Content
Cash Available For Distribution1
Cash generated by operating activities, supplemented by additional borrowings as necessary, is expected to be sufficient to meet the forecast liquidity and capital resource requirements of the Fund. Forecasted liquidity requirements include monthly cash distributions to unitholders, including ordinary and subordinated unitholders of the Fund as well as preferred unitholders of ECT.
The Fund's current liabilities routinely exceed current assets. Current liabilities include current maturities of long-term debt, which are typically refinanced with long-term debt. Excluding current maturities of long-term debt, the Fund does not have a working capital deficit. The Fund's cash balance at December 31, 2007 of $14.7 million includes $2.4 million held in trust in Alliance Canada, pursuant to finance agreements within Alliance Canada.
In July 2007, Alliance Canada acquired a $12.4 million investment in asset backed commercial paper, issued by a structured investment trust (the Trust). The investment is held in trust with Alliance Canada's Security Trustee as part of Alliance Canada's current debt service requirement. As a result of deteriorating liquidity in the asset backed commercial paper market in mid 2007, the Trust was unable to redeem this investment upon its maturity on August 31, 2007. Pursuant to a restructuring plan, conversion of the commercial paper into long-term notes is expected to occur in the first quarter of 2008.
The Fund does not anticipate that the treatment of Alliance Canada's investment in asset backed commercial paper will have any significant impact on its operations or ability to meet upcoming debt obligations.
OPERATING ACTIVITIES
Cash provided by operating activities was $80.6 million for the year ended December 31, 2007, compared with $86.5 million in the prior year. The decrease reflected changes in working capital and lower earnings from operations.
INVESTING ACTIVITIES
Cash used for investing activities for the year ended December 31, 2007 was $71.2 million, a decrease of $8.3 million from the prior year. The decrease reflected the acquisition of the Wind Power projects in 2006.
Capital expenditures are categorized as either maintenance or enhancement. Maintenance capital expenditures are determined based on the capital requirements necessary to maintain the service capability of the existing assets and include the replacement of system components and equipment that are worn, obsolete or completing their useful life. Enhancement expenditures include capital expansion projects and other projects that improve the service capability of existing assets, extend asset useful lives, increase capacities from existing levels, reduce costs or enhance revenues, or enable the Fund to respond to governmental regulations and developing industry standards. Maintenance capital expenditures are funded through cash from operations, whereas enhancement capital expenditures are funded through debt and, as required, the issuance of equity.
FINANCING ACTIVITIES
Financing activities for the year ended December 31, 2007 related to monthly distributions to ordinary and subordinated unitholders as well as changes in outstanding indebtedness under the credit facility and non-recourse debt funding for Alliance Canada.
In June 2007, Alliance Canada amended the maturity date of its existing credit facility from 2011 to 2012. In September 2007, the Fund increased its available credit under its existing unsecured credit facility from $105.0 million to $150.0 million under the same terms and conditions. The Fund's credit facility matures in 2010. The additional available credit will support the Fund's current expansion initiatives. The credit facility may be used to provide working capital to the Fund, to finance acquisitions and development projects or for general purposes. At December 31, 2007, the Fund had $51.3 million (2006 – $35.1 million) in undrawn credit facilities for liquidity requirements.
Payments due for contractual obligations for each of the next five years and thereafter are as follows:
|
(millions of Canadian dollars) |
Total |
Less than 1 year |
2 years |
3 years |
4 years |
5 years |
After 6 years |
|---|---|---|---|---|---|---|---|
Long-Term Debt |
1,039.2 |
28.7 |
130.9 |
132.4 |
36.3 |
81.9 |
629.0 |
Operating Leases |
36.0 |
3.1 |
2.9 |
3.2 |
3.2 |
2.8 |
20.8 |
Other Long-Term Obligations |
8.1 |
8.1 |
- |
- |
- |
- |
- |
|
1,083.3 |
39.9 |
133.8 |
135.6 |
39.5 |
84.7 |
649.8 |
|
(millions of Canadian dollars) Year ended December 31, |
2007 |
2006 |
|---|---|---|
Cash Provided by Operating Activities |
80.6 |
86.5 |
Add/(Deduct): |
|
|
ECT preferred unit distributions2 |
36.5 |
35.2 |
Alliance Canada maintenance capital expenditures3 |
(9.1) |
(7.6) |
Alliance Canada debt repayments4 |
(26.1) |
(27.9) |
Alliance Canada cash retained |
(12.3) |
(8.1) |
Green Power cash retained |
(0.2) |
(4.0) |
Saskatchewan System maintenance capital expenditures3 |
(4.4) |
(3.5) |
Change in operating assets and liabilities in the period5 |
8.5 |
3.7 |
Cash Available for Distribution |
73.5 |
74.3 |
Cash Available for Distribution is comprised of the following: |
|
|
Alliance Canada distributions |
66.9 |
66.6 |
Alliance Canada capital tax |
(0.5) |
(1.0) |
Saskatchewan System operating income before depreciation and amortization |
27.0 |
26.0 |
Saskatchewan System maintenance capital expenditures |
(4.4) |
(3.5) |
Green Power distributions |
4.2 |
1.1 |
Corporate management and administrative expense |
(4.8) |
(4.3) |
Corporate interest expense |
(13.2) |
(10.3) |
Corporate other income |
0.2 |
0.1 |
Corporate current taxes |
(1.9) |
(0.4) |
Cash Available for Distribution |
73.5 |
74.3 |
ECT Preferred Unit Distributions Declared |
36.5 |
35.2 |
Ordinary and Subordinated Units Distributions Declared |
33.1 |
32.1 |
Cash Distributions Declared |
69.6 |
67.3 |
- See non-GAAP measures on page 3.
- The cash available for distribution above is compared to the total distributions, including the ECT preferred unit distributions. Since the ECT preferred units are treated as debt under GAAP with distributions deducted from Earnings, the ECT preferred unit distributions have been added back to the cash provided from operating activities.
- Maintenance capital expenditures reduce the cash available for distribution since these expenditures are funded through cash from operations.
- Debt repayments in Alliance Canada are deducted from cash from operations in deriving the cash available for distribution because they are funded from cash from Alliance Canada's operations.
- Change in operating assets and liabilities in the period reflect changes in non-cash working capital related to operating activities. The change has been added back in cash available for distribution since fluctuations in working capital are expected each period and are not indicative of changes in cash available to be distributed.
The above calculations of cash available for distribution represent cash available to fund distributions on ordinary units, subordinated units and ECT preferred units, as well as for debt repayments and reserves.
The cash retained by Alliance Canada and Green Power reflects the cash from operations of these segments that has not been distributed to the Fund. While the cash from operations was proportionately consolidated and was included in the results of the Fund, it is not available for distribution by the Fund until it has been received from Alliance Canada and the Green Power segment. Cash retained by Alliance Canada and Green Power includes debt service reserves, capital expenditures and other cash needed to fund working capital or other requirements of these segments.
Distributions from Alliance Canada, which are subject to the approval of the Board of Directors of the General Partner of Alliance Canada, are made on a quarterly basis and paid in the month subsequent to quarter end. In the Green Power segment, distributions represent the monthly cash distributions from the Wind Power projects and the quarterly distributions from NRGreen as well as cash settlements paid or received by the Fund for the wind power purchase swap agreements. Distributions from NRGreen are paid in the month subsequent to quarter end.
In 2007, Alliance Canada returned $1.0 million to the Fund representing a return of contributed surplus from construction accounts. This receipt has been excluded from the cash available for distribution reconciliation since it relates to enhancement capital. Enhancement capital is funded via debt and equity; therefore, cash received related to enhancement capital is reserved for debt repayments.
The following table provides a comparison of cash distributions to cash provided by operating activities and to earnings.
|
(millions of Canadian dollars) Year ended December 31, |
2007 |
2006 |
|---|---|---|
Cash Provided by Operating Activities |
80.6 |
86.5 |
Earnings |
21.1 |
35.3 |
Ordinary and Subordinated Unit Cash Distributions Declared1 |
33.1 |
32.1 |
Excess of cash provided by operating activities over ordinary and subordinated cash distributions declared |
47.5 |
54.4 |
Excess/(Shortfall) of earnings over ordinary and subordinated cash distributions |
(12.0) |
3.2 |
- ECT Preferred Unit Distributions have been excluded from this reconciliation since these distributions are reductions to earnings under GAAP.
For the year ended December 31, 2007, cash flows provided by operating activities in the period exceeded cash distributions paid to ordinary and subordinated unitholders by $47.5 million (2006 – $54.4 million.) This excess represented cash reserved for working capital requirements and maintenance capital expenditures, as well as cash retained by joint ventures.
Earnings were $12.0 million lower than cash distributions to ordinary and subordinated unitholders for the year ended December 31, 2007 while earnings exceeded distributions by $3.2 million in prior year. An excess of distributions over earnings is expected to continue in the future and partly represents a return of capital to unitholders (including ECT Preferred Unitholders.) Under GAAP, earnings reflect non-cash items such as amortization of deferred financing costs and depreciation as well as changes in future income taxes due to tax rate changes, all of which do not impact cash flow. Depreciation does not necessarily represent the cost of maintaining productive capacity; therefore, cash required for maintenance may be lower than depreciation expense. In 2006, the excess of earnings over cash distributions reflected non-cash future income tax recoveries of $16.7 million as a result of the significant reduction in future income tax rates.
The Fund's policy is to distribute, on average over a five year rolling period, 95% of cash available for distribution. The remaining 5% is used by the Fund to repay debt obligations, for general purposes and to levelize distributions. The current level of distributions may change based on the performance of the Fund's businesses, the level of continued investment, the Fund's ability to obtain financing and the impacts of the Tax Fairness Plan. The Board of Trustees periodically approves changes to distributions based on cash flow to meet the Fund's distribution policy. Overall, cash distributions of the Fund are governed by the Trust Indenture, which requires a distribution of all distributable cash flow. Distributable cash flow is defined to generally mean cash from operating, investing and financing activities, less certain items, including any cash withheld as a reserve that the Manager determines to be necessary or appropriate for the proper management of the Fund and its assets.