------------------------------------------
Dominion Bond Rating Service A (low): Long-Term Debt
Pfd-2 (low): Preferred Shares
-------------------------------------------------------------------------
>>
Financial Position
The following is a summary of significant changes to the Company's
balance sheet from April 30, 2005 to April 30, 2006:
<<
-------------------------------------------------------------------------
Balance Sheet Account Increase Explanation
(Decrease)
(millions $)
-------------------------------------------------------------------------
Accounts Receivable- Trade 4.2 Increase is due to higher
customer consumption and
higher fuel factor billings as
a result of rising fuel
prices.
-------------------------------------------------------------------------
Other Receivable- Insurance (6.8) Decrease is due primarily to
an additional advance of
$12.1 million received from
the insurers, offset by an
increase in BI insurance
receivables of $6.1 million
and a revision of $2.3 million
for the correction of the
claim.
-------------------------------------------------------------------------
Property, Plant and 22.5 Net increase is comprised of
Equipment (1) capital expenditures of
$33.9 million, $9.7 million of
which is related to the
reconstruction of assets
damaged by the hurricane;
(2) depreciation expense of
$13.6 million and (3) a
revision of $2.3 million to
the estimated impairment of
assets damaged by the
hurricane.
-------------------------------------------------------------------------
Other Assets 3.2 Increase is due to increased
deferred fuel costs as a
result of higher fuel prices
and increased consumption.
-------------------------------------------------------------------------
Current Portion of (8.0) Decrease is due to the
Long-Term Debt repayment of the RBC
short-term bridging loan.
-------------------------------------------------------------------------
Long-Term Debt 22.5 Increase is due to the new
$30 million 5.96% Senior
Unsecured Notes less repayment
of the long-term portion of
the RBC loan.
-------------------------------------------------------------------------
Share Premium 2.6 Increase is a result of
258,450 shares being issued
for the year.
-------------------------------------------------------------------------
Retained Earnings 5.3 Increase is due to a net
profit for the period of
$22.9 million, Class A
dividends of $16.7 million and
Class B preference dividends
of $0.9 million.
-------------------------------------------------------------------------
>>
The Economy
The Government's growth forecast for the year ending June 2007 is 3.6%.
The construction industry continues to show a strong post-Ivan revival. The
300-acre Camana Bay project is continuing with the first phase expected to
open in late 2006. Other major commercial developments under construction
include the 37-unit Caribbean Club and 36-unit Water's Edge high-end
condominium projects.
Total visitor arrivals for calendar 2005 increased 0.7% over 2004. Within
this total, cruise arrivals increased 6.2%. There was a decline of 35% in air
arrivals, which is directly related to the hurricane s effect on the temporary
shortage of tourist accommodation. The December 2005 opening of The
Ritz-Carlton hotel added 365 guest rooms to the Island's room inventory. The
total number of rooms available in Grand Cayman is now 3,435. In addition,
there are approximately a further 1,000 rooms still under construction,
including 277 hotel rooms, 648 apartment/condominium rooms and 61 guest rooms.
Total visitor arrivals for the first quarter of calendar 2006 increased 8%
over the same period last year.
The following table presents tourist statistics for the year ended
April 30, 2006:
<<
-------------------------------------------------------------------------
Arrivals 2006 2005 2004 2003 2002
-------------------------------------------------------------------------
By Air 215,828 188,103 307,154 298,723 313,277
-------------------------------------------------------------------------
By Sea 1,835,669 1,663,168 1,938,060 1,676,652 1,372,364
-------------------------------------------------------------------------
Total 2,051,497 1,851,271 2,245,214 1,975,375 1,685,641
-------------------------------------------------------------------------
>>
The funds sector is a key driver of financial services activity in the
Cayman Islands, and the current signs of health are robust. Funds numbers are
now at more than 7,200, maintaining a steady rate of growth over the past five
years, and there are 160 licenced fund administrators. The Cayman Stock
Exchange has more than 1,000 listings, the majority of which are funds, and a
market capitalisation of more than $77.0 billion.
Off-Balance Sheet Arrangements
Disclosure is required of all off-balance sheet arrangements such as
transactions, agreements or contractual arrangements with unconsolidated
entities, structured finance entities, special purpose entities or variable
interest entities that are reasonably likely to materially affect liquidity of
or the availability of, or requirements for, capital resources. The Company
had no such off-balance sheet arrangements as at April 30, 2006.
Business Risks
The following is a summary of the Company's significant business risks:
Licence Negotiations
--------------------
Progress continues to be made in the ongoing negotiations with Government
for renewal of the Company's Licence. The Company's current Licence remains in
full force and effect until January 2011 or until replaced by a new Licence by
mutual consent.
Economic Conditions
-------------------
The general economic condition of CUC s service area influences
electricity sales as with most utility companies. Changes in consumer income,
employment and housing are all factors in the amount of sales generated. As
the Company supplies electricity to all hotels and large properties, its sales
are therefore partially based on tourism and related industry fluctuations.
Weather
-------
CUC's facilities are subject to the effects of severe weather conditions.
Despite preparations for such disasters similar to the hurricane, adverse
conditions will always remain a risk notwithstanding any amount of preparation
that is completed. In order to negate some of the risk, the Company maintains
insurance coverage management believes is proper and consistent with insurance
policies obtained by similar companies.
Correction of an Error in Insurance Claim Estimate
As a result of the impact of the hurricane, the Company recognised an
impairment of $19,463,554 in respect of damaged Property, Plant and Equipment
in fiscal 2005. During the insurance claim negotiation process, it was
established that an element of the initial claim filed with the insurer
included betterment of some assets and certain duplications of the claim that
were adjusted in the final settlement. As a result, the Other Receivable -
Insurance balance in the prior year was overstated by $2,334,552 and the
Property, Plant and Equipment was understated by the same amount. Correction
of these errors has been reflected in the current year by adjusting Property,
Plant and Equipment and the Other Receivable - Insurance by equal adjustments.
These adjustments had no impact on net income reporting in fiscal 2005 or
2006.
Financial Instruments
New accounting standards for financial instruments (recognition and
measurement), hedges and comprehensive income have been issued by the Canadian
Institute of Chartered Accountants and are applicable for interim and annual
financial statements relating to fiscal years beginning on or after October 1,
2006. These standards address the criteria for recognition of financial
instruments on the balance sheet and the measurement of financial instruments
for related gains and losses, provide guidance on how hedge accounting is
performed and the required disclosures, and provide standards for reporting
and displaying comprehensive income.
Critical Accounting Estimates
The preparation of CUC's financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the year.
Due to the hurricane, the insurance receivable for property, plant and
equipment damaged by the hurricane and the amount recorded for the BI claim in
the fourth quarter are measured using management's best estimates based on
assumptions that reflect the most probable set of economic and planned course
of action. The Company has agreed a settlement on the hurricane claim. Based
on this settlement, the adjustors have issued a final report, and the
underwriters have agreed to these terms.
Quarterly Results
The table below summarises unaudited quarterly information for each of
the nine quarters ended April 30, 2004 through April 30, 2006. This
information has been obtained from CUC's unaudited interim Financial
Statements, which, in the opinion of management, have been prepared in
accordance with Canadian GAAP. These operating results are not necessarily
indicative of results for any future period and should not be relied upon to
predict future performance.
A summary of the past nine quarters reflects the Company's continued
growth, temporarily declining as a result of the hurricane in the second and
third quarters of fiscal 2005, and subsequent rebounding growth.
<<
-------------------------------------------------------------------------
Quarterly Results
-------------------------------------------------------------------------
Quarter Ended Operating Income Earnings Diluted
Revenue Applicable Per Share Earnings
(thousands to Ordinary (Basic) ($) Per Share
$) Shares ($)
(thousands
$)
-------------------------------------------------------------------------
April 30, 2006 33,151 4,945 0.20 0.20
-------------------------------------------------------------------------
January 31, 2006 34,822 3,771 0.15 0.15
-------------------------------------------------------------------------
October 31, 2005 35,936 6,545 0.26 0.26
-------------------------------------------------------------------------
July 31, 2005 31,768 6,667 0.26 0.26
-------------------------------------------------------------------------
April 30, 2005 21,078 4,244 0.17 0.17
-------------------------------------------------------------------------
January 31, 2005 20,574 5,613 0.22 0.22
-------------------------------------------------------------------------
October 31, 2004 20,676 (12,315) (0.49) (0.49)
-------------------------------------------------------------------------
July 31, 2004 30,543 5,757 0.23 0.23
-------------------------------------------------------------------------
April 30, 2004 24,939 3,848 0.15 0.16
-------------------------------------------------------------------------
>>
April 2006/April 2005
---------------------
Net earnings for fourth quarter 2006 were $5.2 million, or $0.20 per
share, compared to $4.4 million, or $0.17 per share, for fourth quarter 2005.
The increase in earnings reflects continuing strong sales growth and CRS
revenues of $1.0 million. Annual earnings were $22.9 million, or $0.87 per
share, compared to $4.2 million, or $0.13 per share, last year. The
significant positive swing is a reflection of CUC's recovery from the
hurricane in 2005 and a gain resulting from the insurance settlement (see
"Hurricane Ivan Insurance Claim" above). The Company's continued
post-hurricane sales recovery, BI insurance proceeds and CRS revenue have
positively impacted fiscal 2006 compared to the same period last year.
January 2006/January 2005
-------------------------
Net earnings for third quarter 2006 were $3.9 million, or $0.15 per
share, compared to $5.7 million, or $0.22 per share, for third quarter 2005.
The $1.8 million decrease was caused by an expense of $2 million in deferred
fuel costs, increased insurance expenses and increased interest expenses
partially mitigated by higher electricity sales. Year-to-date earnings were
$17.6 million, or $0.67 per share, compared to a loss of $132,316, or losses
per share of $0.04, for the same period last year. This is due to the
Company's continuing recovery from the hurricane in 2005. Continued recovery
of sales following the hurricane, BI insurance proceeds and CRS revenue have
also positively impacted the first nine months of 2006 as compared to the same
period last year.
October 2005/October 2004
-------------------------
Net earnings for second quarter 2006 were $6.7 million, or $0.26 per
share, compared to a loss of $12.2 million, or negative $0.49 per share, for
second quarter 2005. Earnings for the second quarter were $18.9 million higher
than the same period in the previous year due to the impact of the hurricane
on second quarter 2005. CUC recorded $7.5 million in second quarter 2005 for
the writeoff of impaired assets, $2.4 million for the insurance deductible net
of indemnification for pre-1990 assets damaged during the hurricane, and net
revenue losses of $5 million during the BI deductible period, which ended
October 25, 2004.
July 2005/July 2004
-------------------
Net earnings for first quarter 2006 were $7.1 million, or $0.26 per
share, compared to $6.3 million, or $0.23 per share, for the same quarter of
the previous year. The improvement was due to BI insurance proceeds on the
hurricane claim of $2.5 million and increased foreign exchange earnings.
April 2005/April 2004
---------------------
Earnings per share for fourth quarter 2005 were $0.17, compared with
$0.15 in fourth quarter 2004, due to a $1.3 million partial deferral of April
2005's fuel cost, revised T&D hurricane loss estimates and BI insurance
proceeds. Fourth quarter operating revenues (including fuel factor revenues)
were $21.1 million compared with $24.9 million in 2004, a $3.8 million
decrease.
Corporate Governance
CUC's management is responsible for establishing and maintaining
disclosure controls and procedures to ensure that information used internally
and disclosed externally is complete and reliable. The Company established a
Disclosure Committee that assists management in ensuring that all disclosures
made by CUC to its stakeholders are accurate, complete and fairly present
CUC's financial condition and results of operations in all material respects,
and that such information is disclosed and reported on a timely basis as
required by applicable laws, regulations and security requirements.
In compliance with the requirements of Multilateral Instrument 52-109 -
Certification of Disclosure in Issuers' Annual and Interim Filings, CUC's
President and Chief Executive Officer (CEO) and the Senior Vice-President,
Finance and Corporate Services and Chief Financial Officer (CFO) conducted an
evaluation of effectiveness of disclosure controls and procedures. Factors
considered in the evaluation were the Company s disclosure culture,
commitment, capabilities and policies and procedures governing corporate
conduct and risk management. Based on this evaluation, CUC's President and CEO
and CFO have concluded, with reasonable assurance, that the disclosure
controls and procedures of CUC are effective and adequate as of April 30,
2006.
Outlook
The economic outlook for the Cayman Islands remains buoyant. Current
macroeconomic forecasts indicate that the Cayman Islands' GDP will grow by
3.6% during the 2006/2007 financial year.
CUC forecasts sales to grow by 10% in 2007 versus 2006, reflecting both
continued recovery from the hurricane and strong intrinsic demand. Generation
and sales growth is expected to average 5% over the next five years.
Controllable operating expenses will increase moderately in 2007.
Consultancy fees, which in 2006 were impacted by the insurance negotiation,
will return to normal levels in 2007. Lease generation expenses will be
minimal, as these leases will end in early fiscal 2007. However, depreciation
and insurance premiums will see increases of $2.0 million and $0.5 million,
respectively.
The Company's 2007 capital expenditure budget is $38 million:
<<
-------------------------------------------------------------------------
Budgeted
2006/2007
(millions $)
-------------------------------------------------------------------------
T&D- Transmission 3.14
-------------------------------------------------------------------------
T&D- Distribution 13.11
-------------------------------------------------------------------------
Generation 15.90
-------------------------------------------------------------------------
Information Technology 1.51
-------------------------------------------------------------------------
Hurricane Ivan Reconstruction 3.50
-------------------------------------------------------------------------
Other 1.23
----
-------------------------------------------------------------------------
Total 38.39
-------------------------------------------------------------------------
>>
CUC expects to invest $181 million in its capital programme over the next
five years, which will be financed by a combination of debt and funds from
operations.
Environmental Management System
CUC received in July 2005 ISO 14001:2004 certification of its electric
power generation and other activities, products and services at the North
Sound Road site. This is in addition to the Company's ISO 14001:1996
certification achieved in May 2004. The Company's ISO certification initiative
was undertaken in 2002 as part of its commitment to environmental
responsibility and community leadership. ISO 14001 is an internationally
recognized environmental standard developed by the International Organization
for Standardization and was confirmed to the Company by the Quality Management
Institute, a subsidiary of the Canadian Standards Association. CUC is the only
organization in the Cayman Islands to receive ISO 14001 certification.
"Our environmental management system ("EMS") is still going strong, as we
shipped over 100,000 pounds of scrap aluminum conductor and 350
hurricane-damaged transformers to Florida for recycling in 2006, generating
approximately $200,000 in revenue," said Mr. Hew. "Other EMS initiatives
include our ongoing emergency preparedness planning, continuous employee
education programmes and stringent environmental and structural design
standards."
Energy Conservation
"We are continuing our Energy Smart programme to promote and increase
energy conservation and environmental protection awareness among our
customers," continued Mr. Hew. "With fuel prices reaching record highs and
directly impacting the fuel factor, we must assist customers to become more
cognizant of their ability to lower electricity bills through responsible
energy usage. Our Customer Service Department offers a number of services,
including free residential energy audits, to assist customers in this regard."
Alternate Energy
CUC continues to monitor the possibility of alternative energy sources
for Grand Cayman and is encouraged by the development of ocean thermal energy
conversion ("OTEC") technology by Sea Solar Power International ("SSP"). The
Company signed a memorandum of understanding with SSP in 2004 to purchase
power from a 10 MW prototype plant to be commissioned by SSP as early as 2009
subject to Government licencing and other approvals. CUC also continues to
share its wind energy data collected in 2003 with potential developers who are
exploring the feasibility of installing wind turbines in Grand Cayman. The
Company is hopeful that this technology will advance to the point that it
becomes feasible in the near future.
Succession Planning
"We are proud to announce the appointment of Andrew Small to
Vice-President Production effective August 1, 2006, succeeding the retiring
Robert Smith," said Mr. Hew. "Andrew joined CUC on a Company scholarship in
1993 and has served in a number of management positions throughout his tenure,
most recently as Manager Line Department since July 2004. We congratulate
Andrew on his promotion and thank Robert for his contribution to CUC's success
during 13 years of service."
Annual Report and Annual General and Special Meeting
The Company's 2006 Annual Report containing the audited financial
statements was mailed to shareholders in late July. The Annual General and
Special Meeting of Shareholders is scheduled for August 25, 2006 in Grand
Cayman, Cayman Islands. CUC's Class A Ordinary Shares are listed for trading
in United States funds on The Toronto Stock Exchange (trading symbol: CUP.U).
The Company encourages its stakeholders to visit its website
(www.cuc-cayman.com) for more information.
Company Overview
CUC is the sole provider of electricity to Grand Cayman, Cayman Islands
and operates under a 25-year exclusive Licence with the Government of the
Cayman Islands, which expires in January 2011.
Caribbean Utilities Company, Ltd. ("CUC" or "the Company"), on occasion,
includes forward-looking statements in its media releases, Canadian securities
regulatory authorities filings, shareholder reports and other communications.
Forward-looking statements are based on underlying assumptions by their very
nature and are subject to certain risks and uncertainties that may cause
actual results to vary from plans, targets and estimates. Such risks and
uncertainties include, but are not limited to, general economic, market and
business conditions, regulatory developments and weather conditions. CUC
cautions readers that actual results may vary significantly from those
expected should certain risks or uncertainties materialize or should
underlying assumptions prove incorrect. The Company disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
<<
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Statements of Earnings and Retained Earnings (audited)
for the Year Ended April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
OPERATING REVENUES
-------------------------------------------------------------------------
Electricity Sales 85,686,300 68,892,949
-------------------------------------------------------------------------
Hurricane Ivan Cost Recovery Surcharge
(Note 2) 3,035,493 -
-------------------------------------------------------------------------
Fuel Factor 46,955,184 23,978,077
------------ ------------
-------------------------------------------------------------------------
Total Operating Revenues 135,676,977 92,871,026
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OPERATING EXPENSES
-------------------------------------------------------------------------
Power Generation 77,186,089 48,284,330
-------------------------------------------------------------------------
General and Administration 11,123,115 9,818,393
-------------------------------------------------------------------------
Consumer Service and Promotion 1,255,780 1,437,168
-------------------------------------------------------------------------
Transmission and Distribution 1,649,294 8,371,105
-------------------------------------------------------------------------
Depreciation and Amortisation 13,583,795 13,263,704
-------------------------------------------------------------------------
Maintenance 7,530,412 9,015,194
------------ ------------
-------------------------------------------------------------------------
Total Operating Expenses 112,328,485 90,189,894
------------ ------------
-------------------------------------------------------------------------
OPERATING INCOME 23,348,492 2,681,132
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OTHER (EXPENSES)/INCOME
-------------------------------------------------------------------------
Interest Expense (9,212,208) (8,498,195)
-------------------------------------------------------------------------
Foreign Exchange Gain 1,198,035 867,967
-------------------------------------------------------------------------
Business Interruption Insurance (Note 13) 6,078,760 8,148,086
-------------------------------------------------------------------------
Other Income 1,444,583 1,025,312
------------ ------------
-------------------------------------------------------------------------
Total Net Other (Expenses)/Income (490,830) 1,543,170
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings for the Year (Note 10) 22,857,662 4,224,302
-------------------------------------------------------------------------
Class B Preference Dividends Paid (Note 10) (930,000) (925,000)
------------ ------------
-------------------------------------------------------------------------
Earnings Applicable to Class A
Ordinary Shares 21,927,662 3,299,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Common Shares Outstanding (Note 10) 25,221,581 24,924,793
-------------------------------------------------------------------------
Earnings per Common Share (Note 10)
-------------------------------------------------------------------------
Basic 0.87 0.13
-------------------------------------------------------------------------
Diluted 0.87 0.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained Earnings (audited)
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Balance at Beginning of Period 84,863,402 89,829,643
-------------------------------------------------------------------------
Earnings for the Period 22,857,662 4,224,302
-------------------------------------------------------------------------
Dividends (17,573,262) (9,190,543)
------------ ------------
-------------------------------------------------------------------------
Balance at End of Period 90,147,802 84,863,402
------------ ------------
------------ ------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Balance Sheets (audited) as of April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------
Current Assets
-------------------------------------------------------------------------
Cash and Due from Banks (Note 7) 575,591 962,965
-------------------------------------------------------------------------
Accounts Receivable - Trade (Note 3) 15,681,991 11,480,885
-------------------------------------------------------------------------
Other Receivable - Insurance (Note 4) 9,075,125 15,881,941
-------------------------------------------------------------------------
Inventories 5,172,908 5,330,363
-------------------------------------------------------------------------
Prepayments 911,092 580,698
------------ ------------
-------------------------------------------------------------------------
31,416,707 34,236,852
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, Plant and Equipment (Note 5) 270,720,745 248,231,244
-------------------------------------------------------------------------
Other Assets (Note 6) 10,856,169 7,690,752
------------ ------------
-------------------------------------------------------------------------
TOTAL ASSETS 312,993,621 290,158,848
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Current Liabilities
-------------------------------------------------------------------------
Bank Overdraft (Note 7) 377,041 1,429,889
-------------------------------------------------------------------------
Accounts Payable and Accrued
Expenses (Note 14) 20,046,905 18,917,183
-------------------------------------------------------------------------
Current Portion of Long-Term Debt (Note 7) 7,497,632 15,482,822
-------------------------------------------------------------------------
Consumers' Deposits and Advances
for Construction 2,811,611 2,566,341
------------ ------------
-------------------------------------------------------------------------
30,733,189 38,396,235
-------------------------------------------------------------------------
Long-Term Debt (Note 7) 148,540,542 126,038,175
------------ ------------
-------------------------------------------------------------------------
TOTAL LIABILITIES 179,273,731 164,434,410
------------ ------------
------------ ------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Share Capital (Note 8) 1,754,929 1,739,545
-------------------------------------------------------------------------
Share Premium 41,655,512 39,022,418
-------------------------------------------------------------------------
Contributed Surplus 161,647 99,073
-------------------------------------------------------------------------
Retained Earnings 90,147,802 84,863,402
------------ ------------
-------------------------------------------------------------------------
Total Shareholders' Equity 133,719,890 125,724,438
------------ ------------
------------ ------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 312,993,621 290,158,848
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Statements of Changes in Shareholders' Equity
(audited) as of April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
Share Capital
-------------------------------------------------------------------------
9% Cumulative
Class A Ordinary Shares Participating Class B
Preference Shares
-------------------------------------------------------------------------
Number of Number of
Shares Amount ($) Shares Amount ($)
-------------------------------------------------------------------------
Balance at
April 30, 2004 24,864,975 1,480,058 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) (Note 8) 159,376 9,487 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for the Year - - - -
-------------------------------------------------------------------------
Stock-Based
Compensation - - - -
-------------------------------------------------------------------------
Balance at
April 30, 2005 25,024,351 1,489,545 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) (Note 8) 258,450 15,384 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for the Year - - - -
-------------------------------------------------------------------------
Stock-Based
Compensation - - - -
-------------------------------------------------------------------------
Balance at
April 30, 2006 25,282,801 1,504,929 250,000 250,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Share-
Share Retained Contributed holders'
Premium ($) Earnings ($) Surplus ($) Equity ($)
-------------------------------------------------------------------------
Balance at
April 30, 2004 37,328,408 89,829,643 36,500 128,924,609
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) (Note 8) 1,694,010 - - 1,703,497
-------------------------------------------------------------------------
Dividends - (9,190,543) - (9,190,543)
-------------------------------------------------------------------------
Earnings for the Year - 4,224,302 - 4,224,302
-------------------------------------------------------------------------
Stock-Based
Compensation - - 62,573 62,573
------ ------
-------------------------------------------------------------------------
Balance at
April 30, 2005 39,022,418 84,863,402 99,073 125,724,438
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) (Note 8) 2,633,094 - - 2,648,478
-------------------------------------------------------------------------
Dividends - (17,573,262) - (17,573,262)
-------------------------------------------------------------------------
Earnings for the Year - 22,857,662 - 22,857,662
-------------------------------------------------------------------------
Stock-Based
Compensation - - 62,574 62,574
------ ------
-------------------------------------------------------------------------
Balance at
April 30, 2006 41,655,512 90,147,802 161,647 133,719,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Cash Flow Statements (audited) for the Year Ended April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
OPERATING ACTIVITIES
-------------------------------------------------------------------------
Earnings for the Year 22,857,662 4,224,302
-------------------------------------------------------------------------
Items Not Affecting Working Capital:
-------------------------------------------------------------------------
Depreciation and Amortisation 13,583,795 13,263,704
-------------------------------------------------------------------------
Stock-Based Compensation 62,574 62,573
-------------------------------------------------------------------------
(Profit)/Loss on Disposal of
Fixed Assets (Note 5) (959,299) 9,263,169
------------ -----------
-------------------------------------------------------------------------
35,544,732 26,813,748
-------------------------------------------------------------------------
Net Increase in Non-Cash Working Capital
Balances Related to Operations (561,724) (1,075,433)
------------ ------------
-------------------------------------------------------------------------
Cash Flow Provided by Operating Activities 34,983,008 25,738,315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INVESTING ACTIVITIES
-------------------------------------------------------------------------
Sale of Investments - 4,077,640
-------------------------------------------------------------------------
Proceeds on Sale of Fixed Assets 30,506 44,790
-------------------------------------------------------------------------
Purchase of Property, Plant and Equipment (33,940,434) (39,788,209)
------------ ------------
-------------------------------------------------------------------------
Cash Flow Used in Investing Activities (33,909,928) (35,665,779)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FINANCING ACTIVITIES
-------------------------------------------------------------------------
Proceeds from Debt Financing 48,500,000 8,000,000
-------------------------------------------------------------------------
Repayments of Debt (33,982,822) (4,873,967)
-------------------------------------------------------------------------
(Decrease)/Increase in Bank Overdraft (1,052,848) 1,429,889
-------------------------------------------------------------------------
Dividends Paid (17,573,262) (13,373,198)
-------------------------------------------------------------------------
Net Proceeds from Issue of
Ordinary Share Capital 2,648,478 1,703,497
------------ ------------
-------------------------------------------------------------------------
Cash Flow Used in Financing Activities (1,460,454) (7,113,779)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DECREASE IN NET CASH (387,374) (17,041,243)
-------------------------------------------------------------------------
NET CASH - BEGINNING OF YEAR 962,965 18,004,208
------------ ------------
-------------------------------------------------------------------------
NET CASH - END OF YEAR 575,591 962,965
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental Disclosure of
Cash Flow Information:
-------------------------------------------------------------------------
Interest Received During the Year 96,804 60,264
-------------------------------------------------------------------------
Interest Paid During the Year 9,187,820 9,155,789
-------------------------------------------------------------------------
Notes to the Financial Statements
1. Incorporation, Activity and Licence
The Company was incorporated on April 30, 1966 under the laws of the
Cayman Islands. Fortis Energy-Bermuda Ltd. (the "Fortis group") owns
37.16% (2005: 37.17%) of the issued Class A Ordinary Shares of the
Company and International Power Holding Ltd. owns 14.78% (2005: 14.94%)
of the issued Class A Ordinary Shares of the Company (Note 20).
The principal activity of the Company is to generate and distribute
electricity in its exclusive licence area of Grand Cayman, Cayman
Islands, under a licence from the Government of the Cayman Islands
("Government") originally dated May 10, 1966, amended November 1, 1979
and renewed for a further 25 years on January 17, 1986. Amendments to the
25-year licence dated January 17, 1986, as amended by a Supplementary
Licence dated October 16, 1989, have been negotiated and incorporated
into a further Supplementary Licence executed on November 15, 1994
(collectively, the "Licence").
There is a provision in the Licence for subscribers' tariffs to be
adjusted per annum to provide the Company with a rate of return of 15% on
capital employed as defined in the Licence. The 15% rate of return is
fixed for the term of the Licence and does not take into consideration
actual interest charges, unless they are in excess of 15% per annum, and
costs of capital incurred by the Company.
Within 21 days of the end of each financial year, the Company is obliged
to furnish the Government with an Interim Return setting out the results
of the operations for that financial year. Not later than three months
after the end of such financial year, the Company is under an obligation
to submit to the Government audited accounts together either with a
certificate by the auditors certifying that the particulars in the
Interim Return accord with the audited accounts or, alternatively, with a
Final Return which does so accord with the audited accounts (Note 19).
Additionally, the Licence provides for adjustments to be made to the
rates billed to consumers to reflect variations in the cost to the
Company of diesel fuel used in the generation of electricity. Such
adjustments are made on a monthly basis.
The Licence also requires the Company to pay duty on fuel at the rate of
$0.60 per imperial gallon and to pay a turnover fee of 5/8 of 1% per
annum based on the previous year's revenue, payable quarterly in arrears.
In January 2006, the Government exercised its right under the current
Licence to increase the duty rate paid by the Company on all foreign
purchases from 10% to 15%. Under the terms of the Company's Licence,
customs duties are included in the rate base for capital expenditures and
allowable operating expenditures in determining earnings.
The Electricity Regulatory Authority Law came into effect on April 12,
2005. The new law provides for a new body, the Electricity Regulatory
Authority, to govern the generation and transmission and distribution
("T&D") of electricity in the Cayman Islands.
2. Cost Recovery Surcharge ("CRS")
In July 2005, CUC and the Government agreed on a CRS to be implemented by
the Company for purposes of recovering its uninsured Hurricane Ivan ("the
hurricane")-related losses. The CRS commenced with CUC's August 2005
billings. A flat charge of $0.0089 per kiloWatt-hour ("kWh") is applied
to all customers, which equates to a 4.7% average rate increase.
Under current projections, the CRS is expected to appear on CUC's
customer bills for approximately three years from August 1, 2005. During
the three-year CRS period, CUC has agreed with the Government that there
will be a freeze on basic billing rates until July 31, 2008. Also, there
will be no retroactive increase in basic billing rates after the full
recovery of the CRS.
-------------------------------------------------------------------------
$ millions
-------------------------------------------------------------------------
T&D Property, Plant and Equipment 7.0
-------------------------------------------------------------------------
Other Property, Plant and Equipment 2.0
-------------------------------------------------------------------------
Revenue losses during insurance deductible period 5.0
-------------------------------------------------------------------------
Total 14.0
-------------------------------------------------------------------------
By agreement with Government, CUC will recover $13.4 million of the
$14.0 million uninsured losses. CRS revenues for the year ended April 30,
2006 were $3.0 million, leaving $10.4 million to be recovered.
3. Accounts Receivable - Trade
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Billings to consumers 15,288,582 11,035,648
-------------------------------------------------------------------------
Employee Share Purchase Plan 39,983 9,145
-------------------------------------------------------------------------
Other receivables 353,426 436,092
-------------------------------------------------------------------------
Total 15,681,991 11,480,885
-------------------------------------------------------------------------
The Company's billings to consumers increased due to an insurance in
total customers in 2006 by 2,104 to 21,115, higher post-hurricane
consumption and higher fuel factor rates.
Employee Share Purchase Plan
----------------------------
The Company provides interest-free advances to employees to purchase
Class A Ordinary Shares, with such advances recovered through payroll
deductions over the next 12 months. The maximum semi-annual participation
is 1,000 Class A Ordinary Shares per employee. The plan is
non-compensatory as shares purchased by the employee are obtained at the
prevailing market value at the time of purchase.
4. Other Receivable - Insurance
A catastrophic category four hurricane hit Grand Cayman on September 12,
2004. As a result of the hurricane, the Company recognised an impairment
of $19,463,554 in respect of damaged Property, Plant and Equipment in
fiscal 2005. During the negotiation process, it was established that an
element of the initial claim filed with the insurer included betterment
of some assets and certain duplications of the claim, which were adjusted
in the final settlement. As a result, the Other Receivable - Insurance
balance in the prior year was overstated by $2,334,552 and the Property,
Plant and Equipment was understated by the same amount. Correction of
these errors has been reflected in the current year by adjusting
Property, Plant and Equipment and the Other Receivable - Insurance by
equal adjustments. These adjustments had no impact on net income
reporting in fiscal 2005 or 2006. In addition, there has been an effect
on revenue earned during the year due to business interruption as
discussed further in Note 13. The Other Receivable - Insurance balance
represents both business interruption and property insurance claims
relating to the hurricane. The Company's insurers made general advances
of $22.1 million to date, which have been applied against the insurance
receivable. In April 2006, the Company reached a preliminary agreement
with its insurers for a settlement of $31.1 million on the hurricane
claim. Overall, the terms of the settlement are:
-------------------------------------------------------------------------
Property Claim (net of deductible) $16.3 million
-------------------------------------------------------------------------
Business Interruption Claim $14.8 million
-------------------------------------------------------------------------
Total $31.1 million
-------------------------------------------------------------------------
Further to this settlement, the insurers made a final payment of
$9,075,125 in June 2006 (see Note 19 (d)).
5. Property, Plant and Equipment
-------------------------------------------------------------------------
Adjusted Cost/ Accumulated
Appraised Depreciation
Value ($) ($) 2006 Net ($)
-------------------------------------------------------------------------
Transmission & Distribution 175,279,600 38,594,750 136,684,850
-------------------------------------------------------------------------
Generation 171,120,477 57,799,097 113,321,380
-------------------------------------------------------------------------
Other:
-------------------------------------------------------------------------
Land 1,170,193 - 1,170,193
-------------------------------------------------------------------------
Buildings 17,626,023 5,018,615 12,607,408
-------------------------------------------------------------------------
Equipment, Motor Vehicles
and Computers 16,295,590 9,358,676 6,936,914
------------ ------------ ------------
-------------------------------------------------------------------------
Total Other 35,091,806 14,377,291 20,714,515
------------ ------------ ------------
-------------------------------------------------------------------------
Property, Plant and Equipment 381,491,883 110,771,138 270,720,745
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted Cost/ Accumulated
Appraised Depreciation
Value ($) ($) 2005 Net ($)
-------------------------------------------------------------------------
Transmission & Distribution 166,422,545 33,397,015 133,025,530
-------------------------------------------------------------------------
Generation 147,516,533 53,243,021 94,273,512
-------------------------------------------------------------------------
Other:
-------------------------------------------------------------------------
Land 1,170,193 - 1,170,193
-------------------------------------------------------------------------
Buildings 17,328,926 4,611,065 12,717,861
-------------------------------------------------------------------------
Equipment, Motor Vehicles
and Computers 16,575,577 9,531,429 7,044,148
------------ ------------ ------------
-------------------------------------------------------------------------
Total Other 35,074,696 14,142,494 20,932,202
------------ ------------ ------------
-------------------------------------------------------------------------
Property, Plant and Equipment 349,013,774 100,782,530 248,231,244
-------------------------------------------------------------------------
Included in Property, Plant and Equipment are a number of capital
projects in progress with a total cost to date of $22,858,370 (2005:
$4,720,070). These projects primarily relate to an 8.4 megaWatt ("MW")
gas turbine unit, hurricane construction and continuing upgrades to the
Company's T&D system.
Also included in generation and T&D is freehold land with a cost of
$4,672,305 (2005: $4,672,305). In addition, engine spares with a net book
value of $9,913,756 (2005: $7,865,262) are included in generation.
During the year, the Company capitalised interest of $579,578 (2005:
$536,528).
As a result of the hurricane, the Company recognised an impairment in
fiscal 2005 of its property, plant and equipment of $19,463,554 for
assets that were damaged during the hurricane. This amount was the sum of
the estimated cost to reconstruct these assets that would be reimbursed
under the Company's insurance policy (Note 13) plus the estimated cost of
the reconstruction of the submarine cable, which would be funded by the
Company. Please see Note 4, which discusses an adjustment in the current
year relating to an error in the prior year with respect to the
determination of the impairment. In April 2006, the Company reached a
settlement of $31.1 million with its insurers on the hurricane claim
(Note 4). The property claim was negotiated and settled on a
reinstatement basis except for assets purchased prior to 1990. A total
gain of $3.2 million has been recorded on the hurricane property claim:
-------------------------------------------------------------------------
Gain on Hurricane Property Settlement
-------------------------------------------------------------------------
Description Book Value Settlement Fiscal Fiscal Total
of Assets ($) 2005 2006 Gain on
Disposed Gain on Gain on Disposal
($) Disposal Disposal of Assets
of Assets of Assets ($)
($) ($)
-------------------------------------------------------------------------
T&D and
Substations(x) 757,796 1,588,585 0 830,789 830,789
-------------------------------------------------------------------------
Mirrlees Units(xx) 65,193 2,345,200 1,934,807 345,200 2,280,007
-------------------------------------------------------------------------
Inventory(xxx) 1,281,043 1,345,685 0 64,642 64,642
---------- ---------- --- -------- --------
-------------------------------------------------------------------------
Total 2,104,032 5,279,470 1,934,807 1,240,631 3,175,438
-------------------------------------------------------------------------
(x) Gain recorded to T&D expenses
(xx) Gain recorded to Power Generation Expenses
(xxx) Gain recorded to General and Administration Expenses
In addition, no depreciation charge has been expensed since
September 2004 for various insured assets with a net book value of
$17,843,761, consisting mainly of the generation plant assets requiring
major reconstruction following the passage of the hurricane. These assets
were considered to be under reconstruction, and depreciation would
commence when the asset was brought back into production. Assets with a
book value of $515,982 were completed and brought back into service as at
April 30, 2006, thereby bringing the net book value of assets still under
repair to $17,327,779. The Company will determine whether the
reconstructed asset's useful life has increased at the time it is ready
for production. Fixed assets pledged as security are detailed in Note 7.
6. Other Assets
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Sundry Assets 165,956 73,396
-------------------------------------------------------------------------
Deferred Licence Renewal Costs 920,372 668,431
-------------------------------------------------------------------------
Deferred Debt Issue Expense 1,508,689 1,387,472
-------------------------------------------------------------------------
Deferred Fuel Costs 8,261,152 5,561,453
----------- -----------
-------------------------------------------------------------------------
Total 10,856,169 7,690,752
-------------------------------------------------------------------------
Deferred Licence Renewal Costs
------------------------------
Deferred licence renewal costs are related to the ongoing negotiations
with the Government for an extension to the Company's licence (Note 19).
7. Long-Term Debt
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
8.47% Senior Unsecured Loan Notes due 2010 7,500,000 9,000,000
-------------------------------------------------------------------------
6.47% Senior Unsecured Loan Notes due 2013 20,000,000 22,500,000
-------------------------------------------------------------------------
7.64% Senior Unsecured Loan Notes due 2014 27,000,000 30,000,000
-------------------------------------------------------------------------
6.67% Senior Unsecured Loan Notes due 2016 30,000,000 30,000,000
-------------------------------------------------------------------------
5.09% Senior Unsecured Loan Notes due 2018 40,000,000 40,000,000
-------------------------------------------------------------------------
5.96% Senior Unsecured Loan Notes due 2020 30,000,000 -
-------------------------------------------------------------------------
4.60% RBC $8 Million Loan - 8,000,000
-------------------------------------------------------------------------
3.00% European Investment Bank No. 3 due 2009 1,538,174 2,020,997
------------ ------------
-------------------------------------------------------------------------
156,038,174 141,520,997
-------------------------------------------------------------------------
Less: Current Portion (7,497,632) (15,482,822)
------------ ------------
-------------------------------------------------------------------------
Total 148,540,542 126,038,175
-------------------------------------------------------------------------
Long-term debt repayments per fiscal year are estimated as follows:
-----------------------------------------------------------
Year ($)
-----------------------------------------------------------
2007 7,497,632
-----------------------------------------------------------
2008 10,512,442
-----------------------------------------------------------
2009 10,528,100
-----------------------------------------------------------
2010 14,000,000
-----------------------------------------------------------
2011 14,000,000
-----------------------------------------------------------
2012 and later 99,500,000
-----------------------------------------------------------
Total 156,038,174
-----------------------------------------------------------
All long-term debt is denominated in United States dollars.
The Company has credit financing facilities with Royal Bank of Canada
("RBC") comprising:
a) $5,000,000 Revolving overdraft line - prime + 1/2%
b) $5,000,000 Catastrophe Stand-by loan - prime + 1/2%
c) $1,538,174 Stand-by letters of credit
d) $10,000,000 Demand loan facility for interim funding of expenditures
e) $300,000 Corporate credit cards line
The Company also maintains letters of guarantee with RBC of $1,071,429 to
the Government for duties on the importation of materials.
Pursuant to the above facility agreements, RBC agreed to grant letters of
credit in favour of European Investment Bank ("EIB") up to the sum of
$1.5 million (2005: $2.1 million) (or the equivalent in other acceptable
currencies) to secure the obligations of the Company to EIB in respect of
finance contracts (dated April 18, 1990 and January 14, 1997) in the same
aggregate amount.
As security for the above facilities, RBC has been granted fixed and
floating charge debentures totalling $1.5 million (2005: $8.5 million)
over all assets of the Company (other than land on which the office
building is situated). The RBC debentures represent a first charge over
the Company's assets.
Pursuant to a finance contract with EIB dated January 14, 1997 for an
aggregate maximum facility of an amount equivalent to 4,000,000 European
Currency Units ("ECU's"), the Company pays a subsidised interest at the
greater of 3% or the average prevailing rate of comparable loans at the
time of drawdown less 3.25%. Under the agreement, notional interest equal
to the subsidy is paid into a restricted use funding account held by the
Company. These funds can only be used for certain projects mitigating the
effect of the Company's activities on the environment. Disbursement of
the funds is subject to the prior approval of EIB. As at April 30, 2006,
included within Cash and Due from Banks is an amount totalling $nil
(2005: $252,815), which represents the Company's contribution into the
restricted account. Upon the approval of EIB, during 2006, the Company
drew down on the balance of funds held in the restricted account. EIB has
also given approval that the Company is no longer required to make
payments into this restricted account, as it has already incurred
sufficient expenditures on environmentally-related projects to compensate
for the subsidy over the remaining period of the loan.
Interest expense on the long-term debt amounted to $8,845,571 (2005:
$8,320,183).
8. Share Capital
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Authorized:
-------------------------------------------------------------------------
60,000,000 (2005: 60,000,000) Class A
Ordinary Shares of CI$0.05 each
-------------------------------------------------------------------------
250,000 (2005: 250,000) 9% Cumulative,
Participating Class B Preference Shares
of $1.00 each (non-voting)
-------------------------------------------------------------------------
1 Cumulative, Participating, Class D
Preference Share of CI$0.56 (non-voting)
-------------------------------------------------------------------------
Issued and Fully Paid:
-------------------------------------------------------------------------
25,282,801 (2005: 25,024,351)
Class A Ordinary Shares 1,504,929 1,489,545
-------------------------------------------------------------------------
250,000 (2005: 250,000) 9% Cumulative
Participating Class B Preference Shares
($1.00 par value) issued at a premium 250,000 250,000
of $19.00 per share --------- ---------
-------------------------------------------------------------------------
Total 1,754,929 1,739,545
-------------------------------------------------------------------------
The Class B Preference Shares ("Class B Shares") are entitled to fixed
cumulative preferential dividends at a rate of 9% per annum of the par
value and premium on such shares. In the event that the dividend payable
in any financial year on the Class A Ordinary Shares exceeds $0.18 per
share, the Class B Shares are entitled to an additional dividend of four
times the amount of such excess. At the sole option of the Directors, the
Company is entitled to redeem all or any of the Class B Shares at any
time upon receipt by the Company of an application to redeem such shares.
Share capital movements for the year are summarised as follows:
1. 54,399 (2005: 57,231) Class A Ordinary Shares were issued under the
Customer Share Purchase and Dividend Reinvestment Plans at between
$11.63 and $11.90 (2005: $11.09 and $12.32) per share.
2. 11,950 (2005: 6,825) Class A Ordinary Shares were issued under the
Employee Share Purchase and Employee Long Service Bonus Plans at
prices between $11.63 and $11.90 (2005: $11.09 and $12.32) per share.
3. 192,101 (2005: 95,320) Class A Ordinary Shares were issued under the
Executive Stock Option Plan (Note 9) at between $10.05 and $11.46
(2005: $10.05 and $11.46) per share.
9. Share Options
On October 24, 1991, the shareholders of the Company approved an
Executive Stock Option Plan, under which certain employees, officers and
Directors may be granted options to purchase Class A Ordinary Shares of
the Company. The exercise price per share in respect of options is equal
to the fair market value of the Class A Ordinary Shares on the date of
grant. Each option is for a term not exceeding 10 years and will vest
over a four-year period on each anniversary of the date of the grant. The
maximum number of Class A Ordinary Shares under option shall be fixed and
approved by the shareholders of the Company from time to time and is
currently set at 1,051,677. Options are forfeited if they are not
exercised prior to their respective expiry date or upon termination of
employment prior to the completion of the vesting period.
-------------------------------------------------------------------------
Number of 2006 Number of 2005
Options Weighted- Options Weighted-
Average Average
Exercise Exercise
Price per Price per
Share ($) Share ($)
-------------------------------------------------------------------------
Outstanding at Beginning
of Year 861,301 11.74 961,021 11.58
-------------------------------------------------------------------------
Granted 0 - - -
-------------------------------------------------------------------------
Exercised (192,101) 10.05 (95,320) 10.07
-------------------------------------------------------------------------
Forfeited (40,900) 12.65 (4,400) 12.73
-------------------------------------------------------------------------
Outstanding at End of Year 628,300 12.20 861,301 11.74
-------------------------------------------------------------------------
The following table summarises information regarding stock options
outstanding at April 30, 2006:
-------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Range of Number Weighted- Weighted- Number Weighted-
Exercise Outstanding Average Average Exercisable Average
Prices at April 30, Remaining Exercise at April 30, Exercise
($) 2006 Contractual Price ($) 2006 Price ($)
Life
-------------------------------------------------------------------------
11.46-13.78 628,300 5.90 years 12.20 573,359 12.04
-------------------------------------------------------------------------
On September 22, 2003, the Company issued 221,500 options under the
Executive Stock Option Plan. These options vest over a four-year period
on each anniversary of the date of grant. The options expire 10 years
after the date of grant. The fair value of each option granted was
calculated to be $1.13 per option. The fair value was estimated on the
date of the grant using the Black-Scholes fair value option pricing model
and the following assumptions:
-------------------------------------------
Dividend yield (%) 4.98
-------------------------------------------
Expected volatility (%) 12.00
-------------------------------------------
Risk-free interest rate (%) 4.64
-------------------------------------------
Expected life (years) 7.39
-------------------------------------------
The Company has a policy of recording compensation expense upon the
issuance of stock options. Using the fair value method, the compensation
expense is amortised over the four-year vesting period of the options.
Upon exercise, the proceeds of the option are credited to capital stock
at the option price. Therefore, an exercise of options below the current
market price has a dilutive effect on capital stock and shareholders'
equity. Under the fair value method, compensation expense was $62,574 for
the year ended April 30, 2006, with an offsetting credit to contributed
surplus.
10. Earnings Per Class A Ordinary Share
Basic earnings per Class A Ordinary Share are calculated using the
weighted daily average number of Class A Ordinary Shares in issue and
after adjustment for the dividends on Class B Preference Shares.
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Earnings for the Year ($) 22,857,662 4,224,302
-------------------------------------------------------------------------
Less: Preferred dividends ($) (930,000) (925,000)
-------------------------------------------------------------------------
Earnings for the year for Basic and
Diluted Earnings per Share ($) 21,927,662 3,299,302
-------------------------------------------------------------------------
Weighted-Average Number of Class A
Ordinary Shares 25,221,581 24,924,793
-------------------------------------------------------------------------
Plus: Potential Dilutive Effect of
Unexercised Options 18,333 36,257
-------------------------------------------------------------------------
Weighted-Average Number of Class A Ordinary
Shares Used for Determining Diluted
Earnings per Share 25,239,914 24,961,050
-------------------------------------------------------------------------
Basic Earnings per Class A Ordinary Share ($) 0.87 0.13
-------------------------------------------------------------------------
Diluted Earnings per Class A Ordinary Share ($) 0.87 0.13
-------------------------------------------------------------------------
Diluted earnings per Class A Ordinary Share shows the effect on earnings
per Class A Ordinary Share that would result if all dilutive stock
options outstanding for the year ended April 30, 2006 had been exercised
at the beginning of the year. The dilutive effect of stock options was
calculated using the treasury stock method. This method calculates the
number of incremental shares by assuming the outstanding stock options
are (i) exercised and (ii) then reduced by the number of shares assumed
to be repurchased from the issuance proceeds, using the average market
price of Class A Ordinary Shares for the year.
11. Directors' and Officers' Remuneration
During the year ended April 30, 2006, the Company had a total of six
(2005: seven) executive officers of whom two (2005: two) were also
Directors. For the financial year of the Company ended April 30, 2006,
the aggregate cash compensation paid to such executive officers for
services during such year was $1,118,275 (2005: $1,389,853).
12. Capital Commitments
A. The Company has signed a seven-year Strategic Alliance with ABB Power
T&D Company, Inc. ("ABB") for major T&D system projects, which
commenced in September 1998. CUC and ABB are currently in the process
of negotiating a renewal of the Strategic Alliance. The total
commitments outstanding under this agreement are $nil (2005: $nil).
B. The Company also signed a 10-year agreement with MAN B&W for
generation projects that commenced in February 1999. During 2005, the
Company entered into a contract with MAN Turbo for the supply and
installation of a new gas turbine. The total commitments outstanding
under this agreement are $0.7 million (2005: $5.25 million). During
2006, the Company entered into an additional project agreement with
MAN B&W for the purchase and turnkey installation of one 16 MW V48/60
medium-speed diesel generating unit and auxiliary equipment. The MAN
B&W contract cost for this project is $18.4 million and the total
estimated cost for completion of the project is $22.2 million.
C. During 2005, the Company entered into an agreement with ADCO Power
Limited for the Caterpillar Plant Rebuild project. This project
commenced in March 2005 and the total commitment outstanding under
this agreement is $1.4 million (2005: $5.0 million). The property
insurance settlement of $16.3 million (Note 4) includes $4.0 million
to partially offset the cost of this project.
13. Insurance Coverage
As discussed in Note 1, the Company operates in the Caribbean, which is
susceptible to certain adverse weather conditions such as hurricanes. The
Company maintains business interruption ("BI"), machinery breakdown and
property insurance (for the estimated replacement cost of buildings and
generating plant) with major international insurers.
Terms and coverages include $100 million in property insurance;
$55.0 million in BI insurance per annum with a 24-month indemnity period
and a 45-day deductible; and $15.0 million in machinery breakdown
insurance. All T&D assets outside of 1,000 feet from the boundaries of
the main plant and substations are excluded, as the cost of such coverage
is not considered economical. There is a single event cap of
$100 million. Each "loss occurrence" is subject to a deductible of
$1 million, except for windstorm (including hurricane) for which the
deductible is 2% of the value of each location that suffers loss, but
subject to a minimum deductible of $1.0 million and maximum deductible of
$4.0 million for all interests combined.
Included in plant and equipment are certain T&D assets with an estimated
replacement cost of $137 million (2005: $119 million). This value
excludes substations, which are covered in the main property policies.
The Company maintains lines of credit totalling $20 million with RBC
(Note 7). In May 2006, the Company drew down $10 million against its RBC
lines of credit for the funding of capital expenditures (see Note 19).
The Company's insurance policy includes BI, which covers losses resulting
from the necessary interruption of business caused by direct physical
loss or damage to CUC's covered property and loss of revenues resulting
from damage to customers' property. During the year ended April 30, 2006,
the Company recorded $6.1 million in the Statement of Earnings under the
terms of such policy and a total of $14.3 million from the end of the
deductible period on October 25, 2004. The remaining balance of
$0.5 million on the $14.8 million BI settlement (Note 4) has been offset
against leased power generation expenses.
14. Pension Plan
All employees of the Company are members of a defined contribution
Pension Plan established for the exclusive benefit of employees of the
Company and which complies with the provisions of the National Pensions
Law. As a term of employment, the Company contributes 7.5% of wages or
salary in respect of employees who have completed 15 years of continuous
service and have attained the age of 55 years and 5% of wages or salary
for all other employees. All contributions, income and expenses of the
plan are accrued to, and deducted from, the members' accounts. The total
expense recorded in respect of employer contributions to the plan for the
year amounted to $740,349 (2005: $717,160). An independent Trustee
administers the Pension Plan.
During 2003, the Company established a defined benefit pension plan for a
Director of the Company. In May 2005, the Company's Board of Directors
approved the establishment of a defined benefit pension plan for the
retired President and Chief Executive Officer. The pension cost of the
defined benefit plans is actuarially determined using the projected
benefits method. An independent actuary performs a valuation of the
obligations under the defined benefit pension plans at least every three
years. The latest actuarial valuation of the pension plans for funding
purposes was of April 30, 2006. An accrued benefit liability of $98,001
(2005: $531,689) is included within Accounts Payable and Accrued Expenses
as in the Balance Sheets.
-------------------------------------------------------------------------
Pension Benefit Plans
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Accrued Benefit Obligation:
-------------------------------------------------------------------------
Balance Beginning of Year 1,327,367 1,243,436
-------------------------------------------------------------------------
Interest Cost 244,699 83,931
-------------------------------------------------------------------------
Past Service Costs 2,585,041 -
-------------------------------------------------------------------------
Actuarial Losses/(Gains) 671,078 -
--------- ---
-------------------------------------------------------------------------
Balance End of Year 4,828,185 1,327,367
----------- -----------
-------------------------------------------------------------------------
Plan Assets:
-------------------------------------------------------------------------
Fair Value, Beginning of Year 207,072 193,360
-------------------------------------------------------------------------
Actual Return on Plan Assets 27,146 13,712
-------------------------------------------------------------------------
Employee Contributions to Plan 355,014 -
-------------------------------------------------------------------------
Employer Contributions to Plan 1,132,849 -
----------- ---
-------------------------------------------------------------------------
Fair Value, End of Year 1,722,081 207,072
----------- ---------
-------------------------------------------------------------------------
Funded Status - Deficit (3,106,104) (1,120,295)
-------------------------------------------------------------------------
Unamortised Past Service Costs 2,320,047 588,606
-------------------------------------------------------------------------
Unamortised Net Actuarial Loss/(Gain) 688,056 -
--------- ---
-------------------------------------------------------------------------
Accrued Benefit Liability 98,001 531,689
-------------------------------------------------------------------------
The Company's defined benefit pension plan asset allocation was as
follows:
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Equities 24% 64%
-------------------------------------------------------------------------
Fixed Income 25% 24%
-------------------------------------------------------------------------
Cash 1% 12%
-------------------------------------------------------------------------
Total 100% 100%
-------------------------------------------------------------------------
During the year ended April 30, 2006, $687,503 was recorded as
compensation expense, which comprises the following:
-------------------------------------------------------------------------
2006 ($) 2005 ($)
-------------------------------------------------------------------------
Interest Cost 244,699 83,931
-------------------------------------------------------------------------
Return on Plan Assets (27,146) (13,712)
-------------------------------------------------------------------------
Amortisation of Past Service Costs 469,950 221,470
-------------------------------------------------------------------------
Total 687,503 291,689
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Significant Assumptions Used:
-------------------------------------------------------------------------
Discount Rate during Year (%) 6.00-6.75 6.75
-------------------------------------------------------------------------
Discount Rate at Year-End (%) 5.25 6.75
-------------------------------------------------------------------------
Rate of Compensation Increase (%) 3.00 3.00
-------------------------------------------------------------------------
Expected Long-Term Rate of Return
on Plan Assets (%) 5.00 5.00
-------------------------------------------------------------------------
Average Remaining Service Period (years) 1.5-8.0 2.5
-------------------------------------------------------------------------
15. Interest Rate Risk
Long-term debt is issued at fixed interest rates, thereby minimising cash
flow and interest rate exposure. The Company is primarily subject to
risks associated with fluctuating interest rates on its short-term
borrowings and other variable interest credit facilities.
16. Concentration of Credit Risk
Credit risk represents the potential loss that the Company would incur if
the contract counterparties fail to perform pursuant to the terms of
their obligations to the Company. The Company does not believe it is
subject to any significant concentration of credit risk, except for Other
Receivable - Insurance. At April 30, 2006, the amount receivable is due
from one reputable insurer. The Company has agreed a settlement on the
hurricane claim. Based on this settlement, the adjustors have issued a
final report, and the lead underwriter has agreed these terms (see
Note 19 (d)).
Cash and Due from Banks balances are largely in place with major
financial institutions. Accounts Receivable - Trade are largely derived
from sales of electricity supplied to consumers throughout Grand Cayman.
In addition, the Company holds consumer deposits of $2,801,428 (2005:
$2,510,219) by way of security.
17. Fair Value of Financial Assets and Liabilities
The carrying amounts reported in the Balance Sheets at April 30, 2006 and
2005 for Cash and Due from Banks, Accounts Receivable and Accounts
Payable and Accrued Expenses approximate fair values due to the immediate
or short-term maturities of these financial instruments. The fair value
of the long-term debt is approximately $157.6 million (2005:
$150.1 million).
18. Taxation
Under current laws of the Cayman Islands, there are no income, estate,
corporation, capital gains or other taxes payable by the Company.
The Company is levied custom duties of CI$0.60 per imperial gallon of
diesel fuel it imports. In addition, the Company pays customs duties of
15% on all other imports.
19. Subsequent Events
A. The Company submitted to the Government on May 23, 2006 its Interim
Return containing its year-end 2006 unaudited results indicating
that, subject to final audit and review by Government, CUC, under its
Licence, is entitled to a 2.0% rate increase effective August 1,
2006. This shortfall on Return on Capital Employed is primarily a
result of increased operating expenses and infrastructure investment.
CUC will not seek to implement this rate increase, as it agreed with
Government that it would freeze basic rates during the period of the
CRS (Note 2).
B. On May 19, 2006, the Company's Board of Directors declared a regular
quarterly dividend of $0.165 per Class A Ordinary Share, or an
annualised dividend of $0.66 per share. The dividend was paid
June 15, 2006 to shareholders of record June 1, 2006.
C. The Company drew down $10.0 million in May 2006 against its capital
expenditures credit facility with the RBC. This loan was used for the
interim funding of capital expenditures.
D. In June 2006, the Company received the final payment of $9,075,125 on
its hurricane claim from the insurer.
The closing rate of exchange on April 30, 2006 as reported by the Bank of
Canada for the conversion of U.S. dollars into Canadian dollars was
Cdn.$1.1180 per US$1.00. The official exchange rate for the conversion
of Cayman Islands dollars into U.S. dollars as determined by the Cayman
Islands Monetary Authority is fixed at CI$1.00 per US$1.20. Thus, the
rate of exchange as of April 30, 2006 for conversion of Cayman Islands
dollars into Canadian dollars was $1.3416 per CI$1.00.
20. Related Party Transactions
At April 30, 2006, 17.15% of the Class A Ordinary Shares (2005: 17.12%)
and 7.5% of the Class B Preference Shares (2005: 7.5%) were owned either
directly or through entities controlled by Directors or officers of the
Company.
21. Measurement Uncertainty
Measurement uncertainty is uncertainty in the determination of the amount
at which an item is recognised in financial statements. Due to the
hurricane, the property, plant and equipment impairment, the estimated
reconstruction costs and the related insurance receivable relating to the
estimates of reconstruction are measured using management's best
estimates based on assumptions that reflect the most probable set of
economic conditions and planned course of action. With respect to the
insurance receivable, the Company has agreed a final settlement on the
hurricane claim (Note 4). Based on this settlement, the adjustors have
issued a final report, and the lead underwriter has agreed to these
terms.
22. Comparative Figures
Certain comparative figures have been reclassified to conform with
current year disclosure.
>>
%SEDAR: 00002251E
