Content
Cash Available For Distribution1
|
Year ended December 31, |
2008 |
2007 |
(millions of Canadian dollars) |
||
|
Cash Provided by Operating Activities |
98.1 |
80.6 |
|
Add/(Deduct): |
||
|
ECT preferred unit distributions 2 |
39.2 |
36.5 |
|
Alliance Canada maintenance capital expenditures 3 |
(5.2) |
(9.1) |
|
Alliance Canada debt repayments 4 |
(28.8) |
(26.1) |
|
Alliance Canada other cash retained 5 |
(11.5) |
(12.3) |
|
Green Power cash distributed/(retained) 5 |
0.1 |
(0.2) |
|
Saskatchewan System maintenance capital expenditures 3 |
(4.4) |
(4.4) |
|
Change in operating assets and liabilities in the period 6 |
3.7 |
8.5 |
|
Cash Available for Distribution |
91.2 |
73.5 |
|
Cash Available for Distribution is comprised of the following: |
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|
Alliance Canada distributions |
76.4 |
66.9 |
|
Alliance Canada capital tax |
(0.2) |
(0.5) |
|
Saskatchewan System operating income before depreciation and amortization |
34.6 |
27.0 |
|
Saskatchewan System maintenance capital expenditures |
(4.4) |
(4.4) |
|
Green Power distributions |
4.8 |
4.2 |
|
Corporate management and administrative expense |
(6.5) |
(4.8) |
|
Corporate interest expense |
(12.1) |
(13.2) |
|
Corporate other income |
0.1 |
0.2 |
|
Corporate current taxes |
(1.5) |
(1.9) |
|
Cash Available for Distribution |
91.2 |
73.5 |
|
Ect Preferred Unit Distributions Declared |
39.2 |
36.5 |
|
Trust unit distributions declared |
35.7 |
33.1 |
|
Cash Distributions Declared |
74.9 |
69.6 |
- See Non-GAAP Measures.
- The cash available for distribution above is compared to total distributions, including the ECT preferred unit distributions. Since ECT preferred units are treated as debt under GAAP with distributions deducted from earnings, the ECT preferred unit distributions have been added back to cash provided from operating activities.
- Maintenance capital expenditures reduce 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 cash available for distribution because they are funded from cash from Alliance Canada’s operations.
- The cash retained or distributed by Alliance Canada and Green Power reflects the cash from operations of these segments that has not been distributed to the Fund or distributions in excess of cash earnings in the period. While this cash from operations is proportionately consolidated and included in the Fund’s cash provided by operating activities, 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.
- 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 to 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.
As set out in the above table, cash available for distribution consists of operating cash flow from the Fund’s underlying businesses less deductions for maintenance capital expenditures, the Fund’s administrative and operating expenses, corporate segment interest expense, applicable taxes and other reserves deemed prudent by the Manager.
The above calculations of cash available for distribution represent cash available to fund distributions on trust units and ECT preferred units, as well as for debt repayments and reserves.
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 capital repayments.
ANALYSIS OF CASH DISTRIBUTIONS DECLARED
|
Year ended December 31, |
2008 |
2007 |
(millions of Canadian dollars) |
||
|
Cash Provided by Operating Activities |
98.1 |
80.6 |
|
Earnings |
21.9 |
21.1 |
|
Trust Unit Cash Distributions Declared 1 |
35.7 |
33.1 |
|
Excess of cash provided by operating activities over cash distributions declared |
62.4 |
47.5 |
|
Shortfall of earnings over cash distributions declared |
(13.8) |
(12.0) |
- 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, 2008, cash flows provided by operating activities in the period exceeded cash distributions paid to trust unitholders by $62.9 million (2007 – $47.5 million). This excess represented cash reserved for debt repayments, working capital requirements and maintenance capital expenditures, as well as cash retained by joint ventures.
Earnings were $13.8 million lower than cash distributions to trust unitholders for the year ended December 31, 2008, which is consistent with the 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.
DISTRIBUTIONS
On November 3, 2008, the Board of Trustees announced an 11.6% increase to the regular monthly distributions effective beginning in 2009. As a result, the regular monthly distributions will increase from $0.086 per unit to $0.096 per unit effective with the distribution payable to unitholders of record on January 30, 2009.
In May 2008, the Board of Trustees announced a change to the Fund’s distribution policy. The Fund now targets to distribute approximately 95% of cash available for distribution each calendar year. The distribution will not typically be adjusted in circumstances where a change in cash available for distribution is not considered to be recurring. Formerly, the Fund had only implemented distribution increases when the increase could be sustained for at least five years into the future, including additional 1% annual increases, at an average payout ratio of 95%. This approach is no longer practical in light of the federal government’s tax on Specified Income Flowthrough Vehicles, which will most likely reduce cash available for distribution commencing in 2011, if it is imposed as expected. The remaining 5% of cash available for distribution retained by the Fund is used to repay debt obligations, for general purposes and to levelize distributions.