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Press release from Marketwire

Just Energy Reports Second Quarter Results

Tuesday, November 09, 2010

Just Energy Reports Second Quarter Results10:38 EST Tuesday, November 09, 2010TORONTO, ONTARIO--(Marketwire - Nov. 9, 2010) - Just Energy Income Fund (TSX:JE.UN) -Highlights for the three months ended September 30, 2010 included:-- Gross and net customer additions through marketing of 254,000 and 92,000, respectively, up 81% and 156% year over year. -- Total customer base reached 3,161,000 customers, up 39% from a year earlier. -- Sales (seasonally adjusted) up 33% year over year reaching $748.5 million. -- Gross margin (seasonally adjusted) of $115.4 million, up 7% (5% per unit), reflecting improved operating results. -- General and administrative costs were flat year over year despite a 39% increase in customers and the inclusion of Hudson Energy Services. -- Distributable cash after gross margin replacement of $53.4 million, up 2% (0% per unit). -- Distributable cash of $45.8 million after all marketing expenses up 11% (8% per unit). -- Adjusted EBITDA of $39.4 million, up 8% per unit from $36.6 million year over year. -- Net loss of $154.4 million ($1.12 per unit), which includes the impact of the non-cash mark to market loss on future supply positions. Prior year net income was $110.7 million ($0.82 per unit) due to a favourable mark to market adjustment.Just Energy Second Quarter Fiscal 2011 ResultsJust Energy Income Fund announced its results for the period ended September 30, 2010. The tables below detail the operating results of the Fund for the three and six months ended September 30, 2010.Three months ended September 30, F2011 Per unit F2010 Per unit ($millions, except per unit) ----------------------------------------------------------------------------Sales(1) $ 748.5 $ 5.44 $ 562.1 $ 4.19Gross margin(1) 115.4 0.84 107.5 0.80Distributable cash After margin replacement 53.4 0.39 52.3 0.39 After marketing expense 45.8 0.33 41.3 0.31Adjusted EBITDA 39.4 0.29 36.6 0.27Net income (loss) (154.5) (1.12) 110.7 0.82Distributions 42.3 0.31 42.8 0.32Six months ended September 30, F2011 Per unit F2010 Per unit ($millions, except per unit) ----------------------------------------------------------------------------Sales(1) $1,388.5 $ 10.10 $ 994.7 $ 8.04Gross margin(1) 204.3 1.49 182.3 1.47Distributable cash After margin replacement 87.2 0.63 94.5 0.76 After marketing expense 70.2 0.51 77.4 0.63Adjusted EBITDA 70.7 0.51 66.8 0.54Net income 120.8 0.88 213.3 1.72Distributions 84.6 0.62 77.9 0.63(1)Seasonally adjusted (non-GAAP) measure.(2)The per unit amounts are calculated using an adjusted fully diluted basis for fiscal 2011 removing the impact of the JEEC and JEIF convertible debentures as they will be anti-dilutive by fiscal year end. The fiscal 2010 per unit amounts are calculated on a fully diluted basis.Just Energy is an Income Fund and it reports in the attached Management's Discussion and Analysis, a detailed calculation of distributable cash both before and after marketing expenditures to expand the gross margin from the Fund's customer base.The second quarter of fiscal 2011 displayed the continued success of Just Energy's efforts to diversify its marketing channels, rejuvenate its door-to-door salesforce as well as the continued impact of its diversification into new product lines. The purchase of Hudson Energy during the first quarter added not only an established commercial customer base but also a proven network of independent brokers for the commercial market. This network has already contributed to results as reflected in the customer aggregation seen in both the first and second quarters.Following a record 261,000 customer additions in the first quarter, Just Energy achieved gross customer additions through marketing of 254,000 in the second quarter, up 81% from the previous record of 140,000 additions in the second quarter of fiscal 2010. Net customer additions for the quarter were 92,000, up from 36,000 a year ago and higher than the total net additions in both fiscal 2009 and fiscal 2010.The following table highlights the impact of marketing channel diversification in the fiscal 2011 compared to the prior two years.To view a graph of the Quarterly Customer Additions, please visit the following link: http://media3.marketwire.com/docs/je_1109_quartely_customer_additions.pdfThe first six months of fiscal 2011 have seen marketing generate net additions equal to 9% of the Fund's April 1, 2010 customer count. With the Hudson Energy acquisition, the total growth increased to 38% since the beginning of the fiscal year.It is important to note that the majority of these new customers will only begin flowing in the third quarter of fiscal 2011. This customer growth should lead to both future margin growth and cash flow growth.Second Quarter Operating PerformanceOperating performance in the second quarter improved compared to the weather-impacted results in the first quarter despite final settlements in the Ontario and Michigan markets. Gross margins and distributable cash were in line with our published expectations during the second quarter and, as noted above, this was without the benefit of new customers signed over the past six months who will not flow until the third or fourth quarter. While the second quarter results reflect the adverse effects of final reconciliation costs from the winter with record warm temperatures on our gas book, gross margins were up 5% per unit, distributable cash after margin replacement was flat per unit and up 6% per unit after all marketing expense.Realized margins per customer were weak in the quarter, particularly in the gas markets which related to the final settlements for the past warm winter. This resulted in a lag between customer growth and margin growth. Many of the new customer additions for the fiscal year have been from our Commercial Energy division which generates margins per customer lower than that of residential customers. Overall, our new customer margins remained strong which bodes well for future results. Total embedded margin within our customer book was $1.5 billion despite a 3% decline in the U.S. dollar. Just Energy's future remains bright.Management's estimate of the future embedded gross margin is as follows: Sept 10 Sept 10 vs. June vs. Sept As of Sept As of June 10 As of June 09 30, 2010 30, 2010 Variance 30, 2010 Variance -----------------------------------------------------------Canada (CAD$) $ 708.8 $ 757.5 (6)% $ 816.6 (13)%United States (US$) $ 778.8 $ 698.5 11% $ 370.5 102%Total (CAD$) $ 1,510.9 $ 1,501.1 1% $ 1,213.8 24%The Fund bears bad debt risk on 35% of its revenue and the expense had peaked at 3.5% in the depths of the recession last year. Since then, along with the slow recovery in the U.S. economy, losses have steadily declined and totalled 2.5% for the second quarter, in the middle of the Fund's 2% to 3% target range. Customer attrition, which had risen above our 30% target in our U.S. gas markets, has also steadily declined reaching 27% in the trailing 12 months, with further reductions likely.The quarter demonstrated clear evidence of improved controls over the general and administrative costs. Despite a 38% increase in number of customers and the addition of the Hudson management team to Just Energy's base, overhead costs were flat at $25.5 million year over year. This was done through the final realization of synergies from the Universal acquisition completed in fiscal 2010 and tight controls on all other spending.During the quarter, Just Energy committed to make expenditures toward a number of new geographic expansions which management believes will contribute to higher distributable cash in the future. This will result in higher general and administrative costs in future quarters, but the ratio of these costs to customers should continue to decline.The growth of the Commercial Energy division has a number of impacts on operating results. First, margins per residential customer equivalents ("RCEs") are lower with these customers but a single customer can equate to hundreds of RCEs. This means lower customer care costs per RCE and lower initial aggregation cost. Commercial customers are currently approximately 40% of Just Energy's base and we expect that percentage to increase over time. Second, commercial customers are subject to less weather volatility than residential customers which may mean more predictable results from the natural gas book. Also, commercial customers do not ordinarily move which could lead to lower overall attrition, making book balancing less complex.In regards to the second quarter, CEO Ken Hartwick noted: "We are very pleased with our operating results in the second quarter. As was the case in the first quarter, customer aggregation was at a level far higher than any time in Just Energy's history. This was a result of both our acquisition of Hudson Energy and the efforts we have made to rebuild our door-to-door salesforce. From a low of 450, we now have more than 1,100 independent contractors working full time.""Overall, our results for the quarter were in line with our past performance and our expectations going into the year. Our natural gas margins were dampened by the final reconciliations for the previous record warm winter. Our electricity results were solid. Just Energy is well placed heading into its conversion to corporate status at year end."Chair Rebecca MacDonald added: "The third quarter will be our last as an Income Trust. Our entire management team is very proud of the track record we have built at Just Energy. We remain in position to pay the same $1.24 per share annually in monthly dividends as we have paid for the last few years in per-unit distributions. As a significant holder of units, I am also pleased that most Canadian investors will have increased after-tax returns on conversion.""Just Energy has never been better positioned. We intend to build on the solid base we have in place and take our company to new levels as a corporation. Exceptional opportunities exist for continued growth in the United States and we are well positioned as a market leader for both residential and commercial customers. I am confident that our unitholders (soon to be shareholders) will benefit from this bright future."The FundJust 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 and green energy products. 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. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the associated volumes from its suppliers. The Fund also offers "green" products through its JustGreen program. The electricity JustGreen product offers the customer the option of having all or a portion of his or her electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits which will allow the customer to reduce or eliminate the carbon footprint for their home or business. Management believes that these products will not only add to profits, but also increase sales receptivity and improve renewal rates.In addition, through National Home Services, the Fund sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, the Fund produces and sells wheat-based ethanol.Non GAAP MeasuresAdjusted EBITDA represents EBITDA adjusted to exclude the impact of mark-to-market gains (losses) arising from Canadian GAAP requirements for derivative financial instruments on our future supply positions. In addition, the Adjusted EBITDA calculation deducts marketing costs sufficient to maintain existing levels of gross margin and maintenance capital expenditures necessary to sustain existing operations. This adjustment results in the exclusion of the marketing that Just Energy carried out and the capital expenditures that it had made to add to its productive capacity in the future.Management believes the best basis for analyzing both the Fund's results and the amount available for distribution is to focus on amounts actually received ("seasonally adjusted") because this figure provides the margin earned on all deliveries to the utilities. Seasonally adjusted sales and gross margin are not defined performance measures under Canadian GAAP. Seasonally adjusted analysis applies solely to the gas markets and specifically to Ontario, Quebec, Manitoba and Michigan.Forward-Looking StatementsThe Fund's press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, general and administrative expenses, distributable cash, 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, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes and decisions by regulatory authorities, competition and dependence on certain suppliers. Additional information on these and other factors that could affect the Fund's operations, financial results or distribution levels are included in the Fund's annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or through the Fund's website at www.justenergy.com.The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - November 8, 2010OverviewThe following discussion and analysis is a review of the financial condition and results of operations of Just Energy Income Fund ("Just Energy", the "Fund" or "JEIF") for the three and six months ended September 30, 2010, and has been prepared with all information available up to and including November 8, 2010. This analysis should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended September 30, 2010, as well as the audited consolidated financial statements and related MD&A for the year ended March 31, 2010, contained in the Fund's 2010 Annual Report. The financial information contained herein has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). All dollar amounts are expressed in Canadian dollars. Quarterly reports, the annual report and supplementary information can be found on our corporate website at www.justenergy.com. Additional information can be found on SEDAR at www.sedar.com.Just Energy is an open-ended, limited-purpose trust established under the laws of the Province of Ontario to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P. ("JE Ontario"), Just Energy Manitoba L.P. ("JE Manitoba"), Just Energy Quebec L.P. ("JE Quebec"), Just Energy (B.C.) Limited Partnership ("JE B.C."), Just Energy Alberta L.P. ("JE Alberta"), Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp. ("JE Illinois"), Just Energy New York Corp. ("JENYC"), Just Energy Indiana Corp. ("JE Indiana"), Just Energy Texas L.P. ("JE Texas"), Just Energy Massachusetts Corp. ("JE Mass"), Just Energy Michigan Corp., ("JE Michigan"), Just Energy Exchange Corp. ("JEEC"), Universal Energy Corporation ("UEC"), Universal Gas and Electric Corporation ("UG&E"), Commerce Energy, Inc. ("Commerce" or "CEI"), National Energy Corp. ("NEC") operating under the trade name of National Home Services ("NHS"), Hudson Energy Services, LLC ("Hudson" or "NES"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis") and Terra Grain Fuels, Inc. ("TGF"), collectively, the "Just Energy Group".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 and green energy products. 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. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the associated volumes from its suppliers. The Fund also offers green products through its JustGreen program. The electricity JustGreen product offers the customer 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, which will allow the customer to reduce or eliminate the carbon footprint of their home or business. Management believes that the JustGreen products will not only add to profits, but also increase sales receptivity and improve renewal rates.In addition, through NHS, the Fund sells and rents high efficiency and tankless water heaters and other heating, ventilating and air conditioning ("HVAC") products. TGF, an ethanol producer, operates a wheat-based ethanol facility in Belle Plaine, Saskatchewan. Just Energy indirectly acquired Hudson, effective May 1, 2010, a marketer of natural gas and electricity that primarily sells to commercial customers.Forward-looking informationThis MD&A contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, distributable cash 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 and competition and dependence on certain suppliers. Additional information on these and other factors that could affect the Fund's operations, financial results or distribution levels are included in the Fund's Annual Information Form and other reports on file with Canadian security regulatory authorities which can be accessed on our corporate website at www.justenergy.com or through the SEDAR website at www.sedar.com.Key terms"Attrition" means customers whose contracts were terminated early, or cancelled by Just Energy due to delinquent accounts."Failed to renew" means customers who did not renew expiring contracts at the end of their term."Gross margin per RCE" represents the gross margin realized on Just Energy's customer base, including both low margin customers acquired through various acquisitions and gains/losses from the sale of excess commodity supply."JEEC convertible debentures" represents the $90 million in convertible debentures issued by Universal in October 2007. JEEC assumed the obligations of the debentures as part of the acquisition of Universal Energy Group Ltd. ("UEG") on July 1, 2009. See Long-term debt and financing for further details."JEIF convertible debentures" represents the $330 million in convertible debentures issued by the Fund to finance the purchase of Hudson effective May 1, 2010. See Long-term debt and financing for further details."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 or the "customer", which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m(3) (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."Large commercial customer" means customers representing more than 15 RCEs.Non-GAAP financial measuresAll non-GAAP financial measures do not have standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.Seasonally adjusted sales and seasonally adjusted gross marginManagement believes the best basis for analyzing both the Fund's results and the amount available for distribution is to focus on amounts actually received ("seasonally adjusted") because this figure provides the margin earned on all deliveries to the utilities. Seasonally adjusted sales and gross margin are not defined performance measures under Canadian GAAP. Seasonally adjusted analysis applies solely to the gas markets and specifically to Ontario, Quebec, Manitoba and Michigan.No seasonal adjustment is required for electricity as the supply is balanced daily. In the other gas markets, payments for supply by the LDCs are aligned with customer consumption.Cash Available for Distribution"Distributable cash after marketing expense" refers to the net Cash Available for Distribution to Unitholders. Seasonally adjusted gross margin is the principal contributor to Cash Available for Distribution. Distributable cash is calculated by the Fund as seasonally adjusted gross margin, adjusted for cash items including general and administrative expenses, marketing expenses, bad debt expense, interest expense, corporate taxes, capital taxes and other items. This non-GAAP measure may not be comparable to other income funds."Distributable cash after gross margin replacement" represents the net Cash Available for Distribution to Unitholders as defined above. However, only the marketing expenses associated with maintaining the Fund's gross margin at a stable level, equal to that in place at the beginning of the period, are deducted. Management believes that this is more representative of the ongoing operating performance of the Fund because it includes all expenditures necessary for the retention of existing customers and the addition of new margin to replace those customers that have not been renewed. This non-GAAP measure may not be comparable to other income funds.For reconciliation to cash from operating activities please refer to the "Cash Available for Distribution and distributions" analysis on page 8.EBITDA"EBITDA" represents earnings before interest, taxes, depreciation and amortization. This is a non-GAAP measure which reflects the pre-tax profitability of the business.Adjusted EBITDA"Adjusted EBITDA" represents EBITDA adjusted to exclude the impact of mark-to-market gains (losses) arising from Canadian GAAP requirements for derivative financial instruments on future supply positions. In addition, the Adjusted EBITDA calculation deducts marketing costs sufficient to maintain existing levels of gross margin and maintenance capital expenditures necessary to sustain existing operations. This adjustment results in the exclusion of the marketing that Just Energy carried out and the capital expenditures that it had made to add to its future productive capacity. Management believes this is a useful measure of operating performance for investors.Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under Canadian GAAP, the customer margins 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 volatility. Management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance of the Fund and have therefore excluded it from the Adjusted EBITDA calculation.Embedded gross marginEmbedded gross margin is a rolling five-year measure of management's estimate of future contracted gross margin. It is the difference between existing customer contract prices and the cost of supply for the remainder of term, with appropriate assumptions for customer attrition and renewals. It is assumed that expiring contracts will be renewed at target margin and renewal rates.Standardized Distributable Cash"Standardized Distributable Cash" is a non-GAAP measure developed to provide a consistent and comparable measurement of distributable cash across entities. It is defined as cash flows from operating activities, as reported in accordance with GAAP, less an adjustment for total capital expenditures as reported in accordance with GAAP and restrictions on distributions arising from compliance with financial covenants restrictive at the date of the calculation of Standardized Distributable Cash.For reconciliation to cash from operating activities please refer to the "Standardized Distributable Cash and Cash Available for Distribution" analysis on page 12.Financial highlights For the three months ended September 30 (thousands of dollars, except where indicated and per unit amounts) Fiscal 2011 Fiscal 2010 Per Per unit Per $ unit(1) Change $ unit(1)Sales 657,878 $ 4.78 48% 434,659 $ 3.24Net income (loss)(2) (154,480) $ (1.12) NMF(6) 110,690 $ 0.82Adjusted EBITDA(3) 39,375 $ 0.29 8% 36,598 $ 0.27Gross margin (seasonally adjusted)(4) 115,356 $ 0.84 5% 107,519 $ 0.80Distributable cash - After gross margin replacement 53,442 $ 0.39 - 52,303 $ 0.39- After marketing expense 45,753 $ 0.33 8% 41,345 $ 0.31Distributions 42,310 $ 0.31 (3)% 42,839 $ 0.32General and administrative 25,511 $ 0.19 - 25,634 $ 0.19Distributable cash payout ratio(5) - After gross margin replacement 79% 82% - After marketing expense 92% 104% For the six months ended September 30 (thousands of dollars, except where indicated and per unit amounts) Fiscal 2011 Fiscal 2010 Per Per unit Per $ unit(1) Change $ unit(1)Sales 1,267,562 $ 9.22 37% 833,669 $ 6.74Net income(2) 120,829 $ 0.88 (49)% 213,317 $ 1.72Adjusted EBITDA(3) 70,657 $ 0.51 (6)% 66,780 $ 0.54Gross margin (seasonally adjusted)(4) 204,289 $ 1.49 1% 182,288 $ 1.47Distributable cash - After gross margin replacement 87,225 $ 0.63 (17)% 94,522 $ 0.76- After marketing expense 70,155 $ 0.51 (19)% 77,432 $ 0.63Distributions 84,589 $ 0.62 (2)% 77,853 $ 0.63General and administrative 54,783 $ 0.40 21% 41,251 $ 0.33Distributable cash payout ratio(5) - After gross margin replacement 97% 82% - After marketing expense 121% 101% (1) The per unit amounts are calculated using an adjusted fully diluted basis for fiscal 2011, removing the impact of the JEEC and JEIF convertible debentures as both will be anti-dilutive by fiscal year- end. The fiscal 2010 per unit amounts are calculated on a fully diluted basis. (2) Net income (loss) includes the impact of unrealized gains (losses) which represent 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. (3) Adjusted EBITDA is a more appropriate measure of the performance of the Fund since it excludes the unrealized mark to market gains and losses and deducts only marketing costs and capital spending to sustain existing operations. See above for more information. (4) See discussion of non-GAAP financial measures. (5) Management targets an annual payout ratio after all marketing expenses, excluding any Special Distribution, of less than 100%. (6) Not a meaningful number. Reconciliation of net income (loss) to Adjusted EBITDA (thousands of dollars) For the three For the three For the six For the six months ended months ended months ended months ended Sept 30, Sept 30, Sept 30, Sept 30, fiscal 2011 fiscal 2010 fiscal 2011 fiscal 2010 --------------------------------------------------------Net income (loss) $ (154,480) $ 110,690 $ 120,829 $ 213,317 Add: Interest 12,296 4,946 21,776 5,426 Tax expense (recovery) (46,529) 25,786 (27,169) 36,089 Capital tax 26 48 159 128 Amortization 40,752 24,068 74,200 25,856 --------------------------------------------------------EBITDA (147,935) 165,538 189,795 280,816 Add: Change in fair value of derivative instruments 181,254 (138,515) (133,122) (226,395)Marketing expenses to add gross margin 7,689 10,958 17,070 17,090 Less: Maintenance capital expenditures (1,633) (1,383) (3,086) (4,731) --------------------------------------------------------Adjusted EBITDA 39,375 36,598 70,657 66,780 --------------------------------------------------------Acquisition of Hudson Energy Services, LLCOn May 7, 2010, Just Energy completed the acquisition of all of the equity interests of Hudson Parent Holdings, LLC and all of the common shares of Hudson Energy Corp., thereby indirectly acquiring Hudson Energy Services, LLC with an effective date of May 1, 2010.The acquisition of Hudson was accounted for using the purchase method of accounting. The Fund allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as:Net assets acquired: Current assets (including cash of $24,003) $ 88,696 Current liabilities (107,817)Electricity contracts and customer relationships 200,653 Gas contracts and customer relationships 26,225 Broker network 84,400 Brand 11,200 Information technology system development 17,954 Contract initiation costs 20,288 Other intangible assets 6,545 Goodwill 33,574 Property, plant and equipment 2,559 Unbilled revenue 15,092 Notes receivable - long term 1,312 Security deposits - long term 3,544 Other assets - current 124 Other assets - long term 100 Other liabilities - current (74,683)Other liabilities - long term (40,719) ---------------- $ 289,047 ---------------- ----------------Consideration: Purchase price $ 287,790Transaction costs 1,257 ---------------- $ 289,047 ---------------- ----------------All contracts and intangible assets, excluding brand, are amortized over the average remaining life at the time of acquisition. The gas and electricity contracts and customer relationships are amortized over 30 months and 35 months, respectively. Other intangible assets, excluding brand, are amortized over periods of three to five years. The brand value is considered to be indefinite and, therefore, not subject to amortization. The purchase price allocation is considered preliminary and, as a result, may be adjusted during the 12-month period following the acquisition. In the three months ended September 30, 2010, goodwill increased by $2.6 million due to additional transaction costs and a change in the working capital calculation which impacted the purchase price.Acquisition of Universal Energy Group Ltd.On July 1, 2009, Just Energy completed the acquisition of all of the outstanding common shares of Universal Energy Group ("Universal") pursuant to a plan of arrangement (the "Arrangement"). Under the Arrangement, the Universal shareholders received 0.58 of an exchangeable share ("Exchangeable Share") of JEEC, a subsidiary of Just Energy, for each Universal common share held. In aggregate, 21,271,804 Exchangeable Shares were issued pursuant to the Arrangement. Each Exchangeable Share is exchangeable for a unit of the Fund on a one for one basis at any time at the option of the holder, and entitles the holder to a monthly dividend equal to 66 2/3% of the monthly distribution and/or Special Distribution paid by Just Energy on a unit of the Fund. JEEC also assumed all the covenants and obligations of Universal in respect of Universal's outstanding JEEC convertible debentures. On conversion of the JEEC convertible debentures, holders will be entitled to receive 0.58 of an Exchangeable Share in lieu of each Universal common share that the holder was previously entitled to receive on conversion.The acquisition of Universal was accounted for using the purchase method of accounting. The Fund allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:Net assets acquired: Working capital (including cash of $10,319) $ 63,614 Electricity contracts and customer relationships 229,586 Gas contracts and customer relationships 243,346 Water heater contracts and customer relationships 22,700 Other intangible assets 2,721 Goodwill 77,494 Property, plant and equipment 171,693 Future tax liabilities (50,475)Other liabilities - current (164,148)Other liabilities - long-term (140,857)Long-term debt (183,079)Non-controlling interest (22,697) ---------------- $ 249,898 ---------------- ----------------Consideration: Transaction costs $ 9,952 Exchangeable shares 239,946 ---------------- $ 249,898 ---------------- ----------------All contracts, customer relationships and intangible assets are amortized over the average remaining life at the time of acquisition. The gas and electricity contracts, including customer relationships, acquired are amortized over periods ranging from 8 to 57 months. The water heater contracts and customer relationships are amortized over 174 months and the other intangible assets are amortized over six months. The non-controlling interest represents 33.3% ownership of TGF held by EllisDon Corporation. The purchase price for this acquisition is final and no longer subject to change.OperationsGasIn each of the markets that Just Energy operates, it is required to deliver gas to the LDCs for its customers throughout the year. Gas customers are charged a fixed price for the full term of their contract. Just Energy purchases gas supply in advance of marketing for residential customers and is generally concurrent with the execution of a contract for larger commercial customers. The LDC provides historical customer usage to enable Just Energy to purchase an approximation of estimated supply. Furthermore, in many markets, Just Energy mitigates exposure to customer usage by purchasing options that cover potential differences in customer consumption due to weather variations. The cost of this strategy is incorporated in the price to the customer. Our ability to mitigate weather effects is limited by utilities' requirements to deliver fixed amounts of gas regardless of the weather. To the extent that balancing requirements are outside the options purchased, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. Excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. In the case of greater than expected gas consumption, Just Energy must purchase the short supply at the market price, which may reduce or increase the customer gross margin typically realized. Under some commercial contract terms, this balancing may be passed onto the customer.Ontario, Quebec, British Columbia and MichiganIn 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.Manitoba and AlbertaIn Manitoba and 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 LDCs will be higher in the winter months.New York, Illinois, Indiana, Ohio and CaliforniaIn New York, Illinois, Indiana, Ohio and California, 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 is greatest during the third and fourth (winter) quarters, as cash is normally, received from the LDCs in the same period as customer consumption.ElectricityOntario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California and MassachusettsJust Energy offers a variety of price protection products to its electricity customers. The product offerings include both fixed-price and variable-price long-term and short-term electricity contracts. Customers have the ability to choose an appropriate JustGreen program to supplement their electricity contracts, providing an effective method to offset their carbon footprint. In Ontario, New York and Texas, Just Energy provides customers with price protection programs for the majority of their electricity requirements. The customers experience either a small balancing charge or credit 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 accurately predict future customer consumption and to help with long term supply procurement decisions.Cash flow from electricity operations is greatest during the second and fourth quarters (summer and winter), as electricity consumption is typically highest during these periods.Consumer (Residential) Energy divisionThe sale of gas and electricity to customers of 15 RCEs and less is undertaken by the Consumer Energy division. The marketing of this division is primarily done door-to-door through more than 1,100 independent contractors and the recently formed Momentis network marketing operation. Approximately two thirds of Just Energy's customers and energy revenues are generated by the Consumer Energy division which is focused on five year fixed-price or price-protected offerings of both JustGreen and regular products. To the extent that certain markets are better served by shorter term or enhanced variable rate products, the Consumer Energy independent contractors also offer these products.Commercial Energy divisionCustomers with annual consumption over 15 RCEs are served by the Commercial Energy division. These sales are made through two main channels, inside commercial sales representatives, established by Just Energy in its recent expansion into this channel and sales through the broker channel using the commercial platform acquired with Hudson purchase. Commercial customers make up about one third of Just Energy's customer base and energy sales. Products offered to commercial customers can range from standard fixed offerings to "one off" offerings which are tailored to meet the customer's specific needs. These can be either fixed or floating rate or a blend of the two and normally have terms of less than five years. Margin per RCE for this division is lower than residential margins but customer aggregation cost and ongoing customer care costs are lower as well on a per RCE basis. Commercial customers tend to have combined attrition and failed to renew rates which are lower than those of residential customers.Home Services divisionNEC began operations in April 2008 and operates under the trade name of National Home Services ("NHS"). NHS commenced providing Ontario residential customers with a long-term water heater rental program in the summer of 2008, offering high efficiency conventional and power vented tanks and tankless water heaters. In the fourth quarter of fiscal 2010, NHS began offering the rental of air conditioners and furnaces to Ontario residents.Ethanol divisionJust Energy also owns a 66.7% interest in TGF, a 150-million-litre capacity wheat-based ethanol plant located in Belle Plaine, Saskatchewan. The plant produces wheat-based ethanol and high protein distillers dried grain ("DDG").Cash Available for Distribution and distributions For the three months ended September 30 (thousands of dollars, except per unit amounts) Fiscal 2011 Fiscal 2010 ------------------- ------------------- Per Per unit unit --------- ---------Reconciliation to statements of cash flow Cash inflow from operations $ 13,821 $ 24,708 Add: Increase in non-cash working capital 31,863 16,098 Other (372) - Tax impact on distributions to Class A preference shareholders 441 539 ---------- ---------- Cash Available for Distribution $ 45,753 $ 41,345 ---------- ---------- ---------- ---------- Cash Available for Distribution Gross margin per financial statements $ 96,829 $ 0.70 $ 81,496 $ 0.61 Adjustments required to reflect net cash receipts from gas sales 18,527 26,023 ---------- ---------- Seasonally adjusted gross margin $115,356 $ 0.84 $107,519 $ 0.80 ---------- ---------- Less: General and administrative (25,511) (25,634) Capital tax expense (26) (48) Bad debt expense (6,694) (3,856) Income tax recovery (expense) 3,175 (6,106) Interest expense (12,296) (4,946) Other items 4,516 1,523 ---------- ---------- (36,836) (39,067) ---------- ---------- Distributable cash before marketing expenses 78,520 $ 0.57 68,452 $ 0.51Marketing expenses to maintain gross margin (25,078) (16,149) ---------- ---------- Distributable cash after gross margin replacement 53,442 $ 0.39 52,303 $ 0.39Marketing expenses to add new gross margin (7,689) (10,958) ---------- ---------- Cash Available for Distribution $ 45,753 $ 0.33 $ 41,345 $ 0.31 ---------- ---------- ---------- ---------- Distributions Unitholder distributions $ 39,807 $ 40,760 Class A preference share distributions 1,632 1,632 Unit appreciation rights and deferred unit grants distributions 873 447 ---------- ---------- Total distributions $ 42,312 $ 0.31 $ 42,839 $ 0.32 ---------- ---------- ---------- ---------- Adjusted fully diluted average number of units outstanding(1) 137.7m 134.3m(1)The per unit amounts are calculated on an adjusted fully diluted basis for fiscal 2011, removing the impact of the JEEC and JEIF convertible debentures as both will be anti-dilutive by fiscal year-end. The fiscal 2010per unit amounts are calculated on a fully diluted basis. Cash Available for Distribution and distributions For the six months ended September 30 (thousands of dollars, except per unit amounts) Fiscal 2011 Fiscal 2010 ------------------- ------------------- Per Per unit unit --------- ---------Reconciliation to statements of cash flow Cash inflow from operations $ 39,548 $ 62,503 Add: Increase in non-cash working capital 28,215 13,852 Other 1,413 - Tax impact on distributions to Class A preference shareholders 979 1,077 ---------- ---------- Cash Available for Distribution $ 70,155 $ 77,432 ---------- ---------- ---------- ---------- Cash Available for Distribution Gross margin per financial statements $177,326 $ 1.29 $147,571 $ 1.19 Adjustments required to reflect net cash receipts from gas sales 26,963 34,717 ---------- ---------- Seasonally adjusted gross margin $204,289 $ 1.49 $182,288 $ 1.47 ---------- ---------- Less: General and administrative (54,783) (41,251) Capital tax expense (159) (128) Bad debt expense (12,443) (7,685) Income tax recovery (expense) 4,177 (6,066) Interest expense (21,776) (5,426) Other items 11,287 2,192 ---------- ---------- (73,697) (58,364) ---------- ---------- Distributable cash before marketing expenses 130,592 $ 0.95 123,924 $ 1.00Marketing expenses to maintain gross margin (43,367) (29,402) ---------- ---------- Distributable cash after gross margin replacement 87,225 $ 0.63 94,522 $ 0.76Marketing expenses to add new gross margin (17,070) (17,090) ---------- ---------- Cash Available for Distribution $ 70,155 $ 0.51 $ 77,432 $ 0.63 ---------- ---------- ---------- ---------- Distributions Unitholder distributions $ 79,451 $ 73,695 Class A preference share distributions 3,263 3,263 Unit appreciation rights and deferred unit grants distributions 1,875 895 ---------- ---------- Total distributions $ 84,589 $ 0.62 $ 77,853 $ 0.63 ---------- ---------- ---------- ---------- Adjusted fully diluted average number of units outstanding(1) 137.5m 123.7m (1) The per unit amounts are calculated on an adjusted fully diluted basis for fiscal 2011, removing the impact of the JEEC and JEIF convertible debentures as both will be anti-dilutive by fiscal year-end. The fiscal 2010 per unit amounts are calculated on a fully diluted basis. Distributable cashThe second quarter of fiscal 2011 showed a continuation of the rapid expansion for Just Energy that was also seen in the first quarter. This expansion took place through the acquisition of Hudson in the first quarter, which diversified Just Energy's product line to include specialized offerings for large commercial customers and the subsequent expansion of the commercial broker network to seven states and two new provinces; the launch of the Momentis network marketing division in Ontario, New York and Illinois; new residential launches in Massachusetts (May) and two new utility territories in New York (September). In addition, NHS committed expenditures to facilitate its expansion into the Union Gas territory in Ontario and its rollout of furnace and air conditioner offerings.The second quarter showed a continued positive impact from the commercial expansion. Customer additions were 254,000, the second highest quarterly total in the Fund's history, up 81% from the 140,000 added in the second quarter of fiscal 2010. Net additions were 92,000, up from 36,000 a year earlier. The result of this growth and the acquisition of Hudson was a 39% increase in customers, year over year. Sales increased 33% but the increase in margin was 7% reflecting final balancing costs of the recent warm winter, a lower U.S. dollar exchange rate and relatively lower margins on commercial customers added, which were combined with the variable timing of new customers added in the last two quarters.Distributable cash after gross margin replacement for the current quarter ended September 30, 2010, was $53.4 million ($0.39 per unit), up from $52.3 million ($0.39 per unit) in fiscal 2010. The higher gross margin and current tax recovery in the current period were offset by increased interest charges and higher bad debt expense. Interest costs relate primarily to the JEEC and JEIF convertible debentures from the Hudson and Universal acquisitions, funding for water heater purchases and debt associated with TGF. Bad debt expense increased by 74% in the second quarter of fiscal 2011 compared to 2010, due to the 151% increase in sales in those markets where the Fund bears the credit risk and the continued weak economic conditions in the U.S. markets. Overall, bad debt percentage of relevant sales was 2.5%, within the target range of 2% to 3% for the second quarter (down from 2.8% in the prior quarter).Just Energy spent $25.1 million in marketing expenses for the quarter to maintain its current level of gross margin, which represents 77% of the total marketing expense, excluding the amortization of contract initiation costs. A further $7.7 million was spent to increase future gross margin resulting in 92,000 net RCE additions for the quarter. General and administrative costs were flat year over year with realization of merger synergies offsetting the higher costs associated with the larger customer base.Management's estimate of the future embedded gross margin is as follows (millions of dollars): Sept 10 Sept 10 vs. June vs. Sept As at Sept As at June 10 As at Sept 09 30, 2010 30, 2010 Variance 30, 2009 Variance -----------------------------------------------------------Canada (CAD$) $ 708.8 $ 757.5 (6)% $ 816.6 (13)%United States (US$) $ 778.8 $ 698.5 11% $ 370.5 110%Total (CAD$) $1,510.9 $1,501.1 1% $1,213.8 24%Management's estimate of the future contracted gross margin increased slightly to $1,510.9 million from $1,501.1 million at the end of the first quarter of fiscal 2011. There was a net increase in margins from the increased customer base but this was offset by the 3.3% decline in U.S. exchange rates during the quarter. The margin on commercial customers signed during the quarter was lower than that on new residential customers signed and on customers lost to attrition and failure to renew. However, these customers offer the added benefit of being subject to less weather-related volatility and lower ongoing service costs due to the higher average size of the customer.Distributable cash after all marketing expenses was $45.8 million ($0.33 per unit) for the second quarter of fiscal 2011, an increase of 11% from $41.3 million ($0.31 per unit) in the prior comparable quarter. The increase is due to the 7% increase in gross margin and lower marketing costs to add new gross margin. Although the number of net customers added was 92,000, versus 36,000 a year earlier, the blend of commercial versus consumer margins resulted in a smaller increase in embedded gross margin for the quarter. The payout ratio after deduction of all marketing expenses for the current quarter was 92% versus 104% in fiscal 2010.Distributable cash after gross margin replacement for the six months ended September 30, 2010, was $87.2 million ($0.63 per unit), a decrease of 17% per unit from $94.5 million ($0.76 per unit) in the prior comparable period. Distributable cash after marketing expenses was $70.2 million ($0.51 per unit), for the first six months of fiscal 2011, a decrease of 9% from $77.4 million ($0.63 per unit), for the same period last year. The main factor in the lower distributable cash was the adverse impact of the record warm winter temperatures on gas consumption and lower associated profit recognized largely in the first quarter. The payout ratio after all marketing expenses for the six-month period of fiscal 2011 was 121% versus 101% for the six months ended September 30, 2009. Management anticipates that the payout ratio for fiscal 2011 will be less than 100% (excluding any Special Distributions for tax purposes), as it has been in past years.For further information on the changes in the gross margin, please refer to "Sales and gross margin - Seasonally adjusted" on page 15 and "General and administrative expenses", "Marketing expenses", "Bad debt expense" and "Interest expense" which are further clarified on pages 21 to 23.Discussion of distributions (in thousands of dollars) For the For the three For the six For the six three months months months months ended Sept ended Sept ended Sept ended Sept 30, fiscal 30, fiscal 30, fiscal 30, fiscal 2011 2010 2011 2010 ----------------------------------------------------Cash flow from operations(1) (A) $ 13,821 $ 24,708 $ 39,548 $ 62,503 Net income (loss) (B) (154,480) 110,690 120,829 213,317 Total distributions (C) 42,312 42,839 84,589 77,853 Shortfall of cash flows from operating activities over distributions paid (A- C) (28,491) (18,131) (46,041) (15,350)Excess (deficiency) of net income (loss) over distributions paid (B- C) (196,792) 67,851 36,240 135,464 (1) Includes non-cash working capital balances Net income (loss) includes non-cash gains and losses associated with the changes in the current market value of Just Energy's derivative instruments. These instruments form part of the Fund's requirement to purchase commodity according to estimated demand and, as such, changes in value do not impact the distribution policy or the long-term financial performance of the Fund. The change in fair value associated with these derivatives, included in the net income (loss) for the three and six months ended September 30, 2010, was a loss of $181.3 million and a gain of $133.1 million, respectively.The Fund has, in the past, paid out distributions that were higher than both financial statement net income and operating cash flow. In the view of management, the non-GAAP measure, distributable cash, is an appropriate measure of the Fund's ability to distribute funds, as the cost of carrying incremental working capital necessary for the growth of the business has been deducted in the distributable cash calculation. Further, investment in the addition of new customers intended to increase cash flow is expensed in the financial statements while the original customer base was capitalized. Management believes that the current level of distributions is sustainable in the foreseeable future.The timing differences between distributions and cash flow from operations created by the cost of carrying incremental working capital due to business seasonality and expansion are funded by the operating credit facility.Standardized Distributable Cash and Cash Available for Distribution (thousands of dollars, except per unit amounts) For the For the three three For the six For the six months months months months ended Sept ended Sept ended Sept ended Sept 30, fiscal 30, fiscal 30, fiscal 30, fiscal 2011 2010 2011 2010 ---------------------------------------------------Reconciliation to statements of cash flow Cash inflow from operations $ 13,821 $ 24,708 $ 39,548 $ 62,503Capital expenditures(1) (10,785) (12,477) (20,392) (19,883) ---------------------------------------------------Standardized Distributable Cash 3,036 12,231 19,156 42,620 ---------------------------------------------------Adjustments to Standardized Distributable Cash Change in non-cash working capital (2) 31,863 16,098 29,215 13,852 Tax impact on distributions to Class A preference shareholders(3) 441 539 979 1,077 Other (372) - 1,413 - Capital expenditures(1) 10,785 12,477 20,392 19,883 ---------------------------------------------------Cash Available for Distribution $ 45,753 $ 41,345 $ 70,155 $ 77,432 ---------------------------------------------------Standardized Distributable Cash - per unit basic 0.01 0.09 0.13 0.35 Standardized Distributable Cash - per unit diluted 0.01 0.09 0.12 0.35 Payout ratio based on Standardized Distributable Cash NMF(4) 350% 469% 183%(1) The vast majority of capital expenditures in the first six months of fiscal 2011 and 2010 related to the purchase of water heaters for subsequent rental. These expenditures expand the productive capacity of the business. Effective January 2010, water heater capital purchases are being funded through separate financing secured by the water heaters and associated contracts. All other capital expenditures were funded by the credit facility. (2) Change in non-cash working capital is excluded from the calculation of Cash Available for Distribution as the Fund has a $250.0 million credit facility which is available for use to fund working capital requirements. This eliminates the potential impact of timing distortions relating to the respective items. (3) This amount includes payments to the holder of Class A preference shares and is equivalent to distributions. The number of Class A preference shares outstanding is included in the denominator of any per unit calculation. (4) Not a meaningful number. In accordance with the Canadian Institute of Chartered Accountants ("CICA") July 2007 interpretive release, Standardized Distributable Cash in Income Trusts and other Flow-Through Entities, the Fund has presented the distributable cash calculation to conform to this guidance. In summary, for the purposes of the Fund, Standardized Distributable Cash is defined as the periodic cash flows from operating activities, including the effects of changes in non-cash working capital less total capital expenditures as reported in the GAAP financial statements.Financing StrategyThe Fund's $250.0 million credit facility will be sufficient to meet the Fund's short-term working capital and capital expenditure requirements. Working capital requirements can vary widely due to seasonal fluctuations and planned U.S.-related growth. In the long term, the Fund may be required to increase the level of the working capital facility to support experienced growth or to access the equity or debt markets in order to fund significant acquisitions. NEC entered into an agreement in January 2010 with Home Trust Company to separately finance its water heaters. See the Ethanol division section for further discussion on this financing. TGF has a separate credit facility, debenture and a term loan for its funding requirements, which are detailed in the long term debt and financing section.Productive capacityJust Energy's primary business involves the sale of natural gas and/or electricity to residential and commercial customers under long-term, fixed-price, price protected, variable rate and green energy contracts. In addition, through NHS, the Fund sells and rents high efficiency and tankless water heaters and HVAC products. TGF, an ethanol producer, operates an ethanol facility in Belle Plaine, Saskatchewan. The Fund's productive capacity is primarily determined by the gross margin earned from the contract price and the related supply cost on energy contracts. Also included is the gross margin earned on water heater rentals and ethanol sales after deducting production-related costs.The maintenance of productive capacity of Just Energy is achieved through the retention of existing customers and the addition of new customers to replace those that have not been renewed. The productive capacity is maintained and grows through independent contractors and Hudson broker channels, call centre renewal efforts, internet marketing and various mail campaigns. The Fund entered into an agreement with its wholly-owned subsidiary, Momentis, a network marketing entity, under which its independent representatives will market natural gas and electricity contracts on behalf of Just Energy. Management believes that this arrangement will further expand the productive capacity of the energy business.Effectively all of the residential marketing costs related to energy customer contracts are expensed immediately but fall into two categories. The first represents marketing expenses to maintain gross margin at pre-existing levels and, by definition, maintain productive capacity. The second category is marketing expenditures to add new margin which, therefore, expands productive capacity. Commercial marketing expenses are paid in one of two ways. The commission is either paid throughout the contract period as residuals to the broker who signed the customer for as long as the contract flows or alternatively, it is all paid upfront. The portion of the commercial marketing expenses which are paid upfront to brokers are capitalized and amortized over the remaining life of the customer contract.The vast majority of capital expenditures incurred by Just Energy relate to the purchase of water heaters which are subsequently rented on a long-term basis under customer contracts. These capital expenditures are funded by non-recourse borrowings which have as security the water heaters and the rental contracts. As such, these capital expenditures increase the productive capacity of the Fund.Summary of quarterly results (thousands of dollars, except per unit amounts) Fiscal 2011 Fiscal 2011 Fiscal 2010 Fiscal 2010 Q2 Q1 Q4 Q3 ---------------------------------------------------Sales (seasonally adjusted) $ 748,480 $ 639,997 $ 694,788 $ 654,686 Gross margin (seasonally adjusted) 115,356 88,933 121,872 121,722 General and administrative expense 25,511 29,272 22,405 24,767 Net income (loss) (154,480) 275,309 (79,211) 97,390 Net income (loss) per unit - basic (1.15) 2.05 (0.59) 0.73 Net income (loss) per unit - diluted (1.15) 1.85 (0.59) 0.73 Adjusted EBITDA 39,375 31,282 108,961 60,563 Amount available for distribution After gross margin replacement 53,442 33,783 66,023 69,455 After marketing expense 45,753 24,402 58,359 61,242 Payout ratio After gross margin replacement 79% 125% 63% 98%(1)% After marketing expense 92% 173% 71% 111%(1)% Fiscal Fiscal Fiscal Fiscal 2010 Q2 2010 Q1 2009 Q4 2009 Q3 ---------------------------------------------------Sales (seasonally adjusted) $ 562,133 $ 432,565 $ 589,948 $ 510,801 Gross margin (seasonally adjusted) 107,519 74,769 106,143 87,554 General and administrative expense 25,634 15,617 18,150 14,753 Net income (loss) 110,690 102,627 (168,621) (49,094)Net income (loss) per unit - basic 0.83 0.92 (1.57) (0.44)Net income (loss) per unit - diluted 0.82 0.91 (1.57) (0.44)Adjusted EBITDA 36,598 30,182 104,614 60,822 Amount available for distribution After gross margin replacement 52,303 42,219 72,244 57,475 After marketing expense 41,345 36,087 62,515 48,162 Payout ratio After gross margin replacement 82% 83% 48% 93%(1)% After marketing expense 104% 97% 56% 111%(1)%(1) Includes a one-time Special Distribution of $26.7 million in the third quarter of fiscal 2010 and $18.6 million in the third quarter of fiscal 2009. The Fund's results reflect seasonality, as consumption is greatest during the third and fourth quarters (winter quarters). While year over year quarterly comparisons are relevant, sequential quarters will vary materially. The main impact of this will be higher distributable cash with a lower payout ratio in the third and fourth quarters, and lower distributable cash with a higher payout ratio in the first and second quarters, excluding any Special Distribution.Analysis of the second quarterThe 33% increase in seasonally adjusted sales compared to the prior comparable quarter is mainly attributable to the sales generated by Hudson customers which were acquired on May 1, 2010. Strong net growth in customers added in the fourth quarter of fiscal 2010 and first quarter of fiscal 2011 through marketing, primarily in the U.S., has also increased sales. The sales impact of the net customer additions in the second quarter will be reflected in future periods as these customers begin to flow with Just Energy. The customer base has increased by 39% from September 30, 2009.Seasonally adjusted gross margin increased by 7% in the second quarter of fiscal 2011 to $115.4 million, up from $107.5 million in the same period last year. The margin increase was less than the increase in sales due to final reconciliations for the recent warm winter, a lower U.S. dollar exchange rate and lower relative margins on commercial customers who make up the majority of the incremental customers year over year. General and administrative costs were $25.5 million for the quarter, unchanged from the same period last year.The distributable cash after customer gross margin replacement was $53.4 million, up 2% from $52.3 million in the prior comparable quarter. The increased gross margin was offset by increased interest charges and bad debt expenses versus the prior year comparable quarter.After the deduction of all marketing expenses, distributable cash totalled $45.8 million, an increase of 11% from $41.3 million in the second quarter of fiscal 2010. Distributions for the quarter were $42.3 million, reflecting the same annual rate of $1.24, unchanged from a year ago. The payout ratio after payment of all marketing costs for the second quarter of fiscal 2011 was 92% versus 104% for the same period last year. Management anticipates that the payout ratio for fiscal 2011 will be less than 100%, as it has been in past years.Gas and electricity marketing Sales and gross margin - Per financial statements For the three months ended September 30 (thousands of dollars) Fiscal 2011 Fiscal 2010 --------------------------------- --------------------------- United United Sales Canada States Total Canada States Total--------------- Gas $ 77,614 $ 55,927 $ 133,541 $ 91,636 $ 37,724 $129,360Electricity 165,578 322,075 487,653 174,457 111,919 286,376---------------------------------------------------------------------------- $243,192 $378,002 $ 621,194 $266,093 $149,643 $415,736----------------------------------------------------------------------------Increase (decrease) (9)% 153% 49% United United Gross Margin Canada States Total Canada States Total--------------- Gas $ 2,936 $ (461) $ 2,475 $ 6,496 $ 8,795 $ 15,291Electricity 27,805 57,901 85,706 31,741 30,283 62,024---------------------------------------------------------------------------- $ 30,741 $ 57,440 $ 88,181 $ 38,237 $ 39,078 $ 77,315----------------------------------------------------------------------------Increase (decrease) (20)% 47% 14% For the six months ended September 30 (thousands of dollars) Fiscal 2011 Fiscal 2010 --------------------------------- --------------------------- United United Sales Canada States Total Canada States Total--------------- Gas $207,329 $128,975 $ 336,304 $241,333 $ 88,158 $329,491Electricity 326,208 546,989 873,197 297,948 187,307 485,255---------------------------------------------------------------------------- $533,537 $675,964 $1,209,501 $539,281 $275,465 $814,746----------------------------------------------------------------------------Increase (decrease) (1)% 145% 48% United United Gross Margin Canada States Total Canada States Total--------------- Gas $ 15,067 $ 4,823 $ 19,890 $ 29,210 $ 19,489 $ 48,699Electricity 53,801 94,671 148,472 51,380 43,311 94,691---------------------------------------------------------------------------- $ 68,868 $ 99,494 $ 168,362 $ 80,590 $ 62,800 $143,390----------------------------------------------------------------------------Increase (decrease) (15)% 58% 17% CanadaSales and gross margin for the three months ended September 30, 2010, were $243.2 million and $30.7 million respectively, a decrease of 9% and 20%, respectively, from the prior comparable period. Total sales and gross margin for the six-month period of fiscal 2011 were $533.5 million and $68.9 million, respectively.United StatesSales and gross margin in the U.S. were $378.0 million and $57.4 million respectively for the second quarter of 2011, an increase of 153% and 47%, respectively, from the same period last year. Total sales and gross margin for the six months ended September 30, 2010, were $676.0 million and $99.5 million, respectively.Sales and gross margin - Seasonally adjusted(1) For the three months ended September 30 (thousands of dollars) Fiscal 2011 Fiscal 2010 --------------------------------- --------------------------- United United Sales Canada States Total Canada States Total--------------- Gas $ 77,614 $ 55,927 $ 133,541 $ 91,636 $ 37,724 $129,360Adjustments(1) 71,889 18,713 90,602 103,686 23,788 127,474---------------------------------------------------------------------------- $149,503 $ 74,640 $ 224,143 $195,322 $ 61,512 $256,834Electricity 165,578 322,075 487,653 174,457 111,919 286,376---------------------------------------------------------------------------- $315,081 $396,715 $ 711,796 $369,779 $173,431 $543,210----------------------------------------------------------------------------Increase (decrease) (15)% 129% 31% United United Gross margin Canada States Total Canada States Total--------------- Gas $ 2,936 $ (461) $ 2,475 $ 6,496 $ 8,795 $ 15,291Adjustments(1) 15,456 3,071 18,527 23,760 2,263 26,023---------------------------------------------------------------------------- $ 18,392 $ 2,610 $ 21,002 $ 30,256 $ 11,058 $ 41,314Electricity 27,805 57,901 85,706 31,741 30,283 62,024---------------------------------------------------------------------------- $ 46,197 $ 60,511 $ 106,708 $ 61,997 $ 41,341 $103,338----------------------------------------------------------------------------Increase (decrease) (25)% 46% 3% For the six months ended September 30 (thousands of dollars) Fiscal 2011 Fiscal 2010 --------------------------------- --------------------------- United United Sales Canada States Total Canada States Total--------------- Gas $207,329 $128,975 $ 336,304 $241,333 $ 88,158 $329,491Adjustments(1) 102,593 18,322 120,915 137,241 23,788 161,029---------------------------------------------------------------------------- $309,922 $147,297 $ 457,219 $378,574 $111,946 $490,520Electricity 326,208 546,989 873,197 297,948 187,307 485,255---------------------------------------------------------------------------- $636,130 $694,286 $1,330,416 $676,522 $299,253 $975,775----------------------------------------------------------------------------Increase (decrease) (6)% 132% 36% United United Gross margin Canada States Total Canada States Total--------------- Gas $ 15,067 $ 4,823 $ 19,890 $ 29,210 $ 19,489 $ 48,699Adjustments(1) 23,540 3,423 26,963 32,454 2,263 34,717---------------------------------------------------------------------------- $ 38,607 $ 8,246 $ 46,853 $ 61,664 $ 21,752 $ 83,416Electricity 53,801 94,671 148,472 51,380 43,311 94,691---------------------------------------------------------------------------- $ 92,408 $102,917 $ 195,325 $113,044 $ 65,063 $178,107----------------------------------------------------------------------------Increase (decrease) (18)% 58% 10% (1) For Ontario, Manitoba, Quebec and Michigan gas markets. On a seasonally adjusted basis, sales increased by 31% in the second quarter of fiscal 2011 to $711.8 million as compared to $543.2 million in fiscal 2010. Gross margins were $106.7 million for the three months ended September 30, 2010, up 3% from the prior comparable quarter. The lower increase in margin versus sales is a result of lower margins on commercial customers which generated the majority of the increase in sales over the period.Total sales and gross margin for the first six months of fiscal 2011 were $1,330.4 million and $195.3 million, respectively, versus $975.8 million and $178.1 million for the same period last year.CanadaSeasonally adjusted sales were $315.1 million for the quarter, down 15% from $369.8 million in fiscal 2010. Seasonally adjusted gross margins were $46.2 million in the second quarter of fiscal 2011, a decrease of 25% from $62.0 million in the same period last year. For the six months ended September 30, 2010, seasonally adjusted sales and gross margin were $636.1 million and $92.4 million respectively, down 6% and 18%, respectively from the prior comparable period.GasCanadian gas sales were $149.5 million, a decrease of 23% from $195.3 million in the second quarter of fiscal 2010. In the second quarter of fiscal 2011, total customer delivered volumes were down 20% from the prior comparable quarter due to warm temperatures across all key gas markets and a 13% decrease in flowing customers. Gross margin totalled $18.4 million, down 39% from the second quarter of fiscal 2010, reflecting lower consumption and $10.7 million in losses on the sale of excess gas resulting from milder temperatures last winter at much lower spot prices than had been originally contracted.For the six months ended September 30, 2010, sales and gross margins were $309.9 million and $38.6 million respectively, a decrease of 18% and 37%, respectively, over the same period last year.After allowance for balancing and inclusive of acquisitions, realized average gross margin per customer ("GM/RCE") for the three months ended September 30, 2010, amounted to $128/RCE, compared to $175/RCE for the prior comparable quarter. This was due to the lower consumption and losses on the sale of excess gas. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.ElectricityElectricity sales were $165.6 million for the quarter, a decrease of 5% from the second quarter of fiscal 2010 due to a 5% decline in flowing customers. Gross margin decreased by 12% for the current quarter to $27.8 million versus $31.7 million for the prior comparable period. This decrease is a result of the 5% decline in customers and total reduced consumption of 11% in Alberta (where customers and supply are load following) due to a much warmer air conditioning season in fiscal 2010 versus fiscal 2011.During the quarter, there were a number of Ontario electricity customers that were contacted for early renewal of their contract under a "blend and extend" offer. These customers were offered a lower rate versus their current price but the term of their contract was extended out to five more years. By doing so, approximately $1.8 million was lost in margin for the current quarter but approximately $9.5 million was locked in as future margins.For the six months ended September 30, 2010, sales and gross margins were $326.2 million and $53.8 million respectively, an increase of 9% and 5%, respectively, over the same period last year.Realized average gross margin per customer after all balancing and including acquisitions for the quarter ended September 30, 2010 in Canada amounted to $143/RCE, a decrease from $164/RCE in the prior year comparable quarter due to the lower per customer consumption in Alberta. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.United StatesSales for the second quarter of fiscal 2011 were $396.7 million, an increase of 129% from $173.4 million in the prior comparable quarter. Seasonally adjusted gross margin was $60.5 million, up 46% from $41.3 million from the same quarter last year.GasFor the second quarter of fiscal 2011, gas sales and gross margin in the U.S. totalled $74.6 million and $2.6 million, respectively, versus $61.5 million and $11.1 million in fiscal 2010. The sales increase of 21% was due to a 48% increase in customers largely through successful marketing but also through the acquisition of Hudson. Sales growth was less than customer growth due to warmer weather, a lower U.S. dollar exchange rate and lower selling prices.Gross margin declined quarter over quarter by 76% as opposed to the 21% increase in sales primarily due to final reconciliations against the prior warm winter. In Michigan, one time reconciliations with the utility and associated sales of surplus gas (which must be completed in the summer) resulted in a loss of $7.4 million in margin.Sales and gross margin for the six months ended September 30, 2010, totalled $147.3 million and $8.2 million, respectively. Average realized gross margin after all balancing costs for the three months ended September 30, 2010, was $33/RCE, a decrease of 88% over the prior year comparable period of $267/RCE. This is due to sharply lower per customer consumption, utility reconciliations, losses on sale of excess gas and the inclusion of lower margin commercial customers acquired with Hudson. The GM/RCE value includes an appropriate allowance for bad debt expense in Illinois and California.ElectricityU.S. electricity seasonally adjusted sales and gross margin for the quarter were $322.1 million and $57.9 million, respectively, versus $111.9 million and $30.3 million respectively in the prior comparable quarter of fiscal 2010. Sales were up 192% due to an increase in flowing customers year over year attributable to the Hudson acquisition and strong marketing growth. Sales were up more than gross margin due to higher selling prices offsetting the decline in the U.S. dollar exchange rate. Total customer demand increased by 252%, which is consistent with the growth in the customer base. Margins were up 91% year over year. The majority of customers added over the period were commercial customers with lower per customer margins than the largely residential book in place a year prior.For the six months ended September 30, 2010, the sales and gross margins were $547.0 million and $94.7 million, respectively.Average gross margin per customer for electricity during the current quarter decreased to $156/RCE, compared to $282/RCE in the prior year comparable period, as a direct result of a lower U.S. dollar exchange rate and lower margins per RCE for commercial customers added. The GM/RCE value for Texas, Pennsylvania and California includes an appropriate allowance for the bad debt expense.Customer aggregation Long-term customers July 1, Failed September % Increase 2010 Additions Attrition to renew 30, 2010 (Decrease) ----------------------------------------------------------------------------Natural gas Canada 709,000 15,000 (22,000) (13,000) 689,000 (3)%United States 564,000 40,000 (31,000) (4,000) 569,000 1% ----------------------------------------------------------------------------Total gas 1,273,000 55,000 (53,000) (17,000) 1,258,000 (1)%--------------------------------------------------------------------------------------------------------------------------------------------------------Electricity Canada 757,000 25,000 (22,000) (15,000) 745,000 (2)%United States 1,039,000 174,000 (49,000) (6,000) 1,158,000 11% ----------------------------------------------------------------------------Total electricity 1,796,000 199,000 (71,000) (21,000) 1,903,000 6% ----------------------------------------------------------------------------Combined 3,069,000 254,000 (124,000) (38,000) 3,161,000 3% ----------------------------------------------------------------------------Gross customer additions for the quarter were 254,000, the second largest total in Just Energy's history. This was due to very strong additions in both the Consumer Energy division and the Commercial Energy division. Of the total, 133,000 were commercial customers, showing the continued positive impact of both the newly established broker channel and Just Energy's internal efforts to expand its share of the commercial market. Net customer additions through marketing for the quarter were 92,000. For the same quarter last year, there were 36,000 net customer additions through marketing. Overall, there has been a 3% increase in total customers since the first quarter and 39% increase over the past 12 months.For the three month period ended September 30, 2010, total gas customer numbers decreased by 1%, reflecting a difficult Canadian price environment with a large disparity between utility spot prices and the five-year prices. This continues to impact new customer additions and renewals.Total electricity customers were up 6% in the three months ended September 30, 2010 with strong growth in our U.S. markets slightly offset by a small decline in total customers in our Canadian markets.As at September 30, 2010, there are an additional 68,000 RCEs categorized as variable and short term in nature and, accordingly, have not been included in the long-term customer aggregation reported above. The majority of these short-term customers were acquired as part of the Hudson acquisition in the previous quarter.JustGreenSales of the JustGreen products remain strong but were tempered somewhat by their relatively high cost during a period of economic slowdown. The JustGreen program allows customers to choose to purchase units of green energy in the form of renewable energy or carbon offsets, in an effort to reduce greenhouse gas emissions. When a customer purchases a unit of green energy, it creates a contractual obligation for Just Energy to purchase a supply of green energy at least equal to the demand created by the customer's purchase. A review was conducted by Grant Thornton LLP of Just Energy's Renewable Energy and Carbon Offsets Sales and Purchases report for the period from January 1, 2009 through December 31, 2009 validating the match of the Fund's renewable energy and carbon offset purchases against customer contracts.The Fund currently sells JustGreen gas in the eligible markets of Ontario, British Columbia, Alberta, Michigan, New York, Ohio and Illinois and JustGreen electricity in Ontario, Alberta, New York and Texas. JustGreen sales will expand into the remaining markets over the coming quarters. Of all consumer customers who contracted with Just Energy in the quarter, 38% took JustGreen for some or all of their energy needs. On average, these customers elected to purchase 91% of their consumption as green supply which compared to 48% take-up for an average of 89% of consumption in the first quarter.As of the quarter ended September 30, 2010, green supply now makes up 3% of our overall gas portfolio, up from 1% in the second quarter last year. JustGreen supply makes up 11% of our electricity portfolio, up from 4% from the same period last year.AttritionNatural gasThe trailing 12-month natural gas attrition in Canada was 12%, above management's target of 10%. Attrition is higher than targeted levels due to weak economic conditions causing a higher than normal customer default move back to the utility. In the U.S., gas attrition for the trailing 12 months was 27%, below management's annual target of 30%. This reflects a small continued improvement in the U.S. due to new product offerings and some strengthening in the U.S. economy.ElectricityThe trailing 12-month electricity attrition rate in Canada for the quarter was 12%, above management's target of 10%. The electricity attrition has been reflecting a similar trend compared to the Canadian gas market. Electricity attrition in the United States was 15% for the trailing 12 months, below management's target of 20%. Trailing 12-Month Attrition fiscal Targeted Attrition 2011 fiscal 2011 Natural gas Canada 12% 10%United States 27% 30%Electricity Canada 12% 10%United States 15% 20%Failed to renewThe Just Energy renewal process is a multi-faceted program and 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 four or five years.The trailing 12-month renewal rate for all Canadian gas customers was 63%, below management's target of 70%. In the Ontario gas market, customers who do not positively elect to renew or terminate their contract receive a one-year fixed price for the ensuing year. Of the total Canadian gas customers renewed in the first quarter of fiscal 2011, 32% were renewed for a one-year term. Canadian gas markets lagged the 2011 target of 70%, largely due to the current high spread between the Just Energy five-year price and the utility spot price. Management will continue to focus on increasing renewals, and a return to rising market pricing should result in an improvement in Canadian gas renewal rates to target levels.The electricity renewal rate for Canadian customers was 65% for the trailing 12 months, which is below the targeted level. There continues to be solid demand for JustGreen products supporting renewals in Canadian electricity customers but due to the disparity between the spot and five-year prices and low volatility in the spot prices, customers are reluctant to again lock into fixed priced products. Just Energy has introduced some enhanced variable price offerings to improve renewal rates.In the U.S. markets, Just Energy had primarily Illinois and a small number of Indiana and New York gas customers up for renewal. Gas renewals for the U.S. were 78%, above our target of 75%.During the quarter, Just Energy had both Texas and New York electricity customers up for renewal. The electricity renewal rate was 89%, well above the target rate of 75%.In each of these markets, our green product is in the process of being offered to renewing customers which should further strengthen the profitability of these customers. Trailing 12-month Targeted Renewals Renewals fiscal 2011 fiscal 2011 Natural gas Canada 63% 70%United States 78% 75%Electricity Canada 65% 70%United States 89% 75%Gas and electricity contract renewals This table shows the percentage of customers up for renewal in each of the following years: Canada - U.S. - Canada - gas electricity U.S. - gas electricity -------------------------------------------------------Remainder of 2011 15% 11% 8% 14%2012 24% 22% 20% 23%2013 22% 26% 26% 17%2014 15% 17% 12% 21%2015 14% 12% 18% 16%Beyond 2015 10% 12% 16% 9% -------------------------------------------------------Total 100% 100% 100% 100%Just Energy continuously monitors its customer renewal rates and continues to modify its offering to existing customers in order to maximize the number of customers who renew their contracts. To the extent there is continued customer take up on "blend and extend" offers, some renewals scheduled for 2012 and 2013 will move back to 2015 and beyond.Gross margin earned through new marketing effortsAnnual gross margin per customer for new and renewed customersThe table below depicts the annual margins on contracts of residential customers signed in the quarter. This table reflects all margin earned on new additions and renewals including brown commodity and JustGreen. Customers added through marketing were at or above the margins of customers lost through attrition or failure to renew. Renewing customers were at lower margins largely due to lesser take-up of JustGreen on renewal. However, the take-up rate is beginning to be aggressively marketed for renewals, with the expectation that rates similar to those for new customers being achieved. Sales of the JustGreen products remained very strong with approximately 38% of all residential customers added in the past quarter taking some or all green energy supply. Customers that purchased the JustGreen product elected, on average, to take 91% of their consumption in green supply. A 100% JustGreen electricity customer in Ontario generates annual margins of approximately $193/RCE, much higher than the "brown" margins realized. For large commercial customers, the average gross margin for new customers added was $100/RCE, an increase from $67/RCE reported in the first quarter of fiscal 2011. The aggregation cost of these customers is commensurately lower per RCE than a consumer customer. Number ofAnnual gross margin per customer(1) Q2 fiscal 2011 Customers -------------------------------Residential and small commercial customers added in the quarter - Canada - gas $198 8,000 - Canada - electricity $133 17,000 - United States - gas $220 32,000 - United States - electricity $172 64,000Average annual margin $181 Customers renewed in the quarter - Canada - gas $168 28,000 - Canada - electricity $106 27,000 - United States - gas $199 8,000 - United States - electricity $150 10,000Average annual margin $146 Large commercial customers added in the quarter $100 133,000Customers lost in the quarter - Canada - gas $195 35,000 - Canada - electricity $150 37,000 - United States - gas $180 29,000 - United States - electricity $178 28,000Average annual margin $176 (1) Customer sales price less cost of associated supply and allowance for bad debt and U.S. working capital. Home Services division (NHS)NHS provides Ontario 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, in addition to now offering furnaces and air conditioners. NHS continues to ramp up its operations and, as at September 30, 2010, had a cumulative installed base of 99,700 water heaters, 1,000 furnaces, and 300 air conditioners in residential homes. The water heater installed base has increased by 80% in the past year. Management is confident that NHS will contribute to the long-term profitability of the Fund and continue to help diversify away from weather-related volatility.As NHS is a high growth, relatively capital-intensive business, Just Energy management believes that, in order to maintain stability of distributions, separate non-recourse financing of this capital is appropriate. On January 18, 2010, NHS announced that it had entered into a long-term financing agreement with HTC for the funding of the water heaters for NHS in the Enbridge gas distribution territory. On July 16, 2010, NHS expanded this financing arrangement to cover the Union Gas territory. Under the agreement, NHS receives funds equal to the amount of the five-year cash flow of the water heater contract discounted at an agreed upon rate. HTC is then paid an amount which is equal to the customer rental payments on the water heaters for the next five years. The funding received from HTC up to September 30, 2010, was $80.7 million.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 distributions. The result should be a valuable asset which will generate excellent cash returns following repayment of the HTC financing.The first six months of 2011 saw significant geographic and product expansions for NHS. The division has begun marketing its products in Union Gas territory in Ontario, expanding its reach to the entire province. It also rolled out an offering of furnace and air conditioner rentals and sales. These expansions were funded by increased general and administrative costs but are expected to substantially increase the growth and profitability of NHS in the future.Home Services division Selected financial information (thousands of dollars, except where indicated) Three months Three months ended Sept 30, ended Sept 30, 2010 2009Sales per financial statements $ 5,172 $ 2,474Cost of sales 1,386 159 ----------------------------------Gross margin 3,786 2,315Marketing expenses 850 1,112General and administrative expense 2,996 2,154Interest expense 1,490 -Capital expenditures 9,152 11,094Amortization 468 1,025Ending total number of water heaters installed 99,700 55,500Results of operationsFor the quarter ended September 30, 2010, NHS had sales of $5.2 million and gross margin of $3.8 million, an increase of 110% and 64%, respectively, from the prior comparable quarter. The cost of sales for the quarter was $1.4 million and represents the non-cash amortization of the installed water heaters for the customer contracts signed to date. Marketing expenses for the second quarter of fiscal 2011 were $0.9 million and include the amortization of commission costs paid to the independent agents, automobile fleet costs, advertising and promotion and telecom and office supplies expenses. General and administrative costs, which relate primarily to administrative staff compensation and warehouse expenses, amounted to $3.0 million for the three months ended September 30, 2010. The high level of general and administrative costs relative to past quarters was largely due to the expansion into Union Gas territory and the rollout of furnace and air conditioner offerings.Capital expenditures, including installation costs, amounted to $9.2 million for the three months ended September 30, 2010. Amortization costs were $0.5 million for the current quarter and include not only the depreciation on non-tank related capital assets noted above but also the amortization of the purchased water heater contracts.For the six months ended September 30, 2010, sales and gross margin for NHS were $9.6 million and $6.6 million, respectively. Marketing and general and administrative expenses were $1.7 million and $5.9 million, respectively, for the first half of fiscal 2011. Interest expense amounted to $2.8 million as a result of the financing arrangement with HTC. To date in fiscal 2011, capital expenditures by NHS amounted to $17.3 million. Comparative figures include results for only three months as NHS was acquired as part of the Universal acquisition effective July 1, 2009.The growth of NHS has been rapid and, combined with the HTC financing, is expected to be self-sustaining on a cash flow basis.Ethanol division (TGF)TGF continues to remain focused on improving plant production and runtime of the Belle Plaine, Saskatchewan, wheat-based ethanol facility. For the quarter ended September 30, 2010, the plant achieved an average production capacity of 81% which is the best quarter in its history. The Phase 1 grain-milling upgrade has allowed the plant to achieve daily milling rates exceeding nameplate capacity from time to time. The plant was forced to close for eight days in the quarter as a result of the inability to have wheat delivered due to flooding in the Belle Plaine area. This was a marked improvement over the 19 days of shutdown experienced in the first quarter of fiscal 2011. Ethanol prices continue to be depressed and were, on average, $0.57 per litre for the quarter, flat with the prior quarter. Wheat prices averaged $170 per metric tonne for the quarter, up slightly from $168 in the first quarter.The ethanol division has separate non-recourse financing in place such that capital requirements and operating losses will not impact Just Energy's core business and its ability to pay distributions.Ethanol division Selected financial information (thousands of dollars) Three months Three months ended Sept 30, ended Sept 30, 2010 2010Sales per financial statements $31,191 $16,449Cost of sales 26,618 14,583 ----------------------------------Gross margin 4,573 1,866General and administrative expense 3,162 3,819Interest expense 1,902 1,843Capital expenditures 65 100Amortization 297 621Results of operationsDuring the second quarter of fiscal 2011, TGF had sales of $31.2 million, an increase of 90% from $16.4 million in the prior comparable quarter. Gross margin amounted to $4.6 million, up 145% from $1.9 million in the second quarter of fiscal 2010. During the quarter, the plant produced 30.6 million litres of ethanol and 28,386 metric tonnes of DDG. For the three months ended September 30, 2010, TGF incurred $3.2 million in general and administrative expenses and $1.9 million in interest charges. Capital expenditures for the quarter, including installation costs, amounted to $0.1 million.For the six months ended September 30, 2010, sales and gross margin for TGF were $48.0 million and $1.9 million, respectively. General and administrative costs and interest expenses were $5.5 million and $3.6 million, respectively, for the first half of fiscal 2011. Comparative figures include results for only three months as TGF was acquired as part of the Universal acquisition effective July 1, 2009.TGF receives a federal subsidy related to an agreement signed on February 17, 2009, based on the volume of ethanol produced. From July 1, 2009 to March 31, 2010, the subsidy was ten cents per litre and throughout fiscal 2011, this subsidy will be nine cents per litre. This amount declines through time to five cents per litre of ethanol produced in fiscal 2015, the last year of the agreement.Overall consolidated resultsGeneral and administrative expensesGeneral and administrative costs were $25.5 million for the three months ended September 30, 2010, consistent with that which was reported in the second quarter of fiscal 2010. The expenses for the current quarter include $2.1 million in costs related to Hudson, which was not owned by the Fund during the prior comparable quarter. These higher costs were offset by the realization of synergies from the Universal acquisition completed in fiscal 2010. The current quarter expenses also reflect a one-time reduction in expenses attributable to litigation settlements costs for the quarter being lower than what had been previously accrued. It is expected that general and administrative costs will increase in the third and fourth quarters as the costs of further geographic expansions are incurred and as the Fund converts to a corporation.Expenditures for general and administrative costs for the six months ended September 30, 2010, were $54.8 million, an increase of 33% from $41.3 million in the prior comparable period. The increase is a result of the prior period not including the expenses relating to Hudson, increased costs to accommodate numerous areas of expansion undertaken by the Fund which should result in higher margin and distributable cash in future periods, and only three months of expenses from Universal, which was acquired effective July 1, 2009.Marketing expensesMarketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives for signing new customers, as well as corporate costs, were $37.0 million, an increase of 37% from $27.1 million in the second quarter of fiscal 2010. New customers signed by our marketing sales force were 254,000 in the second quarter of fiscal 2011, up 81% compared to 140,000 customers added through our sales offices in the same period last year. The increase in the current quarter expense reflects the cost of strong growth in customer additions offset by the lower aggregation cost per customer.Marketing expenses to maintain gross margin are allocated based on the ratio of gross margin lost from attrition as compared to the gross margin signed from new and renewed customers during the period. Marketing expenses to maintain gross margin were $25.1 million for the second quarter of fiscal 2011, an increase of 56% from $16.1 million from the prior comparable quarter as a result of higher attrition from a larger customer base and an increase in the number of customers up for renewal in the current period.Marketing expenses to add new gross margin are allocated based on the ratio of net new gross margin earned on the customers signed, less attrition, as compared to the gross margin signed from new and renewed customers during the period. Marketing expenses to add new gross margin in the second quarter totalled $7.7 million, a decrease from $11.0 million in the prior comparable period. Although there was a greater increase in the net customer additions of 92,000 for the second quarter, up from 36,000 in fiscal 2010, the blend of commercial and residential customers added resulted in a lower increase in margin than in the previous year. In addition, some of the cost of commercial customer additions was capitalized and will be expensed over the life of the contract.Marketing expenses included in distributable cash exclude amortization related to the contract initiation costs for Hudson and NHS. For the three and six months ended September 30, 2010, the amortization amounted to $4.2 million and $6.3 million, respectively.For the six months ended September 30, 2010, total marketing expenses were $66.7 million, an increase of 43% from the $46.5 million reported in the same period last year.The actual aggregation costs for the six months ended September 30, 2010 per customer for residential and commercial customers signed by independent representatives and commercial customers signed by brokers were as follows: Residential Commercial Commercial broker customers customers CustomersNatural gas Canada $ 247/RCE $ 174/RCE $ 32/RCEUnited States $ 199/RCE $ 120/RCE $ 24/RCEElectricity Canada $ 208/RCE $ 141/RCE $ 30/RCEUnited States $ 183/RCE $ 71/RCE $ 37/RCETotal aggregation costs $ 197/RCE $ 92/RCE $ 34/RCEThe actual aggregation cost per customer added for all energy marketing for the six months ended September 30, 2010, was $110, up from $95 in the first quarter. This is due to the higher relative number of residential customers aggregated and their associated higher costs. The $34 average aggregation cost for the commercial broker customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts pay further commissions averaging $34 per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $61 (1.8 X $34) to the fiscal 2011 $34 average aggregation cost for commercial broker customers reported above.Unit based compensationCompensation in the form of units (non-cash) granted by the Fund to the directors, officers, full-time employees and service providers of its subsidiaries and affiliates pursuant to the 2001 unit option plan, the 2004 unit appreciation rights plan and the directors' deferred compensation plan amounted to $1.5 million for the second quarter of fiscal 2011, an increase from the $1.0 million paid in first quarter of fiscal 2010. Total costs for the six months ended September 30, 2010, totalled $2.6 million, versus $1.6 million for the same period last year. The increase relates primarily to additional fully paid unit appreciation rights awarded to the senior management of the Fund.Bad debt expenseIn Illinois, Alberta, Texas, Pennsylvania and California, Just Energy assumes the credit risk associated with the collection of customer accounts. In addition, for commercial direct-billed accounts in B.C., New York and Ontario, the Fund is responsible for the bad debt risk. 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 quarter, Just Energy was exposed to bad debt on 35% of its sales.Bad debt expense for three months ended September 30, 2010, increased by 74% to $6.7 million versus $3.9 million expensed in the prior comparable quarter. The bad debt expense increase was entirely related to the 151% increase in total revenues for the quarter to $262.6 million, in the markets where Just Energy assumes the risk for accounts receivable collections, which also now includes incremental commercial customers. 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.For the six months ended September 30, 2010, the bad debt expense was $12.4 million, representing approximately 2.6% of the $469.6 million in sales in markets where it assumes credit risk (34% of total sales), within the Fund's 2% to 3% target range. This was slightly improved from the 2.8% reported for the first quarter and down from the 3.5% reported a year earlier. Credit losses in Texas as a percentage of total revenues have declined due to aggressive collection efforts and quicker disconnection for delinquent customers. Continued improvements in the Illinois collection efforts and lower default rates for acquired Hudson commercial customers have also contributed to the improvement in the bad debt rate versus the second quarter of fiscal 2010. Management expects that bad debt expense will be in the range of 2% to 3% for the remainder of the fiscal year assuming that the housing market in the U.S. continues to show signs of improvement.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.Interest expenseTotal interest expense for the three months ended September 30, 2010 amounted to $12.3 million, an increase from $4.9 million in the second quarter of fiscal 2010. The large increase in costs primarily relates to the interest expense for the JEIF convertible debentures associated with the Hudson acquisition, as well as interest costs associated with the NEC financing.For the six-month period of fiscal 2011, the total interest cost was $21.8 million versus $5.4 million paid in fiscal 2010. This increase is a result of not only the JEIF convertible dentures and NEC financing, but also the inclusion of only three months of interest relating to the JEEC convertible debentures and TGF financing in the prior comparable period.Foreign exchangeJust Energy has an exposure to U.S. dollar exchange rates as a result of its U.S. operations and any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income (loss). For the second quarter, a foreign exchange unrealized loss of $5.7 million was reported in other comprehensive income (loss) versus an unrealized gain of $6.8 million reported in the same period last year. For the six months ended September 30, 2010, the foreign exchange unrealized gain was $9.2 million versus $25.0 million for the same period in fiscal 2010.Overall, a weaker U.S. dollar decreases sales and gross margin but this is partially offset by lower operating costs denominated in U.S. dollars. The Fund 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 forecasted annually and hedges for cross border cash flow are entered into when it is determined that any surplus U.S. cash is not required for new acquisition opportunities.Class A preference share distributionsThe remaining holder of the Just Energy Corp. ("JEC") Class A preference shares (which are exchangeable into units on a one for one basis) is entitled to receive, on a quarterly basis, a payment equal to the amount paid or payable to a Unitholder on an equal number of units. The total amount paid for the three and six months ended September 30, 2010, including tax amounted to $1.6 million and $3.3 million, respectively, both of which are unchanged from the comparable periods in fiscal 2010. The distributions on the Class A preference shares are reflected in the Consolidated Statement of Unitholders' Deficiency of the Fund's consolidated financial statements, net of tax.(Recovery of) Provision for income tax (thousands of dollars) For the For the three months three months For the six For the six ended Sept ended Sept months ended months ended 30, fiscal 30, fiscal Sept 30, Sept 30, 2011 2010 fiscal 2011 fiscal 2010 ------------------------------------------------------Current income tax provision (recovery) $ (3,175) $ 6,106 $ (4,177) $ 6,066Amount credited to Unitholders' equity 441 539 979 1,077Future tax expense (recovery) (43,796) 19,141 (23,972) 28,946 ------------------------------------------------------(Recovery of) Provision for income tax $ (46,530) $ 25,786 $ (27,170) $ 36,089 ------------------------------------------------------ ------------------------------------------------------The Fund recorded a current income tax recovery of $3.2 million for the second quarter of fiscal 2011 versus $6.1 million of provision in the same period last year. A tax recovery of $4.2 million has been recorded for the six month period of fiscal 2011 versus a provision of $6.1 million for the same period last year. The change is mainly attributable to U.S. income tax recovery generated by operating losses incurred by the U.S. entities during the first two quarters of this fiscal year.Also included in the income tax provision is an amount relating to the tax impact of the distributions paid to the Class A preference shareholders of JEC. In accordance with EIC 151, "Exchangeable Securities Issued by Subsidiaries of Income Trusts", all Class A preference shares are included as part of Unitholders' equity and the distributions paid to the shareholders are included as distributions on the Consolidated Statement of Unitholders' Deficiency, net of tax. For the three and six months ended September 30, 2010, the tax impact of these distributions, based on a tax rate of 30% and 28%, respectively, amounted to $0.4 million and $1.0 million respectively, versus an amount of $0.5 million and $1.1 million, respectively based on 30% last year. The decrease of this tax impact in the second quarter of fiscal 2011 is due to a decline in corporate tax rate in Canada.As noted in the Fund's 2010 Annual Report, the Fund will convert to a taxable Canadian corporation after calendar 2010 (the "Conversion"), and a future tax recovery of $122.0 million was recorded in fiscal 2010 to recognize the significant temporary differences attributed to mark to market losses from financial derivatives which is expected to be realized subsequent to 2010. During the first two quarters of this fiscal year, these mark to market losses increased due to a further decline in fair value of the derivative instruments, and as a result, a future tax recovery of $24.0 million has been recorded for this period.After the Conversion at the commencement of the first quarter of calendar 2011, the Fund will be taxed as a taxable Canadian corporation from that date onwards. Therefore, the future tax asset or liability associated with Canadian liabilities and assets 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 will be accrued at that time to the extent that there is taxable income in the Fund or its underlying operating entities. Canadian entities under the Fund will be subject to a tax rate of approximately 28% after the Conversion.The Fund follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for 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 valuation allowance is recorded against a future income tax asset 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 future income tax liabilities and assets is recognized in income during the period that the change occurs.Liquidity and capital resources Summary of cash flows (thousands of dollars) For the For the three months three months For the six For the six ended Sept ended Sept months ended months ended 30, fiscal 30, fiscal Sept 30, Sept 30, 2011 2010 fiscal 2011 fiscal 2010 ------------------------------------------------------- -------------------------------------------------------Operating activities $ 13,821 $ 24,708 $ 39,548 $ 62,503 Investing activities (19,787) (5,089) (283,373) (12,495)Financing activities, excluding distributions 9,352 5,609 313,021 (5,587)Effect of foreign currency translation 2,413 (5,829) 6,960 (6,928) -------------------------------------------------------Increase in cash before distributions 5,799 19,399 76,156 37,493 Distributions (cash payments) (36,380) (34,930) (72,441) (66,907) -------------------------------------------------------Increase (decrease) in cash (30,581) (15,531) 3,715 (29,414)Cash - beginning of period 94,428 45,211 60,132 59,094 -------------------------------------------------------Cash - end of period $ 63,847 $ 29,680 $ 63,847 $ 29,680 ------------------------------------------------------- -------------------------------------------------------Operating activitiesCash flow from operating activities for the three months ended September 30, 2010, was $12.7 million, a decrease from $24.7 million in the prior comparable quarter. For the six months ended September 30, 2010, cash flow from operations was $38.4 million, a decrease from $62.5 million in the prior comparable period. This change is a result of a $16.9 million greater change in non-cash working capital which is required to support the increased size of the Fund. Higher customer numbers but lower margin relating to the recent warm winter, a lower U.S. dollar exchange rate and relatively lower margins on commercial customers added also had an impact.Investing activitiesThe Fund purchased capital assets totalling $10.8 million and $20.4 million during the three- and six-month periods ended September 30, 2010, respectively, a decrease from $12.5 million and slight increase from $19.9 million in the same periods last year. In fiscal 2011 to date, Just Energy's capital spending related primarily to the water heater business and costs related to purchases of office equipment and IT software.Financing activitiesFinancing activities in the second quarter related primarily to the drawdown of the operating line for working capital requirements as well as additional HTC financing for purchase of additional water heaters. During the three months ended September 30, 2010, Just Energy had drawn a total of $8.0 million against the credit facility versus $16.3 million drawn in the second quarter of fiscal 2010. Financing activities, excluding distributions, for the six month period of fiscal 2011 relate primarily to debentures issued to fund the Hudson acquisition. During the first quarter of fiscal 2011, Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible debentures to fund the Hudson acquisition.On July 1, 2009, in connection with the acquisition of Universal, Just Energy increased its credit facility from $170.0 million to $250.0 million. As part of the increase in the credit facility, Societe Generale and Alberta Treasury Branches joined Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada and Bank of Nova Scotia as the syndicate of lenders thereunder. As Just Energy continues to expand in the U.S. markets, the need to fund working capital and security requirements will increase, driven primarily by the number of customers aggregated, and to a lesser extent, by the number of new markets. Based on the markets in which Just Energy currently operates and others that management expects the Fund to enter, funding requirements will be supported through the credit facility.The Fund'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, approximately 60% of an independent sales contractor's 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. For commercial customers commissions are paid either as the energy commodity flows throughout the contract or upfront annually once the customer begins to flow.The elapsed period between the times when a customer is signed to when the first payment is received 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.Distributions (cash payments)Investors should note that due to the distribution reinvestment plan ("DRIP"), a portion of distributions declared are not paid in cash. Under the program, Unitholders can elect to receive their distributions in units at a 2% discount to the prevailing market price rather than the cash equivalent. During the three and six months ended September 30, 2010, the Fund made cash distributions to its Unitholders and the Class A preference shareholder in the amount of $36.4 million and $72.4 million, respectively, compared to $34.9 million and $66.9 million in the prior comparable periods.Just Energy will continue to utilize its cash resources for expansion into new markets, growth in its existing energy marketing customer base, JustGreen products and Home Services division, and also to make accretive acquisitions of customers as well as distributions to its Unitholders.At the end of the quarter, the annual rate for distributions per unit was $1.24. The Fund intends to make distributions to its Unitholders, based upon cash receipts of the Fund, excluding proceeds from the issuance of additional Fund units, adjusted for costs and expenses of the Fund. The Fund's intention is for Unitholders of record on the 15th day of each month to receive distributions at the end of the month.Balance Sheet as at September 30, 2010 compared to March 31, 2010Cash increased from $60.1 million as at March 31, 2010 to $63.8 million. Restricted cash, which includes cash collateral posting related to supply procurement and credit support for Universal, Commerce and the TGF entities, has decreased to $15.2 million on September 30, 2010, from $18.7 million. The utilization of the credit facility decreased from $57.5 million to $44.5 million as a result of higher cash receipts due to the Universal and Hudson acquisitions and strong customer additions in the past fiscal year. 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 settlements with the suppliers and settlement with the LDCs.There was an increase in accounts receivable from $348.9 million at March 31, 2010 to $366.0 million as at September 30, 2010. Accounts payable and accrued liabilities have also increased from $227.0 million to $326.8 million for the same period. Both increases in accounts receivable and payable are related to added consumption as a result of the Hudson customers acquired and strong net additions from fiscal 2010.Gas in storage has increased from $4.1 million to $48.2 million during the six months ended September 30, 2010. The increased balance reflects injections into storage for the expanding U.S. customer base, which occurs from April to November.At the end of the second quarter in Ontario, Manitoba, Quebec and Michigan, the Fund had delivered more gas to LDCs than was supplied to customers for their use. Since Just Energy is paid for this gas when delivered, yet recognizes revenue when the gas is consumed by the customer, the result on the consolidated balance sheets is the deferred revenue amount of $114.3 million and gas delivered in excess of consumption of $91.8 million. At March 31, 2010, Just Energy had unbilled revenues amounting to $20.8 million and accrued gas accounts payable of $15.1 million.Contract initiation costs relate to the commissions paid by both Hudson and NHS for contracts sold and will be amortized over the life of the contract. The balance increased to $27.2 million from $5.6 million at the end of the last fiscal year mainly due to the Hudson acquisition since the March 31, 2010 balance related to contract initiation costs for NHS only.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, Unitholders' equity from quarter to quarter due to commodity price volatility. Given that the Fund has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash quarterly changes are not meaningful.Intangible assets include the acquired customer contracts as well as other intangibles such as brand, broker network and information technology systems primarily related to the Hudson and Universal purchases. The total intangible asset and goodwill balances increased to $560.7 million and $223.3 million, respectively, from $340.6 million and $177.9 million respectively, as at March 31, 2010.Long-term debt excluding the current portion has increased to $512.4 million in the six months ended September 30, 2010, from $231.8 million and is detailed below.Long-term debt and financing (thousands of dollars) As at September As at March 31, 30, 2010 2010 ================== ------------------Original credit facility $ 44,500 $ 57,500TGF credit facility 40,154 41,313TGF debentures 37,001 37,001TGF term loan 10,000 10,000JEEC convertible debentures 84,049 83,417NEC financing 80,734 65,435JEIF convertible debentures 283,797 -Original credit facilityJust Energy holds a $250.0 million credit facility to meet working capital requirements. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Bank of Nova Scotia, Societe Generale and Alberta Treasury Branches. Under the terms of the credit facility, Just Energy is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees of 4.0%, prime rate advances at Canadian prime and U.S. prime plus 3.0% and letters of credit at 4.0%. Just Energy's obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates 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 September 30, 2010 and 2009, all of these covenants have been met.TGF credit facilityA credit facility of up to $50.0 million was established with a syndicate of Canadian lenders led by Conexus Credit Union and was arranged to finance the construction of the ethanol plant in 2007. The facility was further revised on March 18, 2009, and was converted to a fixed repayment term of ten years commencing March 1, 2009, which includes interest costs at a rate of prime plus 2%, with principal repayments commencing on March 1, 2010. The credit facility is secured by a demand debenture agreement, a first priority security interest on all assets and undertakings of TGF, and a general security interest on all other current and acquired assets of TGF. The credit facility includes certain financial covenants, the more significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholder's equity. The lenders have deferred compliance with the financial covenants until April 1, 2011. The facility was further revised on March 31, 2010, postponing the principal payments due for April 1, 2010 to June 1, 2010, and to amortize them over the six-month period commencing October 1, 2010 and ending March 31, 2011.TGF debenturesA debenture purchase agreement with a number of private parties providing for the issuance of up to $40.0 million aggregate principal amount of debentures was entered into in 2006. The interest rate is 10.5% per annum, compounded annually and payable quarterly. Interest is to be paid quarterly with quarterly principal payments commencing October 1, 2009 in the amount of $1.0 million per quarter. The agreement includes certain financial covenants the more significant of which relate to current ratio, debt to capitalization ratio, debt service coverage, debt to EBITDA and minimum shareholder's equity. The lender has deferred compliance with the financial covenants until April 1, 2011. On March 31, 2010, TGF entered into an agreement with the holders of the debentures to defer scheduled principal payments owing under the Debenture until April 1, 2011.TGF term/operating facilitiesTGF also maintains a working capital facility for $10.0 million with a third party lender bearing interest at prime plus 1% due in full on December 31, 2010. This facility is secured by liquid investments on deposit with the lender. In addition, TGF has a working capital operating line of $7.0 million bearing interest at a prime plus 1%, of which $0.3 million of letters of credit have also been issued.JEEC convertible debenturesIn conjunction with the acquisition of Universal on July 1, 2009, JEEC also assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007 which have a face value of $90 million. The JEEC convertible debentures 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 JEEC 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 29.8 units of the Fund representing a conversion price of $33.56 per Exchangeable Share as at September 30, 2010. Pursuant to the JEEC convertible debentures, if JEEC fixes a record date for the making of a dividend on the JEEC Exchangeable Shares, the conversion price shall be adjusted in accordance therewith.The JEEC convertible debentures are not redeemable prior to October 1, 2010. On and after October 1, 2010, but prior to September 30, 2012, the JEEC convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Fund's sole option on not more than 60 days' and not less than 30 days' prior notice, 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 and after September 30, 2012, but prior to the maturity date, the JEEC convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Fund's sole option on not more than 60 days' and not less than 30 days' prior notice.NEC financingOn January 18, 2010, NEC announced that it had entered into a long-term financing agreement for the funding of new and existing rental water heater contracts for NHS in the Enbridge gas distribution territory. On July 16, 2010, the financing arrangement was expanded to the Union Gas territory. Pursuant to the agreement, NHS will receive financing of an amount equal to the net present value of the first five years of monthly rental income, discounted at the agreed upon financing rate of 7.99% and as settlement, is required to remit an amount equivalent to the rental stream from customers on the water heater contracts for the first five years. The financing agreement is subject to a holdback provision, whereby 3% in the Enbridge territory and 5% in the Union gas territory of the outstanding balance of the funded amount is deducted and deposited to a reserve account in the event of default. Once all of the obligations of NHS are satisfied or expired, the remaining funds in the reserve account will immediately be released to NHS. NEC is required to meet a number of covenants under the agreement and, as at September 30, 2010, all of these covenants have been met.JEIF convertible debenturesOn May 7, 2010, Just Energy completed the acquisition of all of the equity interests of Hudson Parent Holdings, LLC and Hudson Energy Corp. (collectively, "Hudson") with an effective date of May 1, 2010. Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible extendible unsecured subordinated debentures. The JEIF convertible debentures bear an interest rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31 of each year, with maturity on June 30, 2017. Each $1,000 of principal amount of the JEIF 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 units of the Fund, representing a conversion price of $18 per unit.The JEIF 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 debentures may be redeemed by the Fund, 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 the Fund, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.Contractual ObligationsIn the normal course of business, the Fund is obligated to make future payments for contracts and other commitments that are known and non-cancellable.Payments due by period (thousands of dollars) Less than 1 - 3 4 - 5 After Total 1 year years years 5 years---------------------------------------------------------------------------Accounts payable, accrued liabilities and unit distribution payable $ 340,070 $ 340,070 $ - $ - $ -Bank indebtedness 863 863 - - -Long-term debt 632,389 67,850 114,904 119,635 330,000Interest payments 192,570 39,981 63,156 48,655 35,828Property and equipment lease agreements 32,617 4,664 13,727 7,577 6,649EPCOR billing, collections and supply commitments 12,096 5,184 6,912 - -Grain production contracts 48,682 26,952 21,334 396 -Gas and electricity supply purchase commitments 3,666,406 942,984 2,147,261 557,146 19,015--------------------------------------------------------------------------- $4,925,693 $1,428,548 $2,367,294 $ 733,409 $ 391,492------------------------------------------------------------------------------------------------------------------------------------------------------Other obligationsIn the opinion of management, the Fund has no material pending actions, claims or proceedings that have not been included in either its accrued liabilities or in the financial statements. In the normal course of business, the Fund 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 partiesThe Fund does not have any material transactions with any individuals or companies that are not considered independent to the Fund or any of its subsidiaries and/or affiliates.Critical accounting estimatesThe consolidated financial statements of the Fund have been prepared in accordance with Canadian GAAP. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, marketing and general 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. The Fund might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.Unbilled revenues/Accrued gas accounts payableUnbilled revenues result when customers consume more gas than has been delivered by Just Energy to the LDCs. These estimates are stated at net realizable value. Accrued gas accounts payable represents Just Energy's obligation to the LDC with respect to gas consumed by customers in excess of that delivered and valued at net realizable value. This estimate is required for the gas business unit only, since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.Gas delivered in excess of consumption/Deferred revenuesGas delivered to LDCs in excess of consumption by customers is valued at the lower of cost and net realizable value. Collections from LDCs in advance of their consumption results in deferred revenues which are valued at net realizable value. This estimate is required for the gas business unit only since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.Allowance for doubtful accountsJust Energy assumes the credit risk associated with the collection of customers' accounts in Alberta, Illinois, Texas, Pennsylvania and California. In addition, for large direct-billed accounts in B.C. and Ontario, the Fund is responsible for the bad debt risk. Management estimates the allowance for doubtful accounts in these markets based on the financial conditions of each jurisdiction, the aging of the receivables, customer and industry concentrations, the current business environment and historical experience.GoodwillIn assessing the value of goodwill for potential impairment, assumptions are made regarding Just Energy's future cash flow. If the estimates change in the future, the Fund may be required to record impairment charges related to goodwill. An impairment review of goodwill was performed either at as March 31, 2010 or June 30, 2010, and as a result of the review, it was determined that no impairment of goodwill existed.Fair value of derivative financial instruments and risk managementThe Fund 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. 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 obligations.The Fund's business model'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 the Fund'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 expansion in the U.S. has introduced foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge the exposure to fluctuations in cross border cash flows.The financial statements are in compliance with Section 3855 of the CICA Handbook, which requires a determination of fair value for all derivative financial instruments. Up to June 30, 2008, the financial statements also applied Section 3865 of the CICA Handbook, which permitted a further calculation for qualified and designated accounting hedges to determine the effective and ineffective portions of the hedge. This calculation permitted the change in fair value to be accounted for predominately in the consolidated statements of comprehensive income. As of July 1, 2008, management decided that the increasing complexity and costs of maintaining this accounting treatment outweighed the benefits. This fair value (and when it was applicable, the ineffectiveness) is determined using market information at the end of each quarter. Management believes the Fund remains economically hedged operationally across all jurisdictions.Preference shares of JEC and trust unitsAs at November 8, 2010, there were 5,263,728 Class A preference shares of JEC outstanding and 126,086,266 units of the Fund outstanding.JEEC Exchangeable SharesA total of 21,271,804 Exchangeable Shares of JEEC were issued on July 1, 2009, for the purchase of Universal. JEEC shareholders have voting rights equivalent to the Fund's Unitholders and their shares are exchangeable on a one for one basis. As at November 8, 2010, 17,307,502 shares had been converted and there were 3,964,302 Exchangeable Shares outstanding.Taxability of distributionsCash and unit distributions received in calendar 2009 were allocated 100% to other income. Additional information can be found on our website at www.justenergy.com. Management estimates that the distributions for calendar 2010 to be allocated in a similar manner to that of 2009.Recently issued accounting standardsThe following are new standards, not yet in effect, which are required to be adopted by the Fund on the effective date:Business combinationsIn October 2008, the CICA issued Handbook Section 1582, Business Combinations ("CICA 1582"), concurrently with CICA Handbook Section 1601, Consolidated Financial Statements ("CICA 1601"), and CICA Handbook Section 1602, Non-controlling Interest ("CICA 1602"). CICA 1582, which replaces CICA Handbook Section 1581, Business Combinations, establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. CICA 1601, which replaces CICA Handbook Section 1600, carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. CICA 1602 establishes guidance for the treatment of non-controlling interests subsequent to acquisition through a business combination. These new standards are effective for fiscal years beginning on or after January 1, 2011. The Fund has not yet determined the impact of these standards on its consolidated financial statements.International Financial Reporting StandardsIn February 2008, CICA announced that GAAP for publicly accountable enterprises will be replaced by IFRS for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP but there are significant differences in recognition, measurement and disclosures.Just Energy will transition to IFRS effective April 1, 2011, and intends to issue its first interim financial statements under IFRS for the three-month period ending June 30, 2011, and a complete set of financial statements under IFRS for the year ending March 31, 2012.Based on the initial assessment of the differences between Canadian GAAP and IFRS relevant to the Fund, an internal project team was assembled and a conversion plan was developed in March 2009 to manage the transition to IFRS. Project status reporting is provided to senior executive management and to the Audit Committee on a regular basis.Our project consists of three phases: IFRS diagnostic assessment, solution development, and implementation. The diagnostic phase, which was completed in 2009, involved a high-level review and the identification of major accounting differences between current Canadian GAAP and IFRS applicable to Just Energy. The Fund has also completed Phase 2, the solution development phase, which includes the substantial completion of all policy papers which have been discussed with the external auditors. The IFRS project team is currently engaged in the implementation phase, which is the final phase of the project. This phase involves approving of the accounting policy choices, completing the collection of data required to prepare the financial statements, implementing changes to systems and business processes relating to financial reporting, administering key personnel training and monitoring standards currently being amended by the International Accounting Standard Board ("IASB"). Just Energy has also analyzed the IFRS financial statement presentation and disclosure requirements. These assessments will continue to be analyzed and evaluated throughout the implementation phase of the Fund's project.The initial assessment phase determined that the areas with the highest potential to impact the Fund include, but are not limited to, the following:IAS 16: Property, plant and equipmentIAS 16 reinforces the requirement under Canadian GAAP that requires that each part of property, plant and equipment that has a cost which is significant in relation to the overall cost of the item should be depreciated separately. The Fund will adopt this revised accounting policy with respect to the componentization of the ethanol plant on transition to IFRS. The carrying value of the ethanol plant and corresponding depreciation expense will differ upon transition to IFRS. The quantification of the impact is still in process but is not expected to be material.IAS 36: Impairment of assetsIAS 36 uses a one-step approach to both testing and measuring impairment, with asset carrying values compared directly to the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). Canadian GAAP, however, uses a two-step approach to impairment testing, first comparing asset carrying values with undiscounted future cash flows to determine whether impairment exists, and then measuring any impairment by comparing asset carrying values with fair values. The Fund does not expect any material impairment upon transition to IFRS.IAS 12: Income taxesOther than recording the tax effect of the various other transitional adjustments and the reclassification of certain tax balances, the Fund does not expect to record any significant tax-related adjustments on the transition to IFRS.IAS 39: Financial instruments: Recognition and measurementThe Fund enters into fixed-term contracts with customers to provide electricity and gas at fixed prices. These customer contracts expose the Fund to changes in market prices of electricity/gas and consumption. To reduce the exposure to movements in commodity prices arising from the acquisition of electricity and gas at floating rates, the Fund routinely enters into derivative contracts. Under Canadian GAAP, all supply contracts are re-measured at fair value at each reporting date. The requirements for normal purchase and normal sale exemption (own-use exemption) are similar under Canadian GAAP and IFRS, however several small differences exist. There is no specific guidance either in Canadian GAAP or IFRS with respect to eligibility of the own-use exemption of energy supply contracts entered into by energy retailers. The Fund has concluded that the own use exemption does not apply and the amounts will continue to be market to market as is the current practice.IAS 39 also requires that transaction costs incurred upon initial acquisition of a financial instrument be deferred and amortized into profit and loss over the life of the instrument. Initial application of IAS 39 will result in an opening balance sheet adjustment to reduce long-term debt on the date of transition. This adjustment of approximately $3.5 million will be offset through opening retained earnings.IFRS 2: Share-based paymentsUnder IFRS, when stock option awards vest gradually, each tranche is to be considered as a separate award; whereas under Canadian GAAP, the gradually vested tranches are considered as a single award. This will result in expenses relating to share-based payments being recognized over the expected term of each vested tranche. IFRS also requires the Fund to estimate forfeitures up front in the valuation of stock options; whereas, under Canadian GAAP, they can be recorded upfront or recorded as they occur. Currently, the Fund accounts for forfeitures as they occur. On transition the adjustment to opening retained earnings is not significant, however, the impact on the first quarter of fiscal 2011 is approximately $1 million.The Fund has analyzed the optional exemptions available under IFRS 1: First-time Adoption of International Financial Reporting. IFRS generally requires an entity to apply standards on a retrospective basis; however, IFRS 1 provides both mandatory exceptions and optional exemptions from this general requirement. First-time adoption exemptions relevant to the Fund are discussed below.Business CombinationsUnder this exemption, the Fund may elect not to retrospectively apply IFRS 3 to past business combinations. The standard may be prospectively applied from the date of the opening IFRS balance sheet. The Fund intends to use this exemption.Share-based payment transactionsThe Fund may not elect to apply IFRS 2 to equity instruments that were granted on or before November 7, 2002, or which are vested before the company's date of transition to IFRS. The Fund may also not elect to apply IFRS 2 to liabilities arising from share-based payment transactions which settled before the date of transition to IFRS. The Fund intends to apply these exemptions.Cumulative translation adjustmentThe exemption permits the Fund to reset the cumulative translation adjustments to zero by recognizing the full amount in the retained earnings of the opening IFRS balance sheet. The Fund is currently not expected to elect this exemption.Borrowing costsThe exemption allows the Fund to adopt IAS 23, which requires the capitalization of borrowing costs on all qualifying assets, prospectively from the date of the opening IFRS balance sheet. The Fund intends to use this exemption.Until the Fund has prepared a full set of annual financial statements under IFRS, we will not be able to determine or precisely quantify all of the impacts that will result from converting to IFRS.The expected transitional adjustments, changes in accounting policies and subsequent accounting may result in other business impacts, such as impacts on the debt covenants and capital requirements disclosure. Based on the work completed to date, the transition is expected to have minimal impact on information technology and internal controls over financial reporting of the Fund however, the Fund will continue to access these areas as the project progresses.Legal proceedingsJust Energy's subsidiaries are party to a number of legal proceedings. 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.In addition to the routine legal proceedings of Just Energy, 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") 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. CEI continues to vigorously contest this matter and it is not expected to have a material impact on the financial condition of the Fund.Controls and proceduresDuring the most recent interim period, there have been no changes in the Fund's policies and procedures that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Fund's internal control over financial reporting.Limitation on Scope of DesignSection 3.3(1) of National Instrument 52-109, "Certification of Disclosure in Issuer's Annual and Interim Filings", states that the Fund may limit its design of disclosure controls and procedures and internal controls over financial reporting for a business that it acquired not more than 365 days before the end of the financial period to which the certificate relates. Under this section, the Fund's CEO and CFO have limited the scope of the design, and subsequent evaluation, of disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of the Hudson subsidiaries acquired on May 1, 2010.Summary financial information pertaining to the Hudson acquisition that was included in the consolidated financial statements of the Fund for the five months ended September 30, 2010, is as follows: Total -------------------Sales(1) $ 308,044 Net loss(1) (26,872)Current assets 130,755 Non-current assets 370,297 Current liabilities 194,582 Non-current liabilities 40,285 (1)Results from May 1, 2010 to September 30, 2010 Corporate governanceJust Energy is committed to transparency in our operations and our approach to governance meets all recommended standards. Full disclosure of our compliance with existing corporate governance rules is available on our website at www.justenergy.com and is included in the Fund's May 27, 2010 management proxy circular. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.OutlookThe major change for the outlook of Just Energy during the quarter was a continuation of the renewed growth of customer additions since the acquisition of Hudson and its broker channel. Total customers additions of 254,000 in the second quarter and 261,000 in the first quarter are far higher than the record 140,000 added in the second quarter of fiscal 2010. Net additions of 92,000 and 116,000, respectively, also far outstrip the 36,000 net additions recorded in the second quarter of fiscal 2010.During the past three fiscal years, Just Energy relied on increased margin per customer in order to meet its growth targets as customer growth in U.S. markets was offset by customer declines in the more saturated Canadian market. The first six months of fiscal 2011 have seen marketing generate net additions of 9% to the Fund's April 1, 2010 customer count with the Hudson acquisition raising the total growth to 38% since then.The growth of the Commercial Energy division has a number of impacts on operating results. First, margins per RCE are lower with commercial customers but a single customer can equate to hundreds of RCEs. This means lower customer care costs per RCE and lower initial aggregation costs. Commercial customers are currently approximately 40% of Just Energy's base and management expects that to increase to 50% over time. Second, commercial customers are subject to less weather volatility than residential customers. This may translate into more predictable results from the natural gas book. Also, commercial customers do not ordinarily move reducing overall attrition and making balancing of the book less complex.Overall customer growth is concentrated in the U.S. Management believes that any future growth in Canada will be concentrated in JustGreen sales and water heaters. The U.S. share of the customer book reached 52% for the first time in the first quarter and is currently at 55%. The U.S. share of sales and margins in the second quarter were 56% and 57% respectively. These ratios will continue to increase as the vast majority of current growth potential lies within the U.S. One impact of this will be increased financial statement exposure to movements in the U.S. dollar exchange rate. It is expected that sales, margins and distributable cash will be subject to more volatility during times of currency fluctuations. U.S. cross border cash flow is forecasted annually, and hedges for cross border cash flow are entered into when it is determined that any surplus U.S. cash is not required for new acquisition growth.In addition to Commercial Energy division growth, Just Energy has committed expenditures toward a number of other geographic expansions which management believes will contribute to higher distributable cash in the future. The near-term impact will be increases in general and administrative costs which were flat between the second quarter of fiscal 2011 versus the same period last year. These increases should more than offset future margins from the growth generated.On June 29, 2010, the Fund received approval by its Unitholders for the plan to reorganize the income trust structure into a high dividend paying corporation, and subsequently received approval of the Court of Queen's Bench of Alberta on June 30, 2010. Upon completion of the reorganization, currently scheduled for January 1, 2011, the Board intends to implement a dividend policy where monthly dividends will be initially set at $0.1033 per share ($1.24 annually) equal to the current distributions paid to Just Energy's Unitholders.The federal government's announcement on October 31, 2006 of the pending imposition of a tax on income trusts effective January 1, 2011, caused Just Energy to analyze options which would maximize Unitholder value for the long term. The conclusion of the analysis was that conversion to a high-dividend yield corporation was the optimal option available to the Fund. The proposed reorganization offers a number of benefits:-- The unique nature of Just Energy as a growth company with high return on invested capital allows it to pay both a substantial yield and continue to grow. This remains true regardless of whether Just Energy is an income fund or a corporation. -- The receipt of $1.24 per year in dividends will result in a substantially higher after-tax cash yield to shareholders than that of $1.24 in distributions for most taxable Canadian Unitholders. -- It is anticipated that as a corporation, Just Energy will have greater access to capital markets to the extent that issuance of equity should be required for growth through acquisition. -- Limitations under the proposed tax on undue expansion of trusts and foreign ownership limitations on trusts will no longer apply to Just Energy. -- The high-dividend yield as a corporation combined with Just Energy's growth prospects is expected to focus market attention on the value of Just Energy shares. -- It is anticipated that the reorganized structure of the Fund as a dividend-paying corporation will attract new investors, including non- resident investors, and provide, in the aggregate, a more active and attractive market for the Just Energy shares than currently exists for the units. -- As a corporation, Just Energy will be managed by the same experienced team of professionals. In anticipation of the need for conversion, the Fund has not increased its rate of distribution since early 2008 despite substantial growth in its business. Distributions have been maintained by Just Energy at $0.1033 per month ($1.24 annually) supplemented by annual Special Distributions ($0.20 payable January 31, 2010, being the most recent). The decision not to continue distribution increases and the continued growth of Just Energy have given the Fund the flexibility to continue to pay a dividend equal to the current monthly distributions following the reorganization. This ability makes full allowance for the payment of tax by Just Energy and does not rely on a merger with tax loss-bearing companies.The Fund has partnered on a power purchase agreement basis with a number of green energy projects and plans to enter into more such partnerships concentrated in jurisdictions where Just Energy has an established customer base. Just Energy continues to monitor the progress of the deregulated markets in various jurisdictions which may create the opportunity for further geographic expansion.. JUST ENERGY INCOME FUND INTERIM CONSOLIDATED BALANCE SHEETS As at (Unaudited - thousands of Canadian dollars) --------------------------------------------------------------------------- --------------------------------------------------------------------------- September 30, March 31, 2010 2010 ASSETS CURRENT Cash $ 63,847 $ 60,132 Restricted cash 15,154 18,650 Accounts receivable 365,984 348,892 Gas delivered in excess of consumption 91,796 7,410 Gas in storage 48,204 4,058 Inventory 5,031 6,323 Unbilled revenues - 20,793 Prepaid expenses and deposits 23,334 20,038 Current portion of future income tax assets 19,665 29,139 Corporate tax recoverable 13,712 - Other assets - current (Note 11a) 3,034 2,703 --------------------------------------------------------------------------- 649,761 518,138 FUTURE INCOME TAX ASSETS 134,670 85,197 PROPERTY, PLANT AND EQUIPMENT 233,113 218,616 CONTRACT INITIATION COSTS 27,193 5,587 INTANGIBLE ASSETS (Note 6) 560,655 340,629 GOODWILL 223,346 177,887 LONG-TERM RECEIVABLE 3,702 2,014 OTHER ASSETS - LONG TERM (Note 11a) 1,610 5,027 --------------------------------------------------------------------------- $ 1,834,050 $1, 353,095 --------------------------------------------------------------------------- --------------------------------------------------------------------------- LIABILITIES CURRENT Bank indebtedness $ 863 $ 8,236 Accounts payable and accrued liabilities 326,785 226,950 Unit distribution payable 13,285 13,182 Corporate taxes payable - 6,410 Current portion of future income tax liabilities 12,246 6,776 Deferred revenue 114,301 7,202 Accrued gas accounts payable - 15,093 Current portion of long-term debt (Note 7) 67,850 62,829 Other liabilities - current (Note 11a) 692,474 685,200 ---------------------------------------------------------------------------- 1,227,804 1,031,878 LONG-TERM DEBT (Note 7) 512,385 231,837 DEFERRED LEASE INDUCEMENTS 1,803 1,984 OTHER LIABILITIES - LONG TERM (Note 11a) 555,343 590,572 ---------------------------------------------------------------------------- 2,297,335 1,856,271 ----------------------------------------------------------------------------NON-CONTROLLING INTEREST 18,364 20,603 ----------------------------------------------------------------------------UNITHOLDERS' DEFICIENCY Deficit $(1,386,479) $(1,423,698) Accumulated other comprehensive income (Note 9) 179,277 221,969 ---------------------------------------------------------------------------- (1,207,202) (1,201,729) Unitholders' capital 670,591 659,118 Equity component of convertible debenture (Note 7e) 33,914 - Contributed surplus 21,048 18,832 ----------------------------------------------------------------------------Unitholders' deficiency (481,649) (523,779)---------------------------------------------------------------------------- $ 1,834,050 $1, 353,095 --------------------------------------------------------------------------------------------------------------------------------------------------------Commitments (Note 14) Contingencies (Note 15) See accompanying notes to the interim consolidated financial statements INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - thousands of Canadian dollars except per unit amounts) -------------------------------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2010 2009 2010 2009 SALES $ 657,878 $ 434,659 $ 1,267,562 $ 833,669 COST OF SALES 561,049 353,163 1,090,236 686,098 ----------------------------------------------------------------------------GROSS MARGIN 96,829 81,496 177,326 147,571 ----------------------------------------------------------------------------EXPENSES General and administrative expenses 25,511 25,634 54,783 41,251 Marketing expenses 36,950 27,107 66,708 46,492 Bad debt expense 6,694 3,856 12,443 7,685 Amortization of intangible assets and related supply contracts 32,255 20,487 59,427 21,081 Amortization of property, plant and equipment 1,892 2,527 3,812 3,721 Unit based compensation 1,548 976 2,623 1,633 Capital tax expense 26 48 159 128 ---------------------------------------------------------------------------- 104,876 80,635 199,955 121,991 ----------------------------------------------------------------------------INCOME (LOSS) BEFORE THE UNDERNOTED (8,047) 861 (22,629) 25,580 INTEREST EXPENSE (Note 7) 12,296 4,946 21,776 5,426 CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS (Note 11a) 181,254 (138,515) (133,122) (226,395)OTHER INCOME (921) (558) (2,703) (1,314)----------------------------------------------------------------------------INCOME (LOSS) BEFORE INCOME TAX (200,676) 134,988 91,420 247,863 PROVISION FOR (RECOVERY OF) INCOME TAX (46,530) 25,786 (27,170) 36,089 NON-CONTROLLING INTEREST 334 (1,488) (2,239) (1,543)----------------------------------------------------------------------------NET INCOME (LOSS) $ (154,480) $ 110,690 $ 120,829 $ 213,317 --------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the interim consolidated financial statements Net income (loss) per unit (Note 12) Basic $ (1.15) $ 0.83 $ 0.90 $ 1.75 Diluted $ (1.15) $ 0.82 $ 0.84 $ 1.72 INTERIM CONSOLIDATED STATEMENTS OF UNITHOLDERS' DEFICIENCY FOR THE SIX MONTHS ENDED SEPTEMBER 30 (Unaudited - thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- 2010 2009 ACCUMULATED DEFICIT Accumulated deficit, beginning of period $ (480,931) $ (712,427)Net income 120,829 213,317 ----------------------------------------------------------------------------Accumulated deficit, end of period (360,102) (499,110)----------------------------------------------------------------------------DISTRIBUTIONS Distributions, beginning of period (942,767) (757,850)Distributions and dividends on Exchangeable Shares (81,326) (74,590)Class A preference share distributions - net of income taxes of $979 (2009 - $1,077) (2,284) (2,186)----------------------------------------------------------------------------Distributions, end of period (1,026,377) (834,626)----------------------------------------------------------------------------DEFICIT (1,386,479) (1,333,736)----------------------------------------------------------------------------ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 9) Accumulated other comprehensive income, beginning of period 221,969 364,566 Other comprehensive loss (42,692) (64,605)----------------------------------------------------------------------------Accumulated other comprehensive income, end of period 179,277 299,961 ----------------------------------------------------------------------------UNITHOLDERS' CAPITAL (Note 10) Unitholders' capital, beginning of period 659,118 398,454 Trust units exchanged 7,224 172,027 Trust units issued on exercise/exchange of unit compensation 461 536 Distribution reinvestment plan 11,012 7,775 Exchangeable Shares issued - 239,946 Exchangeable Shares exchanged (7,224) (172,027)----------------------------------------------------------------------------Unitholders' capital, end of period 670,591 646,711 ----------------------------------------------------------------------------EQUITY COMPONENT OF CONVERTIBLE DEBENTURE (Note 7e) 33,914 - CONTRIBUTED SURPLUS (Note 10b) 21,048 15,805 ----------------------------------------------------------------------------Unitholders' deficiency, end of period $ (481,649) $ (371,259)--------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the interim consolidated financial statements INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited - thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2010 2009 2010 2009 NET INCOME (LOSS) $(154,480) $ 110,690 $ 120,829 $ 213,317 ----------------------------------------------------------------------------Unrealized gain (loss) on translation of self- sustaining operations (5,650) 6,775 9,226 25,021 Amortization of deferred unrealized gain of discontinued hedges net of income taxes of $4,589 (2009 -$7,918) and $10,439 (2009 - $17,724) for the three and six months ended September 30, respectively (Note 11a) (23,195) (40,296) (51,918) (89,626)----------------------------------------------------------------------------OTHER COMPREHENSIVE LOSS (28,845) (33,521) (42,692) (64,605)----------------------------------------------------------------------------COMPREHENSIVE INCOME (LOSS) $(183,325) $ 77,169 $ 78,137 $ 148,712 --------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the interim consolidated financial statements INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 Net inflow (outflow) of cash related to the following activities 2010 2009 2010 2009 OPERATING Net income (loss) $ (154,480) $ 110,690 $ 120,829 $ 213,317 ----------------------------------------------------------------------------Items not affecting cash Amortization of intangible assets and related supply contracts 32,255 20,487 59,427 21,081 Amortization of property, plant and equipment 1,892 2,527 3,812 3,721 Amortization of contract initiation costs 4,183 - 6,271 - Unit-based compensation 1,548 976 2,623 1,633 Non-controlling interest 334 (1,488) (2,239) (1,543) Future income taxes (43,796) 19,141 (23,972) 28,946 Financing charges, non-cash portion 1,635 396 2,659 396 Other 2,332 569 4,512 482 Change in fair value of derivative instruments 181,254 (138,515) (133,122) (226,395)---------------------------------------------------------------------------- 181,637 (95,907) (80,029) (171,679)----------------------------------------------------------------------------Adjustments required to reflect net cash receipts from gas sales 18,527 26,023 26,963 34,717 ----------------------------------------------------------------------------Net change in non-cash working capital (31,863) (16,098) (28,215) (13,852)----------------------------------------------------------------------------Cash inflow from operations 13,821 24,708 39,518 62,503 ----------------------------------------------------------------------------FINANCING Distributions and dividends paid to Unitholders and holders of Exchangeable Shares (35,189) (33,837) (70,157) (64,721) Distributions to Class A preference shareholder (1,632) (1,632) (3,263) (3,263) Tax impact on distributions to Class A preference shareholder 441 539 979 1,077 Decrease in bank indebtedness (6,990) - (7,373) - Issuance of long-term debt 17,785 12,718 366,982 20,244 Repayment of long-term debt (772) (6,000) (50,158) (25,000) Restricted cash (671) (1,109) 3,570 (831)---------------------------------------------------------------------------- (27,028) (29,321) 240,580 (72,494)----------------------------------------------------------------------------INVESTING Purchase of property, plant and equipment (10,785) (12,477) (20,392) (19,883) Purchase of other intangible assets (533) (2,411) (895) (2,411) Acquisitions (Note 5) (4,976) 9,799 (258,047) 9,799 Proceeds from long-term receivable 105 - 3,233 - Contract initiation costs (3,598) - (7,272) - ---------------------------------------------------------------------------- (19,787) (5,089) (283,373) (12,495)---------------------------------------------------------------------------- Effect of foreign currency translation on cash balances 2,413 (5,829) 6,960 (6,928)----------------------------------------------------------------------------NET CASH INFLOW (OUTFLOW) (30,581) (15,531) 3,715 (29,414)CASH, BEGINNING OF PERIOD 94,428 45,211 60,132 59,094 ----------------------------------------------------------------------------CASH, END OF PERIOD $ 63,847 $ 29,680 $ 63,847 $ 29,680 --------------------------------------------------------------------------------------------------------------------------------------------------------Supplemental cash flow information Interest paid $ 7,018 $ 3,770 $ 10,690 $ 4,209 Income taxes paid $ 5,530 $ 5,502 $ 7,986 $ 6,479 --------------------------------------------------------------------------------------------------------------------------------------------------------See accompanying notes to the interim consolidated financial statements JUST ENERGY INCOME FUNDNOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED SEPTEMBER 30, 2010(thousands of Canadian dollars except where indicated and per unit amounts)1. INTERIM FINANCIAL STATEMENTSThe unaudited interim consolidated financial statements do not conform in all respects to the requirements of Canadian Generally Accepted Accounting Principles ("GAAP") for annual financial statements and should therefore be read in conjunction with the audited consolidated financial statements and notes thereto included in Just Energy Income Fund's ("Just Energy", the "Fund", or "JEIF") annual report for fiscal 2010. The unaudited interim consolidated financial statements have been prepared by management in accordance with Canadian GAAP applicable to interim consolidated financial statements and follow the same accounting policies and methods of application as the most recent annual financial statements, except as described in Note 3.2. ORGANIZATIONJust Energy is an open-ended, limited-purpose trust established under the laws of the Province of Ontario to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P. ("JE Ontario"), Just Energy Manitoba L.P. ("JE Manitoba"), Just Energy Quebec L.P. ("JE Quebec"), Just Energy (B.C.) Limited Partnership ("JE B.C."), Just Energy Alberta L.P. ("JE Alberta"), Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp. ("JE Illinois"), Just Energy New York Corp. ("JENYC"), Just Energy Indiana Corp. ("JE Indiana"), Just Energy Texas L.P. ("JE Texas"), Just Energy Exchange Corp. ("JEEC"), Universal Energy Corporation ("UEC"), Universal Gas and Electric Corporation ("UG&E"), Commerce Energy, Inc. ("Commerce" or "CEI"), National Energy Corporation ("NEC") operating under the trade name of National Home Services ("NHS"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Just Energy Massachusetts Corp. ("JE Mass"), Just Energy Michigan Corp. ("JE Michigan"), Hudson Energy Services, LLC ("Hudson" or "HES") and Terra Grain Fuels, Inc. ("TGF"), collectively, the "Just Energy Group".3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES(a) Significant accounting policies adopted from acquisitions(i) Contract initiation costsCommissions related to obtaining and renewing commercial customer contracts are paid in one of two ways: upfront or as a residual payment over the life of the contract. If the commission is paid upfront, it is recorded as contract initiation costs and amortized in marketing expenses over the remaining life of the contract. If the commission is paid as a residual payment, the amount is expensed as earned.In addition, commissions related to obtaining customer contracts signed under NEC are recorded as contract initiation costs and amortized in marketing expenses over the remaining life of the contract.(b) Recently issued accounting standardsThe following are new standards, not yet in effect, which are required to be adopted by the Fund on the effective date:(i) Business CombinationsIn October 2008, the Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 1582, Business Combinations ("CICA 1582"), concurrently with CICA Handbook Section 1601, Consolidated Financial Statements ("CICA 1601"), and CICA Handbook Section 1602, Non-controlling Interest ("CICA 1602"). CICA 1582, which replaces CICA Handbook Section 1581, Business Combinations, establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. CICA 1601, which replaces CICA Handbook Section 1600, carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. CICA 1602 establishes guidance for the treatment of non-controlling interests subsequent to acquisition(a) Recently issued accounting standards (cont'd)through a business combination. These new standards are effective for fiscal years beginning on or after January 1, 2011. The Fund will not adopt the new standards prior to adopting IFRS as described below.(ii) International Financial Reporting StandardsIn February 2008, the CICA announced that GAAP for publicly accountable enterprises will be replaced by International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011.Just Energy will transition to IFRS effective April 1, 2011, and intends to issue its first interim consolidated financial statements under IFRS for the three-month period ending June 30, 2011, and a complete set of consolidated financial statements under IFRS for the year ending March 31, 2012.Just Energy has developed a changeover plan which includes diagnostic assessment, solution development and implementation phases. The Fund has completed the initial assessment and solution development phases. These included certain training initiatives, researching and documenting the significant differences between Canadian GAAP and IFRS, assessing the impact on the Fund, and a preliminary assessment of the information technology systems. The IFRS team is currently engaged in the implementation phase, which is the final phase of the project.Significant differences exist which may impact the Fund's financial reporting. Those areas include, but are not limited to, property, plant and equipment, impairment of assets, accounting for income taxes, financial instruments, share-based payments and the first-time adoption of IFRS ("IFRS 1").As part of the conversion plan, the Fund is in the process of analyzing the detailed impacts of these identified differences and developing solutions to bridge these differences. Although the full impact of the adoption of IFRS on the Fund's financial position and results of operations is not yet reasonably determinable or estimable, the Fund expects a significant increase in financial statement disclosure requirements resulting from the adoption of IFRS. Just Energy is currently on target with its conversion plan, which will be completed by April 1, 2011.4. SEASONALITY OF OPERATIONSJust Energy's operations are seasonal. 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.5. ACQUISITIONS(a) Acquisition of Hudson Energy Services, LLCOn May 7, 2010, Just Energy completed the acquisition of all of the equity interests of Hudson Parent Holdings, LLC and all the common shares of Hudson Energy Corp., thereby indirectly acquiring Hudson Energy Services, LLC with an effective date of May 1, 2010. The acquisition was funded by an issuance of $330 million in convertible debentures issued on May 5, 2010 (see note 7e).The acquisition of Hudson was accounted for using the purchase method of accounting. The Fund allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:Net assets acquired Current assets (including cash of $24,003) $ 88,696 Current liabilities (107,817)Electricity contracts and customer relationships 200,653 Gas contracts and customer relationships 26,225 Broker network 84,400 Brand 11,200 Information technology system development 17,954 Contract initiation costs 20,288 Other intangible assets 6,545 Goodwill 33,574 Property, plant and equipment 2,559 Unbilled revenue 15,092 Notes receivable - long-term 1,312 Security deposits - long-term 3,544 Other assets - current 124 Other assets - long-term 100 Other liabilities - current (74,683)Other liabilities - long-term (40,719) --------------- $ 289,047 --------------- ---------------Consideration Purchase price $ 287,790 Transaction costs 1,257 --------------- $ 289,047 --------------- ---------------All contracts and intangible assets, excluding brand, are amortized over the average remaining life at the time of acquisition. The gas and electricity contracts and customer relationships are amortized over 30 months and 35 months, respectively. Other intangible assets, excluding brand, are amortized over periods of three to five years. The brand value is considered to be indefinite and, therefore, not subject to amortization. The purchase price allocation is considered preliminary and, as a result, it may be adjusted during the 12-month period following the acquisition. In the three months ended September 30, 2010, goodwill increased by $2.6 due to additional transaction costs and a change in the working capital calculation which impacted the purchase price.(b) Acquisition of Universal Energy Group Ltd.On July 1, 2009, Just Energy completed the acquisition of all of the outstanding common shares of Universal Energy Group Ltd. ("UEG" or "Universal") pursuant to a plan of arrangement (the "Arrangement"). Under the Arrangement, UEG shareholders received 0.58 of an exchangeable share ("Exchangeable Share") of JEEC, a subsidiary of Just Energy, for each UEG common share held. In aggregate, 21,271,804 Exchangeable Shares were issued pursuant to the Arrangement. Each Exchangeable Share is exchangeable for a trust unit on a one-for-one basis at any time at the option of the holder, and entitles the holder to a monthly dividend equal to 66 2/3% of the monthly distribution paid by Just Energy on a Trust Unit. JEEC also assumed all the covenants and obligations of UEG in respect of UEG's outstanding 6% convertible unsecured subordinated debentures.The acquisition of UEG was accounted for using the purchase method of accounting. The Fund allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:Net assets acquired Working capital (including cash of $10,319) $ 63,614 Electricity contracts and customer relationships 229,586 Gas contracts and customer relationships 243,346 Water heater contracts and customer relationships 22,700 Other intangible assets 2,721 Goodwill 77,494 Property, plant and equipment 171,693 Future tax liabilities (50,475)Other liabilities - current (164,148)Other liabilities - long-term (140,857)Long-term debt (183,079)Non-controlling interest (22,697) -------------- $ 249,898 -------------- --------------Consideration Transaction costs $ 9,952 Exchangeable Shares --- 239,946 -------------- $ 249,898 -------------- --------------Non-controlling interest represents 33.3% ownership of TGF held by EllisDon Corporation.All contracts and intangible assets are amortized over the average remaining life at the time of acquisition. The gas and electricity contracts and customer relationships are amortized over periods ranging from 8 to 57 months. The water heater contracts and customer relationships are amortized over 174 months and the intangible assets are amortized over six months. An adjustment in the amount of $10,700 was made to increase goodwill and decrease working capital during the three months ended June 30, 2010. The purchase price for this acquisition is final and no longer subject to change.(c) Newten Home Comfort Inc.On July 2, 2009, NEC, a wholly owned subsidiary of the Fund, acquired Newten Home Comfort Inc., an arm's length third party that held a 20% interest in Newten Home Comfort L.P. for $3.2 million, of which $520 was paid in cash and determined to be the purchase price consideration. The purchase price consideration excludes contingent payments to the 20% interest holders that will become payable in July 2012 based on the number of completed water heater installations. Any contingent payments made will result in an increase to the balance of goodwill generated by the acquisition.6. INTANGIBLE ASSETS Accumulated Net BookAs at September 30, 2010 Cost Amortization Value----------------------------------------------------------------------------Gas contracts and customer relationships $ 256,831 $ 109,635 $ 147,196Electricity contracts and customer relationships 449,107 170,265 278,842Water heater contracts and customer relationships 23,081 2,014 21,067Broker network 85,497 7,125 78,372Brand 11,346 - 11,346Information technology system development 19,613 1,647 17,966Other intangible assets 9,194 3,328 5,866---------------------------------------------------------------------------- $ 854,669 $ 294,014 $ 560,655-------------------------------------------------------------------------------------------------------------------------------------------------------- Accumulated Net BookAs at March 31, 2010 Cost Amortization Value----------------------------------------------------------------------------Gas contracts and customer relationships $ 228,827 $ 63,484 $ 165,343Electricity contracts and customer relationships 245,617 92,779 152,838Water heater contracts and customer relationships 23,081 1,218 21,863Other intangible assets 2,982 2,397 585---------------------------------------------------------------------------- $ 500,507 $ 159,878 $ 340,629--------------------------------------------------------------------------------------------------------------------------------------------------------7. LONG-TERM DEBT AND FINANCING September March 31, 30, 2010 2010 Credit facility (a) $ 44,500 $ 57,500 TGF Credit facility (b)(i) 40,154 41,313 TGF Debentures (b)(ii) 37,001 37,001 TGF Term/Operating facilities (b)(iii) 10,000 10,000 JEEC Convertible debentures (c) 84,049 83,417 NEC Financing (d) 80,734 65,435 JEIF Convertible debentures (e) 283,797 - ---------------------------------------------------------------------------- 580,235 294,666 Less: current portion (67,850) (62,829)---------------------------------------------------------------------------- $ 512,385 $ 231,837 --------------------------------------------------------------------------------------------------------------------------------------------------------The following table details the interest expense for the three and six months ended September 30, 2010. Interest is expensed at the effective interest rate. For the For the For the For the three three six six months months months months ended ended ended ended September September September September 30, 30, 30, 30, 2010 2009 2010 2009----------------------------------------------------------------------------Credit facility (a) $ 968 $ 1,357 $ 1,935 $ 1,837TGF Credit facility (b)(i) 424 618 871 618TGF Debentures (b)(ii) 1,232 1,128 2,182 1,128TGF Term/operating facilities (b)(iii) 245 87 556 87TGF Wheat production financing - 10 - 10JEEC Convertible debentures (c) 1,668 1,746 3,332 1,746NEC Financing (d) 1,490 - 2,831 -JEIF Convertible debentures (e) 6,269 - 10,069 ----------------------------------------------------------------------------- $ 12,296 $ 4,946 $ 21,776 $ 5,426--------------------------------------------------------------------------------------------------------------------------------------------------------(a) Just Energy holds a $250 million credit facility to meet working capital requirements. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Bank of Nova Scotia, Societe Generale and Alberta Treasury Branches. The repayment of the facility is due on October 29, 2011.Interest is payable on outstanding loans at rates that vary with bankers' acceptances, 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 of 4.0%, prime rate advances at bank prime plus 3.0%, and letters of credit at 4.0%. As at September 30, 2010, the Canadian prime rate was 3.0% and the U.S. prime rate was 3.25%. As at September 30, 2010, Just Energy had drawn $44,500 (March 31, 2010 - $57,500) against the facility and total letters of credit outstanding amounted to $66,895 (March 31, 2010 - $49,444). As at September 30, 2010, Just Energy has $138,605 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 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 September 30, 2010 and 2009, all of these covenants have been met.(b) In connection with the acquisition of UEG on July 1, 2009, the Fund acquired the debt obligations of TGF, which is currently comprised of the following separate facilities:(i) TGF credit facilityA credit facility of up to $50,000 was established with a syndicate of Canadian lenders led by Conexus Credit Union and was arranged to finance the construction of the ethanol plant in 2007. The facility was revised on March 18, 2009, and was converted to a fixed repayment term of ten years commencing March 1, 2009 which includes interest costs at a rate of prime plus 2% with principal repayments scheduled to commence on March 1, 2010. The credit facility is secured by a demand debenture agreement, a first priority security interest on all assets and undertakings of TGF and a general security interest on all other current and acquired assets of TGF. As a result, the facility is fully classified as a current obligation. The credit facility includes certain financial covenants, the more significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholders' equity. The lenders have deferred compliance with the financial covenants until April 1, 2011. The facility was further revised on April 5, 2010 to postpone the principal payments due for April 1 to June 1, 2010, and to amortize them over the six-month period commencing October 1, 2010 and ending March 1, 2011. As at September 30, 2010, the amount owing under this facility amounted to $40,154.(ii) TGF debenturesA debenture purchase agreement with a number of private parties providing for the issuance of up to $40,000 aggregate principal amount of debentures was entered into in 2006. The interest rate is 10.5% per annum, compounded annually and payable quarterly. Quarterly principal payments commenced October 1, 2009 in the amount of $1,000 per quarter. The agreement includes certain financial covenants, the more significant of which relate to current ratio, debt to capitalization ratio, debt service coverage, debt to EBITDA, and minimum shareholder's equity. The lender has deferred compliance with the financial covenants until April 1, 2011. On April 5, 2010, TGF entered into an agreement with the holders of the debenture to defer scheduled principal payments owing under the debenture until April 1, 2011. As at September 30, 2010, the amount owing under this debenture agreement amounted to $37,001.(iii) TGF term/operating facilitiesTGF maintains a term loan for $10,000 with a third party lender bearing interest at prime plus 1% due in full on December 31, 2010. This facility is secured by liquid investments on deposit with the lender. As at September 30, 2010, the amount owing under the facility amounted to $10,000.(iv) TGF has a working capital operating line of $7,000 bearing interest at a rate of prime plus 1%. In addition, total letters of credit issued amounted to $250.(c) In conjunction with the acquisition of Universal on July 1, 2009, JEEC also acquired the obligations of the convertible unsecured subordinated debentures (the "JEEC convertible debentures") issued by Universal in October 2007. 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 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 JEEC 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 29.8 Exchangeable Shares of JEEC, representing a conversion price of $33.56 per Exchangeable Share as at September 30, 2010. Pursuant to the JEEC convertible debentures, if JEEC fixes a record date for the making of a dividend on the JEEC Exchangeable Shares, the conversion price shall be adjusted in accordance therewith. During the six months ended September 30, 2010, interest expense amounted to $3,332.The JEEC convertible debentures are not redeemable prior to October 1, 2010. On and after October 1, 2010, but prior to September 30, 2012, the JEEC convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Fund's sole option on not more than 60 days and not less than 30 days prior notice, 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 and after September 30, 2012, but prior to the maturity date, the JEEC convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Fund's sole option on not more than 60 days' and not less than 30 days' prior notice.(d) On January 18, 2010, NEC entered into a long-term financing agreement for the funding of new and existing rental water heater contracts in the Enbridge gas distribution territory. On July 16, 2010, NEC expanded this facility to cover the Union gas territory. Pursuant to the agreement, NEC receives financing of an amount equal to the present value of the first five years of monthly rental income, discounted at the agreed upon financing rate of 7.99% and, as settlement, it is required to remit an amount equivalent to the rental stream from customers on the water heater contracts for the first five years. As security for performance of the obligation, NEC has pledged the water heaters subject to the financed rental agreement as collateral.The financing agreement is subject to a holdback provision, whereby 3% in the Enbridge territory and 5% in the Union gas territory of the outstanding balance of the funded amount is deducted and deposited into a reserve account in the event of default. Once all obligations of NEC are satisfied or expired, the remaining funds in the reserve account will immediately be released to NEC.NEC has $80,734 owing under this agreement, including $2,753 relating to the holdback provision as at September 30, 2010. The company is required to meet a number of covenants under the agreement. As at September 30, 2010, all of these covenants have been met.(e) In order to fund the acquisition of Hudson effective May 1, 2010, Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible extendible unsecured subordinated debentures (the "JEIF convertible debentures"). The JEIF convertible debentures bear interest at a rate of 6.0% 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 JEIF 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 units of the Fund, representing a conversion price of $18 per unit. During the six months ended September 30, 2010, interest expense amounted to $10,069.The JEIF 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 JEIF convertible debentures may be redeemed by the Fund, 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. On and after June 30, 2015, and prior to maturity, the JEIF convertible debentures may be redeemed by the Fund, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.The Fund 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 JEIF 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 units determined by dividing the principal amount of the JEIF 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 JEIF convertible debentures has been accounted for as a separate component of Unitholders' deficiency in the amount of $33,914. The remainder of the net proceeds of the JEIF convertible debentures of $283,797 has been recorded as long-term debt, which will be accreted up to the face value of $330,000 over the term of the JEIF convertible debentures using an effective interest rate of 8.8%. If the JEIF convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted.8. INCOME TAXESThe Fund recorded a current income tax recovery of $3.2 million for the second quarter of fiscal 2011 versus $6.1 million of provision in the same period in fiscal 2010. A tax recovery of $4.2 million has been recorded for the six-month period of fiscal 2011 versus a provision of $6.1 million for the same period in fiscal 2010. For the For the three three For the six For the six months months months months ended Sept ended Sept ended Sept ended Sept 30, fiscal 30, fiscal 30, fiscal 30, fiscal 2011 2010 2011 2010 -------------------------------------------------Current income tax recovery $ (3,175) $ 6,106 $ (4,177) $ 6,066Amount credited to Unitholders' deficiency 441 539 979 1,077Future tax expense (recovery) (43,796) 19,141 (23,972) 28,946 -------------------------------------------------Provision for (recovery of) income tax $ (46,530) $ 25,786 $ (27,170) $ 36,089 ------------------------------------------------- -------------------------------------------------9. ACCUMULATED OTHER COMPREHENSIVE INCOME For the six months ended September 30, 2010 Foreign currency translation Cash flow adjustment hedges Total Balance, beginning of period $ 28,584 $ 193,385 $ 221,969 Unrealized foreign currency translation adjustment 9,226 - 9,226 Amortization of deferred unrealized gain on discontinued hedges after July 1, 2008, net of income taxes of $10,439 - (51,918) (51,918) ---------------------------------------- $ 37,810 $ 141,467 $ 179,277 ---------------------------------------- ----------------------------------------For the six months ended September 30, 2009 Foreign currency translation Cash flow adjustment hedges Total Balance, beginning of period $ 1,958 $ 362,608 $ 364,566 Unrealized foreign currency translation adjustment 25,021 - 25,021 Amortization of deferred unrealized gain on discontinued hedges after July 1, 2008, net of income taxes of $17,724 - (89,626) (89,626) ---------------------------------------- $ 26,979 $ 272,982 $ 299,961 ---------------------------------------- ----------------------------------------10. UNITHOLDERS' CAPITAL(a) Trust units of the FundAn unlimited number of units may be issued. Each unit is transferable, voting and represents an equal undivided beneficial interest in any distributions from the Fund whether of net income, net realized capital gains or other amounts, and in the net assets of the Fund in the event of termination or winding-up of the Fund.The Fund intends to make distributions to its Unitholders based on the cash receipts of the Fund, excluding proceeds from the issuance of additional Fund units, adjusted for costs and expenses of the Fund, amounts which may be paid by the Fund in connection with any cash redemptions or repurchases of units and any other amount that the Board of Directors considers necessary to provide for the payment of any costs which have been or will be incurred in the activities and operations of the Fund. The Fund's intention is for Unitholders of record on the 15th day of each month to receive distributions at the end of the month, excluding any Special Distributions.Class A preference shares of Just Energy Corp.The terms of the unlimited Class A preference shares of Just Energy Corp. ("JEC") are non-voting, non-cumulative and exchangeable into trust units in accordance with the JEC shareholders' agreement as restated and amended, with no priority on dissolution. Pursuant to the amended and restated Declaration of Trust which governs the Fund, the holder of Class A preference shares is entitled to vote in all votes of Unitholders as if she was the holder of the number of units that she would receive if she exercised her shareholder exchange rights. Class A preference shareholders have equal entitlement to distributions from the Fund as Unitholders.Exchangeable Shares of JEECOn July 1, 2009, Just Energy completed the acquisition of all the outstanding common shares of Universal pursuant to the Arrangement. Under the Arrangement, Universal shareholders received 0.58 of an Exchangeable Share of JEEC for each Universal common share held. In aggregate, 21,271,804 Exchangeable Shares were issued pursuant to the Arrangement. Each Exchangeable Share is exchangeable for a trust unit on a one-for-one basis at any time at the option of the holder, and entitles the holder to a monthly dividend equal to 66 2/3% of the monthly distribution paid by Just Energy on a trust unit.JEEC owns 66 2/3% of the issued and outstanding shares in the capital of TGF (Canada). Pursuant to the terms of a unanimous shareholders' agreement in respect of TGF, if all of the assets and the undertaking of TGF in connection with its Belle Plaine facility are not sold by November 30, 2010, the other shareholder of TGF may elect on such date to require JEEC to purchase such shareholder's TGF shares (the "Put Shares"). A portion of the purchase price for the Put Shares shall be paid by the issuance of that number of Exchangeable Shares equal to the quotient of (i) $10 million, less the cumulative amount of all dividends and other distributions paid in cash to the shareholder on the Put Shares from April 15, 2009 to January 3, 2011; and (ii) the volume weighted average trading price of the JEEC Exchangeable Shares on the TSX for the month of December 2010. 2010 2009 Issued and outstanding Units/Shares Units/Shares Trust units ------------------------ Balance, beginning of period 124,325,307 $ 593,075 106,138,523 $ 385,294 Unit-based awards exercised/exchanged 38,989 461 37,979 536 Distribution reinvestment plan 849,244 11,012 641,806 7,775 Exchanged from Exchangeable Shares 640,389 7,224 15,250,593 172,027 ----------------------------------------------------Balance, end of period 125,853,929 611,772 122,068,901 565,632 ----------------------------------------------------Class A preference shares ------------------------ Balance, unchanged during period 5,263,728 13,160 5,263,728 13,160 ----------------------------------------------------Exchangeable Shares ------------------------ Balance, beginning of period 4,688,172 52,883 - - Exchangeable Shares issued - - 21,271,804 239,946 Exchanged into units (640,389) (7,224) (15,250,593) (172,027) ----------------------------------------------------Balance, end of period 4,047,783 45,659 6,021,211 67,919 ----------------------------------------------------Unitholders' capital, end of period 135,165,440 $ 670,591 133,353,840 $ 646,711 ---------------------------------------------------- ----------------------------------------------------Distribution reinvestment planUnder the Fund's distribution reinvestment program ("DRIP"), Unitholders holding a minimum of 100 units can elect to receive their distributions (both regular and special) in units rather than cash at a 2% discount to the simple average closing price of the units for five trading days preceding the applicable distribution payment date, providing the units are issued from treasury and not purchased on the open market.Units issuedDuring the six months ended September 30, 2010, the Fund issued 640,389 units relating to the exchange of Exchangeable Shares of JEEC. During the prior comparable period, the Fund issued 15,250,593 units relating to the exchange of Exchangeable Shares. The Exchangeable Shares were issued pursuant to Just Energy's acquisition of UEG.(b) Contributed surplusAmounts credited to contributed surplus include unit-based compensation awards, unit appreciation rights and deferred unit grants. Amounts charged to contributed surplus are awards exercised during the period.Contributed Surplus 2010 2009 ------------ ------------Balance, beginning of period $ 18,832 $ 14,671 Add: unit-based compensation awards 2,623 1,633 non-cash deferred unit grant distributions 54 37 Less: unit-based awards exercised (461) (536) ------------ ------------Balance, end of period $ 21,048 $ 15,805 ------------ ------------ ------------ ------------Total amounts credited to Unitholders' capital in respect of unit options and deferred unit grants exercised or exchanged during the six months ended September 30, 2010 amounted to $461 (2009 - $536).11. FINANCIAL INSTRUMENTS(a) Fair valueThe Fund has a variety of gas and electricity supply contracts that are captured under Section 3855, Financial Instruments - Measurement and Recognition. Fair value is the estimated amount that Just Energy would pay or receive to dispose of these supply contracts in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. Management has estimated the value of electricity, unforced capacity, heat rates, heat rate, renewable and gas swaps 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, the Fund ceased the utilization of hedge accounting. Accordingly, all the mark to market changes on the Fund's derivative instruments are recorded on a single line on the consolidated statements of operations. Due to the commodity volatility and size of the Fund, the quarterly swings in mark to market on these positions will increase the volatility in the Fund's earnings.The following tables illustrate (gains)/losses related to the Fund's derivative financial instruments classified as held-for-trading and recorded as other assets and other liabilities with their offsetting values recorded in income as the change in fair value of derivative instruments for the three months ended September 30, 2010: Change in Fair Value of Derivative Instruments For the For the For the three For the three three months three months months ended months ended ended September ended September September 30, 2010 September 30, 2009 30, 2010 (USD) 30, 2009 (USD) Canada Fixed-for-floating electricity swaps (i) $ 4,605 n/a $ (16,995) n/a Renewable energy certificates (ii) 3 n/a (1,585) n/a Verified emission-reduction credits (iii) 1,189 n/a - n/a Options (iv) (1,692) n/a 168 n/a Physical gas forward contracts (v) 61,473 n/a (44,301) n/a Transportation forward contracts (vi) 1,433 n/a 4,232 n/a United States Fixed-for-floating electricity swaps (vii) 24,172 23,263 (7,571) (7,000) Physical electricity forwards (viii) 28,881 27,795 (10,975) (10,146) Unforced capacity forward contracts (ix) 209 201 1,449 1,340 Unforced capacity physical contracts (x) 255 246 301 279 Renewable energy certificates (xi) 1,159 1,116 974 900 Verified emission-reduction credits (xii) 331 318 7 7 Options (xiii) (749) (721) 962 889 Physical gas forward contracts (xiv) 11,315 10,890 (44,026) (40,701) Transportation forward contracts (xv) 365 351 (623) (576) Heat rate swaps (xvi) 4,464 4,296 (74) (68) Fixed financial swaps (xvii) 33,107 31,862 (2,940) (2,718)Foreign exchange forward contracts (xviii) (524) n/a 816 n/a Amortization of deferred unrealized gains on discontinued hedges (27,784) n/a (48,214) n/a Amortization of derivative financial instruments related to acquisitions 39,042 n/a 29,880 n/a ----------------------------------------------------------------------------Change in Fair Value of Derivative Instruments $ 181,254 $(138,515) --------------------------------------------------------------------------------------------------------------------------------------------------------The following tables illustrate (gains)/losses related to the Fund's derivative financial instruments classified as held-for-trading recorded against other assets and other liabilities with their offsetting values recorded in change in fair value derivative instruments for the six months ended September 30, 2010: Change In Fair Value of Derivative Instruments For the For the For the six six six months For the months months ended six months ended ended September ended September September 30, 2010 September 30, 2009 30, 2010 (USD) 30, 2009 (USD) Canada Fixed-for-floating electricity swaps (i) $(134,236) n/a $ 14,152 n/a Renewable energy certificates (ii) 146 n/a (1,839) n/a Verified emission-reduction credits (iii) 1,189 n/a - n/a Options (iv) (855) n/a 960 n/a Physical gas forward contracts (v) (22,155) n/a (54,114) n/a Transportation forward contracts (vi) (11,917) n/a 7,488 n/a United States Fixed-for-floating electricity swaps (vii) (72) (255) (11,173) (10,196) Physical electricity forwards (viii) 6,199 5,833 (33,155) (29,834) Unforced capacity forward contracts (ix) 369 357 (1,191) (1,004) Unforced capacity physical contracts (x) 899 872 301 279 Renewable energy certificates (xi) 1,839 1,777 1,386 1,266 Verified emission-reduction credits (xii) 333 321 216 192 Options (xiii) (929) (896) 2,265 2,046 Physical gas forward contracts (xiv) (19,319) (18,921) (70,312) (64,034) Transportation forward contracts (xv) 208 199 (706) (649) Heat rate swaps (xvi) 7,522 7,271 (1,537) (1,368) Fixed financial swaps (xvii) 25,741 24,701 (3,339) (3,073)Foreign exchange forward contracts (xviii) (247) n/a 1,671 n/a Amortization of deferred unrealized gains of discontinued hedges (62,357) n/a (107,348) n/a Amortization of derivative financial instruments related to acquisitions 74,520 n/a 29,880 n/a ----------------------------------------------------------------------------Change In Fair Value of Derivative Instruments $(133,122) $(226,395) --------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes certain aspects of the financial assets and liabilities recorded in the financial statements as at September 30, 2010: Other Other Other Other assets assets liabilities liabilities (current) (long term) (current) (long term)Canada Fixed-for-floating electricity swaps (i) $ - $ - $ 187,526 $ 135,721 Renewable energy certificates (ii) 301 538 41 142 Verified emission- reduction credits (iii) - - 306 875 Options (iv) 1,170 858 - - Physical gas forward contracts (v) - - 225,119 192,959 Transportation forward contracts (vi) - - 3,624 3,958United States Fixed-for-floating electricity swaps (vii) - - 57,344 46,529 Physical electricity forwards (viii) - - 82,969 69,256 Unforced capacity forward contracts (ix) 477 45 588 128 Unforced capacity physical contracts (x) 241 - 1,210 488 Renewable energy certificates (xi) 175 96 1,326 2,423 Verified emission- reduction credits (xii) - - 255 697 Options (xiii) 45 3 474 502 Physical gas forward contracts (xiv) 14 - 90,535 64,325 Transportation forward contracts (xv) - - 1,469 2,309 Heat rate swaps (xvi) 87 70 2,370 727 Fixed financial swaps (xvii) - - 37,318 34,304Foreign exchange forward contracts (xviii) 524 - - -----------------------------------------------------------------------------As at September 30, 2010 $ 3,034 $ 1,610 $ 692,474 $ 555,343--------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes certain aspects of the financial assets and liabilities recorded in the financial statements as at March 31, 2010: Other Other Other Other assets assets liabilities liabilities (current) (long term) (current) (long term)Canada Fixed-for-floating electricity swaps (i) $ - $ - $ 244,563 $ 212,920 Renewable energy certificates (ii) 350 621 30 139 Verified emission- reduction credits (iii) 2 7 - - Options (iv) 757 416 - - Physical gas forward contracts (v) - - 237,145 203,088 Transportation forward contracts (vi) - - 11,060 8,439United States Fixed-for-floating electricity swaps (vii) - - 31,291 30,464 Physical electricity forwards (viii) - - 38,015 39,035 Unforced capacity forward contracts (ix) 523 102 445 9 Unforced capacity physical contracts (x) 33 146 731 - Renewable energy certificates (xi) 107 130 918 945 Verified emission- reduction credits (xii) - - 167 447 Options (xiii) - - 912 915 Physical gas forward contracts (xiv) - - 96,938 75,142 Transportation forward contracts (xv) - - 1,265 2,262 Heat rate swaps (xvi) 654 3,605 - - Fixed financial swaps (xvii) - - 21,720 16,767Foreign exchange forward contracts (xviii) 277 - - -----------------------------------------------------------------------------As at March 31, 2010 $ 2,703 $ 5,027 $ 685,200 $ 590,572--------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes financial instruments classified as held for trading as at September 30, 2010 to which the Fund has committed. Total remaining Contract type Notional volume volume Maturity date Canada ----------------------------------------------------------------------------(i) Fixed-for- floating October 31, 2010 electricity - January 31, swaps (i) 0.0001-85 MWh 10,707,887 MWh 2017----------------------------------------------------------------------------(ii) Renewable December 31, energy 2010 - December certificates 10-90,000 MWh 1,285,368 MWh 31, 2014----------------------------------------------------------------------------(iii) Verified emission December 31, reduction 2,000-100,000 2010 - December credits Tonnes 605,000 Tonnes 31, 2014----------------------------------------------------------------------------(iv) Options October 31, 2010 46-40,500 - February 28, GJ/month 4,555,629 GJ 2014----------------------------------------------------------------------------(v) Physical gas October 31, 2010 forward - January 31, contracts 5-12,951 GJ/day 132,612,805 GJ 2016----------------------------------------------------------------------------(vi) Transportation forward October 31, 2010 contracts 50-35,000 GJ/day 63,082,570 GJ - May 31, 2015---------------------------------------------------------------------------- United States ----------------------------------------------------------------------------(vii) Fixed-for- floating electricity October 31, 2010 swaps (i) 0.10-79 MWh 7,023,943 MWh - June 30, 2015----------------------------------------------------------------------------(viii) Physical October 31, 2010 electricity - August 31, forwards 1-33 MWh 7,441,062 MWh 2015----------------------------------------------------------------------------(ix) Unforced capacity October 31, 2010 forward - November 30, contracts 5-35 MWCap 880 MWCap 2012----------------------------------------------------------------------------(x) Unforced capacity physical October 31, 2010 contracts 1-50 MWCap 2,704 MWCap - May 31, 2014----------------------------------------------------------------------------(xi) Renewable December 31, energy 2,000-160,000 2010 - December certificates MWh 2,852,724 MWh 31, 2015----------------------------------------------------------------------------(xii) Verified emission- December 31, reduction 10,000-50,000 2010 - December credits Tonnes 615,000 Tonnes 31, 2014----------------------------------------------------------------------------(xiii) Options October 31, 2010 5-120,000 - December 31, mmBTU/month 5,310,945 mmBTU 2014----------------------------------------------------------------------------(xiv) Physical gas forward 5-5,000 October 31, 2010 contracts mmBTU/day 43,281,431 mmBTU - May 31, 2015----------------------------------------------------------------------------(xv) Transportation forward 3-19,735 October 31, 2010 contracts mmBTU/day 40,348,793 mmBTU - March 31, 2015----------------------------------------------------------------------------(xvi) Heat rate swaps October 31, 2010 1-30 MWh 4,193,514 MWh - July 31, 2015----------------------------------------------------------------------------(xvii) Fixed financial 50-657,600 October 31, 2010 swaps mmBTU/month 51,551,493 mmBTU - July 31, 2015----------------------------------------------------------------------------(xviii) Foreign exchange forward ($768-$6,366) October 01, 2010 contract (US$742-$6,100) n/a - July 05, 2011---------------------------------------------------------------------------- Fair value favourable/ Contract type Fixed price (unfavourable) Notional value Canada ----------------------------------------------------------------------------(i) Fixed-for- floating electricity swaps (i) $28.75-$128.13 ($323,247) $748,741----------------------------------------------------------------------------(ii) Renewable energy certificates $3.00-$26.00 $656 $8,141----------------------------------------------------------------------------(iii) Verified emission reduction credits $6.00-$11.50 ($1,181) $5,836----------------------------------------------------------------------------(iv) Options $6.35-$12.40 $2,028 $8,551----------------------------------------------------------------------------(v) Physical gas forward contracts $3.16-$10.00 ($418,078) $988,415----------------------------------------------------------------------------(vi) Transportation forward contracts $0.01-$1.57 ($7,582) $46,693---------------------------------------------------------------------------- United States ----------------------------------------------------------------------------(vii) Fixed-for- floating $25.00-$140.72 electricity (US$24.30- ($103,873) $431,411 swaps (i) $136.75) (US($100,946)) (US$419,253)----------------------------------------------------------------------------(viii) Physical $23.92-$120.39 electricity (US$23.25- ($152,225) $453,220 forwards $117.00) (US($147,935)) (US$440,447)----------------------------------------------------------------------------(ix) Unforced capacity $3,087-$8,232 forward (US$3,000- ($194) $4,723 contracts $8,000) ((US$189)) (US$4,590)----------------------------------------------------------------------------(x) Unforced capacity physical $978-$9,004 ($1,457) $13,866 contracts (US$950-$8,750) ((US$1,416)) (US$13,475)----------------------------------------------------------------------------(xi) Renewable energy $1.65-$32.93 ($3,478) $17,324 certificates (US$1.60-$32.00) (US($3,380)) (US$16,836)----------------------------------------------------------------------------(xii) Verified emission- reduction $6.53-$9.00 ($952) $4,832 credits (US$6.35-$8.75) (US$(925)) (US$4,696)----------------------------------------------------------------------------(xiii) Options $7.97-$14.20 ($928) $8,369 (US$7.75-$13.80) (US($902)) (US$8,133)----------------------------------------------------------------------------(xiv) Physical gas forward $3.70-$12.22 ($154,846) $371,317 contracts (US$3.60-$11.88) (US($150,482)) (US$360,852)----------------------------------------------------------------------------(xv) Transportation $0.0026-$1.0290 forward (US$0.0025- ($3,778) ($49,973) contracts $1.0000) (US($3,671)) (US$48,565)----------------------------------------------------------------------------(xvi) Heat rate swaps $19.23-$76.86 (US$18.69- ($2,940) $176,616 $74.69) (US($2,857)) (US$171,638)----------------------------------------------------------------------------(xvii) Fixed financial $3.85-$8.85 ($71,622) $328,368 swaps (US$3.74-$8.60) (US($69,603)) (US$319,114)----------------------------------------------------------------------------(xviii) Foreign exchange forward $41,189 contract $1.0350-$1.0657 $524 (US$39,342)----------------------------------------------------------------------------(i) The electricity fixed-for-floating contracts related to the Province of Alberta are predominantly load-following and some contracts in Ontario are also load-following, wherein the quantity of electricity contained in the supply contract "follows" the usage of customers designated by the supply contract. Notional volumes associated with these contracts are estimates andsubject to change with customer usage requirements. There are also load shaped fixed-for-floating contracts in these and the rest of Just Energy's electricity markets wherein the quantity of electricity is established but varies throughout the term of the contracts. The estimated amortization of deferred gains and losses reported in AOCI that is expected to be amortized to net income within the next 12 months is a gain of $95,879.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 asset balance recognized in the consolidated financial statements.Fair value ("FV") hierarchyLevel 1The 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, restricted cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, unit distributions payable, and long-term debt under Level 1.Level 2Fair value measurements which 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.Level 3Fair 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 hierarchy. For the natural gas supply contracts, Just Energy uses three different market observable curves: 1) Commodity (predominately NYMEX), 2) Basis and 3) 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 remaining years, Just Energy uses extrapolation which leads to natural gas supply contracts to be classified under Level 3.Note on fair value measurement input sensitivityThe 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 commodity price 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 September 30, 2010: September 30, 2010 Level 1 Level 2 Level 3 Total Financial assets Trading assets $ 79,001 $ - $ - $ 79,001 Loans and receivable 369,686 - - 369,686 Derivative financial assets - - 4,644 4,644 Financial liabilities Derivative financial liabilities - (71,622) (1,176,195) (1,247,817) Other financial liabilities (921,168) - - (921,168)----------------------------------------------------------------------------Total net derivative liabilities $ (472,481) $ (71,622) $ (1,171,551) $ (1,715,654)--------------------------------------------------------------------------------------------------------------------------------------------------------The following table illustrates the changes in net fair value of financial assets/(liabilities) classified as Level 3 in the FV hierarchy for the six months ended September 30, 2010: September 30, 2010 Opening balance, April 01, 2010 $ (1,229,555)Total gain/(losses) - Net Income (166,889)Purchases (129,325)Sales (2,072)Settlements 356,290 Transfer out of Level 3 - ----------------------------------------------------------------------------Closing Balance, September 30, 2010 $ (1,171,551)--------------------------------------------------------------------------------------------------------------------------------------------------------(b) Classification of financial assets and liabilitiesThe following table represents the fair values and carrying amounts of financial assets and liabilities measured at amortized cost:As at September 30, 2010 Carrying amount Fair valueCash and restricted cash $ 79,001 $ 79,001Accounts receivable $ 365,984 $ 365,984Long-term receivable $ 3,702 $ 3,702Other assets $ 4,644 $ 4,644Bank indebtedness, accounts payable and accrued liabilities and unit distributions payable $ 340,933 $ 340,933Long-term debt $ 580,235 $ 633,289Other liabilities $ 1,247,817 $ 1,247,817 For the three months For the three months ended September ended September 30,2010 30,2009Interest expense on financial liabilities not held for trading $ 12,296 $ 4,946 For the six months For the six months ended September ended September 30, 30,2010 2009Interest expense on financial liabilities not held for trading $ 21,776 $ 5,426The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities and unit distributions payable approximates their fair value due to their short-term liquidity.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 exception of the JEIF and JEEC convertible debentures which are fair valued, based on market value.(c) Management of risks arising from financial instrumentsThe risks associated with the Fund's financial instruments are as follows:(i) Market riskMarket 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 the Fund is exposed are discussed below.Foreign currency riskForeign 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 investment 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. and its recent acquisition of Hudson, Just Energy expects to have a greater exposure in the future to U.S. fluctuations than in prior years. Just Energy has hedged between 25% to 90% of certain forecasted cross border cash flows that are expected to occur within the next year. The level of hedging is dependent on the source of the cash flow and the time remaining until the cash repatriation occurs.The Fund 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.With respect to translation exposure, as at September 30, 2010, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar, assuming that all the other variables had remained constant, net income for the six months ended September 30, 2010 would have been $3,132 lower/higher and other comprehensive income would have been $5,652 lower/higher.Interest rate riskJust 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. The Fund's exposure to interest rate risk is relatively immaterial and temporary in nature. The Fund does not currently believe that this long-term debt exposes it to material financial 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) in income before income taxes for the three months ended September 30, 2010 of approximately $239.Commodity price riskJust 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; 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 in Canadian dollars and thereby fix margins such that Unitholder distributions 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 flow of Just Energy.Commodity price sensitivity - all derivative financial instrumentsAs at September 30, 2010, if the energy prices including all 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 taxes for the quarter ended September 30, 2010 would have increased (decreased) by $197,958 ($197,523) primarily as a result of the change in the fair value of the Fund's derivative instruments.Commodity price sensitivity - Level 3 derivative financial instrumentsAs at September 30, 2010, if the energy prices including level 3 derivative financial instruments for 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 taxes for the quarter ended September 30, 2010 would have increased (decreased) by $173,176 ($172,807) primarily as a result of the change in the fair value of the Fund's derivative instruments.(ii) Credit riskCredit 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 riskIn Alberta, Texas, Illinois, Pennsylvania, California, Maryland, New York and New Jersey, 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.As at September 30, 2010, accounts receivable from the above markets with a carrying value of $27,999 (March 31, 2010 - $20,239) were past due but not doubtful. As at September 30, 2010, the aging of the accounts receivable from the above markets was as follows:Current $ 64,744 1 - 30 days 19,443 31 - 60 days 5,423 61 - 90 days 3,133 Over 90 days 18,977 ----------------- $111,720 ----------------- For the three months ended September 30, 2010, changes in the allowance for doubtful accounts were as follows: Balance, beginning of period $ 23,110 Provision for doubtful accounts 12,443 Bad debts written off (9,079)Others (526) ------------------Balance, end of period $ 25,948 ------------------For 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 riskCounterparty 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 exception to these limits requires approval from the Board of Directors of JEC. The Risk Office and Risk Committee monitors current and potential credit exposure to individual counterparties and also monitors 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.As at September 30, 2010, the maximum counterparty credit risk exposure amounted to $116,364, representing the risk relating to its derivative financial assets and accounts receivable.(iii) Liquidity riskLiquidity risk is the potential inability to meet financial obligations as they fall due. The Fund 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 the Fund's financial liabilities as at September 30, 2010: Carrying Contractual Less than amount cash flows 1 yearAccounts payable and accrued liabilities and unit distribution payable $ 340,070 $ 340,070 $ 340,070Bank indebtedness 863 863 863Long-term debt (i) 580,235 632,389 67,850Derivative instruments: Cash outflow 1,247,817 3,666,406 942,984-------------------------------------------------------------------------------------------------------------------------------------------------------- $ 2,168,985 $ 4,639,728 $ 1,351,767-------------------------------------------------------------------------------------------------------------------------------------------------------- 1 to 3 4 to 5 More than years years 5 yearsAccounts payable and accrued liabilities and unit distribution payable $ - $ - $ -Bank indebtedness - - -Long-term debt (i) 114,904 119,635 330,000Derivative instruments: Cash outflow 2,147,261 557,146 19,015-------------------------------------------------------------------------------------------------------------------------------------------------------- $ 2,262,165 $ 676,781 $ 349,015--------------------------------------------------------------------------------------------------------------------------------------------------------(i) Included in long-term debt is $330,000 and $90,000 relating to convertible debentures which may be settled through the issuance of shares at the option of the holder. In addition to the amounts noted above, at September 30, 2010, net interest payments over the life of the long-term debt and bank credit facility are as follows: Less than 1 to 3 4 to 5 More than 1 year years years 5 years----------------------------------------------------------------------------Interest payments $ 39,981 $ 63,156 $ 48,655 $ 40,778----------------------------------------------------------------------------(iv) Supplier riskJust 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 $1,213 to accommodate for its counterparties' risk of default.12. INCOME (LOSS) PER UNIT For the For the For the six For the six three months three months months ended months ended ended Sept. ended Sept. Sept. 30, Sept. 30, 30, 2010 30, 2009 2010 2009Basic income (loss) per unit ------------------------ Net income (loss) available to Unitholders $ (154,480) $ 110,690 $ 120,829 $ 213,317 ----------------------------------------------------Weighted average number of units outstanding 125,462,358 118,294,042 125,142,006 112,302,933Weighted average number of Class A preference shares 5,263,728 5,263,728 5,263,728 5,263,728Weighted average number of Exchangeable Shares 4,176,620 9,267,522 4,258,056 4,659,082 ----------------------------------------------------Basic units and shares outstanding 134,902,706 132,825,292 134,663,790 122,225,743 ----------------------------------------------------Basic income (loss) per unit $ (1.15) $ 0.83 $ 0.90 $ 1.75 ---------------------------------------------------- ----------------------------------------------------Diluted income (loss) per unit ------------------------ Net income (loss) available to Unitholders $ (154,480) $ 110,690 $ 120,829 213,317Adjusted net income for dilutive impact of convertible debentures - - 8,648 - ----------------------------------------------------Adjusted net income (154,480) 110,690 129,477 213,317 ----------------------------------------------------Basic units and shares outstanding 134,902,706 132,825,292 134,663,790 122,225,743Dilutive effect of: Unit appreciation rights 2,697,099 1,386,737 2,701,471 1,384,569Deferred unit grants 90,803 69,199 87,525 65,919Convertible debentures 21,015,113 - 17,608,920 - ----------------------------------------------------Units outstanding on a diluted basis 158,705,721 134,281,228 155,061,706 123,676,231 ----------------------------------------------------Diluted income (loss) per unit $ (1.15) $ 0.82 $ 0.84 $ 1.72 ---------------------------------------------------- ----------------------------------------------------13. REPORTABLE BUSINESS SEGMENTSJust Energy operates in two reportable geographic segments, Canada and the United States. Reporting by geographic region is in line with Just Energy's performance measurement parameters. The gas and electricity business segments have operations in both Canada and the United States.Just Energy evaluates segment performance based on geographic segments and operating segments.The following tables present Just Energy's results by geographic segments and operating segments:For the three months ended September 30, 2010 Gas and electricity Home marketing Ethanol services ------------------------------------------- United Canada States Canada Canada Consolidated --------------------------------------------------------Sales gas $ 77,729 $ 56,132 $ - $ - $ 133,861 Sales electricity 165,579 322,075 - - 487,654 Ethanol - - 31,191 - 31,191 Home services - - - 5,172 5,172 ----------------------------------------------------------------------------Sales 243,308 378,207 31,191 5,172 657,878 ----------------------------------------------------------------------------Gross margin 30,839 57,631 4,573 3,786 96,829 Amortization of property, plant and equipment (1,207) (316) (297) (72) (1,892)Amortization of intangible assets (11,325) (20,534) - (396) (32,255)Other operating expenses (28,333) (35,294) (2,920) (4,182) (70,729)----------------------------------------------------------------------------Income (loss) before the undernoted (10,026) 1,487 1,356 (864) (8,047)Interest expense 8,771 133 1,902 1,490 12,296 Change in fair value of derivative instruments 70,061 111,193 - - 181,254 Other income (501) (679) (35) 294 (921)Non-controlling interest - - 334 - 334 Provision (recovery) for income tax (42,011) (3,134) - (1,385) (46,530)----------------------------------------------------------------------------Net income (loss) $ (46,346) $(106,026) $ (845) $ (1,263) $ (154,480)--------------------------------------------------------------------------------------------------------------------------------------------------------Additions to property, plant and equipment $ 806 $ 762 $ 65 $ 9,152 $ 10,785 ----------------------------------------------------------------------------For the three months ended September 30, 2009 Gas and electricity Home marketing Ethanol services ------------------------------------------- United Canada States Canada Canada Consolidated --------------------------------------------------------Sales gas $ 91,635 $ 37,724 $ - $ - $ 129,359 Sales electricity 174,457 111,920 - - 286,377 Ethanol - 16,449 - 16,449 Home services - - 2,474 2,474 ----------------------------------------------------------------------------Sales 266,092 149,644 16,449 2,474 434,659 ----------------------------------------------------------------------------Gross margin 38,237 39,079 1,866 2,315 81,496 Amortization of property, plant and equipment (1,232) (53) (621) (621) (2,527)Amortization of intangible assets (11,892) (8,191) - (404) (20,487)Other operating expenses (42,283) (8,236) (3,819) (3,283) (57,621)----------------------------------------------------------------------------Income (loss) before the undernoted (17,170) 22,599 (2,574) (1,993) 861 Interest expense 2,689 414 1,843 - 4,946 Change in fair value of derivative instruments (67,752) (70,763) - - (138,515)Other income (9,191) 8,602 31 - (558)Non-controlling interest - - (1,488) - (1,488)Provision for income tax 8,934 17,309 - (457) 25,786 ----------------------------------------------------------------------------Net income (loss) $ 48,150 $ $67,037 $ (2,960) $ (1,536) $ 110,690 --------------------------------------------------------------------------------------------------------------------------------------------------------Additions to property, plant and equipment $ 1,249 $ 34 $ 100 $ 11,094 $ 12,477 ----------------------------------------------------------------------------For the six months ended September 30, 2010 Gas and electricity Home marketing Ethanol services ------------------------------------------- United Canada States Canada Canada Consolidated --------------------------------------------------------Sales gas $ 207,575 $ 129,180 $ - $ - $ 336,755 Sales electricity 326,208 546,989 - - 873,197 Ethanol - - 47,997 - 47,997 Home services - - - 9,613 9,613 ----------------------------------------------------------------------------Sales 533,783 676,169 47,997 9,613 1,267,562 ----------------------------------------------------------------------------Gross margin 69,096 99,685 1,927 6,618 177,326 Amortization of property, plant and equipment (2,553) (526) (593) (140) (3,812)Amortization of intangible assets (22,661) (35,971) - (795) (59,427)Other operating expenses (58,991) (64,205) (5,254) (8,266) (136,716)----------------------------------------------------------------------------Income (loss) before the undernoted (15,109) (1,017) (3,920) (2,583) (22,629)Interest expense 15,087 249 3,609 2,831 21,776 Change in fair value of derivative instruments (164,179) 31,057 - - (133,122)Other income (3,136) 180 (41) 294 (2,703)Non-controlling interest - - (2,239) - (2,239)Provision (recovery) for income tax (27,603) 1,818 - (1,385) (27,170)----------------------------------------------------------------------------Net income (loss) $ 164,722 $ (34,321) $ (5,249) $ (4,323) $ 120,829 --------------------------------------------------------------------------------------------------------------------------------------------------------Additions to property, plant and equipment $ 1,257 $ 1,650 $ 179 $ 17,306 $ 20,392 --------------------------------------------------------------------------------------------------------------------------------------------------------Total goodwill $ 160,535 $ 62,811 $ - $ - $ 223,346 --------------------------------------------------------------------------------------------------------------------------------------------------------Total assets $ 753,486 $ 807,541 $163,915 $ 109,108 $ 1,834,050 ----------------------------------------------------------------------------For the six months ended September 30, 2009 Gas and electricity Home marketing Ethanol services ------------------------------------------- United Canada States Canada Canada Consolidated --------------------------------------------------------Sales gas $ 241,333 $ 88,158 $ - $ - $ 329,491 Sales electricity 297,948 187,307 - - 485,255 Ethanol - - 16,449 - 16,449 Home services - 2,474 2,474 ----------------------------------------------------------------------------Sales 539,281 275,465 16,449 2,474 833,669 ----------------------------------------------------------------------------Gross margin 80,590 62,800 1,866 2,315 147,571 (2,358) (121) (621) (621) (3,721)Amortization of intangible assets (12,175) (8,502) - (404) (21,081)Other operating expenses (64,328) (25,759) (3,819) (3,283) (97,189)----------------------------------------------------------------------------Income before the undernoted 1,729 28,418 (2,574) (1,993) 25,580 Interest expense 3,105 478 1,843 - 5,426 Change in fair value of derivative instruments (76,027) (150,368) - - (226,395)Other income (9,936) 8,591 31 - (1,314)Non-controlling interest - - (1,488) (55) (1,543)Provision for income tax 9,221 27,325 - (457) 36,089 ----------------------------------------------------------------------------Net income (loss) $ 75,366 $ 142,392 $ (2,960) $ (1,481) $ 213,317 --------------------------------------------------------------------------------------------------------------------------------------------------------Additions to property, plant and equipment $ 4,498 $ 133 $ 100 $ 15,152 $ 19,883 --------------------------------------------------------------------------------------------------------------------------------------------------------Total goodwill $ 135,745 $ 33,552 $ - $ 2,697 $ 171,994 --------------------------------------------------------------------------------------------------------------------------------------------------------Total assets $ 799,323 $ 368,269 $159,790 $ 50,679 $ 1,378,061 --------------------------------------------------------------------------------------------------------------------------------------------------------14. COMMITMENTSCommitments for each of the next five years and thereafter are as follows: Long-term gas and Master electricity Premises and Grain Services contracts with equipment production agreement with various leasing contracts EPCOR suppliers2011 $ 4,664 $ 26,952 $ 5,184 $ 942,9842012 7,523 19,631 6,912 1,338,2872013 6,204 1,703 - 808,9742014 4,662 396 - 411,1182015 2,915 - - 146,028Thereafter 6,649 - - 19,015 -------------- -------------- -------------- -------------- $ 32,617 $ 48,682 $ 12,096 $ 3,666,406 -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------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.15. CONTINGENCIESThe 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 the Fund, 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 Commerce did not own generation, the State of California is claiming that Commerce was unjustly enriched by the run-up caused by the alleged market manipulation by other market participants. The proceedings are currently ongoing. On March 18, 2010, the Administrative Law Judge granted the motion to strike 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.At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation is not determinable.16. COMPARATIVE INTERIM CONSOLIDATED FINANCIAL STATEMENTSCertain figures from the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the current period's consolidated financial statements.FOR FURTHER INFORMATION PLEASE CONTACT: Ms. Rebecca MacDonaldJust Energy Income FundExecutive Chair(416) 367-2872ORMr. Ken Hartwick, C.A.Just Energy Income FundChief Executive Officer & President(905) 795-3557ORMs. Beth Summers, C.A.Just Energy Income FundChief Financial Officer(905) 795-4206www.justenergy.comThe Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.