EX-99.2 3 exhibit992q22017fs.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2


 
 
 












FORTIS INC.

Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2017 and 2016
(Unaudited)

 
F - 1
 


Fortis Inc.
Condensed Consolidated Interim Balance Sheets (Unaudited)
As at
(in millions of Canadian dollars)
 
June 30,
 
December 31,
 
2017
 
2016
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
231

 
$
269

Accounts receivable and other current assets
1,106

 
1,127

Prepaid expenses
65

 
85

Inventories
355

 
372

Regulatory assets (Note 5)
306

 
313

Total current assets
2,063

 
2,166

Other assets
451

 
406

Regulatory assets (Note 5)
2,617

 
2,620

Capital assets, net
29,419

 
29,337

Intangible assets, net
1,040

 
1,011

Goodwill
11,991

 
12,364

Total assets
$
47,581

 
$
47,904

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
Short-term borrowings (Note 15)
$
568

 
$
1,155

Accounts payable and other current liabilities
1,803

 
1,970

Regulatory liabilities (Note 5)
455

 
492

Current installments of long-term debt (Note 6)
1,186

 
251

Current installments of capital lease and finance obligations
68

 
76

Total current liabilities
4,080

 
3,944

Other liabilities
1,182

 
1,279

Regulatory liabilities (Note 5)
1,439

 
1,691

Deferred income taxes
3,368

 
3,263

Long-term debt (Note 6)
19,926

 
20,817

Capital lease and finance obligations
442

 
460

Total liabilities
30,437

 
31,454

Commitments and Contingencies (Note 17)

 

Equity
 
 
 
Common shares (1) (Note 7)
11,435

 
10,762

Preference shares
1,623

 
1,623

Additional paid-in capital
9

 
12

Accumulated other comprehensive income
407

 
745

Retained earnings
1,840

 
1,455

Shareholders’ equity
15,314

 
14,597

Non-controlling interests
1,830

 
1,853

Total equity
17,144

 
16,450

Total liabilities and equity
$
47,581

 
$
47,904

 
 
 
 
(1) No par value. Unlimited authorized shares; 417.9 million and 401.5 million issued and outstanding as at June 30, 2017 and December 31, 2016, respectively
 
 
 
 
See accompanying Notes to Condensed Consolidated Interim Financial Statements

 
F - 2
 


Fortis Inc.
Condensed Consolidated Interim Statements of Earnings (Unaudited)
For the periods ended June 30
(in millions of Canadian dollars, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
Year-to-Date
 
 
2017

2016

2017

2016
 
 
 
 
 
 
 
 
 
Revenue
$
2,015

 
$
1,485

 
$
4,289

 
$
3,257

 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Energy supply costs
524

 
488

 
1,278

 
1,195

 
Operating
571

 
454

 
1,153

 
928

 
Depreciation and amortization
298

 
232

 
595

 
466

Total expenses
1,393

 
1,174

 
3,026

 
2,589

Operating income
622

 
311

 
1,263

 
668

Other income, net (Note 10)
24

 
9

 
55

 
25

Finance charges (Note 11)
232

 
150

 
461

 
293

Earnings before income taxes
414

 
170

 
857

 
400

Income tax expense
102

 
28

 
208

 
70

Net earnings
$
312

 
$
142

 
$
649

 
$
330

 
 
 
 
 
 
 
 
 
Net earnings attributable to:
 
 
 
 
 
 
 
 
Non-controlling interests
$
38

 
$
17

 
$
65

 
$
24

 
Preference equity shareholders
17

 
18

 
33

 
37

 
Common equity shareholders
257

 
107

 
551

 
269

 
 
$
312

 
$
142

 
$
649

 
$
330

 
 
 
 
 
 
 
 
 
Earnings per common share (Note 12)
 
 
 
 
 
 
 
 
Basic
$
0.62

 
$
0.38

 
$
1.34

 
$
0.95

 
Diluted
$
0.62

 
$
0.38

 
$
1.34

 
$
0.95

 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Interim Financial Statements
Fortis Inc.
Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited)
For the periods ended June 30
(in millions of Canadian dollars)
 
 
Quarter Ended
 
Year-to-Date
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Net earnings
$
312

 
$
142

 
$
649

 
$
330

 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
 
Unrealized foreign currency translation losses, net of hedging activities and tax
(244
)
 
(18
)
 
(336
)
 
(287
)
Net change in available-for-sale investment, net of tax

 
(1
)
 

 
2

Net change in fair value of cash flow hedges, net of tax
(2
)
 

 
(2
)
 

 
(246
)
 
(19
)
 
(338
)
 
(285
)
Comprehensive income
$
66

 
$
123

 
$
311

 
$
45

Comprehensive income attributable to:
 
 
 
 
 
 
 
 
Non-controlling interests
$
38

 
$
17

 
$
65

 
$
24

 
Preference equity shareholders
17

 
18

 
33

 
37

 
Common equity shareholders
11

 
88

 
213

 
(16
)
 
$
66

 
$
123

 
$
311

 
$
45

 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Interim Financial Statements

 
F - 3
 


Fortis Inc.
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
For the periods ended June 30
(in millions of Canadian dollars)
 
 
 
Quarter Ended
 
Year-to-Date
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
Operating activities
 
 
 
 
 
 
 
Net earnings
$
312

 
$
142

 
$
649

 
$
330

Adjustments to reconcile net earnings to net cash
 
 
 
 
 
 
 
 
provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation - capital assets
267

 
207

 
533

 
416

 
 
Amortization - intangible assets
24

 
17

 
48

 
35

 
 
Amortization - other
7

 
8

 
14

 
15

 
 
Deferred income tax expense
102

 
28

 
174

 
30

 
 
Accrued employee future benefits
9

 
9

 
10

 
22

 
 
Equity component of allowance for funds used during construction (Note 10)
(19
)
 
(6
)
 
(36
)
 
(13
)
 
 
Other
(33
)
 
33

 
(11
)
 
54

Change in long-term regulatory assets and liabilities
(2
)
 
(34
)
 
(9
)
 
(32
)
Change in working capital (Note 13)
(18
)
 
44

 
(182
)
 
74

Cash from operating activities
649

 
448

 
1,190

 
931

Investing activities
 
 
 
 
 
 
 
Capital expenditures - capital assets
(654
)
 
(408
)
 
(1,323
)
 
(817
)
Capital expenditures - intangible assets
(65
)
 
(25
)
 
(105
)
 
(42
)
Contributions in aid of construction
24

 
7

 
37

 
18

Proceeds on sale of assets
2

 

 
3

 
10

Business acquisitions, net of cash acquired (Note 16)

 
(318
)
 

 
(318
)
Other
(48
)
 
(18
)
 
(72
)
 
(26
)
Cash used in investing activities
(741
)
 
(762
)
 
(1,460
)
 
(1,175
)
Financing activities
 
 
 
 
 
 
 
Proceeds from long-term debt, net of issue costs
368

 
356

 
756

 
356

Repayments of long-term debt and capital lease and finance obligations
(19
)
 
(69
)
 
(35
)
 
(109
)
Net (repayments) borrowings under committed credit    facilities
(241
)
 
421

 
(176
)
 
513

Change in short-term borrowings, net
26

 
(243
)
 
(587
)
 
(275
)
Advances from non-controlling interests
2

 
1

 
3

 
1

Issue of common shares to an institutional investor (Note 7)

 

 
500

 

Issue of common shares, net of costs and dividends reinvested
30

 
8

 
44

 
27

Dividends
 
 
 
 
 
 
 
 
 
Common shares, net of dividends reinvested
(104
)
 
(70
)
 
(202
)
 
(147
)
 
 
Preference shares
(17
)
 
(18
)
 
(33
)
 
(37
)
 
 
Subsidiary dividends paid to non-controlling interests
(22
)
 
(6
)
 
(39
)
 
(15
)
Other
4

 

 
4

 

Cash from financing activities
27

 
380

 
235

 
314

Effect of exchange rate changes on cash and cash equivalents
(2
)
 
(2
)
 
(3
)
 
(16
)
Change in cash and cash equivalents
(67
)
 
64

 
(38
)
 
54

Cash and cash equivalents, beginning of period
298

 
232

 
269

 
242

Cash and cash equivalents, end of period
$
231

 
$
296

 
$
231

 
$
296

 
 
 
 
 
 
 
 
 
 
Supplementary Information to Condensed Consolidated Interim Statements of Cash Flows (Note 13)
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Interim Financial Statements

 
F - 4
 


Fortis Inc.
Condensed Consolidated Interim Statements of Changes in Equity (Unaudited)
For the periods ended June 30
(in millions of Canadian dollars)
 
Common Shares
 
Preference Shares
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Non-Controlling Interests
 
Total Equity
 
(Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As at January 1, 2017
$
10,762

 
$
1,623

 
$
12

 
$
745

 
$
1,455

 
$
1,853

 
$
16,450

Net earnings

 

 

 

 
584

 
65

 
649

Other comprehensive loss

 

 

 
(338
)
 

 

 
(338
)
Common share issues
673

 

 
(4
)
 

 

 

 
669

Stock-based compensation

 

 
1

 

 

 

 
1

Advances from non-controlling interests

 

 

 

 

 
3

 
3

Foreign currency translation impacts

 

 

 

 

 
(52
)
 
(52
)
Subsidiary dividends paid to non-controlling interests

 

 

 

 

 
(39
)
 
(39
)
Dividends declared on common shares ($0.40 per share)

 

 

 

 
(166
)
 

 
(166
)
Dividends declared on preference shares

 

 

 

 
(33
)
 

 
(33
)
As at June 30, 2017
$
11,435

 
$
1,623

 
$
9

 
$
407

 
$
1,840

 
$
1,830

 
$
17,144

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As at January 1, 2016
$
5,867

 
$
1,820

 
$
14

 
$
791

 
$
1,388

 
$
473

 
$
10,353

Net earnings

 

 

 

 
306

 
24

 
330

Other comprehensive loss

 

 

 
(285
)
 

 

 
(285
)
Common share issues
95

 

 
(3
)
 

 

 

 
92

Stock-based compensation

 

 
1

 

 

 

 
1

Advances from non-controlling interests

 

 

 

 

 
1

 
1

Foreign currency translation impacts

 

 

 

 

 
(8
)
 
(8
)
Subsidiary dividends paid to non-controlling interests

 

 

 

 

 
(15
)
 
(15
)
Dividends declared on common shares ($0.375 per share)

 

 

 

 
(106
)
 

 
(106
)
Dividends declared on preference shares

 

 

 

 
(37
)
 

 
(37
)
Adoption of new accounting policy

 

 

 

 
16

 

 
16

As at June 30, 2016
$
5,962

 
$
1,820

 
$
12

 
$
506

 
$
1,567

 
$
475

 
$
10,342

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Interim Financial Statements
 
 
 
 
 
 
 


 
F - 5

 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)


1. DESCRIPTION OF BUSINESS

NATURE OF OPERATIONS

Fortis Inc. (“Fortis” or the “Corporation”) is principally an international electric and gas utility holding company. Fortis segments its utility operations by franchise area and, depending on regulatory requirements, by the nature of the assets. Fortis also holds investments in non-regulated energy infrastructure, which is treated as a separate segment. The Corporation’s reporting segments allow senior management to evaluate the operational performance and assess the overall contribution of each segment to the long-term objectives of Fortis. Each entity within the reporting segments operates with substantial autonomy, assumes profit and loss responsibility and is accountable for its own resource allocation.

The Corporation’s reportable segments and basis of segmentation is consistent with the Corporation’s 2016 annual audited consolidated financial statements.

REGULATED UTILITIES

The Corporation’s interests in regulated electric and gas utilities are as follows:

a.
Regulated Electric Transmission Utility - United States: Comprised of ITC Holdings Corp. and the electric transmission operations of its regulated operating subsidiaries, which include International Transmission Company, Michigan Electric Transmission Company, LLC, ITC Midwest LLC, and ITC Great Plains, LLC, (collectively “ITC”). ITC was acquired by Fortis in October 2016, with Fortis owning 80.1% of ITC and an affiliate of GIC Private Limited (“GIC”) owning a 19.9% minority interest (Note 16).

b.
Regulated Electric & Gas Utilities - United States: Comprised of UNS Energy, which primarily includes Tucson Electric Power Company, UNS Electric, Inc. and UNS Gas, Inc., and Central Hudson Gas & Electric Corporation (“Central Hudson”).

c.
Regulated Gas Utility - Canadian: Represents FortisBC Energy Inc. (“FortisBC Energy”).

d.
Regulated Electric Utilities - Canadian: Comprised of FortisAlberta Inc. (“FortisAlberta”), FortisBC Inc. (“FortisBC Electric”), and Eastern Canadian Electric Utilities. Eastern Canadian Electric Utilities is comprised of Newfoundland Power Inc., Maritime Electric Company, Limited and FortisOntario Inc.

e.
Regulated Electric Utilities - Caribbean: Comprised of Caribbean Utilities Company, Ltd. (“Caribbean Utilities”), in which Fortis holds an approximate 60% controlling interest, two wholly owned utilities in the Turks and Caicos Islands, FortisTCI Limited and Turks and Caicos Utilities Limited (collectively “Fortis Turks and Caicos”), and also includes the Corporation’s 33% equity investment in Belize Electricity Limited (“Belize Electricity”).

NON-REGULATED - ENERGY INFRASTRUCTURE

Non-Regulated - Energy Infrastructure is primarily comprised of long-term contracted generation assets in British Columbia and Belize, and the Aitken Creek natural gas storage facility (“Aitken Creek”) in British Columbia. Aitken Creek was acquired by Fortis in April 2016 (Note 16).

CORPORATE AND OTHER

The Corporate and Other segment captures expense and revenue items not specifically related to any reportable segment and those business operations that are below the required threshold for reporting as separate segments.

The Corporate and Other segment includes net corporate expenses of Fortis and non-regulated holding company expenses.


 
F - 6
 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial statements. As a result, these condensed consolidated interim financial statements do not include all of the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Corporation’s 2016 annual audited consolidated financial statements. In management’s opinion, the condensed consolidated interim financial statements include all adjustments that are of a normal recurring nature and necessary to present fairly the consolidated financial position of the Corporation.

Interim results will fluctuate due to the seasonal nature of electricity and gas demand, as well as the timing and recognition of regulatory decisions. Revenue is also affected by the cost of fuel, purchased power and natural gas, which are flowed through to customers without markup. Given the diversified nature of the Corporation’s subsidiaries, seasonality may vary. Most of the annual earnings of the gas utilities are realized in the first and fourth quarters due to space-heating requirements. Earnings for the electric utilities in the United States are generally highest in the second and third quarters due to the use of air conditioning and other cooling equipment.

The preparation of the condensed consolidated interim financial statements in accordance with US GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates and judgments are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances.

Additionally, certain estimates and judgments are necessary since the regulatory environments in which the Corporation’s regulated utilities operate often require amounts to be recognized at estimated values until these amounts are finalized pursuant to regulatory decisions or other regulatory proceedings. Due to changes in facts and circumstances, and the inherent uncertainty involved in making estimates, actual results may differ significantly from current estimates. Estimates and judgments are reviewed periodically and, as adjustments become necessary they are recognized in earnings in the period in which they become known. In the event that a regulatory decision is received after the balance sheet date but before the consolidated financial statements are issued, the facts and circumstances are reviewed to determine whether or not it is a recognized subsequent event.

All amounts are presented in Canadian dollars unless otherwise stated.

These condensed consolidated interim financial statements are comprised of the accounts of Fortis and its wholly owned subsidiaries and controlling ownership interests. All inter-company balances and transactions have been eliminated on consolidation, except as disclosed in Note 4.

These condensed consolidated interim financial statements have been prepared following the same accounting policies and methods as those used to prepare the Corporation’s 2016 annual audited consolidated financial statements, except as described below.

 
F - 7
 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

New Accounting Policies

Simplifying the Test for Goodwill Impairment
Effective January 1, 2017, the Corporation adopted Accounting Standards Update (“ASU”) No. 2017-04, Simplifying the Test for Goodwill Impairment. The amendments in this update simplify the subsequent measurement of goodwill by eliminating step two in the current two-step goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The above-noted ASU was applied prospectively and did not impact the Corporation’s unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2017.


3. FUTURE ACCOUNTING PRONOUNCEMENTS

The Corporation considers the applicability and impact of all ASUs issued by the Financial Accounting Standards Board (“FASB”). The following updates have been issued by FASB, but have not yet been adopted by Fortis. Any ASUs not included below were assessed and determined to be either not applicable to the Corporation or are not expected to have a material impact on the consolidated financial statements.

Revenue from Contracts with Customers
ASU No. 2014-09 was issued in May 2014 and the amendments in this update create Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in ASC Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the codification. This standard clarifies the principles for recognizing revenue and can be applied consistently across various transactions, industries and capital markets. In 2016 a number of additional ASUs were issued that clarify implementation guidance in ASC Topic 606. This standard, and all related ASUs, is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted for annual and interim periods beginning after December 15, 2016. The Corporation has elected not to early adopt.

The new guidance permits two methods of adoption: (i) the full retrospective method, under which comparative periods would be restated, and the cumulative impact of applying the standard would be recognized as at January 1, 2017, the earliest period presented; and (ii) the modified retrospective method, under which comparative periods would not be restated and the cumulative impact of applying the standard would be recognized at the date of initial adoption, January 1, 2018. The Corporation expects to use the modified retrospective approach; however, it continues to monitor interpretative issues that remain outstanding. Any significant developments in interpretative issues could change the Corporation’s expected method of adoption.

More than 80% of the Corporation’s revenue is generated from energy sales to retail and wholesale customers based on published tariff rates, as approved by the respective regulators, and is considered to be in the scope of ASU No. 2014-09. Fortis has assessed retail and wholesale tariff revenue and expects that the adoption of this standard will not change the Corporation’s accounting policy for recognizing retail and wholesale tariff revenue and, therefore, will not have an impact on earnings.

Fortis continues to assess whether this standard will have an impact on its remaining revenue streams. The Corporation has not disclosed the expected impact of the adoption of this standard on its consolidated financial statements as it is not expected to be material. However, certain specific interpretative issues remain outstanding and the conclusions reached, if different than currently anticipated, could have a material impact on the Corporation’s consolidated financial statements and related disclosures. Fortis continues to closely monitor developments related to the new standard.

The adoption of this standard will impact the Corporation’s revenue disclosures as revenue from contracts with customers is required to be reported separately from alternative revenue, which is outside the scope of ASC Topic 606. Fortis is in the process of drafting these required disclosures.

 
F - 8
 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

As part of its effort to adopt the new revenue recognition standard, Fortis is monitoring its adoption process under its existing internal controls over financial reporting (“ICFR”), including accounting processes and the gathering and evaluation of information used in assessing the required disclosures. As the implementation process continues, Fortis will assess any necessary changes to ICFR.

Recognition and Measurement of Financial Assets and Financial Liabilities
ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, was issued in January 2016 and the amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Most notably, the amendments require the following: (i) equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value through earnings; however, entities will be able to elect to record equity investments without readily determinable fair values at cost, less impairment, and plus or minus subsequent adjustments for observable price changes; and (ii) financial assets and financial liabilities to be presented separately in the notes to the consolidated financial statements, grouped by measurement category and form of financial asset. This update is effective for annual and interim periods beginning after December 15, 2017. Fortis is assessing the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.

Leases
ASU No. 2016-02 was issued in February 2016 and the amendments in this update create ASC Topic 842, Leases, and supersede lease requirements in ASC Topic 840, Leases. The main provision of ASC Topic 842 is the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases that were previously classified as operating leases. For operating leases, a lessee is required to do the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on the balance sheet; (ii) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and (iii) classify all cash payments within operating activities in the statement of cash flows. These amendments also require qualitative disclosures along with specific quantitative disclosures. This update is effective for annual and interim periods beginning after December 15, 2018 and is to be applied using a modified retrospective approach with practical expedient options. Early adoption is permitted. Fortis is assessing the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.

Measurement of Credit Losses on Financial Instruments
ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, was issued in June 2016 and the amendments in this update require entities to use an expected credit loss methodology and to consider a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for annual and interim periods beginning after December 15, 2019 and is to be applied on a modified retrospective basis. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. Fortis is assessing the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, was issued in March 2017 and the amendments in this update require that an employer disaggregate the current service costs component of net benefit cost and present it in the same statement of earnings line item(s) as other employee compensation costs arising from services rendered. The other components of net benefit cost are required to be presented separately from the service cost component and outside of operating income. Additionally, the amendments allow only the service cost component to be eligible for capitalization when applicable. This update is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The amendments in this update should be applied retrospectively for the presentation of the net periodic benefit costs and prospectively, on and after the effective date, for the capitalization in assets of only the service cost component of net periodic benefit costs. Fortis is assessing the impact that the adoption of this update will have on its consolidated financial statements and related disclosures.



 
F - 9
 


FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)


4.    SEGMENTED INFORMATION
Information by reportable segment is as follows:
 
REGULATED
 
NON-REGULATED
 
 
 
United States
 
Canada
 
 
 
Energy
 
Inter-
 
Quarter Ended June 30, 2017
 
UNS
Central
 
FortisBC
Fortis
FortisBC
Eastern
Caribbean
 
 
Infra-
Corporate
segment
 
($ millions)
ITC
Energy
Hudson
 
Energy
Alberta
Electric
Canadian
Electric
Total
 
structure
and Other
eliminations
Total
Revenue
408

552

206

 
227

148

85

251

80

1,957

 
59

1

(2
)
2,015

Energy supply costs

175

64

 
72


21

158

35

525

 


(1
)
524

Operating expenses
115

150

100

 
72

48

21

33

13

552

 
10

10

(1
)
571

Depreciation and amortization
56

67

17

 
50

46

15

24

14

289

 
8

1


298

Operating income (loss)
237

160

25

 
33

54

28

36

18

591


41

(10
)

622

Other income (expenses), net
11

3

2

 
5

1


1


23

 

2

(1
)
24

Finance charges
67

26

11

 
29

24

9

14

5

185

 
1

47

(1
)
232

Income tax expense (recovery)
67

48

6

 
3


3

5


132

 
2

(32
)

102

Net earnings (loss)
114

89

10

 
6

31

16

18

13

297


38

(23
)

312

Non-controlling interests
21



 




4

25

 
13



38

Preference share dividends



 






 

17


17

Net earnings (loss) attributable to common equity shareholders
93

89

10

 
6

31

16

18

9

272


25

(40
)

257

Goodwill
7,960

1,793

585

 
913

227

235

67

184

11,964

 
27



11,991

Identifiable assets
9,925

6,903

2,504

 
5,262

4,014

1,920

2,332

1,148

34,008

 
1,554

93

(65
)
35,590

Total assets
17,885

8,696

3,089


6,175

4,241

2,155

2,399

1,332

45,972


1,581

93

(65
)
47,581

Gross capital expenditures 
244

121

53

 
103

102

25

36

32

716

 
3



719

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Revenue

490

185

 
201

144

83

245

71

1,419

 
67

3

(4
)
1,485

Energy supply costs

176

52

 
41


21

154

29

473

 
16


(1
)
488

Operating expenses

146

89

 
69

48

21

34

12

419

 
9

28

(2
)
454

Depreciation and amortization

65

15

 
50

44

14

23

13

224

 
7

1


232

Operating income (loss)

103

29

 
41

52

27

34

17

303


35

(26
)
(1
)
311

Other income (expenses), net

2

1

 
4



1

1

9

 
(1
)
1


9

Finance charges

25

10

 
33

22

9

14

3

116

 
1

34

(1
)
150

Income tax expense (recovery)

24

8

 
4


3

5


44

 
1

(17
)

28

Net earnings (loss)

56

12

 
8

30

15

16

15

152


32

(42
)

142

Non-controlling interests



 




4

4

 
13



17

Preference share dividends



 






 

18


18

Net earnings (loss) attributable to common equity shareholders

56

12

 
8

30

15

16

11

148


19

(60
)

107

Goodwill

1,784

582

 
913

227

235

67

183

3,991

 
27



4,018

Identifiable assets

6,562

2,430

 
5,063

3,717

1,874

2,247

1,066

22,959

 
1,473

234

(61
)
24,605

Total assets

8,346

3,012

 
5,976

3,944

2,109

2,314

1,249

26,950


1,500

234

(61
)
28,623

Gross capital expenditures

98

60

 
79

87

19

35

42

420

 
5

8


433


 
F - 10

 


FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

 
REGULATED
 
NON-REGULATED
 
 
 
United States
 
Canada
 
 
 
Energy
 
Inter-
 
Year-to-Date June 30, 2017
 
UNS
Central
 
FortisBC
Fortis
FortisBC
Eastern
Caribbean
 
 
Infra-
Corporate
segment
 
($ millions)
ITC
Energy
Hudson
 
Energy
Alberta
Electric
Canadian
Electric
Total
 
structure
and Other
eliminations
Total
Revenue
803

1,010

464

 
676

295

198

583

150

4,179

 
115

1

(6
)
4,289

Energy supply costs

346

149

 
254


67

394

68

1,278

 
1


(1
)
1,278

Operating expenses
227

297

210

 
144

100

44

68

23

1,113

 
23

22

(5
)
1,153

Depreciation and amortization
110

133

34

 
100

95

31

47

28

578

 
16

1


595

Operating income (loss)
466

234

71

 
178

100

56

74

31

1,210

 
75

(22
)

1,263

Other income (expenses), net
21

15

4

 
9

2


1

2

54

 

2

(1
)
55

Finance charges
130

52

21

 
58

46

18

28

10

363

 
2

97

(1
)
461

Income tax expense (recovery)
132

67

21

 
26


7

11


264

 
7

(63
)

208

Net earnings (loss)
225

130

33

 
103

56

31

36

23

637

 
66

(54
)

649

Non-controlling interests
41



 




6

47

 
18



65

Preference share dividends



 






 

33


33

Net earnings (loss) attributable to common equity shareholders
184

130

33


103

56

31

36

17

590

 
48

(87
)

551

Goodwill
7,960

1,793

585

 
913

227

235

67

184

11,964

 
27



11,991

Identifiable assets
9,925

6,903

2,504

 
5,262

4,014

1,920

2,332

1,148

34,008

 
1,554

93

(65
)
35,590

Total assets
17,885

8,696

3,089


6,175

4,241

2,155

2,399

1,332

45,972

 
1,581

93

(65
)
47,581

Gross capital expenditures 
512

248

103

 
197

195

46

63

57

1,421

 
7



1,428

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year-to-Date June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue

930

434

 
607

286

187

574

146

3,164

 
95

5

(7
)
3,257

Energy supply costs

356

133

 
175


61

388

66

1,179

 
17


(1
)
1,195

Operating expenses

299

193

 
140

96

43

69

24

864

 
16

53

(5
)
928

Depreciation and amortization

132

31

 
100

89

28

45

26

451

 
13

2


466

Operating income (loss)

143

77

 
192

101

55

72

30

670

 
49

(50
)
(1
)
668

Other income (expenses), net

4

2

 
7

2


1

4

20

 
1

4


25

Finance charges

51

20

 
64

42

19

28

6

230

 
2

62

(1
)
293

Income tax expense (recovery)

28

23

 
35


6

11


103

 
1

(34
)

70

Net earnings (loss)

68

36


100

61

30

34

28

357

 
47

(74
)

330

Non-controlling interests



 




7

7

 
17



24

Preference share dividends



 






 

37


37

Net earnings (loss) attributable to common equity shareholders

68

36


100

61

30

34

21

350

 
30

(111
)

269

Goodwill

1,784

582

 
913

227

235

67

183

3,991

 
27



4,018

Identifiable assets

6,562

2,430

 
5,063

3,717

1,874

2,247

1,066

22,959

 
1,473

234

(61
)
24,605

Total assets

8,346

3,012

 
5,976

3,944

2,109

2,314

1,249

26,950

 
1,500

234

(61
)
28,623

Gross capital expenditures

218

118

 
166

166

38

63

64

833

 
16

10


859



 
F - 11

 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

Related-party and inter-company transactions

Related-party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. There were no material related-party transactions for the three and six months ended June 30, 2017 and 2016.

Inter-company balances and inter-company transactions, including any related inter-company profit, are eliminated on consolidation, except for certain inter-company transactions between non-regulated and regulated entities in accordance with accounting standards for rate-regulated entities. The significant inter-company transactions are summarized in the following table.
 
Quarter Ended
Year-to-Date
 
June 30
June 30
($ millions)
2017

2016

2017

2016

Sale of capacity from Waneta Expansion to
  FortisBC Electric (Note 18)
3

3

19

18

Sale of energy from Belize Electric Company Limited to
Belize Electricity
7

6

14

14

Lease of gas storage capacity and gas sales from Aitken Creek to FortisBC Energy (Note 18)
5

5

13

5


As at June 30, 2017, accounts receivable on the Corporation’s condensed consolidated interim balance sheet included approximately $11 million due from Belize Electricity (December 31, 2016 - $16 million), in which Fortis holds a 33% equity investment.


5. REGULATORY ASSETS AND LIABILITIES
A summary of the Corporation’s regulatory assets and liabilities is provided below. For a detailed description of the nature of the Corporation’s regulatory assets and liabilities, refer to Note 8 to the Corporation’s 2016 annual audited consolidated financial statements.
 
As at
 
June 30,

December 31,

($ millions)
2017

2016

Regulatory assets
 
 
Deferred income taxes
1,267

1,260

Employee future benefits
545

576

Deferred energy management costs
194

178

Rate stabilization accounts
158

183

Deferred lease costs
100

97

Deferred operating overhead costs
85

78

Manufactured gas plant site remediation deferral
80

107

Navajo retirement costs (1)
50


Natural gas for transportation incentives
34

40

Other regulatory assets
410

414

Total regulatory assets
2,923

2,933

Less: current portion
(306
)
(313
)
Long-term regulatory assets
2,617

2,620


 
F - 12
 




FORTIS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2017 and 2016 (unless otherwise stated)
(Unaudited)

 
As at
 
June 30,

December 31,

($ millions)
2017

2016

Regulatory liabilities
 
 
Non-asset retirement obligation removal cost provision  
1,098

1,194

Rate stabilization accounts
205

230

Return on equity refund liability
184

346

Energy efficiency liability
65

49

Electric and gas moderator account
60

71

Renewable energy surcharge
59

53

Employee future benefits
48

42

Other regulatory liabilities
175

198

Total regulatory liabilities
1,894

2,183

Less: current portion
(455
)
(492
)