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VANCOUVER, Aug. 6 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN) announced today its earnings for the second quarter ending June 30, 2009. Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund Second Quarter Report For the six months ended June 30, 2009 -------------------------------------------------------------------------
The earnings and distributable cash of Westshore Terminals Income Fund (the "Fund") are wholly dependent on the results of Westshore Terminals Limited Partnership ("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 U.S. dollar denominated price received by Westshore's customers for coal, the Canadian-U.S. dollar exchange rate and Westshore's costs. Westshore's throughput charges for a portion of the coal it handles are calculated at present by reference to coal prices. For 2009 as a whole, Westshore estimates the portion of coal handled at fully variable rates will be approximately 40% of its throughput. Higher prices for hard coking coal resulted in Teck Resources Limited ("Teck"), which is Westshore's principal customer, achieving higher average settlement prices for the 2008/09 coal year (ended March 31, 2009) compared to the 2007/08 coal year. For the 2009/10 coal year, prices are down significantly from prices in the 2008/09 coal year, but still at strong prices based on historical rates. As Westshore has some exposure to fluctuations in exchange rates (as a result of pricing mechanisms under its customer contracts), Westshore engages in periodic currency hedging arrangements to provide some partial shielding from material short-term 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 that they provide investors with valuable information in understanding the results of the Fund's operations and financial position. The unaudited financial results along with management's discussion and analysis contained in this report should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Fund's Annual Report for the year ended December 31, 2008. The date of this management's discussion and analysis and results of operations is August 6, 2009.
The following table sets out selected consolidated financial information for the Fund for the quarters ended June 30, 2009 and 2008. As at August 6, 2009 the Fund has 74,250,016 issued and outstanding trust units.
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(In thousands of dollars except Three Months Three Months
per unit amounts) Ended Ended
June 30, June 30,
2009 2008
$ $
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REVENUE
Coal loading 57,375 62,762
Other 939 1,036
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58,314 63,798
EXPENSES
Operating 16,593 19,534
Administrative 1,290 6,982
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17,883 26,516
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Earnings before the undernoted 40,431 37,282
Interest income 73 434
Depreciation (5,281) (5,572)
Foreign exchange gain (loss) 8,704 (66)
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Earnings before income taxes 43,927 32,078
Provision for income taxes 1,121 190
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Net earnings 42,806 31,888
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Net earnings per unit(1) 0.577 0.429
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Cash Distributions declared(2) 20,790 34,897
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Cash Distributions per unit 0.280 0.470
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Distributions of units in lieu of cash - 3,536
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Distribution of units in lieu of cash per unit - 0.047
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(1) Weighted average units outstanding for the quarter ended June 30,
2009 were 74,250,016 (June 30, 2008 - 74,250,016)
(2) Refer to page 6 for a comparison of cash distributions to
Standardized Distributable Cash.
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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(In thousands of dollars Three Months Ended
except per unit amounts) ----------------------------------------------
June 30, Mar 31, Dec 31, Sept 30,
2009 2009 2008 2008
$ $ $ $
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Revenue
Coal loading 57,375 53,647 88,425 73,764
Other 939 1,050 1,946 1,055
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58,314 54,697 90,371 74,819
Expenses
Operating 16,593 17,624 18,471 20,470
Administration 1,290 2,324 8,076 7,228
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17,883 19,948 26,547 27,698
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Earnings before the
undernoted 40,431 34,749 63,824 47,121
Interest income 73 155 339 530
Depreciation (5,281) (5,401) (5,573) (5,572)
Foreign exchange gain (loss) 8,704 (3,002) (16,495) (1,047)
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Earnings before income taxes 43,927 26,501 42,095 41,032
Provision for income taxes 1,121 827 613 870
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Net earnings 42,806 25,674 41,482 40,162
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Net earnings per unit 0.577 0.346 0.559 0.541
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Cash Distributions
declared(1) 20,790 17,820 39,353 38,610
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Cash Distributions per unit 0.280 0.240 0.530 0.520
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Distribution of units in
lieu of cash - - 3,988 3,913
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Distribution of units in
lieu of cash per unit - - 0.054 0.053
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(1) Refer to page 6 for a comparison of cash distributions to
Standardized Distributable Cash.
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(In thousands of dollars Three Months Ended
except per unit amounts) ----------------------------------------------
June 30, Mar 31, Dec 31, Sept 30,
2008 2008 2007 2007
$ $ $ $
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Revenue
Coal loading 62,762 35,145 37,437 36,937
Other 1,036 968 2,444 946
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63,798 36,113 39,881 37,883
Expenses
Operating 19,534 18,521 18,660 16,965
Administration 6,982 1,874 2,982 1,798
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26,516 20,395 21,642 18,763
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Earnings before the
undernoted 37,282 15,718 18,239 19,120
Interest income 434 610 697 749
Depreciation (5,572) (5,572) (5,646) (5,553)
Foreign exchange gain (loss) (66) 858 540 761
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Earnings before income taxes 32,078 11,614 13,830 15,077
Provision for (recovery of)
income taxes 190 281 (264) 413
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Net earnings 31,888 11,333 14,094 14,664
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Net earnings per unit 0.429 0.153 0.190 0.197
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Cash Distributions
declared(1) 34,897 20,790 26,730 21,533
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Cash Distribution per unit 0.470 0.280 0.360 0.290
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Distribution of units in
lieu of cash 3,536 2,107 - -
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Distribution of units in
lieu of cash per unit 0.047 0.028 - -
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(1) Refer to page 6 for a comparison of cash distributions to
Standardized Distributable Cash.
Results of Operations
In the second quarter of 2009, Westshore shipped 5.1 million tonnes of coal, compared with 5.4 million tonnes shipped during the same period in 2008, a decrease of 5.6%. Lower shipment levels during the second quarter of 2009 were primarily due to lower shipment levels from Teck, partially offset by increased thermal coal shipments. In its release dated June 19, 2009 Teck indicated that its coal volumes are expected to improve for the balance of the year. Based on information currently available, Westshore is anticipating coal volumes of approximately 20 million tonnes in 2009 as a whole compared to 21.1 million tonnes in 2008, at a lower average loading rate.
Coal loading revenue decreased by 8.6% to $57.4 million in the second quarter of 2009 from $62.8 million in the second quarter of 2008. More than half of this decrease is attributable to reduced throughput volumes. The average loading rate in the second quarter of 2009 was $11.28 per tonne compared to $11.62 per tonne for the same period in 2008. In 2008, the average rate per tonne was comparatively low in the first quarter, rose in the second quarter and reached historically high levels in the third and fourth quarters, which continued into the first quarter of 2009. The average rate was expected to fall significantly in the second quarter of 2009, but only fell approximately 7.5% from the first quarter of 2009, as coal prices realized by customers were higher than anticipated. Westshore understands that this was due to carry over tonnage shipped in the 2009/10 coal year at prices that applied for the 2008/09 coal year. Based on expected prices announced by Teck, Westshore expects the average loading rate to fall significantly in the last six months of 2009 from the average rate in the first six months.
Other income was consistent with that of the second quarter of 2008 and consists mostly of wharfage income. Operating expenses decreased from $19.5 million in the second quarter of 2008 to $16.6 million in the second quarter of 2009, as a result of lower throughput levels. Administrative expenses in the second quarter to 2009 were $1.3 compared to $7.0 million for the same period in 2008, as a result of lower management contract incentive fees. The expenses for the second quarter of 2008 included the partial accrual of the higher management fee that was earned in 2008 as a result of record distributions by the Fund. The management fee is expected to be substantially lower in 2009, since the distributions will be lower as a result of expected reduced volumes and a lower average rate for 2009. Interest income for the second quarter of 2009 decreased by $0.4 million due to lower interest rates and because the Fund has spent some of its cash on the equipment upgrade project.
Foreign exchange, which includes both realized gains/losses and changes in the mark-to-market adjustment for unrealized gains/losses, increased to a $8.7 million gain for the three months ended June 30, 2009 from a $0.1 million loss in the second quarter of 2008. This increase was mainly caused by a reversal of the unrealized mark-to-market losses on the US dollar forward contracts, due to the strengthening of the Canadian dollar, offset by losses realized on forward contracts that settled in the quarter (see Currency Fluctuations).
Earnings before depreciation, interest, foreign exchange and income taxes were higher in the second quarter of 2009, at $40.4 million as compared to $37.3 million in the second quarter of 2008.
Contract Rate Review and Renewal
In August 2006, Teck sent notice to Westshore requesting a review of the charges under the Port Services Contract that governs coal from the Fording River, Greenhills and Coal Mountain mines effective April 1, 2007. If the parties are unable to resolve the Port Services Contract matter by negotiation, the matter will have to be determined by arbitration.
The agreement with Teck that covers coal from the Elkview Mine expires March 31, 2010. Initial discussions have commenced concerning a replacement contract. There can be no assurance that the contract will be renewed, or that, if the contract is renewed, its terms, including provisions relating to volume and rate, will be the same as those of the expiring contract.
Equipment Upgrade Project
Westshore is proceeding with the upgrade to its existing equipment previously announced. The cost of the upgrade remains on budget at approximately $49 million. The project consists of new conveyors, an upgrade to the tandem rotary rail car dumper and a fourth stacker reclaimer. The conveyors and rail car dumper upgrade have been completed and the stacker reclaimer is due to be operational by the end of 2009. Funding for the upgrade has been provided principally through $40 million in equity financing, which was completed in March 2007. The balance of the funds required will be sourced from Westshore's cash on hand.
Taxation on Trusts in Canada
Distributions declared by the Fund after January 1, 2011 will be taxed at a rate of 27.5% (2012 - 26%) and the distributions will be treated as taxable dividends in the hands of unitholders. Unitholders will be entitled to a dividend tax credit which will give credit for the level of taxation incurred by the Fund.
The Fund has not provided for current income taxes in 2009 as the income of the Fund is distributed to and taxed in the hands of unitholders. The future taxation of distributions makes relevant for accounting purposes the timing differences between the recognition of certain assets and liabilities for tax and accounting purposes. A non-cash expense of $1.1 million has been recorded in the quarter ended June 30, 2009 to reflect changes in assets and liabilities and their expected recognition for tax purposes. This future income tax expense does not affect current distributions.
On March 12, 2009, Bill C-10, Budget Implementation Act 2009, received Royal Assent. Bill C-10, among other things, provides rules which permit income trusts to convert to corporations on a tax-deferred basis. Management and its tax advisors are reviewing these rules to determine the most appropriate course of action for the Fund.
Distribution Reinvestment Plan
On April 5, 2007 the Fund announced a distribution reinvestment plan (the "Plan"). Under the Plan, Canadian resident Unitholders will be able to designate that all or a portion of the quarterly distributions payable on their Fund Units be applied towards the purchase of existing Fund Units through the facilities of The Toronto Stock Exchange at prevailing market prices. No additional units will be issued from treasury under the Plan. Unitholders should contact their brokers or Computershare Investor Services Inc. if they wish to participate in the Plan. Additional information on the Plan is also available on the Fund's website at www.westshore.com.
Currency Fluctuations
Westshore expects that in 2009, the loading rates for approximately 40% of the coal loaded at Westshore will be at fully variable rates and depend on the Canadian dollar price realized for coal by its customers. Coal sales by Westshore's customers are priced on an annual basis in U.S. dollars, with the result that the Canadian dollar price received fluctuates within the year because of exchange rate movements. To mitigate the resulting risk, Westshore has engaged in periodic hedging activities. Westshore has adopted a policy under which it expects to hedge by April 30 of each year a portion of its anticipated US dollar related revenues for that coal year, based on the annual budget. Westshore will continue to review the need for additional future hedging.
In the financial statements, the effect of currency fluctuations is shown as affecting coal loading revenues before taking into account the effect of hedging activities, the financial effect of which is accounted for as foreign exchange. During the six months ended June 30, 2009, Westshore realized foreign exchange losses of $8.8 million compared to no realized foreign exchange gains or losses for the same period in 2008. Realized foreign exchange affects cash flow and therefore impacts unitholder distributions.
As Westshore's hedging transactions do not qualify for "hedge accounting" treatment, the value of Westshore's outstanding foreign exchange contracts must be "marked to market" at each period end. On this basis, Westshore recognized an unrealized foreign exchange gain of $14.5 million during the six months ended June 30, 2009, which compares to a $0.8 million gain for the same period last year. Unrealized foreign exchange gains and losses are non-cash items and do not impact current distributions.
Liquidity and Capital Resources
The Fund is obliged to distribute to Unitholders its income (net of administrative costs 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 from Westshore. It is not anticipated that the Fund will require significant capital resources to maintain its investment in Westshore on an ongoing basis. Westshore's facility is a mature facility which does not require significant ongoing replacement of equipment. The cost of ongoing maintenance and refurbishment of the equipment is well within Westshore's financial capacity based solely on revenues less expenses without any need for financing. The current equipment addition and upgrade is being funded primarily from funds raised from issuing equity, which will assist in avoiding any liquidity concerns with debt service. As a result, the Fund does not anticipate any liquidity concerns with the ongoing operations of Westshore.
During Q1 2009, Westshore extended the term (to February 11, 2010) of its $1 million operating facility with a Canadian chartered bank 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, 2009. Westshore's distribution policy involves leaving sufficient earnings before depreciation and unrealized gains or losses on forward exchange contracts to cover cash requirements such as capital expenditures and pension contributions.
Westshore has obligations under its pension plan and other post-retirement benefit plans which it is required to fund each year. As a result of the downturn in financial markets, Westshore's funding requirements have increased and Westshore expects to contribute $4.8 million in 2009, up from $3.1 million in 2008. Westshore does not anticipate any problems in meeting these funding obligations as the contributions are deductible from taxable income and therefore funded by operating cash flows, although this will result in a reduction of cash distributions to Unitholders.
Obligations under operating leases for the years ending December 31 are as follows:
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(In thousands of dollars) Terminal
lease Other Total
$ $ $
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2009 11,701 457 12,158
2010 11,701 457 12,158
2011 11,701 - 11,665
2012 11,701 - 11,665
2013 11,701 - 11,665
Thereafter to 2026 152,113 - 152,113
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Westshore has commitments of approximately $6,085,000 with respect to purchases of equipment associated with the equipment upgrade and other capital projects that are to be paid in the remainder of 2009.
The Fund does not have any long-term debt, material capital lease obligations, or other long-term obligations.
Quarterly Distributions
On July 15, 2009, the Fund distributed $20,790,005 (representing $0.28 per trust unit) in cash for the second quarter of 2009 to Unitholders of record on June 30, 2009 as compared with $34,897,508 (representing $0.47 per trust unit) in cash for the second quarter of 2008. The Fund is attempting to make the four quarterly distributions in 2009 as consistent as possible in the face of changing coal markets and in anticipation of lower expected financial results in the second half of the year compared to the first half, due to expected lower throughput rates. Distributions for the third and fourth quarters of 2009 would be lower than those budgeted if they were based solely on the anticipated results in those quarters. Results in those quarters will affect the actual level of distributions.
Standardized Distributable Cash
References to "Standardized Distributable Cash" are to cash from operating activities less capital expenditures, both measures recognized under GAAP. Standardized Distributable Cash is a financial measure that indicates the Fund's ability to make distributions. It is a measure that has been recommended by the CICA's Canadian Performance Reporting Board for use by income funds in Canada as an indicator of financial performance. As one of the factors that may be considered relevant by investors is the cash available to be distributed by the Fund relative to the price of the Units, the Fund believes that Standardized Distributable Cash is a useful supplemental measure that may assist investors to assess an investment in the Units.
The Standardized Distributable Cash of the Fund is substantially comprised of distributions from Westshore which are impacted by the operating results of Westshore. The following table sets out the Standardized Distributable Cash calculation for the three and six month periods ended June 30, 2009 and 2008 respectively.
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3 months ended June 30 6 months ended June 30
2009 2008 2009 2008
$ $ $ $
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Cash flows from operating
activities 43,568 35,349 71,736 51,778
Less: Capital expenditures (9,237) (341) (9,269) (2,255)
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Standardized Distributable
Cash 34,331 35,008 62,467 49,523
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Cash Distributions declared 20,790 34,897 38,610 55,687
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Basic and diluted
Standardized Distributable
Cash per unit 0.46 0.47 0.84 0.67
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Cash Distributions per unit 0.28 0.47 0.52 0.75
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The Fund plans its quarterly distributions based on anticipated annual results for the year in question and budgets for fairly even distributions over the four quarters of the year. Any particular quarterly distribution may therefore vary from Standardized Distributable Cash flow for that quarter. For the three months ended June 30, 2008, the cash distribution was comparable to Standardized Distributable Cash for that quarter, whereas for the three months ended June 30, 2009, the cash distribution was less than Standardized Distributable Cash as a portion was retained to supplement distributions in the last half of the year when revenues are expected to decrease as a result of anticipated lower coal prices.
Because the Fund's investments consist of substantially all the limited partnership units of Westshore, virtually all of the taxable income of Westshore for any year is automatically allocated to the Fund. While the Fund usually attempts both to estimate its taxable income for the year and to make distributions for the year as close as possible to that taxable income, it is normal for there to be some discrepancy between the taxable income of the Fund and cash distributions by the Fund. In order to deal with the situation where the taxable income of the Fund exceeds cash distributions, the Declaration of Trust provides that an amount equal to the excess will be distributed to unitholders in the form of additional trust units, which are then consolidated. This results in an increase to the cost base of the units equal to the amount of any such distributions.
Change in Accounting Policies Inventories
On January 1, 2008, the Fund adopted the new requirements of CICA Handbook Section 3031 for inventories. The standard provides more comprehensive guidance on the determination of costs and the cost formulas that are used to assign costs to inventories. Inventories are required to be valued at the lower of cost and net realizable value.
The adoption of this standard did not have a material impact on the consolidated financial statements of the Fund.
Financial Instruments
On January 1, 2008, the Fund adopted the new requirements of the CICA Handbook Section 3862 and 3863 for financial instruments. The standard requires additional disclosure on the Fund's risks with respect to financial instruments and how the Fund manages these risks. This information is presented in Note 4 to the accompanying financial statements.
Capital Disclosures
On January 1, 2008, the Fund adopted the new requirements of CICA Handbook Section 1535 for capital disclosures. The standard requires additional disclosure about the Fund's capital and how it is managed along with external requirements or restrictions on that capital. This information is provided in Note 5 to the accompanying consolidated financial statements.
Goodwill and Intangible Assets
On January 1, 2009, the Fund adopted the new requirements of CICA Handbook Section 3064, Goodwill and Other Intangible Assets. Section 3064 expands on the standards for recognition, measurement, and disclosure of goodwill and intangible assets. The adoption of this new standard did not have any impact on the consolidated financial statements of the Fund.
Credit Risk and the Fair Value of Financial Assets and Liabilities
On January 23, 2009, the CICA Emerging Issues Committee (EIC) issued EIC-173, Credit Risk and Fair Value of Financial Assets and Liabilities. EIC-173 is effective for interim and annual financial statements ending on or after January 20, 2009. EIC-173 provides guidance that an entity's own credit risk of counterparties should be taken into account in determining the fair value of financial assets and liabilities. Adoption of this guidance is to be applied retrospectively without restatement to prior periods. The Fund has evaluated the impact of this new standard and concluded that it does not have a material impact on its financial statements.
International Financial Reporting Standards (IFRS)
The use of IFRS for financial reporting in Canada will be applicable for the fiscal year beginning January 1, 2011. The Fund's IFRS transition plan consists of three main phases - Scoping, Analysis and Implementation. The Scoping phase involves a high-level analysis of the significant accounting differences between IFRS and Canadian GAAP and determining the potential impact of the new accounting standards on business areas such as information technology, internal controls and disclosure controls. The Analysis phase involves a more comprehensive analysis of the accounting standards, including the development of accounting policies and the quantification of the conversion impact. The Implementation phase executes the changes identified in the Analysis phase.
The Fund has completed the Scoping phase and identified the following standards which could have a material impact on recognition, measurement and disclosure: income taxes; property, plant and equipment; employee benefits; provisions and contingencies; and impairment of assets. The Fund is unable to quantify the impact of the new accounting standards at this time.
IFRS 1 contains several optional elections that allow a company upon first-time adoption of IFRS to avoid retrospective application of certain standards, particularly in cases where the cost of preparing retrospective information exceeds the benefits to users of financial statements. The Fund has considered the available elections under IFRS 1 but will not formally adopt them until more progress has been made in the Analysis phase of the project.
The following table highlights some of the key activities in the transition plan and what has been accomplished as of June 30, 2009.
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Key Activity Milestones Status
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Financial statement Identification of Identification of major
preparation major differences and differences completed
accounting policy
- Identification choices made by the Priority and
of significant end of 2009 difficulties assigned
accounting to each new accounting
differences Quantification and standards
- Selection of development of
accounting policy disclosure to occur Detailed analysis
choices through 2010 required for individual
- Selection of choices accounting standards
available under
IFRS 1 (first-time
adoption)
- Financial statement
format
- Changes in disclosure
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Infrastructure Major knowledge Formal course training
training completed completed
- Development of by end of 2009;
knowledge and new developments IASB activity being
resources monitored monitored on ongoing
- IT impact assessment throughout 2010 basis
and conversion
IT systems ready to IT assessment being
process information done in conjunction
in parallel in 2010 with detailed analysis
of accounting standards
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Control Environment Processes and Impact assessment being
documentation to be done in conjunction
- Assessment of impact complete by end of with detailed analysis
on ICFR and DC&P 2010 of accounting standards
- Changes in processes
to accommodate IFRS
- Documentation
requirements
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Business Policy Assessment to be Impact assessment being
complete by mid-2010 done in conjunction
- Assessment of impact with detailed analysis
on financial of accounting standards
covenants
- Assessment of impact
on capital adequacy
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Outlook
The Fund's cash inflows are entirely dependent on Westshore's operating results and are significantly influenced by four variables: the volume of coal shipped through the Terminal; the US dollar denominated price received by Westshore's customers for that coal; the Canadian-US dollar exchange rate; and Westshore's operating and administrative costs. In view of differences in loading rates between its various contracts, Westshore cannot provide a reliable indication of the effect of changes in pricing, exchange rates and tonnage on distributions, which will depend in part on which mines ship the tonnage. Accordingly, Westshore is not providing a discussion of sensitivities.
Critical to Westshore's ongoing success will be the ability of its customers, including Teck in particular, to maintain and increase their coal export volumes while competing with other suppliers for sales worldwide. Based on information currently available, Westshore anticipates throughput volumes of approximately 20 million tonnes compared to 2008 levels of 21.1 million tonnes and at a lower average loading rate than in 2008, with the average loading rates in the last six months of 2009 being significantly lower than in the first six months. Actual volumes may change depending on coal demand. To date, Westshore has experienced no material impact to throughput volumes from the equipment upgrade.
As announced in Teck's news release dated July 30, 2009, Teck has achieved settlements for most of its tonnage for the 2009/10 coal year. Teck has indicated that it has achieved settlement prices of US$128 per tonne for its highest quality products, and that the average selling price for the 2009/10 coal year will reflect a range of hard coking coal products of various qualities as well as thermal and PCI coal, which normally comprise about 10% of its coal sales volumes. The highest price of US$128 per tonne for the 2009/10 coal year can be compared to the average price of US$204 realized by Teck in the first quarter of 2009.
For 2009 and based on current tonnage estimates as of the date of this report, tonnages shipped at fixed rates are expected to account for approximately 25% of the Terminal's throughput; tonnages shipped at variable rates but subject to a cap, in effect for this year, are expected to account for approximately 35% of throughput; and finally, tonnages shipped at full variable rates are expected to account for approximately 40% of throughput at the Terminal.
The second quarter distribution was $0.28 per unit compared to $0.47 per unit for the second quarter of 2008. Results in subsequent quarters will determine the level of distributions, either positively or negatively. If distributions for the calendar year 2008 exceed $1.035 per unit, incentive fees will be payable by Westshore to the Manager under the Management Agreement, as was the case in 2008. Those fees are computed on the following basis: 15% of Fund distributable cash between $1.035 - $1.125 per unit; 25% of Fund distributable cash between $1.125 - $1.260 per unit; and 35% of Fund distributable cash above $1.260 per unit.
Forward-looking Statements
The foregoing statements concerning tonnages, coal prices, exchange rates, loading rates 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 will be impacted by 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.
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 and on Westshore's website at www.westshore.com.
On behalf of the Trustees,
(signed)
William W. Stinson,
Chairman
August 6, 2009
The enclosed financial statements have not been reviewed by the Fund's
auditors.
Consolidated Statements of Earnings, Comprehensive Earnings and
Cumulative Earnings
(in thousands of dollars, Three months ended Six months ended
except per unit amounts) June 30 June 30
$ $
2009 2008 2009 2008
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Coal 57,375 62,762 111,022 97,907
Other 939 1,036 1,989 2,004
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58,314 63,798 113,011 99,911
EXPENSES
Operating 16,593 19,534 34,217 38,055
Administrative 1,290 6,982 3,614 8,856
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17,883 26,516 37,831 46,911
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Earnings before the
undernoted 40,431 37,282 75,180 53,000
Interest income 73 434 228 1,044
Depreciation (5,281) (5,572) (10,682) (11,144)
Foreign exchange gain (loss) 8,704 (66) 5,702 792
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Earnings before income
taxes 43,927 32,078 70,428 43,692
Provision for income taxes 1,121 190 1,947 471
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Net earnings and
comprehensive earnings
for the period 42,806 31,888 68,481 43,221
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Cumulative earnings -
Beginning of period 644,925 505,718 619,250 494,385
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Cumulative earnings -
End of period 687,731 537,606 687,731 537,606
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Basic and diluted earnings
per trust unit 0.577 0.429 0.922 0.582
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Weighted average number of
trust units outstanding 74,250,016 74,250,016 74,250,016 74,250,016
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Consolidated Statements of Cash Flows
(in thousands of dollars) Three months ended Six months ended
June 30 June 30
$ $
2009 2008 2009 2008
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating
activities
Net earnings for the period 42,806 31,888 68,481 43,221
Items not affecting cash
Change in unrealized
gains and losses on
forward exchange
contracts (12,214) 67 (14,495) (791)
Depreciation 5,281 5,572 10,682 11,144
Future income tax
provision 1,121 190 1,948 471
Decrease in deferred
employee future
benefits costs (1,763) (714) (3,415) (530)
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35,231 37,003 63,201 53,515
Decrease (increase) in
non-cash working capital 8,337 (1,654) 8,535 (1,737)
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43,568 35,349 71,736 51,778
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Cash flows from financing
activities
Distributions paid to
unitholders (17,820) (20,790) (57,173) (47,520)
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(17,820) (20,790) (57,173) (47,520)
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Cash flows from investing
activities
Additions to plant and
equipment (9,237) (341) (9,269) (2,255)
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(9,237) (341) (9,269) (2,255)
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Increase in cash and
cash equivalents 16,511 14,218 5,295 2,003
Cash and cash equivalents -
Beginning of period 63,818 60,527 75,034 72,742
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Cash and cash equivalents -
End of period 80,329 74,745 80,329 74,745
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Supplemental cash flow
information
Cash received for interest 73 434 228 1,044
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Consolidated Balance Sheets
(in thousands of dollars) June 30, December 31,
2009 2008
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 80,329 75,034
Accounts receivable 21,208 29,313
Inventories 6,130 6,478
Prepaid expenses 5,570 672
Other assets 1,905 -
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115,142 111,497
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Plant and equipment
At cost 510,137 500,881
Accumulated depreciation (396,999) (386,329)
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113,139 114,552
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Employee future benefits 24,467 23,303
Goodwill 365,541 365,541
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618,289 614,893
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 21,280 16,293
Distribution payable to unitholders 20,790 39,353
Other liabilities - 12,590
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42,070 68,236
Employee future benefits 18,857 21,108
Future income taxes 10,640 8,692
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71,567 98,036
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Unitholders' equity
Capital contributions 704,032 704,032
Cumulative earnings 687,731 619,250
Cumulative distributions declared (845,041) (806,425)
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546,722 516,857
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618,289 614,893
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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, 2008. 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, 2008.
3. New accounting pronouncements
On January 1, 2008, the Fund adopted the new requirements of CICA
Handbook Section 3031 for inventories. The standard provides more
comprehensive guidance on the determination of costs and the cost
formulas that are used to assign costs to inventories. Inventories
are required to be valued at the lower of cost and net realizable
value. The adoption of this standard did not have a material impact
on the consolidated financial statements of the Fund.
On January 1, 2008, the Fund adopted the new requirements of the CICA
Handbook Section 3862 and 3863 for financial instruments. The
standard requires additional disclosure on the Fund's risks with
respect to financial instruments and how the Fund manages these
risks. This information is presented in Note 4 to the accompanying
financial statements.
On January 1, 2008, the Fund adopted the new requirements of the CICA
Handbook Section 1535 for capital disclosures. The standard requires
additional disclosure about the Fund's capital and how it is managed
along with external requirements or restrictions on that capital.
This information is provided in Note 5 to the accompanying
consolidated financial statements.
On January 1, 2009, the Fund adopted the new requirements of the CICA
Handbook Section 3064, Goodwill and Other Intangible Assets. Section
3064 expands on the standards for recognition, measurement, and
disclosure of goodwill and intangible assets. The adoption of this
new standard did not have any impact on the consolidated financial
statements of the Fund.
4. Financial Instruments
The Fund's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and distributions payable to
unitholders. The carrying amounts of these financial instruments
recorded on the consolidated balance sheet are reasonable estimates
of their fair values due to the relatively short periods to maturity
and commercial terms of these instruments.
Cash and cash equivalents are classified as financial assets held for
trading and are recorded at fair value on the consolidated balance
sheet. Accounts receivable are classified as loans and receivables
and are recorded at amortized cost. Accounts payable and
distributions payable to unitholders are classified as other
financial liabilities and are recorded at amortized cost.
The Fund's financial instruments also include foreign exchange
forward contracts, which are derivative financial instruments that
are classified as held-for-trading and are recorded at fair value.
Fair value is measured using the quoted market rate for forward
contracts of a similar maturity date.
Financial risk management and exposure
The Fund is exposed to various risks associated with its financial
instruments, which include credit risk, liquidity risk and market
risk.
Credit Risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations. Credit risk arises primarily from accounts
receivable and cash and cash equivalents.
The Company's exposure to credit risk is influenced by the
profitability of coal mining companies, which is heavily impacted by
the price of the coal. The accounts receivable are concentrated with
one customer, Teck, as this customer represented approximately 90% of
Westshore's revenues in 2008. Westshore does not have any collateral
or security for its receivables. Westshore monitors the financial
health of its customers and regularly reviews its accounts receivable
for impairment. As at June 30, 2009, there were no trade accounts
receivable past due which were considered uncollectible and no
reserve in respect of doubtful accounts was set up.
The Fund limits its exposure to credit risk arising from cash
equivalents by only investing in money market funds with a major
Canadian financial institution. The Fund does not expect any credit
losses in the event of non-performance by counterparties to its
foreign exchange forward contracts as the counterparties are major
Canadian financial institutions.
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk is:
2009
Cash and cash equivalents 80,329
Accounts receivable 21,208
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101,537
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Liquidity Risk
Liquidity risk is the risk that the Fund will not be able to meet its
obligations as they fall due. The Fund continually monitors its
financial position to ensure that it has sufficient liquidity to
discharge its obligations when due. The Fund's distribution
obligation to unitholders is funded from operating income and the
current equipment upgrade has been funded with additional equity and
from cash reserves, which will avoid liquidity concerns with debt
service.
The financial liabilities of the Fund, which include accounts payable
and accrued liabilities, have a contractual maturity of less than
1 year.
Westshore also maintains a $1 million operating facility that can be
drawn down to meet short term financing needs. No amounts were
outstanding on this facility at June 30, 2009.
Market Risk
The significant market risk exposures affecting the financial
instruments held by the Fund are those related to foreign currency
exchange rates and interest rates.
Foreign currency exchange rates
The Fund is exposed to foreign currency exchange rate risk on its
foreign currency forward contracts. The value of these financial
instruments fluctuates with changes in the CDN/US dollar exchange
rate. A $0.01 increase in the US/Canadian exchange rate at June 30,
2009, would have reduced the value of the US dollar foreign exchange
contracts by approximately $569,000. The impact would have resulted
in a reduction in net earnings and comprehensive earnings of
$569,000. From the beginning of the year to June 30, 2009, the US
dollar has weakened by approximately 5.1% against the Canadian
dollar. The fair market value of the Fund's foreign currency forward
contracts has increased by $14.5 million.
Interest rates
The Fund has limited exposure to interest rate risk on the cash
equivalents (short-term investments). Money market fund returns are
correlated with Canadian T-bills and Bankers' Acceptances of major
Canadian financial institutions. Based on the cash balance at
June 30, 2009, a 1% change in interest rates would have impacted net
earnings and comprehensive earnings for the year to date by
approximately $402,000.
5. Capital Disclosures
The capital of the Fund consists solely of unitholders' equity which
includes issued trust units and cumulative earnings less cumulative
distributions.
The objective of the Fund is to maintain a stable capital base and
ensure that the capital structure does not interfere with the Fund's
ability to meet its distribution requirements on the trust units. In
2009, the Fund expects that its quarterly distributions to
unitholders will be funded by earnings and operating cash flows.
The trust units are governed by the Second Amended and Restated
Declaration of Trust dated September 29, 2005, which provides that
non-residents of Canada may not own more than 49% of the trust units
at any time. The Fund continually monitors the non-resident ownership
levels to the best of its ability given the practical limitations
regarding beneficial ownership interest. The Fund believes that it
has always had substantially less than 49% non-Canadian ownership.
The Fund's trust units are not subject to externally imposed capital
requirements. There have been no changes in how the Fund manages its
capital during the period ended June 30, 2009.
6. Employee future benefits
The total benefit cost of the Company's defined benefit and other
retirement and post employment benefit plans was a recovery of
$3,415,000 for the six months ended June 30, 2009 (recovery of
$530,000 for the six months ended June 30, 2008).
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