LISTED FOR TRADING IN UNITED STATES FUNDS ON THE TORONTO STOCK
EXCHANGE/TRADING SYMBOL: CUP.U
GRAND CAYMAN, Cayman Islands, May 26 /CNW/ - Caribbean Utilities Company,
Ltd. ("CUC" or "the Company") announced today its unaudited financial results
for the year ended April 30, 2006.
Interim Return
CUC submitted to the Cayman Islands Government ("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, the Company,
under its current Licence, is entitled to a 2.0% rate increase effective
August 1, 2006. 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)
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2006 ($) 2005 ($) Change ($) Change %
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Operating Revenue 135,676,977 92,871,026 42,805,951 46%
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Electricity Sales 85,686,300 68,892,949 16,793,351 24%
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Hurricane Ivan
Cost Recovery
Surcharge 3,035,493 - 3,035,493 N/A
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Fuel Factor 46,955,184 23,978,077 22,977,107 96%
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Business
Interruption
Insurance 6,078,760 8,148,086 (2,069,326) (25%)
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Earnings for
the Period 22,814,771 4,224,302 18,590,469 440%
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Earnings per Class A
Ordinary Share 0.87 0.13 0.74 569%
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Dividends Paid per
Class A Ordinary Share 0.660 0.495 0.165 33%
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Net Generation
(kWh millions) 485.52 393.51 92.01 23%
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Peak Load Gross (MW) 79.04 85.03 (5.99) (7%)
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Kilowatt-hour Sales
(kWh millions) 456.04 375.74 80.30 21%
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Total Customers 21,115 19,011 2,104 11%
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Earnings
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 million.
Year-end earnings were $22.8 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 the same period last year.
Although CUC experienced record earnings in fiscal 2006, earnings
nevertheless fell short of the original forecast by $1.2 million. Slower
generation and sales recovery growth in the second half of the year impacted
planned earnings by $1 million. Additional leased generation, maintenance,
consulting fees and interest expenses also negatively impacted budgeted
earnings. These increased costs were partially offset by a gain on the
hurricane claim settlement of $1.2 million recorded in the fourth quarter.
"CUC ended 2006 on a high note with a strong fourth quarter," commented
Richard Hew, CUC President and Chief Executive Officer (CEO). "Monthly
electricity sales are now consistently ahead of those before the hurricane in
September 2004, reflecting Grand Cayman and the Company's successful recovery
to date. We have approximately 350 fewer total customers than those connected
just prior to the hurricane, but we are currently connecting more than 100 new
customers per month. We should recognize the strength of our BI insurance, as
the proceeds have been a strong support of earnings, not only in the
compensation for lost revenues due to customers' property damage, but also for
the growth in kiloWatt-hour (kWh) sales we would have experienced had the
hurricane not occurred."
Licence Negotiations
Steady 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 fourth quarter 2006 was $33.2 million compared to
$21.1 million for the same period last year. The increase is due to post-
hurricane sales recovery and new growth from projects such as the 365-room
Ritz-Carlton, which opened in December 2005 and has already become the
Company's largest customer. The CRS and higher fuel factor revenues have also
positively impacted fourth quarter 2006 operating revenues versus the same
period last year. Operating revenue for the year totaled $135.7 million, a
$42.9 million, or 46%, increase over $92.9 million last year. Basic
electricity sales increased 39% for the quarter to $20.5 million from
$14.7 million in fourth quarter 2005.
The Company implemented a CRS of $0.0089 (CI$0.0075) per kWh on August 1,
2005 to recover approximately $13.4 million of direct uninsured hurricane
losses as agreed with Government. CRS revenues for the quarter were
$0.98 million. The CRS is expected to remain in place until approximately
2008, during which time there will be no increase in basic billing rates.
Approximately $10.4 million of CRS remains to be collected from customers as
of April 30, 2006. CUC's earnings, excluding the CRS impact, would have been
$4.2 million in fourth quarter 2006, or $0.16 per share, and $19.8 million, or
$0.75 per share, for the year ended April 30, 2006.
Fuel factor revenue for the quarter was $11.6 million, a $5.3 million
increase over fourth quarter 2005 revenues of $6.3 million. Fuel factor
revenue for the year of $47 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 have increased from $45 million in 2005 to
$72.8 million in 2006. The average fuel price for the year ended April 30,
2006 was CI$2.37 per imperial gallon (IG) compared to an average of
CI$1.84 per IG for the year ended April 30, 2005. CUC's Licence with
Government provides for adjustments to be made to the charges billed to
customers to reflect variations in the cost of diesel fuel used in the
generation of electricity. Such monthly adjustments allow CUC to recover the
variations in the cost of fuel from consumers.
Hurricane Ivan Claim
CUC has agreed a settlement with the insurance adjustors in the net
amount of $31.1 million. Based on this settlement, the adjustors have issued a
final report, and the lead underwriter has agreed to these terms. CUC does not
expect the final settlement terms to vary from the preliminary agreement.
Advanced payments on account totaling $22.1 million have been made to date,
leaving a balance of $9 million to be received. Overall, the terms of the
settlement are:
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Property Claim (net of deductible) $16.3 million
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Business Interruption Claim $14.8 million
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The Company's BI loss claim for fourth quarter 2006 was $0.6 million,
bringing the year-to-date BI claim recorded to $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 in CUC's future earnings. The property claim was negotiated and
settled on a reinstatement basis except for the pre-1990 assets. The
settlement terms resulted in a gain of $1.2 million in the fourth quarter.
A total gain of $3.1 million has been recorded on the hurricane property
claim:
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Gain on Hurricane Property Settlement
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Description Book Settlement Fiscal Fiscal Total
Value of ($) 2005 2006 Gain on
Assets Gain on Gain on Disposal
Disposed Disposal Disposal of Assets
($) of Assets of Assets ($)
($) ($)
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T&D and
Substations 757,796 1,588,585 0 830,789 830,789
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Mirrlees Units 65,193 2,345,200 1,934,807 345,200 2,280,007
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Inventory 1,281,043 1,282,234 0 1,191 1,191
--------- --------- - ----- -----
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Total 2,104,032 5,216,019 1,934,807 1,177,180 3,111,987
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Sales
Electricity sales increased in fourth quarter 2006 by 21.7 million kWh,
or 25%, to 109.6 million kWh compared to 87.9 million kWh in fourth quarter
2005. This growth is a result of an increase in residential electricity sales
of 23% and an increase in commercial electricity sales of 27% compared to the
same period last year. On an annual basis, electricity sales increased by
80.3 million kWh, or 21%, over 2005 to 456 million kWh.
Operating Expenses
Power Generation
----------------
Power generation expenses for the quarter were $18.9 million, a
$7.2 million, or 62%, increase from $11.7 million for the same period last
year. The increase was driven by the recovery of post-hurricane production and
higher fuel prices. 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, increased 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 $0.5 million recoverable from the insurers. CUC
expects the temporary generation to be phased out in early first quarter 2007
as CUC-owned generation is brought back online.
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Power Generation Expenses
Quarter Ended April 30, 2006
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2006 ($) 2005 ($) Change %
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Fuel 17,794,779 12,268,410 45%
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Lube 338,110 240,289 40%
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Deferred Fuel (507,753) (1,653,159) (69%)
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Leased Generation 580,500 41,316 1,305%
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Other 678,008 851,078 (20%)
------- ------- -----
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Total 18,883,644 11,747,934 62%
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Power Generation Expenses
Year Ended April 30, 2006
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2006 ($) 2005 ($) Change %
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Fuel 74,237,219 45,783,006 62%
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Lube 1,263,373 1,016,098 24%
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Deferred Fuel (2,699,699) (1,779,995) 52%
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Leased Generation 1,684,467 41,316 3,977%
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Other 2,700,730 3,223,905 (16%)
--------- --------- -----
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Total 77,186,089 48,284,330 60%
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General and Administration (G&A)
--------------------------------
G&A expenses for the quarter were $2.9 million compared to $2.5 million
for the same period last year, a 16% increase. Similarly, 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 plan. 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 plan are
actuarially determined using the projected benefits method. An accrued benefit
liability of $0.6 million has been recorded for the 12 months ended April 30,
2006, a 100% increase over the $0.3 million recorded for the same period last
year.
Transmission and Distribution (T&D)
-----------------------------------
T&D expenses for fourth quarter 2006 were negative $0.2 million compared
to negative $0.6 million for the same quarter last year. In 2006, an
adjustment was made to fourth quarter T&D expenses to record gains for the
hurricane settlement on T&D equipment of $0.8 million (see the "Gain on
Property Settlement" table above).
T&D expenses for fiscal 2006 totaled $1.6 million compared to
$8.4 million last year, an 81% decline. 2005 T&D expenses included a charge of
$8.1 million for the writeoff of uninsured impaired T&D assets. The hurricane
affected 20% of CUC's T&D system.
Maintenance
-----------
Maintenance costs were $1.4 million for fourth quarter 2006, a 13%
decrease from $1.6 million from the same period last year. The primary reason
was the recognition of 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 Property Settlement" table above).
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.
Generating Capacity
Peak load for the quarter was 76.95 MW compared with 68.57 MW for fourth
quarter 2005. Year-to-date peak load is 79.04 MW as achieved on September 13,
2005, or approximately 93% of last year's peak. A new post-Ivan peak of
80.8 MW was achieved on May 16, 2006. CUC recorded a total capacity on
April 30, 2006 of 106.83 MW, including the rental of 11.4 MW of generation
capacity.
"We expect to exceed our record peak load of 85 MW this summer as demand
continues to grow," said Mr. Hew. "Generating capacity will be restored to
120 MW by June compared to 123 MW pre-hurricane, which will enable us to
continue to serve our customers reliably during the peak demand season."
The newly installed 8.4 MW gas turbine unit is currently in the final
testing stage. Commissioning is expected in early June. As a result of this
addition, four of the eight rental units will be returned by late May. The
repaired Caterpillar units will become available for use in late May and early
June. This will allow CUC to return the remainder of the rental units in early
June.
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 has 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 US$18.4 million to complete. The generating unit will be housed
at the Company's North Sound Plant and will be commissioned in summer 2007.
Liquidity and Capital Resources
Liquidity
---------
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Cash Flow Summary
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Three Months Ended Year Ended
April 30 ($) April 30 ($)
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2006 2005 2006 2005
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Cash
(Beginning of Period) 3,429,561 3,396,222 962,965 18,004,208
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Cash Provided by
(Used in)
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Operating
Activities 9,335,522 9,601,751 34,940,327 25,738,315
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Investing
Activities (8,265,578) (9,728,936) (33,867,247) (35,665,779)
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Net Financing
Activities (3,923,914) (2,306,072) (1,460,454) (7,113,779)
----------- ----------- ----------- -----------
----------- -----------
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Cash (End of Period) 575,591 962,965 575,591 962,965
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Operating Activities
--------------------
Cash flow from operations, after working capital adjustments, was
$9.3 million for the fourth quarter, down $0.3 million from $9.6 million for
the same quarter last year. Cash flow from operations for the year increased
$9.2 million to $34.9 million compared to $25.7 million last year. This
increase is primarily driven by higher 2006 earnings.
Investing Activities
--------------------
Cash used in investing activities during the fourth quarter was
$8.3 million, down $1.4 million compared to $9.7 million for the same quarter
last year. This was primarily the result of a reduction in capital
expenditures of $1.6 million compared to fourth quarter 2005, which saw higher
capital expenditure levels from the rebuilding costs associated with the
hurricane.
For the year ended April 30, 2006, $34 million has been invested in the
purchase of property, plant and equipment, including $9 million for the
reconstruction of insured assets damaged by the hurricane. This is a
$5.8 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 used in financing activities in the fourth quarter was $3.9 million
compared to $2.3 million for the fourth quarter last year. This increase in
cash outlays related to increased dividend payments and a reduction in cash
proceeds from share issues and overdraft facilities.
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
$1.7 million.
Capital Resources
-----------------
CUC's principal activity as the exclusive provider of electricity in
Grand Cayman, a major financial and tourism centre, requires the Company to
have ongoing access to capital to build and maintain the electricity system to
the community it serves. The Company's capital structure as of April 30, 2006
is shown below:
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Quarter Ended April 30
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2006 ($) % 2005 ($) %
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Total Debt 156,038,175 54% 141,520,997 53%
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Shareholders' Equity 133,680,791 46% 125,724,438 47%
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Total 289,718,966 100% 267,245,435 100%
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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:
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Description Details
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Capital Expenditures Line of Credit $10.0 million
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Operating Line of Credit $5.0 million
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Catastrophe Standby Loan $5.0 million
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Total $20.0 million
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All of the above credit facilities were fully available as of April 30,
2006. Management constantly reviews its level of credit facilities based on
liquidity needs.
CUC's credit ratings were as follows as at April 30, 2006:
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Agency Rating
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Standard and Poor's A/Negative
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Dominion Bond Rating Service A (low): Long-Term Debt
Pfd-2 (low): Preferred Shares
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Financial Position
The following is a summary of significant changes to the Company's
balance sheet from April 30, 2005 to April 30, 2006 (unaudited):
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Balance Sheet Increase Explanation
Account (Decrease)
($ millions)
-------------------------------------------------------------------------
Accounts Receivable - Increase is due to higher
Trade 4.2 customer consumption and higher
fuel factor billings as a result
of rising fuel prices.
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Other Receivable - Decrease is due primarily to an
Insurance (6.9) additional advance of
$12.1 million received from the
insurers, offset by an increase
in BI insurance receivables of
$6.1 million and an adjustment
for the revised writedown of
assets damaged during the
hurricane of $2.3 million.
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Property, Plant and Net increase is comprised of
Equipment 22.6 (1) capital expenditures of
$34 million, $9 million of which
is related to the reconstruction
of assets damaged by the
hurricane; (2) depreciation
expense of $13.7 million and
(3) a revision of $2.3 million to
the estimated impairment of
assets damaged by the hurricane.
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Other Assets 3.0 Increase is due to increased
deferred fuel costs as a result
of higher average fuel prices.
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Current Portion of Decrease is due to the repayment
Long-Term Debt (8.0) of the RBC short-term bridging
loan.
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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.
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Share Premium 2.7 Increase is a result of
258,450 shares being issued for
the year.
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Retained Earnings 5.2 Increase is due to a net profit
for the period of $22.8 million,
Class A dividends of
$16.7 million and Class B
preference dividends of
$0.93 million.
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Capital Expenditures
Capital expenditures for the fourth quarter totaled $8.3 million, a 14%
decrease from $9.7 million in fourth quarter 2005. Capital expenditures for
the year were $34 million, including $9 million for the reconstruction of the
insured assets damaged by the hurricane. Other major capital projects are the
bulk fuel oil containment extension and the gas turbine.
Depreciation and Amortisation (D&A) Expenses
D&A expenses in fourth quarter 2006 increased 17%, or $0.5 million, to
$3.4 million from $2.9 million for the same period last year. D&A expenses for
the year totaled $13.7 million compared to $13.4 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 recognized a writedown 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
$16.1 million. The Company expects to see continued increases in D&A expenses
as these assets are brought back into service and based upon current capital
expenditure projections.
Interest Expenses
Fourth quarter 2006 interest expense was $2.3 million, comparable to
interest expense for the same period last year. Interest expense for the year
increased $0.7 million to $9.2 million for last year.
The Company closed in mid-December 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.
The Economy
The economic outlook for the Cayman Islands is strong, and the economy is
expected to experience growth in all sectors. Current macroeconomic forecasts
indicate that the Cayman Islands economy will grow by 3.6% during the
2006/2007 financial year.
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 added 365 guest rooms to the Island's room inventory and is already
CUC's largest customer. The total number of rooms available in Grand Cayman is
now 3,435. In addition, there are almost 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.
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Arrivals Q1 2006 2005 2004 2003 2002
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By Air 76,660 167,801 259,929 293,517 302,797
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By Sea 645,477 1,789,999 1,693,293 1,818,979 1,574,750
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Total 722,137 1,957,800 1,953,222 2,112,496 1,877,547
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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 licensed 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 billion. The global marketplace has
responded positively to the high-quality, well-managed products and services
Cayman offers.
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.
Declaration of Regular Quarterly Dividend on Class A Ordinary Shares
Payable June 15, 2006
The Board of Directors declared on May 19, 2006 a regular quarterly
dividend of $0.165 per Class A Ordinary Share, or an annualized dividend of
$0.66 per share. The dividend will be payable June 15, 2006 to shareholders of
record June 1, 2006.
Business Risks
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.
Critical Accounting Estimates
-----------------------------
The preparation of CUC's financial statements in accordance with Canadian
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 lead
underwriter has agreed to these terms. Accordingly, CUC does not expect the
final settlement terms to vary from the preliminary agreement.
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%-6% 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 $2.03 million and $0.5 million,
respectively. CUC is currently negotiating the renewal of its property and BI
insurance coverages, which are scheduled to expire in July.
The Company's 2007 capital expenditure budget is $38 million:
--------------------------------------------------------
US$ (millions) Budgeted 2006/2007
--------------------------------------------------------
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
----
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Total 38.39
--------------------------------------------------------
CUC expects to invest $181 million in its capital program over the next
five years.
Quarterly Results
The table below summarises unaudited quarterly information for each of
the nine quarters ended April 30, 2004 through April 30, 2006. This
information has been obtained from CUC's unaudited interim Financial
Statements, which, in the opinion of management, have been prepared in
accordance with Canadian GAAP. These operating results are not necessarily
indicative of results for any future period and should not be relied upon to
predict future performance.
A summary of the past nine quarters reflects the Company's continued
growth, temporarily declining as a result of the hurricane in the second and
third quarters of fiscal 2005, and subsequent rebounding growth.
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Quarterly Results (Unaudited)
($ thousands)
-------------------------------------------------------------------------
Quarter Ended Operating Income Earnings Diluted
Revenue Applicable Per Share Earnings
to Ordinary (Basic) ($) Per Share
Shares ($)
-------------------------------------------------------------------------
April 30, 2006 33,150 4,902 0.20 0.20
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January 31, 2006 34,822 3,771 0.15 0.15
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October 31, 2005 35,936 6,545 0.26 0.26
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July 31, 2005 31,768 6,667 0.26 0.26
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April 30, 2005 21,078 4,244 0.17 0.17
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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 million.
Annual earnings were $22.8 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. 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 last 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 last
year. The improvement was due to BI insurance proceeds on the hurricane claim
of $2.5 million and increased foreign exchange earnings.
April 2005/2004
---------------
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
The Company has a Disclosure Committee in accordance with best practices
among Canadian public companies. The committee, which is chaired by the
Company Secretary and Chief Governance Officer, assists the CEO and Chief
Financial Officer with implementing, monitoring and evaluating CUC's
disclosure controls and procedures in compliance with Canadian Securities
Administrators regulations.
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.
Other environmental initiatives include CUC's ongoing emergency
preparedness planning, scrap aluminum and other materials recycling,
continuous employee and contractor training and stringent environmental and
structural design standards.
Energy Conservation
"We continue to use our Energy Smart programme to promote and increase
energy conservation and environmental protection awareness among our
customers," noted Mr. Hew. "Customers must become more cognizant of their
ability to lower electricity bills through responsible energy usage with fuel
prices reaching record highs and directly impacting the fuel factor,
especially with the summer months approaching. Our Customer Service Department
offers a number of services, including free residential energy audits, to
assist customers in this regard."
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.
Statement of Earnings (unaudited) for the Year Ended April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
Fourth Quarter Annual
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
OPERATING REVENUES
-------------------------------------------------------------------------
Electricity Sales
(Note 2) 20,544,645 14,734,630 85,686,300 68,892,949
-------------------------------------------------------------------------
Hurricane Ivan Cost
Recovery Surcharge
(Note 12) 974,138 - 3,035,493 -
-------------------------------------------------------------------------
Fuel Factor 11,631,421 6,344,312 46,955,184 23,978,077
---------- --------- ---------- ----------
-------------------------------------------------------------------------
33,150,204 21,078,942 135,676,977 92,871,026
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OPERATING EXPENSES
-------------------------------------------------------------------------
Power Generation 18,883,644 11,747,934 77,186,089 48,284,330
-------------------------------------------------------------------------
General and
Administration 2,927,851 2,466,778 11,085,749 9,818,393
-------------------------------------------------------------------------
Consumer Service
and Promotion 326,949 430,824 1,255,780 1,437,168
-------------------------------------------------------------------------
Distribution (189,016) (587,763) 1,566,381 8,371,105
-------------------------------------------------------------------------
Depreciation and
Amortisation 3,442,686 2,949,341 13,746,965 13,263,704
-------------------------------------------------------------------------
Maintenance 1,385,037 1,586,182 7,530,412 9,015,194
--------- --------- --------- ---------
-------------------------------------------------------------------------
26,777,151 18,593,296 112,371,376 90,189,894
---------- ---------- ----------- ----------
-------------------------------------------------------------------------
OPERATING INCOME 6,373,053 2,485,646 23,305,601 2,681,132
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OTHER INCOME/(EXPENSES)
-------------------------------------------------------------------------
Interest Expense
and Preference
Dividends (2,344,872) (2,180,714) (9,212,208) (8,498,195)
-------------------------------------------------------------------------
Foreign Exchange Gain 55,965 205,222 1,198,035 867,967
-------------------------------------------------------------------------
Business Interruption
Insurance 611,239 3,552,848 6,078,760 8,148,086
-------------------------------------------------------------------------
Other Income 484,341 293,616 1,444,583 1,025,312
------- ------- --------- ---------
-------------------------------------------------------------------------
(1,193,327) 1,870,972 (490,830) 1,543,170
-------------------------------------------------------------------------
Earnings for the
Period 5,179,726 4,356,618 22,814,771 4,224,302
-------------------------------------------------------------------------
Class B Preference
Dividends Paid (277,500) (112,500) (930,000) (925,000)
--------- --------- --------- ---------
-------------------------------------------------------------------------
Earnings on Class A
Ordinary Shares 4,902,226 4,244,118 21,884,771 3,299,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted-Average Number
of Issued and
Fully-Paid Class A
Ordinary Shares
(Note 7) 25,274,808 24,953,000 25,221,581 24,924,793
-------------------------------------------------------------------------
Earnings per Class A
Ordinary Share
(Note 7) 0.20 0.17 0.87 0.13
-------------------------------------------------------------------------
Fully-Diluted Earnings
per Class A
Ordinary Share 0.20 0.17 0.87 0.13
-------------------------------------------------------------------------
Dividends Declared per
Class A Ordinary Share 0.165 0.165 0.660 0.495
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Statement of Retained Earnings (unaudited)
for the Year Ended April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
Balance at Beginning
of Period as
Previously Reported 89,365,378 84,767,787 84,863,402 87,348,112
-------------------------------------------------------------------------
Retroactive Restatement
of Change in the
Application of an
Accounting Policy for
Revenue Recognition
(Note 3) - - - 2,481,531
-------------------------------------------------------------------------
Balance at Beginning
of Period (Restated) 89,365,378 84,767,787 84,863,402 89,829,643
-------------------------------------------------------------------------
Earnings for
the Period 5,179,726 4,356,618 22,814,771 4,224,302
-------------------------------------------------------------------------
Dividends (4,440,193) (4,261,003) (17,573,262) (9,190,543)
----------- ----------- ------------ -----------
-------------------------------------------------------------------------
Balance at End
of Period 90,104,911 84,863,402 90,104,911 84,863,402
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Balance Sheet (unaudited) as of April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
$ $
-------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------
Current Assets
-------------------------------------------------------------------------
Cash and Due from Banks 575,591 962,965
-------------------------------------------------------------------------
Accounts Receivable- Trade (Note 3) 15,681,991 11,480,885
-------------------------------------------------------------------------
Other Receivable- Insurance (Note 4) 9,011,674 15,881,941
-------------------------------------------------------------------------
Inventories 5,172,908 5,330,363
-------------------------------------------------------------------------
Prepayments 911,092 580,698
------- -------
-------------------------------------------------------------------------
31,353,256 34,236,852
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, Plant and Equipment (Note 5) 270,762,303 248,231,244
-------------------------------------------------------------------------
Other Assets (Note 13) 10,734,355 7,690,752
---------- ---------
-------------------------------------------------------------------------
TOTAL ASSETS 312,849,914 290,158,848
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Current Liabilities
-------------------------------------------------------------------------
Bank Overdraft 377,041 1,429,889
-------------------------------------------------------------------------
Current Portion of Long-Term Debt (Note 11) 7,497,632 15,482,822
-------------------------------------------------------------------------
Accounts Payable and Accrued Expenses 19,946,089 18,917,183
-------------------------------------------------------------------------
Consumers' Deposits and Construction Advances 2,811,611 2,566,341
--------- ---------
-------------------------------------------------------------------------
30,632,373 38,396,235
-------------------------------------------------------------------------
Long-Term Debt (Note 11) 148,540,542 126,038,175
----------- -----------
-------------------------------------------------------------------------
179,172,915 164,434,410
----------- -----------
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Share Capital (Note 6) 1,754,929 1,739,545
-------------------------------------------------------------------------
Share Premium 41,655,512 39,022,418
-------------------------------------------------------------------------
Contributed Surplus (Note 2) 161,647 99,073
-------------------------------------------------------------------------
Retained Earnings (Note 3) 90,104,911 84,863,402
---------- ----------
-------------------------------------------------------------------------
133,676,999 125,724,438
----------- -----------
-------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 312,849,914 290,158,848
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Statement of Changes in Shareholders' Equity
(unaudited) as of April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
Share Capital
-------------------------------------------------------------------------
9% Cumulative
Class A Participating Class B
Ordinary Shares Preference Shares
-------------------------------------------------------------------------
Number of Number of
Shares Amount ($) Shares Amount ($)
-------------------------------------------------------------------------
Balance at
April 30, 2005 25,024,351 1,489,545 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 220,088 13,100 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for
the Period - - - -
-------------------------------------------------------------------------
Stock-Based
Compensation - - - -
-------------------------------------------------------------------------
Balance at
July 31, 2005 25,244,439 1,502,645 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 211 13 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for
the Period - - - -
-------------------------------------------------------------------------
Stock-Based
Compensation - - - -
- - - -
-------------------------------------------------------------------------
Balance at
October 31, 2005 25,244,650 1,502,658 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 26,161 1,557 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for
the Period - - - -
-------------------------------------------------------------------------
Stock-Based
Compensation - - - -
- - - -
-------------------------------------------------------------------------
Balance at
January 31, 2006 25,270,811 1,504,215 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 11,990 714 - -
-------------------------------------------------------------------------
Dividends - - - -
-------------------------------------------------------------------------
Earnings for
the Period - - - -
-------------------------------------------------------------------------
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, 2005 39,022,418 84,863,402 99,073 125,724,438
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 2,190,109 - - 2,203,209
-------------------------------------------------------------------------
Dividends - (4,597,436) - (4,597,436)
-------------------------------------------------------------------------
Earnings for
the Period - 7,094,037 - 7,094,037
-------------------------------------------------------------------------
Stock-Based
Compensation - - 15,644 15,644
- - ------ ------
-------------------------------------------------------------------------
Balance at
July 31, 2005 41,212,527 87,360,003 114,717 130,439,892
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 2,406 - - 2,419
-------------------------------------------------------------------------
Dividends - (4,268,130) - (4,268,130)
-------------------------------------------------------------------------
Earnings for
the Period - 6,657,427 - 6,657,427
-------------------------------------------------------------------------
Stock-Based
Compensation - - 15,643 15,643
- - ------ ------
-------------------------------------------------------------------------
Balance at
October 31, 2005 41,214,933 89,749,300 130,360 132,847,251
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 302,056 - - 303,613
-------------------------------------------------------------------------
Dividends - (4,267,504) - (4,267,504)
-------------------------------------------------------------------------
Earnings for
the Period - 3,883,582 - 3,883,582
-------------------------------------------------------------------------
Stock-Based
Compensation - - 15,644 15,644
- - ------ ------
-------------------------------------------------------------------------
Balance at
January 31, 2006 41,516,989 89,365,378 146,004 132,782,586
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 138,523 - - 139,237
-------------------------------------------------------------------------
Dividends - (4,440,193) - (4,440,193)
-------------------------------------------------------------------------
Earnings for
the Period - 5,179,726 - 5,179,726
-------------------------------------------------------------------------
Stock-Based
Compensation - - 15,643 15,643
- - ------ ------
------
-------------------------------------------------------------------------
Balance at
April 30, 2006 41,655,512 90,104,911 161,647 133,676,999
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Cash Flow Statement (unaudited)
for the Year Ended April 30, 2006
(expressed in United States dollars)
-------------------------------------------------------------------------
Fourth Quarter Annual
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
OPERATING ACTIVITIES
-------------------------------------------------------------------------
Earnings for
the Period 5,179,726 4,356,618 22,814,771 4,224,302
-------------------------------------------------------------------------
Depreciation and
Amortisation 3,442,686 2,949,341 13,746,965 13,263,704
-------------------------------------------------------------------------
Stock-Based
Compensation 15,643 15,643 62,574 62,573
-------------------------------------------------------------------------
(Profit)/Loss on
Disposal of Fixed
Assets (Note 4) (1,179,799) (1,348,927) (1,143,256) 9,263,169
----------- ----------- ----------- ---------
-------------------------------------------------------------------------
7,458,256 5,972,675 35,481,054 26,813,748
-------------------------------------------------------------------------
Net Decrease/(Increase)
in Non-Cash Working
Capital Balances
Related to Operations 1,877,266 3,629,076 (540,727) (1,075,433)
--------- --------- --------- -----------
-------------------------------------------------------------------------
9,335,522 9,601,751 34,940,327 25,738,315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INVESTING ACTIVITIES
-------------------------------------------------------------------------
(Purchase)/Sale of
Investments - - - 4,077,640
-------------------------------------------------------------------------
Proceeds on Sale of
Fixed Assets 2,693 5,852 30,506 44,790
-------------------------------------------------------------------------
Purchase of Property,
Plant and Equipment (7,977,186) (9,613,153) (33,318,175) (39,251,681)
-------------------------------------------------------------------------
Interest Capitalized
During Construction (291,085) (121,635) (579,578) (536,528)
--------- --------- --------- ---------
-------------------------------------------------------------------------
(8,265,578) (9,728,936) (33,867,247) (35,665,779)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FINANCING ACTIVITIES
-------------------------------------------------------------------------
Proceeds from the
Issue of Debt - - 48,500,000 8,000,000
-------------------------------------------------------------------------
Proceeds of
Share Issues 139,237 731,858 2,648,478 1,703,497
-------------------------------------------------------------------------
Repayment of Debt - (206,817) (33,982,822) (4,873,967)
-------------------------------------------------------------------------
Increase in Bank
Overdraft 377,041 1,429,889 (1,052,848) 1,429,889
-------------------------------------------------------------------------
Redemption of
Preference Shares - - - -
-------------------------------------------------------------------------
Dividends Paid (4,440,192) (4,261,002) (17,573,262) (13,373,198)
----------- ----------- ------------ ------------
-------------------------------------------------------------------------
(3,923,914) (2,306,072) (1,460,454) (7,113,779)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(DECREASE)/INCREASE
IN NET CASH (2,853,970) (2,433,257) (387,374) (17,041,243)
-------------------------------------------------------------------------
NET CASH- BEGINNING
OF PERIOD 3,429,561 3,396,222 962,965 18,004,208
--------- --------- ------- ----------
-------------------------------------------------------------------------
NET CASH- END
OF PERIOD 575,591 962,965 575,591 962,965
-------------------------------------------------------------------------
Notes to the Financial Statements
1. Nature of Operations and Financial Statement Presentation
These unaudited interim financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles
("Canadian GAAP") for interim financial statements. These interim
financial statements do not include all of the disclosures normally
found in the Caribbean Utilities Company, Ltd. ("CUC" or "the
Company") annual financial statements and should be read in
conjunction with the Company's financial statements for the year
ended April 30, 2005.
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").
2. Significant Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. These interim financial statements
have been prepared following the same accounting policies and methods
as those used in preparing the most recent annual financial
statements.
The Company accounts for its executive stock option grants using the
fair value method where any compensation expense is amortised over
the vesting period of the options.
The Company also maintains defined benefit and defined contribution
pension plans for its employees. The pension costs of the defined
benefit pension plan are actuarially determined using the projected
benefits method prorated on service and best estimate assumptions.
Past service costs from plan initiation are amortised on a straight-
line basis over the remaining service period of the employee active
at the date of initiation. Actuarial gains or losses are recognised
in income in the year in which they occur. The cost of the defined
contribution pension plan is expensed as incurred.
Revenues derived from the sale of electricity are taken to income on
a bills-rendered basis, adjusted for unbilled revenues.
The Company implemented a Cost Recovery Surcharge (CRS) of $0.0089
(CI$0.0075) per kilowatt-hour (kWh) on August 1, 2005 to recover
approximately $13.4 million of direct Hurricane Ivan losses. Revenues
derived from the CRS are taken to income on a bills-rendered basis,
adjusted for unbilled revenues (Note 12).
Property, plant and equipment is stated on the basis of an appraised
valuation at November 30, 1984 with subsequent additions at cost. The
cost of additions to property, plant and equipment is the original
cost of contracted services, direct labour and related overheads,
materials and interest on funds used during construction. Damaged
property, plant and equipment are written off, or appropriate
provision made, where damage relates to assets that will be
reconstructed.
3. Accounting Changes
During the year ended April 30, 2005, the Company improved the
processes surrounding consumer billing, which resulted in a change to
the application of the Company's accounting policy for revenue
recognition. The change was a direct result of improved technology in
the meter reading process, which has allowed meters to be read closer
to month-end, thereby changing the accounting practice previously
used by the Company to record unbilled revenue. Specifically, there
was a prior period impact of the change in accounting practice, and
accordingly, the Company restated its balance sheet as at April 30,
2004 to increase Accounts Receivable - Trade and Retained Earnings by
$2,481,531. The restatement relates to the catch-up effect of not
accruing for unbilled revenue in prior periods. Prior period
statements of earnings were not restated as the impact is immaterial.
The "as-billed" basis of revenue recognition applied in prior periods
was in all material respects equivalent to the accruals basis.
4. Other Receivables - Insurance and Claim Settlement
Hurricane Ivan (the "hurricane"), a catastrophic category-four
hurricane, hit Grand Cayman on September 12, 2004. The most
significant impact as a result of the hurricane was the recognition
of a writedown of $19,463,354 in respect of damaged property, plant
and equipment in fiscal 2005. During fiscal 2006, the Company revised
its estimated writedown of damaged property, plant and equipment by
$2,334,552 to $17,129,002. A significant portion of these costs will
be reimbursed under the Company's insurance policy. The Other
Receivable - Insurance balance represents both business interruption
and property insurance claims relating to the hurricane. The
Company's insurers have made general advances of $22.1 million to
date, which have been applied against the insurance receivable. In
April 2006, the Company reached a settlement of $31.1 million with
its insurers on the hurricane claim. A total gain of $3.1 million has
been recorded on the hurricane property claim:
---------------------------------------------------------------------
Gain on Hurricane Property Settlement
---------------------------------------------------------------------
Description Book Settlement Fiscal Fiscal Total
Value of ($) 2005 2006 Gain on
Assets Gain on Gain on Disposal
Disposed Disposal Disposal of Assets
($) of Assets of Assets ($)
($) ($)
---------------------------------------------------------------------
T&D and
Substations 757,796 1,588,585 0 830,789 830,789
---------------------------------------------------------------------
Mirrlees Units 65,193 2,345,200 1,934,807 345,200 2,280,007
---------------------------------------------------------------------
Inventory 1,281,043 1,282,234 0 1,191 1,191
--------- --------- - ----- -----
---------------------------------------------------------------------
Total 2,104,032 5,216,019 1,934,807 1,177,180 3,111,987
---------------------------------------------------------------------
5. Property, Plant and Equipment
As a result of the hurricane, the Company recognized a writedown of
its property, plant and equipment of $17,129,002 for assets that were
damaged during the hurricane. During fiscal 2006, the Company revised
its estimated writedown by $2,334,552 to $17,129,002. This amount
equals the estimated cost to complete the reconstruction of these
assets that have been reimbursed under the Company's insurance policy
except for the reconstruction of the submarine cable, which was
funded by the Company itself.
In addition, no depreciation charge had 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 $1,710,729 were completed and brought back into
service as at April 30, 2006, thereby bringing the net book value of
assets still under repair to $16,133,032. The Company will determine
whether the reconstructed assets' useful life has increased at the
time it is ready for production.
6. Capital Stock
Authorised
----------
a. 60,000,000 (2005: 60,000,000) Class A Ordinary Shares of
CI$0.05 each
b. 250,000 (2005: 250,000) 9% Cumulative, Participating Class B
Preference Shares of $1.00 each (non-voting)
c. 1 Cumulative, Participating, Class D Preference Share of
CI$0.56 (non-voting)
Class A Ordinary Shares were issued during the period for cash as
follows:
---------------------------------------------------------------------
Quarter Ended April 30, 2006
---------------------------------------------------------------------
Number of
Shares Amount ($)
---------------------------------------------------------------------
Balance - Beginning of Period 25,270,811 1,504,215
---------------------------------------------------------------------
Customer Share Purchase and Dividend
Reinvestment Plans 8,340 497
---------------------------------------------------------------------
Employee Share Purchase Plan - -
---------------------------------------------------------------------
Executive Stock Option Plan - -
---------------------------------------------------------------------
Employee Long Service Bonus Plan 3,650 217
-------------------------------- ----- ---
---------------------------------------------------------------------
25,282,801 1,504,929
---------------------------------------------------------------------
---------------------------------------------------------------------
Year Ended April 30, 2006
---------------------------------------------------------------------
Number of
Shares Amount ($)
---------------------------------------------------------------------
Balance- Beginning of Period 25,024,351 1,489,545
---------------------------------------------------------------------
Customer Share Purchase and Dividend
Reinvestment Plans 54,399 3,238
---------------------------------------------------------------------
Employee Share Purchase Plan 7,950 473
---------------------------------------------------------------------
Executive Stock Option Plan 192,101 11,435
---------------------------------------------------------------------
Employee Long Service Bonus Plan 4,000 238
-------------------------------- ----- ---
---------------------------------------------------------------------
25,282,801 1,504,929
---------------------------------------------------------------------
7. Earnings Per Share
The Company calculates Earnings Per Share on the weighted average
number of Class A Ordinary Shares outstanding. The year-to-date
weighted average ordinary shares outstanding were 25,221,581 and
24,924,793 for the 12 months ended April 30, 2006 and 2005,
respectively. Fully diluted Earnings Per Class A Ordinary Share were
calculated using the treasury stock method. The weighted average
Class A Ordinary shares outstanding were 25,274,808 and 24,953,000
for the quarters ended April 30, 2006 and 2005, respectively.
8. Share Options
The shareholders of the Company approved an Executive Stock Option
Plan on October 24, 1991 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 become exercisable on a cumulative basis at the end of each year
following the date of 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 Options Quarter Ended Year-to-Date
April 30, April 30,
2006 2006
---------------------------------------------------------------------
Outstanding at Beginning of Period 669,200 861,301
---------------------------------------------------------------------
Granted 0 0
---------------------------------------------------------------------
Exercised 0 (192,101)
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Forfeited (40,900) (40,900)
-------- --------
---------------------------------------------------------------------
Outstanding and Exercisable at End of Period 628,300 628,300
---------------------------------------------------------------------
---------------------------------------------------------------------
Range of Exercise Prices Quarter Ended Year-to-Date
April 30, April 30,
2006 ($) 2006 ($)
---------------------------------------------------------------------
Granted N/A N/A
---------------------------------------------------------------------
Exercised N/A 10.05-11.46
---------------------------------------------------------------------
Forfeited 11.46-13.78 11.46-13.78
---------------------------------------------------------------------
Outstanding as of April 30, 2006 11.46-13.78 11.46-13.78
---------------------------------------------------------------------
The position with respect to outstanding unexercised options as at
April 30, 2006 was as follows:
---------------------------------------------------------------------
Date of Grant Number of Class A Exercise Term of
Ordinary Shares Price ($) Option
under Option
---------------------------------------------------------------------
July 18, 2001 430,200 11.46 10 years
---------------------------------------------------------------------
Sept. 22, 2003 198,100 13.78 10 years
---------------------------------------------------------------------
9. Foreign Exchange
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.
10. Interim Results
Interim results will fluctuate due to the seasonal nature of
electricity. In Grand Cayman, demand is highest in the summer months
due to air conditioning load. Consequently, interim results are not
necessarily indicative of annual results.
11. Short-Term and Long-Term Debt
The Company drew down $18.5 million in fiscal 2006 against its credit
facilities with the Royal Bank of Canada (RBC). These funds were used
for the interim funding of ongoing reconstruction related to the
hurricane. On December 15, 2005, the Company drew down $30 million in
5.96% Senior Unsecured Notes due December 15, 2020 for the repayment
of the RBC short-term indebtedness and to finance ongoing additions
to its generation capacity and transmission and distribution system.
12. Cost Recovery Surcharge (CRS)
CRS revenues for the three months ended April 30, 2006 were
$0.97 million and $3.0 million for the year ended April 30, 2006,
leaving $10.4 million to be recovered (Note 2).
13. Other Assets
---------------------------------------------------------------------
April 30, April 30,
2006 2005
---------------------------------------------------------------------
$ $
---------------------------------------------------------------------
Sundry Assets 44,142 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
--------- ---------
---------------------------------------------------------------------
10,734,355 7,690,752
---------------------------------------------------------------------
Deferred Licence Renewal Costs
------------------------------
Deferred licence renewal costs are related to the ongoing
negotiations with Government for new Licences for the Company.
14. 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 writedown, 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 settlement on the hurricane claim. Based on this settlement,
the adjustors have issued a final report, and the lead underwriter
has agreed to these terms. CUC does not expect the final settlement
terms to vary from the preliminary agreement.
15. Pension Plan
The Company established a defined benefit pension plan for the
retired Chairman during 2003. The Company'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 plan are actuarially
determined using the projected benefits method. An accrued benefit
liability of $146,671 (2005: $72,922) has been recorded in accounts
payable and accrued expenses in the balance sheet for the three
months ending April 30, 2006, and $586,686 for the 12 months ended
April 30, 2006 (2005: $291,689).
16. Subsequent Event
The Board of Directors declared on May 19, 2006 a regular quarterly
dividend of $0.165 per Class A Ordinary Share, or an annualized
dividend of $0.66 per share. The dividend will be payable June 15,
2006 to shareholders of record June 1, 2006.
17. Comparative Figures
Certain comparative figures have been reclassified to conform with
current year disclosure.
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%SEDAR: 00002251E
