VANCOUVER, Aug. 3 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the second quarter ending June 30, 2005.
Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund
Second Quarter Report
For the six months ended June 30, 2004
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Dear Unitholders:
Westshore Terminals Income Fund (the "Fund") derives its cash inflows
from its investment in the $645 million subordinated notes and common shares
of Westshore Terminals Ltd. ("Westshore"). The earnings and distributable cash
of the Fund are wholly dependent on the results of Westshore. Westshore's
results are determined largely by the volume of coal shipped by its coal mine
customers for sale in the export market, the rate per tonne charged by
Westshore and Westshore's costs. Higher prices for hard coking coal have
resulted in Westshore's customers achieving much higher average settlement
prices for the 2005/06 coal year compared to 2004/05 coal year. As a result,
Westshore's throughput charges, which are calculated by reference to such
settlement prices, for some of the coal it handles increased significantly by
the end of the second quarter, and are expected to continue at the same levels
for the balance of 2005, which would lead to materially higher anticipated
distributions in the second half of 2005 compared to 2004. As Westshore has
some exposure to exchange rates (as a result of the pricing mechanisms on most
of its customer contracts), Westshore has also put in place some currency
hedging which is intended to offer partial protection to Westshore from
material swings in the CDN/US dollar exchange rate.
Westshore Terminals Income Fund
- Management's Discussion and Analysis of Financial Condition
and Results of Operations
This management's discussion and analysis refers to certain measures
other than those prescribed by Canadian Generally Accepted Accounting
Principles ("GAAP"). These measures do not have standardized meanings and may
not be comparable to similar measures presented by other trusts or
corporations. They are however determined by reference to the Fund's financial
statements. These non-GAAP measures are discussed because the Fund believes
they provide investors with valuable information in understanding the results
of the Fund's and Westshore's operations and financial position. The following
unaudited financial results along with management's discussion and analysis
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Fund's Annual Report for the year ended
December 31, 2004. The date of this management's discussion and analysis and
results of operations is August 3, 2005.
The following table sets out selected consolidated financial information
for the Fund for the quarter ended June 30, 2005. As at August 3, 2005, the
Fund had 70,381,111 issued and outstanding trust units.
<<
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Three
Months
Ended
June 30,
2005
(In thousands of dollars except per unit amounts) $
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REVENUE
Coal 43,969
Other (1,622)
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42,347
EXPENSES
Operating 17,237
Administrative 1,562
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Earnings before depreciation and income taxes 23,548
Depreciation 5,728
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Three Months
Ended June 30,
2005
(In thousands of dollars except per unit amounts) $
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Earnings before income taxes 17,820
Provision for income taxes (1,239)
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Net earnings for the period 16,581
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Earnings per trust unit 0.236
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Adjusted EBITDA
Earnings before interest, depreciation, amortization and
income taxes 23,548
Add:
Unrealized losses on forward exchange contracts 2,324
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Adjusted EBITDA 25,872
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Distributions declared 14,076
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Distributions declared per trust unit 0.20
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The following tables set out selected consolidated financial information
for the Fund on a quarterly basis for the last eight quarters.
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Three Months Ended
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(In thousands of dollars Jun 30, Mar 31, Dec 31, Sep 30,
except per unit amounts) 2005 2005 2004 2004
$ $ $ $
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Revenue
Coal 43,969 31,692 29,323 28,448
Other (1,622) 21 5,547 4,985
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42,347 31,713 34,870 33,433
Expenses
Operating 17,237 16,339 17,390 17,146
Administration 1,562 1,392 1,725 1,405
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18,799 17,731 19,115 18,551
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Earnings before
depreciation, interest,
income taxes, gain on
sale of Fording Canadian
Coal Trust units and
extraordinary gain 23,458 13,982 15,755 14,882
Depreciation 5,728 5,728 5,850 5,790
Interest expense - - - -
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Earnings before income
taxes, gain on sale of
Fording Canadian Coal
Trust units and
extraordinary gain 17,820 8,254 9,905 9,092
Gain on sale of Fording
Canadian Coal Trust units - - - -
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Earnings before income
taxes and extraordinary
gain 17,820 8,254 9,905 9,092
Recovery of (provision
for) income taxes (1,239) 2,222 2,284 303
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Earnings before
extraordinary gain 16,581 10,476 12,189 9,395
Extraordinary gain - - - -
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Net earnings 16,581 10,476 12,189 9,395
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Distributions declared 14,076 14,076 16,891 9,853
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Distributions declared per
Unit 0.200 0.200 0.240 0.140
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Net earnings per Unit 0.236 0.149 0.173 0.133
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Three Months Ended
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(In thousands of dollars Jun 30, Mar 31, Dec 31, Sep 30,
except per unit amounts) 2004 2004 2003 2003
$ $ $ $
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Revenue
Coal 30,267 23,382 28,719 21,125
Other 3,110 1,627 1,948 3,473
Fording Canadian Coal
Trust Distributions - - 2,240 2,543
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33,377 25,009 32,907 27,141
Expenses
Operating 15,469 14,228 15,874 13,322
Administration 1,403 1,753 1,952 1,983
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16,872 15,981 17,826 15,305
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Earnings before
depreciation, interest,
income taxes, gain on
sale of Fording Canadian
Coal Trust units and
extraordinary gain 16,505 9,028 15,081 11,836
Depreciation 5,791 5,791 5,684 5,652
Interest expense - 1,268 2,159 2,379
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Earnings before income
taxes, gain on sale of
Fording Canadian Coal
Trust units and
extraordinary gain 10,714 1,969 7,238 3,805
Gain on sale of Fording
Canadian Coal Trust units - 11,986 18,898 -
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Earnings before income
taxes and extraordinary
gain 10,714 13,955 26,136 3,805
Recovery of income taxes 312 1,801 2,104 1,809
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Earnings before
extraordinary gain 11,026 15,756 28,240 5,614
Extraordinary gain - - 290 459
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Net earnings 11,026 15,756 28,530 6,073
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Distributions declared 9,853 21,115 18,811 11,965
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Distributions declared per
Unit 0.140 0.300 0.267 0.170
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Net earnings per Unit 0.157 0.224 0.406 0.086
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Results of Operations
In the second quarter of 2005, Westshore shipped approximately
5.8 million tonnes of coal, compared with 5.6 million tonnes shipped during
the same period in 2004. During the second quarter of 2005, customer coal
inventory levels at the terminal improved compared to levels experienced over
the last year and a half.
Based on information available to it, Westshore currently anticipates
that total throughput for 2005 will be in excess of 22 million tonnes, up from
2004 levels of 21.2 million tonnes. The ability to achieve these tonnages will
depend in part on the volumes delivered to and the resulting level of customer
inventories maintained at the coal terminal.
Coal loading revenue increased by 45.3% to $44.0 million in the second
quarter of 2005 from $30.3 million in the second quarter of 2004. Of the
increase in revenue, 90% was due to higher average loading rates and 10% was
due to higher volumes.
The average loading rate in the second quarter of 2005 rose to $7.53 per
tonne compared to $5.41 per tonne for the same period in 2004. Higher rates in
Q2 2005 reflect the higher coal prices for the 2005/06 coal contract year to
date, which in US dollar denominated terms rose by approximately 90% compared
to the same period in the prior coal contract year.
The negative variance in other revenue from 2004 to 2005 was
$4.7 million, from an addition to revenues of $3.1 million in 2004 to a
reduction of $1.6 million in the second quarter of 2005. This decrease is
primarily due to $2.6 million of unrealized hedging losses being recorded for
the three months ended June 30, 2005, compared to gains of $1.9 million in the
second quarter of 2004. (See "Currency Fluctuations"). Demurrage and train
detention costs were similar to the same period in 2004.
Operating expenses increased from $15.5 million in the second quarter of
2004 to $17.2 million in the second quarter of 2005. The increase was
primarily due to higher wage and lease costs as a result of higher shipment
volumes and higher maintenance costs.
As a result of the foregoing, Westshore's earnings before depreciation,
interest and income taxes increased to $23.5 million for the second quarter of
2005 compared to $16.5 million for the same period in 2004.
Currency Fluctuations
Since April 1, 2003, the loading rates under most of Westshore's
long-term handling contracts have depended in whole or in part on the Canadian
dollar price realized for coal handled by Westshore. To mitigate the resulting
risk, Westshore engaged in periodic hedging activities in 2003 and 2004 and
adopted a longer term hedging policy in mid 2004. In view of the continuing
changes in the value of the Canadian dollar relative to the US dollar, and the
exposure of Westshore's revenues to such uncertainty and the large amount of
US dollar driven revenue that Westshore expects over the coming periods,
Westshore has adopted a more flexible policy under which it expects to hedge
at year end a portion of its anticipated dollar related revenues for the
coming year based on the annual budget, and will then continue to review the
need and opportunity for additional future hedging in respect to a portion of
Westshore's revenue.
In the financial statements, the effect of currency fluctuations is shown
as impacting coal loading revenues before taking into account the effect of
hedging activities, the financial effect of which is accounted for as other
revenue. As stated in the audited Financial Statements of the Fund for the
year ending December 31, 2004, because Westshore's hedging transactions do not
qualify for "hedge accounting", the value of Westshore's forward exchange
contracts must be "marked to market" at each period end. On this basis, other
revenue for the twelve months ended December 31, 2004 included an unrealized
gain on forward exchange contracts of $11.7 million. By reason of changes in
the value of the Canadian dollar, other revenue for the first six months of
2005 was reduced by $4.1 million of unrealized hedging losses (essentially
reducing the $11.7 million of revenue previously recorded to $7.6 million).
The unrealized gains and losses are non-cash items. The cash effect of the
hedging program is recognized in other revenue as the forward exchange
contracts mature. For the second quarter of 2005, the inclusion in other
revenue on account of settled contracts was $0.7 million, as compared to
$0.2 million in 2004.
Liquidity and Capital Resources
Effective January 5, 2005, and following a recapitalization of Westshore
with the Fund, Westshore issued to the Fund an additional $175 million
principal amount of senior subordinated notes bearing a rate of interest of
8.5% per annum ("New Notes"). These New Notes, together with the existing
$470 million original notes (collectively, the "Notes") provide for quarterly
interest payments by Westshore to the Fund.
During the quarter ended June 30, 2005, the Fund's operating cash inflows
were based on the interest income on the Notes. Interest on $175 million of
New Notes is at a rate of 8.5% per annum and the interest on the $470 million
of notes is at a variable rate and fluctuates in proportion to Westshore's
earnings before depreciation, interest and income taxes, subject to a floor
and a ceiling.
The Fund is obliged to distribute to Unitholders its cash inflows, less
administrative costs of the Fund and amounts required for the operation of the
Fund and any amounts which may be paid in connection with any cash redemption
of units. The Fund has no fixed distribution requirements, distributions being
solely a function of amounts received by the Fund. Because the Fund's
investment in Westshore is of a passive nature, it is not anticipated that the
Fund will require significant capital resources to maintain its investment in
Westshore on an ongoing basis.
Westshore has in place with a Canadian chartered bank a $1 million
secured operating facility which, if required, can be utilized to meet working
capital requirements. This facility was not used during the second quarter and
remained undrawn at June 30, 2005. Westshore's distribution policy leaves
approximately 10% of earnings before depreciation, interest, income taxes, and
unrealized gains or losses on forward exchange contracts to cover cash
requirements such as capital expenditures and special pension contributions.
During the quarter ended June 30, 2005, the Fund's non-cash working
capital decreased by $4 million compared to the increase of $2.4 million for
the same period in 2004. The decrease was primarily due to higher trade
accounts receivable as a result of higher shipment volumes and higher average
loading rates.
The Fund does not have any long-term debt, capital lease obligations, or
other long-term obligations.
Quarterly Distributions
On July 15, 2005, the Fund distributed $14,076,222 ($0.20 per unit) in
cash for the second quarter of 2005 to Unitholders of record on June 30, 2005
as compared with $9,853,356 (representing $0.14 per unit) in cash for the
second quarter of 2004. The Q2 2005 distribution was solely derived from the
operations of Westshore and for unitholder income tax purposes was comprised
of 100% income.
Outlook
For the second half of 2005, with the increased coal prices, tonnages
shipped at fixed rates are expected to account for approximately 25% of
Westshore's throughput; tonnages shipped at variable rates but subject to a
cap, are expected to account for approximately 30% of throughput; and finally,
tonnages shipped at full variable rates are expected to account for
approximately 45% of throughput at Westshore. Under Westshore's contracts, the
rate of change in the loading rates is reduced when the Canadian dollar price
received by Westshore's customers for the coal shipped is greater than
approximately CDN$67.00 per tonne.
For the first six months of 2005, the Fund paid distributions at levels
comparable to those of the last six months of 2004, as anticipated. For the
last six months of 2005, Westshore expects to enjoy materially higher
throughput rates than in the first four months of 2005 for approximately half
of the coal shipped, with a resulting increase in the Fund's distributions.
That increase would result in incentive fees becoming payable by Westshore to
Westar under the Management Agreement. Also to the extent that EBITDA exceeds
$78 million, Westshore's exposure to taxation could be materially higher.
Based on Westshore's current assumptions of volume per specific customer,
US dollar coal price and exchange rates and throughput rates anticipated to be
charged, the sensitivities for the last six month of the year are as follows:
- for every US$10.00 change in the US dollar denominated coal price
received by the Elk Valley Coal Partnership, the effect on
distributions by the Fund is expected to be approximately 4 cents per
unit;
- for every US$0.01 change in the value of the Canadian dollar, the
effect on distributions by the Fund is expected to be approximately
0.3 cents per unit; and
- for every 1,000,000 tonnes difference in throughput, the effect on
distributions by the Fund is expected to be approximately 4 cents per
unit;
The above sensitivities factor in the anticipated effects of Westshore's
hedges currently in place. These sensitivities are expected to be applicable
only for the last six months of 2005 and are based on Westshore's current
assumptions. Sensitivities for any other period would depend upon the
appropriate assumptions at the relevant time.
As a result of anticipated higher throughput charges for the second half
of 2005, as explained above, and somewhat higher anticipated throughput
volumes, the Fund anticipates that distributions for 2005 in total will be
materially higher than distributions paid in 2004.
Annual General Meeting - Special Business
At the Fund's Annual General Meeting held on June 14, 2005, unitholders
approved the restructuring of the Fund and Westshore as set out in the
Information Circular dated May 10, 2005, which will result in the creation of
a flow-through structure which would effectively see distributions from the
Westshore operations taxed at the unitholder level. The restructuring cannot
be completed unless certain regulatory and other approvals are received
including a tax ruling.
Forward-looking Statements
The foregoing statements concerning tonnages, coal prices, loading rates,
taxation and variability of distributions are forward-looking statements but
reflect the current expectations of the Fund and Westshore with respect to
future events and performance. Wherever used, the words "may," "will,"
"anticipate," "intend," "expect," "plan," "believe," and similar expressions
identify forward-looking statements. Forward-looking statements should not be
read as guarantees of future performance or results, and will not necessarily
be accurate indications of whether, or the times at which, such performance or
results will be achieved.
Forward-looking statements are based on information available at the time
they are made, assumptions made by management, and management's good faith
belief with respect to future events, and are subject to the risks and
uncertainties outlined in the Fund's annual information form that could cause
actual performance or results to differ materially from those reflected in the
forward-looking statements, historical results or current expectations.
All forward-looking statements will be impacted by and are subject to the
risks set out under Risk Factors in the Fund's Annual Information Form.
Additional Information
Additional information relating to the Fund, including the Fund's latest
Annual Report and Annual Information Form, are available on SEDAR at
www.sedar.com.
On behalf of the Trustees,
(signed)
William W. Stinson
Chairman
August 3, 2005
Consolidated Statements of Earnings and Cumulative Earnings
(in thousands of dollars, Three months ended Six months ended
except per unit amounts) June 30 June 30
$ $
2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Coal 43,969 30,267 75,661 53,649
Other (1,622) 3,110 (1,601) 4,671
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42,347 33,377 74,060 58,320
EXPENSES
Operating 17,237 15,469 33,576 29,697
Administrative 1,562 1,403 2,954 3,156
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18,799 16,872 36,530 32,853
Earnings before
depreciation, interest,
income taxes and gain
on sale of Fording
Canadian Coal Trust
units 23,548 16,505 37,530 25,467
Depreciation 5,728 5,791 11,456 11,581
Interest expense - - - 1,202
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Earnings before income
taxes and gain on sale
of Fording Canadian
Coal Trust units 17,820 10,714 26,074 12,684
Gain on sale of Fording
Canadian Coal Trust
units - - - 11,986
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Earnings before income
taxes 17,820 10,714 26,074 24,670
Recovery of (provision
for) income taxes (1,239) 312 983 2,113
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Net earnings for the
period 16,581 11,026 27,057 26,783
Cumulative earnings
- Beginning of period 267,616 224,531 257,140 208,774
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Cumulative earnings
- End of period 284,197 235,557 284,197 235,557
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Earnings per trust unit 0.236 0.157 0.384 0.381
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Basic and diluted
earnings per trust unit 0.236 0.157 0.384 0.381
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Weighted average number
of trust units
outstanding 70,381,111 70,381,111 70,381,111 70,381,111
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Consolidated Statements of Cash Flows
(in thousands of dollars) Three months ended Six months ended
June 30 June 30
$ $
2005 2004 2005 2004
$ $ $ $
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating
activities
Net earnings for the period 16,581 11,026 27,057 26,783
Items not affecting cash
Unrealized losses on
forward exchange
contracts 2,324 - 3,667 -
Depreciation 5,728 5,790 11,456 11,581
Future income tax
recovery (2,601) (1,662) (4,579) (3,322)
Gain on sale of
Fording Canadian Coal
Trust units - - - (11,986)
Increase in deferred
employee future
benefits costs 202 654 209 762
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22,234 15,808 37,810 23,818
Increase (Decrease) in
non-cash working capital (4,032) 2,386 (11,258) 3,961
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18,202 18,194 26,552 27,779
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Cash flows from financing
activities
Repayment of long-term debt - - - (29,374)
Distributions paid to
unitholders (14,076) (21,115) (30,967) (39,926)
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(14,076) (21,115) (30,967) (69,300)
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Cash flows from investing
activities
Additions to plant and
equipment (720) (241) (907) (367)
Proceeds on sale of Fording
Canadian Coal Trust units - - - 41,234
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(720) (241) (907) 40,867
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Increase (decrease) in cash
and cash equivalents 3,406 (3,162) (5,322) (654)
Cash and cash equivalents
- Beginning of period 27,272 30,153 26,000 27,645
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Cash and cash equivalents
- End of period 30,678 26,991 30,678 26,991
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Supplemental cash flow
information
Cash paid for interest - - - 1,158
Cash received for interest 137 28 278 -
Income taxes paid 27 106 142 542
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Consolidated Balance Sheets
(in thousands of dollars) June 30, December
2005 31,2004
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 30,678 36,000
Accounts receivable 12,179 3,764
Inventories 5,414 5,148
Prepaid expenses 5,149 2,791
Income taxes receivable - 2,648
Other assets 4,214 5,013
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57,634 55,364
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Plant and equipment
At cost 459,701 458,932
Accumulated depreciation (309,488) (298,170)
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150,213 160,762
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Employee future benefits 2,027 2,236
Goodwill 365,541 365,541
Other assets 3,810 6,678
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579,225 590,581
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 17,383 21,296
Income taxes payable 1,045 -
Distribution payable to unitholders 14,076 16,891
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32,504 38,187
Future income taxes 46,915 51,493
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79,419 89,680
Unitholders' equity
Capital contributions 663,602 663,602
Cumulative earnings 284,197 257,140
Cumulative distributions declared (447,993) (419,841)
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499,806 500,901
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579,225 590,581
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Notes to Financial Statements
1. Basis of presentation
These interim financial statements do not contain all the information
required for annual financial statements and should be read in
conjunction with the financial statements and notes included in the
Fund's Annual Report for the year ended December 31, 2004. These interim
financial statements have not been audited or reviewed by external
auditors.
2. Significant accounting policies
These interim financial statements have been prepared in accordance with
Canadian generally accepted accounting principles and follow the same
accounting principles and methods of application as set out in Note 2 of
the Fund's annual financial statements for the year ended December 31,
2004.
3. Employee future benefits
Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Pension plan benefits $ 372 $ 428 $ 744 $ 857
Other retirement and
post-employment benefits 273 592 547 1,183
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Employee future benefits
expense $ 645 $ 1,020 $ 1,291 $ 2,040
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Corporate Office
Westshore Terminals Income Fund
1800 - 1067 West Cordova Street
Vancouver, British Columbia V6C 1C7
Telephone: 604.488.5295 Facsimile: 604.687.2601
www.westshore.com
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