EX-99.1 2 a2020q1-exhibit992xfinanci.htm EXHIBIT 99.1 2020 Q1 FINANCIAL STATEMENTS Exhibit
Unaudited Interim Consolidated Financial Statements of
Algonquin Power & Utilities Corp.
For the three months ended March 31, 2020 and 2019



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Operations
 
(thousands of U.S. dollars, except per share amounts)
Three months ended March 31
 
2020
 
2019
Revenue
 
 
 
Regulated electricity distribution
$
180,699

 
$
205,061

Regulated gas distribution
184,594

 
177,661

Regulated water reclamation and distribution
27,839

 
26,786

Non-regulated energy sales
66,311

 
63,457

Other revenue
5,458

 
4,260

 
464,901

 
477,225

Expenses
 
 
 
Operating expenses
127,896

 
120,113

Regulated electricity purchased
57,233

 
69,598

Regulated gas purchased
63,613

 
79,554

Regulated water purchased
2,251

 
1,454

Non-regulated energy purchased
4,004

 
6,921

Administrative expenses
15,672

 
13,118

Depreciation and amortization
78,880

 
71,047

Gain on foreign exchange
(4,670
)
 
(533
)
 
344,879

 
361,272

Operating income
120,022

 
115,953

Interest expense on long-term debt and others
(46,248
)
 
(42,621
)
Income (loss) from long-term investments (note 6)
(162,661
)
 
19,472

Other net losses (note 16)
(4,246
)
 
(3,857
)
Gain (loss) on derivative financial instruments (note 21(b)(iv))
57

 
(196
)
 
(213,098
)
 
(27,202
)
Earnings (loss) before income taxes
(93,076
)
 
88,751

Income tax recovery (expense) (note 15)
 
 
 
Current
(4,087
)
 
(4,975
)
Deferred
17,790

 
(9,856
)
 
13,703

 
(14,831
)
Net earnings (loss)
(79,373
)
 
73,920

Net effect of non-controlling interests (note 14)
 
 
 
Net effect of non-controlling interests
19,342

 
19,328

Net effect of non-controlling interests held by related party
(3,766
)
 
(6,842
)
 
$
15,576

 
$
12,486

Net earnings (loss) attributable to shareholders of Algonquin Power & Utilities Corp.
$
(63,797
)
 
$
86,406

Series A and D Preferred shares dividend (note 12)
2,140

 
2,106

Net earnings (loss) attributable to common shareholders of Algonquin Power & Utilities Corp.
$
(65,937
)
 
$
84,300

Basic and diluted net earnings (loss) per share (note 17)
$
(0.13
)
 
$
0.17

See accompanying notes to unaudited interim consolidated financial statements



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income
 
(thousands of U.S. dollars)
Three months ended March 31
 
2020
 
2019
Net earnings (loss)
$
(79,373
)
 
$
73,920

Other comprehensive income (loss) ("OCI"):
 
 
 
Foreign currency translation adjustment, net of tax expense of $5,703 and $253, respectively (notes 21(b)(iii) and 21(b)(iv))
(36,630
)
 
14,814

Change in fair value of cash flow hedges, net of tax recovery and tax expense of $5,087 and $518, respectively (note 21(b)(ii))
(14,088
)
 
1,463

Change in pension and other post-employment benefits, net of tax recovery of $31 and $91, respectively (note 8)
(76
)
 
(254
)
Other comprehensive income (loss), net of tax
(50,794
)
 
16,023

Comprehensive income (loss)
(130,167
)
 
89,943

Comprehensive loss attributable to the non-controlling interests
(21,636
)
 
(12,469
)
Comprehensive income (loss) attributable to shareholders of Algonquin Power & Utilities Corp.
$
(108,531
)
 
$
102,412

See accompanying notes to unaudited interim consolidated financial statements



Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets

(thousands of U.S. dollars)
 
 
 
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
197,414

 
$
62,485

Accounts receivable, net (note 4)
240,987

 
259,144

Fuel and natural gas in storage
19,740

 
30,804

Supplies and consumables inventory
68,136

 
60,295

Regulatory assets (note 5)
56,129

 
50,213

Prepaid expenses
38,607

 
29,003

Derivative instruments (note 21)
15,495

 
13,483

Other assets
4,722

 
7,764

 
641,230

 
513,191

Property, plant and equipment, net
7,008,133

 
7,231,664

Intangible assets, net
51,388

 
47,616

Goodwill
1,022,906

 
1,031,696

Regulatory assets (note 5)
703,186

 
509,674

Long-term investments (note 6)
 
 
 
Investments carried at fair value
1,105,056

 
1,294,147

Other long-term investments
190,748

 
121,968

Derivative instruments (note 21)
76,505

 
72,221

Deferred income taxes (note 15)
44,757

 
30,585

Other assets
56,714

 
58,708

 
$
10,900,623

 
$
10,911,470

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
(thousands of U.S. dollars)
 
 
 
 
March 31, 2020
 
December 31, 2019
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
71,824

 
$
150,336

Accrued liabilities
249,004

 
307,952

Dividends payable (note 12)
74,103

 
73,945

Regulatory liabilities (note 5)
37,515

 
41,683

Long-term debt (note 7)
161,005

 
225,013

Other long-term liabilities (note 9)
57,471

 
57,939

Derivative instruments (note 21)
48,561

 
5,898

Other liabilities
8,073

 
9,300

 
707,556

 
872,066

Long-term debt (note 7)
4,043,762

 
3,706,855

Regulatory liabilities (note 5)
559,396

 
556,379

Deferred income taxes (note 15)
489,623

 
491,538

Derivative instruments (note 21)
80,976

 
78,766

Pension and other post-employment benefits obligation (note 8)
225,458

 
224,094

Other long-term liabilities (note 9)
259,478

 
243,401

 
5,658,693

 
5,301,033

Redeemable non-controlling interests (note 14)

 

Redeemable non-controlling interest, held by related party (note 13(b))
306,329

 
305,863

Redeemable non-controlling interests
23,977

 
25,913

Equity:
 
 
 
Preferred shares
184,299

 
184,299

Common shares (note 10(a))
4,050,902

 
4,017,044

Additional paid-in capital
41,332

 
50,579

Deficit
(521,314
)
 
(367,107
)
Accumulated other comprehensive loss ("AOCI") (note 11)
(54,495
)
 
(9,761
)
Total equity attributable to shareholders of Algonquin Power & Utilities Corp.
3,700,724

 
3,875,054

Non-controlling interests
 
 
 
Non-controlling interests
439,854

 
457,834

Non-controlling interest, held by related party (note 13(c))
63,490

 
73,707

 
503,344

 
531,541

Total equity
4,204,068

 
4,406,595

Commitments and contingencies (note 19)

 

Subsequent events (notes 7, 10 and 15)

 

 
$
10,900,623

 
$
10,911,470

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity


(thousands of U.S. dollars)
For the three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2019
$
4,017,044

 
$
184,299

 
$
50,579

 
$
(367,107
)
 
$
(9,761
)
 
$
531,541

 
$
4,406,595

Net loss
—

 
—

 
—

 
(63,797
)
 
—

 
(15,576
)
 
(79,373
)
Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(2,047
)
 
(2,047
)
Other comprehensive loss
—

 
—

 
—

 
—

 
(44,734
)
 
(6,060
)
 
(50,794
)
Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(59,819
)
 
—

 
(7,885
)
 
(67,704
)
Dividends and issuance of shares under dividend reinvestment plan
16,951

 
—

 
—

 
(16,951
)
 
—

 
—

 
—

Contributions received from non-controlling interests
—

 
—

 
—

 
—

 
—

 
3,371

 
3,371

Common shares issued upon conversion of convertible debentures
12

 
—

 
—

 
—

 
—

 
—

 
12

Issuance of common shares under employee share purchase plan
792

 
—

 
—

 
—

 
—

 
—

 
792

Share-based compensation
—

 
—

 
1,452

 
—

 
—

 
—

 
1,452

Common shares issued pursuant to share-based awards
16,103

 
—

 
(10,699
)
 
(13,640
)
 
—

 
—

 
(8,236
)
Balance, March 31, 2020
$
4,050,902

 
$
184,299

 
$
41,332

 
$
(521,314
)
 
$
(54,495
)
 
$
503,344

 
$
4,204,068

See accompanying notes to unaudited interim consolidated financial statements













Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity

 
(thousands of U.S. dollars)
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2018
$
3,562,418

 
$
184,299

 
$
45,553

 
$
(595,259
)
 
$
(19,385
)
 
$
519,896

 
$
3,697,522

Adoption of ASU 2017-12 on hedging
—

 
—

 
—

 
(186
)
 
186

 
—

 
—

Net earnings (loss)
—

 
—

 
—

 
86,406

 
—

 
(12,486
)
 
73,920

Redeemable non-controlling interests not included in equity (note 14)
—

 
—

 
—

 
—

 
—

 
(4,536
)
 
(4,536
)
Other comprehensive income
—

 
—

 
—

 
—

 
16,006

 
17

 
16,023

Dividends declared and distributions to non-controlling interests
—

 
—

 
—

 
(49,879
)
 
—

 
(2,155
)
 
(52,034
)
Dividends and issuance of shares under dividend reinvestment plan
15,508

 
—

 
—

 
(15,508
)
 
—

 
—

 
—

Contributions received from non-controlling interests
—

 
—

 
—

 
—

 
—

 
3,565

 
3,565

Common shares issued upon conversion of convertible debentures
30

 
—

 
—

 
—

 
—

 
—

 
30

Share-based compensation
—

 
—

 
1,899

 
—

 
—

 
—

 
1,899

Common shares issued pursuant to share-based awards
12,395

 
—

 
(6,447
)
 
(9,566
)
 
—

 
—

 
(3,618
)
Balance, March 31, 2019
$
3,590,351

 
$
184,299

 
$
41,005

 
$
(583,992
)
 
$
(3,193
)
 
$
504,301

 
$
3,732,771

See accompanying notes to unaudited interim consolidated financial statements




Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Cash Flows
(thousands of U.S. dollars)
Three months ended March 31
 
2020
 
2019
Cash provided by (used in):
 
 
 
Operating Activities
 
 
 
Net earnings (loss)
$
(79,373
)
 
$
73,920

Adjustments and items not affecting cash:

 

Depreciation and amortization
78,880

 
71,047

Deferred taxes
(17,790
)
 
9,856

Unrealized gain (loss) on derivative financial instruments
(239
)
 
531

Share-based compensation expense
1,472

 
1,543

Cost of equity funds used for construction purposes
(1,001
)
 
(462
)
Change in value of investments carried at fair value
190,758

 
5,818

Pension and post-employment expense in excess of contributions
4,383

 
2,797

Distributions received from equity investments, net of income
814

 
2,064

Others
(2,010
)
 
905

Changes in non-cash operating items (note 20)
(109,027
)
 
(45,898
)
 
66,867

 
122,121

Financing Activities
 
 
 
Increase in long-term debt
732,730

 
622,541

Decrease in long-term debt
(384,949
)
 
(316,368
)
Issuance of common shares, net of costs
765

 
393

Cash dividends on common shares
(57,332
)
 
(44,710
)
Dividends on preferred shares
(2,140
)
 
(2,106
)
Production-based cash contributions from non-controlling interest
3,371

 
3,565

Distributions to non-controlling interests, related party (note 13(b) and (c))
(7,507
)
 
(7,094
)
Distributions to non-controlling interests
(4,077
)
 
(2,236
)
Payments upon settlement of derivatives
—

 
(8,732
)
Increase in other long-term liabilities
2,400

 
3,278

Decrease in other long-term liabilities
(1,972
)
 
(2,445
)
 
281,289

 
246,086

Investing Activities
 
 
 
Additions to property, plant and equipment and intangible assets
(155,902
)
 
(107,386
)
Increase in long-term investments
(61,089
)
 
(230,800
)
Acquisitions of operating entities (note 3)
4,234

 
(1,350
)
Increase in other assets
(5,366
)
 
(1,036
)
Receipt of principal on development loans receivable
9,715

 
10,601

Proceeds from sale of long-lived assets
415

 
—

 
(207,993
)
 
(329,971
)
Effect of exchange rate differences on cash and restricted cash
(4,480
)
 
159

Increase in cash, cash equivalents and restricted cash
135,683

 
38,395

Cash, cash equivalents and restricted cash, beginning of period
87,272

 
65,773

Cash, cash equivalents and restricted cash, end of period
$
222,955

 
$
104,168

 
 
 
 
Supplemental disclosure of cash flow information:
2020
 
2019
Cash paid during the period for interest expense

$
44,807

 
$
37,144

Cash paid (refund received) during the period for income taxes

$
1,047

 
$
(654
)
Non-cash financing and investing activities:
 
 
 
Property, plant and equipment acquisitions in accruals
$
42,563

 
$
20,403

Issuance of common shares under dividend reinvestment plan and share-based compensation plans
$
33,847

 
$
27,223

Issuance of common shares upon conversion of convertible debentures
$
12

 
$
30

See accompanying notes to unaudited interim consolidated financial statements

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

Algonquin Power & Utilities Corp. (“APUC” or the “Company”) is an incorporated entity under the Canada Business Corporations Act. APUC's operations are organized across two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The Regulated Services Group owns and operates a portfolio of regulated electric, natural gas, water distribution and wastewater collection utility systems and transmission operations in the United States and Canada; the Renewable Energy Group owns and operates a diversified portfolio of non-regulated renewable and thermal electric generation assets.
1.
Significant accounting policies
(a)
Basis of preparation
The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and follow disclosure required under Regulation S-X provided by the U.S. Securities and Exchange Commission. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments that are of a recurring nature and necessary for a fair presentation of the results of interim operations.
The significant accounting policies applied to these unaudited interim consolidated financial statements of APUC are consistent with those disclosed in the consolidated financial statements of APUC for the year ended December 31, 2019, except for adopted accounting policies described in note 2(a) and note 1(e).
(b)
COVID-19 Pandemic
The ongoing outbreak of the novel strain of coronavirus (“COVID-19”) has caused significant volatility and weakness in the global economy. The Company did not experience any material negative impacts from the pandemic on its operations in the three months ended March 31, 2020. Nevertheless, the Company’s business, financial condition, cash flows and results of operations are subject to actual and potential future impacts resulting from COVID-19, the full extent of which is not currently known. Force majeure or similar notices were received from suppliers and/or contractors for all of the Company's major renewable energy construction projects. These notices relate to, among other things, delayed deliveries of components due to overseas manufacturing shutdowns resulting from COVID-19. At this time, it is not possible to reliably estimate the full impact on each project and the Company’s financial results.
(c)
Seasonality
APUC's operating results are subject to seasonal fluctuations that could materially impact quarter-to-quarter operating results and, thus, one quarter's operating results are not necessarily indicative of a subsequent quarter's operating results. Where decoupling mechanisms exist, total volumetric revenue is prescribed by the Regulator and is not affected by usage. APUC's different electrical distribution utilities can experience higher or lower demand in the summer or winter depending on the specific regional weather and industry characteristics. During the winter period, natural gas distribution utilities experience higher demand than during the summer period. APUC’s water and wastewater utility assets’ revenues fluctuate depending on the demand for water, which is normally higher during drier and hotter months of the summer. APUC’s hydroelectric energy assets are primarily "run-of-river" and as such fluctuate with the natural water flows. During the winter and summer periods, flows are generally slower, while during the spring and fall periods flows are heavier. For APUC's wind energy assets, wind resources are typically stronger in spring, fall and winter and weaker in summer. APUC's solar energy assets experience greater insolation in summer, weaker in winter.
(d)
Foreign currency translation
APUC’s reporting currency is the U.S. dollar. Within these unaudited interim consolidated financial statements, the Company denotes any amounts denominated in Canadian dollars with “C$” immediately prior to the stated amount.
Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts taking into consideration its operating, financing and investing activities. As a result of the entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk (note 21(b)(iii)).



Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(e)
Current expected credit losses
The Company adopted the U.S. Financial Accounting Standards Board ("FASB") Financial Instrument —Credit Losses Topic 326 ("ASC 326") in the first quarter of 2020 using a modified retrospective approach. The Company has trade accounts receivable and loans receivable from its equity method investees in both the Regulated Services and Renewable Energy Group. New allowance policies were implemented for the Company's loans receivable and the Renewable Energy Group's trade accounts receivable. The impact to the Company's bad debt expense upon adoption was not significant.
2.     Recently issued accounting pronouncements
(a)
Recently adopted accounting pronouncements
The FASB issued accounting standards update ("ASU") Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 to reduce diversity in practice on how entities account for transactions on the basis of different views of the economics of a collaborative arrangement. The adoption of this Update during the quarter did not have an impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities to improve general purpose financial reporting. The update clarifies that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The adoption of this Update during the quarter did not have an impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2017-04, Business Combinations (Topic 350): Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in this update, the impairment loss will be measured as the amount by which the carrying amount of the reporting unit exceeds the reporting unit’s fair value. The Company will follow the pronouncements prospectively for goodwill impairment testing.
The FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The adoption of this topic in the first quarter did not have a significant impact on the unaudited interim consolidated financial statements (note 1(e)).
(b)
Recently issued accounting guidance not yet adopted
The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients and exceptions to ease the potential burden in accounting for reference rate reform. The amendments apply to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently assessing the impact of the reference rate reform and this Update.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions
Acquisition of Enbridge Gas New Brunswick Limited Partnership & St. Lawrence Gas Company, Inc.
The Company completed the acquisition of Enbridge Gas New Brunswick Limited Partnership ("New Brunswick Gas") on October 1, 2019, and St. Lawrence Gas Company, Inc. ("St. Lawrence Gas") on November 1, 2019. New Brunswick Gas is a regulated utility that provides natural gas. The purchase price recorded in 2019 was $256,011 (C$339,036). A closing adjustment of $3,904 (C$5,447) was made in 2020. St. Lawrence Gas is a regulated utility that provides natural gas in northern New York State. The total purchase price recorded in 2019 for the transaction was $61,820. A closing adjustment of $120 was made in 2020. In both cases, the adjustment reduced goodwill.
The determination of the fair value of assets acquired and liabilities assumed is based upon management's preliminary estimates and certain assumptions. Due to the timing of the acquisitions, the Company has not finalized the fair value measurements.
4.
Accounts receivable
Accounts receivable as of March 31, 2020 include unbilled revenue of $56,717 (December 31, 2019 - $80,295) from the Company’s regulated utilities. Accounts receivable as of March 31, 2020 are presented net of allowance for doubtful accounts of $7,129 (December 31, 2019 - $4,939).
5.
Regulatory matters
The operating companies within the Regulated Services Group are subject to regulation by the public utility commissions of the states and provinces in which they operate. The respective public utility commissions have jurisdiction with respect to rate, service, accounting policies, issuance of securities, acquisitions and other matters. These utilities operate under cost-of-service regulation as administered by these authorities. The Company’s regulated utility operating companies are accounted for under the principles of ASC 980. Under ASC 980, regulatory assets and liabilities that would not be recorded under U.S. GAAP for non-regulated entities are recorded to the extent that they represent probable future revenue or expenses associated with certain charges or credits that will be recovered from or refunded to customers through the rate setting process.
At any given time, the Company can have several regulatory proceedings underway. The financial effects of these proceedings are reflected in the consolidated financial statements based on regulatory approval obtained to the extent that there is a financial impact during the applicable reporting period. The following regulatory proceeding was recently completed:
Utility
State
Regulatory proceeding type
Annual revenue increase
Effective date
New England Natural Gas System
Massachusetts
Gas System Enhancement Plan
$2,679
May 1, 2020


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

5.
Regulatory matters (continued)
Regulatory assets and liabilities consist of the following:
 
March 31, 2020
 
December 31, 2019
Regulatory assets
 
 
 
Retired generating plant (a)
$
199,795

 
$
—

Environmental remediation
89,666

 
82,300

Pension and post-employment benefits
139,682

 
143,292

Income taxes
70,919

 
71,506

Debt premium
40,512

 
42,150

Fuel and commodity cost adjustments
13,116

 
23,433

Rate adjustment mechanism
75,692

 
69,121

Clean energy and other customer programs
26,299

 
26,369

Deferred capitalized costs
37,046

 
38,833

Asset retirement obligation
25,177

 
23,841

Long-term maintenance contract
14,375

 
13,264

Rate review costs
6,695

 
6,695

Other
20,341

 
19,083

Total regulatory assets
$
759,315

 
$
559,887

Less: current regulatory assets
(56,129
)
 
(50,213
)
Non-current regulatory assets
$
703,186

 
$
509,674

 
 
 
 
Regulatory liabilities
 
 
 
Income taxes
$
321,132

 
$
321,960

Cost of removal
194,201

 
196,423

Rate base offset
7,967

 
8,719

Fuel and commodity costs adjustments
18,586

 
16,645

Rate adjustment mechanism
10,848

 
10,446

Deferred capitalized costs - fuel related
7,057

 
7,097

Pension and post-employment benefits
22,779

 
22,256

Other
14,341

 
14,516

Total regulatory liabilities
$
596,911

 
$
598,062

Less: current regulatory liabilities
(37,515
)
 
(41,683
)
Non-current regulatory liabilities
$
559,396

 
$
556,379

(a)
Retired generating plant
On March 1, 2020, the Company's 200 MW coal generation facility located in Asbury, Missouri, ceased operations. The Company transferred the remaining net book value of Asbury’s plant retired from plant in-service to a regulatory asset. The ultimate valuation of the regulatory asset will be determined in future commission orders. The Company is also assessing the decommissioning requirements associated with the retirement of the facility. Per commission orders in two of its jurisdictions, the Company is required to track the impact of Asbury's retirement on rates for consideration in the next rate case. The Company expects to defer such amounts collected from customers until new rates become effective. The accrual for this estimated amount will include revenues collected related to Asbury that will be subject to a future rate review proceeding and possible refund to customers. The ultimate resolution of this matter is uncertain.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

6.
Long-term investments
Long-term investments consist of the following:
 
March 31, 2020
 
December 31, 2019
Long-term investments carried at fair value

 
 
 
Atlantica (a)
$
1,002,208

 
$
1,178,581

Atlantica Yield Energy Solutions Canada Inc.
76,994

 
88,494

San Antonio Water System
25,854

 
27,072

 
$
1,105,056

 
$
1,294,147

Other long-term investments
 
 
 
Equity-method investees (b)
$
127,569

 
$
83,497

Development loans receivable from equity-method investees
58,823

 
36,204

Other
4,356

 
2,267

Total other long-term investments
$
190,748

 
$
121,968

Income (loss) from long-term investments from the three-month periods ended March 31, 2020 and 2019 is as follows:
 
Three months ended March 31
 
2020
 
2019
Fair value loss on investments carried at fair value
 
 
 
Atlantica
$
(185,394
)
 
$
(5,818
)
Atlantica Yield Energy Solutions Canada Inc.
(4,142
)
 
—

San Antonio Water System
(1,222
)
 
—

 
$
(190,758
)
 
$
(5,818
)
Dividend and interest income from investments carried at fair value
 
 
 
Atlantica
$
18,426

 
$
15,376

Atlantica Yield Energy Solutions Canada Inc.
3,904

 
—

San Antonio Water System
1,048

 
—

 
$
23,378

 
$
15,376

Other long-term investments


 


Equity method loss
(799
)
 
(2,106
)
Interest and other income
5,518

 
12,020

 
$
(162,661
)
 
$
19,472

(a)
Investment in Atlantica
AAGES (AY Holdings) B.V. (“AY Holdings”), an entity controlled and consolidated by APUC, has a share ownership in Atlantica Yield plc ("Atlantica") of approximately 44.2% (December 31, 2019 - 44.2%). APUC has the flexibility, subject to certain conditions, to increase its ownership of Atlantica up to 48.5%. The shares were purchased at a cost of $1,036,414. The Company accounts for its investment in Atlantica at fair value, with changes in fair value reflected in the consolidated statements of operations.




Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

6.
Long-term investments (continued)
(b)
Equity-method investees
The Company has non-controlling interests in various partnerships and joint ventures with a total carrying value of $127,569 (December 31, 2019 - $83,497) including investments in variable interest entities ("VIEs") of $103,395 (December 31, 2019 - $59,091).
Summarized combined information for APUC's investments in significant partnerships and joint ventures is as follows:
 
March 31, 2020
 
December 31, 2019
Total assets
$
1,280,753

 
$
833,791

Total liabilities
1,088,303

 
697,751

Net assets
192,450

 
136,040

APUC's ownership interest in the entities
99,175

 
63,624

Difference between investment carrying amount and underlying equity in net assets(a)
25,778

 
18,487

APUC's investment carrying amount for the entities
$
124,953

 
$
82,111

(a) The difference between the investment carrying amount and the underlying equity in net assets relates primarily to interest capitalized while the projects are under construction, the fair value of guarantees provided by the Company in regards to the investments, development fees and transaction costs.
The Company has committed loan and credit support facilities with some of its equity investees. During construction, the Company is obligated to provide cash advances and credit support in amounts necessary for the continued development and construction of the equity investees' projects. As of March 31, 2020, the Company had issued letters of credit and guarantees of obligations under a security of performance for a development opportunity; wind turbine or solar panel supply agreements; engineering, procurement, and construction agreements; purchase and sale agreements; interconnection agreements; energy purchase agreements; renewable energy credit agreements; equity capital contribution agreements; landowner agreements; and construction loan agreement. The fair value of the support provided recorded as at March 31, 2020 amounts to $16,672 (December 31, 2019 - $9,493). The Company is not considered the primary beneficiary of these entities as the partners have joint control and all decisions must be unanimous. Therefore, the Company accounts for its interest in these VIEs using the equity method.
Summarized combined information for APUC's VIEs is as follows:
 
March 31, 2020
 
December 31, 2019
APUC's maximum exposure in regards to VIEs
 
 
 
Carrying amount
$
103,395

 
$
59,091

Development loans receivable
57,664

 
35,000

Commitments on behalf of VIEs
1,389,972

 
1,364,871

 
$
1,551,031

 
$
1,458,962

The commitments are presented on a gross basis assuming no recoverable value in the assets of the VIEs. The majority of the amounts committed on behalf of VIEs in the above relate to wind turbine or solar panel supply agreements as well as engineering, procurement, and construction agreements.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Long-term debt
Long-term debt consists of the following:
Borrowing type
 
Weighted average coupon
 
Maturity
 
Par value
 
March 31, 2020
 
December 31, 2019
Senior unsecured revolving credit facilities (a)
 
—

 
2023-2024
 
N/A

 
$
409,674

 
$
141,577

Senior unsecured bank credit facilities (b)
 
—

 
2020
 
N/A

 
75,000

 
75,000

Commercial paper
 
—

 
2020
 
N/A

 
154,250

 
218,000

U.S. dollar borrowings
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes
 
4.09
%
 
2020-2047
 
$
1,225,000

 
1,219,803

 
1,219,579

Senior unsecured utility notes
 
6.00
%
 
2020-2035
 
$
217,000

 
233,308

 
233,686

Senior secured utility bonds
 
4.75
%
 
2020-2044
 
$
662,500

 
664,783

 
672,337

Canadian dollar borrowings
 
 
 
 
 
 
 
 
 
 
Senior unsecured notes (c)
 
4.28
%
 
2021-2050
 
C$
1,150,669

 
807,314

 
728,679

Senior secured project notes
 
10.21
%
 
2020-2027
 
C$
27,747

 
19,517

 
21,961

 
 
 
 
 
 
 
 
$
3,583,649

 
$
3,310,819

Subordinated U.S. dollar borrowings
 
 
 
 
 
 
 
 
 
 
Subordinated unsecured notes
 
6.50
%
 
2078-2079
 
$
637,500

 
621,118

 
621,049

 
 
 
 
 
 
 
 
$
4,204,767

 
$
3,931,868

Less: current portion
 
 
 
 
 
 
 
(161,005
)
 
(225,013
)
 
 
 
 
 
 
 
 
$
4,043,762

 
$
3,706,855

Short-term obligations of $476,202 that are expected to be refinanced using the long-term credit facilities are presented as long-term debt.
Long-term debt issued at a subsidiary level (project notes or utility bonds) relating to a specific operating facility is generally collateralized by the respective facility with no other recourse to the Company. Long-term debt issued at a subsidiary level whether or not collateralized generally has certain financial covenants, which must be maintained on a quarterly basis. Non-compliance with the covenants could restrict cash distributions/dividends to the Company from the specific facilities.
Recent financing activities:
(a)
Senior unsecured revolving credit facilities
On February 24, 2020, the Renewable Energy Group increased its uncommitted letter of credit facility to $350,000 and extended the maturity to June 30, 2021.
(b)
Senior unsecured bank credit facilities
Subsequent to quarter-end, given the uncertainty caused by the COVID-19 pandemic, the Company secured additional liquidity as an additional margin of safety intended to ensure the Company can continue to move forward with its 2020 capital expenditure program and committed acquisitions independent of the state of the capital markets. The additional liquidity is in the form of three new senior unsecured delayed draw non-revolving credit facilities for a total of $1,600,000 maturing in April, 2021.
(c)
Canadian dollar senior unsecured notes
On February 14, 2020, the Regulated Services Group issued C$200,000 senior unsecured debentures bearing interest at 3.315% with a maturity date of February 14, 2050. The debentures are redeemable at the option of the Company at a priced based on a make-whole provision.


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

8.
Pension and other post-employment benefits
The following table lists the components of net benefit costs for the pension plans and other post-employment benefits ("OPEB") in the unaudited interim consolidated statements of operations for the three-month period ended March 31:
 
Pension benefits
 
OPEB
 
Three months ended March 31
 
Three months ended March 31
 
2020
 
2019
 
2020
 
2019
Service cost
$
3,567

 
$
3,265

 
$
1,467

 
$
1,199

Non-service costs
 
 
 
 
 
 
 
Interest cost
4,791

 
4,759

 
1,819

 
1,784

Expected return on plan assets
(6,249
)
 
(7,123
)
 
(2,192
)
 
(1,930
)
Amortization of net actuarial loss (gain)
1,145

 
(316
)
 
(13
)
 
(52
)
Amortization of prior service credits
(402
)
 
22

 
—

 
(95
)
Amortization of regulatory assets/liabilities
3,538

 
3,077

 
919

 
1,167

 
$
2,823

 
$
419

 
$
533

 
$
874

Net benefit cost
$
6,390

 
$
3,684

 
$
2,000

 
$
2,073

The service cost components of pension plans and OPEB are shown as part of operating expenses within operating income in the unaudited interim consolidated statements of operations. The remaining components of net benefit cost are considered non-service costs and have been included outside of operating income in other net losses in the unaudited interim consolidated statements of operations.
9.Other long-term liabilities
Other long-term liabilities consist of the following: 
 
March 31, 2020
 
December 31, 2019
Advances in aid of construction
$
61,435

 
$
60,828

Environmental remediation obligation
66,849

 
58,061

Asset retirement obligations
54,061

 
53,879

Customer deposits
31,907

 
31,946

Unamortized investment tax credits
18,103

 
18,234

Deferred credits
18,930

 
18,952

Contingent development support obligations
16,963

 
9,446

Preferred shares, Series C
12,548

 
13,793

Lease liabilities
8,701

 
9,695

Other
27,452

 
26,506

 
$
316,949

 
$
301,340

Less: current portion
(57,471
)
 
(57,939
)
 
$
259,478

 
$
243,401


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

10.
Shareholders’ capital
(a)
Common shares
Number of common shares 
 
 
Three months ended March 31
 
 
2020
 
2019
Common shares, beginning of period
 
524,223,323

 
488,851,433

Dividend reinvestment plan
 
1,244,696

 
1,606,001

Exercise of share-based awards (b)
 
1,215,388

 
823,414

Conversion of convertible debentures
 
1,509

 
3,866

Common shares, end of period
 
526,684,916

 
491,284,714

(b)
Share-based compensation
During the three months ended March 31, 2020, the Board of directors of the Company (the "Board") approved the grant of 948,347 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$16.70, the market price of the underlying common share at the date of grant. One-third of the options vest on each of December 31, 2020, 2021, and 2022. The options may be exercised up to eight years following the date of grant.
The following assumptions were used in determining the fair value of share options granted: 
 
2020
Risk-free interest rate
1.2
%
Expected volatility
24
%
Expected dividend yield
4.1
%
Expected life
5.50 years

Weighted average grant date fair value per option
C$
2.75

In March 2020, 2,217,325 stock options were exercised at a weighted average price of C$12.48 in exchange for 708,117 common shares issued from treasury, and 1,509,208 options settled at their cash value as payment for the exercise price and tax withholdings related to the exercise of the options.
In March 2020, 325,441 performance share units ("PSUs") were granted to executives of the Company. The PSUs vest on January 1, 2023. In addition, 107,915 restricted share units ("RSUs") were granted to an executive of the Company. The RSUs vest on December 15, 2020. During the quarter, the Company settled 825,859 PSUs in exchange for 439,541 common shares issued from treasury, and 386,318 PSUs were settled at their cash value as payment for tax withholdings related to the settlement of the PSUs.
Subsequent to quarter end, 116,921 bonus deferral RSUs were granted to employees of the Company. The RSUs are 100% vested.
During the three months ended March 31, 2020, 22,611 deferred share units ("DSUs") were issued pursuant to the election of the Directors to defer a percentage of their Directors' fee in the form of DSUs.
For the three months ended March 31, 2020, APUC recorded $1,584 (2019 - $1,543) in total share-based compensation expense. The compensation expense is recorded as part of administrative expenses in the unaudited interim consolidated statements of operations. The portion of share-based compensation costs capitalized as cost of construction is insignificant.
As of March 31, 2020, total unrecognized compensation costs related to non-vested options and PSUs were $2,838 and $15,465, respectively, and are expected to be recognized over a period of 2.12 and 1.90 years, respectively.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

11.Accumulated other comprehensive income (loss)
AOCI consists of the following balances, net of tax:
 
Foreign currency cumulative translation
 
Unrealized gain on cash flow hedges
 
Pension and post-employment actuarial changes
 
Total
Balance, January 1, 2019
$
(74,189
)
 
$
64,333

 
$
(9,529
)
 
$
(19,385
)
Adoption of ASU 2017-12 on hedging
—

 
186

 
—

 
186

Other comprehensive income (loss)
7,795

 
19,177

 
(7,999
)
 
18,973

Amounts reclassified from AOCI to the unaudited interim consolidated statement of operations
—

 
(8,597
)
 
1,490

 
(7,107
)
Net current period OCI
$
7,795

 
$
10,580

 
$
(6,509
)
 
$
11,866

OCI attributable to the non-controlling interests
(2,428
)
 
—

 
—

 
(2,428
)
Net current period OCI attributable to shareholders of APUC
$
5,367

 
$
10,580

 
$
(6,509
)
 
$
9,438

Balance, December 31, 2019
$
(68,822
)
 
$
75,099

 
$
(16,038
)
 
$
(9,761
)
Other comprehensive loss
(36,630
)
 
(10,805
)
 
—

 
(47,435
)
Amounts reclassified from AOCI to the unaudited interim consolidated statement of operations
—

 
(3,283
)
—

(76
)
 
(3,359
)
Net current period OCI
$
(36,630
)
 
$
(14,088
)
 
$
(76
)
 
$
(50,794
)
OCI attributable to the non-controlling interests
6,060

 
—

 
—

 
6,060

Net current period OCI attributable to shareholders of APUC
$
(30,570
)
 
$
(14,088
)
 
$
(76
)
 
$
(44,734
)
Balance, March 31, 2020
$
(99,392
)
 
$
61,011

 
$
(16,114
)
 
$
(54,495
)
Amounts reclassified from AOCI for unrealized gain (loss) on cash flow hedges affected revenue from non-regulated energy sales while those for pension and post-employment actuarial changes affected pension and post-employment non-service costs.
12.
Dividends
All dividends of the Company are made on a discretionary basis as determined by the Board. The Company declares and pays the dividends on its common shares in U.S. dollars. Dividends declared were as follows:
 
Three months ended March 31
 
2020
 
2019
 
Dividend
 
Dividend per share
 
Dividend
 
Dividend per share
Common shares
$
74,629

 
$
0.1410

 
$
63,281

 
$
0.1282

Series A preferred shares
C$
1,549

 
C$
0.3226

 
C$
1,549

 
C$
0.3226

Series D preferred shares
C$
1,273

 
C$
0.3182

 
C$
1,250

 
C$
0.3125


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

13.Related party transactions
(a)Equity-method investments
The Company provides administrative and development services to its equity-method investees and is reimbursed for incurred costs. To that effect, during the three months ended March 31, 2020, the Company charged its equity-method investees $3,992 (2019 - $5,695).
(b)Redeemable non-controlling interest held by related party
Redeemable non-controlling interest held by related party represents a preference share in a consolidated subsidiary of the Company acquired by Abengoa-Algonquin Global Energy Solutions B.V. ("AAGES B.V.") in 2018 for $305,000. Redemption is not considered probable as at March 31, 2020. The Company incurred non-controlling interest attributable to AAGES B.V. of $3,766 (2019 - $6,842) and recorded distributions of $3,299 (2019 - $7,094) during the three months ended March 31, 2020 (note 14).
(c)Non-controlling interest held by related party
Non-controlling interest held by related party represents interest in a consolidated subsidiary of the Company acquired by Atlantica Yield Energy Solutions Canada Inc. ("AYES Canada") in May 2019. The Company recorded distributions of $4,208 (2019 - $nil) during the three months ended March 31, 2020.
(d)Long Sault Hydro Facility
Effective December 31, 2013, APUC acquired the shares of Algonquin Power Corporation Inc. (“APC”), which was partially owned by Senior Executives. APC owns the partnership interest in the 18 MW Long Sault Hydro Facility. A final post-closing adjustment related to the transaction remains outstanding.
The above related party transactions have been recorded at the exchange amounts agreed to by the parties to the transactions.
14.
Non-controlling interests and redeemable non-controlling interests
Net effect attributable to non-controlling interests for the three months ended March 31 consists of the following:
 
Three months ended March 31
 
2020
 
2019
HLBV and other adjustments attributable to:
 
 
 
Non-controlling interests - tax equity partnership units
$
18,232

 
$
17,839

Non-controlling interests - redeemable tax equity partnership units
1,719

 
2,306

Other net earnings attributable to:
 
 
 
Non-controlling interests
(609
)
 
(817
)
 
$
19,342

 
$
19,328

Redeemable non-controlling interest, held by related party

(3,766
)
 
(6,842
)
Net effect of non-controlling interests
$
15,576

 
$
12,486

The non-controlling tax equity investors (“tax equity partnership units”) in the Company's U.S. wind power and solar power generating facilities are entitled to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements. The share of earnings attributable to the non-controlling interest holders in these subsidiaries is calculated using the hypothetical liquidation at book value ("HLBV") method of accounting.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

15.
Income taxes
For the three months ended March 31, 2020, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the impact of the loss associated with its investment in Atlantica, and the impact of differences in effective tax rates on transactions in foreign jurisdictions.
Subsequent to quarter end, on April 8, 2020, the Internal Revenue Service issued final regulations with respect to rules regarding certain Hybrid arrangements as a result of U.S. Tax Reform. As a result of the final regulations, the Company expects to record a one-time deferred income tax expense of approximately $9,400 in the quarter ended June 30, 2020 to reverse the benefit of deductions taken in the prior year.
For the three months ended March 31, 2019, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the impact of differences in effective tax rates on transactions in foreign jurisdictions and as a result of non-taxable dividend income from its investment in Atlantica.
16.
Other net losses
Other net losses consist of the following:
 
Three months ended March 31
 
2020
 
2019
Pension and other post-employment non-service costs (note 8)
$
(3,356
)
 
$
(1,293
)
Acquisition and transition-related costs (note 3)
(26
)
 
(1,944
)
Other
(864
)
 
(620
)
 
$
(4,246
)
 
$
(3,857
)
17.
Basic and diluted net earnings (loss) per share
Basic and diluted earnings (loss) per share have been calculated on the basis of net earnings (loss) attributable to the common shareholders of the Company and the weighted average number of common shares and bonus deferral restricted share units outstanding. Diluted net earnings (loss) per share is computed using the weighted-average number of common shares, subscription receipts outstanding, additional shares issued subsequent to quarter-end under the dividend reinvestment plan, PSUs, RSUs and DSUs outstanding during the period and, if dilutive, potential incremental common shares resulting from the application of the treasury stock method to outstanding share options and additional shares issued subsequent to quarter-end under the dividend reinvestment plan.
The reconciliation of the net earnings (loss) and the weighted average shares used in the computation of basic and diluted earnings (loss) per share are as follows:
 
Three months ended March 31
 
2020
 
2019
Net earnings (loss) attributable to shareholders of APUC
$
(63,797
)
 
$
86,406

Series A preferred shares dividend
1,174

 
1,167

Series D preferred shares dividend
966

 
939

Net earnings (loss) attributable to common shareholders of APUC from continuing operations – basic and diluted
$
(65,937
)
 
$
84,300

Weighted average number of shares
 
 
 
Basic
525,828,253

 
490,538,243

Effect of dilutive securities
—

 
5,008,644

Diluted
525,828,253

 
495,546,887

The shares potentially issuable as a result of 5,463,041 securities (2019 - 1,113,775) are excluded from this calculation as they are anti-dilutive.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information
The Company is managed under two primary business units consisting of the Regulated Services Group and the Renewable Energy Group. The two business units are the two segments of the Company.
The Regulated Services Group, the Company's regulated operating unit, owns and operates a portfolio of electric, natural gas, water distribution and wastewater collection utility systems and transmission operations in the United States and Canada; the Renewable Energy Group, the Company's non-regulated operating unit, owns and operates a diversified portfolio of renewable and thermal electric generation assets in North America and internationally.
For purposes of evaluating the performance of the business units, the Company allocates the realized portion of any gains or losses on financial instruments to the specific business units. Dividend income from Atlantica and AYES Canada are included in the operations of the Renewable Energy Group, while interest income from San Antonio Water System is included in the operations of the Regulated Services Group. Equity method gains and losses are included in the operations of the Regulated Services Group or Renewable Energy Group based on the nature of the activities of the investees. The change in value of investments carried at fair value and unrealized portion of any gains or losses on derivative instruments not designated in a hedging relationship are not considered in management’s evaluation of divisional performance and are therefore allocated and reported under corporate.
 
Three months ended March 31, 2020
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
396,060

 
$
68,841

 
$
—

 
$
464,901

Fuel, power and water purchased
123,097

 
4,004

 
—

 
127,101

Net revenue
272,963

 
64,837

 
—

 
337,800

Operating expenses
108,367

 
19,529

 
—

 
127,896

Administrative expenses
9,487

 
6,206

 
(21
)
 
15,672

Depreciation and amortization
53,010

 
25,628

 
242

 
78,880

Gain on foreign exchange
—

 
—

 
(4,670
)
 
(4,670
)
Operating income
102,099

 
13,474

 
4,449

 
120,022

Interest expense
(24,840
)
 
(14,479
)
 
(6,929
)
 
(46,248
)
Income (loss) from long-term investments
2,648

 
23,794

 
(189,103
)
 
(162,661
)
Other net income (loss)
(4,997
)
 
834

 
(26
)
 
(4,189
)
Earnings (loss) before income taxes
$
74,910

 
$
23,623

 
$
(191,609
)
 
$
(93,076
)
Property, plant and equipment
$
4,600,836

 
$
2,377,469

 
$
29,828

 
$
7,008,133

Investments carried at fair value
25,854

 
1,079,202

 
—

 
1,105,056

Equity-method investees
43,547

 
84,022

 
—

 
127,569

Total assets
6,905,685

 
3,825,545

 
169,393

 
10,900,623

Capital expenditures
$
139,632

 
$
16,270

 
$
—

 
$
155,902

(1) Renewable Energy Group revenue includes $9,292 related to net hedging gains from energy derivative contracts for the three-month period ended March 31, 2020 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $2,968 related to alternative revenue programs for the three-month period ended March 31, 2020 that do not represent revenue recognized from contracts with customers.


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

18.
Segmented information (continued)
 
Three months ended March 31, 2019
 
Regulated Services Group
 
Renewable Energy Group
 
Corporate
 
Total
Revenue (1)(2)
$
411,024

 
$
66,201

 
$
—

 
$
477,225

Fuel and power purchased
150,606

 
6,921

 
—

 
157,527

Net revenue
260,418

 
59,280

 
—

 
319,698

Operating expenses
101,975

 
18,138

 
—

 
120,113

Administrative expenses
5,433

 
7,554

 
131

 
13,118

Depreciation and amortization
48,417

 
22,385

 
245

 
71,047

Gain on foreign exchange
—

 
—

 
(533
)
 
(533
)
Operating income
104,593

 
11,203

 
157

 
115,953

Interest expense
(25,092
)
 
(16,207
)
 
(1,322
)
 
(42,621
)
Income (loss) from long-term investments
1,257

 
23,497

 
(5,282
)
 
19,472

Other net losses
(1,960
)
 
(150
)
 
(1,943
)
 
(4,053
)
Earnings (loss) before income taxes
$
78,798

 
$
18,343

 
$
(8,390
)
 
$
88,751

Capital expenditures
$
97,415

 
$
9,971

 
$
—

 
$
107,386

 
December 31, 2019
Property, plant and equipment
$
4,754,373

 
$
2,444,382

 
$
32,909

 
$
7,231,664

Investments carried at fair value
27,072

 
1,267,075

 
—

 
1,294,147

Equity-method investees
29,827

 
53,670

 
—

 
83,497

Total assets
$
6,816,063

 
$
4,014,067

 
$
81,340

 
$
10,911,470

(1) Renewable Energy Group revenue includes $6,439 related to net hedging gains from energy derivative contracts for the three-month period ended March 31, 2019 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $(7,021) related to alternative revenue programs for the three-month period ended March 31, 2019 that do not represent revenue recognized from contracts with customers.
The majority of non-regulated energy sales are earned from contracts with large public utilities. The Company has sought to mitigate its credit risk by selling energy to large utilities in various North American locations. None of the utilities contribute more than 10% of total revenue.
APUC operates in the independent power and utility industries in both Canada and the United States. Information on operations by geographic area is as follows:
 
Three months ended March 31
 
2020
 
2019
Revenue
 
 
 
Canada
$
24,172

 
$
18,531

United States
440,729

 
458,694

 
$
464,901

 
$
477,225

Revenue is attributed to the two countries based on the location of the underlying generating and utility facilities.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

19.Commitments and contingencies
(a)
Contingencies
APUC and its subsidiaries are involved in various claims and litigation arising out of the ordinary course and conduct of its business. Although such matters cannot be predicted with certainty, management does not consider APUC’s exposure to such litigation to be material to these unaudited interim consolidated financial statements. Accruals for any contingencies related to these items are recorded in the consolidated financial statements at the time it is concluded that its occurrence is probable and the related liability is estimable.
Claim by Gaia Power Inc.
On October 30, 2018, Gaia Power Inc. (“Gaia”) commenced an action in the Ontario Superior Court of Justice against APUC and certain of its subsidiaries, claiming damages of not less than $345,000 and punitive damages in the sum of $25,000. The action arises from Gaia’s 2010 sale, to a subsidiary of APUC, of Gaia’s interest in certain proposed wind farm projects in Canada.  Pursuant to a 2010 royalty agreement, Gaia is entitled to royalty payments if the projects are developed and achieve certain agreed targets. It is too early to determine the likelihood of success in this lawsuit; however, APUC intends to vigorously defend it.
Condemnation expropriation proceedings
Liberty Utilities (Apple Valley Ranchos Water) Corp. is the subject of a condemnation lawsuit filed by the town of Apple Valley. A court will determine the necessity of the taking by Apple Valley and, if established, a jury will determine the fair market value of the assets being condemned.  Because of COVID-19 the timing for the resolution of the condemnation proceedings is currently unknown. Any taking by government entities would legally require fair compensation to be paid; however, there is no assurance that the value received as a result of the condemnation will be sufficient to recover the Company's net book value of the utility assets taken.
(b)
Commitments
In addition to the commitments related to the proposed acquisitions and development projects disclosed in notes 3 and 6, the following significant commitments exist as of March 31, 2020.
APUC has outstanding purchase commitments for power purchases, gas supply and service agreements, service agreements, capital project commitments and land easements.
Detailed below are estimates of future commitments under these arrangements: 

Year 1
Year 2
Year 3
Year 4
Year 5
Thereafter
Total
Power purchase (i)
$
21,769

$
11,477

$
11,395

$
11,623

$
11,855

$
176,424

$
244,543

Gas supply and service agreements (ii)
83,079

59,656

51,774

45,378

40,677

138,707

419,271

Service agreements
47,088

39,700

41,884

45,376

46,171

278,171

498,390

Capital projects
364,597

—

—

—

—

—

364,597

Land easements
6,523

6,557

6,627

6,723

6,800

195,273

228,503

Total
$
523,056

$
117,390

$
111,680

$
109,100

$
105,503

$
788,575

$
1,755,304

(i)
Power purchase: APUC’s electric distribution facilities have commitments to purchase physical quantities of power for load serving requirements. The commitment amounts included in the table above are based on market prices as of March 31, 2020. However, the effects of purchased power unit cost adjustments are mitigated through a purchased power rate-adjustment mechanism.
(ii)  
Gas supply and service agreements: APUC’s gas distribution facilities and thermal generation facilities have commitments to purchase physical quantities of natural gas under contracts for purposes of load serving requirements and of generating power.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

20.
Non-cash operating items
The changes in non-cash operating items consist of the following:
 
Three months ended March 31
 
2020
 
2019
Accounts receivable
$
39,932

 
$
(28,675
)
Fuel and natural gas in storage
11,010

 
19,481

Supplies and consumables inventory
(7,794
)
 
(1,977
)
Income taxes recoverable
(619
)
 
(822
)
Prepaid expenses
(10,448
)
 
(6,606
)
Accounts payable
(71,170
)
 
(28,537
)
Accrued liabilities
(35,396
)
 
(10,130
)
Current income tax liability
(29,155
)
 
6,351

Asset retirements and environmental obligations
(572
)
 
(1,100
)
Net regulatory assets and liabilities
(4,815
)
 
6,117

 
$
(109,027
)
 
$
(45,898
)

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments
(a)
Fair value of financial instruments
March 31, 2020
Carrying
amount
 
Fair
value
 
Level 1
 
Level 2
 
Level 3
Long-term investments carried at fair value
$
1,105,056

 
$
1,105,056

 
1,002,208

 
$
25,854

 
$
76,994

Development loans and other receivables
59,682

 
58,664

 
—

 
58,664

 
—

Derivative instruments (1):
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
62,172

 
62,172

 
—

 
—

 
62,172

Energy contracts not designated as cash flow hedge
801

 
801

 
—

 
—

 
801

Commodity contracts for regulated operations
4

 
4

 
—

 
4

 
—

Cross currency swap designated as a net investment hedge
28,689

 
28,689

 
—

 
28,689

 
—

Total derivative instruments
91,666

 
91,666

 
—

 
28,693

 
62,973

Total financial assets
$
1,256,404

 
$
1,255,386

 
$
1,002,208

 
$
113,211

 
$
139,967

Long-term debt
$
4,204,767

 
$
4,308,525

 
$
1,419,970

 
$
2,888,555

 
$
—

Convertible debentures
302

 
568

 
568

 
—

 
—

Preferred shares, Series C
12,548

 
12,709

 
—

 
12,709

 
—

Derivative instruments (1):
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
1,577

 
1,577

 
—

 
—

 
1,577

Energy contracts not designated as a cash flow hedge
20

 
20

 
—

 
—

 
20

Cross-currency swap designated as a net investment hedge
117,734

 
117,734

 
—

 
117,734

 
—

Forward interest rate swaps designated as a hedge

9,214

 
9,214

 
—

 
9,214

 
—

Commodity contracts for regulated operations
992

 
992

 
—

 
992

 
—

Total derivative instruments
129,537

 
129,537

 
—

 
127,940

 
1,597

Total financial liabilities
$
4,347,154

 
$
4,451,339

 
$
1,420,538

 
$
3,029,204

 
$
1,597

(1) Balance of $334 associated with certain weather derivatives have been excluded, as they are accounted for based on intrinsic value rather than fair value.


Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(a)
Fair value of financial instruments (continued)
December 31, 2019
Carrying
amount
 
Fair
value
 
Level 1
 
Level 2
 
Level 3
Long-term investment carried at fair value
$
1,294,147

 
$
1,294,147

 
$
1,178,581

 
$
27,072

 
$
88,494

Development loans and other receivables
37,050

 
37,984

 
—

 
37,984

 
—

Derivative instruments:
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
65,304

 
65,304

 
—

 
—

 
65,304

Energy contracts not designated as a cash flow hedge
20,384

 
20,384

 
—

 
—

 
20,384

Commodity contracts for regulatory operations
16

 
16

 
—

 
16

 
—

Total derivative instruments
85,704

 
85,704

 
—

 
16

 
85,688

Total financial assets
$
1,416,901

 
$
1,417,835

 
$
1,178,581

 
$
65,072

 
$
174,182

Long-term debt
$
3,931,868

 
$
4,284,068

 
$
1,495,153

 
$
2,788,915

 
$
—

Convertible debentures
342

 
623

 
623

 
—

 
—

Preferred shares, Series C
13,793

 
15,120

 
—

 
15,120

 
—

Derivative instruments:
 
 
 
 
 
 
 
 
 
Energy contracts designated as a cash flow hedge
789

 
789

 
—

 
—

 
789

Cross-currency swap designated as a net investment hedge
81,765

 
81,765

 
—

 
81,765

 
—

Currency forward contract not designated as hedge
38

 
38

 
—

 
—

 
38

Commodity contracts for regulated operations
2,072

 
2,072

 
—

 
2,072

 
—

Total derivative instruments
84,664

 
84,664

 
—

 
83,837

 
827

Total financial liabilities
$
4,030,667

 
$
4,384,475

 
$
1,495,776

 
$
2,887,872

 
$
827

The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair value as of March 31, 2020 and December 31, 2019 due to the short-term maturity of these instruments.
The fair value of development loans and other receivables (level 2) is determined using a discounted cash flow method, using estimated current market rates for similar instruments adjusted for estimated credit risk as determined by management. 
The fair value of the investment in Atlantica (level 1) is measured at the closing price on the NASDAQ stock exchange.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(a)
Fair value of financial instruments (continued)
The Company’s level 1 fair value of long-term debt is measured at the closing price on the New York Stock Exchange and the Canadian over-the-counter closing price. The Company’s level 2 fair value of long-term debt at fixed interest rates and Series C preferred shares has been determined using a discounted cash flow method and current interest rates. The Company's level 2 fair value of convertible debentures has been determined as the greater of their face value and the quoted value of APUC's common shares on a converted basis.
The Company’s level 2 fair value derivative instruments primarily consist of swaps, options, rights and forward physical derivatives where market data for pricing inputs are observable. Level 2 pricing inputs are obtained from various market indices and utilize discounting based on quoted interest rate curves, which are observable in the marketplace.
The Company’s level 3 instruments consist of energy contracts for electricity sales and the fair value of the Company's investment in AYES Canada. The significant unobservable inputs used in the fair value measurement of energy contracts are the internally developed forward market prices ranging from $10.46 to $126.47 with a weighted average of $20.93 as of March 31, 2020. The weighted average forward market prices are developed based on the quantity of energy expected to be sold monthly and the expected forward price during that month. The change in the fair value of the energy contracts is detailed in notes 21(b)(ii) and 21(b)(iv). The significant unobservable inputs used in the fair value measurement of the Company's AYES Canada investment are the expected cash flows, the discount rates applied to these cash flows ranging from 8.75% to 9.50% with a weighted average of 9.42%, and the expected volatility of Atlantica's share price ranging from 18% to 22% as of March 31, 2020. Significant increases (decreases) in expected cash flows or increases (decreases) in discount rate in isolation would have resulted in a significantly lower (higher) fair value measurement.
(b)
Derivative instruments
Derivative instruments are recognized on the consolidated balance sheets as either assets or liabilities and measured at fair value at each reporting period.
(i)
Commodity derivatives – regulated accounting
The Company uses derivative financial instruments to reduce the cash flow variability associated with the purchase price for a portion of future natural gas purchases associated with its regulated gas and electric service territories. The Company’s strategy is to minimize fluctuations in gas sale prices to regulated customers.
The following are commodity volumes, in dekatherms (“dths”) associated with the above derivative contracts:
 
2020

Financial contracts: Swaps
2,144,407

Forward contracts
2,000,000

 
4,144,407

The accounting for these derivative instruments is subject to guidance for rate regulated enterprises. Therefore, the fair value of these derivatives is recorded as current or long-term assets and liabilities, with offsetting positions recorded as regulatory assets and regulatory liabilities in the consolidated balance sheets. Most of the gains or losses on the settlement of these contracts are included in the calculation of the fuel and commodity costs adjustments (note 5). As a result, the changes in fair value of these natural gas derivative contracts and their offsetting adjustment to regulatory assets and liabilities had no earnings impact.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(i)
Commodity derivatives – regulated accounting (continued)
The following table presents the impact of the change in the fair value of the Company’s natural gas derivative contracts had on the unaudited interim consolidated balance sheets: 
 
 
March 31, 2020
 
December 31, 2019
Regulatory assets:
 
 
 
 
Swap contracts
 
$
149

 
$
28

Option contracts
 
16

 
38

Forward contracts
 
$
1,051

 
$
1,830

Regulatory liabilities:
 
 
 
 
Swap contracts
 
$
207

 
$
743

(ii)
Cash flow hedges
The Company reduces the price risk on the expected future sale of power generation at Sandy Ridge, Senate and Minonk Wind Facilities by entering into the following long-term energy derivative contracts. 
Notional quantity
(MW-hrs)
 
Expiry
 
Receive average
prices (per MW-hr)
 
Pay floating price
(per MW-hr)
718,925

 
 December 2028
 
34.95
 
PJM Western HUB
3,295,096

 
 December 2027
 
25.33
 
NI HUB
2,552,962

 
 December 2027
 
36.46
 
ERCORT North HUB
The Company provides energy requirements to various customers under contracts at fixed rates. While the production from the Tinker Hydroelectric Facility is expected to provide a portion of the energy required to service these customers, APUC anticipates having to purchase a portion of its energy requirements at the ISO NE spot rates to supplement self-generated energy. The Company designated a contract with a notional quantity of 151,680 MW-hours, a price of $38.95 per MW-hr and expiring in February 2022 as a hedge to the price of energy purchases. The Company also mitigates the risk by using short-term financial forward energy purchase contracts. These short-term derivatives are not accounted for as hedges and changes in fair value are recorded in earnings as they occur (note 21(b)(iv)).
In January 2019, the Company entered into a long-term energy derivative contract to reduce the price risk on the expected future sale of power generation at the Sugar Creek wind Project. On September 30, 2019, the Company sold the derivative contract together with 100% of its ownership interest in Sugar Creek to AAGES Sugar Creek. The novation and transfer of the derivative contract was subject to counterparty approval, which was received in Q1 2020. As a result, the hedge relationship for the Sugar Creek energy derivative was discontinued. Amounts in AOCI of $15,765 and related tax were reclassified from AOCI into earnings in 2019.
The Company was party to a 10-year forward-starting interest rate swap beginning on July 25, 2018 in order to reduce the interest rate risk related to the probable issuance on that date of a 10-year C$135,000 bond. During 2018, the Company amended and extended the forward-starting date of the interest rate swap to begin on March 29, 2019. During 2019, the Company settled the forward-starting interest rate swap contract as it issued C$300,000 10-year senior unsecured notes with an interest rate of 4.60%.
In September 2019, the Company entered into a forward-starting interest rate swap in order to reduce the interest rate risk related to the quarterly interest payments between July 1, 2024 and July 1, 2029 on the subordinated unsecured notes (note 7). The Company designated the entire notional amount of the three pay-variable and receive-fixed interest rate swaps as a hedge of the future quarterly variable-rate interest payments associated with the subordinated unsecured notes.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(ii)
Cash flow hedges (continued)
The following table summarizes OCI attributable to derivative financial instruments designated as a cash flow hedge: 
 
Three months ended March 31
 
2020
 
2019
Effective portion of cash flow hedge
$
(10,805
)
 
$
3,645

Amortization of cash flow hedge
(8
)
 
(8
)
Amounts reclassified from AOCI
(3,275
)
 
(2,174
)
OCI attributable to shareholders of APUC
$
(14,088
)
 
$
1,463

The Company expects $8,793 and $982 of unrealized gains currently in AOCI to be reclassified, net of taxes into non-regulated energy sales and interest expense, respectively, within the next 12 months, as the underlying hedged transactions settle.
(iii)
Foreign exchange hedge of net investment in foreign operation
The functional currency of most of APUC's operations is the U.S. dollar. Effective January 1, 2020, the functional currency of APUC, the non-consolidated parent entity, changed from the Canadian dollar to the U.S. dollar based on a balance of facts, taking into consideration its operating, financing and investing activities. As a result of that entity's change of functional currency, changes were made to certain hedging relationships to mitigate the remaining Canadian dollar risk.
The Company designates obligations denominated in Canadian dollars as a hedge of the foreign currency exposure of its net investment in its Canadian investments and subsidiaries. The related foreign currency transaction gain or loss designated as, and effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency gain of $1,463 for the three months ended March 31, 2020 was recorded in OCI.
On May 23, 2019, the Company entered into a cross-currency swap, coterminous with the subordinated unsecured notes to effectively convert the $350,000 U.S. dollar denominated offering into Canadian dollars. The change in the carrying amount of the notes due to changes in spot exchange rates is recognized each period in the consolidated statements of operations as loss (gain) on foreign exchange. The Company designated the entire notional amount of the cross-currency fixed-for-fixed interest rate swap as a hedge of the foreign currency exposure related to cash flows for the interest and principal repayments on the notes. Upon the change in functional currency of APUC to the U.S. dollar on January 1, 2020, this hedge was dedesignated. The OCI related to this hedge will be amortized into earnings in the period that future interest payments affect earnings over the remaining life of the original hedge. The Company redesignated this swap as a hedge of APUC's net investment in its Canadian subsidiaries. The related foreign currency transaction gain or loss designated as a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency gain of $34,835 for the three months ended March 31, 2020 was recorded in OCI.
Canadian operations
The Company is exposed to currency fluctuations from its Canadian-based operations. APUC manages this risk primarily through the use of natural hedges by using Canadian long-term debt to finance its Canadian operations and a combination of foreign exchange forward contracts and spot purchases.
The Company’s Canadian operations are determined to have the Canadian dollar as their functional currency and are exposed to currency fluctuations from their U.S. dollar transactions. The Company designates obligations denominated in U.S. dollars as a hedge of the foreign currency exposure of its net investment in its U.S. investments and subsidiaries. The related foreign currency transaction gain or loss designated as, and effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $4,604 for the three months ended March 31, 2020 (2019 - gain of $14,408) was recorded in OCI.

Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
March 31, 2020 and 2019
(in thousands of U.S. dollars, except as noted and per share amounts)

21.
Financial instruments (continued)
(b)
Derivative instruments (continued)
(iii)
Foreign exchange hedge of net investment in foreign operation (continued)
The Company is party to C$650,000 cross currency swaps to effectively convert Canadian dollar debentures (note 7) into U.S. dollars. The Company designated the entire notional amount of the cross-currency fixed-for-fixed interest rate swap and related short-term U.S. dollar payables created by the monthly accruals of the swap settlement as a hedge of the foreign currency exposure of its net investment in the Renewable Energy Group's U.S. operations. The gain or loss related to the fair value changes of the swap and the related foreign currency gains and losses on the U.S. dollar accruals that are designated as, and are effective as, a hedge of the net investment in a foreign operation are reported in the same manner as the translation adjustment (in OCI) related to the net investment. A loss of $43,832 (2019 - gain of $16,840) was recorded in OCI in 2020.
(iv)
Other derivatives
Derivative financial instruments are used to manage certain exposures to fluctuations in exchange rates, interest rates and commodity prices. The Company does not enter into derivative financial agreements for speculative purposes.
For derivatives that are not designated as hedges, the changes in the fair value are immediately recognized in earnings. The effects on the unaudited interim consolidated statements of operations of derivative financial instruments not designated as hedges consist of the following:
 
Three months ended March 31
 
2020
 
2019
Change in unrealized loss (gain) on derivative financial instruments:
 
 
 
Energy derivative contracts
$
178

 
$
—

Currency forward contract
—

 
(562
)
Total change in unrealized loss (gain) on derivative financial instruments
$
178

 
$
(562
)
Realized loss (gain) on derivative financial instruments:
 
 
 
Energy derivative contracts
(132
)
 
(207
)
Currency forward contract
—

 
285

Total realized loss (gain) on derivative financial instruments
$
(132
)
 
$
78

Loss (gain) on derivative financial instruments not accounted for as hedges
46

 
(484
)
Other
11

 
11

 
$
57

 
$
(473
)
Amounts recognized in the unaudited interim consolidated statements of operations consist of:
 
 
 
Loss (gain) on derivative financial instruments
$
57

 
$
(196
)
Gain on foreign exchange
—

 
(277
)
 
$
57

 
$
(473
)
(c)
Risk management
In the normal course of business, the Company is exposed to financial risks that potentially impact its operating results. The Company employs risk management strategies with a view to mitigate these risks to the extent possible on a cost effective basis.
22.
Comparative figures
Certain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current period.