VANCOUVER, Aug. 2 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN) announced today its earnings for the second quarter ending June 30, 2007. Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund
Second Quarter Report
For the six months ended June 30, 2007
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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 Westhore's costs. Westshore's throughput charges for approximately half of the coal it handles are calculated at present by reference to coal prices (see particulars under "Outlook" section on page 7). Lower prices for hard coking coal resulted in Elk Valley Coal Partnership (the "Coal Partnership"), which is Westshore's principal customer, achieving lower average settlement prices for the 2007/08 coal year compared to the 2006/07 coal year. The weighted average price of 2007 calendar year coal sales by the Coal Partnership is expected to be approximately US$96 per tonne, down approximately 15% from US$113 in 2006. 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 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 determined by reference to the Fund's financial statements. These non-GAAP measures are discussed because the Fund believes that they provide investors with 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, 2006. The date of this management's discussion and analysis and results of operations is August 2, 2007.
The following table sets out selected consolidated financial information for the Fund for the quarter ended June 30, 2007. As at August 2, 2007, the Fund has 74,250,016 issued and outstanding trust units.
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(In thousands of dollars Three Months Three Months
except per unit amounts) Ended Ended
June 30, June 30,
2007 2006
$ $
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REVENUE
Coal 45,790 41,583
Other 2,370 2,869
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48,160 44,452
EXPENSES
Operating 17,906 15,256
Administrative 1,583 2,577
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19,489 17,833
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Earnings before depreciation and income taxes 28,671 26,619
Depreciation 5,552 5,404
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Earnings before income taxes 23,119 21,215
Provisions for income taxes (6,589)(1) -
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Net earnings for the period 16,530 21,215
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Net earnings per trust unit 0.223 0.301
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Distributable Cash(2) 24,040 19,275
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Distributions declared 18,563 19,003
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Distributions declared per trust unit 0.250 0.270
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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 Three Months Ended
dollars except -----------------------------------------------------
per unit amounts) June 30, Mar 31, Dec 31, Sep 30,
2007 2007 2006 2006
$ $ $ $
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Revenue
Coal 45,790 36,553 41,067 36,741
Other 2,370 1,058 (1,212) 1,184
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48,160 37,611 39,855 37,925
Expenses
Operating 17,906 17,113 16,287 17,980
Administration 1,583 1,947 2,700 1,857
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19,489 19,060 18,987 19,837
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Earnings before
depreciation and
income taxes 28,671 18,551 20,868 18,088
Depreciation 5,552 5,553 5,470 5,405
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Earnings before
income taxes 23,119 12,998 15,398 12,683
Recovery of
(provision for)
income taxes (6,589)(1) - - 9
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Net earnings for
the period 16,530 12,998 15,398 12,692
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Net earnings per
trust unit 0.223 0.175 0.219 0.180
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Cash Distributions
declared(2) 18,563 19,305(3) 23,578 21,818
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Cash Distributions
per unit 0.250 0.260(3) 0.335 0.310
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Distribution of
units in lieu of
cash - - 6,194 -
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Distribution of
units in lieu of
cash per unit - - 0.088 -
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(1) Non-cash tax provision recorded as a result of change in tax laws
for income trusts. Refer to page 5.
(2) Refer to page 6 for a comparison of cash distributions to
distributable cash.
(3) Includes an extraordinary distribution of $0.035. Refer to page 6.
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(In thousands of Three Months Ended
dollars except per -----------------------------------------------------
unit amounts) Jun 30, Mar 31, Dec 31, Sep 30,
2006 2006 2005 2005
$ $ $ $
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Revenue
Coal 41,583 38,463 43,523 46,063
Other 2,869 858 1,898 4,190
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44,452 39,321 45,421 50,253
Expenses
Operating 15,256 15,739 16,436 16,762
Administration 2,577 1,739 2,077 4,109
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17,833 17,478 18,513 20,871
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Earnings before
depreciation and
income taxes 26,619 21,843 26,908 29,382
Depreciation 5,404 5,405 6,224 5,728
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Earnings before
income taxes 21,215 16,438 20,684 23,654
Recovery of
(provision for)
income taxes - - 42,267 (446)
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Net earnings for
the period 21,215 16,438 62,951 23,208
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Net earnings per
trust unit 0.301 0.234 0.894 0.330
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Cash Distributions
declared(1) 19,003 20,410 27,097 26,745
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Cash Distributions
per unit 0.270 0.290 0.385 0.380
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Distribution of
units in lieu of
cash - - 1,540 -
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Distribution of
units in lieu of
cash per unit - - 0.022 -
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(1) Refer to page 6 for a comparison of cash distributions to
distributable cash.
Results of Operations
In the second quarter of 2007, Westshore shipped 5.7 million tonnes of coal, compared with 4.6 million tonnes shipped during the same period in 2006. Based on information currently available, for 2007 Westshore is anticipating shipping 19 to 20 million tonnes at a lower average loading rate than 2006.
Coal loading revenue increased by 10.1% to $45.8 million in the second quarter of 2007 from $41.6 million in the second quarter of 2006. The increase in revenue was due to an increase in volumes offset by lower throughput rates, which reflect the lower coal prices for the 2007/08 coal contract year compared to the 2006/07 coal year. Lower rates in Q2 2007 reflect the lower coal prices for the 2007/08 coal contract year compared to the 2006/07 coal year. The average loading rate in the second quarter of 2007 was $7.36 per tonne, compared to the average loading rate per tonne in the second quarter of 2006 of $8.02 per tonne. These average rates are before giving effect to rate adjustments relating to the prior coal contract year. Holdover tonnage for the prior year increased the rate in the second quarter of 2006 by a greater amount than in the second quarter of 2007.
Other revenue was $2.4 million in the second quarter of 2007 compared to $2.9 million in the second quarter of 2006. Unrealized hedging gains were $0.4 million in the three months ended June 30, 2007 and were immaterial in the second quarter of 2006. Realized hedging gains in the second quarter of 2007 decreased by $1.2 million from the second quarter in 2006 (See "Currency Fluctuations"). Interest income for the quarter increased by approximately $0.3 million because the Fund has on hand the proceeds of the equity financings undertaken to fund the equipment upgrade project (See "Equipment Upgrade Project"). Train detention costs in the second quarter of 2007 were $0.3 million as compared to $0.1 million in the second quarter of 2006.
Operating expenses in the second quarter of 2007 increased by approximately $2.7 million from 2006. This increase was primarily as a result of higher shipment volumes. Administrative expenses decreased from $2.6 million in 2006 to $1.6 million in 2007. As the Fund is expecting lower cash distributions than the prior year, no incentive fee is being accrued in 2007.
As a result of the foregoing, Westshore's earnings before depreciation and income taxes increased to $28.7 million for the second quarter of 2007 compared to $26.6 million for the same period in 2006.
Labour
Labour agreements with all three locals of the International Longshore and Warehouse Union (production/maintenance employees, clerical work-force, and foremen) expired on January 31, 2007.
Negotiations have concluded with the largest of the three locals, the production and maintenance employees, and a collective agreement was ratified on July 18, 2007, and remains in force and effect until January 31, 2011. This agreement will form the basis for the other two agreements. Discussions have commenced with the clerical work-force. Talks with the Foremen will not get underway until late September.
Contract Rate Review
Under the contract that governs coal from the Elkview mine (the "Elkview Contract"), the Coal Partnership gave notice on September 30, 2004 requesting a review of the loading rate, with a view to changing the rate effective April 1, 2005. The matter was heard before an arbitrator, as provided for in the Elkview Contract, and a decision was made in favour of Westshore in July 2006 confirming that there would be no changes to the formula for determining the loading rate which will remain in effect through the end of the contract term on March 31, 2010. The Supreme Court of British Columbia granted the Coal Partnership leave to appeal the arbitrator's decision to the Supreme Court of British Columbia. Westshore appealed that decision and this appeal is expected to be heard in early 2008.
In late August 2006, the Coal Partnership 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. Discussions concerning the possibility of a change in rate commenced as provided for under the agreement. If the matter cannot be resolved between the parties, the matter would be determined by arbitration, likely to be held in late 2008.
Equipment Upgrade Project
Westshore is proceeding with the upgrade to its existing equipment previously announced. The cost of the upgrade (to be spent over a two year period) is anticipated to be approximately $49 million based on firm bids received and negotiated this year. It is anticipated that the build out will take approximately two years to complete. Funding for the upgrade has been provided 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
Bill C-52 Budget Implementations Act, 2007 which contains legislative provisions to implement the proposals to tax publicly traded income trusts in Canada became law on June 22, 2007. Under these rules, distributions declared by the Fund after January 1, 2011 will be taxed at a rate of 31.5% 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 2007 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. As a result, the Fund has provided for a future income tax expense of $6.6 million as at June 30, 2007. This is a non-cash item and is essentially a one time charge to set up the provision for future taxes. The provision will vary in future to reflect changes in assets and liabilities and their recognition for tax purposes. This future income tax expense does not affect current distributions.
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. The first distribution to which the Plan was applicable was the distribution paid on July 15, 2007. 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
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. Since the contract price for coal is set in U.S. dollars, the exchange rate affects the Canadian dollar price and Westshore's loading rate. To mitigate the resulting risk, Westshore has engaged in periodic hedging activities. 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 amount of US dollar pricing-based revenue that Westshore experiences, Westshore has adopted a flexible policy under which it may hedge at the end of each year a portion of its anticipated US dollar related revenues for the coming year, based on the annual budget. Westshore will then continue to review the need and opportunity for additional future hedging in respect of a portion of its revenue.
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 other revenue. As stated in the audited consolidated financial statements of the Fund for the year ending December 31, 2006, 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 six months ended June 30, 2007 was reduced by $1.0 million in unrealized losses on forward exchange contracts, compared to unrealized losses of $1.8 million for the first six months of 2006. Unrealized hedging gains or losses are non-cash items. The cash effect of the hedging activities is recognized in other revenue as the forward exchange contracts mature. For the first half of 2007, other revenue included a realized gain of $2.1 million compared to a realized gain of $3.4 million for the first six months of 2006.
Liquidity and Capital Resources
The Fund is obliged to distribute to Unitholders its cash inflows less administrative costs of the Fund (and amounts, if any, 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's facility is a mature facility which does not require additional periodic replacements 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 equipment upgrade is being funded entirely from equity and cash resources, which will avoid any liquidity concerns with debt service. As a result, the Fund does not anticipate any liquidity concerns with the ongoing operations of Westshore.
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, 2007. 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 regular capital expenditures and special pension contributions.
Quarterly Distributions
On July 15, 2007, the Fund distributed $18,562,504 ($0.25 per unit) in cash for the second quarter of 2007 to Unitholders of record on June 30, 2007 as compared with $19,002,900 ($0.27 per unit) in cash for the second quarter of 2006.
Distributable Cash
References to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. Cash available for distribution is a useful financial measure as an indication of the Fund's ability to make distributions. It is also a measure generally used 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 distributable cash is a useful supplemental measure that may assist investors to assess an investment in Units. The Fund's method of determining cash available for distribution is derived from cash flows from operations (a measure recognized under GAAP).
The distributable cash of the Fund is solely comprised of distributions from Westshore which are impacted by the operating results of Westshore. A comparison of the operating results to cash distributions paid is as follows:
Distributable Cash Reconciliation
(In thousands of dollars) 3 months ended June 30
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2007 2006
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A Cash flows from operating activities
(distributable cash) 24,040 19,275
B Net income excluding non-cash items 28,269 26,139
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C Actual cash distributions paid 18,563 19,003
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D Excess of cash flows from operating
activities over cash distributions
paid (A-C) 5,477 272
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E Excess of net income excluding non-cash
items over cash distributions paid (B-C) 9,706(1) 7,136(1)
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(1) Net income excluding non-cash items is cash flow from operating
activities adding back non-cash working capital changes. This
measure is generally expected to exceed cash distributions paid as
cash is required for such items as regular capital expenditures and
discharge of previously accrued liabilities.
Change in Accounting Policies
The Canadian Institute of Chartered Accountants issued new accounting rules on financial instruments, hedges and comprehensive earnings that will require the Fund to account for derivatives and financial assets held for trading or available for sale at fair values. Loans, receivables and investments held to maturity will be measured at amortized cost using the effective interest rate method. Other financial liabilities will be measured at fair value or at amortized cost using the effective interest rate method. The effective interest rate method establishes the discount rate which equates the estimated future cash flows with the net carrying amount of the financial asset or liability.
Other comprehensive earnings is the method used to record revenues, expenses, gains and losses on net financial assets that are not required to be included in earnings. Foreign currency translation gains and losses on self-sustaining foreign operations will be included in other comprehensive earnings. Comprehensive earnings are the sum of earnings for the period plus other comprehensive earnings.
The new rules do not have a significant impact on the Fund's financial statements.
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.
Critical to Westshore's ongoing success will be the ability of the Coal Partnership to maintain and increase its coal export volumes while competing with other suppliers for sales worldwide. Based on information currently available, Westshore anticipates throughput volume levels of 19 to 20 million tonnes in 2007, at lower average loading rates, with the average loading rates in the last six months of 2007 being lower than in the first six months.
As announced in the Fording Canadian Coal Trust news release on July 30, 2007, the Coal Partnership has settled its customer contracts and this has resulted in its average price for coal sales in the period April 1, 2007 to March 31, 2008 to be approximately US$91 per tonne. This represents a reduction of approximately 15% from the US dollar prices realized by the Coal Partnership from the prior coal year. These prices represent sales for all products, not only those exported through Westshore. These prices indicate that Westshore's loading rate for tonnage shipped at a variable rate, and hence its average loading rate, for the 2007/08 coal year will be lower than for the 2006/07 coal year.
For 2007 and based on current tonnage estimates as of the date of this report, tonnages shipped at fixed rates are expected to account for approximately 22% 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 34% of throughput; and finally, tonnages shipped at full variable rates are expected to account for approximately 44% of throughput at the Terminal.
Because of a combination of possible variations in tonnage, the US dollar denominated coal price and exchange rates, it is not possible for the Fund to predict accurately the level of its distributions for 2007. The second quarter distribution was $0.25 per unit. If distributions for the calendar year 2007 exceed $1.035 per unit, incentive fees will be payable by Westshore to the Manager under the Management Agreement, as was the case in 2006.
There are many variables that will affect Westshore's earnings and the Fund's distributions in 2007, most of which are outside the control of Westshore or the Fund. The Fund has assessed the likely sensitivity of its distributions, in respect of the remaining two quarters of 2007 as a whole, to changes in tonnage shipped, the US dollar coal price and the US/Canadian dollar exchange rate. Sensitivities for any other period would depend upon assumptions that are considered appropriate and relevant at such time(s).
The following sensitivities reflect the impact on the remaining two quarters of 2007 and are based on existing contract provisions, assumed aggregate tonnage for 2007 of 19.5 million tonnes, US dollar coal price assumption of US$91 per tonne and exchange rates of US$0.95 per CDN$1.00:
- 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; - 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 is expected to be approximately 3 cents per unit; and - for every US$0.02 change in the value of the Canadian dollar, the effect on distributions by the Fund is expected to be approximately 1 cent per unit.
The foregoing sensitivities factor in the anticipated effects of Westshore's hedges currently in place but not the effect of any incentive fee if distributions should exceed $1.035 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 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 and on Westshore's website at www.westshore.com.
On behalf of the Trustees,
(signed)
William W. Stinson
Chairman
August 2, 2007
The enclosed financial statements have not been reviewed by the Fund's or
Westshore's auditors.
Consolidated Statements of Earnings, Comprehensive Earnings and
Cumulative Earnings
(in thousands of Three months ended Six months ended
dollars, except June 30 June 30
per unit amounts) $ $
2007 2006 2007 2006
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Coal 45,790 41,583 82,343 80,046
Other 2,370 2,869 3,428 3,727
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48,160 44,452 85,771 83,773
EXPENSES
Operating 17,906 15,256 35,019 30,995
Administrative 1,583 2,577 3,530 4,316
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19,489 17,833 38,549 35,311
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Earnings before
depreciation and
income taxes 28,671 26,619 47,222 48,462
Depreciation 5,552 5,404 11,105 10,809
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Earnings before
income taxes 23,119 21,215 36,117 37,653
Recovery of
(provision for)
income taxes (6,589) - (6,589) -
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Net and
comprehensive
earnings for
the period 16,530 21,215 29,528 37,653
Cumulative
earnings
- Beginning of
period 449,097 386,794 436,099 370,356
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Cumulative
earnings
- End of period 465,627 408,009 465,627 408,009
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Basic and diluted
earnings per
trust unit 0.223 0.301 0.398 0.535
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Weighted
average
number of
trust units
outstanding 74,250,016 70,381,111 74,250,016 70,381,111
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Consolidated Statements of Cash Flows
(in thousands of Three months ended Six months ended
dollars) June 30 June 30
$ $
2007 2006 2007 2006
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from
operating activities
Net earnings for the
period 16,530 21,215 29,528 37,653
Items not affecting
cash
Unrealized losses
(gains) on
forward exchange
contracts (356) 32 973 1,757
Depreciation 5,552 5,404 11,105 10,809
Future income tax
expense 6,589 - 6,589 -
Decrease in
deferred employee
future benefits
costs (46) (512) (185) (203)
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28,269 26,139 48,010 50,016
Increase in non-cash
working capital (4,229) (6,864) (5,667) (9,938)
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24,040 19,275 42,343 40,078
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Cash flows from
financing activities
Distributions paid to
unitholders (19,305) (20,411) (42,883) (47,508)
Issuance of units, net
of share issuance
costs - - 40,430 -
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(19,305) (20,411) (2,453) (47,508)
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Cash flows from
investing activities
Additions to plant
and equipment (3,790) (659) (4,738) (1,886)
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(3,790) (659) (4,738) (1,886)
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Increase (decrease) in
cash and cash
equivalents 945 (1,795) 35,152 (9,316)
Cash and cash
equivalents -
Beginning of period 68,762 32,383 34,555 39,904
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Cash and cash
equivalents - End
of period 69,707 30,588 69,707 30,588
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Supplemental cash
flow information
Cash received for
interest 710 482 1,090 715
Income taxes paid
(received) - (166) - 404
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Consolidated Balance Sheets June 30, December 31,
(in thousands of dollars) 2007 2006
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 69,707 34,555
Accounts receivable 20,607 15,211
Inventories 6,351 6,102
Prepaid expenses 5,892 3,975
Other assets 872 1,845
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103,429 61,668
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Plant and equipment
At cost 471,570 466,831
Accumulated depreciation (353,311) (342,205)
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118,259 124,626
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Employee future benefits 21,080 19,907
Goodwill 365,541 365,541
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608,309 571,762
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 19,262 17,367
Distribution payable to unitholders 18,563 23,578
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37,825 40,945
Employee future benefits 18,748 17,760
Future income taxes 6,589 -
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63,162 58,705
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Unitholders' Equity
Capital contributions 704,032 663,602
Cumulative earnings 465,627 436,099
Cumulative distributions declared (624,512) (586,644)
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545,147 513,057
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608,309 571,762
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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, 2006. 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, 2006.
3. Financial Instruments
Effective January 1, 2007, the Fund adopted the new accounting
standards issued by the Canadian Institute of Chartered Accountants
for financial instruments, hedges and comprehensive earnings. The
recommendations required the Fund to account for derivatives and
financial assets held for trading or available for sale at fair
values. Loans, receivables and investments held to maturity are
measured at amortized cost using the effective interest rate method.
Other financial liabilities will be measured at fair value or at
amortized cost using the effective interest rate method. The
effective interest rate method establishes the discount rate which
equates the estimated future cash flows with the net carrying amount
of the financial asset or liability.
Other comprehensive earnings is the method used to record revenue,
expenses, gains and losses on net financial assets that are not
required to be included in earnings. Foreign currency translation
gains and losses on self-sustaining foreign operations will be
included in other comprehensive earnings. Comprehensive earnings are
the sum of earnings (loss) for the period plus other comprehensive
earnings (loss).
The new rules do not have a significant impact on the Fund's
financial statements.
4. Employee future benefits
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Pension plan
benefits $ (587) $ (763) $ (1,173) $ (1,018)
Other retirement
and post-
employment
benefits 541 251 988 815
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Employee future
benefits recovery (46) $ (512) (185) $ (203)
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