VANCOUVER, Nov. 4 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the third quarter ending September 30, 2005.
Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund
Third Quarter Report
For the nine months ended September 30, 2005
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Dear Unitholders:
Until September 30, 2005, Westshore Terminals Income Fund (the "Fund")
derived its cash inflows from its investment in the $645 million subordinated
notes and common shares of Westshore Terminals Ltd. Effective October 1, 2005
and going forward, as a result of the Fund's previously announced
restructuring, the cash inflows of the Fund are based on the distributions
received from the operations of Westshore Terminals Limited Partnership
("Westshore LP"). In this Report "Westshore" refers to Westshore Terminals
Ltd. prior to September 30, 2005 and to Westshore LP thereafter.
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. As a
result, Westshore's throughput charges for approximately half of the coal it
handles are calculated by reference to coal prices. Higher prices for hard
coking coal have resulted in Westshore's customers achieving much higher
average settlement prices for the 2005/06 coal year (ending March 31, 2006)
compared to the 2004/05 coal year. Westshore's throughput charges that are
linked to the price of coal (which cover approximately half of the throughput)
increased significantly by the end of the second quarter of 2005, and are
expected to continue at the same levels for the balance of 2005, leading to
materially higher anticipated distributions in the second half of 2005
compared to 2004. As Westshore has some exposure to fluctuations in exchange
rates (as a result of the pricing mechanisms under most of its customer
contracts), Westshore has also put in place some currency hedging which is
intended to offer partial shielding to Westshore from material swings in the
CDN/US dollar exchange rate.
The enclosed financial statements have not been reviewed by the Fund's or
Westshore's auditors.
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 following
unaudited financial results along with management's discussion and analysis
should be read in conjunction with the consolidated audited 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 November 3, 2005.
The following table sets out selected consolidated financial information
for the Fund for the quarter ended September 30, 2005. As at November 3, 2005,
the Fund had 70,381,111 issued and outstanding trust units.
<<
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(In thousands of dollars except per unit amounts) Three Months Ended
September 30, 2005
$
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REVENUE
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Coal 46,063
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Other 4,190
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50,253
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EXPENSES
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Operating 16,762
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Administrative 4,109
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Earnings before income taxes and depreciation 29,382
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Depreciation 5,728
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Earnings before income taxes 23,654
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Provision for income taxes 446
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Net earnings for the period 23,208
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Net earnings per trust unit 0.330
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Adjusted EBITDA
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Earnings before income taxes and depreciation 29,382
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Subtract:
Unrealized gains on forward exchange contracts 2,284
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Adjusted EBITDA 27,098
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Distributions declared 26,745
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Distributions declared per trust unit 0.380
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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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(In thousands of dollars Three Months Ended
except per unit amounts) ------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31,
2005 2005 2005 2004
$ $ $ $
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Revenue
Coal 46,063 43,969 31,692 29,323
Other 4,190 (1,622) 21 5,547
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50,253 42,347 31,713 34,870
Expenses
Operating 16,762 17,237 16,339 17,390
Administration 4,109 1,562 1,392 1,725
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20,871 18,799 17,731 19,115
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Earnings before income taxes
and depreciation 29,382 23,548 13,982 15,755
Depreciation 5,728 5,728 5,728 5,850
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Earnings before income taxes 23,654 17,820 8,254 9,905
Provision for (recovery of)
income taxes 446 1,239 (2,222) (2,284)
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Net earnings for the period 23,208 16,581 10,476 12,189
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Distributions declared 26,745 14,076 14,076 16,891
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Distributions declared per
trust unit 0.380 0.200 0.200 0.240
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Net earnings per trust unit 0.330 0.236 0.149 0.173
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(In thousands of dollars Three Months Ended
except per unit amounts) ------------------------------------------
Sep 30, Jun 30, Mar 31, Dec 31,
2004 2004 2004 2003
$ $ $ $
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Revenue
Coal 28,448 30,267 23,382 28,719
Other 4,985 3,110 1,627 1,948
Fording Canadian Coal Trust
Distributions - - - 2,240
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33,433 33,377 25,009 32,907
Expenses
Operating 17,146 15,469 14,228 15,874
Administration 1,405 1,403 1,753 1,952
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18,551 16,872 15,981 17,826
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Earnings before interest,
income taxes, depreciation,
gain on sale of Fording
Canadian Coal Trust units and
extraordinary gain 14,882 16,505 9,028 15,081
Depreciation 5,790 5,791 5,791 5,684
Interest expense - - 1,268 2,159
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Earnings before income taxes,
gain on sale of Fording
Canadian Coal Trust units and
extraordinary gain 9,092 10,714 1,969 7,238
Gain on sale of Fording
Canadian Coal Trust units - - 11,986 18,898
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Earnings before income taxes
and extraordinary gain 9,092 10,714 13,955 26,136
Recovery of income taxes 303 312 1,801 2,104
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Earnings before extraordinary
gain 9,395 11,026 15,756 28,240
Extraordinary gain - - - 290
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Net earnings for the period 9,395 11,026 15,756 28,530
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Distributions declared 9,853 9,853 21,115 18,811
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Distributions declared per
trust unit 0.140 0.140 0.300 0.267
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Net earnings per trust unit 0.133 0.157 0.224 0.406
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Results of Operations
In the third quarter of 2005, Westshore shipped approximately 5.2 million
tonnes of coal, compared with 5.0 million tonnes shipped during the same
period in 2004. Volumes shipped in the third quarter were at a slightly lower
rate than in the first six months of the year. Lower shipment levels during
the third quarter of 2005 permitted some buildup of customer coal inventory
levels at the terminal compared to levels experienced over the last year and a
half. The current and anticipated inventory levels should mitigate to some
extent any disruptions to shipments resulting from adverse weather conditions
over the coming months.
Based on available information, Westshore currently anticipates that
total throughput for 2005 will be approximately 22 million tonnes, up from
2004 levels of 21.2 million tonnes. The ability to achieve these tonnages will
depend in part on the timing of shipments to coal buyers and the level of
customer inventories maintained at the coal terminal.
Coal loading revenue increased by 62 % to $46.1 million in the third
quarter of 2005 from $28.4 million in the third quarter of 2004. Of the
increase in revenue, 93% was due to higher average loading rates and 7% was
due to higher volumes.
The average loading rate in the third quarter of 2005 rose by 56% to
$8.82 per tonne compared to $5.67 per tonne for the same period in 2004.
Higher rates in Q3 2005 reflect the higher coal prices for the 2005/06 coal
contract year to date, which in US dollar denominated terms rose by
approximately 134% compared to the same period in the prior coal contract
year.
Other revenue decreased from $5.0 million in the third quarter of 2004 to
$4.2 million in the third quarter of 2005. This decrease is primarily due to
$3.6 million of realized and unrealized hedging gains being recorded for the
three months ended September 30, 2005, compared to gains of $4.7 million in
the third quarter of 2004 (See "Currency Fluctuations"). Demurrage and train
detention costs were similar to the same period in 2004.
Operating expenses were approximately the same in the third quarter of
2005 as in the third quarter of 2004. Administrative expenses rose from
$1.4 million in 2004 to $4.1 million in 2005. $1.8 million of this increase
was attributable to the incentive fee payable to Westar Group Ltd. ("Westar")
under the Management Agreement between Westshore and Westar. No incentive fee
was payable in 2004. Administrative expenses also increased as a result of
costs incurred in connection with the creation of Westshore LP and the
reorganization of the Fund.
As a result of the foregoing, Westshore's earnings before income taxes
and depreciation increased to $29.4 million for the third quarter of 2005
compared to $14.9 million for the same period in 2004.
The provision for income taxes of $0.4 million in the third quarter
included a recovery of $1.7 million of future income taxes as a result of a
reduction in British Columbia provincial income tax rates.
Contract Rate Review
Under the contract that governs coal from the Elkview mine (the "Elkview
Contract"), the customer gave notice on September 30, 2004 that it is
requesting a review of the loading rate, with a view to changing the rate
effective April 1, 2005. Any revised rate would apply for the balance of the
contract to 2010. The loading rate under the Elkview Contract is at present a
function of the Canadian dollar price received for such coal. The Contract
covers production from only the Elkview Mine, and is separate from the
contract that covers the Fording, Greenhills and Coal Mountain mines.
Westshore considers that the rate structure under the Elkview Contract has
operated in accordance with the original intention of the parties. The parties
have commenced a mediation process concerning this matter. If the mediation is
unsuccessful the Elkview Contract provides for the matter to be settled by
arbitration, which, if required, is not expected to commence until late in the
first quarter of 2006.
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, the
exposure of Westshore's revenues to such uncertainty and the large amount of
US dollar driven revenue that Westshore is currently experiencing, Westshore
has adopted a more flexible policy under which it expects to hedge at year end
2005 a portion of its anticipated US dollar related revenues for 2006 based on
the annual budget. Westshore will then continue to review the need and
opportunity for additional future hedging in respect to a portion of its
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 nine months of
2005 was reduced by $1.4 million of unrealized hedging losses (essentially
reducing the $11.7 million of revenue previously recorded to $10.3 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 third quarter of 2005, the inclusion in other
revenue on account of settled contracts was a gain of $1.3 million, whereas in
the third quarter of 2004 there was no impact on revenues.
Liquidity and Capital Resources
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 third quarter and
remained undrawn at September 30, 2005. Westshore's distribution policy leaves
approximately 10% of earnings before interest, income taxes, depreciation and
unrealized gains or losses on forward exchange contracts to cover cash
requirements such as capital expenditures and special pension contributions.
Any major capital expenditures may need to be financed, with repayment of any
debt financing coming from undistributed earnings.
During the quarter ended September 30, 2005, the Fund's non-cash working
capital increased by $8.3 million compared to a decrease of $0.2 million for
the same period in 2004. The increase was primarily due to higher trade
accounts receivable, resulting from higher average loading rates.
Quarterly Distributions
On October 14, 2005, the Fund distributed $26,744,822 ($0.38 per unit) in
cash for the third quarter of 2005 to Unitholders of record on September 30,
2005 as compared with $9,853,356 (representing $0.14 per unit) in cash for the
third quarter of 2004. The Q3 2005 distribution for unitholder income tax
purposes was comprised of 66.3% (or $0.251947 per unit) income and 33.7%
(or $0.128053) of the distribution is expected to constitute a return of
capital. These amounts may vary when calculated for the year as a whole. In
determining the third quarter distribution, the Trustees took into account
estimated distributable cash for the balance of 2005 and the anticipated
effects of the Reorganization referred to below, with a view to the fourth
quarter distribution being at a similar level to the third quarter
distribution.
Outlook
For the last quarter of 2005, 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 tonnages shipped at full variable rates
are expected to account for approximately 45% of throughput.
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 is enjoying and expects to continue to
enjoy materially higher throughput rates for approximately half of the coal
shipped than the rates that prevailed in 2004 and in the first four months of
2005, with a resulting increase in the Fund's distributions. One result of
this increase is that for 2005 incentive fees are payable by Westshore to
Westar under the Management Agreement.
Based on Westshore's current assumptions concerning volume per specific
customer, US dollar coal prices and exchange rates and throughput rates
anticipated to be charged, the sensitivities affecting the Fund's
distributions for the next six months to March 31, 2006 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 6 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
0.6 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 6 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.
There are a number of material variables that will impact Westshore's
EBITDA and the Fund's distributions in 2006, most of which are outside the
control of Westshore or the Fund. The Fund has assessed the likely sensitivity
of its distributions in 2006 to changes in tonnage shipped, the US dollar coal
price and the US/CDN dollar exchange rate. On the assumption that throughput
will be in the range of 22 million tonnes, that the US dollar coal price will
be within the range of US$100 to US$110 per tonne and that the US/CDN dollar
exchange rate will be between US $0.80 to US $0.85 per Canadian dollar, the
sensitivity of distributions in 2006 to these factors separately would be as
follows:
- for every US$5.00 change in the US dollar denominated coal price
received by the Elk Valley Coal Partnership, the effect on
distributions by the Fund would to be approximately 5.5 cents per
unit;
- for every US$0.01 change in the value of the Canadian dollar, the
effect on distributions by the Fund would be approximately 1.5 cents
per unit; and
- for every 1,000,000 tonnes difference in throughput, the effect on
distributions by the Fund would be approximately 4.5 cents per unit.
Restructuring
The reorganization of the Fund (the "Reorganization") approved by
unitholders at the Annual and Special Meeting held on June 14, 2005 (the
"Meeting") became effective on October 2, 2005. The Reorganization,
substantially as described in the Management Information Circular dated
May 10, 2005 sent to the unitholders of the Fund in connection with the
Meeting, was completed after the Fund received a tax ruling from the Canada
Revenue Agency on September 12, 2005. Further details relating to the
Reorganization are contained in the Fund's Material Change Report dated
October 12, 2005.
Forward-looking Statements
The foregoing statements concerning tonnages, coal prices, exchange
rates, 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
November 3, 2005
Westshore Terminals Income Fund
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Consolidated Statements of Earnings and Cumulative Earnings
(in thousands of dollars, Three months ended Nine months ended
except per unit amounts) September 30 September 30
$ $
2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Coal 46,063 28,448 121,724 82,097
Other 4,190 4,985 2,589 9,656
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50,253 33,433 124,313 91,753
EXPENSES
Operating 16,762 17,146 50,338 46,843
Administrative 4,109 1,405 7,063 4,561
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20,871 18,551 57,401 51,404
Earnings before interest,
income taxes, depreciation
and gain on sale of Fording
Canadian Coal Trust units 29,382 14,882 66,912 40,349
Depreciation 5,728 5,790 17,184 17,371
Interest expense - - - 1,202
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Earnings before income taxes
and gain on sale of Fording
Canadian Coal Trust units 23,654 9,092 49,728 21,776
Gain on sale of Fording
Canadian Coal Trust units - - - 11,986
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Earnings before income taxes 23,654 9,092 49,728 33,762
Provision for (recovery of)
income taxes 446 (303) (537) (2,416)
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Net earnings for the period 23,208 9,395 50,265 36,178
Cumulative earnings -
Beginning of period 284,197 235,557 257,140 208,774
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Cumulative earnings -
End of period 307,405 244,952 307,405 244,952
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Net earnings per trust unit 0.330 0.133 0.714 0.514
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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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Westshore Terminals Income Fund
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Consolidated Statements of Cash Flows
(in thousands of dollars) Three months ended Nine months ended
September 30 September 30
$ $
2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating
activities
Net earnings for the period 23,208 9,395 50,265 36,178
Items not affecting cash
Unrealized losses (gains)
on forward exchange
contracts (2,284) (4,746) 1,383 (6,935)
Depreciation 5,728 5,790 17,184 17,371
Future income tax
recovery (3,396) (1,661) (7,975) (4,983)
Gain on sale of Fording
Canadian Coal Trust
units - - - (11,986)
Increase in deferred
employee future
benefits costs 300 381 509 1,143
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23,556 9,159 61,366 30,788
Increase (decrease) in
non-cash working capital 8,267 (229) (2,991) 5,921
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31,823 8,930 58,375 36,709
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Cash flows from financing
activities
Repayment of long-term debt - - - (29,374)
Distributions paid to
unitholders (14,076) (9,853) (45,043) (49,779)
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(14,076) (9,853) (45,043) (79,153)
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Cash flows from investing
activities
Additions to plant and
equipment (1,857) (122) (2,764) (489)
Proceeds on sale of Fording
Canadian Coal Trust units - - - 41,234
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(1,857) (122) (2,764) 40,745
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Increase (decrease) in cash
and cash equivalents 15,890 (1,045) 10,568 (1,699)
Cash and cash equivalents -
Beginning of period 30,678 26,991 36,000 27,645
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Cash and cash equivalents -
End of period 46,568 25,946 46,568 25,946
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Supplemental cash flow
information
Cash paid for interest - - - 950
Cash received for interest 162 208 440 -
Income taxes paid 26 442 168 984
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Westshore Terminals Income Fund
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Consolidated Balance Sheets
(in thousands of dollars) September 30, December 31,
2005 2004
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 46,568 36,000
Accounts receivable 8,070 3,764
Inventories 5,716 5,148
Prepaid expenses 3,974 2,791
Income taxes receivable - 2,648
Other assets 6,523 5,013
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70,851 55,364
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Plant and equipment
At cost 461,558 458,932
Accumulated depreciation (315,216) (298,170)
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146,342 160,762
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Employee future benefits 1,727 2,236
Goodwill 365,541 365,541
Other assets 3,786 6,678
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588,247 590,581
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 16,854 21,296
Income taxes payable 4,861 -
Distribution payable to unitholders 26,745 16,891
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48,460 38,187
Future income taxes 43,518 51,493
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91,978 89,680
Unitholders' equity
Capital contributions 663,602 663,602
Cumulative earnings 307,405 257,140
Cumulative distributions declared (474,738) (419,841)
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496,269 500,901
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588,247 590,581
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Westshore Terminals Income Fund
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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 Nine months ended
September 30 September 30
$ $
2005 2004 2005 2004
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Pension plan benefits $ 744 $ 429 $ 1,488 $ 1,286
Other retirement and
post-employment benefits 547 591 1,094 1,774
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Employee future benefits
expense $ 1,291 $ 1,020 $ 2,582 $ 3,060
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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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