Listed for trading in United States funds on the Toronto Stock
Exchange/Trading Symbol: CUP.U
GRAND CAYMAN, Cayman Islands, Aug. 24 /CNW/ - Caribbean Utilities
Company, Ltd. ("CUC" or "the Company") announced today its unaudited financial
results for the first quarter ended July 31, 2005.
(all figures in United States dollars)
Financial and Operational Highlights for the
Three Months Ended July 31, 2005
<<
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Caribbean Utilities Company, Ltd.
Financial and Operating Highlights for the Three Months Ended
July 31, 2005
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2005 2004 Change % Change
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Operating Revenue 31,768,461 30,542,590 1,225,871 4.01
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Electricity
Sales 21,616,989 23,821,156 (2,204,167) (9.25)
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Fuel Factor 10,151,472 6,721,434 3,430,038 51.03
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Business
Interruption
Insurance 2,476,960 - 2,476,960 N/A
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Earnings for
the Period 7,094,037 6,344,357 749,680 11.82
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Earnings per
Ordinary Share 0.26 0.23 0.03 13.04
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Dividends Paid per
Ordinary Share 0.165 0.165 - N/A
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Net Generation
(kWh millions) 123.83 137.11 (13.30) (9.70)
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Kilowatt-hour
Sales
(kWh millions) 114.10 126.44 (12.34) (9.76)
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Peak Load Gross (MW) 76.57 84.14 (7.57) (9.00)
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Total Customers 19,603 21,379 (1,776) (8.31)
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Earnings
Net earnings for the first quarter were $7.1 million, or $0.26 per common
share, compared to $6.3 million, or $0.23 per common share, for the same
quarter last year. The primary reasons for the year-over-year improvement are
CUC's business interruption (BI) insurance claim from Hurricane Ivan and
increased foreign exchange earnings.
The intent of BI is to make CUC whole as far as loss of revenues arising
from the inability of the Company's customers to take power due to hurricane-
related damages. Accordingly, the BI insurance claim calculation includes a
revenue growth factor of 5.625%. BI is calculated on a contribution margin
basis. The BI claim has resulted in an overall improvement in revenue
contribution in the first quarter. Improved foreign exchange earnings are the
result of lower United States dollar purchases in the first quarter compared
to the same period last year.
Operating Revenues
CUC and Grand Cayman are continuing to recover from the impact of
Hurricane Ivan. Operating revenues (including fuel factor revenues) for the
quarter were $31.8 million, compared with $30.5 million in fiscal 2005,
representing a 4% increase. Electricity sales for the first quarter were
$21.6 million, or approximately 90% of $23.8 million in first quarter 2004/05.
Approximately 1,500 customers, or 7% of CUC's pre-hurricane customers,
remained without electricity on July 31. The vast majority of these customers
are residential, as many homes and condominium complexes are still undergoing
repairs. They will be reconnected as they are completed. The Company expects
electricity sales to continue to rebound and achieve 100% of pre-Ivan sales by
the end of this fiscal year.
Fuel factor revenues rose 51% from $6.7 million to $10.2 million this
year due to higher fuel prices. CUC's Licence with the 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 the Company to recover the variations in the
cost of fuel from consumers.
Peak load for the quarter was 76.57 megaWatts ("MW"), approximately 91%
of the fiscal 2005 peak of 84.14 MW.
Business Interruption Insurance
CUC's BI loss claim for the first quarter was $2.5 million. The aggregate
BI claim from October 25, 2004 (the commencement of the indemnity period) to
July 31, 2005 was $10.6 million. Based on the current rate of recovery, the
Company projects that its total BI claim for fiscal 2006 will be approximately
$6.4 million, and $17.3 million for the overall 24-month indemnity period.
Typically, the ultimate recovery under a BI policy is highly judgmental
and subject to substantial negotiations between the insured and the insurer.
CUC has also agreed on a BI calculation methodology with its insurance
adjustors that will facilitate the monthly calculation of its BI claims. Given
the subjectivity of the ultimate settlement and the lengthy claim coverage
period (24 months), many contingencies may exist in the actual amount
recovered.
Hurricane Ivan Cost Recovery Surcharge
CUC submitted to the Cayman Islands Government ("Government") on July 21
its Final Return containing its year-end 2005 audited results indicating that
the Company was entitled to a 9.5% rate increase effective August 1, 2005
under its current Licence. This shortfall on Return On Capital Employed is
primarily as a result of costs and loss of revenue and reconstruction of
transmission and distribution ("T&D") assets related to the impact of
Hurricane Ivan ("the hurricane"), which passed Grand Cayman in September 2004.
CUC and the Government jointly announced that they have agreed on a cost
recovery surcharge ("CRS") to be implemented by the Company for purposes of
recovering its uninsured hurricane-related losses. The CRS will commence with
CUC's August 2005 billings. A flat charge of $0.0089 per kilowatt-hour ("kWh")
will be applied to all customers, which equates to a 4.7% average rate
increase.
The agreement to forego a part of the permitted 9.5% rate increase
allowed under its Licence is without prejudice to CUC's rights and privileges
under its Licence, and is specific to the Hurricane Ivan-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. During the three-year CRS
period, CUC has agreed with 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.
The total insured property losses incurred by CUC as a result of the
hurricane approximated $24 million. CUC's direct uninsured losses of
$14.0 million are as follows:
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US$ millions
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Transmission and distribution (T&D) Property,
Plant and Equipment 7.0
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Other Property, Plant and Equipment 2.0
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Revenue losses during insurance deductible period 5.0
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Total 14.0
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By agreement with Government, CUC will recover $13.4 million of the
$14 million uninsured losses. In addition, CUC will absorb $3.6 million of
indirect costs (such as consultant fees, insurance reinstatement premium and
increased bad debt provision) incidental to the hurricane. These costs have
been booked in fiscal 2005.
Operating Expenses
Power Generation
----------------
Power generation expenses increased 18% to $16.6 million from $14.1
million for the first quarter last year. The increase was as a result of
increased fuel prices and the cost for the lease of standby generation.
Average fuel cost per imperial gallon to the Company for the first quarter
were CI$2.15 compared to average prices for the same period last year of
CI$1.61.
Consumer Service and Promotion
------------------------------
Consumer service and promotion expenses declined 22% from $336,109 in
first quarter 2005 to $261,957 this year. In first quarter 2005, $62,400 was
expensed for an uncollectible receivable relating to a customer that went into
receivership. CUC has since adopted a policy of obtaining bank guarantees from
customers in similar situations.
Distribution
------------
Distribution expenses for the first quarter totaled $509,093, a 16%
decline from $607,926 for the same period last year. This decline is
consistent with the Transmission & Distribution Division's focus on
reconstruction of capital assets to facilitate customer reconnections.
Maintenance
-----------
Maintenance expenses increased 52% year-over-year to $2.3 million from
$1.5 million for the same period in fiscal 2005 due to unscheduled maintenance
to two of the Company's generating units.
Hurricane Ivan
--------------
There have been no expenses directly associated with the hurricane
recorded in first quarter 2006. Direct costs associated with the hurricane
recorded in fiscal 2005 amounted to $14 million.
Insurance Claim and Policy Renewal
CUC's insurers made a $10 million advance payment in relation to the
Company's Hurricane Ivan claim during fiscal 2005. The Company received an
additional $6.7 million on its claim in the first quarter, bringing the total
received on account to $16.7 million.
CUC has renewed its main property, business interruption and machinery
breakdown policy for 12 months from July 22, 2005. The total premium was
$2.8 million versus $1.2 million for 2004/2005. This increased premium has
been provided for in the Company's fiscal 2006 corporate budget.
Generating Capacity
CUC anticipates a summer 2005 peak demand of 80 MW based on the rate of
recovery to date. A total of 95.43 MW of generating capacity was fully
recovered as of June 2005, or over 77% of pre-Ivan capacity. CUC has leased
11.4 MW of capacity to ensure reliability during the peak summer season. A
portion of this cost may be recoverable under the Company's insurance
coverage. The Company has also issued contracts to recover an additional 16.8
MW, representing four Caterpillar engines that were damaged by the hurricane,
by December 15, 2005.
In addition, CUC has contracted for the addition of an 8.4 MW gas turbine
unit for standby purposes to replace the approximately 12.6 MW of generating
capacity that was written off from the storm. These will return the Company to
a total capacity of approximately 120 MW by summer 2006, as compared to 123 MW
before the hurricane.
Capital Expenditures
Capital expenditures for the first quarter totaled $7.9 million, a 126%
increase from $3.5 million in first quarter 2005. CUC's capital expenditure
budget for fiscal 2006 is $35 million, including $14 million in expenditures
related to the reconstruction of assets damaged during the hurricane. This
amount is covered by the Company's property insurance policy. Funding for the
2006 capital programme will come from a combination of insurance proceeds, the
Company's Royal Bank of Canada (RBC) lines of credit and internally generated
funds.
"We are focusing on key capital projects that will help us continue to
provide world-class, reliable service to our customers," commented Richard
Hew, CUC President and Chief Executive Officer (Designate). "For example, the
new Hydesville Substation was commissioned and placed into service in April
2005, replacing the old West Bay Substation. The west transmission loop is in
service, significantly increasing transmission system reliability for the West
Bay and northern Seven Mile Beach areas. Future transmission and distribution
projects include the construction of a new 69 kiloVolt ("kV") line from the
Frank Sound Substation to the Rum Point Substation. The first phase, the
construction of concrete poles to Old Man Bay, will be constructed in fiscal
2006, with the remainder to be completed in fiscal 2007."
CUC has completed repairs to its high-voltage Rum Point submarine cable,
which was damaged by a wayward vessel during the hurricane. ABB Sweden was
contracted to perform the repairs, which cost approximately $1 million. These
repairs allow for improved reliability in the eastern districts.
The Economy
The Cayman Islands economy continues to show moderate but steady
improvement since the hurricane. CUC's recovery is intrinsically tied to the
recovery of the Cayman Islands economy.
The financial services industry recorded mostly positive growth during
calendar 2004 and the first three months of calendar 2005, with increases in
mutual fund registrations, insurance company registrations and captive
insurance premiums, stock market capitalisation and listings, and new
companies registered.
Visitor arrivals were down in calendar 2004 by 7.5% relative to the
previous year. Within this total, cruise arrivals decreased by 6.9% and air
arrivals declined by 11.4%. The decline in visitor arrivals is directly
related to the hurricane, including the closure of the Islands to tourists for
approximately two months immediately after the hurricane.
The temporary shortage of tourist accommodation is having a flow-on
effect to the current year. Total visitor arrivals decreased by 8.1% during
the first three months of calendar 2005 in comparison to the first quarter of
calendar 2004. This is made up of a 0.9% decrease in cruise arrivals and a
56.2% decline in air arrivals. This decline is expected to stabilize once the
existing stock of visitor accommodation is again fully operational. Only 43%
of pre-hurricane hotel and condo rooms are currently available. The 365-guest
room Ritz-Carlton, scheduled to open in October 2005, will grow room inventory
significantly.
Government is currently projecting the Cayman Islands economy to grow by
5.4% in 2005/6 (year ending June 30), 3.7% in 2006/7 and 3.0% in 2007/8. The
high growth rate in the current year continues to reflect the economic impact
of the restoration effort, together with international influences. It is
expected that the economy will return to more normal growth levels as the
recovery and restoration work is completed.
Financial Position
The following is a summary of significant changes to the Company's
balance sheet from April 30, 2005 to July 31, 2005 (unaudited):
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Balance Increase
Sheet (Decrease)
Account (US$ millions) Explanation
-------------------------------------------------------------------------
Accounts Receivable 3.1 The increase is due to higher
- Trade consumption and higher fuel
factor billings as a result of
rising fuel prices.
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Other Receivable (4.5) The decrease is due to an
- Insurance additional advance of $6.7
million received from the
insurers in June 2005 offset by
an increase in BI receivables
of $2.5 million.
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Property, Plant and 4.5 The increase is comprised of
Equipment capital expenditures of (1) $7.8
million, $2 million of which is
related to the reconstruction of
assets damaged by the hurricane;
and (2) depreciation expense of
$3.3 million.
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Other Assets 2.1 The increase is due to increased
deferred fuel costs as a result
of rising fuel prices.
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Share Premium 2.2 The increase is a result of
220,088 shares being issued for
the first quarter. The Company's
$10.05 options expired on
June 8, 2005. 191,601 of these
options were exercised for the
period commencing May 1, 2005 and
ending on the expiry date.
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Retained Earnings 2.5 The increase is due to a net
profit for the period of
$7.1 million, Class A dividends
of $4.2 million and Class B
preference dividends of $427,500.
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Liquidity and Capital Resources
The following is a cash flow summary for first quarter 2005:
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First First
Quarter 2005 Quarter 2004
($ millions) ($ millions)
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Cash (Beginning of Period) 0.96 18.00
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Cash Provided by (Used in)
Operating Activities 9.13 6.10
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Investing Activities (7.83) (3.47)
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Financing Activities (1.90) (8.50)
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Cash (End of Period) 0.36 12.13
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Operating Activities
--------------------
Cash flow from operations, after working capital adjustments, was
$9.13 million for the first quarter, up $3.03 million from $6.10 million for
the same quarter last year. The increase is primarily related to increased
earnings and an insurance advance of $6.7 million on the hurricane claim,
partially mitigated by an increase in customer trade receivables of
$2 million.
Investing Activities
--------------------
Cash used in investing activities for the first quarter was
$7.83 million, up $4.36 million compared to the same quarter last year.
Capital expenditures were up $4.38 million. Approximately $2 million of fiscal
2006 first quarter capital expenditure relates to the reconstruction of assets
written down as a result of damage caused during the hurricane. In addition,
CUC continues with upgrades to its distribution system.
Financing Activities
--------------------
Cash used in financing activities in the first quarter was $1.90 million
compared to $8.50 million for the first quarter last year. Financing
activities in the first quarter 2006 primarily relates to a $12 million term
loan from the Company's main bank, RBC, which was partially offset by loan
repayments of $10.6 million. In addition, there was increased cash from the
issuance of 220,088 common shares, which resulted in proceeds of $2.2 million.
The remaining financing activities for the first quarter related to the
payment of dividends.
Capital Structure
-----------------
CUC's capital structure as of July 31, 2005 is shown below:
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Quarter Ended July 31
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2005 % 2004 %
-------------------------------------------------------------------------
Total Debt 142,923,536 52.3 134,162,228 50.6
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Shareholders'
Equity 130,439,892 47.7 131,110,134 49.4
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Total 273,363,428 100.0 265,272,362 100.0
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The change in the Company's capital structure is the result of a net
increase in debt of $8.8 million and a decrease in Retained Earnings due to
fiscal 2005 dividends of $9.2 million.
The Company had the following available credit facilities with the Royal
Bank of Canada ("RBC") as at July 31, 2005:
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Description Details
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Capital Expenditures Line of Credit US$5 million
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Operating Line of Credit US$5 million
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Emergency Line of Credit US$5 million
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Total US$15 million
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Management constantly reviews its level of credit facilities based on
liquidity needs.
S&P and DBRS Credit Ratings
---------------------------
CUC's credit ratings were as follows as at July 31, 2005:
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Organization Rating
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Standard and Poor's ("S&P") A(x)
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Dominion Bond Rating Service ("DBRS") A (low)- Long-Term Debt
Pfd-2 (low)- Preferred Shares
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(x) S&P placed the "A" rating on credit watch with negative implications
in March 2005. This reflects the potential for the rating to be lowered as a
consequence of increased uncertainty in the Company's regulatory environment
and the potential delay in the Cayman Islands economic recovery following the
hurricane.
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. CUC has no
such off-balance sheet arrangements.
Licence
CUC and the Cayman Islands Government ("Government") have agreed to
recommence Licence extension discussions in early September 2005. The
establishment of a disaster recovery fund or alternate catastrophic insurance
to mitigate the financial impact of any future natural disasters will also be
discussed at that time.
The Company's present Licence expires in January 2011. A draft Heads of
Agreement (HOA) was agreed between CUC and Government in June 2004, outlining
the terms of any new licence or licences that may be issued to the Company.
The HOA, which was extended to September 2004 but lapsed as a result of
Hurricane Ivan, is anticipated to form the basis of discussions when they
resume.
Human Resources
CUC is continuing to work toward certification in Investors In People, an
internationally recognised human resources standard. It plans to complete
certification in fall 2005.
Retirement of President and Chief Executive Officer
Peter A. Thomson will retire as CUC President and CEO at the 2005 Annual
General and Special Meeting (AGM) on August 25. Mr. Thomson will remain on the
Board of Directors and will be retained as a special consultant to CUC. The
Company is grateful for his many contributions over his 19-plus years of
service as CEO and wishes him well in his new endeavors.
First Quarter Report
The 2005/06 First Quarter Report and a complete set of the unaudited
statements will be available on CUC's website (www.cuc-cayman.com) when they
are mailed to shareholders in September.
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,
may include forward-looking statements in its media releases, Canadian
securities regulatory authorities filings, shareholder reports and other
communications. Forward-looking statements are based on certain assumptions by
their very nature and are subject to certain risks and uncertainties that may
cause actual results to vary from plans, objectives and estimates. Such risks
and uncertainties include but are not limited to general economic, market and
business conditions, regulatory developments, weather, competition, etc. 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.
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Caribbean Utilities Company, Ltd.
Statement of Earnings (unaudited) for the Three Months Ended
July 31, 2005
(expressed in United States dollars)
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Three Months Ended
July 31
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2005 (US$) 2004 (US$)
-------------------------------------------------------------------------
OPERATING REVENUES
-------------------------------------------------------------------------
Electricity Sales 21,616,989 23,821,156
-------------------------------------------------------------------------
Fuel Factor 10,151,472 6,721,434
------------- -------------
-------------------------------------------------------------------------
Total Operating Revenue 31,768,461 30,542,590
-------------------------------------------------------------------------
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OPERATING EXPENSES
-------------------------------------------------------------------------
Power Generation 16,575,428 14,077,251
-------------------------------------------------------------------------
General and Administration 2,779,311 2,686,913
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Consumer Service and Promotion 261,957 336,109
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Transmission and Distribution 509,093 607,926
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Depreciation and Amortisation 3,394,685 3,459,014
-------------------------------------------------------------------------
Maintenance 2,275,309 1,497,338
------------- -------------
-------------------------------------------------------------------------
Total Operating Expenses 25,795,783 22,664,551
------------- -------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OPERATING INCOME 5,972,678 7,878,039
-------------------------------------------------------------------------
-------------------------------------------------------------------------
OTHER INCOME/(EXPENSES)
-------------------------------------------------------------------------
Interest Expense and Preference Dividends (2,217,300) (2,134,552)
-------------------------------------------------------------------------
Foreign Exchange Gain 557,594 275,201
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Business Interruption Insurance 2,476,960 -
------------- -------------
-------------------------------------------------------------------------
Other Income 304,105 325,669
------------- -------------
-------------------------------------------------------------------------
Total Other Income/(Expenses) 1,121,359 (1,533,682)
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-------------------------------------------------------------------------
Earnings for the Period 7,094,037 6,344,357
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Class B Preference Dividends Paid (427,500) (587,500)
------------- -------------
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Earnings on Class A Ordinary Shares 6,666,537 5,756,857
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted-Average Number of Issued and
Fully-Paid Class A Ordinary Shares 25,211,738 24,901,318
-------------------------------------------------------------------------
Earnings per Class A Ordinary Share (Note 8) 0.26 0.23
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Fully-Diluted Earnings per Class A
Ordinary Share (Note 8) 0.26 0.23
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Dividends Declared per Class A Ordinary Share 0.165 0.165
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Caribbean Utilities Company, Ltd.
Statement of Retained Earnings (unaudited) for the Three Months
Ended July 31, 2005
(expressed in United States dollars)
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2005 (US$) 2004 (US$)
-------------------------------------------------------------------------
Balance at Beginning of Period as Previously
Reported 84,863,402 87,348,112
-------------------------------------------------------------------------
Retroactive Restatement of Change in the
Application of an Accounting Policy for
Revenue Recognition (Note 3) - 2,481,531
-------------------------------------------------------------------------
Balance at Beginning of Period (Restated) 84,863,402 89,829,643
-------------------------------------------------------------------------
Earnings for the Period 7,094,037 6,344,357
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Dividends (4,597,436) (4,689,764)
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Balance at End of Period 87,360,003 91,484,236
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Caribbean Utilities Company, Ltd.
Balance Sheet (unaudited) as of July 31, 2005
(expressed in United States dollars)
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As of As of As of
July 31, July 31, April 30,
2005 2004 2005
-------------------------------------------------------------------------
US$ US$ US$
-------------------------------------------------------------------------
(Restated)
(Note 3)
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ASSETS
-------------------------------------------------------------------------
Current Assets
-------------------------------------------------------------------------
Cash and Due from Banks 359,879 12,139,795 962,965
-------------------------------------------------------------------------
Accounts Receivable-Trade
(Note 3) 14,635,266 12,553,379 11,480,885
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Other Receivable- Insurance
(Note 4) 11,368,714 - 15,881,941
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Inventories 5,045,900 2,755,203 5,330,363
-------------------------------------------------------------------------
Prepayments 487,111 329,276 580,698
------------- ------------- -------------
-------------------------------------------------------------------------
31,896,870 27,777,653 34,236,852
-------------------------------------------------------------------------
Long-Term Investments (Note 6) - 4,097,152 -
-------------------------------------------------------------------------
Property, Plant and Equipment
(Note 5) 252,698,458 246,964,290 248,231,244
-------------------------------------------------------------------------
Other Assets 9,781,647 6,995,885 7,690,752
------------- ------------- -------------
-------------------------------------------------------------------------
TOTAL ASSETS 294,376,975 285,834,980 290,158,848
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
-------------------------------------------------------------------------
Current Liabilities
Bank Overdraft 517,992 - 1,429,889
-------------------------------------------------------------------------
Current Portion of Long-Term
Debt (Note 12) 14,899,138 4,880,738 15,482,822
-------------------------------------------------------------------------
Accounts Payable and Accrued
Expenses 17,879,270 13,515,068 18,917,183
-------------------------------------------------------------------------
Consumers' Deposits and
Construction Advances 2,616,285 2,953,345 2,566,341
-------------------------------------------------------------------------
Dividends Declared - 4,094,205 -
-------------
-------------------------------------------------------------------------
35,912,685 25,443,356 38,396,235
------------- ------------- -------------
-------------------------------------------------------------------------
Long-Term Debt (Note 12) 128,024,398 129,281,490 126,038,175
------------- ------------- -------------
-------------------------------------------------------------------------
TOTAL LIABILITIES 163,937,083 154,724,846 164,434,410
------------- ------------- -------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Share Capital 1,752,645 1,732,677 1,739,545
-------------------------------------------------------------------------
Share Premium 41,212,527 37,841,078 39,022,418
-------------------------------------------------------------------------
Contributed Surplus (Note 2) 114,717 52,143 99,073
-------------------------------------------------------------------------
Retained Earnings (Note 3) 87,360,003 91,484,236 84,863,402
------------- ------------- -------------
-------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 130,439,892 131,110,134 125,724,438
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 294,376,975 285,834,980 290,158,848
-------------------------------------------------------------------------
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Caribbean Utilities Company, Ltd.
Statement of Changes in Shareholders' Equity (unaudited) as of
July 31, 2005
(expressed in United States dollars)
-------------------------------------------------------------------------
Share Capital
-------------------------------------------------------------------------
9% Cumulative
Class A Ordinary Shares Participating Class B
Preference Shares
-------------------------------------------------------------------------
Number of Amount Number of Amount
Shares (US$) Shares (US$)
-------------------------------------------------------------------------
Balance at April
30, 2004 as
Previously
Reported 24,864,975 1,480,058 250,000 250,000
-------------------------------------------------------------------------
Retroactive
Restatement of
Change in the
Application of an
Accounting Policy
for Revenue
Recognition
(Note 3) - - - -
-------------------------------------------------------------------------
Balance at April
30, 2004
(Restated) 24,864,975 1,480,058 250,000 250,000
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 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) 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained Total
Share Earnings Contributed Shareholders'
Premium (Restated) Surplus Equity
(US$) (US$) (US$) (US$)
-------------------------------------------------------------------------
Balance at April
30, 2004 as
Previously
Reported 37,328,408 87,348,112 36,500 126,443,078
-------------------------------------------------------------------------
Retroactive
Restatement of
Change in the
Application of an
Accounting Policy
for Revenue
Recognition
(Note 3) - 2,481,531 - 2,481,531
-------------------------------------------------------------------------
Balance at April
30, 2004
(Restated) 37,328,408 89,829,643 36,500 128,924,609
-------------------------------------------------------------------------
Issue of Ordinary
Shares (net) 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) 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Caribbean Utilities Company, Ltd.
Cash Flow Statement (unaudited) for the Three Months Ended
July 31, 2005
(expressed in United States dollars)
-------------------------------------------------------------------------
Three Months Ended July 31
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
US$ US$
-------------------------------------------------------------------------
OPERATING ACTIVITIES
-------------------------------------------------------------------------
Earnings Before Interest 9,233,401 8,431,006
-------------------------------------------------------------------------
Interest Expensed (2,139,364) (2,086,649)
----------- -----------
-------------------------------------------------------------------------
Earnings for the Period 7,094,037 6,344,357
-------------------------------------------------------------------------
Items Not Affecting Working Capital:
-------------------------------------------------------------------------
Depreciation and Amortisation 3,394,685 3,459,014
-------------------------------------------------------------------------
Stock-Based Compensation 15,644 15,643
-------------------------------------------------------------------------
Profit on Disposal of Fixed Assets 12,488 (19,516)
----------- -----------
-------------------------------------------------------------------------
10,516,854 9,799,498
----------- -----------
-------------------------------------------------------------------------
Net Increase in Non-Cash Working Capital
Balances Related to Operations (1,388,911) (3,700,695)
----------- -----------
-------------------------------------------------------------------------
Cash Flow Provided by Operating Activities 9,127,943 6,098,803
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INVESTING ACTIVITIES
-------------------------------------------------------------------------
Purchase of Investments - (19,512)
-------------------------------------------------------------------------
Proceeds on Sale of Fixed Assets 18,884 19,516
-------------------------------------------------------------------------
Purchase of Property, Plant and Equipment (7,846,328) (3,467,559)
----------- -----------
-------------------------------------------------------------------------
Cash Flow Used in Investing Activities (7,827,444) (3,467,555)
-------------------------------------------------------------------------
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FINANCING ACTIVITIES
-------------------------------------------------------------------------
Proceeds from Debt Financing 12,000,000 -
-------------------------------------------------------------------------
Repayment of Debt (10,597,461) (4,232,736)
-------------------------------------------------------------------------
Decrease in Bank Overdraft (911,897) -
-------------------------------------------------------------------------
Dividends Paid (4,597,436) (4,778,214)
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Proceeds of Share Issues 2,203,209 515,289
----------- -----------
-------------------------------------------------------------------------
Cash Flow (Used in)/Provided by Financing
Activities (1,903,585) (8,495,661)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DECREASE IN NET CASH (603,086) (5,864,413)
-------------------------------------------------------------------------
NET CASH- BEGINNING OF PERIOD 962,965 18,004,208
----------- -----------
-------------------------------------------------------------------------
NET CASH- END OF PERIOD 359,879 12,139,795
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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 their exclusive licence area of Grand Cayman, Cayman
Islands, under 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 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.
Revenue derived from the sale of electricity is taken to income on a
bills-rendered basis, adjusted for unbilled revenues.
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 as 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
On September 12, 2004, Hurricane Ivan (the "hurricane"), a
catastrophic category five hurricane, hit Grand Cayman. The most
significant impact as a result of the hurricane was the recognition
of a writedown in respect of damaged property, plant and equipment in
fiscal 2005. A significant portion of these costs will be reimbursed
under the Company's insurance policy. These amounts are only
recognised as receivable when recovery becomes reasonably assured.
The Other Receivable- Insurance balance represents both business
interruption and property insurance claims relating to the hurricane.
To date, the Company's insurers have made general advances of
$16.7 million, which have been applied against the insurance
receivable.
5. Property, Plant and Equipment
As a result of the hurricane in fiscal 2005, the Company recognised a
writedown of its property, plant and equipment of $19,463,554 for
assets that were damaged during the hurricane. This amount
approximates the estimated cost to reconstruct these assets, which
will be reimbursed under the Company's insurance policy. These
estimated reconstruction costs are based upon current market
valuations. 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 are considered to be under reconstruction,
and depreciation will commence when the asset is brought back into
production. The Company will determine whether the reconstructed
asset's useful life has increased at the time it is ready for
production.
6. Long-Term Investments
In October 2004, the Company liquidated its long-term investments,
which had a market value of $4,094,732 on the date of liquidation, to
meet cash flow requirements in the aftermath of the hurricane.
7. Capital Stock
Authorised
----------
a. 60,000,000 (2004: 60,000,000) Class A Ordinary Shares of CI$0.05
each
b. 250,000 (2004: 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$0.56
(non-voting)
Common Shares were issued during the period for cash as follows:
---------------------------------------------------------------------
Quarter Ended July 31, 2005
---------------------------------------------------------------------
Number of Amount
Shares (US$)
---------------------------------------------------------------------
Balance- Beginning of Period 25,024,351 1,489,545
---------------------------------------------------------------------
Customer Share Purchase and Dividend
Reinvestment Plans 24,371 1,451
---------------------------------------------------------------------
Employee Share Purchase Plan 4,116 245
---------------------------------------------------------------------
Executive Stock Option Plan 191,601 11,404
----------- -----------
---------------------------------------------------------------------
25,244,439 1,502,645
---------------------------------------------------------------------
8. Earnings Per Share
The Company calculates Earnings Per Share on the weighted average
number of Class A Ordinary Shares outstanding. The weighted average
Ordinary Shares outstanding were 25,211,738 and 24,901,318 for the
quarters ended July 31, 2005 and 2004, respectively. Fully diluted
Earnings Per Class A Ordinary Share was calculated using the treasury
stock method.
9. 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.
---------------------------------------------------------------------
Quarter Ended July 31,
2005
---------------------------------------------------------------------
Number of Options
---------------------------------------------------------------------
Outstanding at Beginning of Period 861,301
---------------------------------------------------------------------
Granted 0
---------------------------------------------------------------------
Exercised (191,601)
---------------------------------------------------------------------
Forfeited -
---------------------------------------------------------------------
Outstanding and Exercisable at End of Period 669,700
---------------------------------------------------------------------
---------------------------------------------------------------------
Range of Exercise Prices: US$
---------------------------------------------------------------------
Granted N/A
---------------------------------------------------------------------
Exercised 10.05
---------------------------------------------------------------------
Forfeited N/A
---------------------------------------------------------------------
Outstanding as of July 31, 2005 11.46-13.78
---------------------------------------------------------------------
The position with respect to outstanding unexercised options as at
July 31, 2005 was as follows:
---------------------------------------------------------------------
Date of Grant Number of Class A Exercise Term of
Ordinary Price Option
Shares under (US$)
Option
---------------------------------------------------------------------
July 18, 2001 450,600 11.46 10 years
---------------------------------------------------------------------
Sept. 22, 2003 219,100 13.78 10 years
---------------------------------------------------------------------
10. Foreign Exchange
The closing rate of exchange on July 31, 2005 as reported by the Bank
of Canada for the conversion of U.S. dollars into Canadian dollars
was Cdn. $1.2241 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 July 31, 2005 for
conversion of Cayman Islands dollars into Canadian dollars was
$1.4689 per CI$1.00.
11. 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.
12. Term Loan
The Company drew down $12 million against its term loan facility with
the Royal Bank of Canada. This loan was used, in part, to pay
$3 million of the $8 million demand loan for the funding of capital
expenditures related to the rebuilding of CUC's transmission and
distribution (T&D) system.
13. 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 costs to reconstruct, 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. Actual results could differ from those estimated.
14. Pension Plan
The Company established a defined benefit plan for the retired
Chairman during 2003. At its May 2005 meeting, the Company's Board of
Directors approved the establishment of a defined benefit pension
plan for its retiring President and Chief Executive Officer. The
pension costs of the defined benefit plan are actuarially determined
using the projected benefits method. An accrued benefit liability of
$146,671 (2004: $72,922) has been recorded in accounts payable and
accrued expenses in the balance sheet for the three months ending
July 31, 2005.
15. Subsequent Events
CUC and Government jointly announced on July 21 that they agreed on a
cost recovery surcharge (CRS) to be implemented by the Company for
the purposes of recovering $13.4 million of the Company's uninsured
losses over a three-year period. The CRS commenced with CUC's August
2005 billings. A flat charge of $0.0089 (CI$0.0075) per kilowatt-hour
will be applied to all customers, which equates to a 4.7% rate
increase.
16. Comparative Figures
Certain comparative figures have been reclassified to conform with
current year disclosure.
17. Payment of Dividends
Following the Fortis transaction in March 2000, the Board of
Directors passed resolutions to vote dividends from Share Premium for
the purpose of increasing Retained Earnings. In July 2004, the Board
of Directors adopted a resolution that ceased the voting of dividends
from Share Premium and instead voted dividends from Retained
Earnings. It is expected that the voting of dividends from Retained
Earnings will continue for the foreseeable future.
>>
%SEDAR: 00002251E
