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Press release from Marketwire

Just Energy Reports First Quarter Results

- Ahead of 5% Published Growth Target - 227,000 Gross and 44,000 Net Customer Additions. Customer Base Up 9% from a Year Prior - Gross Margin Up 14% Per Share - Administrative Costs Down 5% Per Share - Adjusted EBITDA Up 23% Per Share

Thursday, August 11, 2011

Just Energy Reports First Quarter Results11:19 EDT Thursday, August 11, 2011TORONTO, ONTARIO--(Marketwire - Aug. 11, 2011) - Just Energy Group Inc. (TSX:JE) -Highlights for the three months ended June 30, 2011 included:-- Gross customer additions through marketing of 227,000 and net additions of 44,000 compared to 232,000 and 73,000 in the fourth quarter and 261,000 and 116,000 in first quarter of fiscal 2011. -- Just Energy exited the quarter with 3.4 million customers, up 9% from a year earlier. -- National Home Services installed base up 50% year over year to 131,600 with gross margin up 120% to $6.2 million. -- Gross margin of $94.3 million, up 17% (14% per share). -- Administrative costs down despite the 9% increase in customer base. -- Adjusted EBITDA of $37.4 million, up 26% (23% per share) reflecting earnings before growth marketing expenditures. -- Base EBITDA of $29.9 million, up 36% (34% per share) reflecting earnings after all marketing. -- Payout ratio on Adjusted EBITDA was 116% for the quarter, versus 142% for the three months ended June 30, 2010. First quarter results exceed published guidance of 5% growth in gross margin and adjusted EBITDA. Just Energy First Quarter Fiscal 2012 ResultsJust Energy Group Inc. announced its results for the three months ended June 30, 2011.Just Energy is a TSX listed corporation and it reports in the attached Management's Discussion and Analysis, a detailed review of its operating results as measured by gross margin, Adjusted EBITDA and Base EBITDA. Just Energy also reports the profit for the period but Management believes that the inclusion of non-cash mark to market on future supply positions makes this measure less valuable in measuring performance as this future supply has been sold at fixed prices.--------------------------------------------------------------------------------------------------------------------------------------------------------Three months ended June 30, ($ millions except per unit and customers) F2012 Per share F2011 Per unit----------------------------------------------------------------------------Sales $626.2 $4.46 $609.7 $4.44----------------------------------------------------------------------------Gross margin 94.3 0.67 80.4 0.59----------------------------------------------------------------------------General and administrative 28.3 0.20 28.8 0.21----------------------------------------------------------------------------Financing costs 13.8 0.10 9.9(1) 0.07----------------------------------------------------------------------------Profit 51.1 0.36 270.80 1.97----------------------------------------------------------------------------Adjusted EBITDA 37.4 0.27 29.7 0.22----------------------------------------------------------------------------Base EBITDA 29.9 0.21 21.8 0.16----------------------------------------------------------------------------Dividends/distributions 43.6 0.31 42.1 0.31----------------------------------------------------------------------------Payout ratio - Adjusted EBITDA 116% 142% ----------------------------------------------------------------------------Long Term Customers 3,358,000 3,069,000 --------------------------------------------------------------------------------------------------------------------------------------------------------(1) Excludes distributions paid to holders of exchangeable shares prior to the Conversion included as finance costs under IFRS.The first quarter of fiscal 2012 displayed positive impacts in several areas from Just Energy's diversification efforts over the last two years. First, the Hudson acquisition allowed expansion of Just Energy's presence in the commercial gas and electricity markets. This commercial expansion has allowed the Company to match and exceed its past customer growth. Higher customer additions have allowed Just Energy to offset a difficult price environment and resultant weak renewals, maintaining its gross margin and EBITDA.A second diversification was the move into green commodity supply through the JustGreen and, now, JustClean programs. Over the past 12-months, green takeup was 32% for new residential customers, who purchased an average of 91% green supply. Our overall green book is now 9% of the Company's natural gas needs (up from 3% a year ago) and 10% for electricity (up from 6%). The Green products are popular with residential customers strengthening long-term margins, building a stronger customer relationship and allowing employees to be proud of their contribution to a cleaner environment.National Home Services water heater rental and sales operation has been a success with installations growing 50% from 88,000 units to 131,600 year over year. Margin from this business was up 120% year over year.The Momentis network marketing channel is now seeing encouraging results. Network marketing does not overlap traditional sales channels and tends to generate sales to customers who would not otherwise buy from a door-to-door salesperson.These expansions were seen both in continued marketing success in the first quarter and operating results which currently exceed published growth targets for the year. Management has set targets of 5% per share growth for both gross margin and Adjusted EBITDA for fiscal 2012.In the first quarter, gross margin was $94.3 million up 14% per share year over year. Administrative costs have been kept under tight control and are beginning to show the impact of the decreased cost to serve commercial customers declining 5% per share to $28.3 million despite a 9% growth in customer base. Higher margins and lower operating costs resulted in growth in Adjusted EBITDA to $37.4 million, up 23% per share.Other aspects of operations such as bad debt were also well under control. Losses were 2.8% on the 40% of our sales where we bear this risk, unchanged from a year earlier. Attrition rates were in line with management's expectations and down significantly from the first quarter of fiscal 2011. U.S. natural gas attrition (the market most affected by the housing crisis) was down to 21% from 28% over the past year.Renewal rates were soft, averaging under 70%. The current stable low commodity price environment is the worst for Just Energy's core products however the Company has focused on renewals by giving the customer a range of options including Blend and Extend pricing and our new JustClean products.The Terra Grain ethanol plant has seen better pricing and improved operating results with positive margin for the quarter.The 227,000 customers added were a continuation of the positive results we have seen since the Hudson acquisition. As can be seen in the chart below, both gross and net additions continue far above historical levels and the reason is commercial additions.To view the Quarterly Customer Additions, please visit the following link: http://media3.marketwire.com/docs/QCA811.jpg.Commercial additions made up 148,000 of the 227,000 quarterly additions. These customers have lower annual margins but their aggregation cost and annual customer service costs are commensurately lower as well. Overall, as can be seen below, the Just Energy customer base is up 9% year over year. This is entirely growth through marketing with no acquired customers in the total. April 1, Failed to 2011 Additions Attrition renew ----------------------------------------------------------------------------Natural gas Canada 656,000 15,000 (15,000) (21,000)United States 574,000 27,000 (29,000) (5,000)----------------------------------------------------------------------------Total gas 1,230,000 42,000 (44,000) (26,000)----------------------------------------------------------------------------Electricity Canada 736,000 19,000 (20,000) (31,000)United States 1,348,000 166,000 (42,000) (20,000)----------------------------------------------------------------------------Total electricity 2,084,000 185,000 (62,000) (51,000)----------------------------------------------------------------------------Combined 3,314,000 227,000 (106,000) (77,000)---------------------------------------------------------------------------- June 30, June 30, 2011 2010 ---------------------------------------------------------------Natural gas Canada 635,000 709,000 (10%)United States 567,000 564,000 1% ---------------------------------------------------------------Total gas 1,202,000 1,273,000 (6%)---------------------------------------------------------------Electricity Canada 704,000 757,000 (7%)United States 1,452,000 1,039,000 40% ---------------------------------------------------------------Total electricity 2,156,000 1,796,000 20% ---------------------------------------------------------------Combined 3,358,000 3,069,000 9% ---------------------------------------------------------------Company management is maintaining the current guidance of 5% per share growth for the year for both gross margin and Adjusted EBITDA. While operating results are far ahead of that level to date, the first quarter seasonally is the lowest quarter for sales and gross margin. The comparable quarter in fiscal 2011 reflected the impact of a record warm winter with resultant weak operating results. Further, the adverse impact of the decline of the U.S. dollar versus the Canadian dollar during and subsequent to the quarter provide grounds for caution in any forecast. Management intends to update on targets as the year progresses.Dividends were $0.31 per share, equal to unit distributions paid in the prior comparable quarter. Payout ratio on Adjusted EBITDA was 116% down from 142% a year ago in what is seasonally the weakest quarter of the year. Management's expectation is that the payout ratio will be below 100% for fiscal 2012 and allow us to comfortably pay out interest, income tax and dividends.Executive Chair Rebecca MacDonald stated, "I am very pleased with the double digit growth seen in our operating results for the first quarter. Just Energy has been and remains a growth company. While there are always uncertainties at the end of the first quarter, we are off to a solid start in meeting our expectations."CEO Ken Hartwick added, "We have had a two year plan to diversify our business while remaining within the deregulated energy sector. The success of the plan can be seen in this quarter where our commercial expansion has bolstered our Energy Marketing segment. Our success with National Home Services and our Green Products have also given us new sources of revenue moving forward.""At the same time, management has focused on controlling costs both in the administration of our business and through bad debt where we are exposed. Controlling costs has helped us deliver results even during a period which, for Just Energy, is one of slower growth.""We plan to continue to review other opportunities for diversification and intend to maintain Just Energy as a unique income/growth vehicle moving forward. I want to thank our team for their efforts this quarter."About Just Energy Group Inc.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. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers. Just Energy also offers "green" products through its JustGreen and JustClean programs. 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 of their home or business.JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustClean products will not only add to profits, but also increase sales receptivity and improve renewal rates.In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also launched, Hudson Solar, a solar project development platform in New Jersey.Forward-Looking StatementsJust Energy'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, administrative expenses, Base EBITDA, adjusted EBITDA 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 Just Energy's operations, financial results or dividends are included in Just Energy'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 Just Energy's website at www.justenergygroup.com. MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") - August 10, 2011 ----------------------------------------------------------------------------OverviewThe following discussion and analysis is a review of the financial condition and results of operations of Just Energy Group Inc. ("JEGI" or "Just Energy" or the "Company") (formerly Just Energy Income Fund (the "Fund")) for the three months ended June 30, 2011, and has been prepared with all information available up to and including August 10, 2011. This analysis should be read in conjunction with the unaudited consolidated financial statements for the three months ended June 30, 2011. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. Just Energy's date of transition to IFRS was April 1, 2010. All dollar amounts are expressed in Canadian dollars. Quarterly reports, the annual report and supplementary information can be found on Just Energy's corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com.Effective January 1, 2011, Just Energy completed the conversion from the Fund to Just Energy (the "Conversion"). As part of the Conversion, Just Energy Exchange Corp. ("JEEC") was amalgamated with JEGI and, like the unitholders of the Fund, the holders of JEEC's Exchangeable Shares received common shares of JEGI on a one for one basis. JEGI also assumed all of the obligations under the $90m convertible debentures and $330m convertible debentures.Just Energy is a corporation established under the laws of Canada and holds securities and distributes the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P., Just Energy Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership, Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp., Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy Inc. ("Commerce" or "CEI"), National Energy Corp. (which operates under the trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and Hudson Energy Canada Corp. (collectively "Hudson" or "HES"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels, Inc. ("TGF"), and Hudson Energy Solar Corp.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. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the fixed term price at which it purchases the associated volumes from its suppliers.Just Energy also offers "green" products through its JustGreen and JustClean programs. 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 of their home or business. JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustCLean products will not only add to profits, but also increase sales receptivity and improve renewal rates.In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also launched Hudson Solar, a solar project development platform in New Jersey.Forward-looking informationThis MD&A contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, EBITDA, Base EBITDA, Adjusted EBITDA 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 Just Energy's operations, financial results or distribution levels are included in the Annual Information Form and other reports on file with Canadian security regulatory authorities, which can be accessed on our corporate website at www.justenergygroup.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."$90m convertible debentures" represents the $90 million in convertible debentures issued by Universal Energy Group Ltd. ("Universal") in October 2007. JEEC assumed the obligations of the debentures as part of the UEG acquisition on July 1, 2009. Just Energy assumed the obligations of the debentures as part of the Conversion. See "Long-term debt and financing" on page 21 for further details."$330m convertible debentures" represents the $330 million in convertible debentures issued by the Fund to finance the purchase of Hudson, effective May 1, 2010. Just Energy assumed the obligations of the debentures as part of the Conversion. See "Long-term debt and financing" on page 21 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 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario."Large commercial customer" means customers representing more than 15 RCEs.Non-GAAP financial measuresJust Energy's financial statements are prepared in compliance with IFRS. All non-GAAP financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.Just Energy converted from an income trust to a corporation on January 1, 2011. Under the corporate structure, management believes that Adjusted EBITDA is the best basis for analyzing the financial results of Just Energy.EBITDA"EBITDA" represents earnings before finance costs, taxes, depreciation and amortization. This is a non-GAAP measure which reflects the pre-tax profitability of the business.Base EBITDA"Base EBITDA" represents EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments on future supply positions. This measure reflects operating profitability as mark to market gains (losses) are associated with supply already sold at future fixed prices.Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, 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 Just Energy and have therefore excluded it from the Base EBITDA calculation.Adjusted EBITDA"Adjusted EBITDA" represents Base EBITDA adjusted to deduct selling and 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.Embedded gross margin"Embedded 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.Financial highlights For the three months ended June 30 (thousands of dollars, except where indicated and per unit/share amounts) Fiscal 2012 Per unit/ Fiscal 2011 share Per share change Per unit ----------------------------------------------------Sales $626,200 $4.46 - $609,684 $4.44Gross margin 94,261 0.67 14% 80,355 0.59Administrative expenses 28,284 0.20 (5)% 28,841 0.21Finance costs 13,792 0.10 43% 9,937(3) 0.07Net income(1) 51,132 0.36 (82)% 270,789 1.97Dividends/distributions 43,605 0.31 - 42,070 0.31Base EBITDA(2) 29,867 0.21 34% 21,798 0.16Adjusted EBITDA(2) 37,431 0.27 23% 29,726 0.22Payout ratio on Base EBITDA 146% 193% Payout ratio on Adjusted EBITDA 116% 142% (1) Net income 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. (2) See discussion of non-GAAP financial measures on page 2.(3) Excludes distributions paid to holders of exchangeable shares prior to the Conversion included as finance costs under IFRS.International financial reporting standardsJust Energy has adopted IFRS as the basis for reporting its financial results commencing with the interim financial statements for the three months ended June 30, 2011 and using April 1, 2010 as the transition date. The comparative figures for fiscal 2011 have been restated in accordance with the Company's IFRS accounting policies. The adoption of IFRS did not change Just Energy's business activities or actual cash flow; however, it has resulted in adjustments to its financial statements.In order to allow the users of the financial statements to better understand the impact of the change to IFRS, the Company's Canadian GAAP consolidated balance sheets at April 1, 2010, June 30, 2010 and March 31, 2011, the Company's consolidated statements of earnings (loss) and comprehensive income (loss) for the three months ended June 30, 2010 and year ended March 31, 2011 have been reconciled to IFRS, with the resulting differences explained. These reconciliations are provided in note 24 of the interim financial statements.The following summarizes the significant financial effects on Just Energy's consolidated financial statements resulting from the conversion to IFRS and summarizes the significant accounting policies adopted in preparing the IFRS consolidated financial statements:IFRS 1: First-time adoption IFRSThe interim unaudited consolidated financial statements and notes for the three months ended June 30, 2011 contain the accounting policies adopted under IFRS as well as reconciliations of the impact on the consolidated financial statements on transition. IFRS 1 provides guidance for the initial adoption of IFRS and allows first-time adopters certain exemptions from the general requirements contained in IFRS. The following are the exemptions that are relevant to Just Energy and have been applied in preparation of its first financial statements under IFRS.Business CombinationsIFRS 1 states that a first-time adopter may elect not to apply IFRS 3, Business Combinations, retrospectively to business combinations that occurred before the date of transition to IFRS. Just Energy has elected to apply IFRS to business acquisitions prospectively, from the date of transition.Borrowing CostsJust Energy has elected not to capitalize any borrowing costs on a retrospective basis for qualifying assets acquired prior to April 1, 2010, the date of transition to IFRS as it was determined to be not material.Share-based paymentsIFRS 1 states that a first-time adopter may elect not to apply IFRS 2, Share-based payments, retrospectively 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.Cumulative translation differencesIFRS 1 allows cumulative translation differences for all foreign operations to be deemed zero at the date of transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude translation differences arising from periods prior to the date of transition to IFRS. Just Energy has elected not to apply this exemption.IFRS 2: Share-based paymentsJust Energy amended its accounting policy related to the recognition and measurement of share based compensation to conform with IFRS. Under IFRS, when stock option awards vest gradually, each tranche is to be considered as a separate award with its own vesting period and grant date value. Just Energy assessed the impact of the recognition and measurement criteria under IFRS.IAS 12: Income taxesFor the comparative nine month period ended December 31, 2010 when Just Energy operated under an income trust structure, deferred income taxes were originally measured at 27%. As a result of adopting IFRS, deferred income taxes were re-measured at the tax rate of approximately 46.4% applicable to undistributed profits. The deferred taxes were subsequently re-measured at the applicable corporate rates on January 1, 2011, the date Just Energy converted to a corporation.As a result of additional financial liabilities existing under IFRS, as discussed below, there was an increase to Just Energy's future tax assets as at April 1, 2010. Upon conversion to a corporation on January 1, 2011, this future tax asset has reversed as a result of the financial liability being settled in shares.IAS 32: Financial Instruments: PresentationAs at Just Energy's transition date, there were JEEC exchangeable shares, Class A preference shares of Just Energy Corp. ("JEC") and unit-based awards outstanding that did not meet the definition of an equity instrument in accordance with IAS 32, and therefore, were classified as financial liabilities. These financial liabilities were recorded at redemption value at the transition date and subsequently adjusted to reflect the redemption value at each reporting date with the resulting change recorded as a change in fair value of derivative instruments. All distributions and dividends attributed to these financial liabilities were recorded as finance costs. As a result of the Conversion, the JEEC exchangeable shares and Class A preference shares of JEC were exchanged on a one-for-one basis into common shares of JEGI.IAS 37: Provisions, contingent liabilities and contingent assetsProvisions are measured at the discounted present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability.IAS 39: Financial instruments: Recognition and measurementJust Energy enters into fixed-term contracts with customers to provide electricity and gas at fixed prices. These customer contracts expose the Company to changes in market prices of electricity and gas consumption. To reduce the exposure to movements in commodity prices arising from the acquisition of electricity and gas at floating rates, the Company 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 Company nevertheless concluded that the own-use exemption does not apply and the amounts will continue to be marked to market.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 resulted in an opening balance sheet adjustment to reduce long-term debt on the date of transition. This adjustment was offset through opening retained earnings.Acquisition of Hudson Energy Services, LLCIn May 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, with an effective date of May 1, 2010.The acquisition of Hudson was accounted for using the purchase method of accounting. The Company allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows: Fair value recognized on acquisition Current assets (including cash of $24,003) $ 88,696 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 Property, plant and equipment 1,648 Software 911 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 -------------------------- 478,692 Current liabilities (107,817)Other liabilities - current (74,683)Other liabilities - long term (40,719) -------------------------- (223,219)Total identifiable net assets acquired 255,473 Goodwill arising on acquisition 32,317 --------------------------Total consideration $ 287,790 --------------------------Cash outflow on acquisition: Cash paid $ 287,790 Net cash acquired with the subsidiary (24,003)Holdback (9,345) --------------------------Net cash outflow $ 254,442 --------------------------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 final and, as a result, no further adjustments will be made.OperationsNatural gasJust Energy offers natural gas customers a variety of products ranging from month-to-month variable-price offerings to five-year fixed-price contracts. For fixed-price contracts, Just Energy purchases gas supply through physical or financial transactions with market counterparts in advance of marketing, based on forecast customer aggregation for residential and small commercial customers. For larger commercial customers, gas supply is generally purchased concurrently with the execution of a contract.The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options including weather derivatives. Just Energy's ability to mitigate weather effects is limited by the severity of weather from normal. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected gas consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Consequently, customer margin increases proportionately to the increase in consumption. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy's customer gross margin may be reduced or increased depending upon market conditions at the time of balancing. Under some commercial contract terms, this balancing may be passed onto the customer.Ontario, Quebec, British Columbia and 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, Alberta and SaskatchewanIn Manitoba, Alberta and Saskatchewan, 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, California and PennsylvaniaIn New York, Illinois, Indiana, Ohio, California and Pennsylvania, 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.ElectricityIn Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California and Massachusetts, Just Energy offers a variety of solutions to its electricity customers, including fixed-price and variable-price products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. The customers experience either a small balancing charge or credit (pass-through) on each bill due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.Just Energy purchases power supply through physical or financial transactions with market counterparties in advance of marketing for residential and small commercial customers based on forecast customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger commercial customers. The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase to expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the power portfolio. The expected cost of this strategy is incorporated into the price to the customer. Our ability to mitigate weather effects is limited by the severity of weather from normal. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss in relation to the original cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected power consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss in relation to the fixed cost of supply. Customer margin generally increases proportionately to the increase in consumption. To the extent that supply balancing is not fully covered through customer pass-throughs or active management or the options employed, Just Energy's customer gross margin may be impacted depending upon market conditions at the time of balancing.JustGreenCustomers have the ability to choose an appropriate JustGreen program to supplement their electricity and natural gas contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.JustGreen programs for electricity customers involve the purchase of power from green generators (such as wind, solar, run of the river hydro or biomass) via power purchase agreements and renewable energy certificates. JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects.JustCleanIn addition to its traditional commodity marketing business, Just Energy allows customers to effectively manage their carbon footprint without buying energy commodity products by signing a JustClean contract. The JustClean products are essentially carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. This product can be offered in all states and provinces and is not dependent on energy deregulation.Blend and Extend programAs part of Just Energy's retention efforts, electricity and natural gas customers may be contacted for early renewal of their contracts under a Blend and Extend offer. These customers are offered a lower rate, compared to their current contracted rate, but the term of their contract is extended up to five more years. Consequently, Just Energy may experience a reduction in margins in the short term but will gain additional future margins.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 energy products of this division is primarily done door-to-door through 750 independent contractors, the Momentis network marketing operation and Internet-based and telephone marketing efforts. The total number of independent contractors declined during the quarter as a result of Just Energy's decision to close or restructure sales offices that were not performing well. Since quarter end, a number of new offices were opened and management anticipates that the number of independent contractors will increase and, by the end of Q2, return to levels similar to the beginning of the fiscal year. Approximately 58% of Just Energy's customer base resides within the Consumer Energy division, which is currently focused on longer-term price-protected offerings of commodity products, JustGreen and JustClean. 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 three main channels: door-to-door commercial independent contractors; inside commercial sales representatives; and sales through the broker channel using the commercial platform acquired with the Hudson purchase. Commercial customers make up about 42% of Just Energy's customer base. Products offered to commercial customers can range from standard fixed price offerings to "one off" offerings, which are tailored to meet the customer's specific needs. These products can be either fixed or floating rate or a blend of the two, and normally have terms of less than five years. Margin per RCE for this division is lower than residential margins but customer aggregation costs 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 divisionNHS began operations in April 2008 and provides Ontario residential customers with a long-term water heater, furnace and air conditioning rental, offering high efficiency conventional and power vented tanks and tankless water heaters and high efficiency furnaces and air conditioners. NHS markets through approximately 235 independent contractors in Ontario. See page 15 for additional information.Ethanol divisionJust Energy owns and operates 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"). On January 4, 2011, Just Energy acquired the 33.3% interest in TGF that was previously owned by EllisDon Design Build Inc. ("EllisDon") pursuant to a put option exercised by EllisDon. See page 16 for additional information on TGF.Adjusted EBITDA (thousands of dollars) Fiscal 2012 Fiscal 2011 ---------------------------------------------- Per share Per unitReconciliation to income statement Profit attributable to shareholders of Just Energy $51,132 $0.36 $273,409 $1.99Add: Finance costs 13,792 12,755 Provision for income tax expense 7,221 37,458 Capital tax - 133 Amortization 37,419 33,590 ----------------------------------------------EBITDA $109,564 $0.78 $357,345 2.60Subtract: Change in fair value of derivative instruments (79,697) (335,547) ----------------------------------------------Base EBITDA 29,867 $0.21 21,798 $0.16Add (subtract): Selling and marketing expenses to add gross margin 10,131 9,381 Maintenance capital expenditures (2,567) (1,453) ----------------------------------------------Adjusted EBITDA $37,431 $0.27 $29,726 $0.22 ---------------------------------------------- ----------------------------------------------Adjusted EBITDA Gross margin per financial statements $94,261 $0.67 $80,355 $0.59Add (subtract): Administrative expenses (28,284) (28,841) Selling and marketing expenses (34,554) (29,758) Bad debt expense (6,814) (5,749) Stock based compensation (1,681) (2,010) Amortization included in cost of sales/selling and marketing expenses 6,774 4,498 Other 165 3,303 ----------------------------------------------Base EBITDA 29,867 $0.21 21,798 $0.16Selling and marketing expenses to add gross margin 10,131 9,381 Maintenance capital expenditures (2,567) (1,453) ----------------------------------------------Adjusted EBITDA $37,431 $0.27 $29,726 $0.22 ---------------------------------------------- ----------------------------------------------Cash dividends/distributions Distributions and dividends $42,520 $39,592 Class A preference share distributions - 1,632 Restricted share grants/unit appreciation rights and deferred share grant/deferred unit grant distributions 1,085 846 ----------------------------------------------Total dividends/distributions $43,605 $0.31 $42,070 $0.31 ---------------------------------------------- ----------------------------------------------Adjusted fully diluted average number of units/shares outstanding(1) 140.4m 137.2m(1) The per share/unit amounts are calculated on an adjusted fully diluted basis, removing the impact of the $330m convertible debentures and $90m convertible debentures as both will be anti-dilutive by fiscal year-end.Base EBITDA differs from EBITDA in that the impact of the mark to market gains (losses) from the financial instruments is removed as management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance. For Adjusted EBITDA, selling and marketing expenses used for increasing gross margin are also removed along with maintenance capital expenditures being deducted. With the conversion from an income trust to a corporation effective January 1, 2011, management believes that Adjusted EBITDA is the best measure of operating performance.Adjusted EBITDA amounted to $37.4 million ($0.27 per share) in the first quarter of fiscal 2012, an increase of 23% per share/unit from $29.7 million ($0.22 per unit) in the prior comparable quarter. This increase is attributable to the 17% increase in gross margin, primarily attributable to the 9% increase in customer base year over year. The increase in gross margin was higher than the increase in customer base due to lower losses on sale of excess gas than that experienced in the prior comparative quarter and higher margin contribution from NHS and TGF.Administrative expenses decreased by 2% to $28.3 million, despite the inclusion of a full quarter of expenses related to Hudson, as a result of synergies achieved since the Universal and Hudson acquisitions and lower per RCE costs to serve the growing commercial customer base. Selling and marketing expenses for the three months ended June 30, 2011 were $34.6 million, an increase from $29.8 million reported in the prior comparative quarter due to higher residual payments paid in the current quarter to Hudson commercial brokers. Bad debt expense increased by 18% to $6.8 million for the three months ended June 30, 2011 as a result of the 17% increase in revenues in markets where Just Energy bears the credit risk.Dividends and distributions paid for the three months ended June 30, 2011 were $43.6 million, an increase of 4% from the prior comparative quarter as a result of the dividends paid to JEEC shareholders being only 66.67% of that which was paid to JEGI shareholders. The payout ratio on Base EBITDA was 146% for the three months ended June 30, 2011, versus 193% in the prior comparative quarter. For the three months ended June 30, 2011, the payout ratio on Adjusted EBITDA was 116%, versus 142% in the prior comparative quarter.For further information on the changes in the gross margin, please refer to "Gas and electricity marketing" on page 11 and "Administrative expenses", "Selling and marketing expenses", "Bad debt expense" and "Finance costs", which are further clarified on pages 17 and 18.Future embedded gross marginManagement's estimate of the future embedded gross margin is as follows: June 11 vs. June 11 vs. (millions of As at June As at March March 11 As at June June 10 dollars) 30, 2011 31, 2011 Variance 30, 2010 Variance ------------------------------------------------------------Canada (CAD$) $622.1 $632.6 (2)% $757.5 (18)%United States $851.3 $835.6 2% $698.5 22% (US$) Total (CAD$) $1,443.1 $1,442.8 - $1,501.1 (4)%Management's estimate of the future contracted gross margin amounted to $1,443.1 million at as June 30, 2011, effectively unchanged during the quarter. The future embedded gross margin for Canada decreased by 2% from $632.6 million at March 31, 2011 to $622.1 million at June 30, 2011. The embedded margins in Canada declined over the three months due to a challenging price environment for renewals and new customer additions. This decline was offset by the 2% growth in U.S future embedded gross margin from $835.6 million to $851.3 million. The decline in the U.S. dollar versus the Canadian dollar in the quarter resulted in a further $4.3 million decline in total future embedded gross margin. The growth in embedded margins is less than Just Energy's growth in customer base because commercial customers, which make up a growing percentage of new additions, have lower margins and shorter contract terms than residential customers. This is offset by lower customer aggregation cost and lower annual customer servicing cost.Total future embedded gross margin decreased by 4% from $1,501.1 million in the past year. Canadian future embedded gross margin decreased by 18% due to the challenging price environment while the U.S future embedded gross margin increased by 22% due to strong customer additions.Summary of quarterly results (thousands of dollars, except per unit/share amounts) Fiscal 2012 Fiscal 2011 Fiscal 2011 Fiscal 2011 Q1 Q4 Q3 Q2 --------------------------------------------------Sales $626,200 $941,334 $744,296 $657,878 Gross margin 94,261 172,599 132,084 96,719 Administrative expenses 28,284 28,367 26,299 25,963 Finance costs 13,792 13,646 15,679(2) 12,823(2) Net income (loss) 51,132 (8,454) 216,833 (110,839)Net income (loss) per unit/share - basic 0.37 (0.10) 1.72 (0.97)Net income (loss) per unit/share - diluted 0.35 (0.10) 1.40 (0.97)Dividends/distributions paid 43,605 43,208 42,450 42,276 Base EBITDA 29,867 106,991 67,266 22,116 Adjusted EBITDA 37,431 112,640 75,244 28,174 Payout ratio on Base EBITDA 146% 40% 63% 191% Payout ratio on Adjusted EBITDA 116% 38% 56% 150% Fiscal 2011 Fiscal 2010 Fiscal 2010 Fiscal 2010 Q1 Q4(1) Q3(1) Q2(1) --------------------------------------------------Sales $609,684 $838,596 $629,966 $434,659 Gross margin 80,355 155,815 111,947 81,496 Administrative expenses 28,841 22,405 24,767 25,634 Finance costs 9,937(2) 5,565 5,143 4,946 Net income (loss) 270,789 (79,211) 97,390 110,690 Net income (loss) per unit - basic 2.19 (0.59) 0.73 0.83 Net income (loss) per unit - diluted 1.78 (0.59) 0.73 0.82 Distributions paid 42,070 68,161(3) 41,248 40,801 Base EBITDA 21,798 107,036 58,543 27,023 Adjusted EBITDA 29,726 108,962 60,564 36,600 Payout ratio on Base EBITDA 193% 64% 70% 151% Payout ratio on Adjusted EBITDA 142% 63% 68% 111% (1) Quarterly information prepared using Canadian GAAP as prior to IFRS transition date. (2) Excludes distributions paid to holders of exchangeable shares prior to the Conversion included as finance costs under IFRS. (3) Includes special distribution of $26.7 million paid in January 2010. Just Energy'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 Base and Adjusted EBITDA and lower payout ratios in the third and fourth quarters, and lower Base and Adjusted EBITDA and higher payout ratios in the first and second quarters.Analysis of the first quarterThe 3% increase in sales compared to the prior comparable quarter is attributable primarily to the increase in sales for NHS and TGF as the increase in flowing gas and electricity customers was offset by lower product price points on new business. Gross margin increased by 17% quarter over quarter due to a 9% increase in customer base, higher consumption per customer and lower losses on sale of excess gas than that experienced in the prior comparative quarter. Improved sales and gross margin from NHS (TGF was also a significant contributor to the growth quarter over quarter).Net income for the three months ended June 30, 2011 was $51.1 million, representing earnings per share of $0.37 and $0.35 on a basic and diluted basis, respectively. For the prior comparative quarter, net income was $270.8 million, representing $2.19 and $1.78 on a basic and diluted per unit basis, respectively. The change in fair value of derivative instruments was a gain of $79.7 million for the current quarter, in comparison with a gain of $335.5 million in the first quarter of the prior fiscal year. The fair value of derivative instruments represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at future fixed prices, minimizing any realizable impact of mark to market gains and losses.Adjusted EBITDA increased by 26% to $37.4 million for the three months ended June 30, 2011. This increase is attributable to the 17% increase in gross margin and lower administrative costs, offset by the increase in selling and marketing and bad debt expenses. Base EBITDA (after all selling and marketing costs) increased by 37% per share to $29.9 million for the three months ended June 30, 2011 up from $21.8 million in the prior comparable quarter.Dividends/distributions paid were $43.6 million, a 4% increase from $42.1 million paid in the prior comparative quarter. The increase is due to the increase in outstanding shares as the annual dividend/distribution rate was unchanged at $1.24 per year. In the prior year, JEEC exchangeable shares were paid dividends equal to 66.67% of the Fund's distributions. These shares have now been exchanged for JEGI common shares and receive the $1.24 annual dividends. Payout ratio on Adjusted EBITDA was 116% for the three months ended June 30, 2011, compared with 142% in the prior comparable quarter.Gas and electricity marketingFor the three months ended June 30(thousands of dollars) Fiscal 2012 Fiscal 2011 United United Sales Canada States Total Canada States TotalGas $123,278 $79,172 $202,450 $129,715 $73,048 $202,763Electricity 120,049 265,298 385,347 160,629 224,914 385,543---------------------------------------------------------------------------- $243,327 $344,470 $587,797 $290,344 $297,962 $588,306----------------------------------------------------------------------------Increase (decrease) (16)% 16% - United United Gross Margin Canada States Total Canada States TotalGas $16,847 $8,258 $25,105 $12,131 $5,284 $17,415Electricity 18,470 41,547 60,017 25,996 36,770 62,766---------------------------------------------------------------------------- $35,317 $49,805 $85,122 $38,127 $42,054 $80,181----------------------------------------------------------------------------Increase (decrease) (7)% 18% 6% Sales for the three months ended June 30, 2011 were $587.8 million, in line with the prior comparative quarter. Gross margins were $85.1 million for the quarter, up 6% from $80.2 million earned during the three months ended June 30, 2010. Sales growth was flat due to lower price points on recently signed contracts. The 6% margin increase was less than the 9% year over year increase in customers due to the increase in the number of commercial and variable rate customers in the past year, which are replacing higher-margin customers lost through attrition and failure to renew.CanadaSales were $243.3 million for the three months ended June 30, 2011, down 16% from $290.3 million in the prior comparable quarter. Gross margins were $35.3 million in the first quarter, a decrease of 7% from $38.1 million in the prior comparable period.GasCanadian gas sales were $123.3 million, a decrease of 5% from $129.7 million in the three months ended June 30, 2010. The Canadian gas customer base declined by 11% year over year. Temperatures were 5% colder during the current quarter in comparison with the prior comparable quarter and resulted in higher consumption and margin per customer. Gross margin totalled $16.8 million, up 39% from the prior comparative quarter despite the customer decline. Customer consumption was far higher due to relatively colder weather. The prior comparable quarter results also had significant losses on the sale of excess gas at low spot prices from the warm winter experienced in fiscal 2010.After allowance for balancing and inclusive of acquisitions, realized average gross margin per customer ("GM/RCE") for the rolling 12-months ended June 30, 2011, amounted to $165/RCE compared to $180/RCE for the prior comparable quarter. GM/RCE has been restated for the prior comparable quarter to remove the seasonal adjustment from gross margin and is now calculated on a rolling 12-month basis. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.ElectricityElectricity sales were $120.0 million for the three months ended June 30, 2011, a decrease of 25% from the prior comparable quarter due to a 7% decline in RCEs as well as recent product offerings being at lower prices in order to remain competitive in the current market. Gross margin decreased by 29% quarter over quarter to $18.5 million versus $26.0 million in the prior three-month period. The decrease was also a result of expiring higher margin customers are replaced with new lower margin customers due to competitive pressures from low utility prices in Ontario.Realized average gross margin per customer in Canada after all balancing and including acquisitions for the rolling 12-months ended June 30, 2011, amounted to $121/RCE, a decrease from $148/RCE in the prior comparative period due to the cumulative effect of new lower margin contracts necessary to compete against the very low utility price in the Ontario market. JustGreen sales had a positive impact on margins per customer but this was more than offset by pricing required to compete against the regulated utility floating rate in Ontario. In addition, commercial customers added during the three months generate lower margins than the previous predominantly residential customer base. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.United StatesSales for the first quarter of fiscal 2012 were $344.5 million, an increase of 16% from $298.0 million in the three months ended June 30, 2010. Gross margin was $49.8 million, up 18% from $42.1 million in the prior comparable period.GasFor the three months ended June 30, 2011, gas sales and gross margin in the U.S. totalled $79.2 million and $8.3 million, respectively, versus $73.0 million and $5.3 million, respectively, in the prior comparable quarter. The sales increase of 8% was due to increased consumption quarter over quarter.Gross margin increased by 18% quarter over quarter despite the number of long-term customers remaining relatively flat year over year. In the prior comparable quarter, the U.S gas markets experienced a sharp decline in consumption due the record warm winter of 2009/2010 and high third party losses on the sale of the excess gas.Average realized gross margin after all balancing costs for the rolling 12-months ended June 30, 2011, was $140/RCE, a decrease from 191/RCE. This is due to the inclusion of lower margin commercial customers offsetting the lower losss on sale of excess gas. GM/RCE has been restated for the prior comparable quarter to remove the seasonal adjustment from gross margin and is now calculated on a rolling 12-month basis. The GM/RCE value includes an appropriate allowance for bad debt expense in Illinois and California.ElectricityU.S. electricity sales and gross margin for the three months ended June 30, 2011 were $265.3 million and $41.5 million, respectively, versus $224.9 million and $36.8 million, in the first quarter of fiscal 2011. Sales increased 18% due to a 40% increase in long-term customers year over year, attributable to the strong marketing growth. Sales increased by more than gross margin due to the lower margins on largely commercial customers added. Gross margins were up 13% over the prior comparable period.Average gross margin per customer for electricity during the current quarter decreased to $138/RCE, compared to $205/RCE in the prior comparable quarter, as a result of lower margins per RCE for commercial customers added. The GM/RCE value for Texas, Pennsylvania, Massachusetts and California includes an appropriate allowance for the bad debt expense.Customer aggregation Long-term customers April 1, Failed June 30, % increase 2011 Additions Attrition to renew 2011 (decrease) ----------------------------------------------------------------------------Natural gas Canada 656,000 15,000 (15,000) (21,000) 635,000 (3)%United States 574,000 27,000 (29,000) (5,000) 567,000 (1)%----------------------------------------------------------------------------Total gas 1,230,000 42,000 (44,000) (26,000) 1,202,000 (2)%----------------------------------------------------------------------------Electricity Canada 736,000 19,000 (20,000) (31,000) 704,000 (4)%United States 1,348,000 166,000 (42,000) (20,000) 1,452,000 8% ----------------------------------------------------------------------------Total electricity 2,084,000 185,000 (62,000) (51,000) 2,156,000 3% ----------------------------------------------------------------------------Combined 3,314,000 227,000 (106,000) (77,000) 3,358,000 1% ----------------------------------------------------------------------------Gross customer additions for the quarter were 227,000, down 13% from the 261,000 customers added through marketing in the prior comparable quarter. Net additions were 44,000 for the quarter, resulting in a 1% growth in the customer base for the first quarter.Consumer customer additions amounted to 79,000, a 9% decrease from the 87,000 customer additions in the prior comparable quarter. Consumer customer additions were lower than expected in the quarter. The number of independent contractors decreased throughout the quarter due to the closure of sales offices that were underperforming. Management is optimistic that Consumer customer additions will increase in future quarters as new sales offices have opened and the number of independent contractors is expected to increase accordingly. In addition, further sales channel diversification is underway through network, telephone and Internet-based marketing efforts.Commercial additions were 148,000 for the quarter, a 15% decrease from the additions recorded in the first quarter of fiscal 2011. Commercial additions, which consists of customers representing 15 RCEs or higher, will fluctuate quarterly depending on the size of customers signed. During the first quarter of the prior fiscal year, commercial additions were at a record high partially due to a single large 70,000 RCE customer being signed, whereas no customer of comparable size was signed during the current quarter. Over the past 12-month period, commercial customer additions have averaged 136,000 RCEs per quarter.Total gas customers excluding acquired customers decreased by 2% during the last three months, reflecting a difficult price environment with a large disparity between utility spot prices and the five-year prices. The extended period of low, stable gas prices has reduced the customer appetite for the stability of higher priced long-term fixed contracts. This continues to impact new customer additions and renewals. To respond, profitable new variable rate contracts are being sold while spot market prices remain stable.Total electricity customers were up 3% during the quarter, with a strong 8% growth in the U.S. markets and a 4% decrease in customers in the Canadian markets. The Canadian electricity market, particularly in Ontario, continues to face competitive challenges due to low utility pricing.JustGreen and JustCleanSales of the JustGreen products remain strong despite premium pricing in a low-price environment. 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, 2010, through December 31, 2010, validating the match of Just Energy's renewable energy and carbon offset purchases against customer contracts. Just Energy is a participant in over 25 carbon offset and renewable energy projects across North America and is actively pursuing new projects to meet our growing demand for green energy alternatives. Just Energy purchases carbon offsets and renewable energy credits for the current and future use of our customers. Our purchases help developers finance their projects.The Company currently sells JustGreen gas in the eligible markets of Ontario, Quebec, British Columbia, Alberta, Michigan, New York, Ohio, Illinois and Pennsylvania. JustGreen electricity is sold in Ontario, Alberta, New York, Texas and Pennsylvania. Of all consumer customers who contracted with Just Energy in the past year, 32% took JustGreen for some or all of their energy needs. On average, these customers elected to purchase 91% of their consumption as green supply. Overall, JustGreen supply now makes up 9% of the overall gas portfolio, up from 3% a year ago. JustGreen supply makes up 10% of the electricity portfolio, up from 6% as at June 30, 2010.In addition, JustClean products are being offered in Ontario and Florida. JustClean products are essentially carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. The JustClean product can be offered in all states and provinces and is not dependent on energy deregulation.Attrition Trailing 12-month Trailing 12-month Attrition - June 30, 2011 Attrition - June 30, 2010Natural gas Canada 10% 11%United States 21% 28%Electricity Canada 10% 13%United States 15% 14%The past year saw an improvement in attrition rates across all markets with the exception of a slight increase in U.S. electricity attrition rates from 14% to 15%. The primary contributing factor is that most customers signed in the past three years are on prices consistent with current market prices. The attrition from these customers and eventual renewal of the customer will benefit from this pricing. In addition, improved economic conditions and diligent credit reviews have resulted in lower attrition rates in Canada and U.S gas markets.Natural gasThe annual natural gas attrition in Canada was 10% for the trailing 12-months, slightly lower than the attrition rate reported in the prior comparable quarter. In the U.S., annual gas attrition was 21%, a decrease from 28% experienced a year prior due to new product offerings and greater economic stability within the U.S customer base.ElectricityThe annual electricity attrition rate in Canada was 10%, slightly lower than the 13% reported in the prior comparable quarter. Electricity attrition in the U.S. was 15% for the trailing 12-months, in line with management's ongoing expectations.Failed to renew Trailing 12-month Trailing 12-month Renewals - June 30, 2011 Renewals - June 30, 2010Natural gas Canada 67% 62%United States 72% 69%Electricity Canada 62% 70%United States 67% 83%The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts begin up to 15 months in advance, allowing a customer to renew for an additional four or five years. Management's targeted renewal rates are to be in the range of 70% overall, assuming commodity price volatility remains low. The combined renewal rate for all gas and electricity markets was 66% for the trailing 12-month period.Natural gasThe current trailing annual renewal rate for all Canadian gas customers was 67%, an increase from the prior comparable quarter's trailing 12-month renewal rate of 62%. 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 customer renewals during quarter, 30% were renewed for a one-year term. The Canadian gas market continues to be challenged in renewals largely due to the current high spread between the Just Energy five-year price and the utility spot price. The long period of stable low gas prices has reduced customer interest in renewing at higher fixed prices. Management will continue to focus on increasing renewals, and should a return to rising market pricing occur, this would likely result in an improvement in Canadian gas renewal rates, closer to target levels. Also, Just Energy has introduced some enhanced variable-price offerings and products like JustGreen and JustClean to improve renewal rates.In the U.S. markets, Just Energy had primarily Illinois and New York gas customers up for renewal. Gas renewals for the U.S. were 72%.ElectricityThe electricity renewal rate for Canadian customers was 62% for the trailing 12 months. There continues to be solid demand for JustGreen products, supporting renewals in Canadian electricity but, due to the disparity between the spot and five-year prices and low volatility in the spot prices, customers have been reluctant to again lock into fixed-priced products. Just Energy has introduced some enhanced variable-price electricity offerings and JustClean to improve renewal rates.During the three months ended June 30, 2011, Just Energy had Texas, Illinois and New York electricity customers up for renewal. The electricity renewal rate was 67%, with strong renewals in Texas being offset by Illinois and New York. In each of these markets, our green product is being developed for renewing customers, which should strengthen the profitability and the proclivity to renew.Gas and electricity contract renewalsThis 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 --------------------------------------------------------2012 20% 22% 33% 31%2013 29% 32% 21% 11%2014 18% 16% 10% 13%2015 15% 9% 13% 20%Beyond 2015 18% 21% 23% 25% --------------------------------------------------------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 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 and commercial customers signed during the quarter. This table reflects all margin earned on new additions and renewals including both the brown commodity and JustGreen. Customers added through marketing or renewed were lower than the margins of customers lost through attrition or failure to renew due to the competitive price environment. However, JustGreen is being aggressively marketed for renewals, with the expectation that rates similar to those for new customers can be achieved. Sales of the JustGreen products remained very strong, with approximately 32% of all residential customers added in the past 12-months taking some or all green energy supply. Customers that have purchased the JustGreen product elected, on average, to take 91% of their consumption in green supply. For large commercial customers, the average gross margin for new customers added was $84/RCE. The aggregation cost of these customers is commensurately lower per RCE than a residential customer.Annual gross margin per customer(1) Number of Q1 fiscal 2012 customers ------------------------------ ------------------------------Residential and small commercial customers added in the quarter - Canada - gas $136 11,000- Canada - electricity 135 13,000- United States - gas 186 22,000- United States - electricity 160 33,000Average annual margin 160 Residential and small commercial customers renewed in the quarter - Canada - gas $136 19,000- Canada - electricity 104 18,000- United States - gas 206 5,000- United States - electricity 161 5,000Average annual margin 134 Residential and small commercial customers lost in the quarter - Canada - gas $192 26,000- Canada - electricity 148 39,000- United States - gas 212 29,000- United States - electricity 226 12,000Average annual margin 185 Large commercial customers added in the quarter $84 148,000Large commercial customers lost in the quarter $126 78,000(1) Customer sales price less cost of associated supply and allowance for bad debt. 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 as well as high efficiency furnaces and air conditioners. NHS had continued strong customer growth and with installations for the quarter amounting to 13,000 water heaters, air conditioners and furnaces, a 25% increase from 10,400 units installed in the prior comparable quarter. As of June 30, 2011, the cumulative installed customer base was 131,600 units, an increase of 50% from one year prior. Management is confident that NHS will continue to contribute to the long-term profitability of Just Energy. NHS currently markets through approximately 235 independent contractors.As NHS is a high growth, relatively capital-intensive business, Just Energy's management believes that, in order to maintain stability of dividends, separate non-recourse financing of this capital is appropriate. NHS entered into a long-term financing agreement with Home Trust Company ("HTC") for the funding of the water heaters, furnaces and air conditioners in the Enbridge Gas (January 2010) and Union Gas (July 2010) distribution territories. Under the HTC agreements, NHS receives funds equal to the amount of the five-, seven- or ten-year cash flow (at its option) of the water heater, furnace and air conditioner contracts discounted at the contracted rate, which is currently 7.99%. HTC is then paid an amount which is equal to the customer rental payments on the water heaters for the next five, seven or ten years as applicable. The funding received from HTC up to June 30, 2011, was $113.1 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 dividends. The result should be a valuable asset, which will generate strong cash returns following repayment of the HTC financing.Selected financial information For the three months ended June 30 (thousands of dollars, except where indicated) Fiscal 2012 Fiscal 2011Sales per financial statements $7,807 $4,441Cost of sales 1,575 1,609 --------------------------Gross margin 6,232 2,832Selling and marketing expenses 1,300 814Administrative expenses 2,763 2,885Finance costs 2,151 1,341Capital expenditures 9,526 8,154Amortization 437 521Total number of water heaters, furnaces and air conditioners installed 131,600 88,000Results of operationsFor the three months ended June 30, 2011, NHS had sales of $7.8 million for the quarter, up 76% from $4.4 million reported for the first quarter of fiscal 2011. Gross margin amounted to $6.2 million for the three months ended June 30, 2011, up 120% from $2.8 million reported in the comparable period. The cost of sales for the three months ended June 30, 2011 was $1.6 million, of which $1.5 million represents the non-cash amortization of the installed water heaters for the customer contracts signed to date. Selling and marketing expenses for the three months ended June 30, 2011 were $1.3 million, a 60% increase from the prior comparable quarter and includes the amortization of commission costs paid to the independent agents, sales-related automotive fleet costs, advertising and promotion, and telecom and office supplies expenses. Administrative costs, which relate primarily to administrative staff compensation and warehouse expenses, were $2.8 million for the three months ended June 30, 2011, consistent with the prior comparable quarter.Finance costs amounted to $2.2 million as a result of the financing arrangement with HTC. Capital expenditures, including installation costs, amounted to $9.5 million for the three months ended June 30, 2011.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 the plant production and run time of the Belle Plaine, Saskatchewan, wheat-based ethanol facility. For the three months ended June 30, 2011, the plant achieved an average production capacity of 67%, an increase from average production capacity of 62% in the prior comparative period. In the first quarter of fiscal 2012, the plant completed scheduled maintenance, resulting in production downtime and also experienced wheat shortages requiring production slowdowns as a result of unusually wet conditions in Saskatchewan.Ethanol prices were, on average, $0.68 per litre for the three months and wheat prices averaged $216 per metric tonne for the three months. For the prior comparable quarter, ethanol prices averaged $0.57 per litre and wheat prices were $168 per metric tonne. As at June 30, 2011, ethanol was priced at $0.67 per litre. 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 dividends.Selected financial information For the three months ended June 30 (thousands of dollars, except where indicated) Fiscal 2012 Fiscal 2011 Sales per financial statements $30,192 $16,806 Cost of sales 27,647 19,594 ---------------------------Gross margin 2,545 (2,788)Administrative expenses 2,672 2,467 Finance costs 1,687 1,707 Capital expenditures 27 114 Amortization 298 296 Results of operationsFor the first quarter of fiscal 2012, TGF had sales of $30.2 million, an 80% increase from $16.8 million in the prior comparable quarter. Cost of sales amounted to $27.6 million, an increase of 41% from $19.6 million in the three months ended June 30, 2010. During the quarter, the plant produced 25.2 million litres of ethanol and 23,869 metric tonnes of DDG, an increase of 9% from the production in the prior comparable quarter. For the three months ended June 30, 2011, TGF incurred $2.7 million in administrative expenses and $1.7 million in finance costs.TGF receives a federal subsidy related to the ecoEnergy for Biofuels Agreement signed on February 17, 2009, as amended from time to time, based on the volume of ethanol produced. The subsidy is $0.08 per litre for fiscal 2012. The subsidy amount declines through time to $0.05 per litre of ethanol produced in fiscal 2015, the last year of the agreement.Overall consolidated results - Just EnergyAdministrative expensesAdministrative costs were $28.3 million for the three months ended June 30, 2011, representing a 2% decrease from $28.8 million in the first quarter of the prior fiscal year.For the three months ended June 30 Fiscal 2012 Fiscal 2011 % Increase -----------------------------------------------Energy marketing $22,849 $23,489 (3)%NHS 2,763 2,885 (4)%TGF 2,672 2,467 8% -----------------------------------------------Total administrative expenses $28,284 $28,841 (2)%Energy marketing administrative costs were $22.8 million in the first quarter of fiscal 2012, a decrease of 4% from $23.5 million for the three months ended June 30, 2010. This decrease is primarily related to lower operating costs associated with servicing commercial customers. During the past year, the majority of the customer additions have been from the Commercial division whereas the majority of the customers lost through attrition and failure to renew have been customers signed by the Consumer division.Selling and marketing expensesSelling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives for signing new customers, as well as sales-related corporate costs, were $34.6 million, an increase of 16% from $29.8 million in the first quarter of fiscal 2011. New customers signed by our sales force were 227,000 during the first quarter of fiscal 2012, down 13% compared to 261,000 customers added through our sales offices in the prior comparable quarter. The Hudson acquisition was effective May 1, 2010 and therefore, the prior comparable quarter included only two months of Hudson related expenses. The marketing expenses relating to Hudson include residual payments on commercial broker customers, which increased quarter over quarter along with the amortization expense included.Commissions related to obtaining and renewing Hudson commercial contracts are paid all or partially upfront or as residual payments over the life of the contract. If the commission is paid all or partially upfront, the amortization is included in selling and marketing expenses as the associated revenue is earned. If the commission is paid as a residual payment, the amount is expensed as earned. Of the current total commercial customer base, approximately 60% are commercial broker customers and approximately 60% of these commercial brokers are being paid recurring residual payments.During the three months ended June 30, 2011, $3.1 million in commission-related expenses were capitalized to contract initiation costs. Of the capitalized commissions, $0.6 million represents commissions paid to maintain gross margin and therefore, is included in the maintenance capital deducted in the Adjusted EBITDA calculation.Selling and 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. Selling and marketing expenses to maintain gross margin were $20.6 million for the three months ended June 30, 2011, an increase of 12% from $18.3 million in the first quarter of fiscal 2011.Selling and 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 customers during the period. Selling and marketing expenses to add new gross margin in the three months ended June 30, 2011, totalled $10.1 million, an 8% increase from $9.4 million in the first quarter of fiscal 2011.Selling and marketing expenses included in Base EBITDA exclude amortization related to the contract initiation costs for Hudson and NHS. For the three months ended June 30, 2011, the amortization amounted to $3.9 million, an increase of 85% from $2.1 million reported in the prior comparable quarter due to inclusion of three months of amortization versus two months in the first quarter of fiscal 2011.The actual aggregation costs per customer for the three months ended June 30, 2011, 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 $283/RCE $173/RCE $66/RCEUnited States $206/RCE $138/RCE $36/RCEElectricity Canada $208/RCE $168/RCE $48/RCEUnited States $201/RCE $80/RCE $34/RCETotal aggregation costs $215/RCE $137/RCE $35/RCEThe actual aggregation per customer added for all energy marketing for the three months ended June 30, 2011, was $107. The $35 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 are paid further commissions averaging $35 per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $63 (1.8 X $35) to the quarter's $35 average aggregation cost for commercial broker customers reported above.For the prior comparable three months, aggregation costs per customer (both consumer and commercial combined) in the Canadian and U.S. gas markets were $158/RCE and $75/RCE, respectively, with a combined cost of $84/RCE. In the Canadian and U.S. electricity markets, the aggregation costs per customer amounted to $124/RCE and $118/RCE, respectively, with the combined cost amounting to $95/RCE.Bad debt expenseIn Illinois, Alberta, Texas, Pennsylvania, California and Massachusetts, Just Energy assumes the credit risk associated with the collection of customer accounts. In addition, for commercial direct-billed accounts in British Columbia, New York and Ontario, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer account collection for certain territories within Ontario. 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 three months ended June 30, 2011, Just Energy was exposed to the risk of bad debt on approximately 40% of its sales.Bad debt expense is included in the consolidated income statement under other operating expenses. Bad debt expense for the three months ended June 30, 2011 was $6.8 million, up 18% from $5.7 million expensed for the three months ended June 30, 2010. The bad debt expense increase was entirely related to the 17% increase in total revenues for the current three-month period to $242.5 million, in the markets where Just Energy assumes the risk for accounts receivable collections. These markets also now include 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 three months ended June 30, 2011, the bad debt expense of $6.8 million represents approximately 2.8% of revenue, the same percentage as the prior comparable quarter.Management expects that bad debt expense will remain in the range of 2% to 3% for 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.Finance costsTotal finance costs for the three months ended June 30, 2011, amounted to $13.8 million, an 8% increase from $12.8 million in the first quarter of fiscal 2011. The increase in costs primarily relates to the interest expense for the $330m convertible debentures associated with the Hudson acquisition against the prior comparable quarter which included only two months of expense, as well as higher finance costs associated with the growing NHS financing.In the prior comparable quarter, $2.8 million of dividend payments made to holders of Just Energy Exchange Corp.'s shares were classified as finance costs under IFRS.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. For the three months ended June 30, 2011, a foreign exchange unrealized gain of $5.6 million was reported in other comprehensive income (loss) versus a $14.9 million gain reported in the prior fiscal year.Overall, a weaker U.S. dollar decreases the value of sales and gross margin in Canadian dollars but this is partially offset by lower operating costs denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to support ongoing growth and surplus cash is repatriated to Canada. U.S. cross border cash flow is forecasted annually, and hedges for cross border cash flow are entered into. Just Energy hedges between 25% and 90% of the next 12 months' cross border cash flows depending on the level of certainty of the cash flow.Provision for income tax For the three months ended June 30 (thousands of dollars) Fiscal 2012 Fiscal 2011 --------------------------------Current income tax recovery $(2,238) $(1,002)Future tax expense 9,459 38,460 --------------------------------Provision for income tax $7,221 $37,458 -------------------------------- --------------------------------Just Energy recorded a current income tax recovery of $2.2 million for the three months versus $1.0 million of recovery in the same period of fiscal 2011. The change is mainly attributable to higher US income tax recovery generated by operating losses incurred by the U.S. entities in this quarter.During the first three months of this fiscal year, the mark to market losses from financial instruments further declined as a result of a change in fair value of these derivative instruments during this period and, as a result, a deferred tax expense of $9.5 million has been recorded for this three-month period. During the same period of fiscal 2011, a deferred tax expense of 30.3 million was recorded, which is a combined result of a significant decline in mark to market losses from financial instruments during that period and additional deferred taxes arising from adopting IFRS.After the Conversion on January 1, 2011, Just Energy has been taxed as a taxable Canadian corporation. Therefore, the deferred 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 are accrued to the extent that there is taxable income in Just Energy and its underlying corporations. Canadian corporations under Just Energy are subject to a tax rate of approximately 28% after the Conversion.Under IFRS, Just Energy recognized income tax liabilities and assets based on the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities on the consolidated financial statements and their respective tax bases, using substantively enacted income tax rates. A deferred tax asset will not be recognized if it is not anticipated that the asset will be realized in the foreseeable future. The effect of a change in the income tax rates used in calculating deferred income tax liabilities and assets is recognized in income during the period in which the change occurs.Liquidity and capital resources Summary of cash flows For the three months ended June 30 (thousands of dollars) Fiscal 2012 Fiscal 2011 --------------------------------Operating activities $15,694 $22,876 Investing activities (22,538) (263,586)Financing activities, excluding distributions/dividends 19,174 299,428 Effect of foreign currency translation 342 4,701 --------------------------------Increase in cash before distributions/dividends 12,672 63,419 Distributions/dividends (cash payments) (34,897) (33,243) --------------------------------Increase (decrease) in cash (22,225) 30,176 Cash - beginning of period 98,466 78,782 --------------------------------Cash - end of period $76,241 $108,958 -------------------------------- --------------------------------Operating activitiesCash flow from operating activities for the three months ended June 30, 2011, was $31.1 million, a 6% increase from $29.4 million in the prior comparative quarter. The increase is a result of the increase in gross margin.Investing activitiesJust Energy purchased capital assets totalling $11.6 million during the first quarter of the fiscal year, a 21% increase from $9.6 million in the first quarter of the prior fiscal year. Just Energy's capital spending related primarily to the home services business and costs related to purchases of office equipment and IT software. Contract initiation costs relating to Hudson and NHS amounted to $6.9 million for the three months ended June 30, 2011, an increase over $3.7 million recorded in the prior comparable quarter due to the inclusion of three months of activity for Hudson and increased commissions paid by NHS on water heater and HVAC installations.Financing activitiesFinancing activities, excluding distributions/dividends, relates primarily to the issuance and repayment of long-term debt. Long-term debt issued during the three months ended June 30, 2011 was $68.9 million with repayments for the same period amounting to $53.7 million, resulting in a net increase in long-term debt of $15.2 million. The net increase is primarily related to the credit facility and NHS financing. In the prior comparable quarter, $349.2 million was issued in long-term debt, primarily relating to the Hudson acquisition, while $49.4 million was repaid.As of June 30, 2011, Just Energy had a credit facility of $350 million. In connection with the Conversion on January 1, 2011, Just Energy increased its credit facility with the term of the facility expiring on December 31, 2013. The syndicate of lenders now includes the Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Societe Generale, Bank of Nova Scotia, Toronto-Dominion Bank and Alberta Treasury Branches.As Just Energy continues to expand in the U.S. markets, the need to fund working capital and collateral posting 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 Company to enter, funding requirements will be fully supported through the credit facility.Just Energy's liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. For residential customers, 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 partially upfront once the customer begins to flow.The elapsed period between the time 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.Dividends/distributions (Cash payments)During the three months ended June 30, 2011, Just Energy made cash distributions/dividends to its shareholders and holders of restricted share grants or deferred share grants in the amount of $34.9 million, compared to $33.2 million in the prior comparable period.Just Energy maintains its annual dividend rate at $1.24 per share, the same rate that was previously paid for distributions. Investors should note that due to the dividend reinvestment plan ("DRIP"), a portion of dividends (and prior to January 1, 2011, distributions) declared are not paid in cash. Under the program, shareholders can elect to receive their dividends in shares at a 2% discount to the prevailing market price rather than the cash equivalent. For the three months ended June 30, 2011, $8.7 million of the dividends were paid in shares under the DRIP.Just Energy will continue to utilize its cash resources for expansion into new markets, growth in its existing energy marketing customer base, JustGreen and JustClean products, Solar and Home Services division, and also to make accretive acquisitions of customers as well as dividends to its shareholders.At the end of the quarter, the annual rate for dividends per share was $1.24. The current dividend policy provides that shareholders of record on the 15th of each month receive dividends at the end of the month.Balance sheet as at June 30, 2011, compared to March 31, 2011Cash decreased from $98.5 million as at March 31, 2011, to $76.2 million. The utilization of the credit facility increased from $53.0 million to $63.0 million as a result of normal seasonal working capital requirements. Working capital requirements in the U.S. and Alberta are a result of the timing difference between customer consumption and cash receipts. For electricity, working capital is required to fund the lag between settlements with the suppliers and settlement with the LDCs.As at June 30, 2011, accounts receivable and unbilled revenue amounted to $256.7 million and $103.5 million, respectively, compared to three months earlier when the accounts receivable and unbilled revenue amounted to $281.7 million and $112.1 million, respectively. Accounts payable and accrued liabilities have decreased from $275.5 million to $252.5 million in the past three months. Both decreases in accounts receivable and payable are related to the seasonality of energy marketing, with consumption being higher during January through March as opposed to April through June.As at June 30, 2011, Just Energy had delivered less gas to the LDCs than had been consumed by customers in Ontario, Manitoba, Quebec and Michigan, resulting in accrued gas receivable and payable balances of $4.4 million and $10.4 million, respectively. At March 31, 2011, Just Energy had accrued gas receivable and payable amounting to $26.5 million and $19.4 million, respectively. In addition, gas in storage increased from $6.1 million as at March 31, 2011 to $26.7 million as at June 30, 2011 due to the seasonality of the customer gas consumption.Other assets and other liabilities relate entirely to the fair value of the financial derivatives. The mark to market gains and losses can result in significant changes in net income and, accordingly, shareholders' equity from quarter to quarter due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash quarterly changes are not meaningful.Intangible assets include the goodwill, 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 balance decreased to $574.1 million, from $640.5 million as at March 31, 2011, primarily as a result of amortization.Long-term debt (excluding the current portion) has increased from $454.5 million to $509.2 million in the three months ended June 30, 2011, and is detailed below.Long-term debt and financing (thousands of dollars) As at June 30 As at March 31 Fiscal 2012 Fiscal 2011 --------------------------------Just Energy credit facility $63,000 $53,000 less: debt issue costs (1,772) (1,965)TGF credit facility 35,521 36,680 TGF debentures 36,002 37,001 NHS financing 113,109 105,716 $90m convertible debentures 85,046 84,706 $330m convertible debentures 287,762 286,439 Just Energy credit facilityJust Energy holds a $350 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, Societe Generale, Bank of Nova Scotia, Alberta Treasury Branches and Toronto Dominion Bank. Under the terms of the credit facility, Just Energy was able to make use of Bankers' Acceptances and LIBOR advances at stamping fees that vary between 3.25% and 3.75%, prime rate advances at rates of interest that vary between bank prime plus 2.25% and 2.75%, and letters of credit at rates that vary between 3.25% and 3.75%. Just Energy's obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates, excluding among others, TGF and NHS, 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 June 30, 2011 and 2010, all of these covenants had been met.TGF credit facilityA credit facility of up to $50 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 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 3%, with principal repayments commencing on March 1, 2010. The facility was further revised on June 30, 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. 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, all of which have no recourse to the Company or any other Just Energy entity. 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 covenants will be measured as of March 31, 2012, and non-attainment may result in a non-compliance fee up to 0.25% of the loan balance as of March 31, 2012.TGF debenturesA debenture purchase agreement with a number of private parties providing for the issuance of up to $40 million aggregate principal amount of debentures was entered into in 2006. TGF was in recent negotiations with the lender and adjusted the covenant levels. In addition the interest rate was increased to 12% and quarterly blended principal and interest payments of $1.1 million were established. 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 shareholders' equity. Compliance with the new covenants, which are more favourable than the original covenants, will be measured annually beginning with the fiscal 2012 year end. The maturity date was extended to May 15, 2014, with a call right any time after April 1, 2012. The debenture holders have no recourse to the Company or any other Just Energy entity.NHS financingIn fiscal 2010, NHS entered into a long-term financing agreement with HTC for the funding of new and existing rental water heater and HVAC contracts in the Enbridge Gas distribution territory. In July, 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, seven or ten years (at its option) of monthly rental income, discounted at the agreed upon financing rate of 7.99%, and is required to remit an amount equivalent to the rental stream from customers on the water heater and HVAC contracts for the first five, seven or ten years, respectively. Under the agreement, up to one third of rental agreements may be financed for each of the seven- or ten-year terms. As at June 30, 2011, the average term of the HTC funding was 5.5 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. HTC holds security over the contracts and equipment it has financed. NHS is required to meet a number of covenants under the agreement and, as at June 30, 2011, all of these covenants have been met.$90m convertible debenturesIn conjunction with the acquisition of Universal on July 1, 2009, Just Energy assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007, which have a face value of $90 million. The fair value of the convertible debenture was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6%, payable semi-annually on June 30 and September 30 of each year. As at June 30, 2011, each $1,000 principal amount of the $90m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 31.53 JEGI shares, representing a conversion price of $31.72 per share. Pursuant to the $90m convertible debentures, if JEGI fixes a record date for the making of a dividend on its shares, the conversion price shall be adjusted in accordance therewith.On and after October 1, 2010, but prior to September 30, 2012, the $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice, 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 $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice.$330m convertible debenturesTo fund the acquisition of Hudson, Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible extendible unsecured subordinated debentures issued on May 5, 2010. The $330m convertible debentures bear an interest rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31 of each three months, with maturity on June 30, 2017. Each $1,000 of principal amount of the $330m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 shares of JEGI, representing a conversion price of $18 per share.The $330m 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 JEGI, 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 JEGI, 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, Just Energy 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 4 - 5 After 5 Total year 1 - 3 years years years----------------------------------------------------------------------------Accounts payable and accrued liabilities $252,497 $252,497 $- $- $-Bank indebtedness 6,253 6,253 - - -Long-term debt (contractual cash flow) 667,632 93,718 113,065 117,532 343,317Interest payments 248,781 39,759 72,901 56,349 79,772Property and equipment lease agreements 31,073 8,333 11,435 6,837 4,468EPCOR billing, collections and supply commitments 2,588 2,588 - - -Grain production contracts 5,116 3,849 1,267 - -Commodity supply purchase commitments 2,981,790 1,397,500 1,330,010 251,040 3,240---------------------------------------------------------------------------- $4,195,730 $1,804,497 $1,528,678 $431,758 $430,797--------------------------------------------------------------------------------------------------------------------------------------------------------Other obligationsIn the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included in either its accrued liabilities or in the financial statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become payable only if certain events were to occur. The inherent uncertainty surrounding the timing and financial impact of any events prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from actions, claims or proceedings.Transactions with related partiesJust Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates.Critical accounting estimatesThe consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, selling and marketing, and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.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 all customers' accounts in Alberta, Illinois, Texas, Pennsylvania, California and Massachusetts. In addition, for large direct-billed accounts in B.C., New York and Ontario, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer accounts within certain territories in Ontario. 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, Just Energy may be required to record impairment charges related to goodwill. An impairment review of goodwill was performed as at June 30, 2011, and as a result of the review, it was determined that no impairment of goodwill existed.Fair value of derivative financial instruments and risk managementJust Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply. Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce the exposure to the commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment.Just Energy's objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy's policy to hedge the estimated fixed-price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy's price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed-price or price-protected customer contracts. Just Energy's policy is not to use derivative instruments for speculative purposes.Just Energy's expansion in the U.S. has introduced foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows.The financial statements are in compliance with IAS 32, Financial instruments: Presentation, IAS 39, Financial instruments: Recognition and measurement and IFRS 7, Financial Instruments: Disclosure. 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 predominantly 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) was determined using market information at the end of each quarter. Management believes Just Energy remains economically hedged operationally across all jurisdictions.JEGI common sharesAs at August 10, 2011, there were 137,813,064 common shares of JEGI outstanding.Recently issued accounting standardsNew accounting pronouncements adoptedThe three months ended June 30, 2011 is Just Energy's first reporting period under IFRS. Accounting standards effective for annual reporting periods ended on March 31, 2011 have been adopted as part of the transition to IFRS.Recent pronouncements issuedIFRS 9 Financial InstrumentsAs of April 1, 2015, Just Energy will be required to adopt IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company has not yet assessed the impact of this standard or determined whether it will adopt the standard early.IFRS 10 Consolidated Financial StatementsAs of April 1, 2013, IFRS 10, "Consolidated Financial Statements" will replace portions of IAS 27 "Consolidated and Separate Financial Statements" and interpretation SIC-12, "Consolidation - Special Purpose Entities". The new standard requires consolidated financial statements to include all controlled entities under a single control model. The Company will be considered to control an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the current ability to affect those returns through its power over the investee.As required by this standard, control is reassessed as facts and circumstances change. All facts and circumstances must be considered to make a judgment about whether the Company controls another entity; there are no 'bright lines'. Additional guidance is given on how to evaluate whether certain relationships give the Company the current ability to affect its returns, including how to consider options and convertible instruments, holding less than a majority of voting rights, how to consider protective rights, and principal-agency relationships (including removal rights), all of which may differ from current practice. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 11 Joint ArrangementsOn April 1, 2013, Just Energy will be required to adopt IFRS 11, "Joint Arrangements", which applies to accounting for interests in joint arrangements where there is joint control. The standard requires the joint arrangements to be classified as either joint operations or joint ventures. The structure of the joint arrangement would no longer be the most significant factor when classifying the joint arrangement as either a joint operation or a joint venture. In addition, the option to account for joint ventures (previously called jointly controlled entities) using proportionate consolidation will be removed and replaced by equity accounting.Due to the adoption of this new section, the Company will transition the accounting for joint ventures from the proportionate consolidation method to the equity method by aggregating the carrying values of the proportionately consolidated assets and liabilities into a single line item. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 12 Disclosure of Interests in Other EntitiesOn April 1, 2013, Just Energy will be required to adopt IFRS 12, "Disclosure of interests in Other Entities", which includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. Due to this new section, the Company will be required to disclose the following: judgements and assumptions made when deciding how to classify involvement with another entity, interests that non-controlling interests have in consolidated entities, and nature of the risks associated with interests in other entities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 13 Fair Value MeasurementOn April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value Measurement". The new standard will generally converge the IFRS and CGAAP requirements for how to measure fair value and the related disclosures. IFRS 13 establishes a single source of guidance for fair value measurements, when fair value is required or permitted by IFRS. Upon adoption, the Company will provide a single framework for measuring fair value while requiring enhanced disclosures when fair value is applied. In addition, fair value will be defined as the 'exit price' and concepts of 'highest and best use' and 'valuation premise' would be relevant only for non-financial assets and liabilities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 27 Separate Financial StatementsOn April 1, 2013 Just Energy will be required to adopt IAS 27, "Separate Financial Statements". As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued to reflect the change as the consolidation guidance has recently been included in IFRS 10.In addition, IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the Company prepares separate financial statements. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 28 Investments in Associates and Joint VenturesOn April 1, 2013, Just Energy will be required to adopt IAS 28, "Investments in Associates and Joint Ventures".As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will further provide the accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.This standard will be applied by the Company when there is joint control, or significant influence over an investee.Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not include control or joint control of those policy decisions. When determined that the Company has an interest in a joint venture, the Company will recognize an investment and will account for it using the equity method in accordance with IAS 28. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.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 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 which is not expected to have a material impact on the financial condition of the Company.Controls and proceduresAt June 30, 2011, the Chief Executive Officer and Chief Financial Officer of the Company, along with the assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that material information relating to Just Energy is made known to the CEO and CFO, and have designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. During the interim period, there have been no changes in Just Energy's policies and procedures that comprise its internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.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.justenergygroup.com and is included in Just Energy's May 20, 2011, management information circular. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.OutlookJust Energy is in the process of an ongoing diversification beyond its core business of five-year fixed-price residential gas and electricity contracts. Sales to this core customer group have faced difficult market conditions during the recent past, with stable low commodity prices limiting the attraction of a fixed-rate product both for new customers and renewals. As this situation became clear, Just Energy's management took a number of steps intended to use new products and markets to provide growth that would not otherwise be available.Foremost among these diversifications is the expansion of Just Energy's commercial offerings through the acquisition of Hudson and the expansion of the Company's in-house commercial sales capability. The result is continued strong gross and net new customer additions with the majority of these coming from the Commercial division. Going forward, the Company will continue to broaden its product offering with more flexible terms for both residential and commercial customers. The availability of shorter-term contracts and variable-price and/or fixed-price blended options added to existing JustGreen offerings will broaden the base of potential customers for Just Energy and ease renewals at contract end. A third diversification is the establishment of the Home Services division which rents and sells water heaters, furnaces and air conditioners.The first quarter of fiscal 2012 showed the compound impact of past diversifications and solid customer growth combined with normal weather conditions. While commercial customers generate lower margins, the addition of large numbers of RCEs is a net benefit to the Company, both in terms of higher gross margin and lower per customer administrative costs. Overall, gross margin was up 17% (14% per share) versus the prior comparable quarter. Adjusted EBITDA, which management believes is the best measure of operating performance, was up 26% (23% per share). This reflects the business profit after maintenance capital and before selling and marketing costs to grow future embedded gross margin. Base EBITDA (after all selling and marketing costs) was up 37% (31% per share).Higher gross margin was a result of margin growth in the energy marketing business driven by growth in the U.S. tied to commercial customer additions. The Home Services division also contributed to margin growth. EBITDA growth exceeded margin growth as administrative expenses were lower quarter over quarter due to the lower costs of servicing commercial customers with the majority of the growth in the past year from the Commercial division. Overall operating results were strong on every measure, particularly compared to the weather related weak performance from first quarter of fiscal 2011. Payout ratio on Adjusted EBITDA was 116% versus 142% in the prior comparable period. Management anticipates that the payout ratio for the fiscal year will be under 100% and will allow Just Energy to comfortably pay out interest, income tax and dividends.Just Energy has published targets of 5% per share growth in gross margin and Adjusted EBITDA for fiscal 2012. The Company is well ahead of these targets after the first quarter. It should be noted that the first quarter is the least significant in terms of generating annual margin and EBITDA for Just Energy. As well, as noted above, the comparable first quarter of fiscal 2011 was adversely impacted by a record warm winter. Also, the decline in the U.S. dollar both during and subsequent to the quarter will likely have an adverse impact on fiscal 2012's financial performance. In consideration of these factors, management believes that it is premature to change its published targets for the year.The 227,000 customers added in the quarter was consistent with the additions seen in the fourth quarter of fiscal 2011 but down 13% from the level seen in the first quarter of that year. This disparity is due to a single 70,000 RCE commercial customer added in the prior comparative quarter. Management believes that the current levels of gross additions are sustainable for the future and that both gross and net additions should continue to exceed levels seen before the acquisition of Hudson. Commercial customers are currently approximately 42% of Just Energy's base, and management expects this to increase to 50% over time. Commercial customers are typically 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 supply book less complex.New product offerings and further geographic expansion will also contribute to growth in the coming years. A major product will be the JustClean offering, which results in comparable margins per RCE to traditional residential customer contracts, can be offered in all states and provinces and is not dependent on energy deregulation. Product rollout across North America is underway.Just Energy 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 the Company has an established customer base. The Company continues to actively monitor possible acquisition opportunities within its current business segments.Geographic expansion continues with potential new markets under review. Equally important will be an expansion of the very successful Hudson broker network. Broadening this commercial footprint to existing Just Energy markets will be a major contributor to growth in fiscal 2012. Recently developed telemarketing and internet sales as well as the Momentis network marketing unit are further diversifications of the Company's sales platform, which should also contribute to growth. JUST ENERGY GROUP INC. INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT JUNE 30, 2011 (thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- June 30, March 31, April 1, Notes 2011 2011 2010 -------------------------------------------------ASSETS Non-current assets Property, plant and equipment 8 $ 241,353 $ 233,002 $ 216,676 Intangible assets 9 573,821 640,219 528,854 Contract initiation costs 32,570 29,654 5,587 Other non-current financial assets 10 4,381 5,384 5,027 Non-current receivables 4,827 4,569 2,014 Deferred tax asset 100,570 121,785 265,107 ------------------------------------------ 957,522 1,035,613 1,023,265 Current assets Inventories $ 5,634 $ 6,906 $ 6,323 Gas delivered in excess of consumption 9,451 3,481 7,410 Gas in storage 26,743 6,133 4,058 Current trade and other receivables 256,667 281,685 232,579 Accrued gas receivable 14,387 26,535 20,793 Unbilled revenues 103,463 112,147 61,070 Prepaid expenses and deposits 6,010 6,079 20,038 Other current assets 10 8,139 3,846 2,703 Corporate tax recoverable 7,231 9,135 - Cash and cash equivalents 6 76,241 98,466 78,782 ------------------------------------------ 513,966 554,413 433,756 ------------------------------------------TOTAL ASSETS $ 1,471,488 $ 1,590,026 $ 1,457,021 ------------------------------------------DEFICIT AND LIABILITIES Deficit attributable to equity holders of the parent Deficit $ (1,342,401) $ (1,349,928) $ (1,556,669) Accumulated other comprehensive income 11 107,157 123,919 221,969 Unitholders' capital - - 777,856 Shareholders' capital 12 973,245 963,982 - Equity component of convertible debenture (13e) 18,186 18,186 - Contributed surplus 12 53,849 52,723 - ------------------------------------------Shareholders' deficit (189,964) (191,118) (556,844)Non-controlling interest - - 20,421 ------------------------------------------TOTAL DEFICIT (189,964) (191,118) (536,423) ------------------------------------------Non-current liabilities Long-term debt 13 524,950 507,460 231,837 Provisions 14 3,293 3,244 3,124 Deferred lease inducements 1,537 1,622 1,984 Other non-current financial liabilities 10 310,512 355,412 590,572 Deferred tax liability 7,505 22,919 6,776 Liability associated with exchangeable shares and Equity-based compensation 19 - - 181,128 ------------------------------------------ 847,797 890,657 1,015,421Current liabilities Bank indebtedness 6,253 2,314 8,236 Trade and other payables 252,497 275,503 177,368 Accrued gas payable 10,420 19,353 15,093 Deferred revenue 7,205 - 7,202 Unit distribution payable - - 13,182 Income taxes payable 3,803 9,788 6,410 Current portion of long- term debt 13 93,718 94,117 61,448 Provisions 14 4,061 4,006 3,884 Other current financial liabilities 10 435,698 485,406 685,200 ------------------------------------------ 813,655 890,487 978,023 ------------------------------------------TOTAL LIABILITIES 1,661,452 1,781,144 1,993,444 ------------------------------------------TOTAL DEFICIT AND LIABILITIES $ 1,471,488 $ 1,590,026 $ 1,457,021 ------------------------------------------Commitments (Note 21) See accompanying notes to the interim consolidated financial statements JUST ENERGY GROUP INC. INTERIM CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2011 (thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- Notes June 30, 2011 June 30, 2010 -----------------------------------------SALES 15 $ 626,200 $ 609,684 COST OF SALES 16(b) 531,939 529,329 ------------------------------------GROSS MARGIN 94,261 80,355 ------------------------------------EXPENSES Administrative expenses 28,284 28,841 Selling and marketing expenses 34,554 29,758 Other operating expenses 16(a) 39,140 38,083 ------------------------------------ 101,978 96,682 ------------------------------------Operating loss (7,717) (16,327)Finance costs 13 (13,792) (12,755)Change in fair value of derivative instruments 10 79,697 335,547 Other income 165 1,782 ------------------------------------Income before income tax 58,353 308,247 Provision for income tax expense 17 7,221 37,458 ------------------------------------PROFIT FOR THE PERIOD $ 51,132 $ 270,789 ------------------------------------Attributable to: Shareholders/Unitholders of Just Energy $ 51,132 $ 273,409 Non-controlling interests - (2,620) ------------------------------------PROFIT FOR THE PERIOD $ 51,132 $ 270,789 ------------------------------------See accompanying notes to the interim consolidated financial statements Income per share/unit 18 Basic $0.37 $2.19 Diluted $0.35 $1.78 JUST ENERGY GROUP INC. INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THREE MONTHS ENDED JUNE 30, 2011 (thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- Notes 2011 2010 -------------------------------------------Profit for the period $ 51,132 $ 270,789 Other comprehensive income 11 Unrealized gain on translation of foreign operations (3,745) 14,881 Amortization of deferred unrealized gain of discontinued hedges net of income taxes of $7,375 (2010 - $5,850) (13,017) (28,723) ------------------------------------Other comprehensive loss for the period, net of tax (16,762) (13,842) ------------------------------------Total comprehensive income for the period, net of tax $ 34,370 $ 256,947 ------------------------------------Total comprehensive income attributable to: Shareholders/Unitholders of Just Energy $ 34,370 $ 259,567 Non-controlling interest - (2,620) ------------------------------------Total comprehensive income for the period, net of tax $ 34,370 $ 256,947 ------------------------------------See accompanying notes to the interim consolidated financial statements JUST ENERGY GROUP INC. INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THREE MONTHS ENDED JUNE 30, 2011 (thousands of Canadian dollars) -------------------------------------------------------------------------------------------------------------------------------------------------------- Notes 2011 2010 -------------------------------------------ATTRIBUTABLE TO THE SHAREHOLDERS Accumulated deficit Accumulated deficit, beginning of period $ (315,934) $ (671,010)Profit for the period, attributable to the Shareholders/Unitholders 51,132 273,409 ------------------------------------Accumulated deficit, end of period (264,802) (397,601) ------------------------------------DISTRIBUTIONS/DIVIDENDS Distributions and dividends, beginning of period (1,033,994) (885,659)Distributions and dividends (43,605) (39,459) ------------------------------------Distributions and dividends, end of period (1,077,599) (925,118) ------------------------------------DEFICIT $ (1,342,401) $ (1,322,719) ------------------------------------ACCUMULATED OTHER COMPREHENSIVE INCOME 11 Accumulated other comprehensive income, beginning of period $ 123,919 $ 221,969 Other comprehensive loss (16,762) (13,842) ------------------------------------Accumulated other comprehensive income, end of period $ 107,157 $ 208,127 ------------------------------------SHAREHOLDERS'/UNITHOLDERS' CAPITAL Shareholders'/Unitholders' capital, beginning of period $ 963,982 $ 777,856 Share units exchanged - 5,903 Share units issued on exercise/exchange of unit compensation 587 - Dividend reinvestment plan 8,676 5,599 ------------------------------------Shareholders'/Unitholders' capital, end of period $ 973,245 $ 789,358 ------------------------------------CONTRIBUTED SURPLUS 12 Balance, beginning of period $ 52,723 $ - Add: share-based compensation awards 1,681 - non-cash deferred share grant distributions 32 - Less: share-based awards exercised (587) - ------------------------------------Balance, end of period $ 53,849 $ - ------------------------------------See accompanying notes to the interim consolidated financial statements JUST ENERGY GROUP INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THREE MONTHS ENDED JUNE 30, 2011 (thousands of Canadian dollars) --------------------------------------------------------------------------------------------------------------------------------------------------------Net inflow (outflow) of cash related to the following activities Notes June 30, 2011 June 30, 2010 -------------------------------------------OPERATING Income before income tax $ 58,353 $ 308,247 ------------------------------------Items not affecting cash Amortization of intangible assets and related supply contracts 29,304 27,172 Amortization of contract initiation costs 3,871 2,088 Amortization included in cost of goods sold 2,903 2,410 Amortization of property, plant and equipment 1,341 1,920 Share-based compensation 1,681 2,010 Financing charges, non-cash portion 1,923 1,481 Transaction costs - 1,099 Other (85) (88) Change in fair value of derivative instruments (79,697) (335,547) ------------------------------------ (38,759) (297,455) ------------------------------------ Adjustment required to reflect net cash receipts from gas sales 22 3,108 8,436 ------------------------------------ Changes in non-cash working capital 23 (4,049) 6,104 ------------------------------------ 18,653 25,332 Income tax paid (2,959) (2,456) ------------------------------------Cash inflow from operating activities 15,694 22,876 ------------------------------------INVESTING Purchase of property, plant and equipment (11,595) (9,607)Purchase of intangible assets (1,597) (362)Acquisitions of a subsidiary, net of cash acquired 7 (2,223) (251,972)Transaction costs on acquisitions - (1,099)Proceeds of long-term receivable (261) 3,128 Contract initiation costs (6,862) (3,674) ------------------------------------Cash outflow from investing activities (22,538) (263,586) ------------------------------------FINANCING Dividends paid (34,897) (33,243)Increase (decrease) in bank indebtedness 3,939 (383)Issuance of long-term debt 68,941 349,197 Repayment of long-term debt (53,706) (49,386) ------------------------------------Cash inflow (outflow) from financing activities (15,723) 266,185 ------------------------------------Effect of foreign currency translation on cash balances 342 4,701 ------------------------------------Net cash inflow (outflow) (22,225) 30,176 Cash, beginning of period 98,466 78,782 ------------------------------------Cash, end of period $ 76,241 $ 108,958 ------------------------------------See accompanying notes to the interim consolidated financial statements JUST ENERGY GROUP INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2011 (thousands of Canadian dollars except where indicated and per unit/share amounts)--------------------------------------------------------------------------------------------------------------------------------------------------------1. ORGANIZATIONEffective January 1, 2011, Just Energy completed the conversion from an income trust, Just Energy Income Fund (the "Fund"), to a corporation (the "Conversion"). The plan of arrangement was approved by Unitholders on June 29, 2010, and by the Alberta Court of the Queen's Bench on June 30, 2010 and going forward from January 1, 2011, operates under the name, Just Energy Group Inc. ("JEGI", "Just Energy" or "the Company"). JEGI was a newly incorporated entity for the purpose of acquiring the outstanding units of the Fund, exchangeable shares of Just Energy Exchange Corp. ("JEEC") and the Class A preference shares of Just Energy Corp. ("JEC") on a one-for-one basis for common shares of JEGI. There was no change in the ownership of the business and therefore, there is no impact to the consolidated financial statements except for the elimination of unitholders' equity and the recording of shareholders' equity in the same amount.Just Energy is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P., Just Energy Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership, Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp., Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy Inc. ("Commerce" or "CEI"), National Energy Corp. (which operates under the trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and Hudson Energy Canada Corp. (collectively "Hudson" or "HES"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels Inc. ("TGF"), Hudson Energy Solar Corp. and Just Energy Limited ("JEL").The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The consolidated financial statements consist of Just Energy, its subsidiaries and affiliates. The financial statements were approved by the Board of Directors on August 11, 2011.2. OPERATIONSJust 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. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers. Just Energy also offers green products through its JustGreen and JustClean programs. 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 of their home or business. JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustClean products will not only add to profits, but also increase sales receptivity and improve renewal rates.In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also launched, Hudson Solar, a solar project development platform in New Jersey.3. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDSIn 2010, the Canadian Institute of Chartered Accountants ("CICA Handbook") was revised to incorporate International Financial Reporting Standards ("IFRS") and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis in these consolidated financial statements. In the consolidated financial statements, the term "CGAAP" refers to Canadian Generally Accepted Accounting Principles before the adoption of IFRS.These consolidated financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including International Accounting Standard ("IAS") 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of International Financial Reporting Standards. Subject to certain transition elections, the Company has consistently applied the same accounting policies in its opening IFRS consolidated balance sheet at April 1, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 24 discloses the impact of the transition to IFRS on the Company's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company's audited annual consolidated financial statements for the year ended March 31, 2011 prepared under CGAAP.The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of June 30, 2011. Any subsequent changes to IFRS pertaining to the Company's annual consolidated financial statements for the year ending March 31, 2012 could result in a restatement of these consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.The consolidated financial statements should be read in conjunction with the Company's CGAAP audited annual consolidated financial statements for the year ended March 31, 2011. Notes 19 and 24 disclose IFRS information for the year ended March 31, 2011 not provided for in the 2011 annual consolidated financial statements.(a) Basis of presentationThe consolidated financial statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand. The statements are prepared on an historical cost basis except for the derivative financial instruments, which are stated at fair value.The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS consolidated statement of financial position as at April 1, 2010, for the purposes of the transition.(b) Principles of consolidationThe consolidated financial statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at June 30, 2011. Subsidiaries and affiliates are consolidated from the date of acquisition and control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries and affiliates are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation.(c) Cash and cash equivalentsAll highly liquid temporary cash investments with an original maturity of three months or less when purchased are considered to be cash equivalents. For the purpose of the consolidated statement of cashflows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.(d) Accrued gas receivables/accrued gas accounts payable or gas delivered in excess of consumption/deferred revenuesAccrued gas receivables are stated at estimated realizable value and result when customers consume more gas than has been delivered by Just Energy to local distribution companies ("LDCs"). Accrued gas accounts payable represents the obligation to the LDCs with respect to gas consumed by customers in excess of that delivered to the LDCs.Gas delivered to LDCs in excess of consumption by customers is stated at the lower of cost and net realizable value. Collections from customers in advance of their consumption of gas result in deferred revenues.Due to the seasonality of operations, during the winter months, customers will have consumed more than what was delivered resulting in the recognition of unbilled revenues/accrued gas accounts payable; however, in the summer months, customers will have consumed less than what was delivered, resulting in the recognition of gas delivered in excess of consumption/deferred revenues.These adjustments are applicable solely to the Ontario, Manitoba, Quebec and Michigan gas markets.(e) InventoryInventory consists of water heaters, furnaces and air conditioners for selling purposes, gas in storage, ethanol, ethanol in process and grain inventory. Water heaters, furnaces and air conditioners are stated at the lower of cost and net realizable value with cost being determined on a weighted average basis.Gas in storage represents the gas delivered to the LDCs. The balance will fluctuate as gas is injected or withdrawn from storage.Gas in storage, ethanol, ethanol in process and grain inventory are valued at the lower of cost and net realizable value with cost being determined on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditures incurred in acquiring the inventories and delivering to its existing location and condition.(f) Property, plant and equipmentProperty, plant and equipment are stated at cost, net of any accumulated depreciation and impairment losses. Cost includes the purchase price and, where relevant, any costs directly attributable to bringing the asset to the location and condition necessary and/or the present value of all dismantling and removal costs. Where major components of property, plant and equipment have different useful lives, the components are recognized and depreciated separately. Just Energy recognizes in the carrying amount, the cost of replacing part of an item when the cost is incurred and if it is probable that the future economic benefits embodied with the item can be reliably measured. All other repair and maintenance costs are recognized in the consolidated income statement as an expense when incurred. Depreciation is provided over the estimated useful lives of the assets as follows:----------------------------------------------------------------------------Asset category Depreciation method Rate/useful life----------------------------------------------------------------------------Furniture and fixtures Declining balance 20%Office equipment Declining balance 20%Computer equipment Declining balance 30%Buildings and ethanol plant Straight line 15-35 yearsWater heaters Straight line 15 yearsFurnaces and air conditioners Straight line 15 yearsLeasehold improvements Straight line Term of leaseVehicles Straight line 5 yearsSolar equipment Straight line 15-20 years----------------------------------------------------------------------------An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement when the asset is derecognized.The useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.(g) Business combinations and goodwillBusiness combinations are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Acquisition costs for business combinations incurred subsequent to April 1, 2010, are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair values on the date of acquisition, irrespective of the extent of any non-controlling interest.Goodwill is initially measured at cost, which is the excess of the cost of the business combination over Just Energy's share in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated income statement. If the fair values of the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using provisional values. Any adjustments resulting from the completion of the measurement process are recognized within 12 months of the date of acquisition.After initial recognition, goodwill is measured at cost, less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of Just Energy's operating segments that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities of the acquiree are assigned to those segments.On first-time adoption of the IFRS, Just Energy elected to not apply IFRS 3, Business Combinations, to transactions that occurred prior to the transition date. Accordingly, the goodwill associated with acquisitions carried out prior to April 1, 2010, is carried at the amount reported in the last consolidated financial statements prepared under CGAAP as at March 31, 2010.(h) Intangible assetsIntangible assets acquired outside of a business combination are measured at cost on initial recognition. Intangible assets acquired in a business combination are recorded at fair value on the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and/or accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite.Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization method and amortization period of an intangible asset with a finite useful life is reviewed at least once annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense related to intangible assets with finite lives is recognized in the income statement in the expense category associated with the function of the intangible assets.Intangible assets consist of gas customer contracts, electricity customer contracts, water heaters, furnaces and air conditioners, customer contracts, broker network and brand, all acquired through business combinations, as well as software, commodity billing and settlement systems and information technology system development.Internally-generated intangible assets are capitalized when the product or process is technically and commercially feasible and Just Energy has sufficient resources to complete development. The cost of an internally-generated intangible asset comprises all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management.The brand is considered to have an indefinite useful life and is not amortized, but rather tested annually for impairment. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable.Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the consolidated income statement when the asset is derecognized.A summary of the policies applied to Just Energy's intangible assets is as follows:----------------------------------------------------------------------------Asset category Amortization method Rate----------------------------------------------------------------------------Customer contracts Straight line Term of contractContract initiation costs Straight line Term of contractCommodity billing and settlement systems Straight line 5 yearsBroker network Straight line 5 yearsInformation technology system development Straight line 5 yearsSoftware Declining balance 100%Brand No amortization IndefiniteOther intangible assets Straight line 5 years(i) Impairment of non-financial assetsJust Energy assesses whether there is an indication that an asset may be impaired at each reporting date. If such an indication exists or when annual testing for an asset is required, Just Energy estimates the asset's recoverable amount. The recoverable amount of goodwill and intangible assets with an indefinite useful life, if any, as well as intangible assets not yet available for use, are estimated at least annually. The recoverable amount is the higher of an asset's or cash generating unit's fair value less costs to sell and its value in use. Value in use is determined by discounting estimated future cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. In determining fair value less costs to sell, an appropriate valuation model has to be used. The recoverable amount of assets that do not generate independent cash flows is determined based on the cash-generating unit to which the asset belongs.An impairment loss is recognized in the consolidated income statement if an asset's carrying amount or that of the cash-generating unit to which it is allocated is higher than its recoverable amount. Impairment losses of cash-generating units are first charged against the value of assets, in proportion to their carrying amount.In the consolidated income statement, an impairment loss is recognized in the expense category associated with the function of the impaired asset.For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, Just Energy estimates the asset's or cash-generating unit's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such a reversal is recognized in the consolidated income statement.Goodwill is tested for impairment annually as at March 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each segment to which the goodwill relates. Where the recoverable amount of the segment is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.(j) LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date and whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.Just Energy as a lesseeOperating lease payments are recognized as an expense in the consolidated income statement on a straight-line basis over the lease term.Just Energy as a lessorLeases where Just Energy does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.(k) Financial instrumentsFinancial assets and liabilities:Just Energy classifies its financial instruments as either (i) financial assets at fair value through profit or loss instruments, or (ii) loans and receivables, and its financial liabilities as either (a) financial liabilities at fair value through profit or loss or (b) other financial liabilities. Appropriate classification of financial assets and liabilities is determined at the time of initial recognition or when reclassified in the consolidated statement of financial position.Financial instruments are recognized on the trade date, which is the date on which Just Energy commits to purchase or sell the asset.Financial assets at fair value through profit or loss:Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments entered into that are not designated as hedging instruments in hedge relationships as defined by IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). Included in this class are primarily physical delivered energy contracts, for which the own-use exemption could not be applied, financially settled energy contracts and foreign currency forward contracts.An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 10. Related realized and unrealized gains and losses are included in the consolidated income statement.Loans and receivables:Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets in this category include receivables. Loans and receivables are initially recognized at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment. The effective interest amortization is included in finance costs in the consolidated income statement.Derecognition:A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when Just Energy has transferred its rights to receive cash flows from the asset.Impairment of financial assets:Just Energy assesses whether there is objective evidence that a financial asset is impaired at each reporting date. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred "loss event") and that loss event has an impact on the estimated future cash flows of the financial asset or the fund of financial assets that can be reliably estimated.For financial assets carried at amortized cost, Just Energy first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If Just Energy determines that no objective evidence of impairment exists for an individually-assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate.The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of other income in the consolidated income statement.Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other operating costs in the consolidated income statement.Financial liabilities at fair value through profit or loss:Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by Just Energy that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Included in this class are primarily physically- delivered energy contracts, for which the own use exemption could be not applied, financially-settled energy contracts and foreign currency forward contracts.Gains or losses on liabilities held-for-trading are recognized in the consolidated income statement.Other financial liabilities:Other financial liabilities are measured at amortized cost using the effective interest rate method. Financial liabilities include long-term debt issued, which is initially measured at fair value, which is the consideration received, net of transaction costs incurred, trade and other payables and bank indebtedness. Transaction costs related to the long-term debt instruments are included in the value of the instruments and amortized using the effective interest rate method. The effective interest expense is included in finance costs in the consolidated income statement.Derecognition:A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated income statement.(l) Derivative instrumentsJust Energy enters into fixed-term contracts with customers to provide electricity and gas at fixed prices. These customer contracts expose Just Energy to changes in consumption as well as changes in the market prices of gas and electricity. To reduce its exposure to movements in commodity prices, Just Energy enters into derivative contracts.Just Energy analyzes all its contracts, of both a financial and non-financial nature, to identify the existence of any "embedded" derivatives. Embedded derivatives are accounted for separately from the host contract at inception date when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair value.All derivatives are recognized at fair value on the date on which the derivative is entered into and are re-measured to fair value at each reporting date. Derivatives are carried in the consolidated statement of financial position as other financial assets when the fair value is positive and as other financial liabilities when the fair value is negative. Just Energy does not utilize hedge accounting. Therefore, changes in the fair value of these derivatives are taken directly to the consolidated income statement and are included within change in fair value of derivative instruments.(m) Offsetting of financial instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is currently an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.(n) Fair value of financial instrumentsFair value is the estimated amount that Just Energy would pay or receive to dispose of these contracts in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs.For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques that are recognized by market participants. Such techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same; discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 10.(o) Revenue recognitionRevenue is recognized when significant risks and rewards of ownership are transferred to the customer. In the case of gas and electricity, transfer of risk and rewards generally coincides with consumption. Ethanol and dried distillery grain sales are recognized when the risk and reward of ownership passes, which is typically on delivery. Revenue from sales of water heaters and HVAC products is recognized upon installation. Just Energy recognizes revenue from water heater and HVAC leases, based on rental rates over the term commencing from the installation date.Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and sales taxes.The Company assumes credit risk for all customers in Illinois, Texas, Pennsylvania, Maryland, Massachusetts and California and for large-volume customers in British Columbia and Ontario. In these markets, the Company ensures that credit review processes are in place prior to commodity flowing to the customer.(p) Foreign currency translationFunctional and presentation currencyItems included in the consolidated financial statements of each of the Company's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars, which is the parent company's presentation and functional currency.TransactionsForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income statement, except when deferred in other comprehensive income (loss) as qualifying net investment hedges.Translation of foreign operationsThe results and consolidated financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:-- assets and liabilities for each consolidated statement of financial position presented are translated at the closing rate at the date of that consolidated statement of financial position; and -- income and expenses for each consolidated income statement are translated at the exchange rates prevailing at the dates of the transactions. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income (loss).When a foreign operation is partially disposed of or sold, exchange differences that were recorded in accumulated other comprehensive income (loss) are recognized in the consolidated income statement as part of the gain or loss on sale.Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.(q) Per unit/share amountsThe computation of income per unit/share is based on the weighted average number of units/shares outstanding during the period. Diluted earnings per unit/share is computed in a similar way to basic earnings per unit/share except that the weighted average units/shares outstanding are increased to include additional units/shares assuming the exercise of stock options, restricted share grants ("RSGs"), deferred share grants ("DSGs") and convertible debentures, if dilutive.(r) Share-based compensation plansEquity-based compensation liability:Prior to the Conversion to a corporation on January 1, 2011, Just Energy's equity-based compensation plans entitled the holders to receive trust units which under IFRS, were considered puttable financial instruments, and thus the awards were classified as liability-based awards. The liability was measured at the redemption value of the instruments and remeasured at each reporting date with the gain or loss associated with the remeasurement recorded within profit. When the awards were converted into trust units, the conversions were recorded as an extinguishment of the liability and accordingly, the remeasured amount at the date of conversion was then reclassified to equity.Subsequent to the Conversion, Just Energy accounted for its share-based compensation as equity-settled transactions as a result of the stock-based plans that were no longer convertible into a puttable financial liability. The cost of a share-based compensation is measured by reference to the fair value at the date on which it was granted. Awards are valued at the grant date and are not adjusted for changes in the prices of the underlying shares and other measurement assumptions. The cost of equity-settled transactions is recognized, together with the corresponding increase in equity, over the period in which the performance or service conditions are fulfilled, ending on the date on which the relevant grantee becomes fully entitled to the award. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting period reflects the extent to which the vesting period has expired and Just Energy's best estimate of the number of the shares that will ultimately vest. The expense or credit recognized for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.When options, RSGs and DSGs are exercised or exchanged, the amounts credited to contributed surplus are reversed and credited to shareholders' capital.(s) Employee future benefitsJust Energy established a long-term incentive plan (the "Plan") for all permanent full-time and part-time Canadian employees of its subsidiaries (working more than 20 hours per week). The Plan consists of two components, a Deferred Profit Sharing Plan ("DPSP") and an Employee Profit Sharing Plan ("EPSP"). For participants of the DPSP, Just Energy contributes an amount equal to a maximum of 2% per annum of an employee's base earnings. For the EPSP, Just Energy contributes an amount up to a maximum of 2% per annum of an employee's base earnings towards the purchase of shares of Just Energy, on a matching one-for-one basis.For the U.S. employees, Just Energy has established a 401(k) plan to provide employees the potential for future financial security for retirement. Employees may participate in the 401(k) plan subject to all the terms and conditions of the plan. They may join the plan on the first day of any month, once they have completed six months of employment. The 401(k) savings plan is an employer matching plan. Just Energy will match an amount up to 4% of their base earnings. Employees may contribute from 1% to 25% of their total salary with Just Energy on a beforehand basis with a 2011 calendar year maximum of $17.Participation in the plans in Canada or the U.S is voluntary. The plans have a two-year vesting period beginning from the later of the plan's effective date and the employee's starting date. During the period, Just Energy contributed $466 (2010 - $373) to the plans, which was paid in full during the period.Obligation for contributions to the plan are recognized as an expense in the consolidated income statement as incurred.(t) Trust units of the FundPrior to the Conversion which occurred on January 1, 2011, the Fund's outstanding equity instruments consisted of publicly traded trust units of the Fund, Class A preference shares of JEC and exchangeable shares of JEEC. Pursuant to applicable legislation, those trust units included a redemption feature which required Just Energy to assess the appropriate presentation of those units under IFRS.Generally, IFRS requires that financial instruments which include a redemption feature, making the instruments puttable, should be presented as a financial liability rather than equity. However, an exception to this requirement is available if the financial instrument meets certain criteria. Just Energy determined that its trust units met the requirements for this exception and accordingly, the trust units are presented as equity for the periods prior to the Conversion.Liabilities associated with the Class A preference shares of JEC and the exchangeable shares of JEEC (collectively the "Exchangeable Shares"):Prior to the Conversion, the outstanding Exchangeable Shares did not meet the criteria to be recorded as equity because the Exchangeable Shares were ultimately required to be exchanged for Trust units, which were considered puttable financial instruments. Accordingly, the Exchangeable Shares were recorded as a liability until exchanged for trust units. The liability was measured at the redemption value of the instruments and remeasured at each reporting date with the gain or loss associated with the remeasurement recorded within profit. When the Exchangeable Shares were converted into trust units, the conversions were recorded as an extinguishment of the liability, and accordingly, the remeasured amount at the date of conversion was then reclassified to equity.Transaction costsTransaction costs incurred by Just Energy in issuing, acquiring or selling its own equity instruments are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.(u) Income taxesJust Energy follows the liability method of accounting for deferred 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.Deferred tax assets/liabilities are recognized for all taxable temporary differences, except:-- Where the deferred tax asset/liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and -- In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses, can be utilized except:-- Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and -- In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.(v) ProvisionsProvisions are recognized when Just Energy has a present obligation, legal or constructive, as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where Just Energy expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated income statement, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated income statement.(w) Selling and marketing expenses and contract initiation costsCommissions and various other costs related to obtaining and renewing customer contracts are charged to income in the period incurred except as disclosed below:Commissions related to obtaining and renewing Hudson customer contracts are paid in one of the following ways: all or partially upfront or as a residual payment over the life of the contract. If the commission is paid all or partially upfront, it is recorded as contract initiation costs and amortized in selling and marketing expenses over the term for which the associated revenue is earned. 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 NHS are recorded as contract initiation costs and amortized in selling and marketing expenses over the remaining life of the contract.4. (i) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSThe preparation of the consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis of making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources.Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable income realized, including the usage of tax-planning strategies.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Judgments made by management in the application of IFRS that have significant impact on the consolidated financial statements relate to the following:Impairment of non-financial assetsJust Energy's impairment test is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from the budget for the next five years and are sensitive to the discount rate used as well as the expected future cash inflows and the growth rate used for extrapolation purposes.Development costsDevelopment costs are capitalized in accordance with the accounting policy in Note 3 (i). Initial capitalization of costs is based on management's judgment that technical and economical feasibility is confirmed, usually when a project has reached a defined milestone according to an established project management model. At June 30, 2011, the carrying amount of capitalized development costs was $15,635 (June 30, 2010: $19,090). This amount includes primarily costs for the internal development of software tools for the customer billing and analysis in the various operating jurisdictions. These software tools are developed by the internal information technology and operations department, for the specific regional market requirements.Useful life of key property, plant and equipment and intangible assetsThe amortization method and useful lives reflect the pattern in which management expects the asset's future economic benefits to be consumed by Just Energy. Refer to notes 3 (g) and (i) for the estimated useful lives.Provisions for litigationThe State of California has filed a number of complaints to the Federal Energy Regulatory Commission ("FERC") against many suppliers of electricity, including Commerce, a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crises in California. Pursuant to the complaints, the State of California is challenging the FERC's enforcement of its market-based rate system. At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation are not certain; however, an estimated amount has been recorded in these consolidated financial statements as at June 30, 2011. Refer to Note 14 for further details.Trade receivablesJust Energy reviews its individually significant receivables at each reporting date to assess whether an impairment loss should be recorded in the consolidated income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, Just Energy makes judgments about the borrower's financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.Fair value of financial instrumentsWhere the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgment includes consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 10 for further details about the assumptions as well as sensitivity analysis.Share-based paymentsJust Energy measures the cost of equity-settled transactions by reference to the fair value of equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield. Refer to Note 19 for further details.Acquisition accountingFor acquisition accounting purposes, all identifiable assets, liabilities and contingent liabilities acquired in a business combination are recognized at fair value on the date of acquisition. Estimates are used to calculate the fair value of these assets and liabilities as at the date of acquisition.(ii) CHANGES TO ACCOUNTING PRONOUNCEMENTS(a) New accounting pronouncements adoptedThe three months ended June 30, 2011 is Just Energy's first reporting period under IFRS. Accounting standards effective for annual reporting periods ended on March 31, 2011 have been adopted as part of the transition to IFRS.(b) Recent pronouncements issuedIFRS 9 Financial InstrumentsAs of April 1, 2013, Just Energy will be required to adopt IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 10 Consolidated Financial StatementsAs of April 1, 2013, IFRS 10, "Consolidated Financial Statements" will replace portions of IAS 27 "Consolidated and Separate Financial Statements" and interpretation SIC-12, "Consolidation - Special Purpose Entities". The new standard requires consolidated financial statements to include all controlled entities under a single control model. The Company will be considered to control an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the current ability to affect those returns through its power over the investee.As required by this standard, control is reassessed as facts and circumstances change. All facts and circumstances must be considered to make a judgment about whether the Company controls another entity; there are no 'bright lines'. Additional guidance is given on how to evaluate whether certain relationships give the Company the current ability to affect its returns, including how to consider options and convertible instruments, holding less than a majority of voting rights, how to consider protective rights, and principal-agency relationships (including removal rights), all of which may differ from current practice. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 11 Joint ArrangementsOn April 1, 2013, Just Energy will be required to adopt IFRS 11, "Joint Arrangements", which applies to accounting for interests in joint arrangements where there is joint control. The standard requires the joint arrangements to be classified as either joint operations or joint ventures. The structure of the joint arrangement would no longer be the most significant factor when classifying the joint arrangement as either a joint operation or a joint venture. In addition, the option to account for joint ventures (previously called jointly controlled entities) using proportionate consolidation will be removed and replaced by equity accounting.Due to the adoption of this new section, the Company will transition the accounting for joint ventures from the proportionate consolidation method to the equity method by aggregating the carrying values of the proportionately consolidated assets and liabilities into a single line item. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 12 Disclosure of Interests in Other EntitiesOn April 1, 2013, Just Energy will be required to adopt IFRS 12, "Disclosure of interests in Other Entities", which includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. Due to this new section, the Company will be required to disclose the following: judgements and assumptions made when deciding how to classify involvement with another entity, interests that non-controlling interests have in consolidated entities, and nature of the risks associated with interests in other entities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 13 Fair Value MeasurementOn April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value Measurement." The new standard will generally converge the IFRS and CGAAP requirements for how to measure fair value and the related disclosures. IFRS 13 establishes a single source of guidance for fair value measurements, when fair value is required or permitted by IFRS. Upon adoption, the Company will provide a single framework for measuring fair value while requiring enhanced disclosures when fair value is applied. In addition, fair value will be defined as the 'exit price' and concepts of 'highest and best use' and 'valuation premise' would be relevant only for non-financial assets and liabilities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 27 Separate Financial StatementsOn April 1, 2013 Just Energy will be required to adopt IAS 27, "Separate Financial Statements." As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued to reflect the change as the consolidation guidance has recently been included in IFRS 10.In addition, IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the Company prepares separate financial statements. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 28 Investments in Associates and Joint VenturesOn April 1, 2013, Just Energy will be required to adopt IAS 28, "Investments in Associates and Joint Ventures." As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will further provide the accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.This standard will be applied by the Company when there is joint control, or significant influence over an investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not include control or joint control of those policy decisions. When determined that the Company has an interest in a joint venture, the Company will recognize an investment and will account for it using the equity method in accordance with IAS 28. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.5. SEASONALITY OF OPERATIONSGas 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.6. RESTRICTED CASHAs part of the acquisition of Newten Home Comfort Inc. in 2009, the Company was required to transfer cash into a trust account, in trust for the vendors, as part of the contingent consideration. The contingent consideration payments, which will become payable in July 2012 are 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. As of June 30, 2011 the amount of restricted cash is $827.7. 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 aneffective date of May 1, 2010. The acquisition was funded by an issuance of $330 million in convertible debentures issued on May 5, 2010 (Note 13(e)). There is no contingent consideration involved in the business acquisition.The acquisition of Hudson was accounted for using the purchase method of accounting. Just Energy allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows: Fair value recognized on acquisition Current assets (including cash of $24,003) $ 88,696 Property, plant and equipment 1,648 Software 911 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 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 ------------------------------------ 478,692 Current liabilities (107,817)Other liabilities - current (74,683)Other liabilities - long-term (40,719) ------------------------------------ (223,219)Total identifiable net assets acquired 255,473 Goodwill arising on acquisition 32,317 ------------------------------------Total consideration $ 287,790 ------------------------------------Cash outflow on acquisition: Cash paid $ 287,790 Net cash acquired with the subsidiary (24,003)Holdback (9,345) ------------------------------------Net cash outflow $ 254,442 ------------------------------------The transaction costs related to the acquisition of Hudson have been expensed and are included in other operating expenses in the consolidated income statement. The transaction costs related to the issuance of the convertible debentures have been capitalized and were allocated to the equity and liability component of the convertible debt in relation to the fair value of both the components. Goodwill of $32,317 comprises the value of expected synergies from the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes. Goodwill associated with the Hudson acquisition is part of the U.S. gas and electricity marketing segments. As of June 30, 2011, all holdbacks have been paid in full.The fair value of the trade receivables amounted to $62,022 at the date of acquisition. The gross amount of trade receivables is $67,526. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected.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 periods of 30 months and 35 months, respectively. Other intangible assets, excluding brand, are amortized over periods ranging from three to five years. The brand value is considered to be indefinite and, therefore, not subject to amortization.From the date of acquisition, Hudson has contributed $117,477 of revenue and $13,743 to the net profit before tax of Just Energy for the period ended June 30, 2010. If the combination had taken place at the beginning of the fiscal year, revenue from continuing operations would have been $156,636 and the profit from continuing operations for Just Energy would have been $18,324.8. PROPERTY, PLANT AND EQUIPMENTAs at June 30, 2011 Furniture Computer Buildings and and equipment ethanol plant Land fixtures Vehicles -------------------------------------------------------Cost: Opening balance - April 1, 2011 $ 7,750 $ 158,482 $ 299 $ 6,090 $ 215 Additions/(Disposals) 882 - - 33 (23)Exchange differences (6) (3) - (6) - -------------------------------------------------------Ending balance, June 30, 2011 8,626 158,479 299 6,117 192 -------------------------------------------------------Accumulated Amortization: Opening balance - April 1, 2011 (4,958) (17,425) - (3,561) (88) - Amortization charge to COGS - (1,438) - - - Amortization charge for the period (246) (267) - (136) (11)Disposals - - - - 16 Exchange differences 2 - - 2 - -------------------------------------------------------Ending balance, June 30, 2011 (5,202) (19,130) - (3,695) (83) -------------------------------------------------------Net book value, June 30, 2011 $ 3,424 $ 139,349 $ 299 $ 2,422 $ 109 ------------------------------------------------------- Furnaces and Solar Office Water air Leasehold Equip- equipment heaters conditioners improvements ment Total -----------------------------------------------------------------Cost: Opening balance - April 1, 2011 $ 17,976 $ 78,223 $ 3,813 $ 8,567 $283 $ 281,698 Additions/ (Disposals) 1,101 7,411 2,093 21 77 11,595 Exchange differences (6) - - (2) (1) (24) -----------------------------------------------------------------Ending balance, June 30, 2011 19,071 85,634 5,906 8,586 359 293,629 -----------------------------------------------------------------Accumulated Amortization: Opening balance - April 1, 2011 (9,521) (6,887) (179) (5,077) - (47,696)Amortization charge to COGS - (1,339) (126) - - (2,903)Amortization charge for the period (436) - - (245) - (1,341)Disposals - - - - - 16 Exchange differences 2 - - 2 - 8 -----------------------------------------------------------------Ending balance, June 30, 2011 (9,955) (8,226) (305) (5,320) - (51,916) -----------------------------------------------------------------Net book value, June 30, 2011 $ 9,116 $ 77,408 $ 5,601 $ 3,266 $359 $241,353 -----------------------------------------------------------------As at March 31, 2011 Furniture Computer Buildings and and equipment ethanol plant Land fixtures Vehicles -------------------------------------------------------Cost: Opening balance - April 1, 2010 $ 6,417 $ 159,500 $ 299 $ 5,581 $ 197 Additions/(Disposals) 1,137 (1,658) - 468 18 Acquisition of subsidiary 233 670 - 94 - Exchange differences (37) (30) - (53) - -------------------------------------------------------Ending balance, March 31, 2011 7,750 158,482 299 6,090 215 -------------------------------------------------------Accumulated Amortization: Opening balance - April 1, 2010 (3,763) (10,601) - (2,972) (46) - Amortization charge to COGS (127) (5,730) - - - Amortization charge for the period (1,086) (1,095) - (606) (42)Exchange differences 18 1 - 17 - -------------------------------------------------------Ending balance, March 31, 2011 (4,958) (17,425) - (3,561) (88) -------------------------------------------------------Net book value, March 31, 2011 $ 2,792 $ 141,057 $ 299 $ 2,529 $ 127 ------------------------------------------------------- Furnaces and Solar Office Water air Leasehold Equip- equipment heaters conditioners improvements ment Total -----------------------------------------------------------------Cost: Opening balance - April 1, 2010 $ 14,810 $ 51,059 $ 317 $ 8,409 $ - $ 246,589 Additions/ (Disposals) 2,598 27,164 3,496 148 - 33,371 Acquisition of subsidiary 621 - - 30 297 1,945 Exchange differences (53) - - (20) (14) (207) -----------------------------------------------------------------Ending balance, March 31, 2011 17,976 78,223 3,813 8,567 283 281,698 -----------------------------------------------------------------Accumulated Amortization: Opening balance - April 1, 2010 (5,930) (2,481) (4) (4,116) - (29,913)Amortization charge to COGS (1,691) (4,406) (175) - - (12,129)Amortization charge for the period (1,917) - - (975) - (5,721)Exchange differences 17 - - 14 - 67 -----------------------------------------------------------------Ending balance, March 31, 2011 (9,521) (6,887) (179) (5,077) - (47,696) -----------------------------------------------------------------Net book value, March 31, 2011 $ 8,455 $ 71,336 $ 3,634 $ 3,490 $ 283 $ 234,002 -----------------------------------------------------------------9. INTANGIBLE ASSETS As at June 30, 2011 Electricity Water heater Gas contracts contracts contracts ----------------------------------------------------Cost: Opening balance, April 1, 2011 $ 248,828 $ 436,339 $ 23,164 Write-down of fully amortized assets (1,842) - - Additions - Internal development - - - Exchange differences (687) (1,096) - ----------------------------------------------------Ending balance, June 30, 2011 246,299 435,243 23,164 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2011 (144,568) (248,673) (2,813)Write-down of fully amortized assets 1,842 - - Amortization charge for the period (6,740) (16,166) (399)Amortization in mark to market (12,811) (24,323) - Exchange differences 569 457 - ----------------------------------------------------Ending balance, June 30, 2011 (161,708) (288,705) (3,212) ----------------------------------------------------Net book value, June 30, 2011 $ 84,591 $ 146,538 $ 19,952 ---------------------------------------------------- Broker Goodwill network Brand Software ----------------------------------------------------Cost: Opening balance, April 1, 2011 $ 227,467 $ 80,561 $ 10,692 $ 9,540 Write-down of fully amortized assets - - - - Additions - Internal development - - - 1,113 Exchange differences (306) (424) (56) (17) ----------------------------------------------------Ending balance, June 30, 2011 227,161 80,137 10,636 10,636 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2011 - (14,770) - (6,616)Write-down of fully amortized assets - - - - Amortization charge for the period - (4,020) - (438)Amortization in mark to market - - - - Exchange differences - 91 - 5 ----------------------------------------------------Ending balance, June 30, 2011 - (18,699) - (7,049) ----------------------------------------------------Net book value, June 30, 2011 $ 227,161 $ 61,438 $ 10,636 $ 3,587 ---------------------------------------------------- Commodity billing and settlement IT system systems development Other Total ----------------------------------------------------Cost: Opening balance, April 1, 2011 $ 6,515 $ 19,691 $ 9,006 $ 1,071,803 Write-down of fully amortized assets - - - (1,842)Additions - Internal development 13 417 54 1,597 Exchange differences (10) (90) (46) (2,732) ----------------------------------------------------Ending balance, June 30, 2011 6,518 20,018 9,014 1,068,826 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2011 (6,453) (3,478) (4,213) (431,584)Write-down of fully amortized assets - - - 1,842 Amortization charge for the period (5) (993) (543) (29,304)Amortization in mark to market - - - (37,134)Exchange differences 9 19 25 1,175 ----------------------------------------------------Ending balance, June 30, 2011 (6,449) (4,452) (4,731) (495,005) ----------------------------------------------------Net book value, June 30, 2011 $ 69 $ 15,566 $ 4,283 $ 573,821 ----------------------------------------------------As at March 31, 2011 Electricity Water heater Gas contracts contracts contracts ----------------------------------------------------Cost: Opening balance - April 1, 2010 $ 472,756 $ 266,700 $ 23,081 Acquisition of a subsidiary 26,225 200,653 - Write-down of fully amortized assets (243,929) (21,083) - Adjustments to goodwill - - - Additions - Internal development - - 83 Exchange differences (6,224) (9,931) - ----------------------------------------------------Ending balance, March 31, 2011 248,828 436,339 23,164 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2010 (307,413) (113,862) (1,218)Write-down of fully amortized assets 243,929 21,083 - Amortization charge for the period (31,841) (63,642) (1,595)Amortization in mark to market (53,757) (96,064) - Exchange differences 4,514 3,812 - ----------------------------------------------------Ending balance, March 31, 2011 (144,568) (248,673) (2,813) ----------------------------------------------------Net book value, March 31, 2011 $ 104,260 $ 187,666 $ 20,351 ---------------------------------------------------- Broker Goodwill network Brand Software ----------------------------------------------------Cost: Opening balance - April 1, 2010 $ 186,832 $ - $ - $ 5,562 Acquisition of a subsidiary 32,317 84,400 11,200 911 Write-down of fully amortized assets - - - - Adjustments to goodwill 9,877 - - - Additions - Internal development - - - 3,208 Exchange differences (1,559) (3,839) (508) (141) ----------------------------------------------------Ending balance, March 31, 2011 227,467 80,561 10,692 9,540 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2010 - - - (4,198)Write-down of fully amortized assets - - - - Amortization charge for the period - (15,511) - (2,576)Amortization in mark to market - - - - Exchange differences - 741 - 158 ----------------------------------------------------Ending balance, March 31, 2011 - (14,770) - (6,616) ----------------------------------------------------Net book value, March 31, 2011 $ 227,467 $ 65,791 $ 10,692 $ 2,924 ---------------------------------------------------- Commodity billing and settlement IT system systems development Other Total ----------------------------------------------------Cost: Opening balance - April 1, 2010 $ 6,545 $ 605 $ 2,377 $964,458 Acquisition of a subsidiary - 17,954 6,545 380,205 Write-down of fully amortized assets - - - (265,012)Adjustments to goodwill - - - 9,877 Additions - Internal development 54 1,949 490 5,784 Exchange differences (84) (817) (406) (23,509) ----------------------------------------------------Ending balance, March 31, 2011 6,515 19,691 9,006 1,071,803 ----------------------------------------------------Accumulated Amortization: Opening balance, April 1, 2010 (6,515) (21) (2,377) (435,604)Write-down of fully amortized assets - - - 265,012 Amortization charge for the period (22) (3,614) (2,040) (120,841)Amortization in mark to market - - - (149,821)Exchange differences 84 157 204 9,670 ----------------------------------------------------Ending balance, March 31, 2011 (6,453) (3,478) (4,213) (431,584) ----------------------------------------------------Net book value, March 31, 2011 $ 62 $ 16,213 $ 4,793 $640,219 ----------------------------------------------------The capitalized internally-developed costs relate to the development of new customer billing and analysis software solutions for the different energy markets of Just Energy. All research costs and development costs not eligible for capitalization have been expensed and are recognized in administrative expenses.10. FINANCIAL INSTRUMENTS(a) Fair valueFair 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 options, renewable and gas swap and forward contracts using a discounted cash flow method which employs market forward curves that are either directly sourced from third parties or are developed internally based on third party market data. These curves can be volatile thus leading to volatility in the mark to market with no impact to cash flows. Gas options have been valued using the Black option value model using the applicable market forward curves and the implied volatility from other market traded gas options.Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. Accordingly, all the mark to market changes on Just Energy's derivative instruments are recorded on a single line on the consolidated income statements. Due to the commodity volatility and size of Just Energy, the quarterly swings in mark to market on these positions will increase the volatility in Just Energy's earnings.The following tables illustrate gains/(losses) related to Just Energy'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 three months ended June 30, 2011: Change in Fair Value of Derivative Instruments For the For the For the For the three months three months three months three months ended June ended June ended June ended June 30, 2011 30, 2011 30, 2010 30, 2010 (USD) (USD) Canada Fixed-for-floating electricity swaps (i) $ 40,089 n/a $ 138,841 n/a Renewable energy certificates (ii) 554 n/a (143) n/a Verified emission- reduction credits (iii) (19) n/a - n/a Options (iv) 4,324 n/a (837) n/a Physical gas forward contracts (v) 28,502 n/a 83,628 n/a Transportation forward contracts (vi) 661 n/a 13,349 n/a Fixed financial swaps (vii) (2,172) n/a - n/a United States Fixed-for-floating electricity swaps (viii) 15,504 16,023 24,244 23,518 Physical electricity forwards (ix) (563) (582) 22,682 21,962 Unforced capacity forward contracts (x) (1,340) (1,384) (160) (155) Unforced capacity physical contracts (xi) 104 108 (643) (626) Renewable energy certificates (xii) 833 861 (680) (661) Verified emission- reduction credits (xiii) (324) (335) (2) (2) Options (xiv) 647 669 180 175 Physical gas forward contracts (xv) 5,845 6,040 30,634 29,811 Transportation forward contracts (xvi) 250 258 156 152 Heat rate swaps (xvii) (1,055) (1,091) (3,058) (2,975) Fixed financial swaps (xviii) 5,193 5,367 7,366 7,161 Foreign exchange forward contracts (xix) (549) n/a (277) n/a Ethanol physical forward contracts (xx) (45) - Amortization of deferred unrealized gains on discontinued hedges 20,392 n/a 34,573 n/a Amortization of derivative financial instruments related to acquisitions (37,134) n/a (35,477) n/a Liability associated with exchangeable shares & equity based compensation - $- 21,171 n/a ----------------------------------------------------------------------------Change in Fair Value of Derivative Instruments $ 79,697 $ 335,547 --------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes certain aspects of the financial assets and liabilities recorded in the consolidated financial statements as at June 30, 2011: Other Other Other Other assets assets liabilities liabilities (current) (long term) (current) (long term)Canada Fixed-for-floating electricity swaps (i) $- $- $110,410 $74,178 Renewable energy certificates (ii) 760 199 160 428 Verified emission- reduction credits (iii) - - 311 655 Options (iv) 845 582 - - Physical gas forward contracts (v) - - 152,783 120,195 Transportation forward contracts (vi) - - 4,962 2,511 Fixed financial swaps (vii) - - 2,040 1,349United States Fixed-for-floating electricity swaps (viii) 1,402 1,698 23,470 18,465 Physical electricity forwards (ix) 95 72 55,595 37,418 Unforced capacity forward contracts (x) 2,511 3 469 3,593 Unforced capacity physical contracts (xi) 482 - 1,514 1,229 Renewable energy certificates (xii) 913 50 1,182 1,492 Verified emission- reduction credits (xiii) 19 - 359 697 Options (xiv) 5 5 484 95 Physical gas forward contracts (xv) 11 - 31,054 15,053 Transportation forward contracts (xvi) - - 1,625 918 Heat rate swaps (xvii) 151 1,772 213 40 Fixed financial swaps (xviii) 12 - 49,067 32,196Foreign exchange forward contracts (xix) 843 - - -Ethanol physical forward contracts (xx) 90 - - -----------------------------------------------------------------------------As at June 30, 2011 $8,139 $4,381 $435,698 $310,512--------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes certain aspects of the financial assets and liabilities recorded in the consolidated financial statements as at March 31, 2011: Other Other Other assets Other assets liabilities liabilities (current) (long term) (current) (long term)Canada Fixed-for-floating electricity swaps (i) $ - $ - $ 131,279 $ 93,397 Renewable energy certificates (ii) 194 196 158 417 Verified emission- reduction credits (iii) - - 315 628 Options (iv) 815 692 4,403 - Physical gas forward contracts (v) - - 166,634 134,847 Transportation forward contracts (vi) - 24 5,301 2,858 Fixed financial swaps (vii) - 1,037 2,235 19United States Fixed-for-floating electricity swaps (viii) 125 45 29,028 25,719 Physical electricity forwards (ix) - 310 55,548 37,535 Unforced capacity forward contracts (x) 309 177 581 118 Unforced capacity physical contracts (xi) 100 410 1,606 1,280 Renewable energy certificates (xii) 44 49 1,037 1,610 Verified emission- reduction credits (xiii) 13 36 275 491 Options (xiv) 1 - 1,056 165 Physical gas forward contracts (xv) 40 - 32,883 19,354 Transportation forward contracts (xvi) - - 1,526 1,281 Heat rate swaps (xvii) 639 2,408 180 131 Fixed financial swaps (xviii) 40 - 51,361 35,562Foreign exchange forward contracts (xix) 1,391 - - -Ethanol physical forward contracts (xx) 135 - - -----------------------------------------------------------------------------As at March 31, 2011 $ 3,846 $ 5,384 $ 485,406 $ 355,412--------------------------------------------------------------------------------------------------------------------------------------------------------The following table summarizes financial instruments classified as held for trading as at June 30, 2011 to which Just Energy has committed: Total remaining Contract type Notional volume volume Maturity date Canada ----------------------------------------------------------------------------(i) Fixed-for- 0.0001-85 MWh 9,005,282 MWh July 31, 2011 - floating August 01, 2017 electricity swaps (i) ----------------------------------------------------------------------------(ii) Renewable energy 10-90,000 MWh 1,133,558 MWh December 31, 2011 certificates - December 31, 2015 ----------------------------------------------------------------------------(iii) Verified emission 6,000-55,000 567,667 Tonnes December 31, 2011 reduction Tonnes - December 31, credits 2014 ----------------------------------------------------------------------------(iv) Options 46-28,500 2,637,154 GJ July 31, 2011 - GJ/month February 28, 2014----------------------------------------------------------------------------(v) Physical gas 1-16,379 GJ/day 94,950,536 GJ July 31, 2011 - forward March 31, 2016 contracts ----------------------------------------------------------------------------(vi) Transportation 40-20,000 35,831,082 GJ July 31, 2011 - forward GJ/day May 31, 2015 contracts ----------------------------------------------------------------------------(vii) Fixed financial 14,500-139,500 12,335,000 GJ July 31, 2011 - swaps GJ/month August 31, 2016 ---------------------------------------------------------------------------- United States ----------------------------------------------------------------------------(viii) Fixed-for- 0.10-80 MWh 8,567,591 MWh July 31, 2011 - floating September 30, electricity 2016 swaps (i) ----------------------------------------------------------------------------(ix) Physical 1-129 MWh 9,590,977 MWh July 31, 2011 - electricity May 31, 2016 forwards ----------------------------------------------------------------------------(x) Unforced capacity 5-150 MWCap 160,300 MWCap July 31, 2011 - forward May 31, 2014 contracts ----------------------------------------------------------------------------(xi) Unforced capacity 2-45 MWCap 2,076 MWCap July 31, 2011 - physical May 31, 2014 contracts ----------------------------------------------------------------------------(xii) Renewable energy 300-160,000 MWh 2,676,696 MWh December 31, 2011 certificates - December 31, 2016 ----------------------------------------------------------------------------(xiii) Verified 8,000-50,000 720,948 Tonnes December 31, 2011 emission- Tonnes - December 31, reduction 2016 credits ----------------------------------------------------------------------------(xiv) Options 5-90,000 2,808,620 mmBTU July 01, 2011 - mmBTU/month December 31, 2014----------------------------------------------------------------------------(xiv) Heat-rate options 1,600 MWh 294,400 MWh July 01, 2011 - September 30, 2011 ----------------------------------------------------------------------------(xv) Physical gas 1-4,300 14,324,801 mmBTU July 31, 2011 - forward mmBTU/day July 31, 2014 contracts ----------------------------------------------------------------------------(xvi) Transportation 3-15,000 31,727,390 mmBTU July 31, 2011 - forward mmBTU/day August 31, 2015 contracts ----------------------------------------------------------------------------(xvii) Heat rate swaps 1-25 MWh 3,636,356 MWh July 31, 2011 - April 30, 2016 ----------------------------------------------------------------------------(xviii) Fixed financial 930-380,000 54,992,072 mmBTU July 31, 2011 - swaps mmBTU/month May 31, 2017 ----------------------------------------------------------------------------(xix) Foreign exchange ($485-$4,183) n/a July 06, 2011 - forward (US$500-$4,000) April 02, 2012 contracts ----------------------------------------------------------------------------(xx) Ethanol forward 396,258 Gallons 4,755,097 July 01, 2011 - physical Gallons December 01, 2011 contracts ---------------------------------------------------------------------------- Fair value favourable/ Contract type Fixed price (unfavourable) Notional value Canada ----------------------------------------------------------------------------(i) Fixed-for- $28.75-$128.13 ($184,588) $561,536 floating electricity swaps (i) ----------------------------------------------------------------------------(ii) Renewable energy $3.00-$26.00 $371 $7,284 certificates ----------------------------------------------------------------------------(iii) Verified emission $6.00-$11.50 ($966) $5,208 reduction credits ----------------------------------------------------------------------------(iv) Options $7.16-$12.39 $1,427 $4,904 ----------------------------------------------------------------------------(v) Physical gas $3.19-$10.00 ($272,978) $672,966 forward contracts ----------------------------------------------------------------------------(vi) Transportation $0.0025-$1.57 ($7,473) $31,924 forward contracts ----------------------------------------------------------------------------(vii) Fixed financial $4.47-$8.79 ($3,389) $58,066 swaps ---------------------------------------------------------------------------- United States ----------------------------------------------------------------------------(viii) Fixed-for- $23.44-$131.90 ($38,835) $462,720 floating (US$24.30- (US($40,264)) (US$479,751) electricity $136.75) swaps (i) ----------------------------------------------------------------------------(ix) Physical $18.33-$106.34 ($92,846) $462,923 electricity (US$19.00- (US($96,263)) (US$479,962) forwards $110.25) ----------------------------------------------------------------------------(x) Unforced capacity $1,752-$7,716 ($1,548) $11,294 forward (US$1,817- ((US$1,605)) (US$11,710) contracts $8,000) ----------------------------------------------------------------------------(xi) Unforced capacity $965-$8,439 ($2,261) $9,752 physical (US$1,000- ((US$2,344)) (US$10,111) contracts $8,750) ----------------------------------------------------------------------------(xii) Renewable energy $0.940-$23.87 ($1,711) $14,584 certificates (US$0.975- (US($1,774)) (US$15,121) $24.75) ----------------------------------------------------------------------------(xiii) Verified $2.89-$8.44 ($1,037) $4,636 (US$4,807) emission- (US$3.00-$8.75)(US$(1,075)) reduction credits ----------------------------------------------------------------------------(xiv) Options $7.47-$13.31 ($534) (US($554)) $3,649 (US$3,783) (US$7.75- $13.80) ----------------------------------------------------------------------------(xiv) Heat-rate options $63.28-$84.74 ($35) (US($36)) $723 (US$750) (US$65.61- $87.86) ----------------------------------------------------------------------------(xv) Physical gas $4.24-$11.46 ($46,096) $114,985 forward (US$4.40- (US($47,793)) (US$119,217) contracts $11.88) ----------------------------------------------------------------------------(xvi) Transportation $0.0048-$1.4500($2,543) ($61,164) forward (US$0.0050- (US($2,637)) (US$63,415) contracts $1.5000) ----------------------------------------------------------------------------(xvii) Heat rate swaps $18.69-$81.99 $1,670 (US$1,731) $148,056 (US$19.38- (US$153,505) $85.01) ----------------------------------------------------------------------------(xviii) Fixed financial $3.91-$9.07 ($81,251) $372,087 swaps (US$4.05-$9.40)(US($84,242)) (US$358,878) ----------------------------------------------------------------------------(xix) Foreign exchange $0.955-$1.0457 $843 $27,301 forward (US$27,170) contracts ----------------------------------------------------------------------------(xx) Ethanol forward $2.13-$2.55 $90 $10,934 physical contracts ----------------------------------------------------------------------------(i) Some of the electricity fixed-for-floating contracts related to the Province of Alberta and Ontario are 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 and subject 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 accumulated other comprehensive income that is expected to be amortized to net income within the next 12 months is a gain of $59,287.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 and cash equivalent, accounts receivable, unbilled revenue, 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 which 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.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 June 30, 2011: June 30, 2011 Level 1 Level 2 Level 3 Total Financial assets Cash and short term deposits $ 76,241 $ - $ - $ 76,241 Loans and receivable 364,957 - - 364,597 Derivative financial assets - 12 12,508 12,520 Financial liabilities Derivative financial liabilities - (84,652) (661,558) (746,210) Other financial liabilities (877,418) - - (877,418)----------------------------------------------------------------------------Total net derivative liabilities $ (436,220) $ (84,640) $ (649,050) $ (1,169,910)--------------------------------------------------------------------------------------------------------------------------------------------------------The following table illustrates the changes in net fair value of financial assets/(liabilities) classified as Level 3 in the FV hierarchy for the three months ended June 30, 2011: June 30, 2011Opening balance, April 1, 2011 $ (743,488)Total gain/(losses) - Profit for the period (54,058)Purchases (7,572)Sales 1,039Settlements 155,029Transfer out of Level 3 -----------------------------------------------------------------------------Closing Balance, June 30, 2011 $ (649,050)----------------------------------------------------------------------------(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 June 30, 2011 Carrying amount Fair valueCash and cash equivalents $ 76,241 $ 76,241Current trade and other receivables $ 256,667 $ 256,667Unbilled revenues $ 103,463 $ 103,463Non-current receivables $ 4,827 $ 4,827Other assets $ 12,520 $ 12,520Bank indebtedness, trade and other payables $ 258,750 $ 258,750Long-term debt $ 618,668 $ 666,396Other liabilities $ 746,210 $ 746,210For the periods ended June 30 2011 2010Interest expense on financial liabilities not held-for-trading $ 13,792 $ 12,755The carrying value of cash and cash equivalents, current trade and other receivables, unbilled revenues and trade and other payables 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 $90 million and $330 million convertible debentures, which are fair valued, based on market value.(c) Management of risks arising from financial instrumentsThe risks associated with Just Energy'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 Just Energy 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., Just Energy expects to have a greater exposure to U.S. fluctuations in the future than in prior years. Just Energy has hedged between 25% and 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.Just Energy may, from time to time, experience losses resulting from fluctuations in the values of its foreign currency transactions, which could adversely affect its operating results. Translation risk is not hedged.With respect to translation exposure, as at June 30, 2011, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar, assuming that all the other variables had remained constant, profit for the period would have been $20 higher/lower and other comprehensive income would have been $580 higher/lower.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. Just Energy's exposure to interest rate risk is relatively immaterial and temporary in nature. Just Energy 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 period ended June 30, 2011 of approximately $225.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 which also feed a Value at Risk limit; should any of the limits be exceeded, they are closed expeditiously or express approval to continue to hold is obtained. Just Energy's exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets. Just Energy enters into derivative instruments in order to manage exposures to changes in commodity prices. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand and thereby fix margins such that Shareholder dividends can be appropriately established. Derivative instruments are generally transacted over-the-counter. The inability or failure of Just Energy to manage and monitor the above market risks could have a material adverse effect on the operations and cash flow of Just Energy.Commodity price sensitivity - all derivative financial instrumentsAs at June 30, 2011, if the energy prices including natural gas, electricity, verified emission-reduction credits, and renewable energy certificates, had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before taxes for the quarter ended June 30, 2011 would have increased (decreased) by $187,308 ($186,315) primarily as a result of the change in the fair value of Just Energy's derivative instruments.Commodity price sensitivity - Level 3 derivative financial instrumentsAs at June 30, 2011, if the energy prices including natural gas, electricity, verified emission-reduction credits, and renewable energy certificates, had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before taxes for the quarter ended June 30, 2011 would have increased (decreased) by $161,751 ($160,998) primarily as a result of the change in the fair value of Just Energy'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.The aging of the accounts receivable from the above markets was as follows: June 30, 2011 March 31, 2011Current $61,092 $61,6951 - 30 days 14,885 15,08831 - 60 days 5,162 5,53361 - 90 days 3,105 5,652Over 91 days 10,419 10,322 ----------------------------------------- $94,663 $98,290 -------------------- -------------------- -------------------- --------------------For the period ended June 30, 2011, changes in the allowance for doubtful accounts were as follows:Balance, beginning of period $ 25,115 Provision for doubtful accounts 6,814 Bad debts written off (5,448)Other (388) ---------------------Balance, end of period $ 26,093 --------------------- ---------------------For the remaining markets, the 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 exceptions to these limits require approval from the Board of Directors of JEGI. The Risk Department and Risk Committee monitor current and potential credit exposure to individual counterparties and also monitor overall aggregate counterparty exposure. However, the failure of a counterparty to meet its contractual obligations could have a material adverse effect on the operations and cash flows of Just Energy.As at June 30, 2011, the maximum counterparty credit risk exposure amounted to $107,183, 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. Just Energy manages this risk by monitoring detailed weekly cash flow forecasts covering a rolling six-week period, monthly cash forecasts for the next 12 months, and quarterly forecasts for the following two-year period to ensure adequate and efficient use of cash resources and credit facilities.The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy's financial liabilities as at June 30, 2011. Contractual Less than 1 Carrying amount cash flows yearTrade and other payables $ 252,497 $ 252,497 $ 252,497Bank indebtedness 6,253 6,253 6,253Long-term debt (i) 618,668 667,632 93,718Derivative instruments 746,210 2,981,790 1,397,500---------------------------------------------------------------------------- $ 1,623,628 $ 3,908,172 $ 1,749,968-------------------------------------------------------------------------------------------------------------------------------------------------------- More than 5 1 to 3 years 4 to 5 years yearsTrade and other payables $ - $ - $ -Bank indebtedness - - -Long-term debt (i) 113,065 117,532 343,317Derivative instruments 1,330,010 251,040 3,240---------------------------------------------------------------------------- $ 1,443,075 $ 368,572 $ 346,557--------------------------------------------------------------------------------------------------------------------------------------------------------(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 June 30, 2011, net interest payments over the life of the long-term debt and bank credit facility are as follows: Less than 1 More than 5 year 1 to 3 years 4 to 5 years years----------------------------------------------------------------------------Interest payments $ 39,759 $ 72,901 $ 56,349 $ 79,772--------------------------------------------------------------------------------------------------------------------------------------------------------(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 $1,091 to accommodate for its counterparties' risk of default.11. ACCUMULATED OTHER COMPREHENSIVE INCOMEFor the three months ended June 30, 2011 Foreign currency translation Cash flow adjustment hedges Total Balance, beginning of period $ 29,033 $ 94,886 $ 123,919 Unrealized foreign currency translation adjustment (3,745) - (3,745)Amortization of deferred unrealized gain on discontinued hedges net of income taxes of $7,375 - (13,017) (13,017) ----------------------------------------- $ 25,288 $ 81,869 $ 107,157 -----------------------------------------For the three months ended June 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 14,881 - 14,881 Amortization of deferred unrealized gain on discontinued hedges net of income taxes of $6,259 - (28,723) (28,723) ----------------------------------------- $ 43,465 $ 164,662 $ 208,127 -----------------------------------------12. SHAREHOLDERS' CAPITAL AND CONTRIBUTED SURPLUSPrior to the ConversionEffective January 1, 2011, Just Energy completed the Conversion from an income trust to a corporation. As a result of the Conversion Just Energy's trust units, along with the issued exchangeable and Class A preference shares, were exchanged on a one-for-one basis into shares of JEGI.Prior to the Conversion, the trust units were redeemable at the option of the Fund's Unitholders. The redemption price was calculated as the lower of the closing price on the day the units were tendered for redemption and 90% of the market price of the units for the ten days after redemption. The Fund had no redemptions for the period for which the trust units were outstanding.IFRS requires financial instruments which include a redemption feature, making the instruments puttable, to be presented as a financial liability rather than equity. However, an exception to that requirement is available if the financial instrument meets certain criteria. Just Energy determined that the Fund's units met the requirements for this exception and accordingly, the trust units are presented as equity for the periods prior to the Conversion.Details of issued unitholders' capital are as follows for the year ended March 31, 2011:Issued and outstanding Units Amount Balance, beginning of year 124,325,307 $ 777,856 Unit based awards exercised 38,989 462 Distribution reinvestment plan 1,324,834 17,935 Exchanged from Exchangeable Shares 894,018 12,595 Units exchanged pursuant to Conversion (126,583,148) (808,848) ------------------------------------------Balance, end of year - $ - ------------------------------------------Subsequent to the ConversionOn January 1, 2011 Just Energy issued common shares in exchange for the outstanding trust units of the Fund. The exchange of the trust units of the Fund was accounted for as an exchange of equity instruments at carrying value. The exchange of Exchangeable Shares for common shares was accounted for as an extinguishment of the liability associated with Exchangeable Shares, at the redemption value measured on the date of the exchange.Details of issued shareholders' capital are as follows for the three months ended June 30, 2011 with comparatives for the year ended March 31, 2011: Three months ended Year ended June 30, 2011 March 31, 2011Issued and outstanding Shares Amount Shares AmountBalance, beginning of period 136,963,726 $ 963,982 - -Shares issued pursuant to Conversion Trust units - - 126,583,148 808,848 Class A preference shares (Note 19) - - 5,263,728 78,798 Exchangeable shares (Note 19) - - 3,794,154 56,799Shares issued to minority shareholder in exchange for interest in TGF (i) - - 689,940 10,328Share-based awards exercised 39,042 587 86,374 1,097Dividend reinvestment plan (ii) 604,162 8,676 546,382 8,112 -----------------------------------------------------Balance, end of period 137,606,930 $ 973,245 136,963,726 $ 963,982 -----------------------------------------------------(i) Shares issuedDuring the year ended March 31, 2011, Just Energy issued 689,940 shares to acquire the interest held by the minority shareholder of TGF pursuant to the exercise of the minority holders put right. The shares were valued at $10,328 and the difference between $18,285 representing the value of the minority interest of TGF at the time of issuance, and the value of the shares has been recorded as an increase to contributed surplus.(ii) Dividend reinvestment planUnder Just Energy's dividend reinvestment plan ("DRIP"), shareholders holding a minimum of 100 common shares can elect to receive their dividends in common shares rather than cash at a 2% discount to the simple average closing price of the common shares for five trading days preceding the applicable dividend payment date, providing the common shares are issued from treasury and not purchased on the open market.Contributed surplus is as follows for the three months ended June 30, 2011 with comparatives for the year ended March 31, 2011: Three months ended Year ended Issued and outstanding June 30, 2011 March 31, 2011 Balance, beginning of period $ 52,723 - Reclassification resulting from Conversion (Note 19) - 43,147 Add: Gain on acquisition of minority interest - 7,957 Share-based compensation 1,681 2,683 Non-cash deferred share grant distribution 32 33 Less: Share-based awards exercised (587) (1,097) ------------------------------------------Balance, end of period $ 53,849 $ 52,723 ------------------------------------------13. LONG-TERM DEBT AND FINANCING June 30, 2011 March 31, 2011 Credit facility (a) $ 63,000 $ 53,000 Less: Debt issue costs (a) (1,772) (1,965)TGF credit facility (b)(i) 35,521 36,680 TGF debentures (b)(ii) 36,002 37,001 NHS financing (c) 113,109 105,716 $90 million convertible debentures (d) 85,046 84,706 $330 million convertible debentures (e) 287,762 286,439 ------------------------------------------ 618,668 601,577 Less: current portion (93,718) (94,117) ------------------------------------------ $ 524,950 $ 507,460 ------------------------------------------Future annual minimum principal repayments are as follows: Less than 1 1 to 3 4 to 5 More than 5 year years years years TotalCredit facility (a) $- $63,000 $- $- $63,000TGF credit facility (b)(i) 35,521 - - - 35,521TGF debentures (b)(ii) 36,002 - - - 36,002NHS HTC financing (c) 22,195 50,065 27,532 13,317 113,109$90 million convertible debentures (d) - - 90,000 - 90,000$330 million convertible debentures (e) - - - 330,000 330,000 -------------------------------------------------------- $93,718 $113,065 $117,532 $343,317 $667,632 -------------------------------------------------------- --------------------------------------------------------The following table details the finance costs for the three months ended June 30. Interest is expensed at the effective interest rate. June 30, 2011 June 30, 2010Credit facility (a) $ 1,946 $ 1,359TGF credit facility (b)(i) 537 447TGF debentures (b)(ii) 1,130 950TGF term/operating facilities (b)(iii) - 311NHS financing (c) 2,149 1,341$90 million convertible debentures (d) 1,690 1,664$330 million convertible debentures (e) 6,273 3,800Provisions (Note 14) 67 65Dividend classified as interest (Note 24) - 2,818 ---------------------------------------- $ 13,792 $ 12,755 ----------------------------------------(a) As at June 30, 2011, Just Energy has a $350 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, Societe Generale, Bank of Nova Scotia, The Toronto-Dominion Bank and Alberta Treasury Branches. The term of the facility expires on December 31, 2013.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 that vary between 3.25% and 3.75%. Prime rate advances are at rates of interest that vary between bank prime plus 2.25% and 2.75% and letters of credit are at rates that vary between 3.25% and 3.75%. Interest rates are adjusted quarterly based on certain financial performance indicators.As at June 30, 2011, the Canadian prime rate was 3.0% and the U.S. prime rate was 3.25%. As at June 30, 2011, Just Energy had drawn $63,000 (March 31, 2011 - $53,000) against the facility and total letters of credit outstanding amounted to $80,671 (March 31, 2011 - $78,209). As at June 31, 2011, debt issue costs relating to the facility are $1,772 (March 31, 2011 - $1,965). As at June 30, 2011, Just Energy has $206,329 of the facility remaining for future working capital and security requirements. Just Energy's obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates and secured by a general security agreement and a pledge of the assets and securities of Just Energy and the majority of its operating subsidiaries and affiliates excluding, among others, NHS and TGF. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at June 30, 2011 and 2010, all of these covenants had been met.(b) In connection with the acquisition of Universal Energy Group Ltd. ("Universal") on July 1, 2009, Just Energy acquired the debt obligations of TGF, which currently comprise 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 3% 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 facility was further revised on April 5, 2010 to postpone 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 1, 2011. The credit facility includes certain financial covenants, the most significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholders' capital. The lenders deferred compliance with the financial covenants until April 1, 2011. The covenants will be measured as of March 31, 2012, and non-attainment may result in a non-compliance fee up to 0.25% of the loan balance as of March 31, 2012. As at June 30, 2011, the amount owing under this facility amounted to $35,521.(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. TGF was in recent negotiations with the lender and adjusted the covenant levels. In addition the interest rate was increased to 12% and quarterly blended principal and interest payments of $1,100 were established. 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 shareholders' equity. Compliance with the new covenants will be measured annually beginning with the fiscal 2012 year end. The maturity date was extended to May 15, 2014, with a call right any time after April 1, 2012. The debenture holders have no recourse to the Company or any other Just Energy entity. As of June 30, 2011, the amount owing under this debenture agreement amounted to $36,002.(iii) TGF has a working capital operating line of $7,000 bearing interest at a rate of prime plus 2%. In addition, total letters of credit issued amounted to $250.(c) In fiscal 2010, NHS entered into a long-term financing agreement for the funding of new and existing rental water heater and HVAC contracts in the Enbridge gas distribution territory. On July 16, 2010, NHS expanded this facility to cover the Union Gas territory. Pursuant to the agreement, NHS receives financing of an amount equal to the present value of the first five, seven or ten 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 and HVAC contracts for the first five, seven or 10 years. As security for performance of the obligation, NHS has pledged the water heaters, HVAC equipment and rental contracts, 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 NHS are satisfied or expired, the remaining funds in the reserve account will immediately be released to NHS.NHS has $113,109 owing under this agreement, including $4,398 relating to the holdback provision, recorded in non- current receivables, as at June 30, 2011. NHS is required to meet a number of covenants under the agreement. As at June 30, 2011, all of these covenants have been met.(d) In conjunction with a previous, the Company also acquired the obligations of a convertible unsecured subordinated debentures (the "$90 million convertible debentures") issued in October 2007. The fair value of the $90 million convertible debentures was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments have a face value of $90,000 and mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6% payable semi-annually on March 31 and September 30 of each year. Each $1,000 principal amount of the $90 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 31.53 shares, representing a conversion price of $31.72 per common share as at June 30, 2011. Pursuant to the $90 million convertible debentures, if the Company fixes a record date for the payment of a dividend, the conversion price shall be adjusted in accordance therewith. During the period, interest expense amounted to $1,690.On and after October 1, 2010, but prior to September 30, 2012, the $90 million convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice, 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 $90 million convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice. On January 1, 2011, as part of the Conversion, JEGI assumed all of the obligations under the $90 million convertible debentures.(e) In order to fund the acquisition of Hudson, on May 5, 2010, Just Energy issued $330 million of convertible extendible unsecured subordinated debentures (the "$330 million convertible debentures"). The $330 million convertible debentures bear interest at a rate of 6.0% 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 $330 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 shares of the Company, representing a conversion price of $18 per share. During the period, interest expense amounted to $6,273. The $330 million convertible debentures are not redeemable prior to June 30, 2013, except under certain conditions after a change of control has occurred. On or after June 30, 2013, but prior to June 30, 2015, the $330 million convertible debentures may be redeemed by the Company, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price (as defined herein) on the date on which notice of redemption is given is not less than 125% of the conversion price. On and after June 30, 2015, and prior to maturity, the $330 million convertible debentures may be redeemed by Just Energy, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.The Company may, at its own option, on not more than 60 days' and not less than 40 days' prior notice, subject to applicable regulatory approval and provided that no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $330 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable units determined by dividing the principal amount of the $330 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.The conversion feature of the $330 million convertible debentures has been accounted for as a separate component of shareholders' deficit in the amount of $33,914. The remainder of the net proceeds of the $330 million convertible debentures has been recorded as long-term debt, which will be accreted up to the face value of $330,000 over the term of the $330 million convertible debentures using an effective interest rate of 8.8%. If the $330 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. On January 1, 2011, as part of the Conversion, JEGI assumed all of the obligations under the $330 million convertible debentures.As a result of adopting IFRS, Just Energy has recorded a future tax liability of $15,728 on its convertible debentures and reduced the value of the equity component of convertible debentures by this amount.14. PROVISIONS June 30, 2011 March 31, 2011 Cost: Opening balance for the period $ 7,250 $ 7,008 Provisions made during the period 134 2,853 Provisions reversed and used during the period (67) (2,808)Unwinding of discount 67 462 Foreign exchange (30) (265) ------------------------------------------Ending balance for the period $ 7,354 $ 7,250 ------------------------------------------Current $ 4,061 $ 4,006 Non-current 3,293 3,244 ------------------------------------------ $ 7,354 $ 7,250 ------------------------------------------Legal issuesThe provision for legal issues shown above include the expected cash outflows from major claims and for several smaller litigation matters.Just 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 FERC against any suppliers of electricity, including Commerce, a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crisis in California. Pursuant to the complaints, the State of California is challenging the FERC's enforcement of its market-based rate system. 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 are not determinable.15. REPORTABLE BUSINESS SEGMENTSJust Energy operates in four reportable segments: gas marketing, electricity marketing, ethanol and home services. Reporting by products and services is in line with Just Energy's performance measurement parameters.Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.No operating segments have been aggregated to form the above reportable operating segments.Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. Just Energy is not considered to have any key customers.The following tables present Just Energy's results by operating segments: For the three months ended June 30, 2011 Gas Electricity Home marketing marketing Ethanol services Consolidated -----------------------------------------------------------Revenue $ 202,457 $ 385,744 $ 30,192 $ 7,807 $ 626,200 Gross margin 25,112 60,372 2,545 6,232 94,261 Amortization of property, plant and equipment 337 673 293 38 1,341 Amortization of intangible assets 8,878 20,022 5 399 29,304 Other operating expenses 19,948 44,130 2,765 4,490 71,333 -----------------------------------------------------------Operating profit (loss) for the period $ (4,051) $ (4,453) $ (518) $ 1,305 $ (7,717)Finance costs (3,512) (6,442) (1,687) (2,151) (13,792)Change in fair value of derivative instruments 51,582 28,160 (45) - 79,697 Other income 40 125 - - 165 Provision for income tax expense 2,635 4,586 - - 7,221 -----------------------------------------------------------Profit for the period $ 41,424 $ 12,804 $ (2,250) $ (846) $ 51,132 -----------------------------------------------------------Capital expenditures $ 687 $ 1,355 $ 27 $ 9,526 $ 11,595 -----------------------------------------------------------Total goodwill $ 129,517 $ 97,361 $ - $ 283 $ 227,161 -----------------------------------------------------------Total assets $ 506,644 $ 659,648 $163,203 $ 141,993 $ 1,471,488 -----------------------------------------------------------Total liabilities $ 702,551 $ 743,385 $ 95,660 $ 119,856 $ 1,661,452 -----------------------------------------------------------For the three months ended June 30, 2010 Gas Electricity Home marketing marketing Ethanol services Consolidated -----------------------------------------------------------Revenue $ 202,763 $ 385,674 $ 16,806 $ 4,441 $ 609,684 Gross margin 17,415 62,896 (2,788) 2,832 80,355 Amortization of property, plant and equipment 612 944 296 68 1,920 Amortization of intangible assets 10,454 16,320 - 398 27,172 Other operating expenses 21,695 39,193 2,473 4,229 67,590 -----------------------------------------------------------Operating profit (loss) for the period $ (15,346) $ 6,439 (5,557) $ (1,863) $ (16,327)Finance costs (3,948) (5,759) (1,707) (1,341) (12,755)Change in fair value of derivative instruments 157,682 177,865 - - 335,547 Other income (expense) 2,635 (859) 6 - 1,782 Provision for income tax expense 16,959 21,317 - (818) 37,458 -----------------------------------------------------------Profit for the period $ 124,064 $ 156,369 $ (7,258) $ (2,386) $ 270,789 -----------------------------------------------------------Capital expenditures $ 523 $ 816 $ 114 $ 8,154 $ 9,607 -----------------------------------------------------------Total goodwill $ 141,643 $ 88,657 $ - $ 283 $ 230,583 -----------------------------------------------------------Total assets $ 742,930 $ 912,639 $ 156,102 $ 94,981 $ 1,906,652 -----------------------------------------------------------Total liabilities $ 959,622 $ 1,061,968 $ 100,595 $ 73,714 $ 2,195,899 -----------------------------------------------------------Geographic information Revenues from external customers For the three months For the three months ended June 30, 2011 ended June 30, 2010Canada $ 281,415 $ 307,281United States 344,785 302,403 ----------------------------------------------Total revenue per consolidated income statement $ 626,200 $ 609,684 ----------------------------------------------The revenue above is based on the location of the customer. Non-current assetsNon-current assets for this purpose consist of property, plant and equipment and intangible assets and are summarized as follows: As at June 30, 2011 As at June 30, 2010Canada $ 520,930 $ 627,785United States 294,244 473,265 --------------------------------------------------Total $ 815,174 $ 1,101,050 --------------------------------------------------16. OTHER INCOME, EXPENSES AND ADJUSTMENTSFor the three months ended June 30(a) Other operating expenses 2011 2010Amortization of gas contracts $ 6,740 $ 8,882Amortization of electricity contracts 16,166 14,027Amortization of water heaters 399 398Amortization of other intangible assets 5,999 3,865Amortization of property, plant and equipment 1,341 1,920Bad debt expense 6,814 5,749Transaction costs - 1,099Capital tax - 133Share-based compensation 1,681 2,010 ------------------------------ $ 39,140 $ 38,083 ------------------------------(b) Amortization and cost of inventories included in the consolidated incomestatement Included in cost of sales: 2011 2010Amortization $ 2,903 $ 2,410Costs of inventories recognized as an expense 529,036 526,919 ------------------------------ $ 531,939 $ 529,329 ------------------------------(c) Included in change of fair value of derivative instruments: 2011 2010Amortization of gas contracts $ 12,765 $ 12,729Amortization of electricity contracts 24,323 22,748(d) Employee benefit expense 2011 2010Wages, salaries and commissions $ 38,203 $ 30,145Benefits 5,250 4,788 ------------------------------ $ 43,453 $ 34,933 ------------------------------17. INCOME TAXES 2011 2010 --------------------------------Current income tax recovery $ (2,238) $ (1,002)Future tax expense 9,459 38,460 --------------------------------Provision for income tax $ 7,221 $ 37,458 -------------------------------- --------------------------------Just Energy's previous income trust structure required certain temporary differences to be measured at higher deferred tax rates under IFRS. When Just Energy converted to a corporation on January 1, 2011, Just Energy re-measured its deferred tax balances in accordance with IFRS Standing Interpretations Committee ("SIC") Standards - 25 "Changes in Tax Structure of an Entity" using the tax rates applicable to a corporation.18. INCOME PER UNIT/SHARE 2011 2010 Basic income per unit/share Net income available to shareholders $ 51,132 $273,409 --------------------------------Basic units and shares outstanding 137,180,059 124,818,132 --------------------------------Basic income per share/unit $ 0.37 $2.19 --------------- ---------------- --------------- ----------------Diluted income per unit/share Net income available to shareholders 51,132 $273,409 Adjusted net income for dilutive impact of convertible debentures 6,017 3,925 Adjusted net income for financial liabilities - (8,614) --------------------------------Adjusted net income 57,149 268,720 --------------------------------Basic units and shares outstanding 137,180,059 124,818,132 Dilutive effect of: Weighted average number of Class A preference shares - 5,263,728 Weighted average number of Exchangeable Shares - 4,340,387 Restricted share grants 3,076,129 2,701,377 Deferred share grants 108,335 84,211 Convertible debentures 21,188,081 13,940,519 --------------------------------Shares outstanding on a diluted basis 161,552,604 151,148,354 --------------------------------Diluted income per share/unit $ 0.35 $1.78 --------------- ---------------- --------------- ----------------19. LIABILITY ASSOCIATED WITH EXCHANGEABLE SHARES AND EQUITY-BASED COMPENSATION PLANSLiability associated with Exchangeable SharesSince 2001 and up to and including January 1, 2011, Just Energy had Exchangeable Shares and unit-based awards outstanding. These shares did not meet the definition of an equity instrument in accordance with IAS 32, "Financial Instruments: Presentation" and accordingly, were classified as financial liabilities. The Exchangeable Shares were recorded upon transition to IFRS at redemption value and subsequent to transition were adjusted to reflect the redemption value at each reporting date. The resulting change from carrying value to redemption value was recorded at transition and at each reporting period to retained earnings and earnings respectively as a change in fair value of derivative instruments. All dividends attributable to exchangeable shareholders were recorded as interest expense in the reporting period for which the dividends were declared.As a result of the Conversion, the Exchangeable Shares were exchanged on a one for one basis into common shares of JEGI. There were no Exchangeable Shares outstanding following the Conversion.Equity-based compensation plansAs the award holders were entitled to receive Fund units which under IFRS were considered puttable financial instruments, the awards were classified as liability-based awards. The fair value of awards was estimated at each reporting period using the fair market value of the Fund units at the reporting date. The resulting measurements of the liability were recorded as change in fair value of derivative financial instruments.As a result of the Conversion, Just Energy's equity-based compensation plan awards are now settled in non-redeemable common shares resulting in equity plan accounting under IFRS. Accordingly, the fair value of the vested portion of outstanding awards was reclassified from liability to contributed surplus on January 1, 2011.The following table summarizes the changes in the liability associated with the Exchangeable Shares and the equity-based compensation: Exchangeable Shares Class A preference of JEEC shares of JEC --------------------------------------------------- Shares $-Value Shares $-Value Opening balance April 1, 2010 4,688,172 66,947 5,263,728 75,166 Exchanged (422,673) (5,903) - - Issued/forfeited - - - - Non-cash deferred unit grant - - - - Unit-based compensation - - - - Change in fair value - (7,043) - (8,527) ---------------------------------------------------Balance June 30, 2010 4,265,499 54,001 5,263,728 66,639 Exchanged (217,716) (2,981) - - Issued/forfeited - - - - Non-cash deferred unit grant - - - - Unit-based compensation - - - - Change in fair value - 8,240 - 10,422 ---------------------------------------------------Balance September 30, 2010 4,047,783 59,260 5,263,728 77,061 Exchanged (253,629) (3,711) - - Issued/forfeited - - - - Non-cash deferred unit grant - - - - Unit-based compensation - - - - Change in fair value - 1,250 - 1,737 ---------------------------------------------------Balance December 31, 2010 3,794,154 56,799 5,263,728 78,798 Reclassified to share capital on conversion to corporation (3,794,154) (56,799) (5,263,728) (78,798)Reclassified to contributed surplus on conversion to corporation - --------------------------------------------------- - - - - --------------------------------------------------- Unit-based awards Total --------------------------------------------------- Options DDUGS UARs $-Value $-Value Opening balance April 1, 2010 352,500 84,138 2,640,723 39,015 181,128 Exchanged - - - - (5,903)Issued/forfeited (217,500) 6,602 65,448 - - Non-cash deferred unit grant - - - 26 26 Unit-based compensation - - - 2,010 2,010 Change in fair value - - - (5,601) (21,171) ---------------------------------------------------Balance June 30, 2010 135,000 90,740 2,706,171 35,450 156,090 Exchanged - - (38,989) (461) (3,442)Issued/forfeited - 5,823 88,480 - - Non-cash deferred unit grant - - - 28 28 Unit-based compensation - - - 2,573 2,573 Change in fair value - - - 4,220 22,882 ---------------------------------------------------Balance September 30, 2010 135,000 96,563 2,755,662 41,810 178,131 Exchanged - - - - (3,711)Issued/forfeited - 5,937 21,323 - - Non-cash deferred unit grant - - - 33 33 Unit-based compensation - - - 2,648 2,648 Change in fair value - - - (1,344) 1,643 ---------------------------------------------------Balance December 31, 2010 135,000 102,500 2,776,985 43,147 178,744 Reclassified to share capital on conversion to corporation - - - - (135,597)Reclassified to contributed surplus on conversion to corporation (135,000) (102,500)(2,776,985) (43,147) (43,147) --------------------------------------------------- - - - - - ---------------------------------------------------20. DISTRIBUTIONS AND DIVIDENDS PAID AND PROPOSEDFor the three months ended June 30, 2011, dividends of $0.31 (2010 - $0.31) per unit/share were proposed and paid by Just Energy. This amounted to $43,605 (2010 - $39,459) which was approved throughout the period by the Board of Directors and was paid out during the quarter.Declared dividends subsequent to quarter endOn July 5, 2011, the Board of Directors of Just Energy declared a dividend in the amount of $0.10333 per common share ($1.24 annually). The dividend will be paid on July 31, 2011 to shareholders of record at the close of business on July 15, 2011.On August 3, 2011, the Board of Directors of Just Energy declared a dividend in the amount of $0.10333 per common share ($1.24 annually). The dividend will be paid on August 31, 2011 to shareholders of record at the close of business on August 15, 2011.21. COMMITMENTSCommitments for each of the next five years and thereafter are as follows:As at June 30, 2011 Long-term gas and Master electricity Premises and Grain Services contracts equipment production agreement with various leasing contracts with EPCOR suppliersLess than 1 year $ 8,333 $ 3,849 $ 2,588 $ 1,397,500One to three years 11,435 1,267 - 1,330,010Four to five years 6,837 - - 251,040Exceeding five years 4,468 - - 3,240 ------------ ------------ ------------ ------------ $ 31,073 $ 5,116 $ 2,588 $ 2,981,790 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------As at June 30, 2010 Long-term gas and Master electricity Premises and Grain Services contracts equipment production agreement with various leasing contracts with EPCOR suppliersLess than 1 year $ 8,256 $ 44,212 $ 8,653 $ 1,712,415One to three years 11,741 8,254 7,692 1,798,491Four to five years 6,138 - - 417,250Exceeding five years 5,021 - - 8,143 ------------ ------------ ------------ ------------ $ 31,156 $ 52,466 $ 16,345 $ 3,936,299 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------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. Just Energy has entered into leasing contracts for office buildings and administrative equipment. These leases have a leasing period between one and eight years. For the main office building of Just Energy, there is a renewal option for an additional five years. No purchase options are included in any major leasing contracts.22. ADJUSTMENTS REQUIRED TO REFLECT NET CASH RECEIPTS FROM GAS SALESChanges in: 2011 2010 Accrued gas receivable $ 12,146 $ 17,971 Gas delivered in excess of consumption (7,794) (12,551)Accrued gas accounts payable (8,932) (12,567)Deferred revenue 7,688 15,583 -------------------------------- $ 3,108 $ 8,436 -------------------------------- --------------------------------23. CHANGES IN NON-CASH WORKING CAPITAL 2011 2010 Accounts receivable and unbilled revenues $ 32,537 $ 91,232 Gas in storage (20,686) (33,545)Prepaid expenses 55 (1,329)Inventory 2,973 1,687 Trade and other payables (18,965) (51,477)Provisions 37 (464) -------------------------------- $ (4,049) $ 6,104 -------------------------------- --------------------------------24. EXPLANATION OF TRANSITION TO IFRSFor all periods up to and including the year ended March 31, 2011, Just Energy prepared its financial statements in accordance with Canadian GAAP. These financial statements, for the three months ended June 30, 2011, are the first financial statements that Just Energy has prepared in accordance with IFRS.Accordingly, Just Energy has prepared financial statements which comply with IFRS for periods beginning on or after April 1, 2011, as described in the accounting policies set out in Note 3. In preparing these financial statements, Just Energy's opening consolidated statement of financial position was prepared as at April 1, 2010 (Just Energy's date of transition).In preparing the opening IFRS consolidated statement of financial position, Just Energy has adjusted amounts previously reported in consolidated financial statements prepared in accordance with Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS has affected Just Energy's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.(a) Elective exemptions from full retrospective applicationIn preparing these consolidated financial statements in accordance with IFRS 1, "First-time adoption of International Financial Reporting Standards" ("IFRS 1"), Just Energy has applied certain optional exemptions from full retrospective application of IFRS. The optional exemptions are described below.(i) Business combinationsJust Energy has applied the business combinations exemption in IFRS 1 to not apply IFRS 3, "Business Combinations" retrospectively. Accordingly, Just Energy has not restated business combinations that took place prior to the transition date.(ii) Share-based payment transactionsJust Energy has elected to apply IFRS 2, "Share-based Payments" to equity instruments granted on or before November 7, 2002, or which are vested by the transition date.(iii) Borrowing costsIAS 23, "Borrowing Costs", requires that Just Energy capitalize the borrowing costs related to all qualifying assets for which the commencement date for capitalization is on or after April 1, 2010. Just Energy elected not to early adopt this policy and has, therefore, expensed all borrowing costs prior to transition.(b) Mandatory exemptions to retrospective applicationIn preparing these consolidated financial statements in accordance with IFRS 1, Just Energy has applied certain mandatory exemptions from full retrospective application of IFRS. The mandatory exceptions applied from full retrospective application of IFRS are described below.(i) EstimatesHindsight was not used to create or revise estimates and accordingly, the estimates previously made by Just Energy under Canadian GAAP are consistent with their application under IFRS.(ii) Hedge accountingHedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created prospectively. Just Energy has not applied any hedge accounting at or after the transition date.Prior to July 1, 2008, Just Energy utilized hedge accounting for its customer contracts and formally documented the relationship between hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. The balance still remaining in accumulated other comprehensive income relates to the effective portion of the hedges that are still expected to occur as of the transition date.Reconciliation of Financial Position and Equity at April 1, 2010: ---------------------------------------------------------------------------- Canadian Canadian GAAP GAAP IFRS IFRS accounts balances adjustments reclassifications IFRS balance ----------------------------------------------------------------------------ASSETS Non-current assets Property, plant and equipment $ 217,223 $ (547) $ - $ 216,676 Intangible assets 342,022 - 186,832 528,854 Goodwill 190,862 (4,030) (186,832) - Other assets long-term 5,027 - - 5,027 Long-term receivables 2,014 - - 2,014 Contract initiation costs 5,587 5,587 Future income tax assets 85,197 150,771 29,139 265,107 ---------------------------------------------------------- 847,932 146,194 29,139 1,023,265 Current assets Inventory 6,323 - - 6,323 Gas in storage 4,058 - - 4,058 Gas delivered in excess of consumption 7,410 - - 7,410 Accounts receivable 232,579 - - 232,579 Accrued gas receivable 20,793 - - 20,793 Unbilled revenues 61,070 - - 61,070 Prepaid expenses and deposits 20,038 - - 20,038 Other assets - current 2,703 - - 2,703 Current portion of future income tax assets 29,139 - (29,139) - Cash 60,132 - 18,650 78,782 Restricted cash 18,650 - (18,650) - ---------------------------------------------------------- 462,895 - (29,139) 433,756 ----------------------------------------------------------TOTAL ASSETS $ 1,310,827 $ 146,194 $ - $ 1,457,021 ----------------------------------------------------------EQUITY AND LIABILITIES Unitholders' deficiency Deficit $ (1,423,698) $ (132,971) $ - $ (1,556,669) Accumulated other comprehensive income 221,969 - - 221,969 Unitholders' capital 659,118 118,738 - 777,856 Contributed surplus 18,832 (18,832) - - ----------------------------------------------------------Unitholders' deficiency (523,779) (33,065) - (556,844)Non-controlling interest 20,603 (182) - 20,421 ----------------------------------------------------------Total equity (503,176) (33,247) - (536,423)Liabilities Non-current liabilities Long-term debt 231,837 - - 231,837 Provisions - 3,270 (146) 3,124 Deferred lease inducements 1,984 - - 1,984 Other liabilities - long-term 590,572 - - 590,572 Future income taxes - - 6,776 6,776 Liability associated with exchangeable shares and equity-based compensation 181,128 181,128 ---------------------------------------------------------- 824,393 184,398 (6,630) 1,015,421Current liabilities Bank indebtedness 8,236 - - 8,236 Accounts payable and accrued liabilities 184,682 (7,460) 146 177,368 Accrued gas accounts payable 15,093 - - 15,093 Deferred revenue 7,202 - - 7,202 Unit distribution payable 13,182 - - 13,182 Corporate taxes payable 6,410 - - 6,410 Current portion of long-term debt 62,829 (1,381) - 61,448 Provisions - 3,884 - 3,884 Current portion future income tax liabilities 6,776 - (6,776) - Other liabilities - current 685,200 - - 685,200 ---------------------------------------------------------- 989,610 (4,957) (6,630) 978,023 ----------------------------------------------------------TOTAL LIABILITIES $ 1,814,003 $ 179,441 $ - $ 1,993,444 ----------------------------------------------------------TOTAL EQUITY AND LIABILITIES $ 1,310,827 $ 146,194 $ - $ 1,457,021 --------------------------------------------------------------------------------------------------------------------------------------Canadian GAAP accounts IFRS accounts ----------------------------------------------------------------------------ASSETS ASSETS Non-current assets Non-current assets Property, plant Property, plant and equipment and equipment Intangible assets Intangible assets Goodwill Other assets Other non-current financial assets long-term Long-term Non-current receivables receivables Contract Contract initiation costs initiation costs Future income tax Deferred tax asset assets Current assets Current assets Inventory Inventories Gas in storage Gas delivered in Gas delivered in excess of consumption excess of consumption Accounts Current trade and other receivables receivable Accrued gas Accrued gas receivable receivable Unbilled revenues Unbilled revenues Prepaid expenses Prepaid expenses and deposits and deposits Other assets - Other current assets current Current portion of future income tax assets Cash Cash and cash equivalents Restricted cash TOTAL ASSETS TOTAL ASSETS EQUITY AND EQUITY AND LIABILITIES LIABILITIES Unitholders' Equity attributable to equity holders of the parent deficiency Deficit Deficit Accumulated other Accumulated other comprehensive income comprehensive income Unitholders' Unitholders' capital capital Contributed Contributed surplus surplus Unitholders' Unitholders' deficiency deficiency Non-controlling Non-controlling interest interest Total equity Total equity Liabilities LIABILITIES Non-current Non-current liabilities liabilities Long-term debt Long-term debt Provisions Provisions Deferred lease Deferred lease inducements inducements Other liabilities Other non-current financial liabilities - long-term Future income Deferred tax liability taxes Liability Liability associated with exchangeable shares and equity- associated with based compensation exchangeable shares and equity-based compensation Current Current liabilities liabilities Bank indebtedness Bank indebtedness Accounts payable Trade and other payables and accrued liabilities Accrued gas Accrued gas accounts payable accounts payable Deferred revenue Deferred revenue Unit distribution Unit distribution payable payable Corporate taxes Income taxes payable payable Current portion Current portion of long-term debt of long-term debt Provisions Provisions Current portion future income tax liabilities Other liabilities Other current financial liabilities - current TOTAL LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND TOTAL EQUITY & LIABILITIES LIABILITIES Reconciliation of Consolidated Income Statement for the three months ended June 30, 2010 ----------------------------------------------------------------------------Canadian GAAP Canadian IFRS IFRS accounts GAAP Adjustment Reclassifications IFRS ----------------------------------------------------------------------------SALES $ 609,684 $ - $ - $ 609,684 COST OF SALES 529,187 142 - 529,329 -----------------------------------------------------------GROSS MARGIN 80,497 (142) - 80,355 EXPENSES General and administrative 29,272 (431) - 28,841 Marketing expenses 29,758 - - 29,758 Other operating expenses - 1,099 36,984 38,083 Bad debt expense 5,749 - (5,749) - Amortization of intangible assets and related supply contracts 27,172 - (27,172) - Amortization of property, plant and equipment 1,920 - (1,920) - Unit-based compensation 1,075 935 (2,010) - Capital tax 133 - (133) - ----------------------------------------------------------- $ 95,079 $ 1,603 $ - $ 96,682 -----------------------------------------------------------Income (loss) before the undernoted (14,582) (1,745) - (16,327)Interest expense 9,480 3,275 - 12,755 Change in fair value of derivative instruments (314,376) (21,171) - (335,547)Other income (1,782) - - (1,782) -----------------------------------------------------------Income before income tax 292,096 16,151 - 308,247 Provision for income tax expense 19,360 18,098 - 37,458 -----------------------------------------------------------NET INCOME (LOSS) FOR THE PERIOD $ 272,736 $ (1,947) - $ 270,789 -----------------------------------------------------------Attributable to: Unitholders of Just Energy $ 275,309 $ (1,900) - $ 273,409 Non-controlling interests (2,573) (47) - (2,620) -----------------------------------------------------------NET INCOME (LOSS) FOR THE PERIOD $ 272,736 $ (1,947) $ - $ 270,789 --------------------------------------------------------------------------------------------------------------------------------------Canadian GAAP accounts IFRS accounts ---------------------------------------------------------------------------SALES SALES COST OF SALES COST OF SALES GROSS MARGIN GROSS MARGIN EXPENSES EXPENSES General and administrative Administrative expenses Marketing expenses Selling and marketing expenses Other operating expenses Other operating expenses Bad debt expense Amortization of intangible assets and related supply contracts Amortization of property, plant and equipment Unit-based compensation Capital tax Income (loss) before the undernoted Operating profit Interest expense Finance costs Change in fair value of derivative instruments Change in fair value of derivative instruments Other income Other income Income before income tax Income before income tax Provision for income tax expense Provision for income tax expense NET INCOME (LOSS) FOR THE PERIOD PROFIT FOR THE PERIOD Attributable to: Attributable to: Unitholders of Just Energy Unitholders of Just Energy Non-controlling interests Non-controlling interests NET INCOME (LOSS) FOR THE PERIOD PROFIT FOR THE PERIOD Reconciliation of Consolidated Statement of Comprehensive Income for the three months ended June 30, 2010: ----------------------------------------------------------------------------Canadian GAAP Canadian IFRS IFRS accounts GAAP Adjustment Reclassifications IFRS ----------------------------------------------------------------------------NET INCOME $ 272,736 $ (1,947) $ - $ 270,789 Unrealized gain on translation of self-sustaining operations 14,876 5 - 14,881 Amortization of deferred unrealized gain on discontinued hedges - net of income taxes of $5,850 (28,723) - - (28,723) ----------------------------------------------------------OTHER COMPREHENSIVE LOSS (13,847) 5 - (13,842) ----------------------------------------------------------COMPREHENSIVE INCOME $ 258,889 $ (1,942) $ - $ 256,947 ----------------------------------------------------------Attributable to: Unitholders of Just Energy $ 261,462 $ (1,895) $ - $ 259,567 Non-controlling interests (2,573) (47) (2,620) ---------------------------------------------------------- $ 258,889 $ (1,942) $ - $ 256,947 --------------------------------------------------------------------------------------------------------------------------------------Canadian GAAP accounts IFRS accounts ----------------------------------------------------------------------------NET INCOME NET INCOME Unrealized gain on translation of self-sustaining Unrealized gain on translation of self-sustaining operations operations Amortization of deferred unrealized gain on discontinued hedges - net of income taxes of Amortization of deferred unrealized gain on discontinued $5,850 hedges - net of income taxes of $5,850 OTHER COMPREHENSIVE LOSS OTHER COMPREHENSIVE LOSS COMPREHENSIVE INCOME OTHER COMPREHENSIVE INCOME Attributable to: Attributable to: Unitholders of Just Energy Unitholders of Just Energy Non-controlling interests Non-controlling interests Reconciliation of Financial Position and Equity at June 30, 2010: ---------------------------------------------------------------------------- Canadian Canadian GAAP GAAP IFRS IFRS accounts balances adjustments reclassifications IFRS balance ----------------------------------------------------------------------------ASSETS Non-current assets Property, plant and equipment $ 226,593 $ (688) $ (991) $ 224,914 Intangible assets 644,562 - 231,574 876,136 Goodwill 235,740 (5,157) (230,583) - Other assets long-term 4,674 - - 4,674 Contract initiation costs 28,330 - - 28,330 Long-term receivable 3,898 - - 3,898 Future income tax assets 88,484 131,913 14,940 235,337 ---------------------------------------------------------- 1,232,281 126,068 14,940 1,373,289 Current assets Inventory 4,636 - - 4,636 Gas in storage 38,386 - - 38,386 Gas delivered in excess of consumption 21,325 - - 21,325 Accounts receivable 312,900 - - 312,900 Unbilled revenues 20,978 - - 20,978 Prepaid expenses and deposits 24,543 - - 24,543 Other assets - current 1,637 - - 1,637 Current portion of future income tax assets 14,940 - (14,940) - Cash 94,428 - 14,530 108,958 Restricted cash 14,530 - (14,530) - ---------------------------------------------------------- 548,303 - (14,940) 533,363 ----------------------------------------------------------TOTAL ASSETS $ 1,780,584 $ 126,068 $ - $ 1,906,652 ----------------------------------------------------------EQUITY AND LIABILITIES Unitholders' deficiency Deficit $ (1,190,128) $ (132,591) $ - $ (1,322,719) Accumulated other comprehensive income 208,122 5 - 208,127 Unitholders' capital 664,717 124,641 - 789,358 Equity component 33,914 (15,728) - 18,186 Contributed surplus 19,933 (19,933) - - ---------------------------------------------------------- (263,442) (43,606) - (307,048)Non-controlling interest 18,030 (229) - 17,801 ----------------------------------------------------------Total equity $ (245,412) $ (43,835) $ - $ (289,247) ----------------------------------------------------------Liabilities Non-current liabilities Long-term debt $ 496,478 $ - $ - $ 496,478 Future income taxes - 15,506 9,513 25,019 Deferred lease inducements 1,898 - - 1,898 Other liabilities - long-term 496,292 - - 496,292 Provisions - 8,492 (5,151) 3,341 Liability associated with exchangeable shares and equity-based compensation - 156,090 - 156,090 ---------------------------------------------------------- 994,668 180,088 4,362 1,179,118 Current liabilities Bank indebtedness 7,853 - - 7,853 Accounts payable and accrued liabilities 308,412 (9,196) - 299,216 Accrued gas accounts payable 1,414 - - 1,414 Deferred revenue 25,202 - - 25,202 Unit distribution payable 13,235 - - 13,235 Corporate taxes payable 2,838 - - 2,838 Current portion of long-term debt 65,108 (989) - 64,119 Provisions - 5,151 - 5,151 Current portion future income tax liabilities 9,513 - (9,513) - Other liabilities - current 597,753 - - 597,753 ---------------------------------------------------------- 1,031,328 (5,034) (9,513) 1,016,781 ----------------------------------------------------------TOTAL LIABILITIES $ 2,025,996 $ 175,054 $ (5,151) $ 2,195,899 ----------------------------------------------------------TOTAL EQUITY AND LIABILITIES $ 1,780,584 $ 131,219 $ (5,151) $ 1,906,652 --------------------------------------------------------------------------------------------------------------------------------------Canadian GAAP accounts IFRS accounts ----------------------------------------------------------------------------ASSETS ASSETS Non-current assets Non-current assets Property, plant and equipment Property, plant and equipment Intangible assets Intangible assets Goodwill Other assets long-term Other non-current financial assets Contract initiation costs Contract initiation costs Long-term receivable Non-current receivables Future income tax assets Deferred tax asset Current assets Current assets Inventory Inventories Gas in storage Gas delivered in excess of consumption Gas delivered in excess of consumption Accounts receivable Current trade and other receivables Unbilled revenues Unbilled revenues Prepaid expenses and deposits Prepaid expenses and deposits Other assets - current Other current assets Current portion of future income tax assets Cash Cash and cash equivalents Restricted cash TOTAL ASSETS TOTAL ASSETS EQUITY AND LIABILITIES EQUITY AND LIABILITIES Unitholders' deficiency Equity attributable to equity holders of the parent Deficit Deficit Accumulated other comprehensive income Accumulated other comprehensive income Unitholders' capital Unitholders' capital Equity component Contributed surplus Contributed surplus Non-controlling interest Non-controlling interest Total equity Total equity Liabilities LIABILITIES Non-current liabilities Non-current liabilities Long-term debt Long-term debt Future income taxes Provisions Deferred lease inducements Deferred lease inducements Other liabilities - long-term Other non-current financial liabilities Provisions Deferred tax liability Liability associated with exchangeable shares and equity-based Liability associated with exchangeable shares and equity- compensation based compensation Current liabilities Current liabilities Bank indebtedness Bank indebtedness Accounts payable and accrued liabilities Trade and other payables Accrued gas accounts payable Accrued gas accounts payable Deferred revenue Deferred revenue Unit distribution payable Unit distribution payable Corporate taxes payable Income taxes payable Current portion of long-term debt Current portion of long-term debt Provisions Provisions Current portion future income tax liabilities Other liabilities - current Other current financial liabilities TOTAL LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES TOTAL EQUITY AND LIABILITIES Reconciliation of Consolidated Income Statement for the year ended March 31,2011: Canadian GAAP Canadian IFRS IFRS accounts GAAP Adjustment Reclassifications IFRS SALES $ 2,953,192 $ - $ - $ 2,953,192 COST OF SALES 2,470,989 641 - 2,471,630 ----------------------------------------------------------GROSS MARGIN 482,203 (641) - 481,562 EXPENSES General and administrative 109,407 (7) - 109,400 Marketing expenses 133,607 - - 133,607 Other operating expenses - 1,284 164,291 165,575 Bad debt expense 27,650 - (27,650) - Amortization of intangible assets and related supply contracts 120,841 - (120,841) - Amortization of property, plant and equipment 5,698 - (5,698) - Unit-based compensation 5,509 4,405 (9,914) - Capital tax 188 (188) - ---------------------------------------------------------- 402,900 5,682 - 408,582 ----------------------------------------------------------Income (loss) before the undernoted 79,303 (6,323) - 72,980 Interest expense 50,437 9,446 - 59,883 Change in fair value of derivative instruments (509,401) 3,354 - (506,047)Other income (7,235) - - (7,235) ----------------------------------------------------------Income before income tax 545,502 (19,123) - 526,379 Provision for income tax expense 32,142 141,297 - 173,439 ----------------------------------------------------------NET INCOME FOR THE PERIOD $ 513,360 $ (160,420) $ - $ 352,940 ----------------------------------------------------------Attributable to: Shareholders of Just Energy $ 515,347 $ (160,271) $ - $ 355,076 Non-controlling interests (1,987) (149) - (2,136) ---------------------------------------------------------- $ 513,360 $ (160,420) $ - $ 352,940 Canadian GAAP accounts IFRS accounts SALES SALES COST OF SALES COST OF SALES GROSS MARGIN GROSS MARGIN EXPENSES EXPENSES General and administrative Administrative expenses Marketing expenses Selling and marketing expenses Other operating expenses Other operating expenses Bad debt expense Bad debt expense Amortization of intangible assets and related Amortization of intangible assets and related supply supply contracts contracts Amortization of property, plant and equipment Amortization of property, plant and equipment Unit-based compensation Unit-based compensation Capital tax Capital tax Income (loss) before the undernoted Operating profit Interest expense Finance costs Change in fair value of derivative instruments Change in fair value of derivative instruments Other income Other income Income before income tax Income before income tax Provision for income tax expense Provision for income tax expense NET INCOME FOR THE PERIOD PROFIT FOR THE PERIOD Attributable to: Attributable to: Shareholders of Just Energy Shareholders of Just Energy Non-controlling interests Non-controlling interests Reconciliation of consolidated statement of comprehensive income for the year ended March 31, 2011: Canadian IFRS IFRS GAAP Adjustment Reclassifications IFRS NET INCOME $ 513,360 $ (160,420) $ - $ 352,940 Unrealized gain on translation of self-sustaining operations 334 115 - 449 Amortization of deferred unrealized gain on discontinued hedges - net of income taxes of $21,384 (98,499) - - (98,499) ---------------------------------------------------------OTHER COMPREHENSIVE LOSS (98,165) 115 - (98,050) ---------------------------------------------------------COMPREHENSIVE INCOME $ 415,195 $ (160,305) $ - $ 254,890 ---------------------------------------------------------Attributable to: Shareholders of Just Energy $ 417,182 $ (160,156) $ - $ 257,026 Non-controlling interests (1,987) (149) - (2,136) --------------------------------------------------------- $ 415,195 $ (160,305) $ - $ 254,890 NET INCOME NET INCOME Unrealized gain on Unrealized gain on translation of self-sustaining translation of operations self-sustaining operations Amortization of Amortization of deferred unrealized gain on discontinued deferred hedges - net of income taxes of $21,384 unrealized gain on discontinued hedges - net of income taxes of $21,384 OTHER COMPREHENSIVE OTHER COMPREHENSIVE LOSS LOSS COMPREHENSIVE OTHER COMPREHENSIVE INCOME INCOME Attributable to: Attributable to: Shareholders of Shareholders of Just Energy Just Energy Non-controlling Non-controlling interests interests Reconciliation of Financial Position and Equity at March 31, 2011: ---------------------------------------------------------------------------- Canadian Canadian GAAP GAAP IFRS IFRS accounts balances adjustments reclassifications IFRS balance ----------------------------------------------------------------------------ASSETS Non-current assets Property, plant and equipment $ 235,189 $ (1,187) $ - $ 234,002 Intangible assets 412,752 - 227,467 640,219 Goodwill 224,409 3,058 (227,467) - Other assets long- term 5,384 - - 5,384 Contract initiation costs 29,654 - - 29,654 Long-term receivable 4,569 - - 4,569 Future income tax assets 85,899 (489) 36,375 121,785 --------------------------------------------------------- 997,856 1,382 36,375 1,035,613 Current assets Inventory 6,906 - - 6,906 Gas in storage 6,133 - - 6,133 Gas delivered in excess of consumption 3,481 - - 3,481 Accounts receivable 281,685 - - 281,685 Unbilled revenues 112,147 - - 112,147 Accrued gas receivable 26,535 26,535 Prepaid expenses and deposits 6,079 - - 6,079 Other assets - current 3,846 - - 3,846 Corporate tax recoverable 9,135 - 9,135 Current portion of future income tax assets 36,375 - (36,375) - Cash 97,633 - 833 98,466 Restricted cash 833 - (833) - --------------------------------------------------------- 590,788 - (36,375) 554,413 ---------------------------------------------------------TOTAL ASSETS $ 1,588,644 $ 1,382 $ - $ 1,590,026 ---------------------------------------------------------EQUITY AND LIABILITIES Shareholders' deficiency Deficit $ (1,063,179) $ (286,749) $ - $(1,349,928) Accumulated other comprehensive income 123,804 115 - 123,919 Shareholders' capital 697,052 266,930 - 963,982 Equity component of convertible debt 33,914 (15,728) - 18,186 Contributed surplus 22,903 29,820 - 52,723 ---------------------------------------------------------Total equity $ (185,506) $ (5,612) $ - $ (191,118) ---------------------------------------------------------Liabilities Non-current liabilities Long-term debt $ 507,460 $ - $ - $ 507,460 Future income taxes 2,657 7,046 13,216 22,919 Deferred lease inducements 1,622 - - 1,622 Other liabilities - long-term 355,412 - - 355,412 Provisions - 3,244 - 3,244 --------------------------------------------------------- 867,151 10,290 13,216 890,657Current liabilities Bank indebtedness 2,314 - - 2,314 Accounts payable and accrued liabilities 282,805 (7,302) - 275,503 Accrued gas accounts payable 19,353 - - 19,353 Corporate taxes payable 9,788 - - 9,788 Current portion of long-term debt 94,117 - - 147,117 Provisions 4,006 - 4,006 Current portion future income tax liabilities 13,216 - (13,216) - Other liabilities - current 485,406 - - 485,406 --------------------------------------------------------- 906,999 (3,296) (13,216) 890,487 ---------------------------------------------------------TOTAL LIABILITIES $ 1,774,150 $ 6,994 $ - $ 1,781,144 ---------------------------------------------------------TOTAL EQUITY AND LIABILITIES $ 1,588,644 $ 1,382 $ - $ 1,590,026 -------------------------------------------------------------------------------------------------------------------------------------Canadian GAAP IFRS accounts accounts ----------------------------------------------------------------------------ASSETS ASSETS Non-current assets Non-current assets Property, plant Property, plant and equipment and equipment Intangible assets Intangible assets Goodwill Other assets long- Other non-current financial assets term Contract Contract initiation costs initiation costs Long-term Non-current receivables receivable Future income tax Deferred tax asset assets Current assets Current assets Inventory Inventories Gas in storage Gas in storage Gas delivered in Gas delivered in excess of consumption excess of consumption Accounts Current trade and other receivables receivable Unbilled revenues Unbilled revenues Accrued gas Accrued gas receivable receivable Prepaid expenses Prepaid expenses and deposits and deposits Other assets - Other current assets current Corporate tax Corporate tax recoverable recoverable Current portion of future income tax assets Cash Cash and cash equivalents Restricted cash TOTAL ASSETS TOTAL ASSETS EQUITY AND EQUITY AND LIABILITIES LIABILITIES Shareholders' Equity attributable to equity holders of the parent deficiency Deficit Deficit Accumulated other Accumulated other comprehensive income comprehensive income Shareholders' Shareholders' capital capital Equity component of Equity component of convertible debt convertible debt Contributed surplus Contributed surplus Total equity Total equity Liabilities LIABILITIES Non-current Non-current liabilities liabilities Long-term debt Long-term debt Future income Provisions taxes Deferred lease Deferred lease inducements inducements Other liabilities Other non-current financial liabilities - long-term Provisions Provisions Current liabilities Current liabilities Bank indebtedness Bank indebtedness Accounts payable Trade and other payables and accrued liabilities Accrued gas Accrued gas accounts payable accounts payable Corporate taxes Income taxes payable payable Current portion of Current portion of long-term debt long-term debt Provisions Provisions Current portion future income tax liabilities Other liabilities Other current financial liabilities - current TOTAL LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND TOTAL EQUITY AND LIABILITIES LIABILITIES Notes to the reconciliation of equity as at June 30, 2011.A Property, plant and equipmentCanadian GAAP - Component accounting required but typically not practiced in Canada.IFRS - Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items. Management has re-assessed the significant parts of the ethanol plant which has resulted in a decrease in amortization of the ethanol plant.B Transaction costsCanadian GAAP - The cost of the purchase includes the direct costs of the business combination.IFRS - Transaction costs of the business combination are expensed as incurred.Transaction costs relating to the acquisition of Hudson have been expensed under IFRS. In addition, and in accordance with IAS 39, management has allocated transaction costs directly attributable to the credit facility which were previously included as part of a business combination, to the related long-term debt. These costs are now expensed using the effective interest rate method over the life of the related debt.C Stock-based compensation and contributed surplusCanadian GAAP - For grants of share-based awards with graded vesting, the total fair value of the award is recognized on a straight-line basis over the employment period necessary to vest the award.IFRS - Each tranche in an award; graded vesting is considered a separate grant with a different vesting date and fair value. Each grant is accounted for on that basis. As a result, Just Energy adjusted its expense for share-based awards to reflect this difference in recognition.D ProvisionsCanadian GAAP - Accounts payable, accrued liabilities and provisions are disclosed on the consolidated statement of financial position as a single line item.IFRS - Provisions are disclosed separately from liabilities and accrued liabilities and require additional disclosure. Under IFRS, provisions are also measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. This has resulted in an adjustment to Just Energy.E Deferred tax asset/liabilityCanadian GAAP - Deferred taxes are split between current and non-current components on the basis of either: (1) the underlying asset or liability or (2) the expected reversal of items not related to an asset or liability.IFRS - All deferred tax assets and liabilities are classified as non-current.F ImpairmentCanadian GAAP - A recoverability test is performed by first comparing the undiscounted expected future cash flows to be derived from the asset to its carrying amount. If the asset does not recover its carrying value, an impairment loss is calculated as the excess of the asset's carrying amount over its fair value.IFRS - The impairment loss is calculated as the excess of the asset's carrying amount over its recoverable amount, where recoverable amount is defined as the higher of the asset's fair value less costs to sell and its value-in-use. Under the value-in-use calculation, the expected future cash flows from the asset are discounted to their net present value. The change in measurement methodology did not result in additional impairment to Just Energy under IFRS.G Exchangeable shares and equity-based compensationCanadian GAAP - The Class A preference shares and exchangeable shares issued by a subsidiary of an income fund are presented on the consolidated balance sheets of the income fund as part of unitholders' capital if certain criteria were met.Just Energy had met the criteria and the Class A preference shares and exchangeable shares were recorded as part of unitholders' capital.IFRS - As a result of the Class A preference shares, exchangeable shares and equity-based compensation being exchangeable into a puttable liability, the shares and equity-based compensation did not meet the definition of an equity instrument in accordance with IAS 32 "Financial Instruments: Presentation" and accordingly, were classified as financial liabilities. The Exchangeable Shares and equity-based compensation were recorded upon transition to IFRS at redemption value and subsequent to transition were adjusted to reflect the redemption value at each reporting date. The resulting change from carrying value to redemption value was recorded at transition and at each reporting period to retained earnings and earnings respectively as a change in fair value of derivative instruments. All distributions were recorded as interest expense in the reporting period for which the dividends were declared.H Deferred taxesCanadian GAAP - There was an exemption that allowed issuers of convertible debentures to treat the difference in the convertible debentures as a permanent difference between tax and accounting. This exemption does not exist under IFRS.Under CGAAP, Just Energy's deferred tax balances were calculated using the enacted or substantively enacted tax rates that were expected to apply to the reporting period(s) when the temporary differences were expected to reverse.IFRS - The discount on the convertible debentures has been included in assessing the Company's future tax position. IAS 12 "Income Taxes" requires the application of an "undistributed tax rate" in the calculation of deferred taxes, whereby deferred tax balances are measured at the tax rate applicable to Just Energy's undistributed profits during the periods when Just Energy was an income trust.Deferred taxes have been recalculated on the revised accounting values for the adjustments A - G.I Acquisition of minority interestCanadian GAAP - The gain on the acquisition of minority interest which occurred on January 1, 2011, was treated as a reduction to goodwill on the original acquisition.IFRS - The gain was reallocated to contributed surplus as this is considered an equity transaction under IFRS.J Cash flow statementsCash flow statements prepared under IAS 7 "Statement of Cash Flows" present cash flows in the same manner as under previous GAAP. Other than the adjustments noted above, reclassifications between net earnings and the adjustments to compute cash flows from operating activities there were no material changes to the statement of cash flows.FOR FURTHER INFORMATION PLEASE CONTACT: Ms. Rebecca MacDonaldJust Energy Group Inc.Executive Chair(416) 367-2872ORMr. Ken Hartwick, C.A.Just Energy Group Inc.Chief Executive Officer & President(905) 795-3557ORMs. Beth Summers, C.A.Just Energy Group Inc.Chief Financial Officer(905) 795-4206www.justenergygroup.comThe Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.