2004/2005 Second Quarter Report October 31, 2004...2004/2005 SECOND QUARTER REPORT 2004/2005 SECOND...

2004/2005Second Quarter Report

October 31, 2004

Caribbean Utilities Company, Ltd.457 North Sound Road, P.O. Box 38 GT, Grand Cayman, Cayman Islands

Tel: (345) 949-5200 p Fax: (345) 949-4621E-mail: [email protected] p Website: www.cuc-cayman.com

World-class innovative service in our growing community!

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2 0 0 4 / 2 0 0 5 S E C O N D Q U A R T E R R E P O R T 2 0 0 4 / 2 0 0 5 S E C O N D Q U A R T E R R E P O R T

C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D . C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D .

To Our Shareholders

1. 2.

The restoration efforts following the passing of Hurricane Ivan have remainedon schedule because of the presence of crews from Fortis Inc. of Canada,MasTec, Inc. of the United States and Caribbean crews under CARILEC’sHurricane Action Plan, which include Bermuda, Barbados and the Turks &Caicos Islands.

2004 2003 Change Change %

Operating Revenues 51,218,357 56,652,791 (5,434,434) -9.6%

Cash Flow from Operations * 11,031,521 18,654,844 (7,623,323) -40.9%

Earnings Applicable to Common Shares (6,557,976) 11,433,029 (17,991,005) -157.4%

Basic Earnings per Common Share (0.26) 0.46 (0.72) -156.5%

Diluted Earnings per Common Share (0.26) 0.46 (0.72) -156.5%

* Before working capital adjustments

Six months ended October 31Caribbean Utilities Company, Ltd.Financial Highlights

Dear Shareholder:

CUC completed today, November 30, the restoration of serviceto all areas across the Island, well within the 90-day period thatwas initially projected following the passing of Hurricane Ivan onSeptember 12. Of CUC’s total pre-Ivan customer base of 21,600,an estimated 20% of electricity consumers cannot bereconnected at this time as major repairs or rebuilding of theirpremises is necessary. Sufficient generating capacity of 83megaWatts (MW) is available to meet anticipated third quarterdemand of 50 MW.

Our successful restoration programme would not have beenpossible without the commitment of our employees and theassistance of our strategic partners. CUC’s largest shareholder,Fortis Inc., an electrical utility holding company based in St.John’s, Newfoundland, Canada, reacted quickly to our call forhelp following the passage of Hurricane Ivan on September 12.Three rotations of Fortis personnel have occurred sinceSeptember 18 to assist with the rebuilding effort. In total, 130Fortis employees have contributed to the restoration,representing six of Fortis’ operating companies: Newfoundland

Power, FortisOntario, Maritime Electric Company, FortisAlberta,FortisBC and Belize Electric Company.

We have also received assistance from MasTec, Inc. of NorthCarolina, the Barbados Light and Power Company, BermudaElectric Light Company and Provo Power Company of the Turksand Caicos. The Barbados, Bermuda and Turks and Caicoscontingents were deployed by the Caribbean Electric UtilityServices Corporation under CARILEC’s Hurricane Action Plan,




To Our Shareholders

3. 4.

which provides assistance to member utilities following theaftermath of a hurricane strike.

We are very grateful to the crews from Fortis, MasTec, BarbadosLight and Power, Bermuda Electric and Provo Power for theirgenerous support and dedication to restoring customer service.

CUC began an extensive hurricane risk assessment processfollowing the passing of Hurricane Gilbert in 1988. This led theCompany to strengthen its infrastructure over the years toenable it to recover quickly from an event as devastating as acategory-five hurricane such as Hurricane Ivan. We establishedhurricane-grade construction standards in the early 1990s thatcontinue to be met for any new capital investment, whether it befor generation, transmission and distribution (T&D) orotherwise. These standards proved to be critical duringHurricane Ivan, and the decisions made over the past 16 yearshave paid off in the wake of the storm.

For example, our two-story Hurricane Centre at our NorthSound Plant was built to withstand 200-mph winds, and itsheltered many of our employees during the most recent stormand served as a command center following the hurricane. Ournew integrated control room and indoor North Sound, SouthSound and Frank Sound gas-insulated substations, the backboneof our electrical T&D infrastructure, were constructed towithstand a category-five hurricane and were largely unaffectedby Ivan. Our 36 MW engine room commissioned in 2000 wasoperational within days of the storm’s passage due to thesuperior building and civil engineering design recommended byour strategic alliance partner MAN B&W in 1998.

In addition, our recently commissioned North Sound submarinecable enabled us to reconnect customers in West Bay within fourweeks, or two months earlier than if we had not installed thecable. Furthermore, we only lost six out of 226 concretetransmission poles throughout the Island, a further testament totheir quality design and construction.

These examples illustrate in hindsight that we made the rightdecisions in the building of our plant and T&D facilities, and tohave done otherwise would have been catastrophic for GrandCayman. To quote a well-known adage, you truly get what youpay for, and anyone who may have claimed that we overbuilt oursystem has now been proven wrong. While Ivan has affected25% of our T&D system, we must continue to design and buildour electrical and generation infrastructure to withstand suchstorms as Hurricane Ivan. To do otherwise would jeopardise ourability to provide a world-class, reliable service to our customers.

The Company has US$100 million insurance in place thatincludes property coverage for its North Sound Road plant,remote substations and all T&D equipment within 1,000 feet ofthe main plant and substations; and includes US$55 million inbusiness interruption insurance per annum with a 24-monthindemnity period. Terms and coverages also include a maximumUS$4 million deductible on property insurance and a 45-daydeductible on business interruption insurance. T&D insuranceoutside of 1,000 feet from the boundaries of the main plant andsubstations is excluded, as the Company was unable to obtainT&D coverage at economic rates.

Estimates for CUC’s damage claims caused by Hurricane Ivan areUS$27 million for property and US$42 million in business

In recent years, CUC has strengthened its infrastructure to enable it to recoverquickly from an event as devastating as Hurricane Ivan. Although theCompany suffered damage to 25% of its T&D system, only six out of 226concrete transmission poles were lost as a result of the storm. The poles weredesigned by management consulting and engineering firm R.W. Beck, Inc. ofthe United States and constructed by MasTec, Inc. also of the United States.


The non-binding Heads of Agreement signed by CUC and theCayman Islands Government in June 2004 has expired followingthe passing of Hurricane Ivan. The Company will meet withGovernment at the appropriate time to assess the status of theLicence renewal negotiations, but it is important to note that thecircumstances and the context under which the negotiationstook place prior to the hurricane have been substantially alteredby the storm and its aftermath. Future public updates on thisparticular matter will be given as and when appropriate to doso. We continue to operate under our existing Licence, whichexpires in 2011.

We would like to thank our employees, many of whom sufferedpersonal losses from Hurricane Ivan, for their hard work,dedication and commitment to restoring service to ourcustomers. CUC is grateful for your continued support, and wewould also like to extend our best wishes for a happy andprosperous New Year.

Peter A. ThomsonPresident & Chief Executive OfficerNovember 30, 2004



To Our Shareholders

5. 6.

interruption over the 24-month indemnity period. The net bookvalue of T&D assets written off was US$7.5 million. TheCompany had in place a Hurricane Fund with over US$4 millioninvested in high-quality securities to cover deductibles anduninsured risks, as well as a US$5.5 million line of credit and aUS$10 million bridging loan facility with the Royal Bank ofCanada for capital expenditures.

Cash flow this quarter has been severely impacted due to loss ofrevenues during the 45-day deductible period, interruption toour billing and collections procedures, and outlays for therestoration of T&D services. We are still incurring capitalexpenditures in connection with the restoration process. Inaddition, we will be unable to determine our final HurricaneIvan-related claim until the restoration process is completed.Given these uncertainties, the Board of Directors elected not todeclare a dividend at this time. We would like to assureshareholders that the financial integrity of the Company issecure. The terms of our existing Licence permit the Company torecover Hurricane Ivan-related costs through rate adjustments.At the opportune time, the Company will make proposals toGovernment on how best to implement rate adjustments andrecover costs that will result from Hurricane Ivan.

CUC’s state-of-the-art integrated control system facilitated the safeenergisation of distribution feeders across Grand Cayman during therestoration effort. All employees worked tirelessly since the passing ofHurricane Ivan to complete the restoration of service to our customer base ofover 21,000.




Management’s Discussion & Analysis

7. 8.

(expressed in United States Dollars)

2004 2003 Change 2004 2003 Change

Operating Revenues 20,675,767 28,265,346 (7,589,579) 51,218,357 56,652,791 (5,434,434)Electricity Sales 15,670,766 23,342,966 (7,672,200) 39,491,922 45,498,682 (6,006,760)Fuel Factor 5,005,001 4,922,380 82,621 11,726,435 11,154,109 572,326

Power Generation Expenses 13,033,361 12,551,188 482,173 27,110,612 26,128,719 981,893General and Administration 2,333,596 2,164,549 169,047 5,020,509 4,172,736 847,773Consumer Service and Promotion 361,581 346,472 15,109 697,690 655,232 42,458Transmission and Distribution 7,765,743 502,877 7,262,866 8,373,669 1,075,365 7,298,304Depreciation and Amortisation 3,427,656 3,247,311 180,345 6,886,670 6,549,778 336,892Maintenance 4,891,161 1,473,631 3,417,530 6,388,499 3,358,446 3,030,053Interest Expense and Preference Dividends (2,051,213) (2,023,884) (27,329) (4,185,765) (3,850,850) (334,915)Earnings Year-to-Date (12,202,332) 6,461,153 (18,663,485) (5,857,976) 12,113,029 (17,971,005)Earnings per Ordinary Share (0.49) 0.26 (0.75) (0.26) 0.46 (0.72)Dividends paid per Ordinary Share 0.165 0.160 0.005 0.330 0.320 0.01Net Generation (kWh) 81,561,743 127,500,993 (45,939,250) 218,695,714 254,523,873 (35,828,159)Peak Load Gross (MW) 85.03 79.06 5.97 85.03 79.06 5.97KiloWatt-hour Sales (kWh) 83,492,166 120,462,696 (39,970,530) 209,928,078 237,892,383 (27,964,305)Total Customers 20,404 20,643 (239) 20,404 20,643 (239)

Six months ended October 31Three months ended October 31Caribbean Utilities Company, Ltd.Financial Highlights

The following material, which is unaudited, should be read inconjunction with management’s discussion and analysis of financialcondition and results of operations, and the financial statements andnotes thereto, of Caribbean Utilities Company, Ltd. (CUC or theCompany) for the six months ended October 31, 2004.

The material that follows contains forward-looking statements. By theirvery nature, forward-looking statements are subject to certain risks anduncertainties that may cause actual results to vary from plans, targets

and estimates. Such risks and uncertainties include, but are not limitedto, general economic, market and business conditions, regulatorydevelopments, weather, competition, etc. CUC cautions readers thatshould certain risks or uncertainties materialise, or should underlyingassumptions prove incorrect, actual results may vary significantly fromthose expected. The Company disclaims any intention or obligation toupdate or revise any forward-looking statements, whether as a result ofnew information, future events or otherwise.

EarningsDue to the impact of Hurricane Ivan, earnings applicable to ClassA Ordinary Shares for the second quarter were negative US$12.3million as compared to positive earnings of US$6.3 million forthe second quarter last year. On a year-to-date basis, earningsapplicable to Class A Ordinary Shares fell to negative US$6.6million, versus positive earnings of US$11.4 million for the firstsix months of last year. Earnings for the second half of thecurrent year are projected to move positive as the customerservice restoration (expected to reach 75% of pre-Ivan load byyear-end) continues, and proceeds from business interruptioninsurance claims are received.

RevenuesBasic electricity sales (which prior to Hurricane Ivan weregrowing year-over-year by more than 6%) declined 32.9% in thesecond quarter to US$15.7 million from US$23.3 million. For thesix months ending October 31, 2004, basic revenue salesdeclined 13.2%. The decline in revenues in the second quarter isdue to the impact of Hurricane Ivan.

Power GenerationPower generation expenses grew by 3.8% in the second quarter.The primary reason is the write-off of US$2.8 million in deferredfuel costs to earnings. Unrecovered fuel factor-related fuel costsare deferred on a two-month basis and matched against thecollection of related fuel factor revenues. Hurricane Ivan resulted





9. 10.

in lower sales and lower fuel factor revenues, which led to acommensurate reduction of the fuel costs deferred on thebalance sheet. This trend is expected to reverse as sales and fuelfactor revenues increase in the second half of the year.Additionally, any unrecovered fuel costs will be recoveredthrough the adjustment to basic rates at year-end.

General and AdministrationGeneral and administration expenses include a US$144,000expense relating to the liquidation of the Hurricane Fund. This isthe difference between the liquidated value of the HurricaneFund and the value of the fund carried on the balance sheet atcost.

Transmission and DistributionTransmission and distribution (T&D) expenses include a chargeof US$7.5 million for the write-off of impaired T&D assetsdamaged by Hurricane Ivan. The storm affected 25% of theCompany’s T&D system.

DepreciationDepreciation and amortisation expense increased by 5.6% thisquarter over the second quarter of 2004 as a result of increaseddepreciation from the completion of various capital projects. Weexpect depreciation and amortisation expense to increaseapproximately 9% in fiscal 2005 over 2004 and will beunaffected by Hurricane Ivan.

Significant Changes in Balance SheetFrom April 30, 2004 to October 31, 2004

(Unaudited)

Balance Sheet Account Increase Explanation(Decrease)(millions)

Cash and Due from (16.3) The decrease in cash isBanks primarily due to the

Company’s payments forproperty, plant andequipment in thereconstruction of assetsfollowing the passage ofHurricane Ivan and thepayment of dividends of$9 million.

Accounts Receivable - 5.4 The accounts receivableTrade increase is due to post-

Ivan reduction in billcollections.

Other Receivable - 24.9 The insurance receivable Insurance increase is due to the

business interruption and property insurance claimsrelated to Ivan thatmanagement considersshould be accrued at thereporting date.

Property, Plant and (20.0) The decrease in net property,Equipment plant and equipment is

comprised of capital expenditures of $20.2 millionless (i) depreciation expenseof $6.9 million and (ii) thenet book value of assets writtendown and disposed of $33.3 million primarily due to Ivan.

Accounts Payable and 6.0 This accounts payable and Accrued Expenses accrued expenses increase is

due to higher payables as aresult of the reconstructionfollowing Ivan.

Retained Earnings (10.7) The decrease in retainedearnings is due to a net lossfor the period of $5.9 million,first quarter Class Adividends of $4.1 millionand Class B preferencedividends of $700,000.

Long-Term Investments (4.1) The decrease in investmentsis due to the liquidation of the Hurricane FundInvestment following Ivan to meet cash flow requirements.

Teamwork: Employees from FortisOntario, Newfoundland Power,FortisAlberta and CUC pull their resources together as they work to re-fit atransmission pole outside the Governor’s Residence on West Bay Road.


Stock OptionsAs outlined in Note 2 to the Financial Statements, the Companyhas adopted a policy of recording compensation expense uponthe issuance of employee stock options under its Executive StockOption Plan. Under the fair value method, compensationexpense amortised for the quarter ended October 31, 2004 isUS$15,644.

Hurricane IvanThe following summary outlines the costs and losses associatedwith Hurricane Ivan as reflected in these unaudited financialstatements. Also summarised are amounts recorded asreceivables under insurance claims. Negotiations with insuranceadjusters and underwriters with respect to certain claims areongoing. However, management only recognises insurancereceivables when claims are agreed or negotiations aresufficiently advanced for them to be reasonably assured as to therecovery of the associated claims.




11. 12.

MaintenanceMaintenance expense increased by 231.9% in the secondquarter of fiscal 2005 when compared to last year’s secondquarter. This is due to a charge of US$2.4 million for theinsurance deductible net of indemnification for pre-1990 assetsdamaged during Hurricane Ivan.

Interest ExpenseThe 1.35% increase in financing expense is due to the increasedexpenses associated with the expensing of interest that wasbeing capitalised during construction. These projects are nowcompleted and capitalisation of interest to these projects hasceased.

Loss orCost

US$ millions

InsuranceRecoveries

US$ millions

Net

US$ millions

Inventories

T&D Property, Plantand Equipment

Other Property, Plantand Equipment

1.0 1.0 0

7.5 0 7.5

25.7 23.3 2.4

Costs Associated with Hurricane Ivan

Teamwork: Members of CUC line crews have forged stronger bonds with theirfellow employees as the long, arduous hours spent in the field restoringservice to customers has strengthened their reliance on each other.

Revenue Losses associated with Hurricane Ivan

Business Interruption

* The $5 million net loss relates to the lost revenue during the deductible period which ended October 25, 2004.

5.6 0.6 5.0*

Business Interruption InsuranceThe Company has made a claim for business interruption loss.Typically, the ultimate recovery under a business interruptionpolicy is highly judgmental and subject to substantialnegotiations between the insured and the insurancecompany. Given the subjectivity of the ultimate settlement





13. 14.

9,949,666

20,193,245

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

05,000,000

Six monthsended

Oct. 2003

Six monthsended

Oct. 2004

Yearended

April 2003

Yearended

April 2004

27,731,945

20,041,232

US$

Capital Expenditures

1,600,000

1,400,000

1,200,000

1,000,000

0,800,000

0,600,000

0,400,000

0,200,000

0,000,000

Gross Generation by Day in 2004 compared with 2003

kWh

08/0

9/04

15/0

9/04

22/0

9/04

29/0

9/04

06/1

0/04

13/1

0/04

20/1

0/04

27/1

0/04

03/1

1/04

10/1

1/04

17/1

1/04

2003 2004

Date

The above table represents a comparison of the daily gross generationbetween September 8 and November 24, 2003 with the same period in2004. Hurricane Ivan moved over Grand Cayman on September 11 andSeptember 12, 2004.

Total debt 133,963,939 53.4%

Shareholders’Equity 116,733,605 46.6%

2004 %

Six months ended October 31

Total debt 138,864,952 52.5%

Shareholders’Equity 125,839,560 47.5%

2003 %

24/1

1/04

Capital Structure

and the lengthy claim coverage period,many contingencies may exist in theultimate settlement.

LicenceThe non-binding Heads of Agreementsigned by CUC and the Cayman IslandsGovernment in June 2004 has expiredfollowing the passing of Hurricane Ivan. TheCompany will meet with Government atthe appropriate time to assess the status ofthe Licence renewal negotiations, but it isimportant to note that the circumstancesand the context under which thenegotiations took place prior to thehurricane have been substantially altered bythe storm and its aftermath. Future publicupdates on this particular matter will begiven as and when appropriate to do so. Wecontinue to operate under our existingLicence, which expires in 2011.

Capital StructureThe Company’s balance sheet remains verystrong. We do not plan to undertake anyadditional borrowings or Ordinary Shareofferings during the 2005 fiscal year.



C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D . C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D .15. 16.

Balance Sheet (Unaudited)


As of As of As ofOct. 31, 2004 Oct. 31, 2003 April 30, 2004

US$ US$ US$

AssetsCurrent Assets

Cash and due from banks 1,691,640 20,156,561 18,004,208Accounts receivable - trade 13,264,971 8,473,146 7,878,761Other receivable - insurance (Note 10) 24,916,667 - -Inventories 1,835,210 2,747,404 2,818,277Prepayments 1,166,748 1,302,557 651,449

42,875,236 32,679,668 29,352,695

Long-term investments (Note 7) - 4,029,897 4,077,640Property, plant and equipment 226,982,274 242,707,024 246,909,500Other assets 3,842,326 5,726,505 5,761,016

Total Assets 273,699,836 285,143,094 286,100,851

Liabilities and Shareholders’ EquityCurrent Liabilities

Current portion of long-term debt 4,682,446 4,903,724 4,873,967Accounts payable and accrued expenses 20,159,862 13,292,356 14,124,150Consumers’ deposits and advances for construction 2,842,433 3,089,377 2,956,004Dividends declared (Note 8) - 4,056,849 4,182,655

27,684,741 25,342,306 26,136,776

Long-term debt 129,281,490 133,961,228 133,520,997

156,966,231 159,303,534 159,657,773

Shareholders’ EquityShare capital 1,734,898 1,724,534 1,730,058Share premium 38,257,824 44,640,664 37,328,408Redetermination surplus - 93,243 -Contributed surplus (Note 2) 67,787 - 36,500Retained earnings 76,673,096 79,381,119 87,348,112

116,733,605 125,839,560 126,443,078

Total Liabilities and Shareholders’ Equity 273,699,836 285,143,094 286,100,851




Statement of Earnings (Unaudited)


Statement of Retained Earnings (Unaudited)


Three months ended October 31 Six months ended October 31

2004 2003 2004 2003US$ US$ US$ US$

Operating RevenuesElectricity sales 15,670,766 23,342,966 39,491,922 45,498,682Fuel factor 5,005,001 4,922,380 11,726,435 11,154,109

20,675,767 28,265,346 51,218,357 56,652,791

Operating ExpensesPower generation 13,033,361 12,551,188 27,110,612 26,128,719General and administration 2,333,596 2,164,549 5,020,509 4,172,736Consumer service and promotion 361,581 346,472 697,690 655,232Transmission and distribution 7,765,743 502,877 8,373,669 1,075,365Depreciation and amortisation 3,427,656 3,247,311 6,886,670 6,549,778Maintenance 4,891,161 1,473,631 6,388,499 3,358,446

31,813,098 20,286,028 54,477,649 41,940,276

Operating Income (11,137,331) 7,979,318 (3,259,292) 14,712,515

Other Income/(Expenses)Interest expense and preference dividends (2,051,213) (2,023,884) (4,185,765) (3,850,850)Foreign exchange gain 157,506 172,617 432,706 642,017Other income (Note 10) 828,706 333,102 1,154,375 609,347

(1,065,001) (1,518,165) (2,598,684) (2,599,486)

(Net Loss)/Earnings for the Period (12,202,332) 6,461,153 (5,857,976) 12,113,029Preference dividends paid - Class B (112,500) (112,500) (700,000) (680,000)

Earnings on Class A Ordinary Shares (12,314,832) 6,348,653 (6,557,976) 11,433,029

Weighted average number of Class A OrdinaryShares issued and fully paid 24,920,565 24,735,125 24,922,877 24,732,065

Earnings per Class A Ordinary Share (0.49) 0.26 (0.26) 0.46Fully diluted earnings per Class A Ordinary Share (0.49) 0.26 (0.26) 0.46Dividends declared per Class A Ordinary Share 0.000 0.165 0.165 0.325

Balance at Beginning of Period 89,002,705 72,828,312 87,348,112 67,084,782(Net Loss)/Earnings for the Period (12,202,332) 6,461,153 (5,857,976) 12,113,029Dividends (127,277) - (4,817,040) -Transfer from Redetermination Surplus - 91,654 - 183,308

Balance at End of Period 76,673,096 79,381,119 76,673,096 79,381,119


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Cash Flow Statement (Unaudited)


Three months ended October 31 Six months ended October 31

2004 2003 2004 2003US$ US$ US$ US$

Operating Activities(Net loss)/ earnings (12,202,332) 6,461,153 (5,857,976) 12,113,029

Depreciation and amortisation 3,427,656 3,247,311 6,886,670 6,549,778Stock-based compensation 15,644 - 31,287 -Loss/(Profit) on disposal of fixed assets 9,991,056 (1,368) 9,971,540 (7,963)

1,232,024 9,707,096 11,031,521 18,654,844

Net increase in non-cash workingcapital balances related to operations 4,935,354 1,053,295 1,234,658 (7,277,146)

6,167,378 10,760,391 12,266,179 11,377,698

Financing ActivitiesProceeds from the issue of debt - - - 20,000,000Proceeds of share issues 418,968 732,799 934,256 2,032,163Repayment of debt (198,292) (118,884) (4,431,028) (1,838,812)Redemption of preference shares - - - (6,007,500)Dividends paid (4,221,482) (4,065,189) (8,999,696) (8,565,565)

(4,000,806) (3,451,274) (12,496,468) 5,620,286

Investing ActivitiesSale/(purchase) of investments 4,097,152 (28,203) 4,077,640 (29,490)Proceeds of sale of fixed assets 13,810 1,368 33,326 7,963Purchase of property, plant and equipment (16,573,648) (5,290,127) (19,940,291) (9,183,651)Interest capitalised during construction (152,041) (300,306) (252,954) (766,015)

(12,614,727) (5,617,268) (16,082,279) (9,971,193)

(Decrease)/Increase in Net Cash (10,448,155) 1,691,849 (16,312,568) 7,026,791Net Cash Beginning of Period 12,139,795 18,464,712 18,004,208 13,129,770

Net Cash End of Period 1,691,640 20,156,561 1,691,640 20,156,561




Notes to Financial Statements (Unaudited)


1. Financial Statement Presentation

These unaudited financial statements include all of the adjustmentsthat, in management’s opinion, are necessary for a fair presentation.These interim financial statements have been prepared using the sameaccounting policies as those used in preparing the most recent annualfinancial statements. These interim financial statements do not includeall of the disclosures normally found in the annual financial statementsand should be read in conjunction with the Company’s financialstatements for the year ended April 30, 2004.

2. Significant Accounting Policies

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differfrom those estimates.

The Company accounts for its executive stock option grants using thefair value method where any compensation expense is amortised overthe vesting period of the options.

The Company also maintains defined benefit and defined contributionpension plans for its employees. The pension costs of the definedbenefit plan are actuarialy determined using the projected benefitsmethod prorated on service and best estimate assumptions. Pastservice costs from plan initiation are amortised on a straight-line basisover the remaining service period of the employee active at the date ofinitiation. Actuarial gains or losses are recognised in income in the yearin which they occur. The cost of the defined contribution pension planis expensed as incurred.

Hurricane Ivan, a catastrophic category five hurricane, hit GrandCayman on September 12, 2004. Under Canadian GAAP, the Companyis required to recognise the cost associated with the storm in the periodin which the event took place. The amount represents a fair estimate ofthe cost at this time. Amounts associated with the insurance claims arerecognised as receivable when recovery becomes reasonably assured.The final amount is to be determined before the end of the fiscal year(Note 10).

3. Capital Stock

Authorised:a) 60,000,000 (2003: 60,000,000) Class A Ordinary Shares of

CI$0.05 eachb) 250,000 (2003: 250,000) 9% Cumulative, Participating Class B

Preference Shares of $1.00 each (non-voting)c) 1 Cumulative, Participating, Class D Preference Share of

CI$0.56 (non-voting)

Common Shares were issued during the period for cash as follows:

Quarter ended October 31, 2004

Number of AmountShares US$

Balance beginning of period 24,908,967 1,482,677Customer Share Purchase and

Dividend Reinvestment Plans 23,718 1,411Employee Share Purchase Plan - -Executive Stock Option Plan 13,600 810

24,946,285 1,484,898

Year-to-Date October 31, 2004

Number of AmountShares US$

Balance beginning of period 24,864,975 1,480,058Customer Share Purchase and

Dividend Reinvestment Plans 61,910 3,685Employee Share Purchase Plan - -Executive Stock Option Plan 19,400 1,155

24,946,285 1,484,898

4. Share Options

The shareholders of the Company approved an Executive Stock OptionPlan on October 24, 1991, under which certain employees, officers andDirectors may be granted options to purchase Class A Ordinary Sharesof the Company.

The exercise price per share in respect of options is equal to the fairmarket value of the Class A Ordinary Shares on the date of grant. Eachoption is for a term not exceeding 10 years and will become exercisableon a cumulative basis at the end of each year following the date ofgrant. The maximum number of Class A Ordinary Shares under optionshall be fixed and approved by the shareholders of the Company fromtime to time and is currently set at 1,051,677. Options are forfeited ifthey are not exercised prior to their respective expiry date or upontermination of employment prior to the completion of the vestingperiod.

Quarter Ended Year-to-DateOct. 31, 2004 Oct. 31, 2004

Outstanding at beginningof period 950,821 961,021

Granted - -Exercised (13,600) (19,400)Forfeited - (4,400)

Outstanding at end of period 937,221 937,221



C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D . 26.

Notes to Financial Statements (Unaudited)


Shareholder Plans

CUC offers its shareholders a Dividend Reinvestment Plan. Pleasecontact one of CUC’s Registrar and Transfer Agents or write toCUC’s Company Secretary if you would like to receive informationabout the plan or obtain an enrolment form.

CUC also has a Customer Share Purchase Plan for customersresident in Grand Cayman. Please contact our Customer ServiceDepartment (tel: (345) 949-4300) if you are interested in receivingdetails.

Shareholder Information

Duplicate Quarterly ReportsWhile every effort is made to avoid duplications, some shareholdersmay receive extra reports as a result of multiple share registrations.Shareholders wishing to consolidate these accounts should contactthe Registrar and Transfer Agents.

Our Registrar and Transfer Agents are as follows:

CIBC Mellon Trust CompanyP.O. Box 7010 Tel: (416) 813-4600Adelaide St. Postal Station Fax: (416) 643-5501Toronto, Ontario M5C 2W9, CanadaE-mail: [email protected]

Caribbean Utilities Company, Ltd.Assistant to the Company Secretary Tel: (345) 949-5200P.O. Box 38 GT Fax: (345) 949-4621Grand Cayman, Cayman IslandsWebsite: www.cuc-cayman.comE-mail: [email protected]

This Quarterly Report highlights certain, but not all, events thatmay be of interest to you. If you require further information or haveany questions regarding CUC’s Class A Ordinary Shares (listed inU.S. funds on The Toronto Stock Exchange), please contact:

Caribbean Utilities Company, Ltd.Robert D. Imparato Tel: (345) 949-5200Company Secretary Fax: (345) 949-4621P.O. Box 38 GTGrand Cayman, Cayman Islands

CUC’s Toronto Stock Exchange symbol is:

Class A Ordinary Shares

CUP.U

The position with respect to outstanding unexercised options as atOctober 31, 2004 was as follows:

Date of Number of Class Exercise Term ofGrant A Ordinary Shares Price Option

under Option $June 8, 2000 266,921 10.05 5 yearsJuly 18, 2001 451,200 11.46 10 yearsSeptember 22, 2003 219,100 13.78 10 years

5. Foreign ExchangeThe closing rate of exchange on October 31, 2004 as reported by theBank of Canada for the conversion of U.S. dollars into Canadian dollarswas Cdn.$1.2180 per US$1.00. The official exchange rate for theconversion of Cayman Islands dollars into U.S. dollars as determined bythe Cayman Islands Monetary Authority is fixed at CI$1.00 perUS$1.20. Thus, the rate of exchange as of October 31, 2004 forconversion of Cayman Islands dollars into Canadian dollars was$1.4616 per CI$1.00.

6. Interim ResultsInterim results will fluctuate due to the seasonal nature of electricity. InGrand Cayman, demand is highest in the summer months due to air-conditioning load. Consequently, interim results are not necessarilyindicative of annual results.

7. Long-term InvestmentsTo meet cash flow requirements in the aftermath of Hurricane Ivan, theCompany liquidated its long-term investments, which had a marketvalue of $4,094,732 on the date of liquidation.

8. Payment of DividendsIn view of the immediate cash flow needed to restore servicerequirements following the passage of Hurricane Ivan in September2004 and the 45-day deductible period associated with businessinterruption insurance, the Board of Directors did not declare adividend for the second quarter of fiscal year 2005.

9. Comparative FiguresCertain comparative figures have been reclassified to conform withcurrent year disclosure.

10. Other Receivable - InsuranceThe other receivable balance represents business interruption andproperty insurance claims relating to Hurricane Ivan. The businessinterruption policy has a 45-day deductible and therefore onlyUS$595,238 has been recorded as receivable in the financialstatements.

11. Related Party TransactionsFortis Energy-Bermuda, the majority shareholder of CUC, owns 37.29%of the issued Class A Ordinary shares. Fortis accounts for theinvestment in CUC shares under the equity method. A contingent ofFortis employees have been contracted for the reconstruction of theCompany’s T&D assets following the passage of Hurricane Ivan. Thesefinancial statements include an amount accrued and payable of US$1.3million for the cost of Fortis labour in the construction of assets atstandard market rates.

C A R I B B E A N U T I L I T I E S C O M P A N Y , L T D .25.


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