HALIFAX, August 1 /CNW/ - (EMA-TSX): Emera Inc.'s consolidated net earnings were $42.9 million in Q2 2008, compared to $34.1 million for the same period in 2007. Earnings per share were $0.39 in Q2 2008, compared to $0.30 for the second quarter of 2007.
Nova Scotia Power's earnings were $31.0 million in Q2 2008, in comparison to $23.9 million in Q2 2007. Income taxes were lower in the quarter. Although commodity prices were higher in the quarter as expected, the increase was offset by an increased valuation of a long-term receivable. Excluding the effect of the long-term receivable NSPI's earnings would have been $21.5 million in the quarter. Higher fuel costs in quarters three and four will moderate NSPI's earnings for the remainder of the year. NSPI's outlook is to earn within its allowed range.
"We had a solid second quarter and are pleased with our results so far this year," said Chris Huskilson, President and CEO of Emera. "All subsidiaries continue to perform well. Brunswick Pipeline construction is proceeding as planned and is on target to meet a Q4 in-service date as expected. Transmission activities in New England continue to advance."
Bangor Hydro Electric contributed $4.5 million to consolidated net earnings in Q2 2008, compared to $4.8 million in Q2 2007. This slight decrease relates to the stronger Canadian dollar.
Emera's Other operations contributed $7.4 million to net earnings in Q2 2008, compared to $5.4 million in Q2 2007. This increase relates to higher earnings and mark-to-market accounting gains in Bear Swamp offset by higher income taxes. Excluding the effect of this mark-to-market accounting gain in Bear Swamp, quarterly earnings per share would have been $0.35.
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 2:00 pm Atlantic time today (1:00 pm Toronto/Montreal/New York; 12:00 pm Winnipeg; 10:00 am Vancouver) to discuss the Q2 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 3264932(number sign) (available until midnight, Friday, August 15, 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 $4.7 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 August 1, 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 second quarter of 2008 relative to 2007, and its financial position at June 30, 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 six month period ended June 30, 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 transportation 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 $3.5 billion of assets providing service to 480,000 customers in the province of Nova Scotia, and Bangor Hydro-Electric Company ("BHE") is an electricity transmission and distribution company with $630 million of assets serving 117,000 customers in eastern Maine. Both businesses operate as monopolies in their service territories, and together comprise approximately 92% 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 and provides related energy asset management services.
- Brunswick Pipeline, a 145 kilometer pipeline under construction that
will deliver natural gas from the Canaport(TM) Liquefied Natural Gas
import terminal, also 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 ("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, Brunswick Pipeline,
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
Q2 Operating Unit Contributions
millions of dollars
(except earnings Three months ended Six months ended
per common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Nova Scotia Power $31.0 $23.9 $88.9 $50.0
-------------------------------------------------------------------------
Bangor Hydro-Electric 4.5 4.8 10.0 11.7
-------------------------------------------------------------------------
Other 7.4 5.4 13.4 12.1
-------------------------------------------------------------------------
Consolidated net earnings $42.9 $34.1 $112.3 $73.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common
share - basic $0.39 $0.30 $1.01 $0.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common
share - diluted $0.37 $0.30 $0.95 $0.65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Review of 2008
Emera Inc.'s consolidated net earnings increased $8.8 million to
$42.9 million in Q2 2008 compared to $34.1 million in Q2 2007. Year-to-date,
Emera's consolidated net earnings increased $38.5 million to $112.3 million in
2008 compared to $73.8 million in 2007. Highlights of the changes are
summarized in the following table:
Three months Six months
ended ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
Consolidated net earnings - 2007 $34.1 $73.8
-------------------------------------------------------------------------
Increased net earnings in NSPI due to
decreased fuel expense, an electricity
price increase on April 1, 2007,
and decreased tax expense 7.1 38.9
-------------------------------------------------------------------------
Decreased net earnings in Bangor Hydro
due mainly to a stronger Canadian dollar (0.3) (1.7)
-------------------------------------------------------------------------
Increased net earnings in Other due mainly
to a favourable commodity price position
in Bear Swamp 2.0 1.3
-------------------------------------------------------------------------
Consolidated net earnings - 2008 $42.9 $112.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings per share were $0.39 in Q2 2008 compared to $0.30 in
Q2 2007; and $1.01 year-to-date in 2008 compared to $0.66 in 2007.
Significant Items
Bear Swamp
As part of its long-term energy and capacity supply agreement with the
Long Island Power Authority ("LIPA"), Bear Swamp has contracted with its
parents to provide the power necessary to produce the requirements of the LIPA
contract. A contract with Emera's joint venture partner is marked-to-market
through earnings as it does not meet the stringent accounting requirements of
hedge accounting. As at June 30, 2008, the fair value of the net derivative
asset was $21.2 million (December 31, 2007 - $10.5 million), which is subject
to market volatility of power prices, and will reverse over the life of the
agreement as it is realized. The agreement expires in 2021.
The mark-to-market adjustments were as follows:
millions of dollars
(except earnings Three months ended Six months ended
per common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Mark-to-market gain $5.6 $3.1 $10.3 $4.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
After-tax mark-to-market gain $3.3 $1.8 $6.1 $2.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
- basic $0.39 $0.30 $1.01 $0.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
- basic, absent the
after-tax mark-to-market
adjustment $0.35 $0.28 $0.95 $0.64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 provides an opportunity to earn a prescribed return on equity.
The company is regulated by the Nova Scotia Utility and Review Board ("UARB").
Appointments
On June 18, 2008 Robert Bennett was appointed President & Chief Executive
Officer of NSPI. Mr. Bennett, who was most recently Executive Vice President,
Revenue and Sustainability, succeeds Ralph Tedesco as part of a planned
leadership transition. Mr. Tedesco, who was Nova Scotia Power's President and
Chief Executive Officer, has been appointed Vice Chair of Nova Scotia Power's
Board of Directors.
2009 Rate Application
On May 27, 2008 NSPI filed a rate application with the Nova Scotia Utility
and Review Board requesting an overall rate increase of 11.9% effective
January 1, 2009. The rate increase consists of a fuel adjustment of 8.1% and
3.8% for reliability and customer service improvements and recovery of
previously approved costs. Volatile world prices for coal, oil and natural gas
are the reason for the requested rate increase. The application also seeks a
change to the allowed earnings band to 9.1% to 9.6% with 9.35% used to set
rates as previously agreed to in the Fuel Adjustment Mechanism ("FAM")
settlement agreement. The hearings are scheduled to take place in September
2008.
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%.
In December 2007 the UARB issued a decision that provided conditional
approval and establishes achievable conditions for the implementation of a
FAM, effective January 1, 2009. Upon approval of the requested FAM, 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 Q2 Net Earnings
millions of dollars
(except earnings Three months ended Six months ended
per common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Electric revenue $256.8 $268.4 $579.8 $569.7
-------------------------------------------------------------------------
Fuel for generation and
purchased power 88.1 98.0 198.9 228.9
-------------------------------------------------------------------------
Operating, maintenance and
general 51.2 50.3 99.0 100.6
-------------------------------------------------------------------------
Provincial grants and taxes 10.4 10.0 20.5 20.1
-------------------------------------------------------------------------
Depreciation 33.3 32.6 66.5 65.2
-------------------------------------------------------------------------
Regulatory amortization 3.8 5.6 7.6 7.1
-------------------------------------------------------------------------
Other revenue (5.2) (2.7) (8.3) (4.8)
-------------------------------------------------------------------------
Earnings from operations 75.2 74.6 195.6 152.6
-------------------------------------------------------------------------
Financing charges 31.8 32.2 62.2 63.6
-------------------------------------------------------------------------
Earnings before income taxes 43.4 42.4 133.4 89.0
-------------------------------------------------------------------------
Income taxes 12.4 18.5 44.5 39.0
-------------------------------------------------------------------------
Contribution to consolidated
net earnings $31.0 $23.9 $88.9 $50.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common share $0.28 $0.21 $0.80 $0.45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NSPI's contribution to consolidated net earnings increased $7.1 million to
$31.0 million in Q2 2008 compared to $23.9 million in Q2 2007. Year-to-date
("YTD"), NSPI's contribution to consolidated net earnings increased
$38.9 million to $88.9 million in 2008 compared to $50.0 million in 2007.
Highlights of the earnings changes are summarized in the following table:
Three months Six months
ended ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $23.9 $50.0
-------------------------------------------------------------------------
Decreased electric revenue in Q2 due to
decreased sales volume; YTD increase due to
an electricity price increase on April 1, 2007 (11.6) 10.1
-------------------------------------------------------------------------
Decreased fuel expense 9.9 30.0
-------------------------------------------------------------------------
Increased other revenue due to reduced
securitization fees and settlement proceeds
from a contract dispute 2.5 3.5
-------------------------------------------------------------------------
Decreased income taxes due to a lower effective
tax rate offset YTD by higher taxable income 6.1 (5.5)
-------------------------------------------------------------------------
Other 0.2 0.8
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $31.0 $88.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Electric Revenue
Q2 Electric Sales Volume Q2 Electric Sales Revenues
Gigawatt hours ("GWh") millions of dollars
---------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
---------------------------------- ------------------------------------
Residential 902 980 890 Residential $108.6 $117.4 $103.3
---------------------------------- ------------------------------------
Commercial 720 752 701 Commercial 71.0 74.3 67.6
---------------------------------- ------------------------------------
Industrial 1,027 1,044 638 Industrial 66.4 66.9 42.4
---------------------------------- ------------------------------------
Other 86 80 202 Other 10.8 9.8 15.8
---------------------------------- ------------------------------------
Total 2,735 2,856 2,431 Total $256.8 $268.4 $229.1
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Year-to-Date ("YTD") Electric
Sales Volume YTD Electric Sales Revenues
GWh millions of dollars
---------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
---------------------------------- ------------------------------------
Residential 2,300 2,310 2,148 Residential $269.4 $264.1 $234.3
---------------------------------- ------------------------------------
Commercial 1,585 1,621 1,538 Commercial 154.8 156.4 143.2
---------------------------------- ------------------------------------
Industrial 2,076 2,056 1,274 Industrial 134.5 129.1 81.5
---------------------------------- ------------------------------------
Other 174 173 385 Other 21.1 20.1 31.1
---------------------------------- ------------------------------------
Total 6,135 6,160 5,345 Total $579.8 $569.7 $490.1
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Q2 Average Revenue /
Megawatt hour ("MWh")
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $94 $94 $94
----------------------------------
----------------------------------
YTD Average Revenue /
MWh
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $95 $92 $92
----------------------------------
----------------------------------
Electric revenues decreased by $11.6 million to $256.8 million in Q2 2008
compared to $268.4 million in Q2 2007 due to decreased sales volume.
Year-to-date, electric revenues increased by $10.1 million to
$579.8 million in 2008 from $569.7 million in 2007 due to a 3.8% rate increase
effective April 1, 2007.
Fuel for Generation and Purchased Power
Q2 Production Volume YTD Production Volume
GWh GWh
---------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
---------------------------------- ------------------------------------
Coal & Coal &
petcoke 2,218 2,263 2,188 petcoke 4,679 4,750 4,639
---------------------------------- ------------------------------------
Natural gas 254 251 69 Natural gas 688 409 140
---------------------------------- ------------------------------------
Oil 23 37 38 Oil 94 466 257
---------------------------------- ------------------------------------
Renewable 260 241 244 Renewable 630 541 560
---------------------------------- ------------------------------------
Purchased Purchased
power 147 166 71 power 424 360 147
---------------------------------- ------------------------------------
Total 2,902 2,958 2,610 Total 6,515 6,526 5,743
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Purchased power includes 31 GWh of Purchased power includes 79 GWh of
renewables in Q2 2008 renewables in 2008
(2007 - 34 GWh; 2006 - 26 GWh). (2007 - 84 GWh; 2006 - 56 GWh).
Q2 Average Unit Fuel Costs
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $30 $33 $22
----------------------------------
----------------------------------
YTD Average Unit Fuel Costs
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $31 $35 $24
----------------------------------
----------------------------------
Fuel for generation and purchased power decreased $9.9 million to
$88.1 million in Q2 2008 compared to $98.0 million in Q2 2007. Year-to-date,
fuel for generation and purchased power decreased $30.0 million to
$198.9 million in 2008 compared to $228.9 million in 2007. Highlights of the
changes are summarized in the following table:
Three months Six months
ended ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2007 $98.0 $228.9
-------------------------------------------------------------------------
Increased commodity prices in Q2 primarily due
to increased coal prices; YTD decrease also
due to the economic use of natural gas and
favourable hedge positions as a result of
this fuel switch 7.4 (15.8)
-------------------------------------------------------------------------
(Increased) decreased net proceeds from the
resale of natural gas (2.5) 4.3
-------------------------------------------------------------------------
Increased valuation of the long-term receivable
(see discussion below) (14.7) (14.9)
-------------------------------------------------------------------------
Decreased sales volume (11.9) (4.8)
-------------------------------------------------------------------------
Increased hydro production (1.7) (6.7)
-------------------------------------------------------------------------
Changes in generation mix 8.3 5.2
-------------------------------------------------------------------------
Other 5.2 2.7
-------------------------------------------------------------------------
Fuel for generation and purchased power - 2008 $88.1 $198.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The valuation of the long-term receivable from a natural gas supplier
requires NSPI to utilize a combination of historical and future natural gas
prices. NSPI uses market based forward indices when determining future prices.
Future prices can change from period to period which will cause a
corresponding change in the value of the long-term receivable.
Outlook
One of NSPI's fuel suppliers provided notice in December 2007 that it was
suspending shipments pending a review of the contract. NSPI has initiated
arbitration proceedings against the fuel supplier to enforce its rights under
the contract and continues to work on a commercial resolution of the dispute.
Fuel costs are expected to be higher in the second half of 2008 compared to
2007.
The company's outlook is to earn within its allowed return on equity range
for 2008 given the company's favourable YTD results and consistent with NSPI's
2007 rate settlement agreement.
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 Q2 Net Earnings
millions of dollars
(except earnings per Three months ended Six months ended
common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
T&D electric revenues $21.7 $23.9 $46.5 $50.5
-------------------------------------------------------------------------
Resale of purchased power 4.9 4.2 10.1 7.8
-------------------------------------------------------------------------
Transmission pool revenue 4.5 2.0 9.2 2.0
-------------------------------------------------------------------------
Total revenue 31.1 30.1 65.8 60.3
-------------------------------------------------------------------------
Purchased power and fuel
for generation 7.7 8.0 16.8 16.4
-------------------------------------------------------------------------
Operating, maintenance and
general 7.2 6.7 13.7 12.0
-------------------------------------------------------------------------
Property taxes 1.2 1.6 2.7 3.0
-------------------------------------------------------------------------
Depreciation 3.8 3.2 7.6 6.5
-------------------------------------------------------------------------
Regulatory amortization 2.1 3.8 5.2 6.4
-------------------------------------------------------------------------
Other (1.1) (0.3) (2.3) (0.9)
-------------------------------------------------------------------------
Earnings from operations 10.2 7.1 22.1 16.9
-------------------------------------------------------------------------
Financing charges 2.9 0.8 5.8 1.5
-------------------------------------------------------------------------
Earnings before income taxes 7.3 6.3 16.3 15.4
-------------------------------------------------------------------------
Income taxes 2.8 1.9 6.3 5.1
-------------------------------------------------------------------------
Contribution to consolidated
net earnings - USD $4.5 $4.4 $10.0 $10.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
net earnings - CAD $4.5 $4.8 $10.0 $11.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common share
- CAD $0.04 $0.04 $0.09 $0.10
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings weighted average
foreign exchange rate
- CAD/USD $1.00 $1.09 $1.00 $1.14
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's contribution to consolidated net earnings increased by $0.1
million to $4.5 million in Q2 2008 compared to $4.4 million in Q2 2007.
Year-to-date, Bangor Hydro's contribution to consolidated net earnings
decreased by $0.3 million to $10.0 million in 2008 compared to $10.3 million
in 2007. Highlights of the earnings changes are summarized in the following
table:
Three months Six months
ended ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $4.4 $10.3
-------------------------------------------------------------------------
Increased transmission pool revenue associated
with the recovery of the NRI transmission line
from the New England Power Pool beginning in
June 2007 2.5 7.2
-------------------------------------------------------------------------
Decreased overheads and allowance for funds used
during construction ("AFUDC") capitalized primarily
as a result of completing the NRI transmission line
in Q4 2007 (2.6) (5.2)
-------------------------------------------------------------------------
Increased interest expense and depreciation primarily
related to the NRI transmission line (0.7) (1.8)
-------------------------------------------------------------------------
Other 0.9 (0.5)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $4.5 $10.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Bangor Hydro's decreased contribution to consolidated net earnings in CAD
was due to the $0.5 million effect of the stronger Canadian dollar in the
quarter and the $1.4 million effect of the stronger Canadian dollar
year-to-date.
Electric Revenue
Q2 Electric Sales Volume Q2 Electric Sales Revenues
GWh millions of dollars
---------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
---------------------------------- ------------------------------------
Residential 134 136 136 Residential $10.2 $11.6 $11.5
---------------------------------- ------------------------------------
Commercial 144 144 142 Commercial 7.7 8.8 8.5
---------------------------------- ------------------------------------
Industrial 87 85 93 Industrial 2.2 2.6 2.7
---------------------------------- ------------------------------------
Other 3 3 3 Other 1.6 0.9 1.2
---------------------------------- ------------------------------------
Total 368 368 374 Total $21.7 $23.9 $23.9
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
YTD Electric Sales Volume YTD Electric Sales Revenues
GWh millions of dollars
---------------------------------- ------------------------------------
2008 2007 2006 2008 2007 2006
---------------------------------- ------------------------------------
Residential 292 296 290 Residential $22.8 $24.9 $24.1
---------------------------------- ------------------------------------
Commercial 299 296 293 Commercial 16.5 18.0 17.5
---------------------------------- ------------------------------------
Industrial 167 174 188 Industrial 4.2 5.7 5.9
---------------------------------- ------------------------------------
Other 5 6 6 Other 3.0 1.9 2.3
---------------------------------- ------------------------------------
Total 763 772 777 Total $46.5 $50.5 $49.8
---------------------------------- ------------------------------------
---------------------------------- ------------------------------------
Q2 Average Revenue / MWh
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $59 $65 $64
----------------------------------
----------------------------------
YTD Average Revenue / MWh
----------------------------------
2008 2007 2006
----------------------------------
Dollars per
MWh $61 $65 $64
----------------------------------
----------------------------------
The decrease in average revenue per MWh in 2008 compared to 2007 reflects
the July 1, 2007 reduction in transmission rates and the March 1, 2008
reduction in stranded cost rates, partially offset by the January 1, 2008
increase in distribution rates.
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 and provides related energy asset management services.
Emera Energy Services operates with minimal day-to-day commodity risk
exposure. Volatility in natural gas markets and electricity markets
usually results in increased opportunities for Emera Energy Services.
- Brunswick Pipeline, a 145 kilometer pipeline currently under
construction that will deliver natural gas from the Canaport(TM)
Liquefied Natural Gas import terminal, also 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
Q4 2007. 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 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.
Appointment
On April 25, 2008 Wayne O'Connor was appointed Chief Operating Officer of
Emera Energy Services. Prior to his appointment, Mr. O'Connor served as Vice
President of Operations.
Review of 2008
Bear Swamp, Emera Energy Services and Brunswick Pipeline are reported on
an earnings before interest and income taxes basis ("EBIT"), and M&NP and
Lucelec are reported on an equity basis.
Other Q2 Earnings
millions of dollars
(except earnings Three months ended Six months ended
per common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Bear Swamp - operational $4.9 $3.2 $8.5 $5.8
-------------------------------------------------------------------------
Bear Swamp - mark-to-market 5.6 3.1 10.3 4.2
-------------------------------------------------------------------------
Emera Energy Services 1.8 2.9 5.0 8.0
-------------------------------------------------------------------------
M&NP 2.7 2.0 5.2 5.9
-------------------------------------------------------------------------
Lucelec 0.6 0.6 0.9 0.8
-------------------------------------------------------------------------
Brunswick Pipeline 3.4 - 4.2 -
-------------------------------------------------------------------------
Corporate costs and other (5.2) (3.7) (8.7) (7.3)
-------------------------------------------------------------------------
13.8 8.1 25.4 17.4
-------------------------------------------------------------------------
Interest expense 3.1 2.1 6.3 4.2
-------------------------------------------------------------------------
Earnings before income taxes 10.7 6.0 19.1 13.2
-------------------------------------------------------------------------
Income taxes 3.3 0.6 5.7 1.1
-------------------------------------------------------------------------
Contribution to consolidated
net earnings $7.4 $5.4 $13.4 $12.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contribution to consolidated
earnings per common share $0.07 $0.05 $0.12 $0.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The contribution of Other to consolidated net earnings increased
$2.0 million to $7.4 million in Q2 2008 compared to $5.4 million in Q2 2007.
Year-to-date, the contribution of Other to consolidated net earnings increased
$1.3 million to $13.4 million in 2008 compared to $12.1 million in 2007.
Highlights of the earnings changes are summarized in the following table:
Three months Six months
ended ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2007 $5.4 $12.1
-------------------------------------------------------------------------
Increased Bear Swamp - operational due to increased
energy and capacity sales 1.7 2.7
-------------------------------------------------------------------------
Increased Bear Swamp - mark-to-market due to a
favourable commodity price position 2.5 6.1
-------------------------------------------------------------------------
Decreased Emera Energy Services EBIT in Q2 due
to non-recurring and other expenses; YTD decrease
also reflects reduced activity in Q1, and the
impact of a stronger Canadian dollar (1.1) (3.0)
-------------------------------------------------------------------------
Increased Brunswick Pipeline due to AFUDC on
construction of the pipeline 3.4 4.2
-------------------------------------------------------------------------
Increased corporate costs (1.5) (1.4)
-------------------------------------------------------------------------
Increased interest due to increased debt used to
finance the construction of Brunswick Pipeline (1.0) (2.1)
-------------------------------------------------------------------------
Increased income taxes (2.7) (4.6)
-------------------------------------------------------------------------
Other 0.7 (0.6)
-------------------------------------------------------------------------
Contribution to consolidated net earnings - 2008 $7.4 $13.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Balance Sheets
Significant changes in the consolidated balance sheets between June 30,
2008 and December 31, 2007 include:
Increase
millions of dollars (Decrease) Explanation
-------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------
Cash $82.3 Primarily due to posted margin received
from counterparties. Posted margin is
also reflected in accounts payable.
-------------------------------------------------------------------------
Accounts receivable 15.2 Reduction in accounts receivable
securitization.
-------------------------------------------------------------------------
Inventory 31.1 Increased fuel inventory levels.
-------------------------------------------------------------------------
Prepaid expenses 27.6 Timing of provincial grants in lieu of
taxes and insurance payments, and
increased posted margin paid to
counterparties.
-------------------------------------------------------------------------
Derivatives in a valid 166.5 Favourable USD and commodity price
hedging relationship positions. The effective portion of the
(including long-term change is recognized in accumulated
portion) other comprehensive income.
-------------------------------------------------------------------------
Held-for-trading 45.7 Favourable USD and commodity price
derivatives (including positions. The portion related to
long-term portion) NSPI's regulatory liabilities is
recognized in deferred credits.
-------------------------------------------------------------------------
Long-term receivable 42.2 Higher receivable from a natural gas
supplier.
-------------------------------------------------------------------------
Deferred charges (19.0) Reduction in accounts receivable
securitization, pension asset, and
ongoing regulatory amortizations
partially offset by increase in
deferred fuel switching derivatives.
-------------------------------------------------------------------------
Investments subject 20.7 Primarily additional investment in MN&P
to significant and equity earnings.
influence
-------------------------------------------------------------------------
Available-for-sale 15.5 Q1 2008 investment in OpenHydro.
investments
-------------------------------------------------------------------------
Property, plant & 162.9 Primarily capital spending in Brunswick
equipment and Pipeline.
construction work in
progress
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
-------------------------------------------------------------------------
Accounts payable 88.1 Increased posted margin received from
counterparties.
-------------------------------------------------------------------------
Derivatives in a (32.2) Favourable USD positions. The effective
valid hedging portion of the change is recognized in
relationship (including accumulated other comprehensive income.
long-term portion)
-------------------------------------------------------------------------
Future income tax 18.5 Higher taxable earnings.
liabilities
-------------------------------------------------------------------------
Deferred credits 28.3 Increased held-for-trading natural gas
contracts regulatory liability
partially offset by settlement of fuel
switching derivatives.
-------------------------------------------------------------------------
Short-term debt and 187.4 Primarily increased debt to finance
long-term debt Brunswick Pipeline.
(including current
portion)
-------------------------------------------------------------------------
Accumulated other 206.4 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 56.0 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 0.20 4.1
-------------------------------------------------------------------------
Options exercised under senior management share
option plan 0.24 4.3
-------------------------------------------------------------------------
Share-based compensation - 0.5
-------------------------------------------------------------------------
June 30, 2008 111.91 $1,075.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at July 18, 2008 the number of issued and outstanding common shares was
111.94 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
June 30, 2008 and 2007 include:
Three months ended June 30
millions of dollars 2008 2007 Explanation
-------------------------------------------------------------------------
Cash and cash equivalents, $26.8 $9.3
beginning of period
-------------------------------------------------------------------------
Provided by (used in):
Operating activities 168.3 82.6 In 2008, cash earnings and
increased posted margin
received from counterparties.
------------------------------
In 2007, cash earnings and
decreased non-cash working
capital.
-------------------------------------------------------------------------
Investing activities (108.2) (57.1) In 2008, capital spending,
including Brunswick Pipeline.
------------------------------
In 2007, capital spending,
including the NRI
transmission line and
Brunswick Pipeline.
-------------------------------------------------------------------------
Financing activities 21.8 (26.5) In 2008, increased debt
levels, partially offset by
dividends on common shares.
------------------------------
In 2007, dividends on common
shares and decreased accounts
receivable securitized,
partially offset by increased
debt levels.
-------------------------------------------------------------------------
Cash and cash equivalents, $108.7 $8.3
end of period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended June 30
millions of dollars 2008 2007 Explanation
-------------------------------------------------------------------------
Cash and cash equivalents,
beginning of period $26.4 $19.5
-------------------------------------------------------------------------
Provided by (used in):
Operating activities 214.2 64.1 In 2008, cash earnings
partially offset by increased
posted margin received from
counterparties.
------------------------------
In 2007, cash earnings
partially offset by increased
non-cash working capital.
-------------------------------------------------------------------------
Investing activities (238.6) (123.2) 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 106.7 47.9 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, $108.7 $8.3
end of period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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.
Held-for-trading derivatives 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:
-------------------------------------------------------------------------
June 30 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Inventory $6.4 $7.6
Derivatives in a valid hedging relationship 144.7 (54.0)
Long-term debt 0.5 0.6
-------------------------------------------------------------------------
$151.6 $(45.8)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Hedging Impact Recognized in Earnings
For the three and six month periods ended June 30, the impacts of
derivatives in valid hedging relationships recognized in earnings were
recorded in the following categories:
Thee months ended Six months ended
June 30 June 30
millions of dollars 2008 2007 2008 2007
-------------------------------------------------------------------------
Fuel and purchased power
decrease (increase) $1.6 $(0.5) $13.1 $(5.1)
-------------------------------------------------------------------------
Hedging earnings impact $1.6 $(0.5) $13.1 $(5.1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Held-for-trading Items Recognized on the Balance Sheet
The company has recognized a net unrealized fair value of held-for-trading
derivatives asset of $148.9 million as at June 30, 2008 (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 Six months ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Electric revenue $1.7 $1.2 $2.5 $2.4
Other revenue 9.9 5.3 18.4 13.1
Fuel and purchased power (0.8) 1.7 1.2 (2.6)
Interest (0.1) 0.1 (0.3) -
-------------------------------------------------------------------------
Held-for-trading derivatives
gains $10.7 $8.3 $21.8 $12.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 $9.6 million (2007 - $7.6 million) during the
three months ended June 30, 2008 and $14.3 million (2007 - $14.4 million)
during the six months ended June 30, 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 June 30, 2008 the amount payable to the related party is
$4.7 million (December 31, 2007 - $4.5 million), is non-interest bearing and
is under normal credit terms.
Changes in Accounting Policies
The Canadian Institute of Chartered Accountants ("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
Six months ended Six months ended
June 30 June 30
-------------------------------------------------------------------------
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 193.3 178.2 18.8 19.1
-------------------------------------------------------------------------
Write-down of inventory to
net realizable value - - (0.8) -
-------------------------------------------------------------------------
Inventories expensed (158.9) (184.5) (8.1) (7.9)
-------------------------------------------------------------------------
Inventories capitalized - - (10.9) (10.4)
-------------------------------------------------------------------------
Other - - 0.9 0.9
-------------------------------------------------------------------------
Inventory, end of period $102.1 $74.9 $28.7 $34.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The company has not pledged inventory as security for liabilities.
Future Accounting Policy Changes
Changeover to International Financial Reporting Standards ("IFRS"): In
April 2008, the CICA issued an IFRS Omnibus Exposure Draft which proposes that
publicly accountable enterprises be required to apply IFRS effective for
Emera's 2011 fiscal year with consistent comparative information required for
2010. The company is currently assessing the effect of IFRS on its financial
statements and developing its changeover plan.
Goodwill and Intangible Assets: In February 2008, the CICA issued Section
3064 Goodwill and Intangible Assets ("3064") applicable to Emera's 2009 fiscal
year, replacing Section 3062 Goodwill and Other Intangible Assets. The
goodwill requirements have not changed. The requirements for intangible assets
now clarify that costs may only be deferred when they relate to an item that
meets the definition of an asset. An intangible asset must be identifiable; be
a resource over which the Company has control; probably generate future
economic benefits; and have a reliably measurable cost. The Company is
currently assessing the effect of 3064 on its financial statements but does
not expect a material change.
Dividends
In January 2008, the Board of Directors approved a quarterly dividend
increase to $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)
-------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
2008 2008 2007 2007 2007 2007 2006 2006
-------------------------------------------------------------------------
Total
revenues $317.6 $381.2 $343.9 $310.3 $325.4 $359.9 $307.0 $272.4
-------------------------------------------------------------------------
Net
earnings
applicable
to common
shares 42.9 69.4 36.6 40.9 34.1 39.7 33.5 19.5
-------------------------------------------------------------------------
Earnings
per common
share -
basic 0.39 0.62 0.33 0.37 0.30 0.36 0.30 0.18
-------------------------------------------------------------------------
Earnings
per common
share -
diluted 0.37 0.58 0.32 0.35 0.30 0.35 0.30 0.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
millions of dollars (except Three months ended Six months ended
earnings per common share) June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue
Electric $294.7 $309.4 $656.7 $657.2
Other 22.9 13.9 42.1 26.0
-------------------------------------------------------------------------
317.6 323.3 698.8 683.2
-------------------------------------------------------------------------
Cost of operations
Fuel for generation and
purchased power 101.1 110.6 224.7 258.9
Operating, maintenance
and general 68.0 65.2 129.1 128.4
Provincial, state, and
municipal taxes 12.4 12.3 24.5 24.5
Depreciation 37.5 37.4 74.8 74.4
Regulatory amortization 6.0 9.8 12.8 14.4
-------------------------------------------------------------------------
225.0 235.3 465.9 500.6
-------------------------------------------------------------------------
Earnings from operations 92.6 88.0 232.9 182.6
Financing charges (note 6) 34.6 35.2 70.2 69.5
Equity earnings 3.2 2.6 6.1 6.7
-------------------------------------------------------------------------
Earnings before income taxes 61.2 55.4 168.8 119.8
Income taxes 18.3 21.3 56.5 46.0
-------------------------------------------------------------------------
Net earnings applicable to
common shares $42.9 $34.1 $112.3 $73.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share -
basic $0.39 $0.30 $1.01 $0.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share -
diluted $0.37 $0.30 $0.95 $0.65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Weighted average number of common
shares outstanding (millions)
- basic 111.8 111.2 111.7 111.1
- diluted (note 10) 124.6 124.4 124.7 124.3
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------
As at June 30 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $108.7 $26.4
Restricted cash 0.5 1.0
Accounts receivable 289.4 274.2
Income tax receivable 7.1 13.7
Inventory (note 3) 130.8 99.7
Prepaid expenses 84.5 56.9
Future income tax assets 4.6 6.7
Derivatives in a valid hedging relationship 100.9 12.2
Held-for-trading derivatives 110.2 76.2
-------------------------------------------------------------------------
836.7 567.0
-------------------------------------------------------------------------
Long-term receivable 49.9 7.7
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship 88.8 11.0
-------------------------------------------------------------------------
Held-for-trading derivatives 75.3 63.6
-------------------------------------------------------------------------
Deferred charges 343.1 362.1
-------------------------------------------------------------------------
Future income tax assets 14.1 16.2
-------------------------------------------------------------------------
Goodwill 85.0 82.8
-------------------------------------------------------------------------
Investments subject to significant influence 145.2 124.5
-------------------------------------------------------------------------
Available-for-sale investments 17.3 1.8
-------------------------------------------------------------------------
Property, plant and equipment 2,828.6 2,820.0
-------------------------------------------------------------------------
Construction work in progress 263.5 109.2
-------------------------------------------------------------------------
3,092.1 2,929.2
-------------------------------------------------------------------------
$4,747.5 $4,165.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $245.3 $121.0
Short-term debt 226.4 104.6
Accounts payable and accrued charges 370.8 282.7
Income tax payable 13.5 3.2
Dividends payable 3.2 3.2
Future income tax liabilities 16.3 2.0
Derivatives in a valid hedging relationship 29.1 44.1
Held-for-trading derivatives 21.2 22.0
-------------------------------------------------------------------------
925.8 582.8
-------------------------------------------------------------------------
Derivatives in a valid hedging relationship 15.9 33.1
-------------------------------------------------------------------------
Held-for-trading derivatives 15.4 7.1
-------------------------------------------------------------------------
Future income tax liabilities 87.1 82.9
-------------------------------------------------------------------------
Asset retirement obligations 86.0 83.8
-------------------------------------------------------------------------
Deferred credits 183.9 155.6
-------------------------------------------------------------------------
Long-term debt (note 7) 1,541.5 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) 1,075.1 1,066.2
Contributed surplus 3.2 3.0
Accumulated other comprehensive income (2.6) (209.0)
Retained earnings (note 3) 555.6 499.6
-------------------------------------------------------------------------
1,631.3 1,359.8
-------------------------------------------------------------------------
$4,747.5 $4,165.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments (note 13)
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 Six months ended
millions of dollars June 30 June 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating activities
Net earnings applicable to
common shares $42.9 $34.1 $112.3 $73.8
Non-cash items:
Depreciation 37.5 37.4 74.8 74.4
Amortization of deferred
charges 3.6 3.5 7.0 7.0
Equity earnings (3.2) (2.6) (6.1) (6.7)
Regulatory amortization 6.0 9.8 12.8 14.4
Allowance for funds used
during construction (4.7) (3.0) (6.3) (5.6)
Future income taxes 5.7 (0.3) 12.8 3.9
Post-retirement benefits 2.6 3.8 5.0 7.1
Other non-cash operating
items (6.3) (8.7) (16.2) (6.9)
Other cash operating items (1.0) (0.8) (0.5) 1.4
-------------------------------------------------------------------------
83.1 73.2 195.6 162.8
Change in non-cash operating
working capital (note 11) 85.2 9.4 18.6 (98.7)
-------------------------------------------------------------------------
Net cash provided by operating
activities 168.3 82.6 214.2 64.1
-------------------------------------------------------------------------
Investing activities
Property, plant and
equipment (99.6) (55.2) (212.0) (95.0)
Acquisition (note 12) - - (15.4) (25.7)
Retirement spending net of
salvage (1.6) (0.9) (2.6) (1.5)
Decrease in restricted cash 0.3 (1.0) 0.5 (1.0)
Investments (7.3) - (9.1) -
-------------------------------------------------------------------------
Net cash used in investing
activities (108.2) (57.1) (238.6) (123.2)
-------------------------------------------------------------------------
Financing activities
Retirement of long-term
debt (0.3) (0.4) (1.0) (1.0)
Issuance of long-term debt - 66.8 - 66.8
Increase (decrease) in
short-term debt 44.4 (46.2) 177.6 81.4
Issuance of common shares 5.5 3.4 8.4 6.2
Dividends on common shares (26.5) (24.7) (53.0) (49.4)
Accounts receivable
securitization - (25.0) (25.0) (55.0)
Other financing (1.3) (0.4) (0.3) (1.1)
-------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 21.8 (26.5) 106.7 47.9
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 81.9 (1.0) 82.3 (11.2)
Cash and cash equivalents,
beginning of period 26.8 9.3 26.4 19.5
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $108.7 $8.3 $108.7 $8.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents
consists of:
Cash $81.9 $4.8 $6.0 $4.8
Cash equivalents 26.8 3.5 102.7 3.5
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $108.7 $8.3 $108.7 $8.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental disclosure of
cash paid:
Interest $32.8 $30.0 $64.7 $60.7
Income and capital taxes $14.7 $34.3 $33.5 $81.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
-------------------------------------------------------------------------
Accumu-
For the six months lated
ended June 30, 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 - - - 112.3 112.3
Net gain on derivatives
in a valid hedging
relationship - - 206.6 - 206.6
Reclassification of
hedging gains
included in income - - (12.1) - (12.1)
Reclassification of
hedging losses
included in inventory - - 1.2 - 1.2
Reclassification of
hedging gains included
in construction work
in progress - - (2.0) - (2.0)
Unrealized gain on
translation of
self-sustaining foreign
operations - - 12.8 - 12.8
Other - - (0.1) - (0.1)
-------------------------------------------------------------------------
Total comprehensive
income - - 206.4 112.3 318.7
-------------------------------------------------------------------------
Dividends declared on
common shares - - - (53.0) (53.0)
Common shares issued under
purchase plans 4.1 - - - -
Senior management stock
options exercised 4.3 (0.3) - - -
Stock option expense - 0.5 - - -
Other share-based
compensation 0.5 - - - -
-------------------------------------------------------------------------
Balance,
June 30, 2008 $1,075.1 $3.2 $(2.6) $555.6 $553.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the six months Total
ended June 30, 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
-------------------------------------------------------------------------
Accounting policy
change - - (5.3) (2.7) (8.0)
-------------------------------------------------------------------------
Comprehensive Income:
Net earnings applicable
to common shares - - - 73.8 73.8
Net loss on derivatives
in a valid hedging
relationship - - (40.1) - (40.1)
Reclassification of
hedging gains
included in income - - (0.4) - (0.4)
Reclassification of
hedging losses
included in inventory - - 4.9 - 4.9
Unrealized loss on
translation of
self-sustaining
foreign operations - - (34.5) - (34.5)
Other - - 0.1 - 0.1
-------------------------------------------------------------------------
Total comprehensive
income - - (70.0) 73.8 3.8
-------------------------------------------------------------------------
Dividends declared on
common shares - - - (49.1) (49.1)
Common shares issued
under purchase plans 4.9 - - - -
Senior management stock
options exercised 1.3 - - - -
Stock option expense - 0.3 - - -
Other share-based
compensation 0.2 - - - -
-------------------------------------------------------------------------
Balance,
June 30, 2007 $1,061.6 $2.5 $(175.5) $472.9 $297.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial
statements.
Notes to the Interim Unaudited Consolidated Financial Statements
June 30, 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.
"Company", "Emera Inc." and "Emera" refer to Emera Inc. and all of its
consolidated subsidiaries and affiliates.
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 ("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.
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
Six months ended Six months ended
For the June 30 June 30
-------------------------------------------------------------------------
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 193.3 178.2 18.8 19.1
Write-down of inventory
to net realizable value - - (0.8) -
Inventories expensed (158.9) (184.5) (8.1) (7.9)
Inventories capitalized - - (10.9) (10.4)
Other - - 0.9 0.9
-------------------------------------------------------------------------
Inventory, end of period $102.1 $74.9 $28.7 $34.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company has not pledged inventory as security for liabilities.
Future Accounting Policy Changes
Changeover to International Financial Reporting Standards ("IFRS"): In
April 2008, the CICA issued an IFRS Omnibus Exposure Draft which proposes that
publicly accountable enterprises be required to apply IFRS effective for
Emera's 2011 fiscal year with consistent comparative information required for
2010. The Company is currently assessing the effect of IFRS on its financial
statements and developing its changeover plan.
Goodwill and Intangible Assets: In February 2008, the CICA issued Section
3064 Goodwill and Intangible Assets ("3064") applicable to Emera's 2009 fiscal
year, replacing Section 3062 Goodwill and Other Intangible Assets. The
goodwill requirements have not changed. The requirements for intangible assets
now clarify that costs may only be deferred when they relate to an item that
meets the definition of an asset. An intangible asset must be identifiable; be
a resource over which the Company has control; probably generate future
economic benefits; and have a reliably measurable cost. The Company is
currently assessing the effect of 3064 on its financial statements but does
not expect a material change.
4. Segment Information
-------------------------------------------------------------------------
Nova Scotia Bangor
millions of dollars Power Hydro Other(x) Total
-------------------------------------------------------------------------
For the three months
ended June 30, 2008:
Revenues from external
customers $262.0 $32.7 $22.9 $317.6
Net inter-segment
revenues (expenses) 36.0 (0.2) (35.8) -
Net earnings applicable
to common shares 31.0 4.5 7.4 42.9
For the six months
ended June 30, 2008:
Revenues from external
customers 588.0 68.6 42.2 698.8
Net inter-segment
revenues (expenses) 47.7 (0.4) (47.3) -
Net earnings applicable
to common shares 88.9 10.0 13.4 112.3
As at June 30, 2008
Total assets 3,477.8 631.7 638.0 4,747.5
-------------------------------------------------------------------------
For the three months
ended June 30, 2007:
Revenues from external
customers $271.1 $31.5 $20.7 $323.3
Net inter-segment
revenues (expenses) 22.5 (0.7) (21.8) -
Net earnings applicable
to common shares 23.9 4.8 5.4 34.1
For the six months
ended June 30, 2007:
Revenues from external
customers 574.5 67.6 41.1 683.2
Net inter-segment
revenues (expenses) 57.3 (1.0) (56.3) -
Net earnings applicable
to common shares 50.0 11.7 12.1 73.8
As at June 30, 2007
Total assets 3,264.1 613.5 350.0 4,227.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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
June 30, 2008 is $8.3 million (2007 - $10.3 million), and for the six month
period ended June 30, 2008 is $16.8 million (2007 - $21.0 million).
6. Financing Charges
Financing charges consist of the following:
Three months ended Six months ended
For the June 30 June 30
-------------------------------------------------------------------------
millions of dollars 2008 2007 2008 2007
-------------------------------------------------------------------------
Interest - long-term debt $26.5 $26.2 $53.5 $51.9
- short-term debt 5.5 6.1 9.6 11.0
Preferred share dividends
paid by subsidiary 3.5 3.5 7.0 7.0
Amortization of defeasance
cost 3.1 3.1 6.2 6.3
Amortization of debt
financing costs 0.4 0.4 0.8 0.9
Allowance for funds used
during construction (4.6) (3.0) (6.2) (5.6)
Foreign exchange losses
(gains) 0.2 (1.1) (0.7) (2.0)
-------------------------------------------------------------------------
$34.6 $35.2 $70.2 $69.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Long-Term Debt
As of June 30, 2008, long-term debt includes $1.8 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 June 30 December 31
millions of dollars 2008 2007
-------------------------------------------------------------------------
Shareholder's equity, excluding AOCI $1,640.9 $1,568.8
Debt 2,013.2 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 (108.7) (26.4)
-------------------------------------------------------------------------
$3,806.0 $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. The
securitization program was suspended in January 2008 due to increased pricing
and limitations of supply in the market.
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'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 as defined in the credit agreements. NSPI's syndicated bank
credit facility limits its debt to capitalization ratio to no greater than
0.65:1. 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 June 30, 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 $15 per in the point $1 per
Unit increase metric strength increase megawatt
increase in the tonne of the in the hour
in the price of increase Canadian central increase
price heavy in the relative bank in the
millions of natural fuel price of to the interest price of
of dollars gas oil coal US dollar rates power
-------------------------------------------------------------------------
Derivatives
in a valid
hedging
relationship
- net asset
increase $9.5 $6.7 $15.3 $12.4 - -
Held-for-
trading
derivatives
- net asset
increase
(decrease) 23.3 (19.5) - 1.2 - $0.9
Long-term
receivable
increase 2.5 0.8 - 0.5 - -
Accounts
payable
and accrued
charges
increase - - - 0.5 $(0.2) -
Deferred
credits
(increase)
decrease (23.7) 19.5 - (1.2) - -
Accumulated
other
comprehensive
income
increase (9.5) (6.7) (15.3) (12.4) - -
Other
revenue
decrease
(increase) 0.4 - - (0.5) - (0.9)
Fuel expense
decrease (2.5) (0.8) - (0.5) - -
Interest
expense
increase - - - - 0.2 -
-------------------------------------------------------------------------
After-tax
net earnings
increase
(decrease) $1.3 $0.5 - $0.6 $(0.1) $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 cannot be extrapolated linearly to determine the effect on the Company's
financial results due to varying price changes.
Credit risk
As at June 30, 2008, the maximum exposure the Company has to credit risk
is $597.6 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 June 30, 2008 was $110.1 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 June 30, 2008, the Company had $46.8 million in financial assets
considered to be past due, which have been outstanding for an average of
70 days. The fair value of these financial assets is $41.6 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 June 30, 2008 is as follows:
As at June 30, 2008 % of total
millions of dollars exposure
-------------------------------------------------------------------------
Accounts receivable
Regulated utilities
Residential $109.0 15%
Commercial 52.5 7%
Industrial 33.0 5%
Other 20.1 3%
-------------------------------------------------------------------------
214.6 30%
-------------------------------------------------------------------------
Trading group
Credit rating of A- or above 48.0 7%
Credit rating of BBB- to BBB+ 10.0 2%
Creditworthy counterparties that are not rated 8.0 1%
Speculative grade 1.3 -
-------------------------------------------------------------------------
67.3 10%
-------------------------------------------------------------------------
Other accounts receivable 7.5 1%
-------------------------------------------------------------------------
289.4 41%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term receivable 49.9 7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Derivatives (in a valid hedging relationship and
held-for-trading; current and long-term portions)
Credit rating of A- or above 315.9 44%
Credit rating of BBB- to BBB+ 1.5 -
Credit worthy counterparties that are not rated 57.7 8%
Speculative grade 0.1 -
-------------------------------------------------------------------------
375.2 52%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$714.5 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity risk
The Company has available the following credit facilities as at June 30,
2008 for the management of liquidity risk:
millions of dollars Available Used Unused
-------------------------------------------------------------------------
Bank operating, overdraft and commercial
paper $1,161.1 $453.9 $707.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 June 30, 2008 there were 111.9 million (December 31, 2007 -
111.5 million) issued and outstanding common shares, 4.6 million (December 31,
2007 - 4.8 million) common shares reserved and available for issuance under
the senior management stock option plan, and 0.9 million (December 31, 2007 -
1.0 million) common shares reserved and available for issuance under the
employee common share purchase plan.
During the six months ended June 30, 2008, the Company issued
0.4 million (2007 - 0.3 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. Cash Flow Information
The change in non-cash operating working capital consists of the
following:
Three months ended Six months ended
For the June 30 June 30
-------------------------------------------------------------------------
millions of dollars 2008 2007 2008 2007
-------------------------------------------------------------------------
Decrease in accounts
receivable $36.1 $35.4 $15.3 $0.2
Decrease (increase) in
inventory (7.3) 3.2 (31.0) 4.7
Increase in prepaid
expenses (10.8) (2.5) (26.1) (4.8)
Increase in long-term
receivables (26.6) (7.1) (42.2) (19.1)
Increase in posted margin
included in accounts
payable and accrued charges 95.2 2.7 88.5 6.0
Decrease in other accounts
payable and accrued charges (3.6) (12.0) (2.7) (52.0)
Increase (decrease) in income
tax payable 2.2 (10.3) 16.8 (33.7)
-------------------------------------------------------------------------
$85.2 $9.4 $18.6 $(98.7)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. 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 since acquisition will be recognized as
dividend income. OpenHydro is included in the segment "Other" in Note 4
Segment Information.
13. Commitments
During the six months ended June 30, 2008, NSPI made commitments to
purchase 711 GWh of electricity from independent power producers beginning in
Q4 2009 with varying contract lengths ranging from 20 to 25 years.
14. Comparative Information
Certain of the comparative figures have been reclassified to conform to
the consolidated financial statement presentation adopted for 2008.
