Capital Power reports fourth quarter and year-end 2017 results
Company achieves its annual targets while delivering strong contracted cash flow growth
EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released financial results for the fourth quarter ended December 31, 2017.
Net cash flows from operating activities were $75 million in the fourth quarter of 2017 compared with $69 million in the fourth quarter of 2016. Adjusted funds from operations were $91 million in the fourth quarter of 2017, compared to $56 million in the fourth quarter of 2016.
Net loss attributable to shareholders in the fourth quarter of 2017 was $10 million, or basic loss of $0.20 per share, compared with net income attributable to shareholders of $28 million, and earnings of $0.21 per share, in the comparable period of 2016. Normalized earnings attributable to common shareholders in the fourth quarter of 2017, after adjusting for non-recurring items and fair value adjustments, were $25 million or $0.24 per share compared with $26 million or $0.27 per share in the fourth quarter of 2016.
Net cash flows from operating activities were $372 million for the year ended December 31, 2017 compared with $375 million in 2016. Adjusted funds from operations totaled $363 million in 2017 compared with $307 million in 2016.
For the year ended December 31, 2017, net income attributable to shareholders was $144 million and basic earnings per share attributable to common shareholders was $1.07 per share compared with $111 million and $0.91 per share in 2016. For the year ended December 31, 2017, normalized earnings attributable to common shareholders were $113 million, or $1.12 per share, compared with $117 million, or $1.22 per share in 2016.
“In 2017, Capital Power met or exceeded its annual operating and financial targets while significantly exceeding expectations on delivering on its strategy of increasing cash flow from contracted assets,” said Brian Vaasjo, President and CEO of Capital Power. “We had an excellent year in operations with our owned facilities achieving an availability average of 96% that exceeded our 95% target. The company generated adjusted funds from operations of $363 million that was at the mid-point of our revised annual target range of $340 to $385 million and represented an increase of 18% and 12% compared to 2016 and the original 2017 target of $305 to $345 million, respectively.”
Through acquisitions and asset development, Capital Power added nearly 1,300 megawatts of new generation that significantly increased its contracted cash flow while achieving both fuel and geographic diversification that has reduced the Company’s overall risk profile.
During the fourth quarter of 2017, the U.S. Tax Cuts and Jobs Act of 2017 was substantively enacted. Because of the reduction in the U.S. Federal corporate tax rate, U.S. deferred tax assets and liabilities were re-measured resulting in the recognition of deferred income tax expense of $31 million. The Company has analyzed the impact of the other U.S. tax law changes, including the potential impact on the Company’s U.S. renewables portfolio and growth opportunities, and the impact is not expected to be material.
“For 2018, we continue to be focused on growing contracted cash flows to support a sustainable and growing dividend to our shareholders,” added Mr. Vaasjo. “We expect to execute contracts for the output of one to three new wind developments before the end of this year in addition to the two windfarms already underway.”
Starting in 2018, with nearly 500 megawatts of peaking natural gas and wind facilities, Capital Power is well-positioned to benefit from the step change increase and higher volatility in Alberta power prices, which averaged $22 per megawatt hour (MWh) in 2017. Average forward prices for 2018 are in the mid-$50/MWh due to the decommissioning and mothballing of older coal units, higher carbon taxes, and robust demand growth. The Company now expects adjusted funds from operations for 2018 to be above the mid point of the guidance range of $360 million to $400 million.
“By mid-2018, the capacity market design for Alberta’s electricity market will be finalized, which will provide clarity on the future of the Alberta power market,” continued Mr. Vaasjo. “The recent release of Draft 1 of the Comprehensive Market Design by AESO is generally consistent with our view of a properly designed capacity market for Alberta.”
| Operational and Financial Highlights 1 (unaudited) |
Three months ended December 31 | Year ended December 31 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| (millions of dollars except per share and operational amounts) | 2017 | 2016 | 2017 | 2016 | |||||
| Electricity generation (excluding Sundance C power purchase arrangement (Sundance PPA)) (Gigawatt hours) | 4,839 | 3,793 | 17,194 | 15,328 | |||||
| Generation facility availability (excluding Sundance PPA) | 95% | 94% | 96% | 94% | |||||
| Revenues and other income | $ 261 | $ 280 | $ 1,146 | $ 1,214 | |||||
| Adjusted EBITDA 2 | $ 154 | $ 144 | $ 551 | $ 520 | |||||
| Net (loss) income | $ (13) | $ 26 | $ 134 | $ 102 | |||||
| Net (loss) income attributable to shareholders of the Company | $ (10) | $ 28 | $ 144 | $ 111 | |||||
| Basic (loss) earnings per share | $ (0.20) | $ 0.21 | $ 1.07 | $ 0.91 | |||||
| Diluted (loss) earnings per share | $ (0.20) | $ 0.21 | $ 1.07 | $ 0.91 | |||||
| Normalized earnings attributable to common shareholders 2 | $ 25 | $ 26 | $ 113 | $ 117 | |||||
| Normalized earnings per share 2 | $ 0.24 | $ 0.27 | $ 1.12 | $ 1.22 | |||||
| Net cash flows from operating activities | $ 75 | $ 69 | $ 372 | $ 375 | |||||
| Adjusted funds from operations 2, 3 | $ 91 | $ 56 | $ 363 | $ 307 | |||||
| Purchase of property, plant and equipment and other assets | $ 42 | $ 174 | $ 218 | $ 313 | |||||
| Dividends per common share, declared | $ 0.4175 | $ 0.3900 | $ 1.6150 | $ 1.5100 | |||||
1 The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the audited consolidated financial statements for the year ended December 31, 2017.
2 Earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense from its joint venture interests, and gains or losses on disposals (adjusted EBITDA), normalized earnings attributable to common shareholders, normalized earnings per share and adjusted funds from operations are non-GAAP financial measures and do not have standardized meanings under GAAP and are, therefore, unlikely to be comparable to similar measures used by other enterprises. See Non-GAAP Financial Measures.
3 Commencing with the Company’s March 31, 2017 quarter-end, the Company uses adjusted funds from operations as a measure of the Company’s ability to generate cash from its current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company’s shareholders.
Significant events
Whitla Wind
In December 2017, the first phase of the Whitla Wind project was awarded a 20-year contract by the Alberta Electric System Operator (AESO) in the first round of its Renewable Energy Program. The total Whitla Wind project is a proposed 298.8 MW wind facility in Southeast Alberta to be developed in two phases. The first 201.6MW phase of Whitla Wind (Whitla Wind) has an expected construction cost between $315 million and $325 million with an expected commercial operation date in the fourth quarter of 2019. Whitla Wind is expected to provide adjusted EBITDA of $27 million and adjusted funds from operations of $17 million in its first full year of operation. Capital Power expects to finance Whitla Wind through debt and internally generated cash flow and does not expect to raise common equity. In addition to the projected contribution, Whitla Wind also enables the deferral of cash taxes.
Impairment losses
During the three months ended September 30, 2017, the Company recognized pre-tax impairment charges of $32 million, $14 million and $37 million with respect to its Southport, Roxboro and Decatur Energy facilities. The impairment charges had no cash impact.
The impairments related to the Southport and Roxboro facilities were based on the uncertainty created by potential additional capital investment at these facilities to meet more restrictive emissions standards. These emissions standards are likely to render the Southport and Roxboro facilities uneconomic once the power purchase agreements associated with those facilities expire in 2021. The impairment related to the Southport facility removed the carrying amount of the related goodwill of $21 million and reduced the carrying amount of property, plant and equipment by $11 million. The impairment related to the Roxboro facility reduced the carrying amount of the related property, plant and equipment.
An income tax recovery of $86 million was recorded in the second quarter of 2017 related to the recognition of a deferred tax asset associated with the expected utilization of tax loss carryforwards, which was primarily realizable as a result of the acquisition of Decatur Energy. The goodwill impairment related to the Decatur Energy facility partially offsets this income tax recovery, as the goodwill associated with the Decatur Energy facility was primarily attributable to the ability to use these tax losses.
$450 million medium-term note issue
On September 18, 2017, the Company issued $450 million of unsecured medium-term notes due in 2024 with interest payable semi-annually at 4.284% commencing on March 18, 2018. The net proceeds of the offering were used to repay amounts owing under the Company’s credit facilities and for general corporate purposes.
Completion of contract for output of New Frontier Wind
On August 30, 2017, Capital Power announced that the construction of New Frontier Wind will proceed immediately. New Frontier Wind is a 99 MW facility to be constructed in McHenry County, North Dakota, and is anticipated to cost $182 million (US$145 million). The Company has selected a turbine supplier and commercial operation of the facility is expected in December of 2018. Capital Power will operate New Frontier Wind under a 12-year fixed price contract with Morgan Stanley Capital Group Inc. covering 87% of the facility’s output. Under the contract, Capital Power will swap the market revenue of the facility’s generation for a fixed price payment over a 12-year term. The agreement will secure long-term predictable revenues, allowing New Frontier Wind to secure renewable energy tax equity financing and provide Capital Power the opportunity to complete its second wind development project in the growing U.S. renewables market.
Preferred share offering
On August 9, 2017, the Company issued 6 million Cumulative Minimum Rate Reset Preference Shares, Series 9 (Series 9 Shares) priced at $25.00 per share for gross proceeds of $150 million less issue costs of $4 million on a bought deal basis with a syndicate of underwriters. The preferred shares will pay fixed cumulative dividends of $1.4375 per share per annum, yielding 5.75% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the Board of Directors of Capital Power, for the initial period ending September 30, 2022. The dividend rate will be reset on September 30, 2022 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 4.12%, provided that in any event such rate shall not be less than 5.75%. The Series 9 Shares are redeemable by Capital Power, at its option, on September 30, 2022 and every five years thereafter at a value of $25.00 per share.
Holders of the Series 9 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 10 (Series 10 Shares), subject to certain conditions, on September 30, 2022 and every five years thereafter. Holders of the Series 10 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.12%, as and when declared by the Board of Directors of Capital Power. The Series 10 Shares would be redeemable by Capital Power, at its option, on September 30, 2027 and September 30 of every fifth year thereafter at a value of $25.00 per share. The Series 10 shares would also be redeemable by Capital Power, at its option, on any date after September 30, 2022, excluding September 30 of every fifth year, at a value of $25.50 per share.
Dividend increase
On July 25, 2017, the Company’s Board of Directors approved an increase of 7.1% in the annual dividend for holders of its common shares, from $1.56 per common share to $1.67 per common share. This increased common dividend commenced with the third quarter 2017 quarterly dividend payment on October 31, 2017 to shareholders of record at the close of business on September 29, 2017.
Acquisition of Decatur Energy and $183 million public offering
On April 12, 2017, the Company announced that it entered into an agreement to acquire all of the ownership interests in Decatur Power Holdings, LLC, which owns the Decatur Energy Center (Decatur Energy) from an affiliate of LS Power Equity Partners III. On June 13, 2017, the Company completed the acquisition of Decatur Energy for $603 million (US$448 million), including working capital and other closing adjustments of $9 million (US$7 million). Decatur Energy is a 795 MW natural gas-fired combined cycle power generation facility located in Decatur, Alabama that operates under a tolling agreement.
Decatur Energy sells capacity and energy to a regional entity under a long-term contract which has an original term of 10 years and expires December 31, 2022. Decatur Energy is well-positioned, given anticipated market conditions, as well as significant remaining useful life, to be re-contracted or to pursue other commercial alternatives at the end of the current long-term contract, including the ability to sell power into the Pennsylvania, New Jersey, and Maryland interconnection market starting in 2023.
Financing of the Decatur Energy acquisition consisted of a combination of debt and equity. On April 24, 2017, the Company announced the completion of its previously announced public offering of 7,375,000 subscription receipts (Subscription Receipts), on a bought deal basis, at an issue price of $24.75 per Subscription Receipt, for total gross proceeds of $183 million less issue costs of $7 million. On June 13, 2017, upon closing of the Decatur Energy acquisition, each Subscription Receipt was converted to one common share of the Company. No dividend record date occurred during the period when the Subscription Receipts were outstanding and as such, no obligations to make any cash dividend equivalent payments were triggered.
The balance of the purchase price was financed through debt utilizing a temporary expansion of Capital Power’s credit facilities which was followed by permanent financing with the issuance of the medium-term note disclosed above.
The Decatur Energy acquisition supports the Company’s growth strategy and increases the Company’s geographical diversification and contracted cash flows. During the first full year of operations, the Decatur Energy acquisition is expected to increase adjusted funds from operations by $43 million and increase adjusted EBITDA by $60 million.
Bloom Wind begins commercial operation
On June 1, 2017, the Company’s 178 MW Bloom Wind facility commenced commercial operations. On June 12, 2017, the Company received $244 million (US$181 million) in financing from an affiliate of Goldman Sachs (Project Investor) in exchange for Class A interests of a subsidiary of the Company. The Company incurred issue costs of $7 million (US$5 million) associated with the financing. Effective July 1, 2017, Bloom Wind operates under a 10-year proxy revenue swap agreement with Allianz Risk Transfer, a subsidiary of Allianz SE. Under the contract, which was executed on April 21, 2016, Capital Power swaps the market revenue of the project’s generation for a fixed annual payment for a 10-year term. The agreement secures long-term predictable revenues and mitigates generation volume uncertainty.
Acquisition of thermal facilities
On February 21, 2017, the Company announced that it entered into an agreement to acquire the thermal power business of Veresen Inc. Under the terms of the agreement, Capital Power acquired 284 MW of generation from two natural gas-fired power assets in Ontario consisting of the 84 MW East Windsor Cogeneration Centre (East Windsor) and a 50% interest in the 400 MW York Energy Centre (York Energy), and operates both facilities. The transaction also includes 10 MW of zero-emissions waste heat generation from two facilities (5 MW each), together known as EnPower Green Energy Generation (EnPower), located at Westcoast Energy’s BC Gas Pipeline compressor stations in Savona and 150 Mile House, British Columbia.
On April 13, 2017, the Company announced that it had completed the acquisition of the two natural gas-fired power facilities in Ontario. The purchase price for the natural gas-fired facilities consisted of (i) $235 million in total cash consideration, including working capital and other closing adjustments of $12 million, and (ii) the assumption of $254 million of project level debt (proportionate basis at acquisition date net book value).
On June 1, 2017, the Company completed the acquisition of EnPower. The purchase price consisted of (i) $8 million of total cash consideration, including working capital and other closing adjustments of $3 million, and (ii) the assumption of $18 million of project level debt.
The acquisitions of these facilities support the Company’s growth strategy and are consistent with the Company’s technology and operating focus. During the first full year of operations, these acquisitions are expected to increase adjusted funds from operations by $24 million and increase adjusted EBITDA by $55 million.
Appointments to the Board of Directors
Effective April 3, 2017, Keith Trent and Katharine Stevenson were appointed to the Capital Power Board of Directors.
Amendment of Genesee Coal Mine Joint Venture Agreement
On March 28, 2017, the Company announced that it entered into an agreement (the Amending Agreement) to amend its Genesee Mine Joint Venture Agreement with Prairie Mines & Royalty ULC (PMRU), a subsidiary of Westmoreland Coal Company, to accelerate the repayment of amounts it would otherwise have owed to PMRU during the term of the agreement and eliminate all future payments to PMRU relating to existing capital assets at the Genesee Coal Mine (Coal Mine). Capital Power will continue to pay PMRU contracted mining fees for PMRU’s ongoing operation of the Coal Mine.
By accelerating the $70 million repayment of capital expenditures to PMRU, the transaction will reduce Capital Power’s cost of coal for the Genesee facility, and enhance the Company’s net income, adjusted EBITDA, net cash flows from operating activities and adjusted funds from operations. These cost reductions were anticipated to take place and have been included in the adjusted funds from operations guidance that was provided as part of the Company’s year-end disclosure on February 17, 2017. As a result of the transaction, net cash flows from operating activities increased by $14 million for 2017. The operations and management of the Coal Mine are unchanged as a result of the Amending Agreement and the Company will continue to control the Coal Mine and treat it as a subsidiary.
Coal for the Genesee facility is supplied by the adjacent Coal Mine under a long-term, cost of service supply agreement. Prior to the Amending Agreement, Capital Power paid PMRU a fee to cover PMRU’s depreciation expense and certain other costs, as well as provide a variable rate of return to PMRU. These fees paid to PMRU were included as part of Capital Power’s cost of coal for operating the Genesee facility, and will be eliminated with the Amending Agreement.
Subsequent Event
Approval of normal course issuer bid
Subsequent to the end of 2017, the Toronto Stock Exchange has approved Capital Power’s normal course issuer bid to purchase and cancel up to 9.3 million of its outstanding common shares during the one-year period from February 21, 2018 to February 20, 2019.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on February 16, 2018 at 9:00 am (MT) to discuss its fourth quarter operating and financial results. The conference call dial-in numbers are:
(604) 638-5340 (Vancouver)
(403) 351-0324 (Calgary)
(416) 915-3239 (Toronto)
(514) 375-0364 (Montreal)
(800) 319-4610 (toll-free from Canada and USA)
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conclusion of the analyst conference call.
Non-GAAP financial measures
The Company uses (i) adjusted EBITDA, (ii) adjusted funds from operations, (iii) normalized earnings attributable to common shareholders, and (iv) normalized earnings per share as financial performance measures. These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP, and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net income attributable to shareholders of the Company, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective. Reconciliations of adjusted EBITDA to net income (loss), adjusted funds from operations to net cash flows from operating activities and normalized earnings attributable to common shareholders to net income (loss) attributable to shareholders of the Company are disclosed below and are discussed further in the Company’s Management’s Discussion and Analysis, prepared as of February 15, 2018, for the year ended December 31, 2017 which is available under the Company’s profile on SEDAR at www.SEDAR.com.
Adjusted EBITDA
Capital Power uses adjusted EBITDA to measure the operating performance of facilities and categories of facilities from period to period. Management believes that a measure of facility operating performance is more meaningful if results not related to facility operations such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure.
A reconciliation of adjusted EBITDA to net income is as follows:
| (unaudited, $ millions) | Year ended December 31 | Three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | Dec 2017 | Sep 2017 | Jun 2017 | Mar 2017 | Dec 2016 | Sep 2016 | Jun 2016 | Mar 2016 | |
| Revenues and other income | 1,146 | 1,214 | 261 | 346 | 201 | 338 | 280 | 374 | 226 | 334 |
| Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense | (650) | (732) | (125) | (198) | (119) | (208) | (148) | (232) | (127) | (225) |
| Adjusted EBITDA from joint ventures 1 | 55 | 38 | 18 | 10 | 14 | 13 | 12 | 6 | 9 | 11 |
| Adjusted EBITDA | 551 | 520 | 154 | 158 | 96 | 143 | 144 | 148 | 108 | 120 |
| Depreciation and amortization | (271) | (216) | (72) | (74) | (65) | (60) | (53) | (53) | (54) | (56) |
| Impairments | (83) | (6) | – | (83) | – | – | – | (6) | – | – |
| Losses on termination of power purchase arrangement | - | (73) | – | – | – | – | (20) | – | – | (53) |
| Foreign exchange gain (loss) | 28 | 6 | (4) | 21 | 9 | 2 | (4) | 3 | (1) | 8 |
| Net finance expense | (108) | (86) | (32) | (31) | (25) | (20) | (24) | (21) | (19) | (22) |
| Finance expense from joint ventures1 | (24) | (13) | (13) | (6) | (2) | (3) | (3) | (3) | (4) | (3) |
| Income tax recovery (expense) | 41 | (30) | (46) | 8 | 94 | (15) | (14) | (4) | (10) | (2) |
| Net income (loss) | 134 | 102 | (13) | (7) | 107 | 47 | 26 | 64 | 20 | 8 |
| Net income (loss) attributable to: | | | ||||||||
| Non-controlling interest | (10) | (9) | (3) | (2) | (2) | (3) | (2) | (2) | (3) | (2) |
| Shareholders of the Company | 144 | 111 | (10) | (5) | 109 | 50 | 28 | 66 | 23 | (6) |
| Net income (loss) | 134 | 102 | (13) | (7) | 107 | 47 | 26 | 64 | 20 | (8) |
1 Total income from joint ventures as per the Company’s consolidated statements of income.
Adjusted funds from operations
Adjusted funds from operations represents net cash flows from operating activities adjusted to include net finance expenses and current income tax expenses and exclude changes in operating working capital and distributions received from the Company’s joint venture interests. Net finance expenses and current income tax expenses are included as the timing of cash receipts and payments of interest and income taxes and the resulting cash basis amounts are not comparable from period to period. Changes in operating working capital are excluded from adjusted funds from operations as the timing of cash receipts and payments also affects the period-to-period comparability. Distributions received from the Company’s joint venture interests are excluded as the distribution is calculated after the effect of joint venture debt payments, which are not considered an operating activity. Adjusted funds from operations also exclude the impact of fair value changes in certain unsettled derivative financial instruments that are charged or credited to the Company’s bank margin account held with a specific exchange counterparty. The Company includes interest and current income tax expenses excluding Part VI.1 tax recorded during the period rather than interest and income taxes paid. Adjusted funds from operations is reduced by sustaining capital expenditures and preferred share dividends and adjusted to include the Company’s share of the adjusted funds from operations of its joint venture interests and cash from coal compensation that will be received annually.
A reconciliation of net cash flows from operating activities to adjusted funds from operations is as follows:
| (unaudited, $ millions) | Year ended December 31 | Three months ended December 31 | ||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Net cash flows from operating activities per consolidated statements of cash flows | 372 | 375 | 75 | 69 |
| Add (deduct) items included in calculation of net cash flows from operating activities per consolidated statements of cash flows: | ||||
| Interest paid | 81 | 73 | 26 | 19 |
| Change in fair value of derivatives reflected as cash settlement |
5 | 31 | (1) | 11 |
| Realized losses on the settlement of interest rate derivatives |
– | 9 | – | 10 |
| Distributions received from joint ventures | (27) | (24) | (5) | (4) |
| Miscellaneous financing charges paid 1 | 5 | 4 | 1 | 1 |
| Income taxes paid (recovered) | 2 | – | – | – |
| Change in non-cash operating working capital | 40 | (20) | 40 | (8) |
| 106 | 73 | 61 | 29 | |
| Net finance expense 2 | (104) | (85) | (31) | (27) |
| Current income tax expense | (16) | (15) | (5) | (3) |
| Decrease in current income tax expense due to Part VI.1 tax | 14 | 12 | 4 | 3 |
| Sustaining capital expenditures 3 | (64) | (55) | (17) | (17) |
| Preferred share dividends paid | (35) | (23) | (10) | (8) |
| Cash received from coal compensation4 | 50 | – | – | – |
| Adjusted funds from operations from joint ventures | 40 | 25 | 14 | 10 |
| Adjusted funds from operations | 363 | 307 | 91 | 56 |
1 Included in other cash items on the consolidated statements of cash flows.
2 Excludes unrealized changes on interest rate derivative contracts and amortization and accretion charges.
3 Includes Genesee Performance Standard expenditures and sustaining capital expenditures net of joint arrangement contributions of $9 million and $7 million for the years ended December 31, 2017 and 2016, respectively.
4 The Government of Alberta has conducted an audit on the calculation of net book values driving the compensation payments and has withheld $2 million from the 2017 payment. The Company is disputing the withholding, but has reduced the amounts recorded related to the compensation stream to reflect the uncertainty around the withheld portion of the 2017 payment. This has resulted in a reduction of $1 million to the government compensation amount recorded in other income to $51 million for 2017. The respective deferred revenue and government grant receivable amounts have likewise been adjusted and now reflect total payments over the 14-year term of $712 million.
Normalized earnings attributable to common shareholders and normalized earnings per share
The Company uses normalized earnings attributable to common shareholders and normalized earnings per share to measure performance by period on a comparable basis. Normalized earnings per share is based on earnings (loss) used in the calculation of basic earnings (loss) per share according to GAAP and adjusted for items that are not reflective of performance in the period such as unrealized fair value changes, impairment charges, unusual tax adjustments, gains and losses on disposal of assets or unusual contracts, and foreign exchange gain or loss on the revaluation of U.S. dollar denominated debt. The adjustments, shown net of tax, consist of unrealized fair value changes on financial instruments that are not necessarily indicative of future actual realized gains or losses, non-recurring gains or losses, or gains or losses reflecting corporate structure decisions.
| (unaudited, $ millions except per share amounts and number of common shares) | Year ended December 31 | Three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2017 | 2016 | Dec 2017 | Sep 2017 | Jun 2017 | Mar 2017 | Dec 2016 | Sep 2016 | Jun 2016 | Mar 2015 |
| Basic (loss) earnings per share ($) | 1.07 | 0.91 | (0.20) | (0.13) | 1.03 | 0.44 | 0.21 | 0.63 | 0.19 | (0.11) |
| Net income (loss) attributable to shareholders of the Company per consolidated statements of income | 144 | 111 | (10) | (5) | 109 | 50 | 28 | 66 | 23 | (6) |
| Preferred share dividends including Part VI.1 tax | (36) | (23) | (11) | (9) | (8) | (8) | (8) | (5) | (5) | (5) |
| Earnings (loss) attributable to common shareholders | 108 | 88 | (21) | (14) | 101 | 42 | 20 | 61 | 18 | (11) |
| Impairment losses | 53 | 4 | – | 53 | – | – | – | 4 | – | – |
| Unrealized foreign exchange (gain) loss on revaluation of U.S. dollar denominated debt | 30 | (3) | (1) | 44 | (12) | (1) | 3 | 1 | 1 | (8) |
| Realized foreign exchange gain on revaluation of U.S. dollar denominated debt | (36) | - | (1) | (35) | - | - | - | - | - | - |
| Unrealized changes in fair value of derivatives1 | (1) | (15) | 14 | (31) | 23 | (7) | (8) | (22) | 10 | 5 |
| Realized foreign exchange loss on settlement of foreign currency derivative instruments | 12 | - | – | 12 | – | – | – | – | – | – |
| Recognition of U.S. deferred tax assets related to non-capital losses | (86) | - | – | – | (86) | – | – | – | – | – |
| Loss on termination of the Sundance C power purchase arrangement | - | 61 | – | – | – | – | 15 | – | – | 46 |
| Change in unrecognized tax benefits | - | (27) | – | – | – | – | – | (27) | – | – |
| Provision for Line Loss Rule Proceeding (see Significant Events) | 7 | - | 7 | - | - | - | - | - | - | - |
| U.S. tax reform rate decrease | 31 | - | 31 | – | – | – | – | – | – | – |
| Deferred income tax (reduction) expense related to temporary difference on investment in subsidiary | - | 12 | – | – | – | – | (1) | 13 | – | – |
| Success fee received related to development project | (3) | (3) | (3) | – | – | – | (3) | – | – | – |
| Release of tax liability on foreign domiciled investment | (2) | - | (1) | – | – | (1) | – | – | – | – |
| Normalized earnings attributable to common shareholders | 113 | 117 | 25 | 29 | 26 | 33 | 26 | 30 | 29 | 32 |
| Weighted average number of common shares outstanding (millions) | 100.7 | 96.2 | 104.3 | 104.1 | 98.1 | 96.3 | 96.1 | 96.1 | 96.1 | 96.4 |
| Normalized earnings per share ($) | 1.12 | 1.22 | 0.24 | 0.28 | 0.27 | 0.34 | 0.27 | 0.31 | 0.30 | 0.33 |
1 Includes impacts of the interest rate non-hedge held by one of the Company’s joint ventures and recorded within income from joint ventures on the Company’s statements of income.
Normalized earnings per share reflects the period-over-period change in normalized earnings attributable to common shareholders, the changes from period to period in the weighted average number of common shares outstanding and the changes from period to period in net income attributable to non-controlling interest.
Forward-looking information
Forward-looking information or statements included in this press release are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Material forward-looking information in this press release includes disclosures regarding: (i) expected results in relation to the 2018 AFFO guidance range, (ii) expectations pertaining to the amendment of the Genesee Coal Mine Joint Venture Agreement regarding reduction to Capital Power’s cost of coal and expected enhancements to the Company’s net income, adjusted EBITDA, net cash flows from operating activities and adjusted funds from operations, (iii) expectations pertaining to the financial impacts of the acquisition of the Veresen thermal facilities including expected impacts to adjusted funds from operations and adjusted EBITDA, (iv) expectations pertaining to the acquisition of Decatur Energy including expected impacts to adjusted funds from operations and adjusted EBITDA, and re-contracting of the facility, (v) expectations pertaining to the construction cost and commercial operations date for New Frontier Wind and (vi) expectations pertaining to the construction cost, commercial operations date, expected impacts to adjusted EBITDA, expected impacts to adjusted funds from operations and the ability to defer cash taxes in relation to Whitla Wind.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) anticipated facility performance, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, and (v) effective tax rates.
Whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company’s expectations. Such material risks and uncertainties are: (i) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation, (iv) facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in market prices and availability of fuel, and (viii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis for the year ended December 31, 2017, prepared as of February 15, 2018, for further discussion of these and other risks.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
Click here to view the management’s discussion and analysis and consolidated financial statements (pdf)