ST. JOHN–S, NEWFOUNDLAND — (Marketwired) — 05/07/13 — Fortis Inc. (“Fortis” or the “Corporation”) (TSX: FTS) achieved first quarter net earnings attributable to common equity shareholders of $151 million, or $0.79 per common share, compared to $121 million, or $0.64 per common share, for the first quarter of 2012.
Earnings for the quarter were favourably impacted by an extraordinary gain of approximately $22 million net of tax, or $0.12 per common share, related to the settlement of all matters, including release from all debt obligations, pertaining to the Government of Newfoundland and Labrador–s December 2008 expropriation of non-regulated hydroelectric generating assets and water rights in central Newfoundland, then owned by Exploits River Hydro Partnership (“Exploits Partnership”) in which Fortis holds an indirect 51% interest.
“In addition to the settlement of expropriation matters relating to Exploits Partnership, performance for the quarter was driven by the regulated utilities in western Canada, led by FortisAlberta,” says Stan Marshall, President and Chief Executive Officer, Fortis Inc.
Canadian Regulated Electric Utilities contributed earnings of $57 million, up $6 million from the first quarter of 2012. FortisAlberta–s earnings increased $5 million, due to lower depreciation of $3 million and net transmission revenue of approximately $2 million recognized in the first quarter of 2013 associated with the finalization of 2012 transmission variances. The utility–s depreciation rates were reduced, effective January 1, 2012, as a result of the decision related to FortisAlberta–s 2012 revenue requirements, the impact of which was not recognized until the second quarter of 2012 when the decision was received. FortisBC Electric–s earnings were $2 million higher quarter over quarter, due to growth in energy infrastructure investment, timing of operating expenses, lower-than-expected finance charges and depreciation, and higher capitalized allowance for funds used during construction, partially offset by higher effective income taxes.
FortisBC Electric acquired the City of Kelowna–s (the “City–s”) electrical utility assets for approximately $55 million in March 2013, which now allows FortisBC Electric to directly serve some 15,000 customers formerly served by the City. FortisBC Electric had provided the City with electricity under a wholesale tariff and had operated and maintained the City–s electrical utility assets under contract since 2000.
Canadian Regulated Gas Utilities contributed earnings of $85 million, up $3 million from the first quarter of 2012. The increase in earnings was mainly due to growth in energy infrastructure investment and increased gas transportation volumes to industrial customers, partially offset by lower-than-expected customer additions and higher effective income taxes.
Fortis paid a dividend of 31 cents per common share on March 1, 2013, up from 30 cents for the fourth quarter of 2012. The 3.3% increase in the quarterly dividend translates into an annualized dividend of $1.24 and extends the Corporation–s record of annual common share dividend increases to 40 consecutive years, the longest record of any public corporation in Canada.
FortisAlberta received a decision from its regulator in March 2013 approving an interim increase in customer distribution rates, effective January 1, 2013, including interim approval of 60% of the revenue requirement associated with certain capital expenditures in 2013 not otherwise recovered under performance-based rates. Final decisions on the utility–s rates are expected in the second half of 2013.
In April 2013 Newfoundland Power received a cost of capital decision whereby the utility–s allowed rate of return on common shareholders– equity (“ROE”) and common equity component of capital structure will remain at 8.8% and 45%, respectively, for 2013 through 2015.
Final allowed ROEs and capital structure for 2013 remain to be determined for FortisBC and FortisAlberta. A decision associated with the first phase of a Generic Cost of Capital (“GCOC”) Proceeding in British Columbia as it affects FortisBC Energy Inc. is expected mid-2013 and the second phase of the proceeding, which will affect the other FortisBC utilities, commenced in March 2013. The process for the GCOC Proceeding in Alberta is scheduled to commence in the second quarter of 2013.
Caribbean Regulated Electric Utilities contributed $3 million of earnings, consistent with the first quarter of 2012.
Non-Regulated Fortis Generation contributed $24 million of earnings compared to $5 million for the first quarter of 2012. Excluding the $22 million after-tax extraordinary gain on the settlement of expropriation matters, as noted above, earnings decreased $3 million, mainly related to lower production in Belize due to lower rainfall.
Fortis Properties contributed earnings of less than $0.5 million for the first quarter of 2013 compared to $1 million for the first quarter of 2012. The decrease was mainly due to lower occupancy levels at the Hospitality Division–s operations in central Canada.
Corporate and other expenses were $18 million compared to $21 million for the first quarter of 2012. Corporate and other expenses for the first quarter of 2013 were reduced by $2 million related to foreign exchange, while corporate and other expenses for the same quarter last year were increased by $1.5 million associated with foreign exchange. CH Energy Group, Inc. (“CH Energy Group”) acquisition-related expenses were approximately $0.5 million after tax for the first quarter of 2013 compared to $4 million after tax for the same quarter last year. Excluding the above-noted acquisition-related expenses and foreign exchange impacts, corporate and other expenses increased $4 million quarter over quarter, mainly as a result of higher preference share dividends, partially offset by lower finance charges.
Consolidated capital expenditures, before customer contributions, were approximately $250 million for the first quarter of 2013. Construction of the $900 million, 335-megawatt Waneta Expansion hydroelectric generating facility (“Waneta Expansion”) in British Columbia continues on time and on budget, with completion of the facility expected in spring 2015. Approximately $483 million in total has been spent on the Waneta Expansion since construction began in late 2010.
The Corporation–s capital program is expected to total $1.3 billion in 2013. Over the five years 2013 through 2017, the Corporation–s capital program, including expenditures at Central Hudson Gas & Electric Corporation (“Central Hudson”), is expected to total approximately $6 billion.
Cash flow from operating activities was $280 million for the quarter compared to $328 million for the first quarter of 2012. The decrease was largely due to changes in working capital quarter over quarter.
Fortis has consolidated credit facilities of $2.4 billion, of which $2.0 billion was unused as at March 31, 2013, including $910 million available for borrowing under its corporate credit facility.
The Corporation–s debt credit ratings of A- and A(low) were affirmed by Standard & Poor–s and DBRS, respectively, in February 2013.
Fortis announced in February 2012 that it had entered into an agreement to acquire CH Energy Group, for an aggregate purchase price of approximately US$1.5 billion, including the assumption of approximately US$500 million of debt on closing. Central Hudson, the main business of CH Energy Group, serves 375,000 electric and gas customers in New York State–s Mid-Hudson River Valley. Approval of the acquisition by the New York State Public Service Commission (“PSC”) is the last significant regulatory matter required to close the transaction. A Settlement Agreement among Fortis, CH Energy Group, PSC staff, registered interveners and other parties was filed with the PSC in January 2013. A Recommended Decision issued on May 3, 2013 by administrative law judges in connection with the acquisition asserts that without modification of the terms of the Settlement Agreement, the benefits of the acquisition are outweighed by perceived detriments remaining after mitigation. The Recommended Decision is an advisory opinion that will be considered by the PSC in determining whether to approve the acquisition. While no assurance regarding a closing of the transaction can be given until an order is issued by the PSC, a final decision by the PSC and subsequent closing of the transaction is expected in June 2013. Based on the terms of the current Settlement Agreement, the acquisition is expected to be accretive to earnings per common share of Fortis within the first full year of ownership, excluding acquisition-related expenses.
“We look forward to welcoming the employees of CH Energy Group to the Fortis Group. The addition of this well-run U.S. utility and its proven track record for providing customers with quality service will further enhance the positioning of Fortis as a leader in the North American utility industry,” concludes Marshall.
FORWARD-LOOKING INFORMATION
The following Fortis Inc. (“Fortis” or the “Corporation”) Management Discussion and Analysis (“MD&A”) has been prepared in accordance with National Instrument 51-102 – Continuous Disclosure Obligations. The MD&A should be read in conjunction with the interim unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2013 and the MD&A and audited consolidated financial statements for the year ended December 31, 2012 included in the Corporation–s 2012 Annual Report. Financial information contained in the MD&A has been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and is presented in Canadian dollars unless otherwise specified.
Fortis includes forward-looking information in the Management Discussion and Analysis (“MD&A”) within the meaning of applicable securities laws in Canada (“forward-looking information”). The purpose of the forward-looking information is to provide management–s expectations regarding the Corporation–s future growth, results of operations, performance, business prospects and opportunities, and it may not be appropriate for other purposes. All forward-looking information is given pursuant to the safe harbour provisions of applicable Canadian securities legislation.
The words “anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “intends”, “may”, “might”, “plans”, “projects”, “schedule”, “should”, “will”, “would” and similar expressions are often intended to identify forward-looking information, although not all forward-looking information contains these identifying words. The forward-looking information reflects management–s current beliefs and is based on information currently available to the Corporation–s management. The forward-looking information in the MD&A includes, but is not limited to, statements regarding: the Corporation–s forecasted gross consolidated capital expenditures for 2013 and total capital spending over the five-year period 2013 through 2017, including expenditures at Central Hudson Gas & Electric Corporation; the expectation that capital investment over the above-noted five-year period will allow utility rate base and hydroelectric investment to increase at a combined compound annual growth rate of approximately 6%; the expected nature, timing and capital cost related to the construction of the Waneta Expansion hydroelectric generating facility (“Waneta Expansion”); the expectation that cash required to complete subsidiary capital expenditure programs will be sourced from a combination of cash from operations, borrowings under credit facilities, equity injections from Fortis and long-term debt offerings; the expectation that the combination of available credit facilities and relatively low annual debt maturities and repayments will provide the Corporation and its subsidiaries with flexibility in the timing of access to capital markets; the expected consolidated long-term debt maturities and repayments on average annually over the next five years; the expectation that the Corporation and its subsidiaries will remain compliant with debt covenants during 2013; the expected timing of filing of regulatory applications and of receipt of regulatory decisions; the expected timing of the closing of the acquisition of CH Energy Group, Inc. (“CH Energy Group”) by Fortis and the expectation that, based on the terms of the current Settlement Agreement, the acquisition will be accretive to earnings per common share of Fortis within the first full year of ownership, excluding acquisition-related expenses; the expectation that the Corporation–s capital expenditure program will support continuing growth in earnings and dividends; and the Corporation–s expected regulated midyear rate base in 2013 upon closing of the CH Energy Group acquisition.
The forecasts and projections that make up the forward-looking information are based on assumptions which include, but are not limited to: the receipt of applicable regulatory approvals and requested rate orders, no material adverse regulatory decisions being received and the expectation of regulatory stability; FortisAlberta continues to recover its cost of service and earn its allowed rate of return on common shareholders– equity (“ROE”) under performance-based rate-setting, which commenced for a five-year term effective January 1, 2013; the receipt of regulatory approval of the acquisition of CH Energy Group from the New York State Public Service Commission; the closing of the acquisition of CH Energy Group before the expiry of the Subscription Receipts; no significant variability in interest rates; no significant operational disruptions or environmental liability due to a catastrophic event or environmental upset caused by severe weather, other acts of nature or other major events; the continued ability to maintain the gas and electricity systems to ensure their continued performance; no severe and prolonged downturn in economic conditions; no significant decline in capital spending; no material capital project and financing cost overrun related to the construction of the Waneta Expansion; sufficient liquidity and capital resources; the expectation that the Corporation will receive appropriate compensation from the Government of Belize (“GOB”) for fair value of the Corporation–s investment in Belize Electricity that was expropriated by the GOB; the expectation that Belize Electric Company Limited will not be expropriated by the GOB; the continuation of regulator-approved mechanisms to flow through the commodity cost of natural gas and energy supply costs in customer rates; the ability to hedge exposures to fluctuations in foreign exchange rates, natural gas commodity prices and fuel prices; no significant counterparty defaults; the continued competitiveness of natural gas pricing when compared with electricity and other alternative sources of energy; the continued availability of natural gas, fuel and electricity supply;
continuation and regulatory approval of power supply and capacity purchase contracts; the ability to fund defined benefit pension plans, earn the assumed long-term rates of return on the related assets and recover net pension costs in customer rates; no significant changes in government energy plans and environmental laws that may materially negatively affect the operations and cash flows of the Corporation and its subsidiaries; no material change in public policies and directions by governments that could materially negatively affect the Corporation and its subsidiaries; maintenance of adequate insurance coverage; the ability to obtain and maintain licences and permits; retention of existing service areas; the ability to report under accounting principles generally accepted in the United States beyond 2014 or the adoption of International Financial Reporting Standards after 2014 that allows for the recognition of regulatory assets and liabilities; the continued tax-deferred treatment of earnings from the Corporation–s Caribbean operations; continued maintenance of information technology infrastructure; continued favourable relations with First Nations; favourable labour relations; and sufficient human resources to deliver service and execute the capital program.
The forward-looking information is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Risk factors which could cause results or events to differ from current expectations are detailed under the heading “Business Risk Management” in this MD&A, the Corporation–s MD&A for the year ended December 31, 2012 and in continuous disclosure materials filed from time to time with Canadian securities regulatory authorities. Key risk factors for 2013 include, but are not limited to: uncertainty of the impact a continuation of a low interest rate environment may have on the allowed ROE at each of the Corporation–s regulated utilities in western Canada; risks related to the ability to close the acquisition of CH Energy Group, the timing of such closing and the realization of the benefits of the acquisition; risk associated with the amount of compensation to be paid to Fortis for its investment in Belize Electricity that was expropriated by the GOB; and the timeliness of the receipt of compensation and the ability of the GOB to pay the compensation owing to Fortis.
All forward-looking information in the MD&A is qualified in its entirety by the above cautionary statements and, except as required by law, the Corporation undertakes no obligation to revise or update any forward-looking information as a result of new information, future events or otherwise after the date hereof.
CORPORATE OVERVIEW
Fortis is the largest investor-owned distribution utility in Canada, serving more than two million gas and electricity customers. Its regulated holdings include electric utilities in five Canadian provinces and two Caribbean countries and a natural gas utility in British Columbia, Canada. Fortis owns non-regulated generation assets, primarily hydroelectric, in Canada, Belize and Upstate New York, and hotels and commercial office and retail space in Canada. Year-to-date March 31, 2013, the Corporation–s electricity distribution systems met a combined peak demand of approximately 5,152 megawatts (“MW”) and its gas distribution system met a peak day demand of 1,113 terajoules. For additional information on the Corporation–s business segments, refer to Note 1 to the Corporation–s interim unaudited consolidated financial statements for the three months ended March 31, 2013 and to the “Corporate Overview” section of the 2012 Annual MD&A.
The Corporation–s main business, utility operations, is highly regulated and the earnings of the Corporation–s regulated utilities are primarily determined under cost of service (“COS”) regulation. Generally under COS regulation, the respective regulatory authority sets customer gas and/or electricity rates to permit a reasonable opportunity for the utility to recover, on a timely basis, estimated costs of providing service to customers, including a fair rate of return on a regulatory deemed or targeted capital structure applied to an approved regulatory asset value (“rate base”). The ability of a regulated utility to recover prudently incurred costs of providing service and earn the regulator-approved rate of return on common shareholders– equity (“ROE”) and/or rate of return on rate base assets (“ROA”) depends on the utility achieving the forecasts established in the rate-setting processes. As such, earnings of regulated utilities are generally impacted by: (i) changes in the regulator-approved allowed ROE and/or ROA; (ii) changes in rate base; (iii) changes in energy sales or gas delivery volumes; (iv) changes in the number and composition of customers; (v) variances between actual expenses incurred and forecasted expenses used to determine revenue requirements and set customer rates; and (vi) timing differences within an annual financial reporting period between when actual expenses are incurred and when they are recovered from customers in rates. When forward test years are used to establish revenue requirements and set base customer rates, these rates are not adjusted as a result of actual COS being different from that which is estimated, other than for certain prescribed costs that are eligible to be deferred on the balance sheet. In addition, the Corporation–s regulated utilities, where applicable, are permitted by their respective regulatory authority to flow through to customers, without markup, the cost of natural gas, fuel and/or purchased power through base customer rates and/or the use of rate stabilization and other mechanisms.
When performance-based rate-setting (“PBR”) mechanisms are utilized in determining annual revenue requirements and resulting customer rates, a formula is generally applied that incorporates inflation and assumed productivity improvements. The use of PBR mechanisms should allow a utility a reasonable opportunity to recover prudent COS and earn its allowed ROE.
SIGNIFICANT ITEMS
Pending Acquisition of CH Energy Group, Inc.: On May 3, 2013 a Recommended Decision was issued by administrative law judges in connection with the Settlement Agreement filed by Fortis, CH Energy Group, Inc. (“CH Energy Group”), New York State Public Service Commission (“PSC”) staff, registered interveners and other parties in January 2013 requesting approval of the acquisition of CH Energy by Fortis. For further information on the pending acquisition and Recommended Decision, refer to the “Business Risk Management” section of this MD&A.
Settlement of Expropriation Matters – Exploits River Hydro Partnership: Effective March 2013 the Corporation and the Government of Newfoundland and Labrador (“Government”) settled all matters, including release from all debt obligations, pertaining to the Government–s December 2008 expropriation of non-regulated hydroelectric generating assets and water rights in central Newfoundland, then owned by Exploits River Hydro Partnership (“Exploits Partnership”) in which Fortis holds an indirect 51% interest. As a result of the settlement of expropriation matters, an extraordinary after-tax gain of approximately $22 million was recognized in the first quarter of 2013.
Acquisition of the Electrical Utility Assets from the City of Kelowna: FortisBC Electric acquired the City of Kelowna–s (the “City–s”) electrical utility assets for approximately $55 million in March 2013, which now allows FortisBC Electric to directly serve some 15,000 customers formerly served by the City. FortisBC Electric had provided the City with electricity under a wholesale tariff and had operated and maintained the City–s electrical utility assets under contract since 2000.
Receipt of Regulatory Decisions: FortisAlberta received a decision from its regulator in March 2013 approving an interim increase in customer distribution rates, effective January 1, 2013.
In April 2013 Newfoundland Power received a decision on cost of capital. The utility–s allowed ROE and common equity component of capital structure have been set for 2013 through 2015 and remain unchanged from 2012.
For a further discussion on the nature of the above regulatory decisions, refer to the “Material Regulatory Decisions and Applications” section of this MD&A.
FINANCIAL HIGHLIGHTS
Fortis has adopted a strategy of profitable growth with earnings per common share as the primary measure of performance. The Corporation–s business is segmented by franchise area and, depending on regulatory requirements, by the nature of the assets. Key financial highlights for the first quarters ended March 31, 2013 and March 31, 2012 are provided in the following table.
Factors Contributing to Revenue Variance
Unfavourable
Favourable
Factors Contributing to Energy Supply Costs Variance
Favourable
Unfavourable
Factors Contributing to Operating Expenses Variance
Unfavourable
Favourable
Factors Contributing to Depreciation and Amortization Expense Variance
Unfavourable
Favourable
Factors Contributing to Other Income (Expenses), Net Variance
Favourable
Factor Contributing to Finance Charges Variance
Favourable
Factors Contributing to Income Taxes Variance
Unfavourable
Factor Contributing to Extraordinary Gain, Net of Tax Variance
Favourable
Factors Contributing to Earnings Variance
Favourable
Unfavourable
SEGMENTED RESULTS OF OPERATIONS
For a discussion of the nature of regulation and material regulatory decisions and applications pertaining to the Corporation–s regulated utilities, refer to the “Regulatory Highlights” section of this MD&A. A discussion of the financial results of the Corporation–s reporting segments is as follows.
REGULATED GAS UTILITIES – CANADIAN
FORTISBC ENERGY COMPANIES (1)
Factors Contributing to Gas Volumes Variance
Unfavourable
Favourable
As at March 31, 2013, the total number of customers served by the FortisBC Energy companies was approximately 948,000. Net customer additions were 3,000 during the first quarter of 2013 compared to 1,000 during the first quarter of 2012.
The FortisBC Energy companies earn approximately the same margin regardless of whether a customer contracts for the purchase and delivery of natural gas or only for the delivery of natural gas. As a result of the operation of regulator-approved deferral mechanisms, changes in consumption levels and the commodity cost of natural gas from those forecasted to set residential and commercial customer gas rates do not materially affect earnings.
Seasonality has a material impact on the earnings of the FortisBC Energy companies as a major portion of the gas distributed is used for space heating. Most of the annual earnings of the FortisBC Energy companies are realized in the first and fourth quarters.
Factors Contributing to Revenue Variance
Unfavourable
Favourable
Factors Contributing to Earnings Variance
Favourable
Unfavourable
REGULATED ELECTRIC UTILITIES – CANADIAN
FORTISALBERTA
Factors Contributing to Energy Deliveries Variance
Favourable
Unfavourable
As a significant portion of FortisAlberta–s distribution revenue is derived from fixed or largely fixed billing determinants, changes in quantities of energy delivered are not entirely correlated with changes in revenue. Revenue is a function of numerous variables, many of which are independent of actual energy deliveries.
Factors Contributing to Revenue Variance
Favourable
Factors Contributing to Earnings Variance
Favourable
FORTISBC ELECTRIC (1)
Factor Contributing to Electricity Sales Variance
Unfavourable
Factors Contributing to Revenue Variance
Favourable
Unfavourable
Factors Contributing to Earnings Variance
Favourable
Unfavourable
NEWFOUNDLAND POWER
Factors Contributing to Electricity Sales Variance
Favourable
Factors Contributing to Revenue Variance
Favourable
Factors Contributing to Earnings Variance
Favourable
Unfavourable
OTHER CANADIAN ELECTRIC UTILITIES (1)
Factor Contributing to Electricity Sales Variance
Favourable
Factor Contributing to Revenue Variance
Favourable
Factors Contributing to Earnings Variance
Unfavourable
Favourable
REGULATED ELECTRIC UTILITIES – CARIBBEAN (1)
Factor Contributing to Electricity Sales Variance
Favourable
Factors Contributing to Revenue Variance
Favourable
Factors Contributing to Earnings Variance
Favourable
Unfavourable
NON-REGULATED – FORTIS GENERATION (1)
Factor Contributing to Energy Sales and Revenue Variances
Unfavourable
Factors Contributing Earnings Variance
Favourable
Unfavourable
NON-REGULATED – FORTIS PROPERTIES (1)
Factors Contributing to RevPar Variance
Unfavourable
Favourable
Factor Contributing to Revenue Variance
Favourable
Factor Contributing to Earnings Variance
Unfavourable
CORPORATE AND OTHER (1)
Factors Contributing to Net Corporate and Other Expenses Variance
Favourable
Unfavourable
REGULATORY HIGHLIGHTS
The nature of regulation and material regulatory decisions and applications associated with each of the Corporation–s regulated gas and electric utilities for the first quarter of 2013 are summarized as follows.
CONSOLIDATED FINANCIAL POSITION
The following table outlines the significant changes in the consolidated balance sheets between March 31, 2013 and December 31, 2012.
LIQUIDITY AND CAPITAL RESOURCES
The table below outlines the Corporation–s sources and uses of cash for the three months ended March 31, 2013, as compared to the same period in 2012, followed by a discussion of the nature of the variances in cash flows.
Operating Activities: Cash flow from operating activities was $48 million lower quarter over quarter. The decrease was primarily due to unfavourable changes in working capital at FortisAlberta and the FortisBC Energy companies, associated with accounts payable and other current liabilities and current regulatory deferral accounts, partially offset by favourable working capital changes related to regulatory deferrals at Maritime Electric. Higher earnings quarter over quarter were partially offset by unfavourable changes in deferred income taxes attributable to regulatory deferrals and tax loss utilization.
Investing Activities: Cash used in investing activities was $78 million higher quarter over quarter. The increase was driven by FortisBC Electric–s acquisition of electrical utility assets from the City of Kelowna in March 2013 for approximately $55 million, and higher capital spending at FortisAlberta, largely due to higher AESO capital contributions quarter over quarter.
Financing Activities: Cash provided by financing activities was $117 million higher quarter over quarter. The increase was primarily due to: (i) higher net borrowings under committed credit facilities classified as long-term; (ii) lower net repayments of short-term borrowings; and (iii) higher proceeds from the issuance of common shares. The above items were partially offset by higher repayments of long-term debt and a decrease in advances received from non-controlling interests.
Net repayments of short-term borrowings were $35 million lower quarter over quarter. The decrease was mainly due to the FortisBC Energy companies, partially offset by an increase in net repayments of short-term borrowings at Maritime Electric. A portion of the cash proceeds received by Maritime Electric from the Government of PEI, upon the assumption of the utility–s regulatory asset related to certain deferred Point Lepreau replacement energy costs, was used to repay short-term borrowings in the first quarter of 2013.
Repayments of long-term debt and capital lease and finance obligations, and net borrowings (repayments) under committed credit facilities for the quarter compared to the same quarter last year are summarized in the following tables.
Borrowings under credit facilities by the utilities are primarily in support of their capital expenditure programs and/or for working capital requirements. Repayments are primarily financed through the issuance of long-term debt, cash from operations and/or equity injections from Fortis. From time to time, proceeds from preference share, common share and long-term debt offerings are used to repay borrowings under the Corporation–s committed credit facility.
Advances of approximately $22 million were received during the first quarter of 2013 from non-controlling interests in the Waneta Expansion Limited Partnership (“Waneta Partnership”) to finance capital spending related to the Waneta Expansion, compared to $29 million received during the first quarter of 2012. In January 2012 advances of approximately $12 million were received from two First Nations bands, representing their 15% equity investment in the LNG storage facility on Vancouver Island.
Proceeds from the issuance of common shares were $8 million higher quarter over quarter, reflecting an increase in the number of shares issued under the Corporation–s stock option and employee share purchase plans.
Common share dividends paid during the first quarter of 2013 were $41 million, net of $19 million of dividends reinvested, compared to $44 million, net of $13 million of dividends reinvested, paid during the same quarter of 2012. The dividend paid per common share for the first quarter of 2013 was $0.31 compared to $0.30 for the first quarter of 2012. The weighted average number of common shares outstanding for the first quarter was 192.0 million, compared to 189.0 million for the first quarter of 2012.
CONTRACTUAL OBLIGATIONS
The Corporation–s consolidated contractual obligations with external third parties in each of the next five years and for periods thereafter, as at March 31, 2013, are outlined in the following table. A detailed description of the nature of the obligations is provided in the 2012 Annual MD&A and below, where applicable.
Other contractual obligations, which are not reflected in the above table, did not materially change from those disclosed in the 2012 Annual MD&A, except as described as follows.
In March 2013 FortisBC Electric acquired the City of Kelowna–s electrical utility assets for approximately $55 million. For further information, refer to the “Significant Items” section of this MD&A.
For a discussion of the nature and amount of the Corporation–s consolidated capital expenditure program, which is not included in the preceding Contractual Obligations table, refer to the “Capital Expenditure Program” section of this MD&A.
CAPITAL STRUCTURE
The Corporation–s principal businesses of regulated gas and electricity distribution require ongoing access to capital to enable the utilities to fund maintenance and expansion of infrastructure. Fortis raises debt at the subsidiary level to ensure regulatory transparency, tax efficiency and financing flexibility. Fortis generally finances a significant portion of acquisitions at the corporate level with proceeds from common share, preference share and long-term debt offerings. To help ensure access to capital, the Corporation targets a consolidated long-term capital structure containing approximately 40% equity, including preference shares, and 60% debt, as well as investment-grade credit ratings. Each of the Corporation–s regulated utilities maintains its own capital structure in line with the deemed capital structure reflected in each of the utility–s customer rates.
The consolidated capital structure of Fortis is presented in the following table.
The change in the capital structure was primarily due to: (i) net earnings attributable to common equity shareholders, net of dividends declared; (ii) common shares issued, mainly under the Corporation–s dividend reinvestment, stock option and employee share purchase plans; and (iii) lower short-term borrowings. The capital structure was also impacted by an increase in long-term debt, mainly due to higher borrowings under committed credit facilities, largely in support of energy infrastructure investment, partially offset by regularly scheduled debt repayments.
Excluding capital lease and finance obligations, the Corporation–s capital structure as at March 31, 2013 was 53.2% debt, 9.9% preference shares and 36.9% common shareholders– equity (December 31, 2012 – 53.6% debt, 10.1% preference shares and 36.3% common shareholders– equity).
CREDIT RATINGS
The Corporation–s credit ratings are as follows:
In February 2013 S&P and DBRS affirmed the Corporation–s debt credit ratings. The above-noted credit ratings reflect the Corporation–s business-risk profile and diversity of its operations, the stand-alone nature and financial separation of each of the regulated subsidiaries of Fortis, management–s commitment to maintaining low levels of debt at the holding company level, the Corporation–s reasonable credit metrics and its demonstrated ability and continued focus on acquiring and integrating stable regulated utility businesses financed on a conservative basis. The credit ratings also reflect the Corporation–s financing plans for the pending acquisition of CH Energy Group and the expected completion of the Waneta Expansion on time and on budget.
CAPITAL EXPENDITURE PROGRAM
Capital investment in infrastructure is required to ensure continued and enhanced performance, reliability and safety of the gas and electricity systems and to meet customer growth. All costs considered to be maintenance and repairs are expensed as incurred. Costs related to replacements, upgrades and betterments of capital assets are capitalized as incurred.
A breakdown of the $250 million in gross consolidated capital expenditures by segment for the first quarter of 2013 is provided in the following table.
Planned capital expenditures are based on detailed forecasts of energy demand, weather, cost of labour and materials, as well as other factors, including economic conditions, which could change and cause actual expenditures to differ from forecasts.
There have been no material changes in the overall expected level, nature and timing of the Corporation–s significant capital projects from those that were disclosed in the 2012 Annual MD&A. Gross consolidated capital expenditures for 2013 are forecasted at approximately $1.3 billion.
Construction of the $900 million Waneta Expansion is ongoing, with an additional $47 million spent in the first quarter of 2013. To date, approximately $483 million has been spent on the Waneta Expansion since construction began late in 2010. Key construction activities during the first quarter of 2013 included ongoing placement of concrete in the powerhouse and intake, ongoing installation of the powerhouse roof and turbine components, and intake-channel excavation work.
Over the five-year period 2013 through 2017, gross consolidated capital expenditures, including expenditures at Central Hudson Gas & Electric Corporation (“Central Hudson”), are expected to be approximately $6 billion. The approximate breakdown of the capital spending expected to be incurred is as follows: 54% at Canadian Regulated Electric Utilities, driven by FortisAlberta; 20% at Canadian Regulated Gas Utilities; 11% at Central Hudson; 4% at Caribbean Regulated Electric Utilities; and the remaining 11% at non-regulated operations. Capital expenditures at the regulated utilities are subject to regulatory approval. Over the five-year period, on average annually, the approximate breakdown of the total capital spending to be incurred is as follows: 36% to meet customer growth, 41% for sustaining capital expenditures, and 23% for facilities, equipment, vehicles, information technology and other assets.
CASH FLOW REQUIREMENTS
At the subsidiary level, it is expected that operating expenses and interest costs will generally be paid out of subsidiary operating cash flows, with varying levels of residual cash flows available for subsidiary capital expenditures and/or dividend payments to Fortis. Borrowings under credit facilities may be required from time to time to support seasonal working capital requirements. Cash required to complete subsidiary capital expenditure programs is also expected to be financed from a combination of borrowings under credit facilities, equity injections from Fortis and long-term debt offerings.
The Corporation–s ability to service its debt obligations and pay dividends on its common shares and preference shares is dependent on the financial results of the operating subsidiaries and the related cash payments from these subsidiaries. Certain regulated subsidiaries may be subject to restrictions that may limit their ability to distribute cash to Fortis.
Cash required of Fortis to support subsidiary capital expenditure programs and finance acquisitions is expected to be derived from a combination of borrowings under the Corporation–s committed corporate credit facility and proceeds from the issuance of common shares, preference shares and long-term debt. Depending on the timing of cash payments from the subsidiaries, borrowings under the Corporation–s committed corporate credit facility may be required from time to time to support the servicing of debt and payment of dividends.
As at March 31, 2013, management expects consolidated long-term debt maturities and repayments to average approximately $295 million annually over the next five years. The combination of available credit facilities and relatively low annual debt maturities and repayments will provide the Corporation and its subsidiaries with flexibility in the timing of access to capital markets.
In May 2012 Fortis filed a base shelf prospectus under which Fortis may offer, from time to time during the 25-month period from May 10, 2012, by way of a prospectus supplement, common shares, preference shares, subscription receipts and/or unsecured debentures in the aggregate amount of up to $1.3 billion (or the equivalent in US dollars or other currencies). The base shelf prospectus provides the Corporation with flexibility to access securities markets in a timely manner. The nature, size and timing of any offering of securities under the Corporation–s base shelf prospectus will be consistent with the past capital-raising practices of the Corporation and continue to be dependent upon the Corporation–s assessment of its requirements for funding and general market conditions.
To finance a portion of the Corporation–s pending acquisition of CH Energy Group, Fortis offered and sold, by way of a prospectus supplement, approximately $601 million of Subscription Receipts in June 2012 under a bought-deal offering with a syndicate of underwriters. Fortis also closed an offering of approximately $200 million First Preference Shares, Series J in November 2012, by way of a prospectus supplement, under the above-noted base shelf prospectus.
Fortis and its subsidiaries were compliant with debt covenants as at March 31, 2013 and are expected to remain compliant throughout 2013.
CREDIT FACILITIES
As at March 31, 2013, the Corporation and its subsidiaries had consolidated credit facilities of approximately $2.4 billion, of which $2.0 billion was unused, including $910 million unused under the Corporation–s $1 billion committed revolving corporate credit facility. The credit facilities are syndicated mostly with the seven largest Canadian banks, with no one bank holding more than 20% of these facilities. Approximately $2.3 billion of the total credit facilities are committed facilities with maturities ranging from 2013 through 2017.
The following summary outlines the credit facilities of the Corporation and its subsidiaries.
As at March 31, 2013 and December 31, 2012, certain borrowings under the Corporation–s and subsidiaries– credit facilities were classified as long-term debt. These borrowings are under long-term committed credit facilities and management–s intention is to refinance these borrowings with long-term permanent financing during future periods.
In January 2013 FEVI–s $20 million unsecured committed non-revolving credit facility matured and was not replaced.
In April 2013 FortisBC Electric renegotiated and amended its credit facility agreement resulting in an extension to the maturity of the Company–s $150 million unsecured committed revolving credit facility with $100 million now maturing in May 2016 and $50 million now maturing in May 2014. The amended credit facility agreement contains substantially similar terms and conditions as the previous credit facility agreement.
In April 2013 FHI extended its $30 million unsecured committed revolving credit facility to mature in May 2014 from May 2013. The new agreement contains substantially similar terms and conditions as the previous credit facility agreement.
FINANCIAL INSTRUMENTS
The carrying values of the Corporation–s consolidated financial instruments approximate their fair values, reflecting the short-term maturity, normal trade credit terms and/or nature of these instruments, except as follows.
The fair value of long-term debt is calculated using quoted market prices when available. When quoted market prices are not available, as is the case with the Waneta Partnership promissory note and certain long-term debt, the fair value is determined by either: (i) discounting the future cash flows of the specific debt instrument at an estimated yield to maturity equivalent to benchmark government bonds or treasury bills, with similar terms to maturity, plus a credit risk premium equal to that of issuers of similar credit quality; or (ii) by obtaining from third parties indicative prices for the same or similarly rated issues of debt of the same remaining maturities. Since the Corporation does not intend to settle the long-term debt or promissory note prior to maturity, the excess of the estimated fair value above the carrying value does not represent an actual liability.
The Financial Instruments table above excludes the long-term other asset associated with the Corporation–s expropriated investment in Belize Electricity. Due to uncertainty in the ultimate amount and ability of the Government of Belize (“GOB”) to pay appropriate fair value compensation owing to Fortis for the expropriation of Belize Electricity, the Corporation has recorded the book value of the expropriated investment, including foreign exchange impacts, in long-term other assets, which totalled approximately $106 million as at March 31, 2013 (December 31, 2012 – $104 million).
Risk Management: The Corporation–s earnings from, and net investments in, foreign subsidiaries are exposed to fluctuations in the US dollar-to-Canadian dollar exchange rate. The Corporation has effectively decreased the above-noted exposure through the use of US dollar borrowings at the corporate level. The foreign exchange gain or loss on the translation of US dollar-denominated interest expense partially offsets the foreign exchange loss or gain on the translation of the Corporation–s foreign subsidiaries– earnings, which are denominated in US dollars. The reporting currency of Caribbean Utilities, Fortis Turks and Caicos, FortisUS Energy Corporation and Belize Electric Company Limited (“BECOL”) is the US dollar.
As at March 31, 2013, the Corporation–s corporately issued US$557 million (December 31, 2012 – US$557 million) long-term debt had been designated as an effective hedge of the Corporation–s foreign net investments. As at March 31, 2013, the Corporation had approximately US$16 million (December 31, 2012 – US$17 million) in foreign net investments remaining to be hedged. Foreign currency exchange rate fluctuations associated with the translation of the Corporation–s corporately issued US dollar borrowings designated as effective hedges are recorded in other comprehensive income and serve to help offset unrealized foreign currency exchange gains and losses on the net investments in foreign subsidiaries, which gains and losses are also recorded in other comprehensive income.
Effective from June 20, 2011, the Corporation–s asset associated with its expropriated investment in Belize Electricity does not qualify for hedge accounting as Belize Electricity is no longer a foreign subsidiary of Fortis. As a result, foreign exchange gains and losses on the translation of the long-term other asset associated with Belize Electricity are recognized in earnings. The Corporation recognized in earnings a foreign exchange gain of approximately $2 million during the three months ended March 31, 2013 ($1.5 million foreign exchange loss for the three months ended March 31, 2012).
From time to time, the Corporation and its subsidiaries hedge exposures to fluctuations in interest rates, foreign exchange rates and fuel and natural gas prices through the use of derivative instruments. The Corporation and its subsidiaries do not hold or issue derivative instruments for trading purposes. As at March 31, 2013, the Corporation–s derivative contracts consisted of fuel option contracts, natural gas swap and option contracts, and gas purchase contract premiums. The fuel option contracts are held by Caribbean Utilities and the remaining derivative instruments are held by the FortisBC Energy companies.
The following table summarizes the Corporation–s derivative instruments.
The fuel option contracts are used by Caribbean Utilities to reduce the impact of volatility in fuel prices on customer rates, as approved by the regulator under the Company–s Fuel Price Volatility Management Program. The fuel option contracts mature in April and October 2013. Approximately 70% of the Company–s annual diesel fuel requirements are under fuel hedging arrangements.
The natural gas derivatives held by the FortisBC Energy companies are used to fix the effective purchase price of natural gas, as the majority of the natural gas supply contracts at the FortisBC Energy companies have floating, rather than fixed, prices. The price risk-management strategy of the FortisBC Energy companies aims to improve the likelihood that natural gas prices remain competitive, mitigate gas price volatility on customer rates and reduce the risk of regional price discrepancies. As directed by the regulator in 2011, the FortisBC Energy companies have suspended their commodity hedging activities with the exception of certain limited swaps as permitted by the regulator. The existing hedging contracts will continue in effect through to their maturity and the FortisBC Energy companies– ability to fully recover the commodity cost of gas in customer rates remains unchanged.
The changes in the fair values of the fuel option contracts and natural gas derivatives are deferred as a regulatory asset or liability for recovery from, or refund to, customers in future rates, as permitted by the regulators. The fair values of the derivative instruments were recorded in accounts payable and other current liabilities as at March 31, 2013 and December 31, 2012.
The fair value of the fuel option contracts reflects only the value of the heating oil derivative and not the offsetting change in the value of the underlying future purchases of heating oil and was calculated using published market prices for heating oil or similar commodities where appropriate. The fair value of the natural gas derivatives was calculated using the present value of cash flows based on market prices and forward curves for the commodity cost of natural gas. The fair values of the fuel option contracts and natural gas derivatives are estimates of the amounts that the utilities would receive or have to pay to terminate the outstanding contracts as at the balance sheet dates.
The fair values of the Corporation–s financial instruments, including derivatives, reflect point-in-time estimates based on current and relevant market information about the instruments as at the balance sheet dates. The estimates cannot be determined with precision as they involve uncertainties and matters of judgment and, therefore, may not be relevant in predicting the Corporation–s future consolidated earnings or cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
With the exception of letters of credit outstanding of $68 million as at March 31, 2013 (December 31, 2012 – $67 million), the Corporation had no off-balance sheet arrangements, such as transactions, agreements or contractual arrangements with unconsolidated entities, structured finance entities, special purpose entities or variable interest entities, that are reasonably likely to materially affect liquidity or the availability of, or requirements for, capital resources.
BUSINESS RISK MANAGEMENT
Year-to-date 2013, the business risks of the Corporation were consistent with those disclosed in the Corporation–s 2012 Annual MD&A, including certain risks, as disclosed below, and an update to those risks, where applicable.
Regulatory Risk: The allowed ROE and capital structure at Newfoundland Power have been set for 2013 through 2015 and remain unchanged from 2012. Newfoundland Power plans to file an application in May 2013 to obtain final approval for customer electricity rates, effective January 1, 2013, commencing in July 2013 for collection from customers.
Final allowed ROEs and capital structure for 2013 remain outstanding for FortisBC and FortisAlberta. The results of cost of capital proceedings could materially impact the earnings of the above-noted utilities.
PBR commenced at FortisAlberta for a five-year term, which began January 1, 2013. In March 2013 interim distribution electricity rates under PBR were approved by the AUC in addition to the recovery, on an interim basis, of 60% of the revenue requirement associated with 2013 capital tracker expenditures applied for by FortisAlberta. While the AUC–s 2012 PBR decision provides for a capital tracker mechanism to address recovery of certain capital expenditures outside of the PBR formula, the mechanism has yet to be tested to confirm its applicability to FortisAlberta–s capital programs. Final decisions on FortisAlberta–s rates are expected in the second half of 2013.
For further information, refer to the “Material Regulatory Decisions and Applications” section of this MD&A.
Completion of the Acquisition of CH Energy Group: Fortis announced in February 2012 that it had entered into an agreement to acquire CH Energy Group for US$65.00 per common share in cash, for an aggregate purchase price of approximately US$1.5 billion, including the assumption of approximately US$500 million of debt on closing. CH Energy Group is an energy delivery company headquartered in Poughkeepsie, New York. Its main business, Central Hudson, is a regulated transmission and distribution utility serving approximately 300,000 electric and 75,000 natural gas customers in eight counties of New York State–s Mid-Hudson River Valley. Approval of the acquisition by the PSC is the last significant matter required to close the transaction. A Settlement Agreement among Fortis, CH Energy Group, PSC Staff, registered interveners and other parties was filed with the PSC in January 2013. The parties to the Settlement Agreement have concluded that, based on the terms of the Settlement Agreement the acquisition is in the public interest and have recommended approval by the PSC. The deadline for submission of public comments in the proceeding was extended to May 1, 2013 by the PSC. On May 3, 2013 administrative law judges issued a Recommended Decision in connection with the acquisition asserting that without modification of the terms of the Settlement Agreement, the benefits of the acquisition are outweighed by perceived detriments remaining after mitigation. The Recommended Decision is an advisory opinion that will be considered by the PSC in determining whether to approve the acquisition. Submissions responding to the Recommended Decision are due by May 17, 2013 with responses to such submissions due by May 24, 2013. Fortis intends to engage in further discussions to obtain PSC approval of the acquisition. While no assurance regarding closing of the transaction can be given until an order is issued by the PSC, a final decision from the PSC regarding the acquisition and subsequent closing of the transaction is expected in June 2013. Based on the terms of the current Settlement Agreement, the acquisition is expected to be accretive to earnings per common share of Fortis within the first full year of ownership, excluding acquisition-related expenses.
A delay in receiving a PSC decision, and/or conditions imposed under such decision, may result in the failure to materialize some, or all, of the expected benefits of the acquisition of CH Energy Group, or such benefits may not occur within the time periods anticipated by the Corporation. The realization of such benefits may also be impacted by other factors beyond the control of Fortis.
Unless extended by agreement of both parties, the agreement and plan of merger between Fortis and CH Energy Group expires August 20, 2013.
A portion of the acquisition purchase price of CH Energy Group is expected to be funded from net proceeds from the $601 million Subscription Receipts offering, issued by the Corporation in June 2012, which proceeds are being held in escrow. The Subscription Receipts Agreement (“Agreement”) contains a deadline of June 30, 2013 for the release of the proceeds from the offering. If it is determined that a PSC decision will not be received in time to allow closing of the acquisition of CH Energy Group to occur on or before June 30, 2013, Fortis may seek an extension of the June 30, 2013 deadline by way of amendment of the Agreement. The Agreement may be amended by a special resolution approved by at least two-thirds of the Subscription Receipts Holders (“Receipts Holders”) at a meeting, either in person or by proxy, with a quorum for the meeting of at least two Receipts Holders collectively holding 25% of the Subscription Receipts. If conditions precedent to the closing of the transaction are not fulfilled or waived by June 30, 2013, or by the extension date for the Subscription Receipts if approved by Receipts Holders, or if the agreement and plan of merger related to the acquisition is terminated prior to such time, the proceeds from the Subscription Receipts offering, plus pro rata interest earned, are required to be returned to the Receipts Holders. As a result, closing of the transaction subsequent to June 30, 2013, or the extension date for the Subscription Receipts if approved by Receipts Holders, could result in the Corporation having to raise alternative capital to finance the acquisition.
Also, additional acquisition-related expenses in 2013 could be higher than those anticipated. Examples of expenses expected to be incurred include investment banker merger and acquisition advisory fees and consulting and legal fees.
Expropriation of Shares in Belize Electricity: A decision is pending from the Belize Court of Appeal regarding the Corporation–s appeal of the Belize Supreme Court–s dismissal of the Corporation–s claim filed in October 2011 challenging the constitutionality of the expropriation of the Corporation–s investment in Belize Electricity.
Fortis believes it has a strong, well-positioned case before the Belize Courts supporting the unconstitutionality of the expropriation. There exists, however, a reasonable possibility that the outcome of the litigation may be unfavourable to the Corporation and the amount of compensation otherwise to be paid to Fortis under the legislation expropriating Belize Electricity could be lower than the book value of the Corporation–s expropriated investment in Belize Electricity. The book value of the expropriated investment was $106 million, including foreign exchange impacts, as at March 31, 2013 (December 31, 2012 – $104 million). If the expropriation is held to be unconstitutional, it is not determinable at this time as to the nature of the relief that would be awarded to Fortis, for example: (i) the ordering of the return of the shares to Fortis and/or award of damages; or (ii) the ordering of compensation to be paid to Fortis for the unconstitutional expropriation of the shares. Based on presently available information, the $106 million long-term other asset is not deemed impaired as at March 31, 2013. Fortis will continue to assess for impairment each reporting period based on evaluating the outcomes of court proceedings and/or compensation settlement negotiations. As well as continuing the constitutional challenge of the expropriation, Fortis is also pursuing alternative options for obtaining fair compensation, including compensation under the Belize/United Kingdom Bilateral Investment Treaty.
Fortis continues to control and consolidate the financial statements of BECOL, the Corporation–s indirect wholly owned non-regulated hydroelectric generating subsidiary in Belize. As at April 30, 2013, Belize Electricity owed BECOL US$4 million for overdue energy purchases, representing approximately 20% of BECOL–s annual sales to Belize Electricity. In accordance with long-standing agreements, the GOB guarantees the payment of Belize Electricity–s obligations to BECOL.
Capital Resources and Liquidity Risk – Credit Ratings: The Corporation–s credit ratings were affirmed in February 2013 and there were no changes in the credit ratings of the Corporation–s utilities year-to-date 2013, except Maritime Electric–s debt credit rating by S&P was updated from –A- stable– to –A stable–.
Defined Benefit Pension Plan Assets: As at March 31, 2013, the fair value of the Corporation–s consolidated defined benefit pension plan assets was $900 million, up $32 million or 3.7%, from $868 million as at December 31, 2012.
Labour Relations: The collective agreement between employees in specified occupations in the areas of administration and operations support at the FortisBC Energy companies and the Canadian Office and Professional Employees Union, Local 378, expired on March 31, 2012. A new three-year collective agreement, expiring on March 31, 2015, was reached in March 2013.
The collective agreement between FortisBC Electric and the International Brotherhood of Electrical Workers (“IBEW”), Local 213, expired on January 31, 2013. IBEW, Local 213, represents employees in specified occupations in the areas of generation and transmission and distribution. The parties are currently engaged in collective bargaining.
CHANGES IN ACCOUNTING POLICIES
The new US GAAP accounting pronouncements that are applicable to, and were adopted by, Fortis, effective January 1, 2013, are described as follows:
Disclosures About Offsetting Assets and Liabilities
The Corporation adopted the amendments to Accounting Standards Codification (“ASC”) Topic 210, Balance Sheet – Disclosures About Offsetting Assets and Liabilities as outlined in Accounting Standards Updates (“ASU”) No. 2011-11 and 2013-01. The amendments improve the transparency of the effect or potential effect of netting arrangements on a company–s financial position by expanding the level of disclosures required by entities for such arrangements. The amended disclosures are intended to assist financial statement users in understanding significant quantitative differences between balance sheets prepared under US GAAP and International Financial Reporting Standards (“IFRS”). ASU No. 2013-01 limits the scope of the new offsetting disclosure requirements previously issued in ASU No. 2011-11 to certain derivative instruments, repurchase and reverse repurchase agreements, and securities borrowing and lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting or similar arrangement. The above-noted amendments were applied retrospectively and did not materially impact the Corporation–s interim consolidated financial statements for the three months ended March 31, 2013.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Incom