0001102624-14-000238.txt : 20140214 0001102624-14-000238.hdr.sgml : 20140214 20140214151424 ACCESSION NUMBER: 0001102624-14-000238 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20131231 FILED AS OF DATE: 20140214 DATE AS OF CHANGE: 20140214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Just Energy Group Inc. CENTRAL INDEX KEY: 0001538789 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 000000000 STATE OF INCORPORATION: Z4 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-35400 FILM NUMBER: 14615483 BUSINESS ADDRESS: STREET 1: 6345 DIXIE ROAD STREET 2: SUITE 200 CITY: MISSISSAUGA STATE: A6 ZIP: L5T 2E6 BUSINESS PHONE: 905-795-4206 MAIL ADDRESS: STREET 1: 6345 DIXIE ROAD STREET 2: SUITE 200 CITY: MISSISSAUGA STATE: A6 ZIP: L5T 2E6 6-K 1 justenergy6k.htm JUST ENERGY GROUP INC. FORM 6-K justenergy6k.htm
 


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
______________________________________
 
 
FORM 6-K
 
______________________________________
 
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
 
 
For the month of February, 2014
 
Commission File Number 001-35400
 
 
____________________________________________________
 
 
Just Energy Group Inc.
(Translation of registrant’s name into English)
 
 
____________________________________________________
 
 
6345 Dixie Road, Suite 200, Mississauga, Ontario, Canada, L5T 2E6
(Address of principal executive offices)
 
 
____________________________________________________
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40F:
 
Form 20-F o Form 40-F x
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
 
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
 
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
 
 
 
 

 

 
DOCUMENTS INCLUDED AS PART OF THIS REPORT
 
Exhibit
 
CEO Message
Management's Discussion and Analysis
Financial Statements
 
 
 

 
 

 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
JUST ENERGY GROUP INC.
 
(Registrant)
     
Date: February 14, 2014
By:
/S/ JONAH T. DAVIDS                      
 
Name:
Jonah T. Davids
 
Title:
Senior Vice President, Legal and Regulatory
 
 


EX-99.1 2 exh99_1.htm CEO MESSAGE exh99_1.htm


Exhibit 99.1

 
 

 
Highlights of continuing operations for the three months ended December 31, 2013 included:
 
 
·
Gross customer additions of 345,000, the ninth successive quarter where additions exceeded 300,000. Net additions of 50,000 resulted in an ending customer base of 4.6 million, up 7% from a year earlier.
 
 
·
Gross margin of $162.8 million, up 16%.
 
 
·
Base EBITDA of $72.2 million, up 31%.
 
 
·
Base Funds from operations of $38.8 million, up 10%.
 
 
·
Earnings per share of $1.12, up from $0.30. Given that EPS is driven by non-cash mark to market earnings or losses on future commodity supply sold at fixed prices, Just Energy believes that Base EBITDA, Base Funds from operations and Embedded margin growth are better measures of operating performance.
 
 
·
Future embedded gross margin of $2.4 billion, up 9%.
 
 
·
Payout ratio on Base Funds from operations was 80% for the quarter versus 126% for the three months ended December 31, 2012.
 
 
·
Three and nine month results are consistent with published annual guidance of $220 million in fiscal 2014 Base EBITDA, up from the $175.1 million realized in fiscal 2013.
 
 
 

 

 
Message from the Chief Executive Officer
 
Fellow Shareholders,

I am very pleased to report excellent third quarter results for Just Energy as we achieved 31% year over year Base EBITDA growth and reduced our payout ratio for the quarter to 80%.  This puts us well on track to deliver upon our fiscal 2014 guidance for Base EBITDA of $220 million and a dividend payout ratio on Funds from continuing operations of less than 100%. Additionally, these results show the impact of our substantial customer base increase over the past two years coupled with our focused cost control efforts. This has bolstered our cash flow, which continues to support our steady dividend while providing excess free cash to fund debt reduction and growth efforts.
 
 
For the three months ended December 31
Fiscal 2014
Fiscal 2013
(Millions of dollars except where indicated and per share amounts)
   
Sales
$859.0
$736.6
Gross margin
                      162.8
                  140.3
Administrative expenses
                        35.7
                    34.9
Selling & marketing expenses
                        48.6
                    49.9
Finance costs
                        23.0
                    18.2
Profit from continuing operations
                      160.2
                    41.8
Profit (loss) from discontinued operations
                        17.3
                    (1.6)
Profit
                      177.5
                    40.2
Earnings per share from continuing operations - basic
                        1.12
                    0.30
Earnings  per share from continuing operations - diluted
                        0.96
                    0.28
Dividends/distributions
                        30.9
                    44.6
Base EBITDA from continuing operations
                        72.2
                    55.2
Base Funds from continuing operations
                        38.8
                    35.3
Payout ratio on Base Funds from continuing operations
80%
126%
 


2
 

 
 

For the nine months ended December 31
Fiscal 2014
Fiscal 2013
(Millions of dollars except where indicated and per share amounts)
   
Sales
$2,458.1
$2,107.1
Gross margin
                      410.7
                  368.2
Administrative expenses
                      106.9
                  102.1
Selling & marketing expenses
                      148.9
                  158.8
Finance costs
                        67.9
                    52.9
Profit  from continuing operations
                          6.0
                  398.3
Profit (loss) from discontinued operations
                        18.0
                    (6.4)
Profit
                        24.0
                  392.0
Earnings  per share from continuing operations - basic
                        0.04
                    2.85
Earnings  per share from continuing operations - diluted
                        0.04
                    2.46
Dividends/distributions
                        92.5
                  133.4
Base EBITDA from continuing operations
140.4
102.8
Base Funds from continuing operations
80.9
49.0
Payout ratio on Base Funds from continuing operations
114%
272%
Embedded gross margin
      2,386.2
         2,197.4
Energy customers (RCEs)
               4,360,000
           4,124,000
Home Services customers (installed units)
                  287,000
              225,000
Total customers (RCEs and installed units)
               4,647,000
           4,349,000
 
 
Customer Additions
 
Customer additions in the third quarter were 345,000, the ninth consecutive quarter where additions have exceeded 300,000. Prior to these nine quarters, the Company had never aggregated 300,000 customers in a quarter. These quarterly additions resulted in 50,000 net new customers, bringing the total Just Energy customer base to 4.6 million at quarter end, up 7% from a year earlier.
 
 
3
 

 
 
 
Graphic
 
 
 

 
New additions were equally split between Consumer division customers (165,000) and Commercial division customers (168,000) as both units realized marketing success. The Home Services division experienced a 28% year over year growth in total installations, ending at 287,000 customers. This included 23,000 smart thermostats installed either in product bundles or on a stand-alone basis.
 
Energy customer additions in the quarter were affected by management’s decision to carefully monitor new customer margins with the intent of maintaining margins at historical level. The result was fewer short term net additions but greater long term profitability.
 

 

4
 

 
 

Customer aggregation
 
 
 
 
 
October 1,
 
 
Failed to
Dec. 31,
% increase
Dec. 31,
% increase
 
2013
Additions
Attrition
renew
2013 
(decrease)
2012 
(decrease)
Consumer Energy
 
 
 
 
 
 
 
Gas
 771,000 
 48,000 
 (37,000)
 (13,000)
 769,000 
0%
 796,000 
(3)%
Electricity
 1,206,000 
 117,000 
 (81,000)
 (17,000)
 1,225,000 
2%
 1,194,000 
3%
Total Consumer RCEs
 1,977,000 
 165,000 
 (118,000)
 (30,000)
 1,994,000 
1%
 1,990,000 
0%
Commercial Energy
 
 
 
 
 
 
Gas
 205,000 
 10,000 
 (3,000)
 (17,000)
 195,000 
(5)%
 207,000 
(6)%
Electricity
 2,140,000 
 158,000 
 (34,000)
 (93,000)
 2,171,000 
1%
 1,927,000 
13%
Total Commercial RCEs
 2,345,000 
 168,000 
 (37,000)
 (110,000)
 2,366,000 
1%
 2,134,000 
11%
Total Energy Marketing RCEs
 4,322,000 
 333,000 
 (155,000)
 (140,000)
 4,360,000 
1%
 4,124,000 
6%
Home Services
 
 
 
 
 
 
 
 
Water heaters
 236,000 
 7,000 
 - 
 - 
 243,000 
3%
 207,000 
17%
Air conditioners / Furnaces
 20,000 
 1,000 
 - 
 - 
 21,000 
5%
 15,000 
40%
Smart thermostats
 19,000 
 4,000 
 - 
 - 
 23,000 
21%
 3,000 
667%
Total installs
 275,000 
 12,000 
 - 
 - 
 287,000 
4%
 225,000 
28%
Combined RCEs and installs
 4,597,000 
 345,000 
 (155,000)
 (140,000)
 4,647,000 
1%
 4,349,000 
7%
1Of the smart-thermostat installations as of December 31, 2013, 61% were bundled with energy or furnace contracts and the remaining 39% were sold as stand-alone units.
 
Traditional door-to-door marketing accounted for only 26% of third quarter additions, while non-door-to-door channels contributed the remaining 74% (Commercial brokers - 50%, Internet, Network and Telemarketing – 24%). Prior to the acquisition of Hudson Energy in fiscal 2011, the vast majority of new customers were signed door-to-door. As discussed in past quarters, the Company’s sales channel diversification continues to be successful.  With the opening of new markets such as the U.K. in fiscal 2013, Just Energy has a full geographic range of sales opportunities. . The U.K. operation added 23,000 customers, the highest number of additions in Just Energy’s short history in this market.
 
The attrition rate was 14% on a trailing 12 month basis, up from 13% reported with the third quarter of fiscal 2013. There was an increase in Consumer attrition and a decline in Commercial attrition. The Consumer rise, similar to the increase in bad debt, is partly attributable to the normal increase in defaults by Texas residential customers after the summer cooling season.
 
Renewal rates were on target at 70% on a trailing 12-month basis, up from 69% seen a year earlier. Management believes that there is an opportunity for further improvement in overall renewal rates, however, commercial renewal rates tend to be volatile on a quarter to quarter basis.
 

5
 

 
 
 
Profitability
 
Operating profits rose sharply during the quarter. Gross margin for the quarter was $162.8 million, up 16% from $140.3 million in fiscal 2013.  Base EBITDA was $72.2 million, up 31% from $55.2 million in the prior comparable period. Base Funds from operations were $38.8 million up 10% from $35.3 million a year earlier. With a nine month increase of 37% year over year, Base EBITDA remains well on track to meet the Company’s published guidance of $220 million for the year (which requires a 26% increase over fiscal 2013). The increase in Base Funds from operations is 65% year over year, consistent with the Company’s goal to reduce its payout ratio below 100% for fiscal 2014.
 
The following factors drove quarterly profitability:
 
 
·
The 7% year over year growth in customers led to a 16% increase in gross margin. This disparity in growth rates is due to improved profitability of the gas book compared to fiscal 2013.
 
 
·
Despite the small increase in the Consumer customer base year over year, Consumer gross margin rose 23% as the Company benefited from high consumption due to much colder weather than was experienced in the comparable quarter of fiscal 2013.
 
 
·
Commercial Energy division’s gross margin declined 8% despite an 11% increase in customers. Competition remained strong for commercial customers in the United States and, as was seen in the first two quarters of the year, lower margins were required to win competitive bids. Further, unforeseen capacity costs in the Northeast U.S. reduced realized margins. Overall, the Commercial Energy division remains profitable as the lower cost to serve a larger customer offsets the lower gross margin per RCE.
 
 
·
Home Services division’s gross margin increased by 53% reflecting a 19% growth in water heaters, furnaces and air conditioner unit installs and a more profitable mix of customers.
 
 
·
Selling and marketing costs declined 3% to $48.6 million versus $49.9 million in the third quarter of fiscal 2013. Selling costs declined due to a 2% decline in gross additions and the growing use of lower cost aggregation channels.  Only 26% of the customers added in the quarter came from traditional door-to-door sales.
 
 
·
Administrative costs were $35.7 million, up 2% from $34.9 million in Q3 of fiscal 2013. Quarterly administrative expenses were in line with the $35.2 million spent in the second quarter, the $36.0 million spent in the first quarter and $36.7 million spent in the fourth quarter of fiscal 2013.  Combined, administrative and selling and marketing costs were down 1% for the quarter while gross margin was up 16%.
 
 
·
Bad debt amounted to 2.3% of relevant sales, up from 2.1% in the third quarter of fiscal 2013. More of the Company’s sales are subject to credit risk as high growth markets such as Texas require Just Energy to bill and collect from its customers. The bad debt remains in the target range of 2% to 3% that management builds into its selling price and financial planning.
6
 

 
 
 
·
Financing costs were $23.0 million for the quarter, up from $18.2 million in the prior comparable period. The increase reflects inclusion of the $105 million senior unsecured note and growth in non-recourse financing for the Home Services and Solar divisions. Following quarter end, on January 29, 2014, the Company completed a US$150 million offering of convertible debentures. The proceeds will be used to redeem the $90 million debt series due in September of 2014 and to repay other existing debt.
 
 
·
Just Energy maintained its position as a leader in sales of green energy in North America. 29% of new Consumer customers over the past year took green supply for an average of 83% of their annual consumption. Green supply now composes 19% of the Consumer division electricity portfolio and 10% of the Consumer division natural gas supply.
 
Just Energy has focused on building long term value for its shareholders.  Year to date operating results are in line with the forecasted 26% Base EBITDA growth included in the Company’s fiscal 2014 guidance. Looking longer term, embedded gross margin gives an indication of future margin growth. Embedded gross margin is an estimate of cash flow from existing contracts based on the spread between contract price and underlying supply.

The table below shows the change in this value over the quarter and the last year. Over the past 12 months, the amount is up 9% with a 3% growth seen in the last three months. This reflects the 7% growth in the customer base and the benefit of the recent appreciation of the U.S. dollar versus the Canadian dollar.

EMBEDDED GROSS MARGIN
   
 
   
 
       
(millions of dollars)
 
 
 
   
 
   
 
       
Management's estimate of the future embedded gross margin is as follows:
   
 
       
   
As at
   
As at
   
Dec vs.
   
As at
   
2013 vs.
 
   
Dec 31,
   
Sept. 30,
   
Sept. 2013
   
Dec 31,
   
2012
 
   
2013
   
2013
   
variance
   
2012
   
variance
 
Energy marketing
  $ 1696.5     $ 1,668.5       2 %   $ 1,623.4       5 %
Home Services
    689.7       655.5       5 %     574.0       20 %
Total embedded gross margin
  $ 2,386.2     $ 2,324.0       3 %   $ 2,197.4       9 %
1Energy marketing also includes embedded gross margin related to Hudson Energy Solar.

 
Dividend Policy
Dividends were $0.21 per share in the quarter.  The payout ratio on Base Funds from operations for the three months ended December 31, 2013 was 80%, down from 126% a year earlier. For the nine months ended December 31, 2013, the payout ratio on Base Funds from operations was 114%, a decrease from 272% reported for the nine months ended December 31, 2012. Based on results to date, management continues to believe that the payout ratio on Base Funds from operations will be less than 100% for fiscal 2014. As EBITDA has grown, the ratio of total debt to EBITDA has fallen, reaching 5.1 times at quarter end, down from 5.4 times a year ago. The Company expects to reduce its debt to EBITDA ratio to a target range of 3.5 to 4.0 times by the end of fiscal 2016.
 
 
7
 

 

 
Outlook
Just Energy continues to benefit from strong customer aggregation and the improving profitability of its customer base. Combining this with tight control of operating costs has resulted in Base EBITDA growth of 37% through nine months of fiscal 2014. While this is well ahead of the 26% necessary to realize the Company’s $220 million Base EBITDA guidance, the fourth quarter is traditionally the highest cash flow quarter of the year and we expect slower relative growth in that period. This should result in total fiscal 2014 Base EBITDA being consistent with our stated guidance of $220 million.

 
With this operating performance to date, we are comfortable that our dividend payout ratio, which was 184% last year, will be less than 100% this year.  This payout ratio will be further reduced in the coming years through future growth. This will provide stability to our dividend as well as excess free cash to fund both growth and debt reduction.
 
I thank my fellow shareholders for their continued support.
 
Yours sincerely,
 

 

 
Ken Hartwick
Chief Executive Officer
 
8
 


EX-99.2 3 exh99_2.htm MANAGEMENT'S DISCUSSION AND ANALYSIS exh99_2.htm


Exhibit 99.2
 
 
Management’s discussion and analysis
(“MD&A”) – February 13, 2014
 
OVERVIEW
The following discussion and analysis is a review of the financial condition and results of operations of Just Energy Group Inc. (“JE” or “Just Energy” or the “Company”) for the three and nine months ended December 31, 2013, and has been prepared with all information available up to and including February 13, 2014. This analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements of the company for the three and nine months ended December 31, 2013. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are expressed in Canadian dollars. Quarterly reports, the annual report and supplementary information can be found on Just Energy’s corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com or at the U.S. Securities Exchange Commission’s website at www.sec.gov.

Just Energy is a corporation established under the laws of Canada and holds securities and distributes the income of its directly or indirectly owned operating subsidiaries and affiliates. Just Energy’s business primarily involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts. Just Energy markets its gas and electricity contracts in Canada, the United States and the United Kingdom, under the following trade names: Just Energy, Hudson Energy, Commerce Energy, Smart Prepaid Electric, Amigo Energy, Tara Energy and Green Star Energy. By fixing the price of natural gas or electricity under its fixed-price or price-protected program contracts for a period of up to five years, Just Energy’s customers offset their exposure to changes in the price of these essential commodities. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers.

Just Energy also offers green products through its JustGreen program. The electricity JustGreen product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

In addition, Just Energy rents and sells high efficiency and tankless water heaters, air conditioners and furnaces to Ontario and Quebec residents, through a subsidiary operating under the trade name National Home Services (“NHS”). Just Energy also offers smart thermostats as a bundled product with commodity or furnace contracts as well as a stand-alone unit. Just Energy also operates a Network Marketing division under the trade name Momentis. Just Energy’s subsidiary, Hudson Energy Solar Corp. (“HES”), and its subsidiaries provide solar project development platforms operating in New Jersey, Pennsylvania and Massachusetts, under the trade name Hudson Energy Solar. Just Energy also holds a 50% ownership in Just Ventures LLC and Just Ventures L.P. (collectively, “Just Ventures”), a jointly controlled entity, which is primarily involved in the Internet-based marketing of Just Energy’s gas and electricity contracts as well as a 15% ownership in ecobee Inc. (“ecobee”), a company that designs, manufactures and distributes smart thermostats to residential and commercial customers throughout North America.

Included in the MD&A is an analysis of the above operations. The analysis enclosed in the MD&A also reflects a retrospective change in disclosure with the energy marketing operational segments now representing the Consumer Energy and Commercial Energy divisions to align with changes effective fiscal 2014 in internal reporting and analysis prepared for senior management. As at March 31, 2013, Terra Grain Fuels (“TGF”), which produces and sells ethanol, was available for sale with its sale being completed on December 24, 2013. As a result, up to the date of sale, TGF is classified as discontinued operations from April 1, 2013 to December 31, 2013 and the financial results from operations for prior periods have been restated to reflect results from continuing and discontinued operations for comparative purposes.
 
FORWARD-LOOKING INFORMATION
This MD&A contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, EBITDA, Base EBITDA, Funds from Operations, Base Funds from Operations and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes, decisions by regulatory authorities, competition, the results of litigation, and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or dividend levels are included in the May 31, 2013 Annual Information Form and other reports on file with security regulatory authorities, which can be accessed on our corporate website at www.justenergygroup.com or through the SEDAR website at www.sedar.com or at the U.S. Securities Exchange Commission’s website at www.sec.gov.
 
 
1
 

 
 
 
KEY TERMS
“$90m convertible debentures” represents the $90 million in convertible debentures issued by Universal Energy Group Ltd. (“Universal”) in October 2007. Just Energy, assumed the obligations of the debentures as part of the Universal acquisition on July 1, 2009. See “Debt and financing for continuing operations” on page 27 for further details.

“$100m convertible debentures” represents the $100 million in convertible debentures issued by the Company to finance the purchase of Fulcrum Retail Holdings, LLC, effective October 1, 2011. See “Debt and financing for continuing operations” on page 27 for further details.

“$330m convertible debentures” represents the $330 million in convertible debentures issued by Just Energy to finance the purchase of Hudson Energy Services, LLC, effective May 1, 2010. See “Debt and financing for continuing operations” on page 27 for further details.

“attrition” means customers whose contracts were terminated prior to the end of the term either at the option of the customer or by Just Energy.

“customer” does not refer to an individual customer but instead an RCE (see Key Term below).

“failed to renew” means customers who did not renew expiring contracts at the end of their term.

“gross margin per RCE” represents the energy gross margin realized on Just Energy’s customer base, including gains/losses from the sale of excess commodity supply.

“LDC” means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.

“RCE” means residential customer equivalent, which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario.
 
NON-IFRS FINANCIAL MEASURES
Just Energy’s consolidated financial statements are prepared in compliance with IFRS. All non-IFRS financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
 
EBITDA
“EBITDA” represents earnings before finance costs, taxes, depreciation and amortization. This is a non-IFRS measure that reflects the pre-tax profitability of the business.
 
BASE EBITDA
“Base EBITDA” represents EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments on future supply positions as well as reflecting an adjustment for share-based compensation. This measure reflects operational profitability as the non-cash share-based compensation expense is treated as an equity issuance for the purpose of this calculation, as it will be settled in shares and the mark to market gains (losses) are associated with supply already sold in the future at fixed prices.

Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, the customer contracts are not marked to market but there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing. Management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance of Just Energy and management has therefore excluded it from the Base EBITDA calculation.

 
2
 

 
 
 
FUNDS FROM OPERATIONS
“Funds from Operations” and “Base FFO” refers to the cash flow generated by operations. Funds from Operations is calculated by Just Energy as gross margin adjusted for cash items including administrative expenses, selling and marketing expenses, bad debt expenses, finance costs, corporate taxes, capital taxes and other items. The gross margin used includes a seasonal adjustment for the gas markets in Ontario, Quebec, Manitoba and Michigan in order to include cash received.
 
BASE FUNDS FROM OPERATIONS/BASE FFO
“Base Funds from Operations” or “Base FFO” refers to the Funds from Operations adjusted for capital expenditures purchased to maintain productive capacity. Capital expenditures to maintain productive capacity represent the capital spend relating to capital assets and spending relating to contract initiation costs to maintain embedded gross margin at the current level.
 
EMBEDDED GROSS MARGIN
“Embedded gross margin” is a rolling five-year measure of management’s estimate of future contracted energy gross margin as well as the margin associated with the remaining life of National Home Services’ customer contracts. The energy marketing embedded gross margin is the difference between existing energy customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for customer attrition and renewals. It is assumed that expiring contracts will be renewed at target margin and renewal rates.

The energy marketing embedded gross margin also includes an estimate of the future margin on residual payments on non-energy products sold to the current Momentis customer base as well as the completed contracts for Hudson Energy Solar. The embedded gross margin for HES represents gross margin associated with Solar Power Purchase Agreements (“PPAs”) and Solar Renewable Energy Credits (“SRECs”) for a rolling five-year period generated from its completed projects.

Embedded gross margin is shown to reflect the margin expected to be realized from existing customers.  The measure of future gross margin is not discounted to present value nor is it intended to take into account administrative and other costs necessary to realize this margin.

Financial highlights
 
For the three months ended December 31
   
 
 
(thousands of dollars, except where indicated and per share amounts)
   
 
 
   
Fiscal 2014
   
Fiscal 2013
 
         
% increase
   
 
 
         
(decrease)
   
 
 
Sales
  $ 858,967       17 %   $ 736,562  
Gross margin
    162,774       16 %     140,270  
Administrative expenses
    35,700       2 %     34,888  
Selling & marketing expenses
    48,559       (3 )%     49,918  
Finance costs
    23,004       27 %     18,184  
Profit from continuing operations
    160,177       283 %     41,806  
Profit (loss) from discontinued operations
    17,291    
NMF 3
      (1,568 )
Profit
    177,468       341 %     40,238  
Earnings per share from continuing operations - basic
    1.12       273 %     0.30  
Earnings per share from continuing operations - diluted
    0.96       243 %     0.28  
Dividends/distributions
    30,891       (31 )%     44,636  
Base EBITDA from continuing operations
    72,162       31 %     55,167  
Base Funds from continuing operations
    38,797       10 %     35,321  
Payout ratio on Base EBITDA from continuing operations
    43 %             81 %
Payout ratio on Base Funds from continuing operations
    80 %             126 %
1Profit  for the period includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.
2See “Non-IFRS financial measures” on page 2.
3Not a meaningful figure.
 
 
3
 

 
 
 
Financial highlights
 
 
         
 
 
For the nine months ended December 31
   
 
 
(thousands of dollars, except where indicated and per share amounts)
 
   
 
         
 
 
   
Fiscal 2014
   
Fiscal 2013
 
   
 
   
% increase
   
 
 
   
 
   
(decrease)
   
 
 
Sales
  $ 2,458,103       17 %   $ 2,107,089  
Gross margin
    410,688       12 %     368,213  
Administrative expenses
    106,937       5 %     102,116  
Selling & marketing expenses
    148,941       (6 )%     158,752  
Finance costs
    67,850       28 %     52,930  
Profit from continuing operations
    6,012       (98 )%     398,314  
Profit (loss) from discontinued operations
    17,987    
NMF3
      (6,350 )
Profit
    23,999       (94 )%     391,964  
Earnings per share from continuing operations - basic
    0.04       (99 )%     2.85  
Earnings per share from continuing operations - diluted
    0.04       (98 )%     2.46  
Dividends/distributions
    92,497       (31 )%     133,435  
Base EBITDA from continuing operations
    140,432       37 %     102,778  
Base Funds from continuing operations
    80,915       65 %     49,010  
Payout ratio on Base EBITDA from continuing operations
    66 %             130 %
Payout ratio on Base Funds from continuing operations
    114 %             272 %
Embedded gross margin
    2,386,200       9 %     2,197,400  
Energy customers (RCEs)
    4,360,000       6 %     4,124,000  
Home Services customers (installed units)
    287,000       28 %     225,000  
Total customers (RCEs and installed units)
    4,647,000       7 %     4,349,000  
 
1Profit  for the period includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.
2See  “Non-IFRS financial measures” on page 2.
3Not a meaningful figure.
 
Continuing operations
 
CONSUMER ENERGY DIVISION
The sale of gas and electricity to customers consuming 15 RCEs and less is undertaken by the Consumer Energy division. Marketing of the energy products of this division is primarily done door-to-door through 800 independent contractors, the Momentis network marketing operation and Internet-based marketing and telemarketing efforts. Approximately 43% of Just Energy’s customer base resides within the Consumer Energy division, which is currently focused on longer-term price-protected and variable rate offerings of commodity products as well as JustGreen. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer Energy sales channels also offer these products. In addition, the Consumer Energy division has commenced marketing bundled products in Ontario and Texas, offering certain commodity products along with a smart thermostat.
 
Just Energy owns and operates Momentis, a network marketing company operating in Canada, the U.S. and the U.K. which is also included in the Consumer Energy segment disclosure. Independent representatives educate consumers about the benefits of energy deregulation and sell them products offered by Just Energy as well as a number of other products. Independent representatives are rewarded through commissions earned based on new customers added.
 
COMMERCIAL ENERGY DIVISION
Customers with annual consumption over 15 RCEs are served by the Commercial Energy division.  These sales are made through three main channels: sales through the broker channel using the commercial platform acquired with the Hudson purchase; door-to-door commercial independent contractors; and inside commercial sales representatives. Commercial customers make up approximately 51% of Just Energy’s customer base. Products offered to commercial customers can range from standard fixed-price offerings to “one off” offerings, which are tailored to meet the customer’s specific needs. These products can be either fixed or floating rate or a blend of the two, and normally have terms of less than five years. Gross margin per RCE for this division is lower than consumer margins but customer aggregation costs and ongoing customer care costs are lower as well on a per RCE basis. Commercial customers tend to have significantly lower attrition rates than those of consumer customers.
 
 
4
 

 
 
 
HOME SERVICES DIVISION
National Home Services provides Ontario and Quebec residential customers with a long-term water heater, furnace and air conditioning rental, offering high efficiency conventional and power vented tank and tankless water heaters and high efficiency furnaces and air conditioners. In addition, National Home Services has commenced marketing smart thermostats in Ontario. The thermostats are being sold independently in Ontario or also offered in a bundled product offering with the rental of air conditioners or furnaces. NHS customers make up approximately 6% of Just Energy’s customer base. NHS markets through approximately 450 independent contractors in Ontario and Quebec.

SOLAR DIVISION
Hudson Energy Solar, a solar project development company operating in New Jersey, Pennsylvania and Massachusetts, brings renewable energy directly to consumers, enabling them to reduce their environmental impact and energy costs. HES installs solar systems on residential and commercial sites, maintaining ownership of the system and providing maintenance and monitoring of the system for a period of up to 20 years. HES sells the energy generated by the solar panels back to the customer. This division will contribute to operating metrics through commodity sales, renewable energy credit offset sales and tax incentives. As of December 31, 2013, the division has made cumulative commitments of approximately $106.9 million with the status of the associated projects ranging from contracted to completed.
 
ABOUT THE ENERGY MARKETS
 
NATURAL GAS
Just Energy offers natural gas customers a variety of products ranging from month-to-month variable-price offerings to five-year fixed-price contracts. For fixed-price contracts, Just Energy purchases gas supply through physical or financial transactions with market counterparts in advance of marketing, based on forecast customer aggregation for residential and small commercial customers. For larger commercial customers, gas supply is generally purchased concurrently with the execution of a contract. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion.
 
The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options including weather derivatives. Just Energy’s ability to mitigate weather effects is limited by the severity of weather from normal. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s customer gross margin may be reduced or increased depending upon market conditions at the time of balancing. Under some commercial contract terms, this balancing may be passed onto the customer.
 
Ontario, Quebec, British Columbia and Michigan
In Ontario, Quebec, British Columbia and Michigan, the volumes delivered for a customer typically remain constant throughout the year. Just Energy does not recognize sales until the customer actually consumes the gas.  During the winter months, gas is consumed at a rate that is greater than delivery and, in the summer months, deliveries to LDCs exceed customer consumption. Just Energy receives cash from the LDCs as the gas is delivered, which is even throughout the year.
 
Alberta
In Alberta, the volume of gas delivered is based on the estimated consumption for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash received from customers and the LDC will be higher in the winter months.

Other gas markets
In New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey, Pennsylvania, Manitoba and Saskatchewan, the volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash flow received from these states/provinces is greatest during the third and fourth (winter) quarters, as cash is normally received from the LDCs in the same period as customer consumption.
 
ELECTRICITY
In Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California, Ohio, Delaware, Massachusetts and the United Kingdom, Just Energy offers a variety of solutions to its electricity customers, including fixed-price and variable-price products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. Customers may experience either a small balancing charge or credit (pass-through) on each bill due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.
 
 
5
 

 
 
 
Just Energy purchases power supply through physical or financial transactions with market counterparties in advance of marketing to residential and small commercial customers based on forecast customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger commercial customers. The LDC provides historical customer usage, which, when normalized to average weather, enables Just Energy the purchase to expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the power portfolio, which involves, but is not limited to the purchase of options including weather derivatives.
 
The Company’s ability to mitigate weather effects is limited by the severity of weather from normal.  In certain markets, to the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. To the extent that supply balancing is not fully covered through customer pass-throughs or active management or the options employed, Just Energy’s customer gross margin may be impacted depending upon market conditions at the time of balancing.
 
JUSTGREEN
 
Customers also have the ability to choose an appropriate JustGreen program to supplement their electricity and natural gas contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.
 
JustGreen programs for electricity customers involve the purchase of power from green generators (such as wind, solar, run of the river hydro or biomass) via power purchase agreements and renewable energy certificates. JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects.
 
The Company currently sells JustGreen gas in the eligible markets of Ontario, British Columbia, Alberta, Saskatchewan, Michigan, New York, Ohio, Illinois, New Jersey, Maryland, Pennsylvania and California. JustGreen electricity is sold in Ontario, Alberta, New York, Texas, Maryland, Massachusetts, Ohio and Pennsylvania. Of all consumer customers who contracted with Just Energy in the past year, 29% took JustGreen for some or all of their energy needs. On average, these customers elected to purchase 83% of their consumption as green supply. For comparison, as reported in the third quarter of fiscal 2013, 26% of consumer customers who contracted with Just Energy chose to include JustGreen for an average of 77% of their consumption. Overall, JustGreen now makes up 10% of the Consumer gas portfolio, the same as a year ago. JustGreen makes up 19% of the Consumer electricity portfolio, up from 12% a year ago.
 
Discontinued operations
 
ETHANOL DIVISION
 
In March 2013, Just Energy formally commenced the process to dispose of Terra Grain Fuels with the sale closing on December 24, 2013. TGF is a 150-million-litre capacity ethanol plant located in Belle Plaine, Saskatchewan. The plant produces wheat-based ethanol and high protein distillers’ dried grain (“DDG”). TGF was acquired in 2009 as part of the Universal acquisition. See page 25 for more information on the financial results of TGF. From April 1 to December 24, 2013, TGF is included as discontinued operations within the consolidated financial statements.
 
6
 

 
 
 
EBITDA
 
For the three months ended December 31
 
(thousands of dollars)
 
 
   
 
 
   
Fiscal 2014
   
Fiscal 2013
 
Reconciliation to interim condensed consolidated statements of income (loss)
 
 
   
 
 
Profit for the period from continuing operations
  $ 160,177     $ 41,806  
Add:
               
Finance costs
    23,004       18,184  
Provision for income taxes
    17,397       9,547  
Amortization
    22,843       29,890  
Profit attributable to non-controlling interest
    227       74  
EBITDA from continuing operations
  $ 223,648     $ 99,501  
Add (subtract):
               
Change in fair value of derivative instruments
    (153,121 )     (47,201 )
Share-based compensation
    1,635       2,867  
Base EBITDA from continuing operations
  $ 72,162     $ 55,167  
                 
EBITDA
               
Gross margin per interim condensed consolidated financial statements
  $ 162,774     $ 140,270  
Add (subtract):
               
Administrative expenses
    (35,700 )     (34,888 )
Selling and marketing expenses
    (48,559 )     (49,918 )
Bad debt expense
    (13,600 )     (6,186 )
Amortization included in cost of sales/selling and
               
marketing expenses
    8,453       6,985  
Other income (expense)
    (239 )     740  
Proportionate share of loss from the joint venture
    (1,194 )     (1,910 )
Loss attributable to non-controlling interest
    227       74  
Base EBITDA from continuing operations
  $ 72,162     $ 55,167  
Base EBITDA from continuing operations payout ratio
    43 %     81 %
                 
Dividends/distributions
               
Dividends
  $ 30,117     $ 43,438  
Distributions for share-based awards
    774       1,198  
Total dividends/distributions
  $ 30,891     $ 44,636  
 
 
7
 

 

 
EBITDA
 
For the nine months ended December 31
 
 
   
 
 
(thousands of dollars)
   
 
 
   
Fiscal 2014
   
Fiscal 2013
 
Reconciliation to interim condensed consolidated statements of income (loss)
 
 
   
 
 
Profit (loss) for the period from continuing operations
  $ 6,012     $ 398,314  
Add:
               
Finance costs
    67,850       52,930  
Provision for income taxes
    25,226       49,139  
Amortization
    68,026       86,278  
Loss attributable to non-controlling interest
    560       416  
EBITDA from continuing operations
  $ 167,674     $ 587,077  
Add (subtract):
               
Change in fair value of derivative instruments
    (32,178 )     (493,554 )
Share-based compensation
    4,936       9,255  
Base EBITDA from continuing operations
  $ 140,432     $ 102,778  
EBITDA
               
Gross margin per interim condensed consolidated financial statements
  $ 410,688     $ 368,213  
Add (subtract):
               
Administrative expenses
    (106,937 )     (102,116 )
Selling and marketing expenses
    (148,941 )     (158,752 )
Bad debt expense
    (35,315 )     (22,540 )
Amortization included in cost of sales/selling and
               
marketing expenses
    26,090       17,609  
Other income
    271       5,718  
Proportionate share of loss from the joint venture
    (5,984 )     (5,770 )
Loss attributable to non-controlling interest
    560       416  
Base EBITDA from continuing operations
  $ 140,432     $ 102,778  
Base EBITDA from continuing operations payout ratio
    66 %     130 %
Dividends/distributions
 
Dividends
  $ 89,977     $ 129,841  
Distributions for share-based awards
    2,520       3,594  
Total dividends/distributions
  $ 92,497     $ 133,435  

 
Base EBITDA differs from EBITDA in that the impact of the mark to market gains (losses) from the financial instruments is removed. This measure reflects operating profitability as mark to market gains (losses) are associated with supply already sold in the future at fixed prices. Just Energy ensures that the value of customer contracts is protected by entering into fixed-price supply contracts. Under IFRS, the value of the customer contracts is not marked to market but there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing volatility. Management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance of Just Energy.
 
Base EBITDA from continuing operations (“Base EBITDA”) amounted to $72.2 million for the three months ended December 31, 2013, an increase of 31% from $55.2 million in the prior comparable quarter. Gross margin increased 16% overall with the increase coming primarily from the Consumer Energy and Home Services divisions. Gross margin from the Consumer Energy division increased by 23% while gross margin from the Home Services division increased by 53% over the prior comparable period. The increase in gross margin for the Consumer Energy division is a result of an increase in margin earned on variable term products as well as increased gas consumption resulting from colder temperatures during the third quarter than in the previous comparable quarter. The increase in gross margin for NHS is a result of the 19% increase in water heater, furnace and air conditioner installations and contractual price increases. Commercial Energy margins were $34.8 million for the quarter, versus $37.9 million in the prior comparable period. The decrease in gross margin for the Commercial Energy division is a result of higher capacity costs in the northeast U.S. markets and lower new customer margins resulting in lower per-customer profitability.
 
 
8
 

 
 
 
Administrative expenses increased by 2% from $34.9 million to $35.7 million. The increase over the prior comparable quarter was due to a 7% growth in the customer base offset by cost controls and realized economies of scale.
 
Selling and marketing expenses for the three months ended December 31, 2013 were $48.6 million, a 3% decrease from $49.9 million reported in the prior comparable quarter. This decrease is attributable to the 2% decrease in customer additions for energy marketing and lower per-customer aggregation costs through the increasing use of lower cost channels.
 
Bad debt expense was $13.6 million for the three months ended December 31, 2013, an increase of 120% from $6.2 million recorded for the prior comparable quarter. The increase in bad debt expense is attributable to the 45% increase in revenue in the markets where Just Energy bears credit risk and the third quarter being the peak period for Texas defaults after the summer cooling period. For the nine months ended December 31, 2013, the bad debt expense of $35.3 million represents approximately 2.3% of revenue in the jurisdictions where the Company bears the credit risk, up from the 2.1% of revenue reported for the nine months ended December 31, 2012, well within management’s targeted range of 2% to 3%.
 
For the nine months ended December 31, 2013, Base EBITDA from continuing operations amounted to $140.4 million, an increase of 37% from $102.8 million in the prior comparable period. For the current nine-month period, gross margin increased by 12%. Dividends and distributions for the nine months ended December 31, 2013 were $92.5 million, a decrease of 31% from the prior comparable period as a result of a reduction in the annual dividend from $1.24 to $0.84 effective with the April 2013 dividend.
 
For more information on the changes in the gross margin, please refer to “Segmented Base EBITDA” on page 14 and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further clarified on pages 22 through 24.

EMBEDDED GROSS MARGIN
   
 
   
 
   
 
   
 
 
(millions of dollars)
 
 
   
 
   
 
   
 
   
 
 
Management's estimate of the future embedded gross margin is as follows:
   
 
   
 
 
   
As at
   
As at
   
Dec. vs.
   
As at
   
2013 vs.
 
   
Dec. 31,
   
Sept. 30,
   
Sept. 2013
   
Dec. 31,
   
2012
 
   
2013
   
2013
   
variance
   
2012
   
variance
 
Energy marketing
  $ 1,696.5     $ 1,668.5       2   $ 1,623.4       5
Home Services
    689.7       655.5       5     574.0       20
Total embedded gross margin
  $ 2,386.2     $ 2,324.0       3   $ 2,197.4       9
1Energy marketing also includes embedded gross margin related to Hudson Energy Solar.
 
Management’s estimate of the embedded gross margin amounted to $2,386.2 million as of December 31, 2013, an increase of 3% over embedded gross margin as of September 30, 2013 and an increase of 9% over the last 12 months. The Canadian dollar declined against the U.S. dollar during the past quarter, resulting in an increase of $38.0 million in embedded gross margin when the U.S. energy marketing future gross margin is stated in Canadian dollars.
 
Embedded gross margin is shown to reflect the margin expected to be realized from existing customers.  The measure of future gross margin is not discounted to present value nor is it intended to take into account administrative and other costs necessary to realize this margin. As our mix of customers continues to reflect more Commercial volume the embedded gross margin will grow at a slower pace; however, the underlying costs to realize this margin will also decline.







9
 

 
 

Funds from Operations
 
For the three months ended December 31
 
(thousands of dollars)
       
   
Fiscal 2014
   
Fiscal 2013
 
Cash inflow from operations
  $ 36,604     $ 29,279  
Add (subtract):
               
Increase in non-cash working capital
    (1,007 )     9,074  
Cash flows used in operating activities of discontinued operations
    9,657       (191 )
Profits attributable to non-controlling interest
    227       74  
Tax adjustment
    (2,447 )     (519 )
Funds from continuing operations
  $ 43,034     $ 37,717  
Less:  maintenance capital expenditures
    (4,237 )     (2,396 )
Base Funds from continuing operations
  $ 38,797     $ 35,321  
Base Funds from Operations
               
Gross margin from interim condensed consolidated financial statements
  $ 162,774     $ 140,270  
Add (subtract):
               
Adjustment required to reflect net cash receipts from gas sales
    (7,598 )     (566 )
Administrative expenses
    (35,700 )     (34,888 )
Selling and marketing expenses
    (48,559 )     (49,918 )
Bad debt expense
    (13,600 )     (6,186 )
Current income tax provision
    (1,797 )     (598 )
Amortization included in cost of sales/sales and marketing expenses
    8,453       6,985  
Other income
    (239 )     740  
Financing charges, non-cash
    3,332       2,714  
Finance costs
    (23,004 )     (18,184 )
Proportionate share of loss from the joint venture
    (1,194 )     (1,910 )
Other non-cash adjustments
    166       (742 )
Funds from continuing operations
  $ 43,034     $ 37,717  
Less:  maintenance capital expenditures
    (4,237 )     (2,396 )
Base Funds from continuing operations
  $ 38,797     $ 35,321  
Base Funds from continuing operations payout ratio
    80 %     126 %
 
 
10
 

 

 
Funds from Operations
 
For the nine months ended December 31
 
(thousands of dollars)
   
 
 
   
Fiscal 2014
   
Fiscal 2013
 
Cash inflow from continuing operations
  $ 73,796     $ 30,549  
Add (subtract):
               
Increase in non-cash working capital
    12,111       22,768  
Cash flows used in operating activities of discontinued operations
    7,054       1,080  
Profits attributable to non-controlling interest
    560       416  
Tax adjustment
    (2,580 )     521  
Funds from continuing operations
  $ 90,941     $ 55,334  
Less:  maintenance capital expenditures
    (10,026 )     (6,324 )
Base Funds from continuing operations
  $ 80,915     $ 49,010  
Base Funds from continuing operations
               
Gross margin from interim condensed consolidated financial statements
  $ 410,688     $ 368,213  
Add (Subtract):
               
Adjustment required to reflect net cash receipts from gas sales
    10,564       (83 )
Administrative expenses
    (106,937 )     (102,116 )
Selling and marketing expenses
    (148,941 )     (158,752 )
Bad debt expense
    (35,315 )     (22,540 )
Current income tax provision
    (2,112 )     (1,376 )
Amortization included in cost of sales/sales and marketing expenses
    26,090       17,609  
Other income
    271       5,718  
Financing charges, non-cash
    10,088       7,795  
Finance costs
    (67,850 )     (52,930 )
Proportionate share of loss from the joint venture
    (5,984 )     (5,770 )
Other non-cash adjustments
    379       (434 )
Funds from continuing operations
  $ 90,941     $ 55,334  
Less:  maintenance capital expenditures
    (10,026 )     (6,324 )
Base Funds from continuing operations
  $ 80,915     $ 49,010  
Base Funds from continuing operations payout ratio
    114 %     272 %
 
Base Funds from continuing operations (“Base FFO”), which represents Funds from continuing operations reduced by the maintenance capital expenditures, was $38.8 million, an increase of 10% compared with $35.3 million for the third quarter of fiscal 2013. The lower increase in Base FFO in the current quarter compared to the 31% growth in Base EBITDA from continuing operations is primarily due to the adjustment for cash receipts from gas sales.  Cash from gas sales in the Ontario, Quebec, British Columbia and Michigan markets is received when gas is delivered.  As a result of the higher than normal gas consumption, cash received based on deliveries, which occurs evenly throughout the year, is less than that reflected in gross margin from customers. This cash is not realized until utility reconciliations occur, which will be primarily in the first and second quarters of fiscal 2014. This timing difference totaled $7.6 million for the three months ended December 31, 2013, compared with a $0.6 million adjustment in the prior comparable quarter. The payout ratio on Base FFO was 80% for the three months ended December 31, 2013, down from 126% in the third quarter of fiscal 2013.
 
For the nine months ended December 31, 2013, Base FFO was $80.9 million an increase of 65% from $49.0 million in the prior comparable period. For the nine months ended December 31, 2013, the payout ratio was 114%, an improvement from 272% in the prior comparable period.
 
 
11
 

 
 

Summary of quarterly results for continuing operations
 
(thousands of dollars, except per share amounts)
       
 
    Q3       Q2       Q1       Q4  
 
 
Fiscal 2014
   
Fiscal 2014
   
Fiscal 2014
   
Fiscal 2013
 
Sales
  $ 858,967     $ 853,013     $ 746,123     $ 907,275  
Gross margin
    162,774       128,500       119,414       157,655  
Administrative expenses
    35,700       35,217       36,020       36,739  
Selling and marketing expenses
    48,559       47,962       52,420       49,277  
Finance costs
    23,004       22,326       22,520       22,221  
Profit (loss) for the period from continuing operations
    160,177       (114,395 )     (39,770 )     203,391  
Profit (loss) for the period
    177,468       (111,520 )     (41,949 )     137,691  
Profit (loss) for the period  from continuing operations per share – basic
    1.12       (0.80 )     (0.28 )     1.45  
Profit (loss)  for the period from continuing operations per share – diluted
    0.96       (0.80 )     (0.28 )     1.36  
Dividends/distributions paid
    30,891       30,850       30,756       44,965  
Base EBITDA from continuing operations
    72,162       39,135       29,135       72,309  
Base Funds from continuing operations
    38,797       28,818       13,300       47,889  
Payout ratio on Base EBITDA from continuing operations
    43 %     79 %     106 %     62 %
Payout ratio on Base Funds from continuing operations
    80 %     107 %     231 %     94 %
 
                               
 
    Q3       Q2       Q1       Q4  
 
 
Fiscal 2013
   
Fiscal 2013
   
Fiscal 2013
   
Fiscal 2012
 
Sales
  $ 736,562     $ 713,190     $ 657,337     $ 827,435  
Gross margin
    140,270       114,286       113,657       170,651  
Administrative expenses
    34,888       33,390       33,838       32,143  
Selling and marketing expenses
    49,918       50,268       58,566       58,580  
Finance costs
    18,184       18,436       16,310       14,854  
Profit (loss) for the period from continuing operations
    41,806       23,964       332,544       (75,640 )
Profit (loss) for the period
    40,238       23,087       328,639       (76,895 )
Profit (loss) for the period  from continuing operations per share – basic
    0.30       0.17       2.39       (0.55 )
Profit (loss)  for the period from continuing operations per share – diluted
    0.28       0.17       2.00       (0.55 )
Dividends/distributions paid
    44,636       44,409       44,390       44,152  
Base EBITDA from continuing operations
    55,167       28,624       18,987       77,677  
Base Funds from continuing operations
    35,321       12,606       1,082       54,598  
Payout ratio on Base EBITDA from continuing operations
    81 %     155 %     234 %     57 %
Payout ratio on Base Funds from continuing operations
    126 %     352 %  
NMF 1
      81 %
 
                               
1Not a meaningful figure
 
Just Energy’s results reflect seasonality, as electricity consumption is slightly greater in the first and second quarters (summer quarters) and gas consumption is significantly greater during the third and fourth quarters (winter quarters). While quarter over quarter comparisons are relevant, sequential quarters will vary materially. The main impact of this will be higher Base EBITDA and Base Funds from Operations and lower payout ratios in the third and fourth quarters and lower Base EBITDA and Base Funds from Operations and higher payout ratios in the first and second quarters. This impact is lessening as current net customer additions are concentrated in electricity, which traditionally experiences less seasonality than natural gas.
 
 
12
 

 
 
 
ANALYSIS OF THE THIRD QUARTER
 
Sales increased by 17% quarter over quarter to $859.0 million from $736.6 million. Consumer Energy’s sales increased by 22% primarily as a result of additional revenue earned in the Consumer Energy division’s gas markets from higher consumption due to colder weather than the prior comparable period.
 
Commercial Energy sales increased by 8% for the three months ended December 31, 2013 compared with the third quarter of fiscal 2013. This increase in sales is less than the 11% increase in customer base as a result of competitive pressure on pricing for new customer contracts. NHS sales increased by 47% reflecting a 19% increase in its installed units (including a 40% increase in furnace and air conditioners which generate higher revenue and gross margin) as well as contractual price increases.
 
Gross margin was $162.8 million, an increase of 16% from the prior comparable quarter. The growth in gross margin from Consumer Energy (23%) and NHS (53%) was offset by lower gross margin contributions from Commercial Energy. The Commercial Energy margins were compressed versus the prior comparable quarter due to an increase in capacity costs in northeastern U.S. markets and lower margins on new customers as a result of competitive pricing.  Historically capacity costs have been low and relatively stable. In the past year, these costs have increased significantly, thereby compressing margins. Going forward, the Company is expanding the product suite to offer options that pass these costs onto the customer as well as more closely aligning Just Energy’s hedging strategies with its obligations. This is expected to mitigate future impact to gross margin.
 
The change in fair value of derivative instruments due to lower forward electricity and natural gas prices resulted in a gain of $153.1 million for the current quarter, compared to a gain of $47.2 million recorded in the third quarter of fiscal 2013. The profit from continuing operations for the three months ended December 31, 2013, was $160.2 million, representing a profit per share of $1.12 and $0.96 on a basic and diluted basis, respectively.  For the prior comparable quarter, the profit from continuing operations was $41.8 million, representing earnings per share of $0.30 and $0.28 on a basic and diluted basis, respectively. The fair value of derivative instruments represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers in the future at fixed prices, minimizing any impact of mark to market gains and losses.
 
Base EBITDA from continuing operations was $72.2 million for the three months ended December 31, 2013, a 31% increase from $55.2 million in the prior comparable quarter. This increase is a result of the 16% higher gross margin and lower growth in operating costs. Base FFO was $38.8 million for the current quarter, an increase of 10% from $35.3 million recorded for the three months ended December 31, 2012.
 
Dividends/distributions paid were $30.9 million, a decrease of 31% over the prior comparable quarter as a result of the change in annual dividend rate from $1.24 to $0.84 effective April 2013.
 
 
13
 

 
 
 
Segmented Base EBITDA1
For the three months ended December 31
 
 
 
 
   
Fiscal 2014
 
 
 
 
   
 
   
Home
   
 
   
 
 
 
 
Consumer
   
Commercial
   
Services
   
Solar
   
 
 
 
 
division
   
division
   
division
   
division
 
Consolidated
 
Sales
  $ 500,441     $ 339,657     $ 18,674     $ 195     $ 858,967  
Cost of sales
    (386,671 )     (304,811 )     (4,136 )     (575 )     (696,193 )
Gross margin
    113,770       34,846       14,538       (380 )     162,774  
Add (subtract):
                                       
Administrative expenses
    (21,660 )     (7,374 )     (5,237 )     (1,429 )     (35,700 )
Selling and marketing expenses
    (30,880 )     (15,439 )     (2,240 )     -       (48,559 )
Bad debt expense
    (10,526 )     (3,054 )     (20 )     -       (13,600 )
Amortization included in cost of sales/selling and marketing expenses
    -       3,653       4,225       575       8,453  
Other income (loss)
    (269 )     30       -       -       (239 )
Proportionate share of loss from joint venture
    (1,194 )     -       -       -       (1,194 )
Profit attributable to non-controlling interest
    227       -       -       -       227  
Base EBITDA from continuing operations
  $ 49,468     $ 12,662     $ 11,266     $ (1,234 )   $ 72,162  
 
                                       
 
 
 
   
Fiscal 2013
 
 
                 
Home
                 
 
 
Consumer
   
Commercial
   
Services
   
Solar
         
 
 
division
   
division
   
division
   
division
 
Consolidated
 
Sales
  $ 409,503     $ 313,832     $ 12,689     $ 538     $ 736,562  
Cost of sales
    (317,160 )     (275,950 )     (3,182 )     -       (596,292 )
Gross margin
    92,343       37,882       9,507       538       140,270  
Add (subtract):
                                       
Administrative expenses
    (22,674 )     (6,434 )     (4,962 )     (818 )     (34,888 )
Selling and marketing expenses
    (34,482 )     (14,176 )     (1,260 )     -       (49,918 )
Bad debt expense
    (4,958 )     (1,226 )     (2 )     -       (6,186 )
Amortization included in cost of sales/selling and marketing expenses
    -       3,980       3,005       -       6,985  
Other income (loss)
    804       (64 )     -       -       740  
Proportionate share of loss from joint venture
    (1,910 )     -       -       -       (1,910 )
Minority interest
    74       -       -       -       74  
Base EBITDA from continuing operations
  $ 29,197     $ 19,962     $ 6,288     $ (280 )   $ 55,167  
1The definitions of each segment are provided on pages 4 and 5
 

 

 

14
 

 
 

Segmented Base EBITDA1
For the nine months ended December 31
 
 
 
 
   
Fiscal 2014
 
 
 
 
   
 
   
Home
   
 
   
 
 
 
 
Consumer
   
Commercial
   
Services
   
Solar
   
 
 
 
 
division
   
division
   
division
   
division
 
Consolidated
 
Sales
  $ 1,347,633     $ 1,054,231     $ 53,720     $ 2,519     $ 2,458,103  
Cost of sales
    (1,082,782 )     (951,017 )     (11,915 )     (1,701 )     (2,047,415 )
Gross margin
    264,851       103,214       41,805       818       410,688  
Add (subtract):
                                       
Administrative expenses
    (65,613 )     (22,583 )     (16,287 )     (2,454 )     (106,937 )
Selling and marketing expenses
    (96,651 )     (43,950 )     (8,340 )     -       (148,941 )
Bad debt expense
    (27,529 )     (7,727 )     (59 )     -       (35,315 )
Amortization included in cost of sales/selling and marketing expenses
    -       12,252       12,137       1,701       26,090  
Other income (loss)
    398       (127 )     -       -       271  
Proportionate share of loss from joint venture
    (5,984 )     -       -       -       (5,984 )
Profit attributable to non-controlling interest
    560       -       -       -       560  
Base EBITDA from continuing operations
  $ 70,032     $ 41,079     $ 29,256     $ 65     $ 140,432  
 
                                       
 
         
Fiscal 2013
 
 
                 
Home
                 
 
 
Consumer
   
Commercial
   
Services
   
Solar
         
 
 
division
   
division
   
division
   
division
   
Consolidated
 
Sales
  $ 1,057,035     $ 1,013,785     $ 35,609     $ 660     $ 2,107,089  
Cost of Sales
    (830,449 )     (900,040 )     (8,387 )     -       (1,738,876 )
Gross margin
    226,586       113,745       27,222       660       368,213  
Add (subtract):
                                       
Administrative expenses
    (67,083 )     (20,078 )     (12,985 )     (1,970 )     (102,116 )
Selling and marketing expenses
    (112,746 )     (42,394 )     (3,612 )     -       (158,752 )
Bad debt expense
    (17,031 )     (5,465 )     (44 )     -       (22,540 )
Amortization included in cost of sales/selling and marketing expenses
    -       9,207       8,402       -       17,609  
Other income (loss)
    4,107       (90 )     -       1,701       5,718  
Proportionate share of loss from joint venture
    (5,770 )     -       -       -       (5,770 )
Profit attributable to non-controlling interest
    416       -       -       -       416  
Base EBITDA from continuing operations
  $ 28,479     $ 54,925     $ 18,983     $ 391     $ 102,778  
1The definitions of each segment are provided on pages 4 and 5.
 
Base EBITDA amounted to $72.2 million for the three months ended December 31, 2013, an increase of 31% from $55.2 million in the prior comparable quarter. Consumer Energy contributed $49.5 million to Base EBITDA for the third quarter, an increase from $29.2 million in the three months ended December 31, 2012. The large increase was a result of two main factors: higher margins in the gas markets as a result of colder temperatures compared to the prior comparable quarter and higher realized fiscal 2014 margin/RCE in key U.S. markets. Consumer administrative costs were also down 4% in the current quarter, reflecting continued cost management efforts. Consumer selling and marketing expenses were down 10% from the prior comparable quarter.
 
Commercial Energy contributed $12.7 million to Base EBITDA a decrease of 37% from the three months ended December 31, 2012, when the segment contributed $20.0 million. The decrease is a result of competitive pricing pressures in major markets, higher capacity costs in the northeast U.S. and higher administrative and selling and marketing expenses. Administrative costs were up $0.9 million due to the 11% increase in Commercial customers year over year and the impact of foreign exchange on the U.S. expenses.
 
 
15
 

 
 
 
NHS contributed $11.3 million to Base EBITDA for the third quarter of fiscal 2014, an increase of 79% from $6.3 million in the prior comparable quarter due to a 53% increase in gross margin and flat operating costs. HES contributed a loss of $1.2 million to Base EBITDA for the current quarter, compared with a loss of $0.3 million contributed in the third quarter of fiscal 2013.
 
For the nine months ended December 31, 2013, Base EBITDA was $140.4 million, an increase of 37% from $102.8 million recorded in the prior comparable period. The increase over the prior comparable period reflects higher Base EBITDA from Consumer Energy with $70.0 million recorded year-to-date versus $28.5 million for the nine months ended December 31, 2012. The increase is largely a result of a 17% increase in gross margin and a 14% decrease in selling and marketing expenses.
 
For further information on each division, please refer to “Energy Marketing” on page 18and “Home Services division” on page 20 and “Solar division” on page 21
 
 
Customer aggregation
   
 
   
 
   
 
   
 
 
   
October 1,
   
 
   
 
   
Failed to
   
Dec. 31,
   
% increase
   
Dec. 31,
   
% increase
 
   
2013
   
Additions
   
Attrition
   
renew
   
2013
   
(decrease)
   
2012
   
(decrease)
 
Consumer Energy
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Gas
    771,000       48,000       (37,000 )     (13,000 )     769,000       0 %     796,000       (3 )%
Electricity
    1,206,000       117,000       (81,000 )     (17,000 )     1,225,000       2 %     1,194,000       3 %
Total Consumer RCEs
    1,977,000       165,000       (118,000 )     (30,000 )     1,994,000       1 %     1,990,000       0 %
Commercial Energy
                                                 
Gas
    205,000       10,000       (3,000 )     (17,000 )     195,000       (5 )%     207,000       (6 )%
Electricity
    2,140,000       158,000       (34,000 )     (93,000 )     2,171,000       1 %     1,927,000       13 %
Total Commercial RCEs
    2,345,000       168,000       (37,000 )     (110,000 )     2,366,000       1 %     2,134,000       11 %
Total Energy Marketing RCEs
    4,322,000       333,000       (155,000 )     (140,000 )     4,360,000       1 %     4,124,000       6 %
Home Services
                                                               
Water heaters
    236,000       7,000       -       -       243,000       3 %     207,000       17 %
Air conditioners / Furnaces
    20,000       1,000       -       -       21,000       5 %     15,000       40 %
Smart thermostats
    19,000       4,000       -       -       23,000       21 %     3,000       667 %
Total installs
    275,000       12,000       -       -       287,000       4 %     225,000       28 %
Combined RCEs and installs
    4,597,000       345,000       (155,000 )     (140,000 )     4,647,000       1 %     4,349,000       7 %
1Of the smart-thermostat installations as of December 31, 2013, 61% were bundled with energy or furnace contracts and the remaining 39% were sold as stand-alone units.
 
Gross customer additions for the quarter were 345,000, a decrease of 2% from the 352,000 customers added in the third quarter of fiscal 2013. This total includes customer additions from both energy marketing and home services. In addition to these new customers added, Just Energy renewed 219,000 existing customers during the quarter.
 
Gross energy marketing customer additions for the quarter were 333,000, a decrease of 2% from the 341,000 customers added in the third quarter of fiscal 2013. Net additions were 38,000 for the quarter. The smaller number of additions was largely a result of lower customer aggregation by the Commercial division in an attempt to ensure that customers meet the Company’s margin expectations. This has resulted in redeployment of resources toward markets with a stronger customer value proposition. The Company is currently reviewing its active customer base to ensure that profitability levels of products support our earnings profile, which may lead to a period of lower renewal rates and gross additions.
 
Consumer customer additions amounted to 165,000 for the third quarter of fiscal 2014, a 9% increase from 151,000 gross customer additions recorded in the prior comparable quarter. Commercial customer additions were 168,000 for the current quarter, a 12% decrease from 190,000 gross customer additions in the prior comparable quarter. Included in the consumer energy customer base are 12,000 smart-thermostat customers bundled with a commodity contract. This is a growing segment of Just Energy’s business and represents increased long term economic value to the Company with a lower attrition profile. This bundled product is currently being marketed in Texas and Ontario.
 
 
16
 

 
 
 
For the three months ended December 31, 2013, 26% of total consumer and commercial energy marketing customer additions were generated from door-to-door sales, 50% from commercial brokers and 24% through Internet based and other non-door-to-door channels. Prior to the acquisition of Hudson Energy in fiscal 2011 and the introduction of other sales channels, the vast majority of customer additions were generated door-to-door.
 
The Consumer Energy customer base increased by 1% over the past three months, and was effectively unchanged from a year earlier. The Commercial customer base increased by 1% during the third quarter of fiscal 2014 and 11% from a year earlier.
 
The new U.K. operations generated 23,000 customer additions in the quarter, the highest number of customers added since the market entry in July 2012.
 
As of December 31, 2013, the U.S., Canadian and U.K. segments accounted for 73%, 26% and 1% of the energy marketing customer base, respectively. At the end of the prior comparable quarter, the U.S. and Canadian segments represented 72% and 28% of the energy marketing customer base, respectively.

ATTRITION
 
 
   
 
 
 
 
Trailing
   
Trailing
 
 
 
12-month
   
12-month
 
 
 
attrition
   
attrition
 
 
 
Dec. 31, 2013
   
Dec. 31, 2012
 
 
 
 
   
 
 
Consumer
    26 %     19 %
Commercial
    5 %     7 %
Total attrition - Consumer & Commercial divisions
    14 %     13 %

The combined attrition rate for Just Energy was 14% for the trailing 12 months ended December 31, 2013, a slight increase from the 13% overall rate reported a year prior. The attrition in the Consumer Energy division’s gas markets remained consistent year over year while the electricity attrition increased as the Company remains focused on ensuring that all customers meet base profitability profiles even if this results in higher attrition of low margin or variable rate customers. The attrition levels for the electricity customers within the Commercial division improved year over year, bringing the overall annual attrition levels to 5%, down from 7% reported a year earlier.

The Company carefully monitors the levels of customer complaints from its Consumer and Commercial divisions.  The goal is to resolve all complaints registered within five days of receipt.  Our corporate target is to have an outstanding complaint rate of less than 0.05% of flowing customers at one anytime.  As of December 31, 2013, the total outstanding ratio was 0.023%.  This compares to a ratio of 0.031% on December 31, 2012.  The improving trend is a result of continued company focus on this area.

RENEWALS
 
 
   
 
 
 
 
 
 
 
 
Trailing
   
Trailing
 
 
 
12-month
   
12-month
 
 
 
renewal
   
renewal
 
 
 
Dec. 31,
   
Dec. 31,
 
 
 
2013
   
2012
 
 
 
 
   
 
 
Consumer
    75 %     67 %
Commercial
    67 %     70 %
Total renewals - Consumer and Commercial divisions
    70 %     69 %
 
The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts begin up to 15 months in advance, allowing a customer to renew for an additional period. Overall, the renewal rate was 70% over the last 12 months, compared to a renewal rate of 69% realized a year earlier. This continued trend of improvement represents renewing customers price offers being similar to their current contracts prices.
 
 
17
 

 
 
 
The renewal rates for the Consumer Energy division improved to 75%, up from 67% a year earlier.  This increase reflects an improved renewal environment with the steady movement of existing customer prices towards current market prices.
 
Renewal rates for the Commercial division were 67%, a decrease from 70% a year earlier. Renewal rates for commercial customers are expected to be more volatile than those of consumer customers as a commercial renewal is often a function of a competitive bid process and these customers regularly change suppliers.
 
 
Energy contract renewals
   
 
   
 
 
This table shows the percentage of customers up for renewal in each of the following fiscal periods:
 
 
 
 
   
 
   
 
   
 
 
 
 
Consumer
   
Commercial
 
 
 
Gas
   
Electricity
   
Gas
   
Electricity
 
Remainder of 2014
    4 %     6 %     5 %     8 %
2015 
    20 %     32 %     32 %     35 %
2016 
    17 %     17 %     25 %     29 %
2017 
    15 %     14 %     16 %     13 %
Beyond 2017
    44 %     31 %     22 %     15 %
Total
    100 %     100 %     100 %     100 %
Note: All month-to-month customers, which represent 470,000 RCEs, are excluded from the table above.

Energy marketing

GROSS MARGIN
   
 
   
 
   
 
 
For the three months ended December 31
   
 
 
(thousands of dollars)
 
 
   
 
   
 
   
 
   
 
   
 
 
 
 
Fiscal 2014
 
Fiscal 2013
 
Gross margin
Consumer
 
Commercial
 
Total
 
Consumer
 
Commercial
 
Total
 
Gas
  $ 45,446     $ 9,078     $ 54,524     $ 31,802     $ 7,125     $ 38,927  
Electricity
    67,723       25,768       93,491       57,553       30,757       88,310  
Network marketing (non-energy)
    601       -       601       2,988       -       2,988  
 
  $ 113,770     $ 34,846     $ 148,616     $ 92,343     $ 37,882     $ 130,225  
Increase (decrease)
    23 %     (8 )%     14 %                        
 
                                               
For the nine months ended December 31
                                         
(thousands of dollars)
                                               
 
 
Fiscal 2014
 
Fiscal 2013
 
Gross margin
Consumer
 
Commercial
 
Total
 
Consumer
 
Commercial
 
Total
 
Gas
  $ 70,801     $ 15,421     $ 86,222     $ 48,825     $ 10,156     $ 58,981  
Electricity
    192,641       87,793       280,434       162,660       103,589       266,249  
Network marketing (non-energy)
    1,409       -       1,409       15,101       -       15,101  
 
  $ 264,851     $ 103,214     $ 368,065     $ 226,586     $ 113,745     $ 340,331  
Increase (decrease)
    17 %     (9 )%     8 %                        
 
CONSUMER ENERGY
 
Gross margin for the Consumer Energy division was $113.8 million, an increase of 23% from the $92.3 million recorded in the prior comparable quarter. The gross margin for gas and electricity increased by 43% and 18%, respectively, with these increases being offset by the $2.4 million decline in network marketing non-energy gross margin. These non-energy margins are largely derived from initial sign-up revenue from new independent representatives where additions have been lower in the current year.
 
 
18
 

 
 
 
For the nine months ended December 31, 2013, gross margin for the Consumer Energy division was $264.9 million, an increase of 17% from $226.6 million recorded for the nine months ended December 31, 2012. The gross margin contribution from the gas and electricity markets increased by 45% and 18% respectively. The gross margin contribution from network marketing decreased from $15.1 million reported a year ago to $1.4 million as a result of the first and second quarters of fiscal 2013 being a period of high growth with the intention of building a significant base of independent representatives.
 
Average realized gross margin for the Consumer Energy division after all balancing costs for the rolling 12 months ended December 31, 2013 was $175/RCE, representing a 5% increase from $166/RCE reported in the prior comparable quarter. The gross margin/RCE value includes an appropriate allowance for bad debt expense in Illinois, Texas, Georgia, Michigan, Pennsylvania and Massachusetts.
 
Gas
Gross margin from gas customers in the Consumer Energy division was $45.4 million for the three months ended December 31, 2013, an increase of 43% from $31.8 million recorded in the prior comparable quarter. Gross margin per RCE increased despite the 3% decrease in customer base during the past year.

During the quarter, Just Energy entered into weather index derivatives to cover the winter period up to March 31, 2014, with the intention of reducing gross margin fluctuations from extreme weather. The overall weather in the third quarter was colder than the average expected temperatures and therefore Just Energy would be required to payout on the option based on the position at December 31, 2013. The final settlement amount will not be known until the end of the weather index derivative term but for the three months ended December 31, 2013, the anticipated payout was approximately $3.0 million. For the prior comparable quarter, the weather resulted in higher temperatures than normal and therefore as at December 31, 2012, based on the weather index derivative in place for the prior winter months, a payout to Just Energy in the amount of $0.9 million was anticipated.
 
For the nine months ended December 31, 2013, the gross margin contribution from the gas markets increased by 45% over the prior comparable period to $70.8 million despite the decrease in customer base, primarily as a result of higher consumption during the third quarter for fiscal 2014 along with by the negative impact from utility financial reconciliations in the first half of fiscal 2013.
 
Electricity
 
Gross margin from electricity customers in the Consumer Energy division was $67.7 million for the three months ended December 31, 2013, an increase of 18% from $57.6 million recorded in the prior comparable quarter. While the customer base only increased by 3% over the past year, the gross margin was favourably impacted by attractive pricing on variable rate and JustGreen products throughout the U.S. markets.
 
For the nine months ended December 31, 2013, gross margin from electricity markets increased 18% to $192.6 million. This increase is due to the growth in customer base as well as higher margins earned in the U.S. markets.
 
Network marketing (non-energy)
 
Gross margin from network marketing was $0.6 million for the three months ended December 31, 2013, compared with $3.0 million recorded in the third quarter of fiscal 2013. For the nine months ended December 31, 2013, gross margin for Network Marketing was $1.4 million, a decrease from $15.1 million in the prior comparable period. The decrease in gross margin relates to lower sign-up revenue as fewer independent representatives joined Momentis. Energy-related gross margin from Momentis sales is included in gas and/or electricity as applicable for the Consumer Energy or Commercial Energy divisions.
 
COMMERCIAL ENERGY
 
Gross margin for the Commercial Energy division was $34.8 million, a decrease of 8% from the $37.9 million recorded in the prior comparable quarter. The Commercial Energy customer base increased by 11% during the past year; however realized gross margins were lower per RCE due to competitive pricing pressure and higher capacity charges in the northeast U.S. states.
 
For the nine months ended December 31, 2013, gross margin for Commercial Energy was $103.2 million, a decrease of 9% from $113.7 million recorded for the nine months ended December 31, 2012. The gross margin contribution from gas markets for the nine months ended December 31, 2013 increased by 52%, while the contribution from the electricity market was 15% lower than the prior comparable period.
 
Average realized gross margin after all balancing costs for the rolling 12 months ended December 31, 2013 was $66/RCE, a decrease from $95/RCE due largely to the impact to gross margin from higher capacity costs for electricity customers. The GM/RCE value includes an appropriate allowance for bad debt expense in Illinois, Texas, Georgia, Michigan and California.
 
 
19
 

 
 
 
Gas
 
Gas gross margin for the Commercial Energy division was $9.1 million for the three months ended December 31, 2013, up 27% from $7.1 million, resulting from the higher consumption in the current quarter based on the colder than normal temperatures. This increase in gross margin was offset by the payout from the weather index derivative described on the previous page (see Consumer Energy – Gas).
 
For the nine months ended December 31, 2013, the gross margin contribution from the gas markets increased by 52% over the prior comparable period to $15.4 million, due to the higher consumption resulting from colder temperatures in the current quarter.
 
Electricity
Electricity gross margin for the Commercial Energy division was $25.8 million, a decrease of 16% from the $30.8 million recorded in the prior comparable quarter. The gross margin realized in the current quarter was compressed in comparison with the third quarter of fiscal 2013 due to the competitive pricing pressure reducing margin for new customers added. In addition, gross margins were further compacted by increased capacity costs in the northeastern U.S., the same issue that has impacted electricity margins for the past 12 months. Going forward, the Company is structuring its contracts to pass these costs on to the customer as well as better hedging capacity costs to mitigate future impact to gross margin.
 
Gross margin for the Commercial electricity markets was $87.8 million, a decrease of 15% from $103.6 million recorded in the nine months ended December 31, 2012. The electricity customer base has increased by 13% over the past year. The gross margin contribution decreased due to the continuing higher capacity costs and lower new customer margins per RCE.

Gross margin earned through marketing efforts

The table below depicts the annual margins on contracts for consumer and commercial customers signed during the quarter. This table reflects the gross margin (sales price less costs of associated supply and allowance for bad debt) earned on new additions and renewals including both the brown commodity and JustGreen.

 ANNUAL GROSS MARGIN PER CUSTOMER
 
 
   
 
   
 
   
 
 
 
    Q3    
Number of
      Q3    
Number of
 
  
Fiscal 2014
   
customers
 
Fiscal 2013
   
customers
 
 
         
 
           
 
 
 Consumer customers added and renewed in the period
  $ 160       222,000     $ 173       224,000  
 Consumer customers lost in the period
    178       150,000       182       144,000  
 Commercial customers added and renewed in the period
    68       330,000       63       318,000  
 Commercial customers lost in the period
    83       146,000       94       97,000  

For the three months ended December 31, 2013 the average gross margin per RCE for the customers added and renewed by the Consumer Energy division was $160/RCE, a decrease from $173/RCE in the prior comparable period. The average gross margin per RCE for the consumer customers lost during the three months ended December 31, 2013 was $178/RCE, compared with $182/RCE in the three months ended December 31, 2012. Lower new customer margins reflect market conditions in the Company’s active markets.

For the Commercial Energy division, the average gross margin per RCE for the customers signed during the three months ended December 31, 2013 was $68/RCE, an increase from $63/RCE in the prior comparable period. Commercial additions were lower as management is focused on increasing the future margin contribution per RCE from commercial customers. Customers lost through attrition and failure to renew during the three months ended December 31, 2013 were at an average gross margin of $83/RCE, compared with $94/RCE lost in the prior comparable period.
 
Home Services division (“NHS”)
NHS provides Ontario and Quebec residential customers with long-term water heater rental programs that offer conventional tanks, power vented tanks and tankless water heaters in a variety of sizes as well as high efficiency furnaces and air conditioners.
 
As NHS is a high growth, relatively capital-intensive business, Just Energy’s management believes that, in order to maintain stability of cash flows, separate non-recourse financing of this capital is appropriate. NHS entered into a long-term financing agreement with Home Trust Company (“HTC”) for the funding of the water heaters, furnaces and air conditioners.
 
 
20
 

 
 
 
Management’s strategy for NHS is to self-fund the business through its growth phase, building value within the customer base. This way, NHS will not require significant cash from Just Energy’s core operations nor will Just Energy rely on NHS’s cash flow to fund capital requirements. The result will be an asset that will generate strong cash returns following the repayment of the HTC financing.
 
The average water heater contract is for a period of 15 years with the average all-in cost of an installation being approximately $1,100. Under the HTC agreement, NHS receives funds equal to the amount of the five-, seven- or ten-year cash flow (at its option) of the water heater, furnace and air conditioner contracts discounted at the contracted rate, which is currently 7.99%. The loan amount per unit from HTC exceeds the full installation costs of the unit, regardless of term.  HTC is then paid an amount that is approximately equal to the customer rental payments (excluding annual contractual rate increases) on the water heaters for the next five, seven or ten years as applicable. This funding is used for the upfront capital costs, billing and other general operating costs during the first five, seven or ten years.
 
The embedded gross margin within the NHS contracts grew 20% to $689.7 million during the past 12 months ending December 31, 2013 and was up 5% from $655.5 million at September 30, 2013.
 
Just Energy has started selling smart thermostats through its Consumer Energy and Home Services divisions. The thermostats are currently being marketed through a cross-sell opportunity to Just Energy’s existing customer base in Ontario and Texas as well as in bundled product offerings with commodity or furnace rentals through door-to-door sales channels. This new initiative was launched in late fiscal 2013 with approximately 23,000 installations completed as of December 31, 2013. To date, the sale of thermostats has resulted in lower customer attrition for bundled products than that experienced with customers purchasing only a single product.

RESULTS FROM OPERATIONS

 
For the three months ended December 31, 2013, NHS had sales of $18.7 million and gross margin of $14.5 million, an increase of 47% and 53%, respectively, from $12.7 million in sales and $9.5 million in gross margin reported in the prior comparable quarter. The increase in sales was due to the 19% growth in customer base. The higher growth of sales versus installed customers reflects the rapid growth of higher revenue furnace and air conditioner installations as well as a contractual increase in rates. Revenue associated with furnace and air conditioner installations is approximately 2.4 times that of a water heater unit.
 
Base EBITDA for the Home Services division for the third quarter of fiscal 2014 amounted to $11.3 million, an increase of 79% from $6.3 million in the prior comparable quarter. This increase is attributable to the higher gross margin partially offset by the increase in administrative expenses.
 
Finance costs amounted to $5.1 million for the three months ended December 31, 2013, a 28% increase from $4.0 million expensed during the third quarter of fiscal 2013. As at December 31, 2013, the balance of NHS financing outstanding was $276.0 million, with an average term of 5.7 years.
 
For the nine months ended December 31, 2013, NHS had sales of $53.7 million and gross margin of $41.8 million, an increase of 51% and 54%, respectively, from $35.6 million and $27.2 million in the prior comparable period. The Home Services division achieved Base EBITDA of $29.3 million for the nine months ended December 31, 2013, an increase of 54% from $19.0 million in the prior comparable period.
 
Solar division
Hudson Energy Solar installs solar systems on residential and commercial sites, maintaining ownership of the system and providing maintenance and monitoring of the system for a period of up to 20 years. HES has entered into a number of financing arrangements in order to support the capital-intensive costs to install the solar systems. Just Energy benefits from this division by the revenue generated by the PPAs and SRECs as well as the various tax incentives supporting green energy, including accelerated depreciation.

Base EBITDA generated by the HES division amounted to a loss of $1.2 million for the three months ended December 31, 2013. For the three months ended December 31, 2013, sales were offset by the amortization included in cost of sales for the completed projects, for which there was no amount recorded in the prior comparable period. For the nine months ended December 31, 2013, Base EBITDA was $0.1 million, a decrease from $0.4 million in the prior comparable period.

As at December 31, 2013, the division has made commitments of $106.9 million, with project statuses ranging from contracted to completed.
 
 
21
 

 
 

 
Overall consolidated results from continuing operations
 
ADMINISTRATIVE EXPENSES


 
 
Three
   
Three
   
 
   
Nine
   
Nine
   
 
 
 
 
months
   
months
   
 
   
months
   
months
   
 
 
 
ended
 
ended
   
%
   
ended
 
ended
   
%
 
 
Dec. 31,
 
Dec. 31,
   
increase
 
Dec. 31,
 
Dec. 31,
   
increase
 
 
 
2013
   
2012
   
(decrease)
   
2013
 
2012
   
(decrease)
 
Consumer  Energy
  $ 21,660     $ 22,674       (4 )%   $ 65,613     $ 67,083       (2 )%
Commercial Energy
    7,374       6,434       15 %     22,583       20,078       12 %
Home Services
    5,237       4,962       6 %     16,287       12,985       25 %
Solar
    1,429       818       75 %     2,454       1,970       25 %
Total administrative expenses
  $ 35,700     $ 34,888       2 %   $ 106,937     $ 102,116       5 %
 
The Consumer Energy administrative expenses were $21.7 million for the three months ended December 31, 2013, a decrease of 4% from $22.7 million in the prior comparable quarter, reflecting continued cost management efforts. The Commercial Energy administrative expenses were $7.4 million for the three months ended December 31, 2013, a 15% increase from $6.4 million in the prior comparable quarter as a result of the increase in customer base year over year.
 
For the three months ended December 31, 2013, administrative expenses for NHS increased by 6% to $5.2 million. The increase in expenses for the Home Services division is a result of servicing costs to support the 19% larger installed base. Hudson Solar division administrative expenses increased by 75% in the three months ended December 31, 2013 due to an increase in operating costs of the business to support completed projects.
 
For the nine months ended December 31, 2013, administrative expenses were $106.9 million, an increase of 5% over the $102.1 million of administrative expenses recorded in the prior comparable period. The increase in administrative costs is directly attributable to the 7% increase in customer base offset by realized economies of scale.

SELLING AND MARKETING EXPENSES
 
 
   
 
         
 
   
 
   
 
 
 
 
Three
   
Three
         
Nine
   
Nine
   
 
 
 
 
months
   
months
         
months
   
months
   
 
 
 
ended
 
ended
   
%
   
ended
 
ended
   
%
 
 
Dec. 31,
 
Dec. 31,
   
increase
 
Dec. 31,
 
Dec. 31,
   
increase
 
 
 
2013
   
2012
   
(decrease)
   
2013
 
2012
   
(decrease)
 
Consumer  Energy
  $ 30,880     $ 34,482       (10 )%   $ 96,651     $ 112,746       (14 )%
Commercial Energy
    15,439       14,176       9 %     43,950       42,394       4 %
Home Services
    2,240       1,260       78 %     8,340       3,612       131 %
Total selling and marketing expenses
  $ 48,559     $ 49,918       (3 )%   $ 148,941     $ 158,752       (6 )%

Selling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives as well as sales-related corporate costs, were $48.6 million, a decrease of 3% from $49.9 million in the third quarter of fiscal 2013. Energy marketing customer additions decreased by 2% for the current quarter compared with the three months ended December 31, 2012. For the nine months ended December 31, 2013, the selling and marketing expenses were $148.9 million, a decrease of 6% from $158.8 million recorded in the prior comparable period. Energy marketing customer additions for the nine months ended December 31, 2013 were 1,021,000, a slight decrease from the 1,023,000 energy marketing customer additions recorded in the nine months ended December 31, 2012. The decrease in selling and marketing costs year over year is a reflection of the increasing use of lower cost sales channels and more residual commission-based sales channels.
 
The selling and marketing expenses for the Consumer Energy division were $30.9 million for the three months ended December 31, 2013, a decrease of 10% from the selling and marketing expenses of $34.5 million recorded in the prior comparable quarter. Selling costs declined due to the use of lower cost aggregation channels. During the third quarter of fiscal 2014, the customer additions by the Consumer Energy sales force totalled 165,000, a 9% increase from 151,000 customers added through these sales channels in the prior comparable quarter. For the nine months ended December 31, 2013, selling and marketing expenses were $96.7 million, a 14% decrease from $112.7 million recorded in the first nine months of fiscal 2013 as a result of lower cost sales channels, particularly due to lower selling and marketing expenses associated with the Momentis network marketing operations and the higher proportion of Consumer customers signed using the sales channels with a residual commission structure similar to commercial residual-based structures.
 
 
22
 

 
 
 
The selling and marketing expenses for the Commercial Energy division were $15.4 million for the three months ended December 31, 2013, a 9% increase from the selling and marketing expenses of $14.2 million recorded in the prior comparable quarter. During the third quarter of fiscal 2014, the customer additions by the Commercial Energy sales force totalled 168,000, a decrease of 12% compared to 190,000 customers added through our sales channels in the prior comparable quarter. The residual commission expense paid to brokers in the three months ended December 31, 2013 increased from the prior comparable period by 44% to $10.1 million. In addition, the selling and marketing expenses for the Commercial Energy division includes amortization of the commission capitalized in other periods through contract initiation costs, which remained relatively flat at $3.6 million. For the nine months ended December 31, 2013, the selling and marketing expenses for the Commercial Energy division were $44.0 million, a 4% increase from $42.4 million expensed in the prior comparable period, while total Commercial Energy customers added was lower by 5%.
 
Selling and marketing expenses deducted to reach Base EBITDA excludes amortization related to the contract initiation costs for Hudson, Fulcrum and NHS. For the three months ended December 31, 2013 the amortization amounted to $4.6 million the same as the prior comparable period. For the nine months ended December 31, 2013 amortization was $15.0 million an increase of 36% from the prior comparable period.
 
The aggregation costs per customer for the last 12 months for consumer customers signed by independent representatives and commercial customers signed by brokers were as follows:

 
 
 
 
 
 
Fiscal 2014
Fiscal 2013
 
Consumer
Commercial
Consumer
Commercial
Natural gas
$164/RCE
$34/RCE
$170/RCE
$34/RCE
Electricity
$132/RCE
$31/RCE
$150/RCE
$32/RCE
Average aggregation costs
$141/RCE
$32/RCE
$157/RCE
$32/RCE
 
The decline in the per customer aggregation costs for the Consumer energy division continues a trend of lower costs seen in recent quarters. The Company has focused on increasing sales through lower costs channels and expects that trend to continue.
 
The aggregation cost per RCE for the Consumer Energy division listed above includes a small but growing proportion of customers generated by affinity and internet marketing programs where commissions are paid on a residual basis as the customer flows. This would tend to slightly decrease current period average costs but will increase future period average costs in comparison as commissions will be paid on customers which have already been counted in customer aggregation totals.
 
The $32 average aggregation cost for the Commercial energy division customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts are paid further commissions averaging $32 per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $58 (1.8 x $32) to the year’s $32 average aggregation cost reported above. For the prior comparable period, the total aggregation costs of commercial brokers were $32/RCE.
 
BAD DEBT EXPENSE
In Illinois, Alberta, Texas, Pennsylvania, California, Massachusetts, Michigan and Georgia, Just Energy assumes the credit risk associated with the collection of customer accounts. In addition, for commercial direct-billed accounts in British Columbia, New York and Ontario, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer account collection for certain territories within Ontario and HES assumes credit risk for all of its billings. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets. During the nine months ended December 31, 2013, Just Energy was exposed to the risk of bad debt on approximately 60% of its sales.
 
Bad debt expense is included in the consolidated income statement under other operating expenses. Bad debt expense for the three months ended December 31, 2013 was $13.6 million, an increase of 120% from $6.2 million expensed for the prior quarter ended December 31, 2012. The bad debt expense increase is a result of the 45% increase in revenue earned in markets where Just Energy bears credit risk and the third quarter being the peak period for Texas defaults after the summer cooling period. Management integrates its default rate for bad debts within its margin targets and continuously reviews and monitors the credit approval process to mitigate customer delinquency.
 
 
23
 

 
 
 
For the nine months ended December 31, 2013, the bad debt expense of $35.3 million represents 2.3% of relevant revenue, an increase from the 2.1% reported for the prior comparable period with $22.5 million of bad debt expense.
 
Management expects that bad debt expense will remain in the range of 2% to 3% of relevant revenue from markets where the Company bears credit risk. For each of Just Energy’s other markets, the LDCs provide collection services and assume the risk of any bad debt owing from Just Energy’s customers for a regulated fee.
 
FINANCE COSTS
Total finance costs for the three months ended December 31, 2013 amounted to $23.0 million, an increase of 27% from $18.2 million for the three months ended December 31, 2012. The financing costs incurred by NHS increased by 28% from $4.0 million during the three months ended December 31, 2012 to $5.1 million in the current quarter. In addition, HES incurred $1.1 million in financing costs for the three months ended December 31, 2013, compared with $0.2 million in the prior comparable quarter. All other financing costs were $16.8 million, an increase of 20% from $14.0 million expensed during the three months ended December 31, 2012.  This increase is a result of the issuance of the $105 million senior unsecured note in December 2012.

 
For the nine months ended December 31, 2013, finance costs were $67.9 million, an increase of 28% from the prior comparable period. NHS and HES finance costs increased to $15.0 million and $2.6 million, respectively, increases from $10.3 million and $0.3 million reported in the prior comparable period. All other financing costs were $50.2 million, an increase of 19% from $42.3 million for the nine months ended December 31, 2012. The increase for NHS and HES both relate to higher funding for its upfront capital costs while increased borrowings on the credit facility and the issuance of the $105 million senior unsecured note in December 2012 contributed to the 19% increase for other finance costs.
 
FOREIGN EXCHANGE
Just Energy has an exposure to U.S. dollar exchange rates as a result of its U.S. operations. Any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income. For the three months ended December 31, 2013, a foreign exchange unrealized gain of $8.9 million was reported in other comprehensive income versus a gain of $3.4 million in the prior comparable quarter. For the nine months ended December 31, 2013, a foreign exchange unrealized gain of $14.8 million was recorded compared to the loss of $4.1 million in the prior comparable period.

 
Overall, a stronger U.S. dollar increases the value of U.S. sales and gross margin in Canadian dollars but this is partially offset by higher operating costs denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to support ongoing growth and surplus cash is repatriated to Canada. U.S. cross border cash flow is forecast, and hedges for cross border cash flow are put in place quarterly.

PROVISION FOR INCOME TAX
 
 
   
 
   
 
 
(thousands of dollars)
 
 
   
 
   
 
   
 
 
 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
Dec. 31, 2013
   
Dec. 31, 2012
   
Dec. 31, 2013
   
Dec. 31, 2012
 
Current income tax provision
  $ 1,797     $ 598     $ 2,112     $ 1,376  
Deferred tax provision
    15,600       8,949       23,114       47,763  
Provision for income tax
  $ 17,397     $ 9,547     $ 25,226     $ 49,139  
 
Just Energy recorded a current income tax expense of $1.8 million for the third quarter of fiscal 2014, versus $0.6 million in the same period of fiscal 2013.  A current tax expense of $2.1 million has been recorded for the first nine months of fiscal 2014, versus $1.4 million for the same period in fiscal 2013. The increase in current tax expense is mainly due to higher Canadian income tax expense recorded in this quarter than in the same period of the prior fiscal year.
 
During the first nine months of fiscal 2014, a deferred tax expense of $23.1 million has been recorded, versus $47.8 million in the same period of fiscal 2013. The lower deferred tax expense in fiscal 2014 is a result of the decline of the cumulative mark to market losses from financial instruments as a result of a change in fair value of these derivative instruments during this period, which was less than the similar decline of the same period in the prior year.
 
 
24
 

 
 
 
Just Energy is taxed as a taxable Canadian corporation. Therefore, the deferred tax asset or liability associated with Canadian assets and liabilities recorded on the consolidated balance sheets as at that date will be realized over time as the temporary differences between the carrying value of assets in the consolidated financial statements and their respective tax bases are realized. Current Canadian income taxes are accrued to the extent that there is taxable income in Just Energy and its underlying corporations. For fiscal 2014, Canadian corporations under Just Energy are subject to a tax rate of approximately 26%.
 
Under IFRS, Just Energy recognized income tax liabilities and assets based on the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities on the consolidated financial statements and their respective tax bases, using substantively enacted income tax rates.  A deferred tax asset will not be recognized if it is not anticipated that the asset will be realized in the foreseeable future. The effect of a change in the income tax rates used in calculating deferred income tax liabilities and assets is recognized in income during the period in which the change occurs.
 
Discontinued Operations
 
Ethanol Division (TGF)
 
In March 2013, Just Energy formally commenced the process to dispose of TGF. The business of TGF had been operating in an unpredictable product environment, making it difficult for management to derive real growth and profitability from the segment. Effective December 24, 2013, Just Energy sold TGF for a nominal amount to a group of Saskatchewan based businesses and was released from all of its obligations.
 
TGF reported a profit of $2.4 million and $3.1 million, before the gain on disposal, for the three and nine months ended December 31, 2013 compared to a loss of $1.6 million and $6.4 million, respectively, in the prior comparable periods.  As a result of the disposal, a gain of $14.9 million, net of a future tax recovery of $24.2 million, was also recorded in the three and nine months ended December 31, 2013.  In prior periods these unrecognized deferred tax assets were limited to profits in TGF however, as part of the disposal arrangement Just Energy is able to retain these losses and expects to realize them in the future.  The total results of the discontinued operations were profit on discontinued operations of $17.3 million and $18.0 million, respectively, for the three and nine months ended December 31, 2013.

Liquidity and capital resources
 
 
   
 
   
 
   
 
 
SUMMARY OF CASH FLOWS
 
 
   
 
   
 
   
 
 
(thousands of dollars)
 
 
   
 
   
 
   
 
 
 
 
Three months
   
Three months
   
Nine months
   
Nine months
 
 
 
ended
   
ended
   
ended
   
ended
 
 
 
Dec. 31, 2013
   
Dec. 31, 2012
   
Dec. 31, 2013
   
Dec. 31, 2012
 
Operating activities
  $ 46,261     $ 29,088     $ 80,850     $ 31,629  
Investing activities
    (27,024 )     (47,451 )     (72,654 )     (132,631 )
Financing activities, excluding dividends
    27,041       45,900       76,907       203,153  
Effect of foreign currency translation
    (436 )     (193 )     614       (992 )
Increase in cash before distributions
    45,842       27,344       85,717       101,159  
Dividends/distributions (cash payments)
    (29,196 )     (34,511 )     (85,541 )     (119,957 )
Increase (decrease) in cash
    16,646       (7,167 )     176       (18,798 )
Increase (decrease) in cash from discontinued operations and cash reclassified to assets held for sale
    (6,330 )     178       (6,164 )     (1,475 )
Cash and cash equivalents  – beginning of period
    22,194       39,936       38,498       53,220  
Cash and cash equivalents  – end of period
  $ 32,510     $ 32,947     $ 32,510     $ 32,947  
 
OPERATING ACTIVITIES
Cash inflow from operating activities for the three months ended December 31, 2013 was $46.3 million, compared with $29.1 million in the prior comparable quarter. The increase is due to an improved working capital position and increased gross margin quarter over quarter. For the nine months ended December 31, 2013, cash inflow from operating activities was $80.9 million, a significant increase from $31.6 million reported for the prior comparable period primarily due to the increase in gross margin and net cash receipts from gas deliveries.
 
INVESTING ACTIVITIES
Just Energy purchased capital assets totalling $13.3 million during the third quarter of the current fiscal year, a decrease from $34.2 million in the third quarter of fiscal 2013 as a result of the Solar division having fewer projects under construction. Just Energy’s capital spending related primarily to installations for the Home Services and Solar divisions. Contract initiation cost additions amounted to $10.8 million for the three months ended December 31, 2013, an increase from $0.0 million recorded in the prior comparable quarter. The increase is a result of higher customer additions of the Home Services division and commercial sales channels, where commissions are paid upfront and then amortized over the period when the related revenue is recognized.
 
 
25
 

 
 
 
FINANCING ACTIVITIES
Financing activities, excluding dividends, relates primarily to the issuance and repayment of long-term debt. During the three months ended December 31, 2013, $162.8 million in long-term debt was issued, with the majority relating to the advances on the credit facility and the issuance of additional financing in our Home Services and Solar divisions. Repayments of long-term debt amounted to $131.8 million for the three months ended December 31, 2013. In the prior comparable quarter, $127.8 million was issued in long-term debt primarily relating to the issuance of the $105 million senior unsecured note and increases in NHS and HES financing while $73.5 million being repaid primarily related to credit facility borrowings.
 
For the nine months ended December 31, 2013, $455.3 million was issued in long-term debt with repayments amounting to $382.1 million, resulting in net borrowing of $73.2 million, which primarily relates to additional financing for the Home Services and Solar divisions.  For the nine months ended December 31, 2012, $408.1 million was issued in long-term debt with $196.9 million being repaid, resulting in net borrowings of $211.2 million, related to the $105 million senior unsecured note, the credit facility and NHS financing.
 
Just Energy’s liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. For residential customers signed by independent contractors, approximately 60% of the commission payment is made following reaffirmation or verbal verification of the customer contract, with most of the remaining 40% being paid after the energy commodity begins flowing to the customer. Margins associated with these customers are realized over the term of the contract. For commercial customers, commissions are paid either as the energy commodity flows throughout the contract or partially upfront once the customer begins to flow.
 
The elapsed period between the time a customer is signed and receipt of the first payment from the customer varies with each market. The time delays per market are approximately two to nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy.  In Alberta and Texas, Just Energy receives payment directly from the customer.
 
DIVIDENDS/DISTRIBUTIONS
Due to the dividend reinvestment plan (“DRIP”), a portion of dividends declared are not paid in cash. Under the program, shareholders can elect to receive their dividends in shares at a 2% discount on the prevailing market price rather than the cash equivalent. For the nine months ended December 31, 2013, dividends paid in shares under the DRIP amounted to $6.9 million, a decrease from $13.3 million of dividends paid in shares during the prior comparable period.  The DRIP program was suspended from the start of fiscal 2013 through to August 2012.

During the three months ended December 31, 2013, Just Energy paid cash dividends and distributions to its shareholders and holders of restricted share grants, performance bonus grants and deferred share grants in the amount of $29.2 million, compared to $34.5 million in the prior comparable period.  For the nine months ended December 31, 2013, cash dividends were $85.5 million, a decrease from $120.0 million paid in dividends in the prior comparable period, due to the reduction in the annual dividend from $1.24 to $0.84 effective the April 2013 dividend.
 
Just Energy’s current annual dividend rate is $0.84 per share. The current dividend policy provides that shareholders of record on the 15th of each month (or the first business day following the 15th if it falls on a weekend or statutory holiday) receive dividends at the end of the month.
 
Balance sheet as at December 31, 2013, compared to March 31, 2013
 
Cash decreased from $38.5 million as at March 31, 2013 to $32.5 million. The utilization of the credit facility increased from $110.1 million to $152.6 million during the nine months ended December 31, 2013, as a result of normal seasonal working capital requirements. Working capital requirements in the U.S. and Alberta are a result of the timing difference between customer consumption and cash receipts. For electricity, working capital is required to fund the lag between settlement with the suppliers and settlement with the LDCs.
 
As at December 31, 2013, trade receivables and unbilled revenue amounted to $371.4 million and $177.5 million, respectively, compared to nine months earlier when the trade receivables and unbilled revenue amounted to $315.6 million and $129.2 million, respectively. Trade payables have increased from $301.8 million to $404.4 million in the past nine months. This increase in current trade receivables, unbilled revenues and trade payables is a result of the normal seasonality of Just Energy’s operations.
 
 
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As at December 31, 2013, Just Energy had delivered more gas to the LDCs than had been consumed by customers in Ontario, Quebec and Michigan, resulting in gas delivered in excess of consumption and deferred revenue of $9.1 million and $32.0 million, respectively. Deferred revenue also includes approximately $14.7 million related to grants received by the Solar division. The build-up of gas inventory at the LDCs is in the normal course of operations and will decrease over the remaining winter months as consumption by customers continues to exceed deliveries. The under delivered gas position will reverse as LDCs increase the delivery requirements for the increased consumption.
 
At March 31, 2013, Just Energy had more gas consumed by customers than Just Energy had delivered to the LDCs which is consistent with the seasonality of deliveries and customer consumption. As a result, Just Energy recognized an accrued gas receivable and accrued gas payable for $34.0 million and $28.5 million, respectively, as at March 31, 2013.  As at December 31, 2013, these balances were $2.5 million and $1.8 million, respectively, as Just Energy’s customers in Manitoba had consumed more gas than had been delivered to the LDC’s.  In addition, gas in storage increased from $11.1 million as at March 31, 2013 to $29.5 million as at December 31, 2013 due to the seasonality of gas consumption.
 
Other assets and other liabilities relate entirely to the fair value of the financial derivatives. The mark to market gains and losses can result in significant changes in net income and, accordingly, shareholders’ equity from quarter to quarter due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash quarterly changes are not meaningful.
 
Property, plant and equipment increased from $258.0 million to $285.9 million during the nine months ended December 31, 2013 due to capital expenditures related to HES solar panel installations and NHS’s water heater, furnace and air conditioner installations, offset by the amortization expense for the period.
 
Intangible assets include goodwilland acquired customer contracts as well as other intangibles such as brand, broker network and information technology systems, primarily related to the Fulcrum, Hudson and Universal purchases. The total intangible asset balance decreased to $412.7 million as at December 31, 2013 from $447.3 million as at March 31, 2013, as a result of amortization.
 
Long-term debt (excluding the current portion) has increased from $795.2 million to $884.1 million in the nine months ended December 31, 2013, primarily as a result of an increase in NHS and HES financing and classifying the credit facility as long-term as a result of the negotiated extension, all being partially offset by classifying the $90 million convertible debentures as current as at December 31, 2013.

Debt and financing for continuing operations
 
(thousands of dollars)
 
 
   
 
 
 
 
December 31, 2013
   
March 31, 2013
 
 
 
 
   
 
 
Just Energy credit facility
  $ 152,599     $ 110,121  
$105m senior unsecured note
    105,000       105,000  
NHS financing
    275,965       257,427  
$90m convertible debentures
    88,824       87,610  
$330m convertible debentures
    302,764       297,928  
$100m convertible debentures
    88,958       87,579  
HES financing
               
  Credit facility
    13,242       11,431  
  Construction loan
    -       9,776  
  Term loan
    23,283       -  

JUST ENERGY CREDIT FACILITY
As of December 31, 2013, Just Energy held a $340 million credit facility to meet working capital requirements.  The credit facility was renewed and extended for a period of two years from the closing date of October 2, 2013. The pricing of the renewed facility is the same as that of the previous extension. The current syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Toronto-Dominion Bank, The Bank of Nova Scotia, HSBC Bank Canada and Alberta Treasury Branches.

Under the terms of the credit facility, Just Energy was able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.88% and 4.00%, prime rate advances at rates of interest that vary between bank prime plus 1.88% and 3.00%, and letters of credit at rates that vary between 2.88% and 4.00%.  Interest rates are adjusted quarterly based on certain financial performance indicators.
 
 
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Just Energy’s obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates, excluding, among others, NHS, HES, and the U.K. operations and secured by a pledge of the assets of Just Energy and the majority of its operating subsidiaries and affiliates. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at December 31, 2013, all of the covenants had been met.

$105M SENIOR UNSECURED NOTE
The $105m senior unsecured note bears interest at 9.75% and matures in June 2018.  The $105m senior unsecured note is subject to certain financial and other covenants.  As of December 31, 2013, all of these covenants have been met.

In conjunction with the covenant requirements associated with the issuance of senior unsecured notes, the following represents select financial disclosure for the “Restricted Subsidiaries” as defined within the Note Indenture, which generally excludes NHS, HES, Momentis and the U.K. operations.

 
Three months
Nine months
 
ended
ended
 
Dec. 31,
Dec. 31,
 
2013
2013
Base EBITDA
 60,590 
 115,285 
Selling and marketing expenses to add gross margin
 8,943 
 35,063 
Share-based compensation
 1,564 
 4,688 
Maintenance capital expenditures
 1,852 
 7,542 
 
 
 

NHS FINANCING
NHS has a long-term financing agreement with HTC for the funding of new and existing rental water heater, furnace and air conditioner contracts. Pursuant to the agreement, NHS will receive financing of an amount equal to the net present value of the five, seven or ten years (at its option) of monthly rental income, discounted at the agreed upon financing rate of 7.25% to 7.99%, and is required to remit an amount equivalent to the rental stream from customers on the water heater, air conditioner and furnace contracts for the five, seven or ten years, respectively. NHS has provided security over the water heaters, furnace and air conditioner equipment and rental contracts, subject to the financing rental agreement, as collateral for performance of the obligation.

The financing agreement is subject to a holdback provision of 3% to 5%. Once all of the obligations of NHS are satisfied or expired, the remaining funds in the holdback account will immediately be released to NHS.  NHS is required to meet a number of non-financial covenants under the agreement and, as at December 31, 2013, all of these covenants had been met.  The current balance under this arrangement is $247.8 million.

NHS assumed debt relating to the acquisition of customer contracts in the prior year. The current outstanding debt of $28.1 million bears interest at 7.5% to 11.0%, is secured by the underlying assets and will be satisfied through blended monthly payments up to August of 2022.

$90M CONVERTIBLE DEBENTURES
In conjunction with the acquisition of Universal on July 1, 2009, Just Energy assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007, which have a face value of $90 million. The fair value of the convertible debenture was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6%, payable semi-annually on March 31 and September 30 of each year. As at December 31, 2013, each $1,000 principal amount of the $90m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 42.46 Just Energy common shares, representing a conversion price of $23.55 per share. Pursuant to the $90m convertible debentures, if Just Energy fixes a record date for the payment of a dividend on its shares, the conversion price shall be adjusted in accordance therewith.

Prior to the maturity date, the $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy’s sole option on not more than 60 days’ and not less than 30 days’ prior notice.
 
 
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$330M CONVERTIBLE DEBENTURES
To fund an acquisition in May 2010, Just Energy issued $330 million of convertible extendible unsecured subordinated debentures. The $330m convertible debentures bear an interest rate of 6% per annum payable semi-annually in arrears on June 30 and December 31 in each year, with maturity on June 30, 2017. Each $1,000 principal amount of the $330m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 shares of Just Energy, representing a conversion price of $18 per share.

Prior to June 30, 2015, the debentures may be redeemed by Just Energy, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On or after June 30, 2015, and prior to the maturity date, the debentures may be redeemed by Just Energy, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.

$100M CONVERTIBLE DEBENTURES
On September 22, 2011, Just Energy issued $100m of convertible unsecured subordinated debentures, which were used to purchase Fulcrum Energy effective October 1, 2011. The $100m convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year, and have a maturity date of September 30, 2018. Each $1,000 principal amount of the $100m convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption, into 56.0 common shares of Just Energy, representing a conversion price of $17.85 per share.

The $100m convertible debentures are not redeemable at the option of the Company on or before September 30, 2014. After September 30, 2014, and prior to September 30, 2016, the $100m convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after September 30, 2016, the $100m convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

HES FINANCING
HES, through a subsidiary, entered into a US$30 million financing agreement to assist with the construction of certain solar projects. The credit facility matures August 1, 2014, with no prepayment permitted, bearing interest, and payable quarterly, at U.S. prime plus 6.9% or Eurodollar rate plus 7.9%.

As at December 31, 2013, HES has $13.4 million owing under term loans which were used to satisfy prior construction loans. The term loans bear interest at 8% and mature in May and June 2019. In addition, during the nine months ended December 31, 2013, HES received $10.2 million from an institutional investor. The proceeds received have been recorded as a contribution from a non-controlling interest. The minority shareholder owns approximately 49% interest in certain projects and is entitled to a significant portion of the tax incentives generated by these projects. The minority shareholder’s interest will decrease to 5% in approximately five years from the original investment.

As at December 31, 2013, HES has $9.9 million owing under a 15-year term loan used to satisfy prior construction loans.  This term loan bears interest at approximately 11% and can be repaid in cash or through the issuance of SRECs generated by the underlying projects.  If Just Energy elects to repay the term loan with SRECs, the SRECs will be valued at the greater of their market value and a range of $325 to $410 per SREC.  In addition, during the three months ended December 31, 2013, HES received approximately $0.8 million from a minority shareholder.  Under this arrangement, HES receives the majority of the tax benefits associated with the solar division and the minority shareholder receives the majority of the cash generated from these projects.

Contractual obligations
In the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are known and non-cancellable.
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PAYMENTS DUE BY PERIOD
   
 
   
 
 
(thousands of dollars)
 
 
   
 
   
 
   
 
   
 
 
 
 
Total
   
Less than
1 year
   
1 – 3 years
   
4 – 5 years
   
After 5 years
 
Trade and other payables
  $ 404,356     $ 404,356     $ -     $ -     $ -  
Long-term debt (contractual cash flow)
    1,090,313       155,257       252,381       610,100       72,575  
Interest payments
    217,319       61,542       99,893       50,441       5,443  
Premises and equipment leasing
    30,859       8,386       11,053       6,709       4,711  
Royalty payments
    45,782       -       3,283       9,643       32,856  
Long-term gas and electricity contracts
    2,778,997       1,413,975       1,121,052       234,398       9,572  
 
  $ 4,567,626     $ 2,043,516     $ 1,487,662     $ 911,291     $ 125,157  

OTHER OBLIGATIONS
In the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included in either its accrued liabilities or in the consolidated financial statements.  In the normal course of business, Just Energy could be subject to certain contingent obligations that become payable only if certain events were to occur. The inherent uncertainty surrounding the timing and financial impact of any events prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from actions, claims or proceedings.
 
Transactions with related parties
Just Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates.

Off balance sheet items
The Company has issued letters of credit in accordance with its credit facility totalling $113.4 million to various counterparties, primarily utilities in the markets it operates in, as well as suppliers.

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group and Charter Brokerage LLC, Just Energy has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at December 31, 2013 was $33.0 million.
 
Critical accounting estimates
The consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, selling and marketing, and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.
 
The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.
 
IMPAIRMENT OF NON-FINANCIAL ASSETS
Just Energy performed its annual impairment test as at March 31, 2013 and considered impairment for its revised segments that were reported for fiscal 2014. Just Energy considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. As at March 31, 2013, the market capitalization of Just Energy was above the book value of its equity, indicating that a potential impairment of goodwill and intangibles with indefinite lives does not exist.
 
The recoverable amount of each of the units has been determined based on a value in use calculation using cash flow projections from financial budgets covering a five-year period. The projections for the first three years have been approved by the Audit Committee; the assumptions used in the following two years have been approved by senior management. The calculation of the value-in-use for each unit is most sensitive to the following assumptions:
 
 
·
Customer consumption assumptions used in determining gross margin;
 
·
New customer additions, attrition and renewals;
 
·
Selling and marketing costs;
 
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·
Discount rates; and
 
·
Growth rates used to extrapolate cash flows beyond the budget period.
 
The gross margin and customer consumption included in the financial projections is based on normal weather. Management has estimated normal weather based on historical weather patterns covering 10 to 30 years. In the past, weather has deviated from normal and can impact the expected performance of the Company. Past experience has shown that deviations from normal weather can have an impact of up to $35 million, both positively and negatively, on expected margins. Derivative instruments are used to mitigate the risk of weather deviating from normal and are entered into prior to the start of a peak consumption season (winter and summer for gas and electricity markets, respectively). An average customer consumption growth rate of 9% was used in the projections. An isolated 5% decrease in the consumption assumptions would not have an impact on the results of the impairment test.
 
New customer additions and attrition and renewal rate estimates are based on historical results and are adjusted for new marketing initiatives that are included in the budget. A 9% average increase in the overall customer base was used in the projections. An isolated 5% decrease annually in the overall customer base would not have an impact on the results of the impairment test.
 
Selling and marketing costs fluctuate with customer additions, renewals and attrition. Selling and marketing costs used in the financial forecast are based on assumptions consistent with the above new customer additions, renewals and attritions. Rates used are based on historical information and are adjusted for new marketing initiatives included in the budget. An average increase of 9% was applied to selling costs in the projections. An isolated 5% increase annually in selling and marketing costs would not have an impact on the results of the impairment test.
 
Discount rates represent the current market assessment of the risks specific to the Company, regarding the time value of money and individual risks of the underlying assets. The discount rate calculation is based on the specific circumstances of Just Energy and its operating segments and is derived from its weighted average cost of capital (“WACC”). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Just Energy’s investors and the cost of debt is based on the interest bearing borrowings the Company is obliged to service. Just Energy used a discount rate of 9%. An isolated 5% increase in the WACC would not have an impact on the results of the impairment test.
 
In addition to the above assumptions, the expected forecasted performance assumes that there will not be any new legislation that will have a negative impact on Just Energy’s ability to market our products in the jurisdictions in which it currently operates. Any changes in legislation would only impact the respective jurisdiction. This item is out of the control of management and cannot be predicted.  Management has used all information available to prepare its financial projections.
 
DEFERRED TAXES
In accordance with IFRS, Just Energy uses the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are recognized on the differences between the carrying amounts of assets and liabilities and its respective income tax basis.
 
Preparation of the consolidated financial statements involves determining an estimate of, or provision for, income taxes in each of the jurisdictions in which Just Energy operates. The process also involves making an estimate of taxes currently payable and taxes expected to be payable or recoverable in future periods, referred to as deferred income taxes. Deferred income taxes result from the effects of temporary differences due to items that are treated differently for tax and accounting purposes. The tax effects of these differences are reflected in the consolidated statements of financial position as deferred income tax assets and liabilities. An assessment must also be made to determine the likelihood that our future taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent that such recovery is not probable, deferred income tax assets must be reduced. The reduction of the deferred income tax asset can be reversed if the estimated future taxable income improves. No assurances can be given if any reversal will occur or as to the amount or timing of any such reversal. Management must exercise judgment in its assessment of continually changing tax interpretations, regulations, and legislation to ensure deferred income tax assets and liabilities are complete and fairly presented. Differing assessments and applications than our estimates could materially impact the amount recognized for deferred income tax assets and liabilities.
 
Deferred income tax assets of $27.3 million and $24.9 million have been recorded on the consolidated statements of financial position as at December 31, 2013 and March 31, 2013, respectively. These assets primarily relate to mark to market losses on our derivative financial instruments. Management believes there will be sufficient taxable income that will permit the use of these future tax assets in the tax jurisdictions where they exist.  When evaluating the future tax position, Just Energy assesses its ability to use deferred tax assets based on expected taxable income in future periods. Just Energy’s Solar division creates additional tax benefits that will allow the Company to have lower taxable income in the U.S. in future periods. As at December 31, 2013 a valuation allowance of $61.2 million was taken against the Company’s deferred tax assets in the U.S.  If the Company’s taxable income is higher than expected these deferred tax assets will be used.
 
 
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Deferred income tax liabilities of $32.3 million and $31.3 million have been recorded on the consolidated statements of financial position as at December 31, 2013 and March 31, 2013, respectively. These liabilities are primarily due to the excess of the book value of property, plant and equipment over their tax basis.
 
Fluctuations in deferred tax balances are primarily driven by changes in the fair value of derivative financial instruments. Any increase or decrease in the fair value of the derivative financial instruments will decrease or increase the net tax asset position by the effective tax rate of the entity.
 
USEFUL LIFE OF KEY PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Each significant component is depreciated over its estimated useful life. A component can be separately identified as an asset and is expected to provide a benefit of greater than one year. Estimated useful lives are determined based on current facts and past experience, and take into consideration the anticipated physical life of the asset, existing long-term sales agreements and contracts, current and forecasted demand, and the potential for technological obsolescence and regulations. The useful lives of property, plant and equipment and depreciation rates used are reviewed at least annually to ensure they continue to be appropriate.
 
Depreciation and amortization expense for the three and nine months ended December 31, 2013 in the consolidated statements of income (loss) was $14.4 million and $41.9 million, respectively, a decrease from $22.9 million and $68.7 million recorded for the three and nine months ended December 31, 2012.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
 
Just Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply. Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce the exposure to the commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment.
 
Just Energy’s objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy’s policy to hedge the estimated fixed-price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy’s price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed-price or price-protected customer contracts. Just Energy’s policy is not to use derivative instruments for speculative purposes.
 
Just Energy’s U.S. and U.K. operations introduce foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows.
 
The consolidated financial statements are in compliance with IAS 32, Financial Instruments: Presentation; IAS 39, Financial Instruments: Recognition and Measurement; and IFRS 7, Financial Instruments: Disclosure. Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting.  Accordingly, all the mark to market changes on Just Energy’s derivative instruments are recorded on a single line on the consolidated income statement.  Due to commodity volatility and to the size of Just Energy, the quarterly swings in mark to market on these positions will increase the volatility in Just Energy’s earnings.
 
The Company’s financial instruments are valued based on the following fair value (“FV”) hierarchy:
 
Level 1
The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted unadjusted market prices. Just Energy values its cash and cash equivalents, current trade and other receivables, unbilled revenues, bank indebtedness, and trade and other payables under Level 1.
 
Level 2
Fair value measurements that require inputs other than quoted prices in Level 1, either directly or indirectly are classified as Level 2 in the FV hierarchy. This could include the use of statistical techniques to derive the FV curve from observable market prices. However, in order to be classified under Level 2, inputs must be substantially observable in the market. Just Energy values its New York Mercantile Exchange (“NYMEX”) financial gas fixed-for-floating swaps under Level 2.
 
 
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Level 3
Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the FV hierarchy. For the electricity supply contracts, Just Energy uses quoted market prices as per available market forward data and applies a price-shaping profile to calculate the monthly prices from annual strips and hourly prices from block strips for the purposes of mark to market calculations. The profile is based on historical settlements with counterparties or with the system operator and is considered an unobservable input for the purposes of establishing the level in the FV hierarchy. For the natural gas supply contracts, Just Energy uses three different market observable curves: i) Commodity (predominately NYMEX), ii) Basis and iii) Foreign exchange. NYMEX curves extend for over five years (thereby covering the length of Just Energy’s contracts); however, most basis curves only extend 12 to 15 months into the future. In order to calculate basis curves for the remaining years, Just Energy uses extrapolation, which leads natural gas supply contracts to be classified under Level 3.
 
Fair value measurement input sensitivity
The main cause of changes in the fair value of derivative instruments are changes in the forward curve prices used for the fair value calculations. Below is a sensitivity analysis of these forward curves. Other inputs, including volatility and correlations, are driven off historical settlements.
 
Commodity price risk
Just Energy is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not match actual customer requirements.  Management actively monitors these positions on a daily basis in accordance with its Risk Management Policy. This policy sets out a variety of limits, most importantly, thresholds for open positions in the gas and electricity portfolios which also feed a Value at Risk limit. Should any of the limits be exceeded, they are closed expeditiously or express approval to continue to hold is obtained. Just Energy’s exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets. Just Energy enters into derivative instruments in order to manage exposures to changes in commodity prices. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand and thereby fix margins such that shareholder dividends can be appropriately established. Derivative instruments are generally transacted over the counter. The inability or failure of Just Energy to manage and monitor the above market risks could have a material adverse effect on the operations and cash flows of Just Energy. Just Energy mitigates the exposure for variances in customer requirements that are driven by changes in expected weather conditions, through active management of the underlying portfolio, which involves, but is not limited to, the purchase of options including weather derivatives. Just Energy’s ability to mitigate weather effects is limited by the severity of weather from normal.
 
Commodity price sensitivity – all derivative financial instruments
If all the energy prices associated with derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before income taxes for the nine months ended December 31, 2013 would have increased (decreased) by $227.7 million ($225.2 million) primarily as a result of the change in fair value of Just Energy’s derivative instruments.
 
Commodity price sensitivity – Level 3 derivative financial instruments
If the energy prices associated with only Level 3 derivative instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before income taxes for the nine months ended December 31, 2013 would have increased (decreased) by $211.7 million ($209.5 million) primarily as a result of the change in fair value of Just Energy’s derivative instruments.
 
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for uncollectible accounts reflects Just Energy’s best estimates of losses on the accounts receivable balances. Just Energy determines the allowance for doubtful accounts on customer receivables by applying loss rates based on historical results to the outstanding receivable balance. Just Energy is exposed to customer credit risk in Alberta, Texas, Illinois, British Columbia, New York, Massachusetts, California, Michigan, Georgia and commercial direct-billed accounts in British Columbia, New York and Ontario.  Just Energy also has credit risk associated with all HES billings and NHS billings within certain territories in Ontario. Credit review processes have been implemented to perform credit evaluations of customers and manage customer default. If a significant number of customers were to default on their payments, it could have a material adverse effect on the operations and cash flows of Just Energy. Management factors default from credit risk in its margin expectations for all the above markets.
 
Revenues related to the sale of energy are recorded when energy is delivered to customers. The determination of energy sales to individual customers is based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The measurement of unbilled revenue is affected by the following factors: daily customer usage, losses of energy during delivery to customers and applicable customer rates.
 
 
33
 

 
 
 
Increases in volumes delivered to the utilities’ customers and favorable rate mix due to changes in usage patterns in the period could be significant to the calculation of unbilled revenue.  Changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.
 
Just Energy common shares
As at February 13, 2014, there were 143,646,384 common shares of Just Energy outstanding.
 
Normal course issuer bid
During the 12-month period of February 14, 2013 and ending February 13, 2014, Just Energy has the ability to make a normal course issuer bid to purchase for cancellation up to 10,000,000 shares, representing approximately 7.4% of the public float. The maximum number of shares that Just Energy may purchase on a daily basis is 107,182 shares, or approximately 25% of the average daily trading volume of the previous six months’ trading activity on the Toronto Stock Exchange. Just Energy has not repurchased any shares for cancellation during the above period.

In addition, Just Energy has approval to make a normal course issuer bid for the $330m convertible debentures and $100m convertible debentures during the 12-month period of February 22, 2013 through to February 21, 2014. For the $330m convertible debentures, a total of $33 million, representing 10% of the public float may be purchased for cancellation with up to $158,993 being available to purchase on a daily basis. For the $100m convertible debentures, the daily limit is set at $24,548 with up to $10 million being available for cancellation, representing 10% of the public float. As of February 1, 2014, Just Energy has not repurchased any of the convertible debentures for cancellation.
 
Legal proceedings
 
Just Energy’s subsidiaries are party to a number of legal proceedings. Other than as set out below, Just Energy believes that each proceeding constitutes a routine legal matter incidental to the business conducted by Just Energy and that the ultimate disposition of the proceedings will not have a material adverse effect on its consolidated earnings, cash flows or financial position.
 
The State of California has filed a number of complaints to the Federal Energy Regulatory Commission (“FERC”) against many suppliers of electricity, including Commerce Energy Inc. (“CEI”), a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crisis in California. Pursuant to the complaints, the State of California is challenging the FERC’s enforcement of its market-based rate system. Although CEI did not own generation facilities, the State of California is claiming that CEI was unjustly enriched by the run-up in charges caused by the alleged market manipulation of other market participants. On March 18, 2010, the Administrative Law Judge in the matter granted a motion to strike the claim for all parties in one of the complaints, holding that California did not prove that the reporting errors masked the accumulation of market power. California has appealed the decision. On June 13, 2012, FERC denied the plaintiff’s request for a rehearing, affirming its initial decision. California has appealed to the United States Courts for the Ninth Circuit. CEI continues to vigorously contest this matter.
 
On December 17, 2012, NHS was served with a statement of claim from the Ontario Superior Court Justice by Reliance Comfort Limited Partnership seeking damages in the amount of $60 million and related declaratory and injunctive relief, based on allegations that NHS engaged in unfair trade practices and misleading representations in its marketing and sale of water heaters. Reliance also made a formal complaint to the Competition Bureau with similar allegations. NHS believes the action and complaint are attempts by Reliance to deflect attention from allegations of anti-competitive conduct made against Reliance by the Commissioner of Competition.  Following a formal investigation, on December 20, 2012, the Commissioner of Competition brought applications against Reliance Home Comfort and Direct Energy alleging that each company was abusing its dominant position through conduct that intentionally suppresses competition and restricts consumer choice.  On September 11, 2013, Just Energy was served with an amended claim issued by Reliance which added JEGI as a defendant. Just Energy believes that it is not a proper defendant in the proceedings and that the allegations against it are a continued attempt by Reliance to deflect attention from the Commissioner’s allegation of anti-competitive conduct made against it. NHS and Just Energy will vigorously defend themselves against the action and NHS has counterclaimed for $60 million in damages for claims of misleading advertising, breaches of the Competition Act, breaches of the Consumer Protection Act and defamation. In response to the formal complaint by Reliance, the Commissioner of Competition has commenced an inquiry with respect to NHS and its competitors.
 
On August 12, 2013, Fulcrum Power Services L.P. (“FPS”) filed a lawsuit against Just Energy.  Just Energy (U.S.) Corp. and Fulcrum Retail Holdings LLC (“FRH”) for up to $20 million in connection with FRH failing to achieve an earn-out target under the Purchase and Sales Agreement dated August 24, 2011 for the purchase of FRH from FPS.  FPS alleges that Just Energy conducted itself in a manner that was intended to or reasonably likely to reduce or avoid the achievement of the earn-out target.  In October 2013, Just Energy’s motion to compel arbitration was successful.  Just Energy will continue to vigorously defend itself against this claim.
 
 
34
 

 
 
 
Controls and procedures
 
As of December 31, 2013, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Company, along with the assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that material information relating to Just Energy is made known to the CEO and CFO, and have designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with IFRS.
 
During the three and nine months ended December 31, 2013, there were no changes in Just Energy’s internal controls over financial reporting that occurred that have significantly affected, or are reasonably likely to significantly affect, the Company’s internal controls over financial reporting.

CORPORATE GOVERNANCE
Just Energy is committed to transparency in its operations and ensuring its approach to governance meets all recommended standards. Full disclosure of Just Energy’s compliance with existing corporate governance rules is available at www.justenergygroup.com and is included in Just Energy’s May 17, 2013 Management Proxy Circular. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.

Outlook
 
The cash flow impacts of the Company’s marketing success in recent periods continue to result in substantial growth in Base EBITDA from continuing operations and Base Funds from continuing operations. Entering fiscal 2014, management provided guidance for Base EBITDA of $220 million for the year, up from $175.1 million (26%) recorded in fiscal 2013. This guidance growth was predicated on cash flow from the record customer additions in fiscal 2013, the fact that the Company’s customer aggregation costs per customer are declining and that administrative costs were expected to be flat or lower than the fiscal 2013 fourth quarter run rate for fiscal 2014 despite expected customer base growth.
 
Base EBITDA for the third quarter was $72.2 million, up 31% from the third quarter of fiscal 2013. After nine months, Base EBITDA of $140.4 million is 37% ahead of the $102.8 million recorded for the same period in fiscal 2013. This is slightly ahead of pace to meet the $220 million Base EBITDA guidance provided by management for the fiscal year. It should be noted that, due to seasonality, the fourth quarter generates the highest cash flow based on normal winter weather. The fourth quarter of fiscal 2013 showed Base EBITDA of $72.3 million. Meeting guidance for fiscal 2014 would require fourth quarter EBITDA of $79.6 million, an increase of 10% over the prior comparable quarter. With the operating performance to date, management is comfortable that Base EBITDA growth will be sufficient to meet fiscal 2014 guidance.
 
Base FFO grew 10% in the third quarter to $38.8 million from $35.3 million in the prior comparable quarter. Base FFO for the trailing 12 months is $128.8 million, greater than the $123.4 million annual dividend obligation. Accordingly, Just Energy remains on track to have a payout ratio on Base FFO of less than 100% for fiscal 2014. In the current quarter, the payout ratio was 80%, down from 126% in the comparable quarter of fiscal 2013. Due to seasonality, the fourth quarter is expected to show a payout ratio lower than those in the first, second and third quarters.
 
Margin for the quarter was up 16% year over year to $162.8 million. The margin growth was in line with the 17% growth in sales. Growth in margin in the future is anticipated to be slowed somewhat by continued customer energy efficiency gains. In key Just Energy markets, the average consumption of electricity per square foot is down more than 10% over the past three years. This requires the Company to continue to alter its supply assumptions and results in reduced profit per customer. The current levels of margin per new customer have stabilized at a point which is consistent with expectations built into the Company’s guidance.
 
As was the case where there have been negative reconciliations with utilities from warmer than normal winter weather resulting in lower gas consumption, much of the cash effect of the positive reconciliations for the colder than normal winter of fiscal 2014 will not be seen until the first and second quarters of fiscal 2015. Given the nature of the Company’s weather hedges, Just Energy receives minimal positive financial benefit from higher than normal weather-based gas consumption. Most of the cash flow benefit from higher sales is required to offset the cost of the weather options.
 
Customer additions of 345,000 were down slightly from 352,000 signed a year earlier. This was the ninth consecutive quarter with over 300,000 additions and the 7% year over year growth in the customer base drives the double-digit growth seen in Base EBITDA and Base FFO. The Company has made a conscious effort to reduce the number of low margin customers signed or renewed and ensure customer margins are consistent with target expectations. This has impacted both gross and net additions. Despite this, management expects continued aggregation at recent levels for the foreseeable future.
 
 
35
 

 
 
 
Embedded gross margin of $2.4 billion was up 3% for the quarter and 9% year over year.  Just Energy continues to grow both its current cash flow and its long-term value as reflected in embedded margin. This growth resulted both from the 7% year over year increase in the customer base and from the appreciation of the U.S. dollar against the Canadian dollar in the three months ended December 31, 2013. Longer term, management believes embedded gross margin will grow with the customer base.
 
Two important drivers of Base EBITDA growth are controlled administrative expenses and lower selling and marketing costs. Both were in place in the quarter. Administrative costs of $35.7 million were lower than those in the first quarter of fiscal 2014 and the fourth quarter of last year.  Selling and marketing costs of $48.6 million were down 3% versus last year’s third quarter. Year to date selling and marketing costs of $148.9 million are down 6% despite the growth in the customer base. During the quarter, 26% of total consumer and commercial customers were aggregated through the traditional door-to-door sales with the remaining 74% coming through non-door-to-door channels (50% through commercial brokers and the remaining 24% from other channels such as Internet sales and telemarketing). Management anticipates that the percentage of customers gained through door-to-door sales will continue to decline.
 
Attrition rates have declined steadily over the past three years as commodity market prices have come in line with the Company’s current contract offerings. The 14% rate in the third quarter is consistent with the Company’s long-term expectations. The Company’s calculation of embedded margin does not assume any further improvement in attrition rates.
 
Renewal rates were at the target level of 70% for the last 12 months, an improvement from the 69% seen a year ago. Efforts to strengthen the customer relationship through the bundled sale of both commodities and products such as smart thermostats should result in both higher renewals and lower attrition in the Consumer Energy division over time. Renewals of the Commercial Energy division’s customers will remain volatile as the Company’s efforts to maintain per customer margins at or above current levels will inevitably result in non-renewal of some larger volume, low margin customers. Management’s analysis of this trade-off indicates that Just Energy will optimize commercial profits under this strategy
 
On December 24, 2013, Just Energy completed the sale of the Terra Grain Fuels ethanol plant. The plant was a non-core asset to Just Energy and was sold to a group of Saskatchewan-based businesses for a nominal purchase price. Additionally, Just Energy was released from all of its obligations including long-term debt of $69.5 million associated with the ethanol plant. The Company continues to review its businesses to identify assets which do not fit with its long term strategy.
 
On January 29, 2014, Just Energy completed an issuance of senior unsecured convertible bonds (“Convertible Bonds”) in the amount of US$150 million, bearing interest at 6.5% per annum payable semi-annually. The net proceeds of the Convertible Bonds will be used to redeem Just Energy’s outstanding $90 million convertible debentures on March 19, 2014, and to pay down Just Energy debt obligations. Upon completion of the issuance, the credit facility was reduced to $290 million. As all net proceeds will be used to repay existing debt, this issuance will not result in an increase in long-term debt levels of the Company.
 
In changing the dividend for fiscal 2014, management and the board of directors concluded that the new monthly $0.07 per share level met the criteria of providing adequate funding for growth expenditures and a path to deliver the Company’s balance sheet. The combination of anticipated future growth and this lower dividend level is expected to allow the Company to reduce its debt to EBITDA to a target range of 3.5 to 4.0 times by the end of fiscal 2016. Based on the trailing 12 months, the ratio is 5.1 times, down from a ratio of 5.4 times a year earlier.
 
 

36
 


EX-99.3 4 exh99_3.htm FINANCIAL STATEMENTS exh99_3.htm


Exhibit 99.3
 
 

 
JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT
(unaudited in thousands of Canadian dollars) 


 
 
Notes
   
December 31, 2013
   
March 31, 2013
 
ASSETS
 
 
   
 
   
 
 
Non-current assets
 
 
   
 
   
 
 
     Property, plant and equipment
 
 
    $ 285,936     $ 258,003  
     Intangible assets
 
 
      412,726       447,333  
     Contract initiation costs
 
 
      72,683       58,446  
     Other non-current financial assets
    7       13,377       31,305  
     Non-current receivables
            11,282       11,046  
     Investments
    6       9,119       9,000  
     Deferred tax asset
            27,253       24,858  
 
            832,376       839,991  
Current assets
                       
     Inventory
            8,414       6,073  
     Gas delivered in excess of consumption
            9,119       5,224  
     Gas in storage
            29,486       11,051  
     Current trade and other receivables
            371,449       315,551  
     Accrued gas receivables
            2,488       33,989  
     Unbilled revenues
            177,454       129,166  
     Prepaid expenses and deposits
            21,105       15,874  
     Other current assets
    7       33,509       33,005  
     Corporate tax recoverable
            10,252       9,761  
     Restricted cash
            15,508       13,320  
     Cash and cash equivalents
            32,510       38,498  
 
            711,294       611,512  
     Assets classified as held for sale
    5       -       77,439  
 
            711,294       688,951  
TOTAL ASSETS
          $ 1,543,670     $ 1,528,942  
 
                       
DEFICIT AND LIABILITIES
                       
Deficit attributable to equity holders of the parent
                       
   Deficit
          $ (1,367,175 )   $ (1,300,280 )
   Accumulated other comprehensive income
    8       57,081       47,155  
   Shareholders’ capital
    9       1,032,186       1,018,082  
   Equity component of convertible debentures
            25,795       25,795  
   Contributed surplus
            68,678       70,893  
Shareholders’ deficit
            (183,435 )     (138,355 )
 
                       
Non-controlling interest
            9,917       (702 )
TOTAL DEFICIT
            (173,518 )     (139,057 )
 
                       
Non-current liabilities
                       
     Long-term debt
    10       884,055       795,224  
     Provisions
            4,025       3,773  
     Deferred lease inducements
            871       1,044  
     Other non-current financial liabilities
    7       72,302       85,380  
     Deferred tax liability
            32,270       31,327  
 
            993,523       916,748  
Current liabilities
                       
     Trade and other payables
            404,356       301,820  
     Accrued gas payable
            1,757       28,476  
     Deferred revenue
            31,992       13,017  
     Income taxes payable
            8,075       5,143  
     Current portion of long-term debt
    10       154,081       162,474  
     Provisions
            3,146       3,063  
     Other current financial liabilities
    7       120,258       159,819  
 
            723,665       673,812  
     Liabilities relating to assets classified as held for sale
    5       -       77,439  
 
            723,665       751,251  
TOTAL LIABILITIES
            1,717,188       1,667,999  
TOTAL DEFICIT AND LIABILITIES
          $ 1,543,670     $ 1,528,942  
 
                       
Commitments and Guarantees (Note 16)
                       
See accompanying notes to the interim condensed consolidated financial statements
         

1.
 
 

 


 
JUST ENERGY GROUP INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited in thousands of Canadian dollars, except where indicated and per share amounts) 

 
 
 
   
Three months
   
Three months
   
Nine months
   
Nine months
 
 
 
 
   
ended
   
ended
   
ended
   
ended
 
 
 
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
 
 
Notes
   
2013
   
2012
   
2013
   
2012
 
CONTINUING OPERATIONS
 
 
   
 
   
 
   
 
   
 
 
SALES
    13     $ 858,967     $ 736,562     $ 2,458,103     $ 2,107,089  
COST OF SALES
    12 (b)     696,193       596,292       2,047,415       1,738,876  
GROSS MARGIN
            162,774       140,270       410,688       368,213  
EXPENSES
                                       
   Administrative expenses
            35,700       34,888       106,937       102,116  
   Selling and marketing expenses
            48,559       49,918       148,941       158,752  
   Other operating expenses
    12 (a)     29,625       31,958       82,187       100,464  
 
            113,884       116,764       338,065       361,332  
Operating profit before the following
            48,890       23,506       72,623       6,881  
Finance costs
    10       (23,004 )     (18,184 )     (67,850 )     (52,930 )
Change in fair value of derivative instruments
    7       153,121       47,201       32,178       493,554  
Proportionate share of loss from joint venture
    6       (1,194 )     (1,910 )     (5,984 )     (5,770 )
Other income (loss)
            (239 )     740       271       5,718  
Income before income taxes
            177,574       51,353       31,238       447,453  
Provision for income taxes
    11       17,397       9,547       25,226       49,139  
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
          $ 160,177     $ 41,806     $ 6,012     $ 398,314  
 
                                       
DISCONTINUED OPERATIONS
                                       
Income (loss) for the period from discontinued operations
    5       17,291       (1,568 )     17,987       (6,350 )
 
                                       
PROFIT FOR THE PERIOD
          $ 177,468     $ 40,238     $ 23,999     $ 391,964  
 
                                       
Attributable to:
                                       
Shareholders of Just Energy
          $ 178,738     $ 40,312     $ 25,602     $ 392,380  
Non-controlling interest
            (1,270 )     (74 )     (1,603 )     (416 )
PROFIT FOR THE PERIOD
          $ 177,468     $ 40,238     $ 23,999     $ 391,964  
 
                                       
 
                                       
Earnings per share from continuing operations
    14                                  
Basic
          $ 1.12     $ 0.30     $ 0.04     $ 2.85  
Diluted
          $ 0.96     $ 0.28     $ 0.04     $ 2.46  
Earnings per share available to shareholders
                                       
Basic
          $ 1.25     $ 0.29     $ 0.18     $ 2.81  
Diluted
          $ 1.07     $ 0.28     $ 0.17     $ 2.43  
 
                                       
See accompanying notes to the interim condensed consolidated financial statements
                 

2.
 
 

 


 
JUST ENERGY GROUP INC.
   INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited in thousands of Canadian dollars) 

 
 
 
   
Three months
   
Three months
   
Nine months
   
Nine months
 
 
 
 
   
ended
   
ended
   
ended
   
ended
 
 
 
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
 
 
Notes
   
2013
   
2012
   
2013
   
2012
 
Profit for the period
 
 
    $ 177,468     $ 40,238     $ 23,999     $ 391,964  
 
 
 
                                 
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:
    8                                  
 
                                       
Unrealized gain (loss) on translation of foreign operations
            8,924       3,402       14,848       (4,083 )
 
                                       
Amortization of deferred unrealized gain of discontinued
                                       
hedges net of income taxes of $26 (2012 - $1,222) and
                                       
$476 (2012 - $5,084) for the three and nine months ended December 31, 2013, respectively
            (524 )     (6,123 )     (4,922 )     (22,592 )
 
                                       
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods, net of tax
            8,400       (2,721 )     9,926       (26,675 )
 
                                       
Total comprehensive income for the period, net of tax
          $ 185,868     $ 37,517     $ 33,925     $ 365,289  
 
                                       
Total comprehensive income attributable to:
                                       
 
                                       
Shareholders of Just Energy
          $ 187,138     $ 37,591     $ 35,528     $ 365,705  
 
                                       
Non-controlling interest
            (1,270 )     (74 )     (1,603 )     (416 )
 
                                       
Total comprehensive income for the period, net of tax
          $ 185,868     $ 37,517     $ 33,925     $ 365,289  
 
                                       
See accompanying notes to the interim condensed consolidated financial statements
 

3.
 
 

 


 
JUST ENERGY GROUP INC.
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED DECEMBER 31
(unaudited in thousands of Canadian dollars)

 
 
Notes
   
2013
   
2012
 
ATTRIBUTABLE TO THE SHAREHOLDERS
 
 
   
 
   
 
 
Accumulated earnings (deficit)
 
 
   
 
   
 
 
Accumulated earnings (deficit), beginning of period
 
 
    $ 87,496     $ (442,812 )
Profit for the period, attributable to the shareholders
 
 
      25,602       392,380  
Accumulated earnings (deficit), end of period
 
 
      113,098       (50,432 )
 
 
 
                 
DIVIDENDS
 
 
                 
Dividends, beginning of period
 
 
      (1,387,776 )     (1,209,376 )
Dividends
    15       (92,497 )     (133,435 )
Dividends, end of period
            (1,480,273 )     (1,342,811 )
DEFICIT
          $ (1,367,175 )   $ (1,393,243 )
 
                       
ACCUMULATED OTHER COMPREHENSIVE INCOME
    8                  
Accumulated other comprehensive income, beginning of period
          $ 47,155     $ 70,293  
Other comprehensive income (loss)
            9,926       (26,675 )
Accumulated other comprehensive income, end of period
          $ 57,081     $ 43,618  
 
                       
SHAREHOLDERS’ CAPITAL
    9                  
Shareholders’ capital, beginning of period
          $ 1,018,082     $ 993,181  
Share-based compensation awards exercised
            7,240       1,964  
Shares issued (cancelled)
            -       7  
Dividend reinvestment plan
            6,864       13,348  
Shareholders’ capital, end of period
          $ 1,032,186     $ 1,008,500  
 
                       
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES
                       
Balance, beginning of period
          $ 25,795     $ 25,795  
Balance, end of period
          $ 25,795     $ 25,795  
 
                       
CONTRIBUTED SURPLUS
                       
Balance, beginning of period
          $ 70,893     $ 62,147  
Add:  Share-based compensation awards
    12 (a)     4,936       9,255  
          Non-cash deferred share grant distributions
            89       130  
Less: Share-based compensation awards exercised
            (7,240 )     (1,964 )
Balance, end of period
          $ 68,678     $ 69,568  
 
                       
NON-CONTROLLING INTEREST
                       
Balance, beginning of period
          $ (702 )   $ (637 )
Investment by non-controlling shareholder
    10 (g)     10,983       -  
Foreign exchange impact on non-controlling interest
            1,239       (504 )
Loss attributable to non-controlling interest
            (1,603 )     (416 )
Balance, end of period
          $ 9,917     $ (1,557 )
TOTAL DEFICIT
          $ (173,518 )   $ (247,319 )
See accompanying notes to the interim condensed consolidated financial statements
         

4.
 
 

 


 
    JUST ENERGY GROUP INC.
           INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited in thousands of Canadian dollars)

 
 
 
   
Three months
   
Three months
   
Nine months
   
Nine months
 
 
 
 
   
ended
   
ended
   
ended
   
ended
 
Net outflow of cash related to the following activities
 
Notes
   
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
OPERATING
 
 
   
 
   
 
   
 
   
 
 
Income before income taxes
 
 
    $ 177,574     $ 51,353     $ 31,238     $ 447,453  
Items not affecting cash
 
 
                                 
   Amortization of intangible assets
 
 
                                 
      and related supply contracts
 
 
      13,289       20,798       38,641       64,257  
   Amortization of contract initiation costs
 
 
      4,625       4,630       14,973       10,975  
   Amortization of property, plant and equipment
 
 
      1,101       2,107       3,295       4,412  
   Amortization included in cost of sales
 
 
      3,829       2,355       11,117       6,634  
   Share-based compensation
    12 (a)     1,635       2,867       4,936       9,255  
   Financing charges, non-cash portion
            3,332       2,714       10,088       7,795  
   Other
            (61 )     (816 )     (181 )     (850 )
   Change in fair value of derivative instruments
            (153,121 )     (47,201 )     (32,178 )     (493,554 )
   Cash inflow (outflow) from operating activities of discontinued operations
            (9,657 )     191       (7,054 )     (1,080 )
 
            (135,028 )     (12,355 )     43,637       (392,156 )
Adjustment required to reflect net cash receipts from gas sales
            (7,598 )     (566 )     10,564       (83 )
Changes in non-cash working capital
            1,007       (9,074 )     (12,111 )     (22,768 )
 
            35,955       29,358       73,328       32,446  
Income tax paid
            649       (79 )     468       (1,897 )
Cash inflow from operating activities
            36,604       29,279       73,796       30,549  
 
                                       
INVESTING
                                       
Purchase of property, plant and equipment
            (13,335 )     (34,191 )     (37,433 )     (88,675 )
Purchase of intangible assets
            (2,292 )     (4,737 )     (5,107 )     (7,287 )
Advances of long-term receivables
            (586 )     (1,719 )     (236 )     (3,554 )
Investments
            -       -       -       (8,942 )
Settlement of contingent consideration
            -       -       -       (1,551 )
Contract initiation costs
            (10,811 )     (6,804 )     (29,878 )     (22,622 )
Cash flows used in investing activities of discontinued operations
            -       (172 )     (86 )     (393 )
Cash outflow from investing activities
            (27,024 )     (47,623 )     (72,740 )     (133,024 )
 
                                       
FINANCING
                                       
Dividends paid
            (29,196 )     (34,511 )     (85,541 )     (119,957 )
Shares issued for cash
            -       7       -       7  
Issuance of long-term debt
            162,843       127,779       455,305       408,084  
Repayment of long-term debt
            (131,751 )     (73,503 )     (382,143 )     (196,853 )
Restricted cash
            (1,656 )     -       (1,656 )     1,251  
Debt issuance costs
            (3,429 )     (8,383 )     (5,582 )     (9,336 )
Investment made by minority shareholder
            1,034       -       10,983       -  
Cash flows provided by financing activities of discontinued operations
            3,327       159       976       394  
Cash inflow (outflow) from financing activities
            1,172       11,548       (7,658 )     83,590  
Effect of foreign currency translation on cash balances
            (436 )     (193 )     614       (992 )
Net cash inflow (outflow)
            10,316       (6,989 )     (5,988 )     (19,877 )
Cash and cash equivalents reclassified to assets held for sale
            -       -       -       (396 )
Cash and cash equivalents, beginning of period
            22,194       39,936       38,498       53,220  
Cash and cash equivalents, end of period
          $ 32,510     $ 32,947     $ 32,510     $ 32,947  
 
                                       
Supplemental cash flow information:
                                       
Interest paid
          $ 27,424     $ 18,405     $ 66,428     $ 61,115  
 
                                       
See accompanying notes to the interim condensed consolidated financial statements
                 

5.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

1.       ORGANIZATION
 
Just Energy Group Inc. (“JEGI”, “Just Energy” or the “Company”) is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates.  The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The interim condensed consolidated financial statements consist of Just Energy and its subsidiaries and affiliates. The interim condensed consolidated financial statements were approved by the Board of Directors on February 13, 2014.

2.
OPERATIONS
 
Just Energy’s business involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts. Just Energy markets its gas and electricity contracts in Canada, the United States and the United Kingdom under the following trade names: Just Energy, Hudson Energy, Commerce Energy, Smart Pre-paid Electric, Amigo Energy, Tara Energy and Green Star Energy. By fixing the price of natural gas or electricity under its fixed-price or price-protected program contracts for a period of up to five years, Just Energy’s customers offset their exposure to changes in the price of these essential commodities. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion.  Just Energy derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers.
 
Just Energy also offers green products through its JustGreen programs. The electricity JustGreen product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses.  Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

In addition, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners
and furnaces to Ontario and Quebec residents through a subsidiary operating under the trade name National Home Services (“NHS”). Just Energy also operates a network marketing division under the trade name Momentis. Just Energy’s subsidiary, Hudson Energy Solar Corp. (“HES”), and its subsidiaries, provide a solar project development platform operating in New Jersey, Pennsylvania and Massachusetts, under the trade name Hudson Energy Solar. In addition, Just Energy through its subsidiaries sells smart thermostats in Ontario and Texas.
 
3.
SIGNIFICANT ACCOUNTING POLICIES
 
           (a) Statement of compliance 
 
 
These unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). Accordingly, certain informa­tion and footnote disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the IASB, have been omitted or condensed.
 
 
6.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

 
 (b)
Basis of presentation and interim reporting
 
 
These unaudited interim condensed consolidated financial statements should be read in conjunction with and follow the same accounting policies and methods of application as those used in the audited consolidated financial statements for the years ended March 31, 2013 and 2012, except for the adoption of new standards and interpretations effective April 1, 2013 as disclosed in Note 3(d).
 
 
The unaudited interim condensed consolidated financial statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand.
 
 
The unaudited interim operating results are not necessarily indicative of the results that may be expected for the full year ending March 31, 2014, due to seasonal variations resulting in fluctuations in quarterly results.  Gas consumption by customers is typically highest in October through March and lowest in April through September.  Electricity consumption is typically highest in January through March and July through September.  Electricity consumption is lowest in October through December and April through June.  For the 12 months ended December 31, 2013, the consumer and commercial segments, where the seasonal impact is recognized, reported gross margin of $509,901 (2012 - $502,958) and profit of $216,315 (2012 - $383,784).
 
 
 (c)
Principles of consolidation
 
 
The unaudited interim condensed consolidated financial statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at December 31, 2013. Subsidiaries and affiliates are consolidated from the date of acquisition and control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries and affiliates are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, sales, expenses and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.
 
 
(d)
New standards, interpretations and amendments adopted by the Company during the quarter
 
 
The following new accounting standards that have been adopted had no material impact on the interim condensed consolidated financial statements. Please see Note 4 (II) – Accounting Standards Issued but Not Yet Applied in the audited consolidated financial statements for the years ended March 31, 2013 and 2012 for further details.
 
 
·
IAS 1, Presentation of Items of Other Comprehensive Income – Amendments to IAS 1
 
·
IFRS 7, Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments to IFRS 7
 
·
IFRS 10, Consolidated Financial Statements
 
·
IFRS 11, Joint Arrangements
 
·
IFRS 12, Disclosure of Interests in Other Entities
 
·
IFRS 13, Fair Value Measurement
 
·
IAS 28, Investments in Associates and Joint Ventures
 
·
IAS 32, Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32
 
·
IAS 34, Interim Financial Reporting and Segment Information for Total Assets and Liabilities

7.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 
 
4.            SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the unaudited interim condensed consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis for making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Judgments made by management in the application of IFRS that have a significant impact on the unaudited interim condensed consolidated financial statements relate to the following:

Impairment of non-financial assets
Just Energy’s impairment test is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from the budget for the next five years and are sensitive to the discount rate used as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Deferred taxes
Significant management judgment is required to determine the amount of deferred tax assets and liabilities that can be recognized, based upon the likely timing and the level of future taxable income realized, including the usage of tax-planning strategies.

Useful life of key property, plant and equipment and intangible assets
The amortization method and useful lives reflect the pattern in which management expects the asset’s future economic benefits to be consumed by Just Energy.

Provisions for litigation
The State of California has filed a number of complaints to the Federal Energy Regulatory Commission (“FERC”) against many suppliers of electricity, including Commerce, a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crisis in California.  Pursuant to the complaints, the State of California is challenging the FERC’s enforcement of its market-based rate system. At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation are not certain; however, an estimated amount has been recorded in these unaudited interim condensed consolidated financial statements as at December 31, 2013. In the general course of operations, Just Energy has made additional provisions for litigation matters that have arisen.

On December 17, 2012, and then amended on September 11, 2013, NHS was served with a $60 million claim from a competitor for unfair trade practices and misleading marketing.  Just Energy has issued a counterclaim for $60 million and will vigorously defend itself against this claim.    Just Energy believes the claim is without merit and has not included an accrual in its provisions for this claim.

On August 12, 2013, Fulcrum Power Services L.P. (“FPS”) filed a lawsuit against Just Energy and Fulcrum Retail Holdings LLC (“FRH”), for up to $20 million in connection with FRH, failing to achieve an earn-out target under the Purchase and Sales Agreement dated August 24, 2011 for the purchase of FRH from FPS.  FPS alleges that Just Energy conducted itself in a manner that was intended to or reasonably likely to reduce or avoid the achievement of the earn-out target.  In October 2013, Just Energy’s motion to compel arbitration was successful.  Just Energy will continue to vigorously defend itself against this claim.  Just Energy believes the claim is without merit and has not included an accrual in its provisions for this claim.
 
 
8.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Trade receivables
Just Energy reviews its individually significant receivables at each reporting date to assess whether an impairment loss should be recorded in the interim condensed consolidated statements of income (loss). In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, Just Energy makes judgments about the borrower’s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the interim condensed consolidated statements of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgment includes consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 7 for further details about the assumptions as well as sensitivity analysis.

 
5.           DISCONTINUED OPERATIONS

In March 2013, Just Energy formally commenced the process to dispose of TGF. The business of TGF had been operating in an unpredictable product environment, making it difficult for management to derive real growth and profitability from the segment. In addition, it had been viewed as a non-core business since it was acquired with the Universal Energy acquisition in 2009.  Effective December 24, 2013, Just Energy sold TGF for a nominal amount and was released from all of its obligations.  Previously, tax losses generated prior to the disposal were restricted by TGFs lenders and were treated as unrecognized deferred tax assets.  In order to retain a portion of these tax losses and as part of the disposal, Just Energy transferred approximately $6,250 to TGF.  Just Energy expects to utilize the retained losses in future periods and has recognized a future tax recovery of $24,151 which has been recorded as part of the income (loss) from discontinued operations.
 
 

 

9.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The results of TGF for the three and nine months ended December 31 are presented below:
 
 
For the three months ended December 31
 
For the nine months           ended December 31
 
 
 
 
 
 
 
 
 
 
 
2013 
 
2012 
 
2013 
 
2012 
 
 
 
 
 
 
 
Sales
$
 24,026 
$
 26,285 
$
 82,982 
$
 79,122 
Cost of sales
 
 19,024 
 
 24,059 
 
 70,280 
 
 73,345 
Gross margin
 
 5,002 
 
 2,226 
 
 12,702 
 
 5,777 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Administrative and operating expenses
 
 1,243 
 
 2,286 
 
 5,131 
 
 7,517 
Operating income (loss)
 
 3,759 
 
 (60)
 
 7,571 
 
 (1,740)
Finance costs
 
 (1,395)
 
 (1,508)
 
 (4,511)
 
 (4,610)
Profit (loss) from discontinued operations before the undernoted
 
 2,364 
 
 (1,568)
 
 3,060 
 
 (6,350)
Loss on disposal of net assets
 
 (8,653)
 
 - 
 
 (8,653)
 
 - 
Future income tax recovery
 
 24,151 
 
 - 
 
 24,151 
 
 - 
Transaction costs
 
 (571)
 
 - 
 
 (571)
 
 - 
INCOME (LOSS) ON DISCONTINUED OPERATIONS
$
 17,291 
$
 (1,568)
$
 17,987 
$
 (6,350)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share
 
 
 
 
 
 
 
 
Basic earnings (loss) per share from discontinued operations
$
 0.12 
$
 (0.01)
$
 0.13 
$
 (0.05)
Diluted earnings (loss) per share from discontinued operations
$
 0.10 
$
 (0.01)
$
 0.10 
$
 (0.05)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

10.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts) 

 


6.
INVESTMENTS

(i)  
Just Energy has a 50% interest in Just Ventures LLC and Just Ventures L.P. (collectively “Just Ventures”), jointly controlled entities that are involved in the marketing of Just Energy products.  The marketing efforts of Just Ventures are primarily Internet and telemarketing-based, which differs from Just Energy’s traditional sales channels.
 
Just Ventures is currently funded by its investors and all advances are recorded as additional capital contributions.
 
 
 
 
2013 
 
2012 
 
Share of the associate's revenue and loss
 
 
 
 
 
Revenue eliminated on consolidation
$
 9,549 
$
 2,534 
 
Loss
$
 (5,984)
$
 (5,770)
 
Carrying amount of the investment
$
 - 
$
 - 

At any time subsequent to the second anniversary of the joint venture agreements, the other participant in the joint venture has the ability to sell part or all of its interest in Just Ventures (the “Put”). The amount is determined based on the fair value of the previous month’s billed customers.  As at December 31, 2013, the Put was estimated to have a nominal value.
 
     (ii)
In August 2012, the Company issued a US$2,500 promissory note to its joint venture partner.  The promissory note receivable matures on August 24, 2037, and bears interest at the annual federal rate established by the Internal Revenue Service.
 
    (iii)
In August 2012, Just Energy through a subsidiary acquired a 15% interest in ecobee Inc., a private company that designs, manufactures and distributes smart thermostats for an amount of $6,460.  The Company intends to market these smart thermostats in all its core markets, linking them to commodity and home service sales.
 










11.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 
 
7.
FINANCIAL INSTRUMENTS

 
(a)
Fair value
 
The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Management has estimated the value of electricity, unforced capacity, heat rates, heat rate options, renewable and gas swap and forward contracts using a discounted cash flow method, which employs market forward curves that are either directly sourced from third parties or are developed internally based on third party market data. These curves can be volatile thus leading to volatility in the mark to market with no impact to cash flows. Gas options have been valued using the Black option value model using the applicable market forward curves and the implied volatility from other market traded gas options.
 
Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. Accordingly, all the mark-to-market changes on Just Energy’s derivative instruments are recorded on a single line on the interim condensed consolidated statements of income (loss). Due to the commodity volatility and size of Just Energy, the swings in mark to market on these positions will increase the volatility in Just Energy’s earnings. The following table illustrates gains/(losses) related to Just Energy’s derivative financial instruments classified as fair value through profit and loss and recorded on the interim condensed consolidated statements of financial position as other assets and other liabilities, with their offsetting values recorded in change in fair value of derivative instruments.
 
 
 
 
 
 
 
 
 

12.
 
 

 

 
 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


Change in fair value of derivative instruments
 
 
   
 
   
 
   
 
 
 
 
For the three months
   
For the three months
   
For the nine months
   
For the nine months
 
 
 
ended
   
ended
   
ended
   
ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
 
 
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
Fixed-for-floating electricity swaps (i)
  $ 39,850     $ 19,375     $ 34,422     $ 159,029  
Renewable energy certificates (ii)
    2,522       (1,052 )     5,952       596  
Verified emission-reduction credits (iii)
    365       (878 )     1,233       457  
Options (iv)
    (2,808 )     849       (2,357 )     1,548  
Physical gas forward contracts (v)
    22,248       29,404       49,242       153,781  
Physical electricity  forward contracts (viii)
    69,361       4,270       (49,439 )     106,021  
Transportation forward contracts (vi)
    2,785       351       1,860       7,527  
Fixed financial swaps (vii)
    25,013       (3,893 )     12,528       74,898  
Unforced capacity forward contracts (ix)
    461       1,367       1,264       457  
Unforced capacity physical contracts (x)
    (5,520 )     3,061       (4,595 )     4,605  
Heat rate swaps (xi)
    349       542       (12,558 )     (8,686 )
Foreign exchange forward contracts (xii)
    (369 )     (472 )     (225 )     32  
Amortization of deferred unrealized gains on
                               
    discontinued hedges
    550       7,345       5,398       27,676  
Share swap
    2,431       (4,162 )     972       (11,856 )
Amortization of derivative financial instruments
                               
    related to acquisitions
    (3,685 )     (12,885 )     (10,987 )     (39,822 )
Liability associated with exchangeable shares and
                               
    equity based compensation
    111       -       111       -  
Other derivative options
    (543 )     -       (643 )     -  
Change in fair value of contingent consideration
    -       3,979       -       17,291  
Change in fair value of derivative
                               
instruments
  $ 153,121     $ 47,201     $ 32,178     $ 493,554  
 
 
 
 
 
 
 

 
13.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 
 
The following table summarizes certain aspects of the financial assets and liabilities recorded in the interim condensed consolidated statements of financial position as at December 31, 2013:
 
   
 
 
 
   
 
   
 
   
 
 
 
 
Other assets
   
Other assets
   
Other financial liabilities
   
Other financial liabilities
 
 
 
(current)
   
(non-current)
   
(current)
   
(non-current)
 
 
 
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
Fixed-for floating electricity swaps (i)
  $ 13,629     $ 807     $ 31,263     $ 26,890  
Renewable energy certificates (ii)
    1,127       6,472       1,024       722  
Verified emission-reduction credits (iii)
    203       626       529       103  
Options (iv)
    -       -       3,154       -  
Physical gas forward contracts (v)
    115       20       29,424       10,512  
Physical electricity forward contracts(viii)
    6,152       2,495       20,140       14,527  
Transportation forward contracts (vi)
    2,331       104       156       628  
Fixed financial swaps (vii)
    1,474       22       16,966       15,862  
Unforced capacity forward contracts (ix)
    -       -       761       -  
Unforced capacity physical contracts (x)
    3,815       1,001       289       3,058  
Heat rate swaps (xi)
    4,663       1,582       103       -  
Foreign exchange forward contracts (xii)
    -       -       711       -  
Share swap
    -       -       14,943       -  
Cash-out option on stock-based compensation
    -       -       303       -  
Other derivative options
    -       248       492       -  
As at December 31, 2013
  $ 33,509     $ 13,377     $ 120,258     $ 72,302  
 
 
 
 
 
 
 
 
 

14.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


The following table summarizes certain aspects of the financial assets and liabilities recorded in the consolidated statements of financial position as at March 31, 2013:
 
 
 
 
   
 
   
 
   
 
 
 
 
Other assets
   
Other assets
   
Other financial liabilities
   
Other financial liabilities
 
 
 
(current)
   
(non-current)
   
(current)
   
(non-current)
 
 
 
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
Fixed-for floating electricity swaps (i)
  $ 2,632     $ 1,421     $ 42,959     $ 38,524  
Renewable energy certificates (ii)
    1,413       686       1,326       1,033  
Verified emission-reduction credits (iii)
    60       73       568       579  
Options (iv)
    214       -       909       67  
Physical gas forward contracts (v)
    2       -       63,284       25,586  
Physical electricity forward contracts(viii)
    10,970       16,515       2,804       51  
Transportation forward contracts (vi)
    970       437       1,557       51  
Fixed financial swaps (vii)
    4,052       23       27,350       19,200  
Unforced capacity forward contracts (ix)
    456       -       2,134       289  
Unforced capacity physical contracts (x)
    2,008       3,865       113       -  
Heat rate swaps (xi)
    10,228       7,885       -       -  
Foreign exchange forward contracts (xii)
    -       -       486       -  
Share swap
    -       -       15,915       -  
Cash-out option on stock-based compensation
    -       -       414       -  
Other derivative options
    -       400       -       -  
As at March 31, 2013
  $ 33,005     $ 31,305     $ 159,819     $ 85,380  

15.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


The following table summarizes financial instruments classified as fair value through profit and loss as at December 31, 2013, to which Just Energy has committed:
    
 
 
 
Total
 
 
Fair value
 
 
Contract type
Notional volume
remaining
Maturity date
Fixed price
favourable/
Notional
 
 
 
volume
 
 
(unfavourable)
value
 
 
 
 
 
 
 
 
(i)
Fixed-for-floating
0.01-150.00
17,793,759 
January 1, 2014
$0.37-$137.26
($43,717)
$845,432
 
   electricity swaps
MWh
MWh
December 31, 2019
 
 
 
(ii)
Renewable energy
20-200,000
6,623,961 
May 31, 2014
$0.53-$297.81
$5,853
$35,399
 
   certificates
MWh
MWh
December 31, 2023
 
 
 
(iii)
Verified emission-
2,000-106,942
598,000 
December 31, 2014
$1.60-$11.50
$197
$3,380
 
   reduction credits
tonnes
tonnes
December 31, 2016
 
 
 
(iv)
Options
4,500-42,232
229,395 
January 31, 2014
$5.06-$9.66
($3,154)
$77
 
 
GJ/month
GJ
December 31, 2014
 
 
 
(v)
Physical gas forward
10.56-12,892
36,949,769 
January 1, 2014
$0.06-$85.34
($39,801)
$188,255
 
   contracts
GJ/day
GJ
December 31, 2018
 
 
 
(vi)
Transportation forward
18-245,474
33,116,650 
January 1, 2014
$0.01-$5.81
$1,651
$99,308
 
   contracts
GJ/day
GJ
December 31, 2016
 
 
 
(vii)
Fixed financial swaps
1,995-654,596
80,631,766 
January 31, 2014
$2.92-$8.59
($31,332)
$346,214
 
 
GJ/month
GJ
December 31, 2018
 
 
 
(viii)
Physical electricity
0.89-150.00
23,175,032 
January 1, 2014
$26.72-$122.51
($26,019)
$1,123,700
 
   forwards contracts
MWh
MWh
December 31, 2018
 
 
 
(ix)
Unforced capacity
4,200-11,160
207,900 
May 31, 2014
$64.42-$193.28
($761)
$37,447
 
   forward contracts
MWCap
MWCap
May 31, 2015
 
 
 
(x)
Unforced capacity
1-210
7,350 
January 31, 2014
$6.38-$12,146.31
$1,469
$54,280
 
   physical contracts
MWCap
MWCap
May 31, 2016
 
 
 
(xi)
Heat rate swaps
1-10
934,898 
January 31, 2014
$30.26-$55.43
$6,142
$37,339
 
 
MWh
MWh
October 31, 2016
 
 
 
(xii)
Foreign exchange
US$1,000,000-$2,500,000
n/a
January 2, 2014
$1.01-$1.08
($711)
$32,000
 
    forward contracts
 
 
October 6, 2014
 
 
 

The estimated amortization of deferred gains and losses on the discontinued hedges reported in accumulated other comprehensive income that is expected to be amortized to the interim condensed consolidated statements of income (loss) within the next 12 months is a gain of approximately $7,507.

These derivative financial instruments create a credit risk for Just Energy since they have been transacted with a limited number of counterparties. Should any counterparty be unable to fulfill its obligations under the contracts, Just Energy may not be able to realize the other assets balance recognized in the interim condensed consolidated financial statements.

Share swap agreement

The Company has entered into a share swap agreement to manage the risks associated with the Company’s restricted share grant and deferred share grant plans. The value, on inception, of the 2,500,000 shares under this share swap agreement was approximately $33,803.  Net monthly settlements received under the share swap agreement are recorded in other income.  The Company marks to market the fair value of the share swap agreement and has included that value as other current financial liabilities on the interim condensed consolidated statements of financial position.  Changes in the fair value of the share swap agreement are recorded through the interim condensed consolidated statements of income (loss) as a change in fair value of derivative instruments.

16.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Fair value (“FV”) hierarchy

Level 1

The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted unadjusted market prices. Just Energy values its cash and cash equivalents, current trade and other receivables, unbilled revenues, trade and other payables under Level 1.

Level 2

Fair value measurements that require inputs other than quoted prices in Level 1, either directly or indirectly, are classified as Level 2 in the FV hierarchy. This could include the use of statistical techniques to derive the FV curve from observable market prices. However, in order to be classified under Level 2, inputs must be directly or indirectly observable in the market. Just Energy values its New York Mercantile Exchange (“NYMEX”) financial gas fixed-for-floating swaps under Level 2.

Level 3

Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the FV hierarchy. For the supply contracts, Just Energy uses quoted market prices as per available market forward data and applies a price-shaping profile to calculate the monthly prices from annual strips and hourly prices from block strips for the purposes of mark to market calculations. The profile is based on historical settlements with counterparties or with the system operator and is considered an unobservable input for the purposes of establishing the level in the FV hierarchy. For the natural gas supply contracts, Just Energy uses three different market observable curves: i) Commodity (predominately NYMEX), ii) Basis and iii) Foreign exchange. NYMEX curves extend for over five years (thereby covering the length of Just Energy’s contracts); however, most basis curves only extend 12 to 15 months into the future. In order to calculate basis curves for the remaining years, Just Energy uses extrapolation, which leads natural gas supply contracts to be classified under Level 3.


Fair value measurement input sensitivity

The main cause of changes in the fair value of derivative instruments are changes in the forward curve prices used for the fair value calculations. Just Energy provides a sensitivity analysis of these forward curves under the market risk section of this note. Other inputs, including volatility and correlations, are driven off historical settlements.

The following table illustrates the classification of financial assets (liabilities) in the FV hierarchy as at December 31, 2013:
 
 
 
 
   
 
   
 
   
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Financial assets
 
 
   
 
   
 
   
 
 
Derivative financial assets
  $ -     $ -     $ 46,886     $ 46,886  
Financial liabilities
                               
Derivative financial liabilities
    -       (18,385 )     (174,175 )     (192,560 )
Total net derivative liabilities
  $ -     $ (18,385 )   $ (127,289 )   $ (145,674 )
 
 
17.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The following table illustrates the classification of financial assets (liabilities) in the FV hierarchy as at March 31, 2013:
 
 
 
 
   
 
   
 
   
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Financial assets
 
 
   
 
   
 
   
 
 
Derivative financial assets
  $ -     $ -     $ 64,310     $ 64,310  
Discontinued operations (Note 5)
    -       -       77,439       77,439  
Financial liabilities
                               
Derivative financial liabilities
    -       (32,243 )     (212,956 )     (245,199 )
Discontinued operations (Note 5)
    -       -       (77,439 )     (77,439 )
Total net derivative liabilities
  $ -     $ (32,243 )   $ (148,646 )   $ (180,889 )

 
 
 
   
 
 
The following table illustrates the changes in net fair value of financial assets (liabilities) classified as Level 3 in the FV hierarchy for the nine months ended December 31, 2013 and the year ended March 31, 2013:
 
 
 
 
 
 
   
 
 
 
 
   
 
 
 
December 31, 2013
   
March 31, 2013
 
Balance, beginning of period
  $ (148,646 )   $ (819,354 )
Total gains (losses)
    (37,561 )     79,853  
Purchases
    1,275       49,885  
Sales
    (6,460 )     (525 )
Settlements
    64,103       541,495  
Transfer out of Level 3
    -       -  
Balance, end of period
  $ (127,289 )   $ (148,646 )
 
 
 
 
 
 
 
 

18.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


(b)  Classification of financial assets and liabilities
 
Long-term debt recorded at amortized cost has a fair value of $1,012,390.

 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
Interest expense on financial liabilities not classified as fair value through profit and loss
  $ 23,004     $ 18,184     $ 67,850     $ 52,930  

As at December 31, 2013 and March 31, 2013, the carrying value of cash and cash equivalents, restricted cash, current trade and other receivables, unbilled revenues and trade and other payables approximates their fair value due to their short-term nature.

The carrying value of long-term debt approximates its fair value as the interest payable on outstanding amounts is at rates that vary with Bankers’ Acceptances, LIBOR, Canadian bank prime rate or U.S. prime rate, with the following exceptions:
 
 
(i)
the $90 million, $330 million and $100 million convertible debentures, which are fair valued based on market value, and,
 
(ii)
the carrying value of the senior unsecured note which approximates fair value due to the limited time that has passed since its issuance.
 
(c)  Management of risks arising from financial instruments
 
            The risks associated with Just Energy’s financial instruments are as follows:
 
           (i)                      Market risk
 
Market risk is the potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity.  Components of market risk to which Just Energy is exposed are discussed below.
 
 
Foreign currency risk

Foreign currency risk is created by fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates and exposure as a result of investments in U.S. operations.

A portion of Just Energy’s income is generated in U.S. dollars and is subject to currency fluctuations. The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy’s income. Due to its growing operations in the U.S., Just Energy expects to have a greater exposure to U.S. fluctuations in the future than in prior years.  Just Energy has economically hedged between 0% and 50% of certain forecasted cross border cash flows that are expected to occur within the next 13 to 24 months and between 50% and 90% of forecasted cross border cash flows that are expected to occur within the next 12 months. The level of hedging is dependent on the source of the cash flow and the time remaining until the cash repatriation occurs.

Just Energy may, from time to time, experience losses resulting from fluctuations in the values of its foreign currency transactions, which could adversely affect its operating results.  Translation risk is not hedged.
 
 
19.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 
 
With respect to translation exposure, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar for the nine months ended December 31, 2013, assuming that all the other variables had remained constant, profit for the period would have been $2,300 higher/lower and other comprehensive income would have been $8,600 lower/higher.
 
 
Interest rate risk
 
Just Energy is also exposed to interest rate fluctuations associated with its floating rate credit facility. Just Energy’s current exposure to interest rates does not economically warrant the use of derivative instruments. Just Energy’s exposure to interest rate risk is relatively immaterial and temporary in nature. Just Energy does not currently believe that long-term debt exposes it to material interest rate risks but has set out parameters to actively manage this risk within its Risk Management Policy.
 
A 1% increase (decrease) in interest rates would have resulted in a decrease (increase) of approximately $972 in income before income taxes for the nine months ended December 31, 2013.
 
 
Commodity price risk
 
Just Energy is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not match actual customer requirements. Management actively monitors these positions on a daily basis in accordance with its Risk Management Policy. This policy sets out a variety of limits, most importantly, thresholds for open positions in the gas and electricity portfolios which also feed a Value at Risk limit. Should any of the limits be exceeded, they are closed expeditiously or express approval to continue to hold is obtained.  Just Energy's exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets. Just Energy enters into derivative instruments in order to manage exposures to changes in commodity prices. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand and thereby fix margins such that shareholder dividends can be appropriately established.  Derivative instruments are generally transacted over the counter.  The inability or failure of Just Energy to manage and monitor the above market risks could have a material adverse effect on the operations and cash flows of Just Energy. Just Energy mitigates the exposure for variances in customer requirements that are driven by changes in expected weather conditions, through active management of the underlying portfolio, which involves, but is not limited to, the purchase of options including weather derivatives. Just Energy’s ability to mitigate weather effects is limited by the severity of weather from normal.
 
 
Commodity price sensitivity – all derivative financial instruments
 
If all the energy prices associated with derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all of the other variables had remained constant, income before income taxes for the nine months ended December 31, 2013 would have increased (decreased) by $227,666 ($225,173) primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

 
 
Commodity price sensitivity – Level 3 derivative financial instruments

If the energy prices associated with only Level 3 derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, assuming that all of the other variables had remained constant, income before income taxes for the nine months ended December 31, 2013 would have increased (decreased) by $211,701 ($209,468) primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.
 
 
20.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

(ii) Credit risk
 
Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another party. Just Energy is exposed to credit risk in two specific areas: customer credit risk and counterparty credit risk.
 
 
Customer credit risk
 
In Alberta, Texas, Illinois, British Columbia, Massachusetts, California, Michigan and Georgia, Just Energy has customer credit risk and, therefore, credit review processes have been implemented to perform credit evaluations of customers and manage customer default. If a significant number of customers were to default on their payments, it could have a material adverse effect on the operations and cash flows of Just Energy.  Management factors default from credit risk in its margin expectations for all the above markets.

The aging of the accounts receivable from the above markets was as follows:
 
 
 
 
   
 
 
 
 
December 31, 2013
   
March 31, 2013
 
 
 
 
   
 
 
Current
  $ 104,719     $ 86,604  
1 – 30 days
    26,271       33,944  
31 – 60 days
    6,857       7,893  
61 – 90 days
    6,359       4,340  
Over 91 days
    50,213       31,853  
 
  $ 194,419     $ 164,634  

Changes in the allowance for doubtful accounts were as follows:
 
 
 
 
   
 
 
 
 
December 31, 2013
   
March 31, 2013
 
 
 
 
   
 
 
Balance, beginning of period
  $ 40,190     $ 34,926  
Provision for doubtful accounts
    35,315       30,850  
Bad debts written off
    (18,077 )     (23,120 )
Other
    (596 )     (2,466 )
Balance, end of period
  $ 56,832     $ 40,190  
 
In the remaining markets, the local distribution companies (“LDCs”), provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. Management believes that the risk of the LDCs failing to deliver payment to Just Energy is minimal. There is no assurance that the LDCs that provide these services will continue to do so in the future.
 
Counterparty credit risk

Counterparty credit risk represents the loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations. This risk would manifest itself in Just Energy replacing contracted supply at prevailing market rates, thus impacting the related customer margin. Counterparty limits are established within the Risk Management Policy. Any exceptions to these limits require approval from the Board of Directors of JEGI. The Risk Department and Risk Committee monitor current and potential credit exposure to individual counterparties and also monitor overall aggregate counterparty exposure.  However, the failure of a counterparty to meet its contractual obligations could have a material adverse effect on the operations and cash flows of Just Energy.
 
 
21.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 
 
As at December 31, 2013, the estimated counterparty credit risk exposure amounted to $241,305 representing the risk relating to the Company’s derivative financial assets and accounts receivable.
 
(iii)    Liquidity risk
 
Liquidity risk is the potential inability to meet financial obligations as they fall due. Just Energy manages this risk by monitoring detailed weekly cash flow forecasts covering a rolling six-week period, monthly cash forecasts for the next 12 months, and quarterly forecasts for the following two-year period to ensure adequate and efficient use of cash resources and credit facilities.
 
The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities as at December 31, 2013:

 
 
 
 
Contractual
 
Less than
 
 
 
 
 
More than
 
 
 
Carrying amount
 
cash flows
 
 1 year
 
1 to 3 years
 
4 to 5 years
 
5 years
 
Trade and other payables
  $ 404,356   $ 404,356   $ 404,356   $ -   $ -   $ -  
Long-term debt*
    1,038,136     1,090,313     155,257     252,381     610,100     72,575  
Derivative instruments
    192,560     2,778,997     1,413,975     1,121,052     234,398     9,572  
 
  $ 1,635,052   $ 4,273,666   $ 1,973,588   $ 1,373,433   $ 844,498   $ 82,147  
 
                                     
As at March 31, 2013:
                                     
 
                                     
 
       
Contractual
     Less than                 More than
 
 
 
Carrying amount
 
cash flows
 
 1 year
 
1 to 3 years
 
4 to 5 years
   
5 years
 
Trade and other payables
  $ 301,820   $ 301,820   $ 301,820   $ -   $ -   $ -  
Long-term debt*
    957,698     1,014,227     162,474     189,801     403,946     258,006  
Derivative instruments
    245,199     2,549,866     1,372,855     993,719     182,020     1,272  
 
  $ 1,504,717   $ 3,865,913   $ 1,837,149   $ 1,183,520   $ 585,966   $ 259,278  

* Included in long-term debt are the $330,000, $100,000 and $90,000 relating to convertible debentures, which may be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.
 
In addition to the amounts noted above, at December 31, 2013, the contractual net interest payments over the term of the long-term debt with scheduled repayment terms are as follows:

 
 
 
   
 
   
 
   
 
 
 
 
Less than
1 year
   
1 to 3 years
   
4 to 5 years
   
More than
5 years
 
Interest payments
  $ 61,542     $ 99,893     $ 50,441     $ 5,443  

 
(iv)   Supplier risk
Just Energy purchases the majority of the gas and electricity delivered to its customers through long-term contracts entered into with various suppliers. Just Energy has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customers is reliant upon the ongoing operations of these suppliers and their ability to fulfill their contractual obligations. Just Energy has discounted the fair value of its financial assets by $1,127 to accommodate for its counterparties’ risk of default.
 
 
22.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

8.      ACCUMULATED OTHER COMPREHENSIVE INCOME

For the nine months ended December 31, 2013
 
 
   
 
   
 
 
 
 
 
   
 
   
 
 
 
Foreign
 
 
 
 
 
 
currency
 
 
 
 
 
 
translation
 
Cash flow
 
 
 
 
adjustments
 
hedges
 
Total
 
Balance, beginning of period
  $ 34,726     $ 12,429     $ 47,155  
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:
                       
Unrealized foreign currency translation adjustment
    14,848       -       14,848  
Amortization of deferred unrealized gain on discontinued
                       
  hedges, net of income taxes of $476
    -       (4,922 )     (4,922 )
Balance, end of period
  $ 49,574     $ 7,507     $ 57,081  
 
                       
For the nine months ended December 31, 2012
                       
 
                       
 
Foreign
                 
 
currency
                 
 
translation
 
Cash flow
         
 
adjustments
 
hedges
 
Total
 
Balance, beginning of period
  $ 31,419     $ 38,874     $ 70,293  
Other comprehensive loss to be reclassified to profit or loss in subsequent periods:
                       
Unrealized foreign currency translation adjustment
    (4,083 )     -       (4,083 )
Amortization of deferred unrealized gain on discontinued
                       
  hedges, net of income taxes of $5,084
    -       (22,592 )     (22,592 )
Balance, end of period
  $ 27,336     $ 16,282     $ 43,618  

9.
SHAREHOLDERS’ CAPITAL
 
Just Energy is authorized to issue an unlimited number of common shares and 50,000,000 preference shares issuable in series, both with no par value.  Shares outstanding have no preferences, rights or restrictions attached to them.  Details of issued and outstanding shareholders’ capital as at December 31, 2013, with comparatives as at March 31, 2013, are as follows:
 
 

 
23.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


   
Nine months ended
   
Year ended
 
Issued and outstanding
 
December 31, 2013
   
March 31, 2013
 
   
Shares
   
Amount
   
Shares
   
Amount
 
   
 
   
 
   
 
   
 
 
Balance, beginning of period
    142,029,340     $ 1,018,082       139,348,926     $ 993,181  
Share-based awards exercised
    550,382       7,240       235,301       3,320  
Dividend reinvestment plan (i)
    1,006,213       6,864       2,444,284       21,574  
Shares issued for cash
    -       -       829       7  
Balance, end of period
    143,585,935     $ 1,032,186       142,029,340     $ 1,018,082  

(i) Dividend reinvestment plan
Under Just Energy’s dividend reinvestment plan (“DRIP”), shareholders holding a minimum of 100 common shares can elect to receive their dividends in common shares rather than cash at a 2% discount to the simple average closing price of the common shares for the five trading days preceding the applicable dividend payment date, providing that the common shares are issued from treasury and not purchased on the open market. The DRIP was suspended for the period of February 1, 2012 to September 30, 2012.

(ii) Repurchase and cancellation of shares and debentures
During the 12 month period commencing February 14, 2013 and ending February 13, 2014, Just Energy has approval to make a normal course issuer bid (“NCIB”) to purchase up to 10,000,000 common shares.  Just Energy commenced another NCIB on February 22, 2013 with an expiration of February 21, 2014 for the 6% convertible extendible unsecured subordinated debentures due June 30, 2017 (the “6% $330 million debentures”) and the 5.75% convertible unsecured subordinated debentures due September 30, 2018 (the “5.75% $100 million debentures”).  Under the NCIB, Just Energy may purchase such convertible debentures, up to $33,000 of the 6% $330 million convertible extendible unsecured subordinated debentures and up to $10,000 of the 5.75% $100 million debentures.   No shares or convertible debentures have been purchased under these plans.






24.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


10.
LONG-TERM DEBT AND FINANCING

 
 
December 31, 2013
   
March 31, 2013
 
Credit facility (a)
  $ 152,599     $ 110,121  
   Less: debt issue costs (a)
    (2,804 )     (427 )
$105 million senior unsecured note (b)
    105,000       105,000  
   Less: debt issue costs (b)
    (6,501 )     (7,335 )
TGF credit facility
    -       28,571  
TGF debentures
    -       37,645  
NHS financing (c)
    275,965       257,427  
$90 million convertible debentures (d)
    88,824       87,610  
$330 million convertible debentures (e)
    302,764       297,928  
$100 million convertible debentures (f)
    88,958       87,579  
HES financing (g)
               
  Credit facility
    13,242       11,431  
  Construction loan
    -       9,776  
  Term loan
    23,283       -  
      Less: debt issue costs
    (3,418 )     (1,884 )
Capital leases (h)
    224       472  
 
    1,038,136       1,023,914  
Less: transfer of discontinued operations
    -       (66,216 )
Less: current portion
    (154,081 )     (162,474 )
 
  $ 884,055     $ 795,224  

 
Future annual minimum repayments are as follows:
 
 
       
 
   
 
   
 
   
 
 
 
 
Less than 1 year
   
1 to 3 years
   
4 to 5 years
   
More than 5 years
   
Total
 
 
       
 
   
 
   
 
   
 
 
Credit facility (a)
  $ -     $ 152,599     $ -     $ -     $ 152,599  
$105 million senior unsecured note (b)
    -       -       105,000       -       105,000  
NHS financing (c)
    51,593       99,163       74,436       50,773       275,965  
$90 million convertible debentures (d)
    90,000       -       -       -       90,000  
$330 million convertible debentures (e)
    -       -       330,000       -       330,000  
$100 million convertible debentures (f)
    -       -       100,000       -       100,000  
HES financing - Credit facility (g)
    13,242       -       -       -       13,242  
HES financing - Solar term loan (g)
    251       566       664       21,802       23,283  
Capital leases (h)
    171       53       -       -       224  
 
  $ 155,257     $ 252,381     $ 610,100     $ 72,575     $ 1,090,313  
 
25.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The following table details the finance costs for the three and nine months ended December 31. Interest is expensed at the effective interest rate.
 
 
 
 
 
 
 
 
 
 
 
Three months
 
Three months
 
Nine months
 
Nine months
 
 
 ended
 
 ended
 
 ended
 
 ended
 
 
December 31, 2013
 
December 31, 2012
 
December 31, 2013
 
December 31, 2012
Credit facility (a)
$
 3,774 
$
 3,715 
$
 10,573 
$
 11,787 
$105 million senior unsecured note (b)
 
 2,833 
 
 127 
 
 8,919 
 
 127 
NHS financing (c)
 
 5,114 
 
 3,992 
 
 14,971 
 
 10,324 
$90 million convertible debentures (d)
 
 1,764 
 
 1,732 
 
 5,264 
 
 5,172 
$330 million convertible debentures (e)
 
 6,581 
 
 6,447 
 
 19,685 
 
 19,287 
$100 million convertible debentures (f)
 
 1,910 
 
 1,871 
 
 5,691 
 
 5,579 
HES financing (g)
 
 1,088 
 
 213 
 
 2,631 
 
 349 
Capital lease interest (h)
 
 12 
 
 20 
 
 46 
 
 92 
Unwinding of discount on provisions
 
 (72)
 
 67 
 
 70 
 
 213 
 
$
23,004 
$
18,184 
$
67,850 
$
52,930 

(a)  
As at December 31, 2013, Just Energy has a $340 million credit facility to meet working capital requirements. On October 2, 2013 (“the closing date”), Just Energy reached an agreement with its syndicate of lenders to renew and extend its revolving credit facility for a period of two years from the closing date. The pricing of the renewed facility is the same as that of the previous extension. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, The Toronto-Dominion Bank, The Bank of Nova Scotia, HSBC Bank Canada and Alberta Treasury Branches.

Interest is payable on outstanding loans at rates that vary with Bankers’ Acceptance rates, LIBOR, Canadian bank prime rate or U.S. prime rate. Under the terms of the operating credit facility, Just Energy is able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.88% and 4.00%. Prime rate advances are at rates of interest that vary between bank prime plus 1.88% and 3.00% and letters of credit are at rates that vary between 2.88% and 4.00%.  Interest rates are adjusted quarterly based on certain financial performance indicators.

As at December 31, 2013, the Canadian prime rate was 3.0% and the U.S. prime rate was 3.25%. As at December 31, 2013, Just Energy had drawn $152,599 (March 31, 2013 - $110,121) against the facility and total letters of credit outstanding amounted to $113,364 (March 31, 2013 - $115,466).  As at December 31, 2013, unamortized debt issue costs relating to the facility are $2,804 (March 31, 2013 - $427). As at December 31, 2013, Just Energy has $74,037 of the facility remaining for future working capital and security requirements.  Just Energy’s obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates and secured by a general security agreement and a pledge of the assets and securities of Just Energy and the majority of its operating subsidiaries and affiliates excluding, among others, NHS, HES, and the U.K. operations. Just Energy is required to meet a number of financial covenants under the credit facility agreement.  As at December 31, 2013, the Company was compliant with all of these covenants.
 
 
 
26.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

(b)  
In December 2012, the Company issued $105 million in senior unsecured notes (“$105 million senior unsecured note”) bearing interest at 9.75% and maturing in June 2018.  As at December 31, 2013, unamortized debt issue costs are $6,501. These costs will be charged to operations as finance costs over the term of the debt. The $105 million senior unsecured note is subject to certain financial and other covenants.  As at December 31, 2013, all of these covenants have been met.

In conjunction with the covenant requirements associated with the issuance of the $105 million senior unsecured note, the following represents select financial disclosure for the “Restricted Subsidiaries” as defined within the Note Indenture, which generally excludes NHS, HES, Momentis and the UK operations.

   
Three months ended
   
Nine months ended
 
   
December 31, 2013
   
December 31, 2013
 
   
Sales
  $ 807,888     $ 2,341,352  
Gross margin
    146,530       363,013  
Finance costs
    16,805       50,250  
Profit (loss) for the period
    71,801       (109,167 )
Non-cash financing costs
    3,162       9,559  
Intercompany interest charges
    -       18,148  
Share-based compensation
    1,564       4,688  
Income tax paid (recovered)
    649       468  
Dividends paid from unrestricted subsidiaries
    -       -  
 
(c)  
NHS has a long-term financing agreement for the funding of new and existing rental water heater and furnace and air conditioner contracts. Pursuant to the agreement, NHS receives financing of an amount equal to the present value of the five, seven or ten years of monthly rental income, discounted at the agreed upon financing rate of 7.25% to 7.99%, and is required to remit an amount equivalent to the rental stream from customers on the water heater, furnace and air conditioner contracts for the five, seven or ten years. NHS has provided security over the water heaters, furnace and air conditioner equipment and rental contracts, subject to the financing rental agreement, as collateral for performance of the obligation.

The financing agreement is subject to a holdback provision of 3% to 5%.  Once all obligations of NHS are satisfied or expired, the remaining funds in the holdback account will immediately be released to NHS.  NHS has $247,820 owing under this agreement, including $9,626 relating to the holdback provision, recorded in non-current receivables.

NHS assumed debt, relating to the acquisition of customer contracts in the prior year.  The current outstanding debt of $28,145 bears interest at 7.5% to 11.0%, is secured by the underlying assets and will be satisfied through blended monthly payments up to August 2022.  NHS has $2,168 in restricted cash as at December 31, 2013 related to this debt.

NHS is required to meet a number of non-financial covenants under these agreements.  As at December 31, 2013, all of these covenants had been met.

 
27.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


(d)  
In conjunction with an acquisition, the Company also acquired the obligations of the convertible unsecured subordinated debentures (the “$90 million convertible debentures”) issued in October 2007. The fair value of the $90 million convertible debentures was estimated by discounting the remaining contractual payments at the time of acquisition.  This discount will be accreted using an effective interest rate of 8%. These instruments have a face value of $90,000 and mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6% payable semi-annually on March 31 and September 30 of each year.  Each $1,000 principal amount of the $90 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 42.46 common shares, representing a conversion price of $23.55 per common share as at December 31, 2013. Pursuant to the $90 million convertible debentures, if the Company fixes a record date for the payment of a dividend, the conversion price shall be adjusted in accordance therewith.  During the nine months ended December 31, 2013, interest expense amounted to $5,264.

Prior to the maturity date, the $90 million convertible debentures are redeemable in whole or in part at a price equal to the principal amount thereof plus accrued and unpaid interest at Just Energy’s sole option on not more than 60 days’ and not less than 30 days’ prior notice.

The Company may, at its option, on not more than 60 days' and not less than 30 days' prior notice, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $90 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable common shares determined by dividing the principal amount of the $90 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.

(e)  
Just Energy issued $330 million of convertible extendible unsecured subordinated debentures (the “$330 million convertible debentures”).  The $330 million convertible debentures bear interest at a rate of 6% per annum payable semi-annually in arrears on June 30 and December 31, with a maturity date of June 30, 2017.  Each $1,000 principal amount of the $330 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 common shares of the Company, representing a conversion price of $18 per share.  During the period ended December 31, 2013, interest expense amounted to $19,685. The $330 million convertible debentures are not redeemable prior to June 30, 2013, except under certain conditions after a change of control has occurred.  On or after June 30, 2013, but prior to June 30, 2015, the $330 million convertible debentures may be redeemed by the Company, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price (as defined herein) on the date on which notice of redemption is given is not less than 125% of the conversion price ($22.50). On and after June 30, 2015, and prior to maturity, the $330 million convertible debentures may be redeemed by Just Energy, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.

The Company may, at its own option, on not more than 60 days’ and not less than 40 days’ prior notice, subject to applicable regulatory approval and provided that no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $330 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable common shares determined by dividing the principal amount of the $330 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.
 
 
28.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

The conversion feature of the $330 million convertible debentures has been accounted for as a separate component of shareholders’ deficit in the amount of $33,914. Upon initial recognition of the convertible debentures, Just Energy recorded a deferred tax liability of $15,728 and reduced the value of the equity component of convertible debentures by this amount. The remainder of the net proceeds of the $330 million convertible debentures has been recorded as long-term debt, which will be accreted up to the face value of $330,000 over the term of the $330 million convertible debentures using an effective interest rate of 8.8%. If the $330 million convertible debentures are converted into common shares, the value of the Conversion will be reclassified to share capital along with the principal amount converted.

(f)  
Just Energy issued $100 million of convertible unsecured subordinated debentures (the “$100 million convertible debentures”), which was used to purchase Fulcrum.  The $100 million convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year and have a maturity date of September 30, 2018.  Each $1,000 principal amount of the $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 56.0 common shares of Just Energy, representing a conversion price of $17.85.  The $100 million convertible debentures are not redeemable at the option of the Company on or before September 30, 2014.  After September 30, 2014 and prior to September 30, 2016, the $100 million convertible debentures may be redeemed by the Company, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares is at least 125% of the conversion price. On or after September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

The Company may, at its option, on not more than 60 days' and not less than 30 days' prior notice, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $100 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable common shares determined by dividing the principal amount of the $100 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.

The conversion feature of the $100 million convertible debentures has been accounted for as a separate component of shareholders’ deficit in the amount of $10,188.  Upon initial recognition of the convertible debentures, Just Energy recorded a deferred tax liability of $2,579 and reduced the equity component of the convertible debenture by this amount.   The remainder of the net proceeds of the $100 million convertible debentures has been recorded as long-term debt, which will be accreted up to the face value of $100,000 over the term of the $100 million convertible debentures using an effective interest rate of 8.6%. If the $100 million convertible debentures are converted into common shares, the value of the Conversion will be reclassified to share capital along with the principal amount converted.

(g)  
Effective August 2012, HES through a subsidiary entered into a US$30 million financing agreement to assist with the construction of certain solar projects.  The credit facility matures August 1, 2014 with no prepayment permitted, bearing interest, and payable quarterly, at U.S. prime plus 6.9% or Eurodollar rate plus 7.9%. As at December 31, 2013, HES had drawn $13,242 and had unamortized debt issue costs relating to the facility of $537.
 
 
29.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

As at December 31, 2013, HES has the following term loans:

(i)  
As at December 31, 2013, HES has $13,406 owing under term loans used to satisfy prior construction loans and has unamortized debt issue costs of $2,592.  The term loans bear interest at 8% and mature between May and June 2019.  In addition, during the nine months ended December 31, 2013, HES received $10,183 from an institutional investor under this arrangement.  The proceeds received have been recorded as a contribution from a non-controlling interest.  The minority shareholder has approximately 49% interest in certain projects and is entitled to a significant portion of the tax incentives generated by these projects. The minority shareholder’s interest will decrease to 5% in approximately five years from the original investment.
 
(ii)  
As at December 31, 2013, HES has $9,877 owing under a 15-year term loan used to satisfy prior construction loans which has unamortized debt issue costs of $289.  This term loan bears interest at approximately 11% and can be repaid in cash or through the issuance of Solar Renewable Energy Credits (“SRECs”) generated by the underlying projects.  If Just Energy elects to repay the term loan with SRECs, the SRECs will be valued at the greater of their market value and a range of $325 to $410 per SREC.  In addition, during the three months ended December 31, 2013, HES received approximately $800 from a minority shareholder.  Under this arrangement HES receives the majority of the tax benefits associated with the solar division and the minority shareholder receives the majority of the cash generated from these projects.
 
(h)  
The Company, through its subsidiaries, leases certain computer and office equipment and software.  These financing arrangements bear interest at rates ranging from 0% to 29% and mature between January 1, 2014 and January 31, 2015.


11.
 INCOME TAXES
 
 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
 
 
 
   
 
   
 
   
 
 
Current income tax expense
  $ 1,797     $ 598     $ 2,112     $ 1,376  
Deferred tax expense
    15,600       8,949       23,114       47,763  
Provision for income taxes
  $ 17,397     $ 9,547     $ 25,226     $ 49,139  





 
30.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 
 

12.
OTHER INCOME, EXPENSES AND ADJUSTMENTS
 
(a)
Other operating expenses

 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
Amortization of gas contracts
  $ 2,060     $ 2,678     $ 6,179     $ 10,567  
Amortization of electricity contracts
    1,687       9,319       4,963       28,150  
Amortization of acquired water heaters and HVAC contracts
    1,179       413       3,364       1,238  
Amortization of other intangible assets
    8,363       8,388       24,135       24,302  
Amortization of property, plant and equipment
    1,101       2,107       3,295       4,412  
Bad debt expense
    13,600       6,186       35,315       22,540  
Share-based compensation (i)
    1,635       2,867       4,936       9,255  
 
  $ 29,625     $ 31,958     $ 82,187     $ 100,464  
                                 
(i)  
During the nine months ended December 31, 2013, the Company issued approximately 520,000 restricted share grants, performance bonus grants and deferred share grants to employees and directors.  These share-based payments had a grant date fair value of approximately $6.51 and will be expensed over their vesting period, which is approximately one to three years from the grant date.  These equity instruments are valued based on the grant date value of the underlying shares. Performance bonus grants (“PBGs”) are issued pursuant to a new share-based compensation plan approved by shareholders of the Company on June 26, 2013.  PBGs have all the same characteristics as restricted share grants except Just Energy can elect that, holders of PBGs receive cash or common shares or a combination thereof when their PBGs are vested.
 

 
(b)  
Amortization and energy costs included in cost of sales in the interim condensed consolidated statements of income (loss)

 
 
 
   
 
   
 
   
 
 
 
For the three
 
For the three
   
For the nine
   
For the nine
 
 
months ended
 
months ended
   
months ended
   
months ended
 
 
December 31, 2013
 
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
Amortization
  $ 3,829     $ 2,355     $ 11,117     $ 6,634  
Direct energy costs and other
    692,364       593,937       2,036,298       1,732,242  
 
  $ 696,193     $ 596,292     $ 2,047,415     $ 1,738,876  


 
31.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

(c)  
Included in change in fair value of derivative instruments

 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
 
 
 
   
 
   
 
   
 
 
Amortization of gas contracts
  $ 2,514     $ 2,746     $ 7,542     $ 9,180  
Amortization of electricity contracts
    1,171       10,139       3,445       30,642  

 
(d)  
Employee benefits expense

 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31, 2013
   
December 31, 2012
   
December 31, 2013
   
December 31, 2012
 
 
 
 
   
 
   
 
   
 
 
Wages, salaries and commissions
  $ 54,403     $ 50,209     $ 168,738     $ 165,852  
Benefits
    3,158       3,511       9,974       8,032  
 
  $ 57,561     $ 53,720     $ 178,712     $ 173,884  

13.
REPORTABLE BUSINESS SEGMENTS
 
Effective April 1, 2013, Just Energy revised its reportable segments to include the following: consumer energy marketing, commercial energy marketing, ethanol (TGF), home services (NHS) and solar (HES).  Previously Just Energy presented its reportable segments to include gas energy marketing, electricity energy marketing, ethanol, home services and other. This revised presentation is consistent with the organizational alignment and management structure.  This change reflects the Company’s evolution to attract a more diverse client base consisting of both consumer and commercial customers.  This change in segment reporting had no impact on the Company’s interim condensed consolidated statements of financial position, income (loss) or cash flows for the periods.  The prior year segmented disclosure has been restated to conform to the current period presentation.
 
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
 
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the interim condensed consolidated financial statements. Just Energy is not considered to have any key customers.
 
 
 
 

32.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


The following tables present Just Energy’s results by operating segments:
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
For the three months ended December 31, 2013
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
Consumer
 
Commercial
   
 
 
 
   
 
   
 
 
 
division
 
division
 
Ethanol
 
Home services
 
Solar
 
Consolidated
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Sales
  $ 500,441     $ 339,657     $ -     $ 18,674     $ 195     $ 858,967  
Gross margin
    113,770       34,846       -       14,538       (380 )     162,774  
Amortization of property, plant
                                               
and equipment
    770       260       -       71       -       1,101  
Amortization of intangible assets
    6,248       5,861       -       1,180       -       13,289  
Administrative expenses
    21,660       7,374       -       5,237       1,429       35,700  
Selling and marketing expenses
    30,880       15,439       -       2,240       -       48,559  
Other operating expenses
    12,084       3,082       -       69       -       15,235  
Operating profit (loss) for the
                                               
period
  $ 42,128     $ 2,830     $ -     $ 5,741     $ (1,809 )   $ 48,890  
Finance costs
    (9,132 )     (7,673 )     -       (5,112 )     (1,087 )     (23,004 )
Change in fair value of derivative
                                               
instruments
    128,624       24,122       -       -       375       153,121  
Proportionate share of loss from joint venture
    (1,194 )     -       -       -       -       (1,194 )
Other income (loss)
    (269 )     30       -       -       -       (239 )
Provision for income taxes
    10,623       3,906       -       2,868       -       17,397  
Profit (loss) for the period
  $ 149,534     $ 15,403     $ -     $ (2,239 )   $ (2,521 )   $ 160,177  
Discontinued operations
    -       -       17,291       -       -       17,291  
Profit (loss) for the period
  $ 149,534     $ 15,403     $ 17,291     $ (2,239 )   $ (2,521 )   $ 177,468  
Capital expenditures
  $ 1,512     $ 1,288     $ -     $ 6,446     $ 4,089     $ 13,335  
 
                                               
 
                                               
For the three months ended December 31, 2012 (restated)
 
 
                                               
 
Consumer
 
Commercial
                                 
 
division
 
division
 
Ethanol
 
Home services
 
Solar
 
Consolidated
 
 
                                               
Sales
  $ 409,503     $ 313,832     $ -     $ 12,689     $ 538     $ 736,562  
Gross margin
    92,343       37,882       -       9,507       538       140,270  
Amortization of property, plant
                                               
and equipment
    913       190       -       60       944       2,107  
Amortization of intangible assets
    5,704       14,680       -       414       -       20,798  
Administrative expenses
    22,674       6,434       -       4,962       818       34,888  
Selling and marketing expenses
    34,482       14,176       -       1,260       -       49,918  
Other operating expenses
    7,405       1,349       -       299       -       9,053  
Operating profit (loss) for the
                                               
period
  $ 21,165     $ 1,053     $ -     $ 2,512     $ (1,224 )   $ 23,506  
Finance costs
    (5,968 )     (8,010 )     -       (3,993 )     (213 )     (18,184 )
Change in fair value of derivative
                                               
instruments
    52,696       (5,495 )     -       -       -       47,201  
Proportionate share of loss from joint venture
    (1,910 )     -       -       -       -       (1,910 )
Other income (loss)
    804       (64 )     -       -       -       740  
Provision for (recovery of) income taxes
    7,980       (897 )     -       2,464       -       9,547  
Profit (loss) from continuing operations
    58,807       (11,619 )     -       (3,945 )     (1,437 )     41,806  
Discontinued operations
    -       -       (1,568 )     -       -       (1,568 )
Profit (loss) for the period
  $ 58,807     $ (11,619 )   $ (1,568 )   $ (3,945 )   $ (1,437 )   $ 40,238  
Capital expenditures
  $ 753     $ 655     $ -     $ 14,469     $ 18,314     $ 34,191  

33.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


For the nine months ended December 31, 2013
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
Consumer
 
Commercial
   
 
 
 
   
 
   
 
 
 
division
 
division
 
Ethanol
 
Home services
 
Solar
 
Consolidated
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Sales
  $ 1,347,633     $ 1,054,231     $ -     $ 53,720     $ 2,519     $ 2,458,103  
Gross margin
    264,851       103,214       -       41,805       818       410,688  
Amortization of property, plant
                                               
and equipment
    2,307       780       -       208       -       3,295  
Amortization of intangible assets
    17,272       18,003       -       3,366       -       38,641  
Administrative expenses
    65,613       22,583       -       16,287       2,454       106,937  
Selling and marketing expenses
    96,651       43,950       -       8,340       -       148,941  
Other operating expenses
    32,296       7,708       -       247       -       40,251  
Operating profit (loss) for the
                                               
period
  $ 50,712     $ 10,190     $ -     $ 13,357     $ (1,636 )   $ 72,623  
Finance costs
    (22,395 )     (27,855 )     -       (14,969 )     (2,631 )     (67,850 )
Change in fair value of derivative
                                               
instruments
    22,231       6,706       -       -       3,241       32,178  
Proportionate share of loss from joint venture
    (5,984 )     -       -       -       -       (5,984 )
Other income (loss)
    398       (127 )     -       -       -       271  
Provision for income taxes
    16,756       4,987       -       3,483       -       25,226  
Profit (loss) from continuing operations
  $ 28,206     $ (16,073 )   $ -     $ (5,095 )   $ (1,026 )   $ 6,012  
Discontinued operations
    -       -       17,987       -       -       17,987  
Profit (loss) for the period
  $ 28,206     $ (16,073 )   $ 17,987     $ (5,095 )   $ (1,026 )   $ 23,999  
Capital expenditures
  $ 2,093     $ 1,868     $ -     $ 23,809     $ 9,663     $ 37,433  
Total goodwill
  $ 214,602     $ 45,567     $ -     $ 283     $ -     $ 260,452  
Total assets
  $ 810,724     $ 317,904     $ -     $ 292,248     $ 122,794     $ 1,543,670  
Total liabilities
  $ 1,233,144     $ 117,631     $ -     $ 316,379     $ 50,034     $ 1,717,188  
 
                                               
For the nine months ended December 31, 2012 (restated)
 
 
                                               
 
Consumer
 
Commercial
                                 
 
division
 
division
 
Ethanol
 
Home services
 
Solar
 
Consolidated
 
 
                                               
Sales
  $ 1,057,035     $ 1,013,785     $ -     $ 35,609     $ 660     $ 2,107,089  
Gross margin
    226,586       113,745       -       27,222       660       368,213  
Amortization of property, plant
                                               
and equipment
    2,394       810       -       172       1,036       4,412  
Amortization of intangible assets
    16,034       46,983       -       1,239       1       64,257  
Administrative expenses
    67,083       20,078       -       12,985       1,970       102,116  
Selling and marketing expenses
    112,746       42,394       -       3,612       -       158,752  
Other operating expenses
    24,820       5,764       -       1,211       -       31,795  
Operating profit (loss) for the
                                               
period
  $ 3,509     $ (2,284 )   $ -     $ 8,003     $ (2,347 )   $ 6,881  
Finance costs
    (16,271 )     (25,982 )     -       (10,328 )     (349 )     (52,930 )
Change in fair value of derivative
                                               
instruments
    380,414       113,315       -       (175 )     -       493,554  
Proportionate share of loss from joint venture
    (5,770 )     -       -       -       -       (5,770 )
Other income (loss)
    4,107       (90 )     -       -       1,701       5,718  
Provision for income taxes
    17,213       3,172       -       28,754       -       49,139  
Profit (loss) from continuing operations
  $ 348,776     $ 81,787     $ -     $ (31,254 )   $ (995 )   $ 398,314  
Discontinued operations
    -       -       (6,350 )     -       -       (6,350 )
Profit (loss) for the period
  $ 348,776     $ 81,787     $ (6,350 )   $ (31,254 )   $ (995 )   $ 391,964  
Capital expenditures
  $ 1,856     $ 1,657     $ -     $ 32,573     $ 52,589     $ 88,675  
As at March 31, 2013
                                               
Total goodwill
  $ 212,572     $ 43,527     $ -     $ 283     $ -     $ 256,382  
Total assets
  $ 800,271     $ 276,835     $ 77,439     $ 266,933     $ 107,464     $ 1,528,942  
Total liabilities
  $ 955,055     $ 307,678     $ 77,439     $ 294,401     $ 33,426     $ 1,667,999  
 
 

34.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 


Geographic information
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
Sales from external customers
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
 
For the three months
 
For the three months
   
For the nine months
   
For the nine months
 
 
ended December 31, 2013
 
ended December 31, 2012
 
ended December 31, 2013
 
ended December 31, 2012
 
 
 
 
   
 
   
 
   
 
 
Canada
  $ 214,797     $ 233,451     $ 523,938     $ 571,599  
United States
    625,073       500,964       1,899,529       1,533,111  
United Kingdom
    19,097       2,147       34,636       2,379  
Total sales per
                               
interim consolidated statements of income
  $ 858,967     $ 736,562     $ 2,458,103     $ 2,107,089  
 
                               
The sales are based on the location of the customer.
                 

 Non-current assets
 
 
   
 
 
   
 
   
 
 
Non-current assets by geographic segment consist of property, plant and equipment and intangible assets and are
 
 summarized as follows:
 
 
   
 
 
 
As at December 31, 2013
 
As at March 31, 2013
 
 Canada
  $ 389,161     $ 391,420  
 United States
    308,553       312,823  
 United Kingdom
    948       1,093  
 Total
  $ 698,662     $ 705,336  
           





 
35.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

14.           EARNINGS PER SHARE

 
 
For the three
   
For the three
   
For the nine
   
For the nine
 
 
 
months ended
   
months ended
   
months ended
   
months ended
 
 
 
December 31,
   
December 31,
   
December 31,
   
December 31,
 
 
 
2013
   
2012
   
2013
   
2012
 
Basic earnings per share
                       
Profit from continuing operations
  $ 160,177     $ 41,806     $ 6,012     $ 398,314  
Profit available to shareholders
    178,738       40,312       25,602       392,380  
Basic shares outstanding
    143,411,457       140,126,633       142,848,233       139,621,644  
Basic earnings per share from continuing operations
  $ 1.12     $ 0.30     $ 0.04     $ 2.85  
Basic earnings per share available to shareholders
  $ 1.25     $ 0.29     $ 0.18     $ 2.81  
 
                               
Diluted earnings per share
                               
Profit from continuing operations
  $ 160,177     $ 41,806     $ 6,012     $ 398,314  
Profit available to shareholders
    178,738       40,312       25,602       392,380  
Adjustment for dilutive impact of convertible debentures
    7,590       6,046       22,656     21,880  
Adjusted earnings (loss) from continuing operations
  $ 167,767     $ 47,852     $ 28,668     $ 420,194  
Adjusted earnings (loss) available to shareholders
  $ 186,328     $ 46,358     $ 48,258     $ 414,260  
Basic shares outstanding
    143,411,457       140,126,633       142,848,233       139,621,644  
Dilutive effect of:
                               
Restricted share grants
    3,559,322       3,704,287       3,841,027       3,716,675  
Deferred share grants
    164,146       156,491       162,663       149,617  
Convertible debentures
    27,757,230       23,935,575       27,757,230     27,280,056  
Shares outstanding on a diluted basis
    174,892,155       167,922,986       174,609,153       170,767,992  
Diluted earnings per share from continuing operations
  $ 0.96     $ 0.28     $ 0.04     $ 2.46  
Diluted earnings per share available to shareholders
  $ 1.07     $ 0.28     $ 0.17     $ 2.43  
1 The assumed conversion into shares results in an anti-dilutive position; therefore, this conversion has not been included in computation of diluted earnings per share.
 


15.
DIVIDENDS PAID AND PROPOSED

For the three months ended December 31, 2013, dividends of $0.21 (2012 - $0.31) per share were declared by Just Energy. These dividends amounted to $30,891 (2012 - $44,636), which was approved throughout the period by the Board of Directors and was paid out during the quarter. For the nine months ended December 31, 2013, dividends of $0.63 (2012 - $0.93) per share were declared and paid by Just Energy. This amounted to $92,497 (2012 - $133,435), which was approved throughout the period by the Board of Directors and was paid out during the period.
 
 
 
 
36.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

Declared dividends subsequent to quarter end
On January 2, 2014, the Board of Directors of Just Energy declared a dividend in the amount of $0.07 per common share ($0.84 annually).  The dividend was paid on January 31, 2014 to shareholders of record at the close of business on January 15, 2014.

On February 3, 2014, the Board of Directors of Just Energy declared a dividend in the amount of $0.07 per common share ($0.84 annually).  The dividend will be paid on February 28, 2014 to shareholders of record at the close of business on February 17, 2014.


16.
COMMITMENTS AND GUARANTEES
 
 
Commitments for each of the next five years and thereafter are as follows:

As at December 31, 2013
 
 
 
 
   
 
   
 
 
 
   
 
 
 
Less than
1 year
 
1 to 3 years
 
4 to 5 years
 
More than
5 years
   
Total
 
Premises and equipment leasing
    8,386       11,053       6,709       4,711       30,859  
Royalty payments
    -       3,283       9,643       32,856       45,782  
Long-term gas and electricity contracts
    1,413,975       1,121,052       234,398       9,572       2,778,997  
 
  $ 1,422,361     $ 1,135,388     $ 250,750     $ 47,139     $ 2,855,638  
 
Just Energy has entered into leasing contracts for office buildings and administrative equipment. These leases have a leasing period of between one and eight years. For the main office building of Just Energy, there is a renewal option for an additional five years. No purchase options are included in any major leasing contracts.  Royalty payments represent the future payments NHS is required to make on revenue earned on its current installed base.  Just Energy is also committed under long-term contracts with customers to supply gas and electricity.  These contracts have various expiry dates and renewal options.

Guarantees
 
Pursuant to separate arrangements with various entities, Just Energy has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at December 31, 2013 was $33,000.  
 
As at December 31, 2013, Just Energy had total letters of credit outstanding in the amount of $113,364 (Note 10(a)).
 
17.
COMPARATIVE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Certain figures from the comparative interim condensed consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the current period’s interim condensed consolidated financial statements.

 
37.
 
 

 

 
JUST ENERGY GROUP INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2013
 (unaudited in thousands of Canadian dollars, except where indicated and per share amounts)

 

18.
SUBSEQUENT EVENT

On January 29, 2014, Just Energy completed a European-focused offering (the “Offering”) of US $150 million of senior unsecured convertible bonds due July 2019 with a coupon of 6.5% per annum payable semi-annually in arrears.  The initial conversion price is US $9.3762 per share, which represents a premium of 22.5% over the five day volume weighted average price of Just Energy’s common shares on January 21, 2014 (the day on which the Offering was publicly announced).

Just Energy intends to use the net proceeds of the Offering to redeem its outstanding $90 million convertible debentures on March 19, 2014 and to pay down the Company’s credit facility.  Upon completion of the Offering the credit facility was reduced to $290 million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38.
 


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