HALIFAX, April 29 /CNW/ - (EMA-TSX): Emera Inc.'s consolidated net earnings were $69.4 million in Q1 2008, compared to $39.7 million for the same period in 2007. Earnings per share were $0.62 in Q1 2008, compared to $0.36 in the prior year.
NSPI's earnings were $57.9 million in Q1 2008, in comparison to $26.1 million in Q1 2007. Strong earnings reflect higher than normal hydroelectric output, lower cost power purchases displacing higher cost fossil fuels, cost effective fuel switching to natural gas, and increased electric sales. The Q1 2007 results also reflect that a previous rate increase did not take effect until Q2 of 2007. NSPI's outlook is to earn within its allowed range.
"We were pleased with our results this quarter," said Chris Huskilson, President and CEO of Emera. "Strong earnings in our businesses give us a good start to the year. Brunswick Pipeline construction is well underway and is on target to meet a Q4 in-service date as expected and we invested $15 million in Open Hydro as part of Emera's renewable energy strategy. As well, we've signed Memorandums of Understanding with National Grid in the US, and Newfoundland and Labrador Hydro here in Canada, consistent with our goal of developing transmission in the region."
Bangor Hydro Electric contributed $5.5 million to consolidated net earnings in Q1 2008, compared to $6.9 million in Q1 2007. The decrease was primarily due to the stronger Canadian dollar.
Emera's Other operations contributed $6.0 million to net earnings in Q1 2008, compared to $6.7 million in Q1 2007. Earnings were lower in Energy Services due to reduced gas trading activity and the higher Canadian dollar. M&NP had lower earnings in the quarter due to the capitalization of certain costs in Q1 2007 which had been expensed in prior periods. These decreases were partially offset by higher energy and capacity sales and increased mark-to-market accounting gains at Bear Swamp. Absent the effect of this mark-to-market accounting gain in Bear Swamp, quarterly earnings per share would have been $0.60.
Forward Looking Information
This news release contains forward looking information. Actual future results may differ materially. Additional financial and operational information is filed electronically with various securities commissions in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR).
Teleconference Call
The company will be hosting a teleconference at 4:00 pm Atlantic time today (3:00 pm Toronto/Montreal/New York; 2:00 pm Winnipeg; 12:00 pm Vancouver) to discuss the Q1 2008 financial results.
Analysts and other interested parties wanting to participate in the call should dial 1-888-575-8232 (in Toronto 416-406-6419) at least 10 minutes prior to the start of the call. No pass code is required. The teleconference will be recorded. If you are unable to join the teleconference live, you can dial for playback toll-free at 1-800-408-3053 (in Toronto 416-695-5800), access code 3257423(number sign) (available until midnight, Tuesday, May 13, 2008). The teleconference will also be webcast live at www.emera.com and available for playback for one year.
About Emera
Emera Inc. (EMA-TSX) is an energy and services company with $4.2 billion in assets. Electricity is Emera's core business. The company has two wholly-owned regulated electric utility subsidiaries, Nova Scotia Power Inc. and Bangor Hydro-Electric Company, which together serve 600,000 customers. Emera also owns 19% of St. Lucia Electricity Services Limited, which serves more than 50,000 customers on the Caribbean island of St. Lucia. In addition to its electric utility investments, Emera has a joint venture interest in Bear Swamp, a 600 megawatt pumped storage hydro-electric facility in northern Massachusetts; a 12.9% interest in the Maritimes & Northeast Pipeline; a 7.4% interest in Open Hydro and Emera Energy Services which manages energy assets on behalf of third parties. Visit Emera on the web at www.emera.com.
Management's Discussion & Analysis
As at April 29, 2008
Management's Discussion and Analysis ("MD&A") provides a review of the
results of operations of Emera Inc. and its primary subsidiaries and
investments during the first quarter of 2008 relative to 2007, and its
financial position at March 31, 2008 relative to December 31, 2007. Certain
factors that may affect future operations are also discussed. Such comments
will be affected by, and may involve, known and unknown risks and
uncertainties that may cause the actual results of the company to be
materially different from those expressed or implied. Those risks and
uncertainties include, but are not limited to, weather, commodity prices
including supplier fulfillment of contractual agreements and obligations,
interest rates, foreign exchange, regulatory requirements and general economic
conditions. To enhance shareholders' understanding, certain multi-year
historical financial and statistical information is presented.
This discussion and analysis should be read in conjunction with the
Emera Inc. unaudited consolidated financial statements and supporting notes as
at and for the three month period ended March 31, 2008 and the Emera Inc. MD&A
and annual audited consolidated financial statements and supporting notes as
at and for the year ended December 31, 2007. Emera follows Canadian Generally
Accepted Accounting Principles ("GAAP"). Emera's wholly-owned subsidiary, Nova
Scotia Power Inc.'s accounting policies are subject to examination and
approval by the Nova Scotia Utility and Review Board. Emera's wholly-owned
subsidiary, Bangor Hydro-Electric Company's accounting policies are subject to
examination and approval by the Maine Public Utilities Commission and the
Federal Energy Regulatory Commission. The rate-regulated accounting policies
of Nova Scotia Power and Bangor Hydro may differ from GAAP for non
rate-regulated companies.
Throughout this discussion, "Emera Inc." and "Emera" refer to Emera Inc.
and all of its consolidated subsidiaries and affiliates.
All amounts are in Canadian dollars ("CAD") except for the Bangor Hydro
section of the MD&A, which is reported in US dollars ("USD") unless otherwise
stated.
Additional information related to Emera, including the company's Annual
Information Form, can be found on SEDAR at www.sedar.com.
Introduction and Strategic Overview
Emera is a Canadian energy holding company headquartered in Halifax,
Nova Scotia. The company invests in electricity generation, transmission and
distribution as well as gas transmission and energy marketing.
Most of Emera's revenues are earned by its two regulated electric
utilities which it owns and operates in Northeastern North America. Nova
Scotia Power Inc. ("NSPI") is an electricity generation, transmission and
distribution company with $3.2 billion of assets providing service to
479,000 customers in the province of Nova Scotia, and Bangor Hydro-Electric
Company ("BHE") is an electricity transmission and distribution company with
$640 million of assets serving 117,000 customers in eastern Maine. Both
businesses operate as monopolies in their service territories, and together
comprise approximately 95% of Emera's consolidated revenues. The success of
Emera's electric utilities is integral to the creation of shareholder value,
providing substantial earnings and cash flow to fund dividends and
reinvestment. The essential nature of the services provided, the monopoly
positions, and the regulated market structures means that NSPI and BHE can
generally be expected to produce stable earnings streams within regulated
ranges. Nova Scotia and Maine are mature electricity markets, with annual
demand growth of approximately 1%. Accordingly, Emera looks beyond its
existing regulated electricity business to supplement organic growth.
Emera's goal is to deliver annual consolidated earnings growth of 4% - 6%,
and build and diversify its earnings base. To accomplish this, Emera will
continue to seek growth from its existing businesses and will leverage its
core strength in the electricity business as it pursues both acquisitions and
greenfield development opportunities in regulated electricity transmission and
distribution and low risk generation. Emera's growth strategy also includes
serving the United States' market through transmission development and
capitalizing on opportunities in related energy infrastructure businesses
appropriate to its risk profile, where its development, commercial and
operational skills are needed.
Emera is growing its business through the following investments:
- Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
hydro-electric facility in northern Massachusetts.
- Emera Energy Services, a business which purchases and sells natural gas
and electricity on behalf of third parties and provides related energy
asset management services.
- Brunswick Pipeline, a 145 kilometer greenfield pipeline currently under
development that will deliver natural gas from the Canaport(TM)
Liquefied Natural Gas import terminal, currently under construction,
near Saint John, New Brunswick, to markets in Canada and the
US northeast. Capital costs for the pipeline are expected to be
approximately $465 million, an increase from $400 million as previously
disclosed in the 2007 Annual Report. This increase is caused by delays
in accessing the required rights of way, which in turn necessitated
changes to the construction plan. Higher costs are also due to
encountering more rock than expected; industry conditions which have
generally increased labour and material costs; and additional effort in
working with stakeholders and regulatory agencies. These additional
costs have been incurred to maintain the construction schedule and the
company continues to expect the pipeline to be in service as targeted
during Q4 2008. The higher cost will not materially change the
company's expected return on this investment.
- A 12.9% interest in the $2 billion, 1,400 kilometer Maritimes &
Northeast Pipeline ("M&NP") that transports Nova Scotia's offshore
natural gas to markets in Maritime Canada and the northeastern United
States.
- A 19% interest in St. Lucia Electricity Services ("Lucelec"), a
vertically integrated electric utility on the Caribbean Island of
St. Lucia, which was acquired in January 2007.
Investment in Renewable Technology
In February 2008 Emera acquired a 7.35% interest in OpenHydro Group
Limited ("OpenHydro"), an Irish renewable tidal energy company for
(euro)10.2 million ($15.4 million CAD). OpenHydro designs and manufactures
marine turbines for harnessing energy from tidal currents in the world's
oceans. The company is testing its commercial scale Open-Centre Turbine at the
European Marine Energy Centre in Orkney, Scotland. In 2007, NSPI selected
OpenHydro's Open-Centre Turbine technology for deployment in a tidal energy
demonstration project in the Bay of Fundy. Emera financed the investment with
cash from operations.
Structure of MD&A
This Management's Discussion and Analysis begins with an overview of
consolidated results; then presents information on the company's two primary
subsidiaries, NSPI and BHE. All other operations, including Bear Swamp, Emera
Energy Services, Maritimes & Northeast Pipeline, Lucelec, the Brunswick
Pipeline capital project, and corporate activities are grouped and discussed
as "Other". Significant changes in the consolidated balance sheets,
outstanding share data, liquidity and capital resources, financial and
commodity instruments, transactions with related parties, changes in
accounting policies, dividends and selected quarterly trend information are
presented on a consolidated basis.
EMERA CONSOLIDATED
Q1 Operating Unit Contributions
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Nova Scotia Power $57.9 $26.1
Bangor Hydro-Electric 5.5 6.9
Other 6.0 6.7
-------------------------------------------------------------------------
Consolidated net earnings $69.4 $39.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - basic $0.62 $0.36
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - diluted $0.58 $0.35
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Review of 2008
Emera Inc.'s consolidated net earnings increased $29.7 million to
$69.4 million in Q1 2008 compared to $39.7 million for the same period in
2007. Highlights of the changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Consolidated net earnings - 2007 $39.7
Increased net earnings in NSPI due to decreased
fuel expense, increased sales volume and an
electricity price increase on April 1, 2007 31.8
Decreased net earnings in Bangor Hydro due mainly
to a stronger Canadian dollar (1.4)
Decreased net earnings in Other due to increased
income taxes (0.7)
-------------------------------------------------------------------------
Consolidated net earnings - 2008 $69.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Q1 basic earnings per share were $0.62 in 2008 compared to $0.36 in 2007.
NOVA SCOTIA POWER INC.
Overview
NSPI is the primary electricity supplier in Nova Scotia, providing over
95% of electricity generation, transmission and distribution in the province.
Nova Scotia Power is regulated under a cost of service model, with rates set
to recover prudently incurred costs of providing electricity service to
customers, and provide an opportunity to earn a prescribed return on equity.
The company is regulated by the Nova Scotia Utility and Review Board ("UARB").
2007 Rate Decision
In February 2007 the UARB approved an average increase in electricity
rates of 3.8% effective April 1, 2007. The rate increase was part of a first
ever rate settlement agreement between NSPI and key stakeholders. NSPI's
return on equity range was unchanged at 9.3% to 9.8%.
Upon approval of the Fuel Adjustment Mechanism, NSPI's allowed return on
equity will be reduced by 0.2% beginning in 2009, changing its allowed
earnings band to 9.1% to 9.6%.
Review of 2008
NSPI Q1 Net Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Electric revenue $323.0 $301.3
-------------------------------------------------------------------------
Fuel for generation and purchased power 110.8 130.9
Operating, maintenance and general 47.8 50.3
Provincial grants and taxes 10.1 10.1
Depreciation 33.2 32.6
Regulatory amortization 3.8 1.5
Other revenue (3.1) (2.1)
-------------------------------------------------------------------------
Earnings from operations 120.4 78.0
Financing charges 30.4 31.4
-------------------------------------------------------------------------
Earnings before income taxes 90.0 46.6
Income taxes 32.1 20.5
-------------------------------------------------------------------------
Contribution to consolidated net earnings $57.9 $26.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per
common share $0.52 $0.24
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NSPI's contribution to consolidated net earnings increased $31.8 million
to $57.9 million in Q1 2008 compared to $26.1 million in Q1 2007. Highlights
of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $26.1
Increased electric revenue due to increased sales volume
and an electricity price increase on April 1, 2007 21.7
Decreased fuel expense 20.1
Decreased operating, maintenance and general expenses
due primarily to decreased pension expense 2.5
Increased regulatory amortization due to the start of
a new regulatory amortization on April 1, 2007 (2.3)
Increased income taxes due to higher taxable income
partially offset by a reduction in the effective tax rate (11.6)
Other 1.4
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $57.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Electric Revenue
Q1 Electric Sales Volume Q1 Electric Sales Revenues
Gigawatt hours ("GWh") millions of dollars
----------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
----------------------------------- ------------------------------------
Residential 1,398 1,330 1,259 Residential $160.8 $146.7 $131.0
Commercial 865 869 837 Commercial 83.8 82.1 75.6
Industrial 1,049 1,012 635 Industrial 68.1 62.2 39.1
Other 88 93 183 Other 10.3 10.3 15.3
----------------------------------- ------------------------------------
Total 3,400 3,304 2,914 Total $323.0 $301.3 $261.0
----------------------------------- ------------------------------------
----------------------------------- ------------------------------------
Q1 Average Revenue /
Megawatt hour ("MWh")
-----------------------------------
2008 2007 2006
-----------------------------------
Dollars
per MWh $95 $91 $90
-----------------------------------
-----------------------------------
Electric revenues increased by $21.7 million to $323.0 million in Q1 2008
compared to $301.3 million in Q1 2007. Revenue increases are due to increased
sales volume and a 3.8% rate increase effective April 1, 2007.
The average revenue per MWh is higher in Q1 2008 compared to Q1 2007
reflecting the rate increase noted above.
Fuel for Generation and Purchased Power
Q1 Production Volume
GWh
-----------------------------------
2008 2007 2006
-----------------------------------
Coal &
petcoke 2,461 2,487 2,451
Natural gas 434 158 68
Oil 71 429 221
Renewable 370 300 316
Purchased
power 277 194 76
-----------------------------------
Total 3,613 3,568 3,132
-----------------------------------
-----------------------------------
Purchased power includes 48 GWh of
renewables in Q1 2008
(2007 - 50 GWh; 2006 - 30 GWh).
Q1 Average Unit Fuel Costs
-----------------------------------
2008 2007 2006
-----------------------------------
Dollars
per MWh $31 $37 $25
-----------------------------------
-----------------------------------
Fuel for generation and purchased power decreased $20.1 million to
$110.8 million in Q1 2008 compared to $130.9 million in Q1 2007. Highlights of
the changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2007 $130.9
Commodity price decrease due primarily to the economic
use of natural gas and favourable hedge positions
as a result of this fuel switch (23.8)
Decreased net proceeds from the resale of natural gas
due to the economic decision to burn natural gas 7.2
Increased sales volume 7.1
Increased hydro production (5.0)
Changes in generation mix (3.1)
Other (2.5)
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2008 $110.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Outlook
One of NSPI's fuel suppliers provided notice in December 2007 that it is
suspending shipments pending a review of the contract. Given the company's
favourable Q1 results and consistent with NSPI's rate settlement agreement of
2007, the company's outlook is to earn within its allowed return on equity
range for 2008.
BANGOR HYDRO-ELECTRIC COMPANY
All amounts in the Bangor Hydro section are reported in US dollars unless
otherwise stated.
Overview
BHE's core business is the transmission and distribution ("T&D") of
electricity. Electricity generation is deregulated in Maine, and several
suppliers compete to provide customers with the commodity that is delivered
through the BHE T&D network. BHE is a cost of service utility.
Review of 2008
Bangor Hydro Q1 Net Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
T&D electric revenues $24.8 $26.6
Resale of purchased power 5.2 3.6
Transmission pool revenue 4.7 -
-------------------------------------------------------------------------
Total revenue 34.7 30.2
Purchased power and fuel for generation 9.1 8.4
Operating, maintenance and general 6.5 5.3
Property taxes 1.5 1.4
Depreciation 3.8 3.3
Regulatory amortization 3.1 2.6
Other (1.2) (0.6)
-------------------------------------------------------------------------
Earnings from operations 11.9 9.8
Financing charges 2.9 0.7
-------------------------------------------------------------------------
Earnings before income taxes 9.0 9.1
Income taxes 3.5 3.2
-------------------------------------------------------------------------
Contribution to consolidated net earnings - USD $5.5 $5.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated net earnings - CAD $5.5 $6.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per
common share - CAD $0.05 $0.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings weighted average foreign exchange
rate - CAD/USD $1.00 $1.17
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings decreased by $0.4
million to $5.5 million in Q1 2008 compared to $5.9 million in Q1 2007.
Highlights of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $5.9
Transmission pool revenue associated with the recovery
of the NRI transmission line from the New England
Power Pool beginning in June 2007 4.7
Decreased overheads and AFUDC capitalized primarily as a
result of completing the NRI transmission line in Q4 2007 (2.6)
Increased interest expense and depreciation primarily
related to the NRI transmission line (1.1)
Other (1.4)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $5.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's decreased contribution to consolidated net earnings in CAD
was partially due to the $0.9 million effect of the stronger Canadian dollar
in the quarter.
Electric Revenue
Q1 Electric Sales Volume Q1 Electric Sales Revenues
GWh millions of dollars
----------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
----------------------------------- ------------------------------------
Residential 158 160 154 Residential $12.6 $13.3 $12.6
Commercial 155 152 151 Commercial 8.8 9.2 9.0
Industrial 80 89 95 Industrial 2.0 3.1 3.2
Other 2 3 3 Other 1.4 1.0 1.1
----------------------------------- ------------------------------------
Total 395 404 403 Total $24.8 $26.6 $25.9
----------------------------------- ------------------------------------
----------------------------------- ------------------------------------
Q1 Average Revenue / MWh
-----------------------------------
2008 2007 2006
-----------------------------------
Dollars
per MWh $63 $66 $64
-----------------------------------
-----------------------------------
Financing Charges
Financing charges increased $2.2 million to $2.9 million in Q1 2008
compared to $0.7 million in Q1 2007 primarily due to increased debt used to
finance the NRI transmission line and decreased AFUDC related to the
completion of the NRI transmission line in Q4 2007.
OTHER
All activities of Emera other than its two wholly-owned regulated electric
utilities are incorporated into Other, including:
- Bear Swamp, a 50/50 joint venture in a 600 megawatt pumped storage
hydro-electric facility in northern Massachusetts. Bear Swamp typically
pumps water into its reservoir using lower priced off-peak power, and
uses that hydro capacity to generate electricity during higher priced
on-peak periods.
- Emera Energy Services, a business which purchases and sells natural gas
and electricity on behalf of third parties and provides related energy
asset management services. Emera Energy Services operates with minimal
day-to-day commodity risk exposure. Volatility in natural gas markets
usually results in increased opportunities for Emera Energy Services.
- Brunswick Pipeline, a 145 kilometer greenfield pipeline project under
development that will deliver natural gas from the Canaport(TM)
Liquefied Natural Gas import terminal, currently under construction,
near Saint John, New Brunswick, to markets in Canada and the
US northeast.
- A 12.9% interest in the $2 billion, 1,400 kilometer Maritimes &
Northeast Pipeline that transports Nova Scotia's offshore natural gas
to markets in Maritime Canada and the northeastern United States.
- A 19% interest in Lucelec, a vertically integrated electric utility on
the Caribbean Island of St. Lucia, which was acquired in January 2007.
- A 7.35% interest in OpenHydro, an Irish renewable tidal energy company,
which was acquired in February 2008.
- Certain corporate-wide functions such as executive management,
strategic planning, treasury services, tax planning, business
development, and corporate governance; and financing for the
corporation's business outside of its regulated electric utilities.
Review of 2008
Bear Swamp and Emera Energy Services are reported on an earnings before
financing charges and taxes basis; and M&NP and Lucelec are reported on an
equity basis.
Other Q1 Earnings
millions of dollars Three months ended
(except earnings per common share) March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Bear Swamp - operational $3.6 $2.6
Bear Swamp - mark-to-market 4.7 1.1
Emera Energy Services 3.2 5.1
M&NP 2.5 3.9
Lucelec 0.3 0.2
Corporate costs and other (3.5) (3.6)
-------------------------------------------------------------------------
10.8 9.3
Financing charges 2.4 2.1
-------------------------------------------------------------------------
Earnings before income taxes 8.4 7.2
Income taxes 2.4 0.5
-------------------------------------------------------------------------
Contribution to consolidated net earnings $6.0 $6.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated earnings per
common share $0.05 $0.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The contribution of Other to consolidated net earnings decreased
$0.7 million to $6.0 million in Q1 2008 compared to $6.7 million in Q1 2007.
Highlights of the earnings changes are summarized in the following table:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $6.7
Increased Bear Swamp - operational due to increased
energy and capacity sales 1.0
Increased Bear Swamp - mark-to-market due to a
favourable commodity price position 3.6
Decreased Emera Energy Services due to reduced gas
trading activity and a stronger Canadian dollar (1.9)
Decreased M&NP equity earnings due to capitalization
of expansion costs in Q1 2007 (1.4)
Increased income taxes (1.9)
Other (0.1)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $6.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Emera's earnings per share would have been $0.60 in Q1 2008 absent the
after-tax effect of Bear Swamp's $4.7 million mark-to-market adjustment.
Consolidated Balance Sheets
Significant changes in the consolidated balance sheets between March 31,
2008 and December 31, 2007 include:
Increase
millions of dollars (Decrease) Explanation
-------------------------------------------------------------------------
Assets
Accounts receivable $52.1 Reduction in accounts receivable
securitization and higher sales volume
due to seasonality.
Inventory 23.8 Increased fuel inventory levels.
Prepaid expenses 17.3 Timing of provincial grants in lieu of
taxes and insurance payments, and
increased posted margin paid to
counterparties.
Derivatives in a valid 32.4 Favourable USD and commodity price
hedging relationship positions.
(including long-term
portion)
Held-for-trading 14.2 Favourable USD and commodity price
derivatives (including positions.
long-term portion)
Long-term receivable 15.6 Higher receivable from a natural gas
supplier.
Deferred charges (15.7) Reduction in accounts receivable
securitization, pension asset, deferred
fuel switching derivatives and ongoing
regulatory amortizations.
Available-for-sale 15.1 Q1 2008 investment in OpenHydro.
investments
Property, plant & 98.4 Mainly capital spending in
equipment and Brunswick Pipeline.
construction work
in progress
-------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Derivatives in a valid (36.8) Favourable USD and commodity price
hedging relationship positions.
(including long-term
portion)
Deferred credits 11.7 Increased held-for-trading natural gas
contracts regulatory liability partially
offset by decreased deferred fuel
switching derivatives regulatory
liability.
Short-term debt and 145.2 Mainly increased debt to finance
long-term debt Brunswick Pipeline, and decreased
(including current accounts receivable securitized and
portion) capital spending in NSPI.
Accumulated other 85.2 Change primarily represents favourable
comprehensive income derivative positions for foreign
exchange and commodity hedges, and the
favourable effect of the Canadian dollar
on the company's investment in
Bangor Hydro.
Retained earnings 39.6 Net earnings in excess of dividends
paid.
-------------------------------------------------------------------------
Outstanding Share Data
Common
Share
Capital
Millions millions
of of
Issued and Outstanding: Shares dollars
-------------------------------------------------------------------------
December 31, 2006 110.93 $1,055.2
Issued for cash under purchase plans 0.45 9.0
Options exercised under senior management
share option plan 0.09 1.7
Share-based compensation - 0.3
-------------------------------------------------------------------------
December 31, 2007 111.47 $1,066.2
Issued for cash under purchase plans 0.10 2.0
Options exercised under senior management
share option plan 0.05 1.0
Share-based compensation - 0.1
-------------------------------------------------------------------------
March 31, 2008 111.62 $1,069.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at April 15, 2008 the number of issued and outstanding common shares
was 111.66 million.
Liquidity and Capital Resources
In Q1 2008, Emera and Nova Scotia Power completed final filings of debt
shelf prospectuses in the amount of $400 million for each company that will
provide the companies with access to long-term debt. The company also has
access to equity capital markets for both common and preferred shares.
Consolidated Cash Flow Highlights
Significant changes in the consolidated cash flow statements between March
31, 2008 and 2007 include:
Three months ended March 31
millions of dollars 2008 2007 Explanation
-------------------------------------------------------------------------
Cash and cash equivalents, $26.4 $19.5
beginning of period
Provided by (used in):
Operating activities 45.9 (18.5) In 2008, cash earnings
partially offset by increased
non-cash working capital.
In 2007, increased non-cash
working capital partially
offset by cash earnings.
Investing activities (130.4) (66.1) In 2008, capital spending,
including Brunswick Pipeline,
and acquisition of a 7.35%
interest in OpenHydro.
In 2007, capital spending,
including the NRI
transmission line and
Brunswick Pipeline, and
acquisition of a 19% interest
in Lucelec.
Financing activities 84.9 74.4 In 2008, increased debt
levels, partially offset by
dividends on common shares
and decreased accounts
receivable securitized.
In 2007, increased debt
levels, partially offset by
dividends on common shares
and decreased accounts
receivable securitized.
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $26.8 $9.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financial and Commodity Instruments
The company enters into swap contracts on commodities to limit exposure to
(hedge) fluctuations in natural gas and oil prices; foreign exchange forwards,
options and swap contracts to hedge currency rate fluctuations; and interest
rate contracts to hedge interest rate fluctuations. In addition, the company
has contracts for physical purchases and sales of natural gas. Collectively,
these contracts are referred to as derivatives.
Derivatives that meet stringent documentation requirements, and can be
proven to be effective hedges both at the inception and over the term of the
derivative qualify for hedge accounting. That enables amounts paid or received
to be deferred and recognized in earnings in the same period that the related
hedged item is realized.
Where the documentation or effectiveness requirements are not met, the
derivative instruments are recognized at fair value with any changes in fair
value recognized in net earnings in the reporting period.
Derivatives held-for-trading are recorded on the balance sheet at fair
value, with changes normally recorded in net earnings of the period, unless
deferred as a result of regulatory accounting.
Hedging Items Recognized on the Balance Sheet
The company has the following categories on the balance sheet related to
derivatives in valid hedging relationships:
-------------------------------------------------------------------------
March 31 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Inventory $5.7 $7.6
Derivatives in a valid hedging relationship 15.2 (54.0)
Long-term debt 0.6 0.6
-------------------------------------------------------------------------
$21.5 $(45.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Hedging Impact Recognized in Earnings
For the three month period ended March 31, the impacts of derivatives in
valid hedging relationships recognized in earnings were recorded in the
following categories:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Fuel and purchased power decrease (increase) $11.5 $(4.6)
-------------------------------------------------------------------------
Hedging earnings impact $11.5 $(4.6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Held-for-trading Items Recognized on the Balance Sheet
The company has recognized a net unrealized fair value of held-for-trading
derivatives of $133.9 million (December 31, 2007 - $110.7 million) on the
balance sheet.
Held-for-trading Derivatives Gains (Losses) Recognized in Earnings
The company has recognized the following realized and unrealized gains and
losses with respect to held-for-trading derivatives in earnings:
Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Electric revenue $0.8 $1.2
Other revenue 8.5 7.8
Fuel and purchased power 2.0 (4.3)
Interest (0.2) (0.1)
-------------------------------------------------------------------------
Held-for-trading derivatives gains $11.1 $4.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In determining the fair value of derivative financial instruments, the
company has relied on quoted market prices as at the reporting date.
Transactions with Related Parties
In the ordinary course of business, Emera purchased natural gas
transportation capacity totaling $4.7 million (2007 - $6.8 million) during the
three months ended March 31, 2008 from the Maritimes & Northeast Pipeline, an
investment under significant influence of the company. The amount is
recognized in fuel for generation and purchased power or netted against energy
marketing margin in other revenue, and is measured at the exchange amount. As
at March 31, 2008 the amount payable to the related party is $3.0 million
(December 31, 2007 - $4.5 million), is non-interest bearing and is under
normal credit terms.
Changes in Accounting Policies
The CICA has issued new accounting standards 1535 Capital Disclosures,
3031 Inventories, 3862 Financial Instruments - Disclosures, and 3863 Financial
Instruments - Presentation which are applicable to Emera's 2008 fiscal year.
The following provides more information on each new accounting standard.
Capital Disclosures: This new standard requires disclosure of the
company's objectives, policies, and processes for managing capital;
quantitative data about what the company regards as capital; whether the
company has complied with any externally imposed capital requirements; and, if
the company has not complied, the consequences of such non-compliance. The new
accounting standard covers disclosure only and had no effect on the financial
results of the company. Further information can be found in note 8 to the
financial statements.
Financial Instruments - Disclosures, and Financial Instruments -
Presentation: These new standards replace accounting standard 3861 Financial
Instruments - Disclosure and Presentation. Presentation requirements have not
changed. Enhanced disclosure is required to assist users of the financial
statements in evaluating the significance of financial instruments on the
company's financial position and performance, including qualitative and
quantitative information about the company's exposure to risks arising from
financial instruments. The new accounting standards cover disclosure only and
had no effect on the financial results of the company. Further information can
be found in note 9 to the financial statements.
Inventories: The new standard provides more guidance on the measurement
and disclosure requirements for inventories than the previous standard,
3030 Inventories. Specifically, the new standard requires that inventories be
measured at the lower of cost and net realizable value, and provides more
guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realizable value. The company
previously measured inventories at the lower of cost and market. The company
uses the weighted average method to determine the cost of inventory.
The company has applied the new standard retrospectively without
restatement, which resulted in a decrease to inventory and retained earnings
of $3.3 million as at January 1, 2008.
The change in inventory is due to the following:
Fuel inventory Materials inventory
Three months ended Three months ended
March 31 March 31
-------------------------------------------------------------------------
millions of dollars 2008 2007 2008 2007
-------------------------------------------------------------------------
Inventory, beginning of
period $67.7 $81.2 $32.1 $32.4
Accounting policy change - - (3.3) -
Purchases 108.0 110.3 9.6 8.7
Write-down of inventory to
net realizable value - - (0.7) -
Inventories expensed (80.8) (112.3) (4.2) (3.7)
Inventories capitalized - - (5.4) (5.0)
Other - - 0.5 0.5
-------------------------------------------------------------------------
Inventory, end of period $94.9 $79.2 $28.6 $32.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The company has not pledged inventory as security for liabilities.
Dividends
In January 2008, the Board of Directors approved a quarterly dividend of
$0.2375 per common share, reflecting an increase on an annualized basis to
$0.95 per common share.
Summary of Quarterly Reports
For the quarter ended
millions of dollars (except earnings per common share)
-------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
2008 2007 2007 2007 2007 2006 2006 2006
-------------------------------------------------------------------------
Total
revenues $381.2 $343.9 $310.3 $325.4 $359.9 $307.0 $272.4 $275.9
-------------------------------------------------------------------------
Net
earnings
applicable
to common
shares 69.4 36.6 40.9 34.1 39.7 33.5 19.5 29.2
-------------------------------------------------------------------------
Earnings
per common
share -
basic 0.62 0.33 0.37 0.30 0.36 0.30 0.18 0.26
-------------------------------------------------------------------------
Earnings
per common
share -
diluted 0.58 0.32 0.35 0.30 0.35 0.30 0.18 0.26
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly total revenues and net earnings applicable to common shares are
affected by seasonality, with Q1 and Q4 the strongest periods, reflecting
colder weather and fewer daylight hours at those times of year.
Financial Statements
Consolidated Statements of Earnings (Unaudited)
-------------------------------------------------------------------------
For the Three months ended
millions of dollars (except earnings per common share) March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Revenue
Electric $362.0 $347.8
Other 19.2 12.1
-------------------------------------------------------------------------
381.2 359.9
-------------------------------------------------------------------------
Cost of operations
Fuel for generation and purchased power 123.6 148.3
Operating, maintenance and general 61.1 63.2
Provincial, state, and municipal taxes 12.1 12.2
Depreciation 37.3 37.0
Regulatory amortization 6.8 4.6
-------------------------------------------------------------------------
240.9 265.3
-------------------------------------------------------------------------
Earnings from operations 140.3 94.6
Financing charges (note 6) 35.6 34.3
Equity earnings (2.9) (4.1)
-------------------------------------------------------------------------
Earnings before income taxes 107.6 64.4
Income taxes 38.2 24.7
-------------------------------------------------------------------------
Net earnings applicable to common shares $69.4 $39.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - basic $0.62 $0.36
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share - diluted $0.58 $0.35
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated
financial statements.
Weighted average number of common shares outstanding
(millions)
- basic 111.6 111.0
- diluted (note 10) 124.9 124.1
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
As at March 31 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $26.8 $26.4
Restricted cash 0.8 1.0
Accounts receivable 326.3 274.2
Income tax receivable 7.4 13.7
Inventory (note 3) 123.5 99.7
Prepaid expenses 74.2 56.9
Future income tax assets 4.7 6.7
Derivatives in a valid hedging relationship 29.8 12.2
Held-for-trading derivatives 79.1 76.2
-------------------------------------------------------------------------
672.6 567.0
-------------------------------------------------------------------------
Long-term receivable 23.3 7.7
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship 25.8 11.0
-------------------------------------------------------------------------
Held-for-trading derivatives 74.9 63.6
-------------------------------------------------------------------------
Deferred charges 346.4 362.1
-------------------------------------------------------------------------
Future income tax assets 14.9 16.2
-------------------------------------------------------------------------
Goodwill 85.8 82.8
-------------------------------------------------------------------------
Investments subject to significant influence 132.5 124.5
-------------------------------------------------------------------------
Available-for-sale investments 16.9 1.8
-------------------------------------------------------------------------
Property, plant and equipment 2,845.6 2,820.0
Construction work in progress 182.0 109.2
-------------------------------------------------------------------------
3,027.6 2,929.2
-------------------------------------------------------------------------
$4,420.7 $4,165.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $120.4 $121.0
Short-term debt 125.6 104.6
Accounts payable and accrued charges 280.1 282.7
Income tax payable 11.6 3.2
Dividends payable 3.2 3.2
Future income tax liabilities 7.9 2.0
Derivatives in a valid hedging relationship 26.6 44.1
Held-for-trading derivatives 12.3 22.0
-------------------------------------------------------------------------
587.7 582.8
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship 13.8 33.1
-------------------------------------------------------------------------
Held-for-trading derivatives 7.8 7.1
-------------------------------------------------------------------------
Future income tax liabilities 85.7 82.9
-------------------------------------------------------------------------
Asset retirement obligations 84.9 83.8
-------------------------------------------------------------------------
Deferred credits 167.3 155.6
-------------------------------------------------------------------------
Long-term debt (note 7) 1,725.0 1,600.2
-------------------------------------------------------------------------
Preferred shares issued by subsidiary 260.0 260.0
-------------------------------------------------------------------------
Non-controlling interest 0.6 0.6
-------------------------------------------------------------------------
Shareholders' equity
Common shares (note 10) 1,069.3 1,066.2
Contributed surplus 3.2 3.0
Accumulated other comprehensive income (123.8) (209.0)
Retained earnings (note 3) 539.2 499.6
-------------------------------------------------------------------------
1,487.9 1,359.8
-------------------------------------------------------------------------
$4,420.7 $4,165.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments (note 12)
See accompanying notes to the unaudited consolidated financial
statements.
Approved on behalf of the Board of Directors
"Derek Oland" "Christopher Huskilson"
Derek Oland Christopher Huskilson
Chairman President and Chief Executive Officer
Consolidated Statements of Cash Flow (Unaudited)
-------------------------------------------------------------------------
For the Three months ended
millions of dollars March 31
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
Operating activities
Net earnings applicable to common shares $69.4 $39.7
Non-cash items:
Depreciation 37.3 37.0
Amortization of deferred charges 3.4 3.5
Equity earnings (2.9) (4.1)
Regulatory amortization 6.8 4.6
Allowance for funds used during construction (1.6) (2.6)
Future income taxes 7.1 4.2
Post-retirement benefits 2.4 3.3
Other non-cash operating items (9.9) 1.8
Other cash operating items 0.5 2.2
-------------------------------------------------------------------------
112.5 89.6
Change in non-cash operating working capital (66.6) (108.1)
-------------------------------------------------------------------------
Net cash provided by (used in) operating activities 45.9 (18.5)
-------------------------------------------------------------------------
Investing activities
Property, plant and equipment (112.4) (39.8)
Acquisition (note 11) (15.4) (25.7)
Retirement spending net of salvage (1.0) (0.6)
Decrease in restricted cash 0.2 -
Other investing activities (1.8) -
-------------------------------------------------------------------------
Net cash used in investing activities (130.4) (66.1)
-------------------------------------------------------------------------
Financing activities
Retirement of long-term debt (0.7) (0.6)
Increase in short-term debt 133.2 127.6
Issuance of common shares 2.9 2.8
Dividends on common shares (26.5) (24.7)
Accounts receivable securitization (25.0) (30.0)
Other financing 1.0 (0.7)
-------------------------------------------------------------------------
Net cash provided by financing activities 84.9 74.4
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 0.4 (10.2)
Cash and cash equivalents, beginning of period 26.4 19.5
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $26.8 $9.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents consists of:
Cash $5.1 $4.4
Cash equivalents 21.7 4.9
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $26.8 $9.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental disclosure of cash paid:
Interest $31.9 $30.7
Income and capital taxes $18.8 47.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
-------------------------------------------------------------------------
Accumu-
For the three months lated
ended March 31, 2008 Other
millions of dollars Compre- Total
Contri- hensive AOCI and
Common buted Income Retained Retained
Shares Surplus ("AOCI") Earnings Earnings
-------------------------------------------------------------------------
Balance,
December 31, 2007 $1,066.2 $3.0 $(209.0) $499.6 $290.6
-------------------------------------------------------------------------
Accounting policy
change (note 3) - - - (3.3) (3.3)
-------------------------------------------------------------------------
Comprehensive Income:
Net earnings applicable
to common shares - - - 69.4 69.4
Net gain on derivatives
in a valid hedging
relationship - - 79.3 - 79.3
Reclassification of
hedging gains
included in income - - (11.1) - (11.1)
Reclassification of
hedging losses
included in
inventory - - 1.8 - 1.8
Unrealized gain on
translation of
self-sustaining
foreign operations - - 15.4 - 15.4
Other - - (0.2) - (0.2)
-------------------------------------------------------------------------
Total comprehensive
income - - 85.2 69.4 154.6
-------------------------------------------------------------------------
Dividends declared
on common shares - - - (26.5) (26.5)
Common shares issued
under purchase plans 2.0 - - - -
Senior management stock
options exercised 1.0 (0.1) - - -
Stock option expense - 0.3 - - -
Other share-based
compensation 0.1 - - - -
-------------------------------------------------------------------------
Balance,
March 31, 2008 $1,069.3 $3.2 $(123.8) $539.2 $415.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months Total
ended March 31, 2007 Contri- AOCI and
millions of dollars Common buted Retained Retained
Shares Surplus AOCI Earnings Earnings
-------------------------------------------------------------------------
Balance,
December 31, 2006 $1,055.2 $2.2 $(100.2) $450.9 $350.7
-------------------------------------------------------------------------
Implementation
adjustment - - (5.3) (2.7) (8.0)
-------------------------------------------------------------------------
Comprehensive Income:
Net earnings applicable
to common shares - - - 39.7 39.7
Net gain on derivatives
in a valid hedging
relationship - - 1.6 - 1.6
Reclassification of
hedging losses
included in income - - 3.2 - 3.2
Reclassification of
hedging losses
included in inventory - - 1.6 - 1.6
Unrealized loss on
translation of
self-sustaining
foreign operations - - (5.0) - (5.0)
-------------------------------------------------------------------------
Total comprehensive
income - - 1.4 39.7 41.1
-------------------------------------------------------------------------
Dividends declared on
common shares - - - (24.6) (24.6)
Common shares issued
under purchase plans 2.4 - - - -
Senior management stock
options exercised 0.4 - - - -
Stock option expense - 0.2 - - -
Other share-based
compensation 0.1 - - - -
-------------------------------------------------------------------------
Balance,
March 31, 2007 $1,058.1 $2.4 $(104.1) $463.3 $359.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Notes to the Interim Unaudited Consolidated Financial Statements
March 31, 2008
1. Basis of Presentation
The disclosures in these unaudited interim consolidated financial
statements do not conform in all respects to the requirements of Canadian
Generally Accepted Accounting Principles for annual audited financial
statements and should be read in conjunction with Emera Inc.'s annual
consolidated financial statements as at and for the year ended December 31,
2007.
These consolidated financial statements follow the same accounting
policies and methods of computation as Emera Inc.'s annual audited
consolidated financial statements as at and for the year ended December 31,
2007, with the exception of the accounting policy changes disclosed in Note 3.
2. Seasonal Nature of Operations
Interim results are not necessarily indicative of results for the full
year due primarily to seasonal factors. Sales and related production vary
significantly over the year, with Q1 and Q4, the strongest periods, reflecting
colder weather and fewer daylight hours in the winter season.
3. Changes in Accounting Policy
The Canadian Institute of Chartered Accountants has issued new accounting
standards 1535 Capital Disclosures, 3031 Inventories, 3862 Financial
Instruments - Disclosures, and 3863 Financial Instruments - Presentation which
are applicable to Emera's 2008 fiscal year. The following provides more
information on each new accounting standard.
Capital Disclosures: This new standard requires disclosure of the
Company's objectives, policies, and processes for managing capital;
quantitative data about what the Company regards as capital; whether the
Company has complied with any externally imposed capital requirements; and, if
the Company has not complied, the consequences of such non-compliance. The new
accounting standard covers disclosure only and had no effect on the financial
results of the Company. Further information can be found in note 8.
Financial Instruments - Disclosures, and Financial Instruments -
Presentation: These new standards replace accounting standard 3861 Financial
Instruments - Disclosure and Presentation. Presentation requirements have not
changed. Enhanced disclosure is required to assist users of the financial
statements in evaluating the significance of financial instruments on the
Company's financial position and performance, including qualitative and
quantitative information about the Company's exposure to risks arising from
financial instruments. The new accounting standards cover disclosure only and
had no effect on the financial results of the Company. Further information can
be found in note 9.
Inventories
The new standard provides more guidance on the measurement and disclosure
requirements for inventories than the previous standard, 3030 Inventories.
Specifically, the new standard requires that inventories be measured at the
lower of cost and net realizable value, and provides more guidance on the
determination of cost and its subsequent recognition as an expense, including
any write-down to net realizable value. The Company previously measured
inventories at the lower of cost and market. The Company uses the weighted
average method to determine the cost of inventory.
The Company has applied the new standard retrospectively without
restatement, which resulted in a decrease to inventory and retained earnings
of $3.3 million as at January 1, 2008.
The change in inventory is due to the following:
Fuel inventory Materials inventory
Three months ended Three months ended
For the March 31 March 31
-------------------------------------------------------------------------
millions of dollars 2008 2007 2008 2007
-------------------------------------------------------------------------
Inventory, beginning of
period $67.7 $81.2 $32.1 $32.4
Accounting policy change - - (3.3) -
Purchases 108.0 110.3 9.6 8.7
Write-down of inventory to
net realizable value - - (0.7) -
Inventories expensed (80.8) (112.3) (4.2) (3.7)
Inventories capitalized - - (5.4) (5.0)
Other - - 0.5 0.5
-------------------------------------------------------------------------
Inventory, end of period $94.9 $79.2 $28.6 $32.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company has not pledged inventory as security for liabilities.
4. Segment Information
-------------------------------------------------------------------------
Nova Scotia Bangor
millions of dollars Power Hydro Other(x) Total
-------------------------------------------------------------------------
For the three months
ended March 31, 2008:
Revenues from external
customers $326.0 $35.9 $19.3 $381.2
Net inter-segment revenues
(expenses) 11.7 (0.2) (11.5) -
Net earnings applicable
to common shares 57.9 5.5 6.0 69.4
As at March 31, 2008
Total assets 3,249.5 635.6 535.6 4,420.7
-------------------------------------------------------------------------
For the three months
ended March 31, 2007:
Revenues from external
customers $303.4 $36.1 $20.4 $359.9
Net inter-segment revenues
(expenses) 34.8 (0.3) (34.5) -
Net earnings applicable
to common shares 26.1 6.9 6.7 39.7
As at March 31, 2007
Total assets 3,316.2 648.4 390.5 4,355.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x)Other includes corporate activities and adjustments to reconcile to
consolidated balances.
5. Employee Future Benefits
Emera maintains contributory defined-benefit and defined-contribution
pension plans, which cover substantially all of its employees, and plans that
provide non-pension benefits for its retirees. The Company's estimated total
benefit cost, related to these plans, for the three month period ended
March 31, 2008 is $8.5 million (2007 - $10.7 million).
6. Financing Charges
Financing charges consist of the following:
Three months ended
For the March 31
-------------------------------------------------------------------------
million of dollars 2008 2007
-------------------------------------------------------------------------
Interest - long-term debt $27.0 $25.7
- short-term debt 4.1 4.9
Preferred share dividends paid by subsidiary 3.5 3.5
Amortization of defeasance cost 3.1 3.2
Amortization of debt financing costs 0.4 0.5
Allowance for funds used during construction (1.6) (2.6)
Foreign exchange gains (0.9) (0.9)
-------------------------------------------------------------------------
$35.6 $34.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Long-Term Debt
As of March 31, 2008, long-term debt includes $1.3 million (December 31,
2007 - $1.5 million) in capital lease obligations.
8. Capital Management
The Company includes shareholders' equity (excluding AOCI), short-term and
long-term debt, preferred shares issued by subsidiary, non-controlling
interest, securitized receivables, and cash and cash equivalents in the
definition of capital as follows:
As at March 31 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Shareholder's equity, excluding AOCI $1,611.7 $1,568.8
Debt 1,971.0 1,825.8
Preferred shares issued by subsidiary 260.0 260.0
Non-controlling interest 0.6 0.6
Securitized accounts receivable - 25.0
Cash and cash equivalents (26.8) (26.4)
-------------------------------------------------------------------------
$3,816.5 $3,653.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company's objectives when managing capital are to ensure sufficient
liquidity and ongoing access to capital in order to allow the Company to
acquire, build and maintain its regulated electric utilities, low risk
unregulated generation and energy infrastructure businesses. The Company has a
strategy of managing its capital structure through its various wholly-owned
subsidiaries, while ensuring it is in compliance with its debt covenants. This
strategy is managed by the Company through the issuance from time to time of
shares, bonds, medium-term notes, preferred shares, or other indebtedness, and
sales of receivables through the Company's securitization program.
NSPI is subject to regulation by the Utility and Review Board with an
allowed maximum common equity component of 40%. BHE is subject to regulation
by the Maine Public Utilities Commission with an allowed maximum common equity
component of 50% for rate-making purposes. The Federal Energy Regulatory
Commission does not specify an allowed common equity component for BHE. The
Company is in compliance with these requirements.
Emera Inc.'s syndicated bank credit agreement provides that the Company's
debt can not exceed 70% of the Company's capitalization. NSPI has two
agreements that include covenants, which limit the amount of debt that can be
incurred relative to capitalization. NSPI's trust indentures, applicable to
the senior unsecured debenture and senior unsecured medium-term notes, provide
that NSPI's funded debt cannot exceed 75% of total capitalization. BHE has
short-term and long-term financing agreements that limit the amount of debt to
65% of capitalization, limit priority debt to 15% of net worth, limit earnings
before interest, taxes, depreciation and amortization to interest to 2:1, and
requires net worth of at least $150 million. The Company is in compliance with
all of its financial debt covenants.
9. Financial Instruments
This note should be read in conjunction with Emera Inc.'s annual financial
statements' notes 1 and 22 as at and for the year ended December 31, 2007.
RISK MANAGEMENT
Market Risk
Market risks associated with derivatives are related to exposure to
movement in commodity prices and foreign exchange rates. Market risk
associated with short-term debt is related to movement in interest rates.
Market risk associated with the long-term receivable and HFT natural gas
contracts is related to movements in commodity prices and foreign exchange
rates.
As at March 31, 2008 the Company determined that market risk exposure
would affect the Company's financial results as follows:
$1 per one
million $0.01 100
British $5 per decrease basis
Thermal barrel in the point $1 per
Unit increase strength increase megawatt
increase in the of the in the hour
in the price of Canadian central increase
price heavy relative bank in the
of natural fuel to the US interest price
millions of dollars gas oil dollar rates of power
-------------------------------------------------------------------------
Derivatives in a valid
hedging relationship
- net asset increase $7.6 $7.4 $10.1 - -
Held-for-trading
derivatives - net asset
increase (decrease) 30.9 (8.9) 1.2 - $0.9
Long-term receivable
increase 1.8 0.6 0.2 - -
Accounts payable and
accrued charges
increase - - - $(4.6) -
Deferred credits
(increase) decrease (31.4) 8.9 (1.2) - -
Accumulated other
comprehensive income
increase (7.6) (7.4) (10.1) - -
Other revenue decrease
(increase) 0.5 - - - (0.9)
Fuel expense decrease (1.8) (0.6) (0.2) - -
Interest expense increase - - - 4.6 -
-------------------------------------------------------------------------
After-tax net earnings
increase (decrease) $0.9 $0.4 $0.1 $(2.6) $0.5
-------------------------------------------------------------------------
The above table illustrates the effect on the Company's financial results
due to a certain fixed price change on the entire portfolio of financial
instruments as at the end of the quarter. The results disclosed in the above
table can not be extrapolated linearly to determine the effect on the
Company's financial results due to varying price changes.
Credit risk
As at March 31, 2008, the maximum exposure the Company has to credit risk
is $450.4 million, which includes accounts receivable, long-term receivable,
and the assets related to derivatives in a valid hedging relationship, and
held-for-trading derivatives, excluding NSPI's natural gas contracts.
The Company transacts with counterparties as part of its risk management
strategy for managing commodity price, foreign exchange and interest rate
risk. Counterparties that exceed established credit limits can provide a cash
deposit or letter of credit to the Company for the value in excess of the
credit limit where contractually required. The Company also obtains cash
deposits from electric customers. The total cash deposits and letters of
credit on hand as at March 31, 2008 was $29.4 million, which mitigates the
Company's maximum credit risk exposure. The Company uses the cash as payment
for the amount receivable or returns the cash deposit to the counterparty
where the credit limit is no longer exceeded or where the customer is no
longer considered a high risk account.
The Company generally considers the credit quality of financial assets
that are neither past due nor impaired to be good. The Company monitors
collection performance to ensure payments are received on a timely basis.
The Company does not have any financial assets that would be considered to
be impaired.
As at March 31, 2008, the Company had $44.9 million in financial assets
considered to be past due, which have been outstanding for an average of 66
days. The fair value of these financial assets is $40.9 million, the
difference of which is included in the allowance for doubtful accounts. These
assets primarily relate to accounts receivable from electric revenue.
Concentration risk
------------------
The Company's concentrations of risk as at March 31, 2008 is as follows:
As at March 31, 2008 % of total
millions of dollars Exposure
-------------------------------------------------------------------------
Accounts receivable
Regulated utilities
Residential $138.3 25%
Commercial 63.6 11%
Industrial 33.7 6%
Other 25.5 5%
-------------------------------------------------------------------------
261.1 47%
-------------------------------------------------------------------------
Trading group
Credit rating of A- or above 23.2 4%
Credit rating of BBB- to BBB+ 18.2 3%
Creditworthy counterparties that are not rated 13.0 2%
Speculative grade 4.9 1%
-------------------------------------------------------------------------
59.3 10%
-------------------------------------------------------------------------
Other accounts receivable 5.9 1%
-------------------------------------------------------------------------
326.3 58%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term receivable 23.3 4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Derivatives (in a valid hedging relationship and
held-for-trading; current and long-term portions)
Credit rating of A- or above 175.9 32%
Credit rating of BBB- to BBB+ 4.7 1%
Credit worthy counterparties that are not rated 28.9 5%
Speculative grade 0.1 -
-------------------------------------------------------------------------
209.6 38%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$559.2 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity risk
The Company has available the following credit facilities as at March 31,
2008 for the management of liquidity risk:
millions of dollars Available Used Unused
-------------------------------------------------------------------------
Bank operating and overdraft $772.0 $192.1 $579.9
Commercial paper 400.0 214.0 186.0
-------------------------------------------------------------------------
$1,172.0 $406.1 $765.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale investments includes the Company's investment in
OpenHydro Group Limited ("OpenHydro"). The investment is recognized at its
cost of $15.4 million. The fair value of OpenHydro has not been recognized or
disclosed because its shares are not actively traded in an open market. The
Company does not intend to dispose of the investment in the near term. The
market for any disposition of OpenHydro shares would be with an existing
shareholder or a new private investor.
10. Common Shares
As at March 31, 2008 there were 111.6 million (December 31, 2007 -
111.5 million) issued and outstanding common shares, 4.8 million (December 31,
2007 - 4.8 million) common shares reserved and available for issuance under
the senior management stock option plan, and 1.0 million (December 31, 2007 -
1.0 million) common shares reserved and available for issuance under the
employee common share purchase plan.
During the three months ended March 31, 2008, the Company issued
0.1 million (2007 -0.1 million) common shares. Common shares were issued
through the employee common share purchase plan, the senior management stock
option plan, and the dividend reinvestment plan.
Diluted weighted average number of common shares outstanding includes the
conversion of preferred shares of NSPI, restricted share units, deferred share
units, and senior management share options.
11. Acquisition
In February 2008 Emera acquired a 7.35% interest in OpenHydro, an Irish
renewable tidal energy company for (euro)10.2 million ($15.4 million CAD).
OpenHydro designs and manufactures marine turbines for harnessing energy from
tidal currents in the world's oceans.
The acquisition has been accounted for as an available-for-sale investment
as Emera has determined it does not have significant influence over the
investment, and accordingly, the investment was initially recorded at cost.
Any dividends received or receivable will be recognized as dividend income.
OpenHydro is included in the segment "Other" in Note 4 Segment Information.
12. Commitments
During the quarter, NSPI made a commitment to purchase 525 GWh of
electricity from independent power producers beginning in Q4 2009 with varying
contract lengths ranging from 20 to 25 years.
13. Comparative Information
Certain of the comparative figures have been reclassified to conform to
the consolidated financial statement presentation adopted for 2008.