2010 Second Quarter Financial Results
MONTREAL, Aug. 3 /PRNewswire-FirstCall/ - The financial results of Boralex Power Income Fund (the "Fund") have been impaired in the second quarter 2010 by weak hydrology.
For the second quarter ended June 30, 2010, the Fund generated revenues from energy sales of $19.4 million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $8.0 million, against respectively $25.0 million and $11.0 million for the second quarter 2009. The decreases stem from unfavorable hydrology and the raise of the Canadian dollar. The second quarter ended with a net loss of $0.3 million versus a net income of $1.0 million for the same period in 2009.
More specifically, the weak hydrology of the second quarter 2010 led to a 26.4% decrease in power generation by the hydroelectric power stations compared to the 2009 second quarter and to a 20% decrease compared to the historical average. As a result, revenues in the hydroelectric segment fell to $10.0 million, down 32.9% versus the same quarter in 2009. EBITDA amounted to $8.2 million, compared to $13.0 million in the second quarter a year earlier.
The wood-residue thermal power stations generated revenues of $3.3 million and EBITDA of $0.1 million for the three months ended June 30, 2010; whereas in the same period in 2009, this segment recorded revenues from energy sales of $4.5 million and a loss before interest, taxes, depreciation and amortization of $2.3 million. On April 2, 2010, production was shut down at the Dolbeau plant as part of the Fund's plan to operate the plant on a part-time basis to limit the impact of the extended shutdown of the AbitibiBowater pulp and paper mill. The AbitibiBowater decision regarding the future of this mill has not been disclosed and the Fund plans to continue operation for an undetermined period on a part-time basis during the winter. For the Senneterre power station, due to its access to old-bark piles in the region, the plant showed a 22% increase in power generation and a 29% increase in revenues.
The natural gas cogeneration plant generated revenues of $6.0 million and EBITDA of $2.1 million, up 7.1% and 5.0% respectively over the same quarter in 2009, due mainly to the 24.8% increase in the average price of steam.
Note that Boralex Inc. submitted an offer to purchase the Fund on May 3, 2010, an offer which was improved on July 12 and extended to August 13, 2010. Claude Boivin, Chairman of the Board of Trustees of Boralex Power Trust, said "the independent committee set up by the Board of Trustees is reiterating its support for Boralex's improved offer, because we believe it is a fair proposal and in the best interest of our unitholders."
About Boralex Power Income Fund
Boralex Power Income Fund (the "Fund") is an unincorporated open-ended trust that indirectly owns ten power generating stations located in the province of Québec and in the United States producing energy from different sources including wood-residue or natural gas thermal and cogenerating facilities as well as hydroelectric power stations. In total, these power stations have an installed capacity of 190 megawatts ("MW"). The Fund's units are listed on the Toronto Stock Exchange ("TSX") under the symbol BPT.UN.
Certain statements contained in this press release, including those regarding future results and performance, are forward-looking statements based on current expectations. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those projected, including, but not limited to, the general impact of economic conditions, raw material price increases and availability, currency fluctuations, prevailing electricity selling prices on long-term power sales contract renewal dates, the Fund's financing capacity, changes to laws and regulations affecting the Fund's operations particularly with respect to taxation and the environment, adverse changes in general market and industry conditions, as well as other factors listed in the Fund's filings with different securities commissions.
The summarized financial statements included in this press release also contain certain financial measurements that are not recognized as Generally Accepted Accounting Principles of Canada (GAAP). To assess the operating performance of its assets and reporting segments, the Fund uses earnings before interest, taxes, depreciation and amortization (EBITDA) and cash flows from operations as performance measurements. These measures are not defined under GAAP and do not have a standardized definition prescribed by GAAP. Therefore, they may not be comparable to similar measures presented by other companies. EBITDA is defined in the summarized financial statements included with this press release. Cash flows from operations corresponds to cash flows from operating activities before changes in non-cash working capital items as disclosed in the consolidated statements of cash flows attached in this press release.
Notice to Unitholders
The following financial information was extracted from the interim consolidated financial statements of Boralex Power Income Fund (the "Fund"). The complete interim financial statements were prepared in accordance with Canadian generally accepted accounting principles. They are available on the Fund's website (www.boralex.com/trust) and filed with SEDAR.
Consolidated Balance Sheets
As at As at
June 30, December 31,
-------------
(in thousands of dollars) (unaudited) 2010 2009
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 23,493 15,867
Accounts receivable 8,304 14,498
Income taxes receivable 526 -
Inventories 2,208 2,837
Prepaid expenses 1,004 350
---------------------------
35,535 33,552
---------------------------
Property, plant and equipment 291,382 311,735
Intangible assets 51,305 54,142
Other long-term assets 5,591 6,354
---------------------------
383,813 405,783
---------------------------
Liabilities and unitholders' equity
Current liabilities
Short-term revolving credit facility - 3,100
Accounts payable and accrued liabilities 9,469 10,125
Income taxes payable - 800
Distributions payable to unitholders 1,969 3,446
---------------------------
11,438 17,471
---------------------------
Future income tax liabilities 30,173 33,966
Long-term debt 109,306 107,234
Long-term lease accruals 2,989 2,760
---------------------------
153,906 161,431
---------------------------
Unitholders' equity
Capital contribution 422,174 422,174
Capital contribution - exchangeable
Class B units 112,867 112,867
Deficit (287,720) (272,349)
Accumulated other comprehensive loss (17,414) (18,340)
---------------------------
229,907 244,352
---------------------------
383,813 405,783
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Consolidated Statements of Earnings (Loss)
(in thousands of dollars, For the quarters For the six-month
except per unit amounts ended June 30, periods ended June 30,
and number of trust ----------- -----------
units) (unaudited) 2010 2009 2010 2009
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Revenues from energy sales 19,364 25,003 48,338 57,253
-----------------------------------------------
Expenses
Operating 10,015 13,125 21,564 26,020
Administrative 1,376 839 2,085 1,463
-----------------------------------------------
11,391 13,964 23,649 27,483
-----------------------------------------------
Operating earnings before
amortization 7,973 11,039 24,689 29,770
Amortization of property,
plant and equipment 4,411 5,004 9,027 10,087
Amortization of intangible
assets 1,618 1,909 3,228 3,767
-----------------------------------------------
Operating income 1,944 4,126 12,434 15,916
Financing costs, net 1,823 1,986 3,718 3,876
Foreign exchange loss (gain) 87 (103) (159) (136)
Impairment of property,
plant and equipment - - 15,970 -
-----------------------------------------------
Earnings (loss) before
income taxes 34 2,243 (7,095) 12,176
Income taxes (recovery) 364 1,223 (3,537) 1,270
-----------------------------------------------
Net earnings (loss) for
the period (330) 1,020 (3,558) 10,906
-----------------------------------------------
Basic and diluted net
earnings (loss) per trust
unit (in dollars) (0.01) 0.02 (0.06) 0.18
-----------------------------------------------
Weighted average number
of trust units
outstanding 59,067,992 59,067,992 59,067,992 59,067,992
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Consolidated Statements of Deficit
For the six-month
periods ended June 30,
-------------
(in thousands of dollars) (unaudited) 2010 2009
-------------------------------------------------------------------------
Deficit - beginning of period (272,349) (220,137)
Net earnings (loss) for the period (3,558) 10,906
Distributions to unitholders (11,813) (20,674)
---------------------------
Deficit - end of period (287,720) (229,905)
-------------------------------------------------------------------------
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Consolidated Statements of Comprehensive Income (Loss)
For the quarters For the six-month
ended June 30, periods ended June 30,
----------- -----------
(in thousands of dollars)
(unaudited) 2010 2009 2010 2009
-------------------------------------------------------------------------
Net earnings (loss) for
the period (330) 1,020 (3,558) 10,906
Other comprehensive income
(loss):
Translation adjustments
Unrealized foreign
exchange gains (losses)
on translation of
financial statements of
self-sustaining foreign
operations 2,835 (7,369) 908 (4,675)
Reclassification of
accumulated foreign
exchange losses on
translation of financial
statements of self-
sustaining foreign
operations following a
reduction in net
investment 542 5 671 98
Future income taxes 288 (515) 143 (324)
Hedging of net investment
in self-sustaining
foreign operations
Change in fair value of
derivatives designated as
hedges of net investment
in self-sustaining
foreign operations (225) 1,261 63 658
Hedging instruments
realized and recognized
in earnings (460) (147) (859) (211)
-----------------------------------------------
2,980 (6,765) 926 (4,454)
-----------------------------------------------
Comprehensive income
(loss) for the period 2,650 (5,745) (2,632) 6,452
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Consolidated Statements of Cash Flows
For the quarters For the six-month
ended June 30, periods ended June 30,
----------- -----------
(in thousands of dollars)
(unaudited) 2010 2009 2010 2009
-------------------------------------------------------------------------
Operating activities
Net earnings (loss) for
the period (330) 1,020 (3,558) 10,906
Items not affecting cash:
Amortization of property,
plant and equipment 4,411 5,004 9,027 10,087
Amortization of
intangible assets 1,618 1,909 3,228 3,767
Amortization of deferred
financing costs 95 99 196 208
Long-term lease accruals 93 109 187 226
Future income taxes 380 (366) (3,762) (1,270)
Realized translation
adjustments 542 4 671 97
Impairment of property,
plant and equipment - - 15,970 -
Other 39 - 338 -
-----------------------------------------------
6,848 7,779 22,297 24,021
Net change in non-cash
working capital balances 6,173 6,384 3,199 1,537
-----------------------------------------------
Cash flows related to
operating activities 13,021 14,163 25,496 25,558
-----------------------------------------------
Investing activities
Additions to property,
plant and equipment (2,410) (185) (2,621) (1,052)
Acquisition of other
assets (7) (19) (11) (26)
-----------------------------------------------
Cash flows related to
investing activities (2,417) (204) (2,632) (1,078)
-----------------------------------------------
Financing activities
Net change in short-term
revolving credit facility - (1,300) (3,100) 2,400
Increase in long-term debt 900 - 900 -
Repayment of capital
lease obligation - - - (20)
Distributions paid to
unitholders (5,907) (10,337) (13,290) (20,674)
-----------------------------------------------
Cash flows related to
financing activities (5,007) (11,637) (15,490) (18,294)
-----------------------------------------------
Translation adjustments
on cash and cash
equivalents 649 (1,649) 252 (1,116)
-----------------------------------------------
Net change in cash and
cash equivalents during
the period 6,246 673 7,626 5,070
Cash and cash equivalents
- beginning of period 17,247 23,243 15,867 18,846
-----------------------------------------------
Cash and cash equivalents
- end of period 23,493 23,916 23,493 23,916
-----------------------------------------------
Supplemental information
Interest paid 1,695 1,344 3,530 3,892
Income taxes paid 811 857 1,508 1,652
-------------------------------------------------------------------------
Impairment test of property, plant and equipment
Subsequent to an impairment test carried out by the Fund at the end of the first quarter of 2010, a $15,970,000 impairment charge was recorded against property, plant and equipment related to the Dolbeau power station. Due to changes in this power station's operating environment, the Fund concluded that the power station's aggregate value over a long-term horizon had declined.
In light of these factors, the Fund has established various scenarios to assess the future profitability outlook of the power station. These scenarios incorporated different assumptions as to electricity and steam output as well as steam prices in the event the current contract is renegotiated. A complete shutdown of the ABI plant was one of the scenarios also considered. The reader is cautioned that these scenarios were not drawn up based on actual discussions with ABI but rather on a number of forecasts arising from reasonable assessments made by the Fund manager.
Since the aggregate value of expected cash flows under the assumptions made did not match the carrying amount of the assets in question, the Fund recorded a partial write-down of property, plant and equipment in the amount of $15,970,000. Since the Fund, under these scenarios, reduced its long-term forecasts of contractual volume and steam prices, and increased its potential operating costs forecasts, residual profitability was insufficient to support the existing carrying amount of property, plant and equipment.
However, the Fund continues to assess its options to ensure this power station's profitability. While the impairment charge reflects management's assumptions and estimates, it should be borne in mind that the current economic environment entails a special series of combined adverse risks that could affect the financial performance of the power station.
As at June 30, 2010, as the Fund has received no additional material information regarding the status of the ABI pulp and paper plant that would justify changing variables and/or the weightings of the various scenarios, the Fund deems that at this time no additional impairment charge is required.
Segmented information
The Fund's power stations are grouped into three distinct segments - hydroelectric power, wood-residue thermal power and natural gas thermal power - and are engaged mainly in power generation. The classification of these segments is based on the different cost structures relating to each type of power station. The Fund allocates its revenues by geographical region based on the point of delivery of the power. The significant accounting policies that apply to the operating segments are the same as those described in Note 2 in the Fund's 2009 Annual Report.
The Fund analyzes the performance of its operating segments based on earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is not a measure of performance defined under Canadian GAAP; however, management uses this measure to assess the operating performance of its reportable segments. Results for each segment are presented on the same basis as those of the Fund. In the consolidated statement of earnings, EBITDA is represented by operating income before amortization.
The following table reconciles EBITDA with net earnings or net loss:
For the quarters For the six-month
ended June 30, periods ended June 30,
----------- -----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Net earnings (loss) (330) 1,020 (3,558) 10,906
Income taxes (recovery) 364 1,223 (3,537) 1,270
Impairment of property,
plant and equipment - - 15,970 -
Foreign exchange loss (gain) 87 (103) (159) (136)
Financing costs, net 1,823 1,986 3,718 3,876
Amortization of intangible
assets 1,618 1,909 3,228 3,767
Amortization of property,
plant and equipment 4,411 5,004 9,027 10,087
-----------------------------------------------
EBITDA 7,973 11,039 24,689 29,770
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-------------------------------------------------------------------------
Information by operating segment
For the quarters For the six-month
ended June 30, periods ended June 30,
----------- -----------
2010 2009 2010 2009
-------------------------------------------------------------------------
Production (in MWh)
Hydroelectric power
stations 122,998 167,186 237,136 284,318
Wood-residue thermal power
stations 57,154 46,482 141,979 122,228
Natural gas thermal power
station 43,628 45,801 97,855 106,991
-----------------------------------------------
223,780 259,469 476,970 513,537
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Revenues from energy sales
Hydroelectric power
stations 10,037 14,902 20,989 27,614
Wood-residue thermal power
stations 3,311 4,473 12,304 15,617
Natural gas thermal power
station 6,016 5,628 15,045 14,022
-----------------------------------------------
19,364 25,003 48,338 57,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA
Hydroelectric power
stations 8,215 13,007 17,441 23,973
Wood-residue thermal power
stations 83 (2,295) 4,626 2,859
Natural gas thermal power
station 2,073 1,955 6,730 6,156
Corporate and eliminations (2,398) (1,628) (4,108) (3,218)
-----------------------------------------------
7,973 11,039 24,689 29,770
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-------------------------------------------------------------------------
Additions to property,
plant and equipment
Hydroelectric power
stations 129 156 138 908
Wood-residue thermal power
stations 1,853 11 1,908 106
Natural gas thermal power
station 428 18 575 38
-----------------------------------------------
2,410 185 2,621 1,052
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As at As at
June 30, December 31,
-------------
2010 2009
-------------------------------------------------------------------------
Total assets
Hydroelectric power stations 251,415 246,387
Wood-residue thermal power stations 97,840 106,845
Natural gas thermal power station 29,627 37,308
Corporate and eliminations 4,931 15,243
---------------------------
383,813 405,783
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Property, plant and equipment
Hydroelectric power stations 180,165 181,497
Wood-residue thermal power stations 91,656 107,033
Natural gas thermal power station 19,561 23,205
---------------------------
291,382 311,735
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Transaction with Boralex
On May 3, 2010, the Fund and Boralex Inc. ("Boralex") jointly announced that they have entered into a definitive support agreement, pursuant to which Boralex, through one of its wholly owned subsidiaries, has offered to acquire by way of a take-over bid (the "Offer") all of the issued and outstanding trust units in the capital of the Fund (the "Units") in exchange for $5 cash equivalent value per Unit in the form of 6.25% Convertible Unsecured Subordinated Debentures of Boralex (the "Debentures"). Boralex has agreed to offer holders of Units ("Unitholders") a $100 principal amount of Debentures for each 20 units held.
The special committee of independent trustees of Boralex Power Trust (the "Special Committee") and the Board of Trustees have unanimously determined that the Offer is fair to Unitholders other than Boralex and is in the best interest of the Fund and such Unitholders.
A take-over bid circular containing the full details of the Offer and other related documents was mailed to Unitholders on May 19, 2010.
The Offer is contingent on the tendering to the Offer of at least 66 2/3% of the outstanding Units, and a majority of the Units not controlled by Boralex, receipt of any necessary regulatory approvals and compliance with or waiver of other customary conditions.
Under the terms of the support agreement, the Fund has agreed that it will not solicit or initiate any competing third-party proposals. In the event that the transaction is not completed in certain circumstances, the Fund has agreed to pay Boralex a termination fee of approximately $6,800,000.
This transaction was described in more detail in the information circular filed on May 19, 2010 with the regulatory authorities.
On July 12, 2010, Boralex improved its Offer to acquire all of the Units in light of changes in market conditions, by increasing the interest rate of the Debentures to 6.75% per year (instead of 6.25% per year) and offering a conversion price of $12.50 (instead of $17.00) per share of Boralex. The Offer had been extended until July 30, 2010 at 7:00 p.m. This improved Offer has been once again extended until August 13, 2010 at 7:00 p.m.
SOURCE BORALEX POWER INCOME FUND
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