WESTSHORE TERMINALS INCOME FUND
ANNUAL REPORT
2007
W
estshore Terminals Income Fund (the “Fund”) is an open-ended trust which was
created under the laws of British Columbia on December 2, 1996. The Fund
owns all of the limited partnership units of Westshore Terminals Limited Partnership
(“Westshore”).
Westshore operates a bulk coal handling terminal located in British Columbia.
Distributions received by the Fund from Westshore, net of expenses, are distributed to
Unitholders on a quarterly basis. The Fund does not conduct any active business.
Table of Contents
Financial Highlights
Trustees’ Letter and Report to Unitholders
Management’s Discussion and Analysis
Consolidated Financial Statements
Corporate Information
1
2
3
17
34
Westshore Terminals Income Fund
Financial Highlights
Westshore Terminals Income Fund (Consolidated)
(In thousands of dollars except per unit amounts and tonnage)
Tonnage (in thousands)
Revenue
Coal
Other(1)
Earnings before depreciation and income taxes
Cash Distributions declared
Cash Distributions per unit
2007
21,160
$
$
156,717
8,956
165,673
87,328
86,131
1.160
$
$
2006
18,958
157,854
3,699
161,553
87,418
84,809
1.205
Units outstanding at December 31
74,250,016 (2)
70,381,111
Trading Statistics
High
Low
Close
Volume
15.96
$
10.53
$
$
14.49
48,723,436
13.50
$
9.25
$
$
11.79
47,705,637
(1) Other revenue in 2007 includes $3.9 million of realized gains ($7.0 million of realized gains in 2006) offset by a $1.5
million decrease in unrealized gains ($6.5 million decrease in unrealized gains in 2006) on forward exchange
contracts.
(2) In March 2007, the Fund concluded an equity offering comprising of a $20 million rights offering and a $20 million
private placement. The funds are being used as part of the funding for a $49 million capital upgrade (see
“Equipment Addition and Upgrade” on p. 10).
1
Westshore Terminals Income Fund
Trustees’ Letter and Report to Unitholders
Dear Unitholder:
For the twelve months ending December 31, 2007, the Fund declared cash distributions to Unitholders of
$86.1 million ($1.160 per unit).
Distributions by the Fund are entirely dependent on the performance 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. During 2007, Westshore loaded 21.2 million tonnes
of coal as compared to 19.0 million tonnes shipped in 2006.
The Fund’s consolidated earnings before depreciation and income taxes were $87.3 million compared to prior
year at $87.4 million. Revenues decreased 1% from $157.9 million in 2006 to $156.7 million in 2007. A lower
average loading rate was offset by higher throughput volumes. Under Westshore’s arrangements with the Elk
Valley Coal Partnership (the “Coal Partnership”), the loading rate for approximately half of the coal loaded by
Westshore in 2007 was a function of the price in Canadian dollars realized by the Coal Partnership for that coal.
The pricing of coal for the 2008/9 coal year has not yet been concluded.
Westshore is fully underway with a capital upgrade to its existing equipment which is anticipated to cost
approximately $49 million. The upgrade is expected to be completed in late 2009 and will increase Westshore’s
throughput capacity to approximately 29 million tonnes. Funding for the capital upgrade has been provided
through a $20 million rights offering to unitholders and $20 million private placement which were concluded in
March 2007. The balance of the funds required will be sourced from Westshore’s cash on hand. At this time,
the capital upgrade project remains on schedule and on budget.
During the year, Westshore successfully concluded collective agreements with locals 502 and 517
(longshoremen and clerical) for four year terms expiring January 31, 2011. Negotiations with local 514 (foreman)
were completed in February 2008 resulting in an agreement for the same four year term.
As of mid-December 2007, substantially all Westshore’s currency hedges had expired and as a result, the Fund
is currently unhedged and exposed to Canadian dollar fluctuations against the US dollar. Historically, the Fund
had in place hedges that were approximately equivalent to 50% of the anticipated US dollar linked (related)-
revenues. For the coming coal year, given the uncertainty as to pricing and the unprecedented volatility in coal
markets, the Fund has delayed putting hedges in place until more information is available.
Audited consolidated financial statements for the Fund are attached.
For the Board of Trustees,
William W. Stinson
Vancouver, B.C.
Chairman of the Board of Trustees March 28, 2008
2
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with information contained in the Consolidated Financial
Statements and the notes thereto starting on page 19. This discussion and analysis has been based upon financial statements prepared in
accordance with Canadian Generally Accepted Accounting Principles (“GAAP”). This discussion and analysis is the responsibility of
management of Westshore. Unless otherwise indicated, the information presented in this Annual Report is stated as at March 26, 2008.
All amounts are presented in Canadian dollars unless otherwise noted.
Caution Concerning Forward-Looking Statements
This Annual Report contains certain forward-looking statements, which reflect the current expectations of the Fund and Westshore with
respect to future events and performance. The words ‘‘anticipate,’’ ‘‘believe,’’ ‘‘expect,’’ “estimate”, ‘‘intend,’’ ‘‘plan,’’ ‘‘may,’’ ‘‘will,’’ “should”,
“would”, “could” and similar words or expressions often identify forward-looking statements.
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 inherent risks and uncertainties, including those outlined in the
Fund’s annual information form filed on www.sedar.com, that could cause actual performance or results to differ materially from those reflected in
the forward-looking statements, historical results or current expectations.
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. There is significant risk that estimates, predictions, forecasts,
conclusions and projections will not prove to be accurate, that assumptions may not be correct and that actual results may differ materially from
such predictions, forecasts, conclusions or projections. Readers of this Annual Report should not place undue reliance on forward-looking
statements as a number of factors could cause actual results, conditions, actions or events to differ materially from the targets, expectations,
estimates or intentions expressed in the forward-looking statements.
All forward -looking statements of the Fund or Westshore, including those set out in this Annual Report, are expressly qualified in their
entirety by this cautionary statement. In addition, the forward-looking statements are made only as of the date of this Annual Report, and the
Fund and Westshore undertake no obligation to update or supplement forward-looking statements to reflect new information, subsequent events
or otherwise.
General
The cash inflows of the Fund are based on the distributions received from the operations of Westshore. The earnings
and distributable cash of the Fund are wholly dependent on the results of Westshore. Westshore’s results are determined
largely by the volume of coal shipped by its coal mine customers for sale in the export market, the rate per tonne charged
by Westshore and Westshore’s costs. Westshore’s loading rates for 43% of the throughput in 2007 were based on the
prices received by the Elk Valley Coal Partnership (the “Coal Partnership”). Lower prices for hard coking coal resulted in
Westshore’s customers achieving lower average settlement prices for the 2007/08 coal year (ending March 31, 2008)
compared to the 2006/07 coal year (ending March 31, 2007).
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 historically put in place some currency hedging which is intended to offer partial
protection to Westshore from material short-term swings in the Canadian/US dollar exchange rate. All of such currency
hedges expired in mid December 2007.
In accordance with CICA Accounting Guideline 15 “Consolidation of Variable Interest Entities”, the Fund
consolidates Westshore as the Fund will absorb Westshore’s expected losses and receive its expected residual return.
3
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Accordingly, this Annual Report includes only one set of financial statements, being the Fund’s consolidated financial
statements containing a full consolidation of Westshore’s results. (See Note 2 to the financial statements on page 22.)
This management’s discussion and analysis refers to certain measures other than those prescribed by GAAP. These
measures do not have standardized meanings and may not be comparable to similar measures presented by other trusts or
corporations. They are however determined by reference to the Fund’s financial statements. These non-GAAP measures
are discussed because the Fund believes they provide investors with valuable information in understanding the results of
the Fund’s and Westshore’s operations and financial position.
Structure of the Fund
The following chart illustrates the Fund’s primary structural and contractual relationships. The Fund holds all of the
limited partnership units of Westshore. Westshore Terminals Ltd. (the “General Partner”) is the general partner of
Westshore. Westar Management Ltd. (the “Manager”) provides management services to the General Partner and
administrative services to the Fund and, pursuant to the Governance Agreement between the Manager and the General
Partner, is entitled to nominate three of the five directors of the General Partner.
4
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Selected Financial Information
The following financial data is derived from the Fund’s audited consolidated financial statements for the years ended
December 31, 2007, 2006 and 2005, which were prepared in Canadian dollars using Canadian GAAP.
(In thousands of dollars except per unit amounts)
Coal revenues
Other revenues
2007
$ 156,717
8,956
165,673
58,286
0.792
80,736
86,131
1.160
-
-
606,300
6,738
2006
$ 157,854
3,699
161,553
65,743
0.934
82,980
84,809
1.205
6,194
0.088
571,762
-
2005
$ 165,247
4,487
169,734
113,216(2)
1.609
75,692
81,994
1.165
1,540
0.022
594,914
-
Net Earnings
Net Earnings per unit(3)
Standardized Distributable Cash
Cash Distributions declared
Cash Distributions per unit
Distributions of units in lieu of cash(1)
Distributions of units in lieu of cash per unit(1)
Total Assets
Total Long Term Liabilities(2)
(1) In 2005 and 2006, the Fund allocated additional taxable income to Unitholders by issuing additional units. These additional
units were automatically consolidated so that the number of units held by each Unitholder did not change. For additional
information concerning distribution and consolidation of units in lieu of cash distributions, see the Fund’s Annual Information
Form available at www.sedar.com.
(2) Refer to p. 11 for discussion of 2007 future income tax liability. Elimination of Total Long Term Liabilities in 2006/2005 was
due to the elimination of future income tax liabilities, resulting in a non-cash future tax recovery of $51,493,000 which was
included in net earnings in 2005.
(3) Weighted average units outstanding for 2007 are 73,587,701 (2006 – 70,381,111 and 2005 – 70,381,111). Units outstanding as at
December 31, 2007 are 74,250,016.
As shown above, cash distributions declared to Unitholders for 2007 were $86,131,000 ($1.160 per unit) compared to
$84,809,000 ($1.205 per unit) for 2006, the reduction resulting primarily from the increase in the number of units
outstanding. Distributions were made quarterly during 2007. The distributions from the Fund in 2007 to Unitholders for
income tax purposes were comprised of income of $84,736,000 ($1.14122 per unit) and a return of capital of $1,395,000
($0.01879 per unit). The total distributions from the Fund in 2006 to Unitholders were considered income for income tax
purposes. The distributions from the Fund in 2005 to Unitholders for income tax purposes were comprised of income of
$74,446,000 ($1.05775 per unit) and a return of capital of $9,008,000 ($0.12913 per unit).
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.
5
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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 twelve month periods ended December 31, 2007 and 2006 respectively.
3 months ended Dec 31
12 months ended Dec 31
2007
2006
2007
2006
Cash flows from operating activities
Less: Capital expenditures
Standardized Distributable Cash
Cash Distributions declared
Basic and diluted Standardized Distributable Cash
per unit
Cash Distributions per unit
23,522
(7,701)
15,821
26,730
0.213
20,757
(1,171)
19,586
23,578
0.278
106,370
(25,634)
80,736
86,131
1.087
86,964
(3,984)
82,980
84,809
1.179
0.360
0.335
1.160
1.205
For the three months ended December 31, 2007, cash distributions exceeded Standardized Distributable Cash as a
result of significant capital expenditures on the equipment upgrade project. The equipment upgrade project has been
substantially funded by proceeds of the issue of Units, not by operating cash flows, thereby allowing the Fund to make
cash distributions in an amount close to cash flows from operating activities. The Fund plans distributions based on its
annual results and expects that any particular quarterly distribution may vary somewhat from Standardized Distributable
Cash for that quarter.
For the twelve months ended December 31, 2007, cash distributions and Standardized Distributable Cash are
comparable to the prior year, despite the significant variations in cash flows from operating activities and capital
expenditures. The large increase in cash flows from operating activities arises primarily from a decrease of $16.7 million in
working capital, which had been increasing steadily over the prior two years. The large increase in capital expenditures
results from the equipment upgrade which has been funded by equity. Even without the decrease in working capital, the
Fund’s cash flows from operations in 2007 would have been sufficient to cover the 2007 distributions and maintenance
capital expenditures. The Fund expects that annual cash distributions will vary from Standardized Distributable Cash as
the Fund bases its distributions on the income of Westshore and does not adjust them for normal fluctuations in working
capital.
Until the fourth quarter of 2005, the Fund could easily predict its exact taxable income for each period, as it was
determined solely by the interest on the subordinated debt of Westshore Terminals that was then held by the Fund and
any dividends paid by Westshore Terminals. Because the Fund’s investments now consist of substantially all the limited
partnership units of Westshore Terminals Limited Partnership, virtually all of the taxable income of Westshore for any year
is automatically allocated to the Fund. While the Fund 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.
6
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
The following tables set out selected consolidated financial information for the Fund on a quarterly basis for the last
two financial years.
(In thousands of dollars except per unit amounts)
12 Months Ended
Dec 31, 2007
$
Mar 31, 2007
$
Three Months Ended
June 30, 2007
$
Sept 30, 2007
$
Dec 31, 2007
$
Revenue
Coal
Other
Expenses
Operating
Administration
$ 156,717
8,956
165,673
70,035
8,310
78,345
Earnings before depreciation and income taxes
Depreciation
87,328
22,304
Earnings before income taxes
Provisions for (recovery of) income taxes
Net earnings
Net earnings per unit(1)
Cash Distributions declared(2)
65,024
6,738
58,286
36,553
1,058
37,611
17,113
1,947
19,060
18,551
5,553
12,998
-
12,998
45,790
2,370
48,160
17,906
1,583
19,489
28,671
5,552
23,119
6,589(1)
16,530
36,937
2,361
39,298
16,870
1,798
18,668
20,630
5,553
15,077
413
14,664
$ 37,437
3,167
40,604
18,146
2,982
21,128
19,476
5,646
13,830
(264)
14,094
$ 0.792
$ 0.182
$ 0.223
$ 0.197
$ 0.190
86,131
19,305
18,563
21,533
26,730
Cash Distributions per unit
$ 1.160
$ 0.260
$ 0.250
$ 0.290
$ 0.360
(In thousands of dollars except per unit amounts)
12 Months Ended
Dec 31, 2006
Mar 31, 2006
Jun 30, 2006
Sep 30, 2006
Dec 31, 2006
Three Months Ended
Income
Coal
Other
Expenses
Operating
Administration
Earnings before depreciation and income
taxes
Depreciation
Earnings before income taxes
Recovery of income taxes
Net earnings
Net earnings per unit (1)
Cash Distributions declared(2)
Cash Distributions per unit
$ 157,854
3,699
161,553
$ 38,463
858
39,321
$ 41,583
2,869
44,452
$ 36,741
1,184
37,925
$ 41,067
(1,212)
39,855
65,262
8,873
74,135
87,418
21,684
65,734
(9)
65,743
15,739
1,739
17,478
21,843
5,405
16,438
-
16,438
$ 0.934
$ 0.234
84,809
20,410
$ 1.205
$ 0.290
15,256
2,577
17,833
26,619
5,404
21,215
-
21,215
$ 0.301
19,003
$ 0.270
-
-
17,980
1,857
19,837
18,088
5,405
12,683
(9)
12,692
$ 0.180
21,818
$ 0.310
-
-
16,287
2,700
18,987
20,868
5,470
15,398
-
15,398
$ 0.219
23,578
$ 0.335
$ 6,194
$ 0.088
Distributions of units in lieu of cash
Distributions of units in lieu of cash per unit
$ 6,194
$ 0.088
-
-
(1)
(2)
Weighted average units outstanding for 2007 and the 2007 quarters ended June, September and December are 73,587,701 (2006 –
70,381,111). Weighted average units outstanding at March 31, 2007 were 71,498,794.
Refer to page 6 for a comparison of Cash Distributions to Standardized Distributable Cash.
7
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
General
Westshore operates a coal storage and loading facility at Roberts Bank, British Columbia (the “Terminal”) that is the
largest coal loading facility on the west coast of North and South America. Westshore operates on a throughput basis and
receives handling charges from its customers based on volumes of coal exported through the Terminal. Under Westshore’s
contracts, Westshore does not take title to the coal it handles. Market conditions for coal affect the competitiveness of
Westshore’s customers and, together with changes in customers’ mine output, affect the volume of coal handled by
Westshore. Westshore handles coal from mines in British Columbia and Alberta, as well as small quantities from mines in
the north-western United States. Coal shipped from the mines owned by the Coal Partnership, which is by far Westshore’s
largest customer, accounted for 89% of Westshore’s coal revenues in 2007.
Coal is delivered to the Terminal in unit trains operated by the Canadian Pacific, CN and BNSF Railways and is then
unloaded and either directly transferred onto a ship or stockpiled for future ship loading. Ultimately, the coal is loaded
onto ships that are destined for approximately 20 countries world-wide, with the largest volumes presently being shipped
to Asia and Europe.
Markets & Customers
Shipments of coal through the Terminal by destination for the past three years were as follows:
Shipments by Destination
(Expressed in thousands of metric tonnes)
Asia
Europe
S. America
Other
Total
2007
Tonnes
13,004
7,144
747
265
%
61
34
4
1
2006
Tonnes
12,246
5,928
639
146
%
65
31
3
1
2005
Tonnes
12,631
7,135
1,651
457
%
58
33
7
2
21,160
100
18,959
100
21,874
100
During 2007, 88% of Westshore’s volume was metallurgical coal (87% in 2006), with the remaining 12% being thermal
coal (13% in 2006). There continues to be an emphasis on both the quality and blending of coal at the Terminal to ensure
that the customer receives the contractually specified type of coal.
All of Westshore’s customers compete with other suppliers of coal throughout the world. Australian coal mines are the
most significant competitors. The last few years have seen significant variations in the supply-demand balance in seaborne
metallurgical coal. Following a period of oversupply and consolidation, constrained supply in 2004 led to sharply higher
prices in the 2005/6 coal year, which declined somewhat in the 2006/7 coal year. The outlook for metallurgical coal
appears strong for the coal year commencing April 1, 2008. The seaborne metallurgical coal market was in tight supply at
the end of 2007 because of growing demand and lower-than-expected growth in exports from Australian suppliers. Global
supply has been further reduced as a result of flooding in Australia that has disrupted production for several metallurgical
coal producers.
The Coal Partnership has stated its belief that the global metallurgical coal markets have entered a period of
unprecedented volatility. While U.S. dollar prices are expected to increase significantly for the 2008 coal year due to short-
8
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
term supply constraints, a U.S. recession could adversely impact the metallurgical coal markets. Westshore understands
that the current uncertainty in the metallurgical coal markets may delay the settling of prices for the 2008 coal year.
The Coal Partnership expects it will not see the benefit of higher 2008 coal year prices until possibly the third quarter
of calendar 2008, and anticipates that a substantial portion of its sales in the second quarter of 2008 will be at 2007 pricing
due to the carryover of tonnes from the 2007 coal year.
With its five mines in British Columbia and one in Alberta, four of which are covered by contracts with Westshore, the
Coal Partnership is by far Westshore’s largest customer. It is the second largest supplier of seaborne hard coking coal in
the world. Because of the exclusivity provisions in its contractual arrangements with the Coal Partnership, Westshore
expects to benefit from increased sales which the Coal Partnership is able to realize from the mines covered by
Westshore’s contracts. The variable rates based on coal prices for which these contracts provide have benefited the Fund
since 2005.
From April 1, 2007 Westshore has contracts relating to four of the six metallurgical coal mines that are owned by the
Coal Partnership. The other two mines are the Cardinal River/Cheviot mine and the Line Creek mine, which ship through
Neptune or, under a swap tonnage arrangement, through Westshore. Westshore’s contract relating to the Elkview mine
runs to 2010, and the Port Services Contract, which covers the Fording River, Greenhills and Coal Mountain mines, runs
to February 29, 2012. These contracts provide that, subject to minor exceptions relating to customer preferences, all of
the coal shipped from those four mines through West Coast ports must be shipped through Westshore. The loading rates
for coal shipped from the Elkview mine and for a portion of the tonnage from the Fording River and Greenhills mines are
linked to the price in Canadian dollars realized by the Coal Partnership for that coal.
In late August 2006, the Coal Partnership sent notice to Westshore requesting a review of the charges under the Port
Services Contract effective April 1, 2007. To date the matter has not been resolved and if future negotiations are
unsuccessful, the matter would be determined by arbitration. 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 for the balance of the contract to 2010. The loading rate under the
Elkview Contract is a function of the Canadian dollar price received for such coal. 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 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 its appeal was
heard in February 2008. The decision of the Court of Appeal remains outstanding.
Westshore has a contract with Coal Valley Resources Ltd. (formerly Luscar Ltd.) which covers thermal coal from the
Coal Valley mine and runs to 2017. During 2007, 2.1 million tonnes of thermal coal were shipped through the Terminal
compared to 1.9 million tonnes in 2006. Westshore also has a contract with Grande Cache Coal Corporation for handling
coal production from its Grande Cache operations in Alberta. This contract expires on March 31, 2013. Westshore loaded
1.3 million tonnes in 2007, compared to 0.7 million tonnes in 2006. The contracts with Coal Valley Resources Ltd. and
Grande Cache Coal Corporation each have a pricing mechanism based on fixed rates (with escalation clauses).
9
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Labour
Labour agreements with all three locals of the International Longshore and Warehouse Union (the longshoremen,
foreman and the clerical workers) expired on January 31, 2007 and new four year collective term agreements were
successfully reached later in the year with the longshoremen and clerical workers expiring January 31, 2011. Negotiations
with the foremen were successfully concluded in February 2008 resulting in an agreement for the same four year term.
Equipment Addition and Upgrade
Westshore has commenced the upgrade of certain existing equipment and the addition of new equipment at the
Terminal site, at an anticipated total cost of $49 million. In conjunction with these expenditures, Westshore negotiated
and signed a new lease of the Terminal site with VPA, the renewal terms under which are conditional upon the planned
equipment upgrades being completed. The new lease provides for a 20-year term from the commencement date on
January 1, 2007, with two 10-year renewal terms at the option of Westshore, and thus is capable of extension to December
31, 2046. The prior VPA Lease, including the final 10-year renewal, would have expired on February 28, 2022.
In 2005, Westshore conducted an assessment of the Terminal’s throughput capacity. Part of the stimulus for the
review were the announcements by Canadian Pacific Railway (“CPR”) and Fording Trust to the effect that CPR was
expending $160 million to reduce bottlenecks in its western corridor in order to increase capacity, and that the Coal
Partnership was making significant expenditures at its mines to increase output. The result of these announcements was
that Westshore could reasonably expect to handle increased volumes of coal in future years. The study conducted by
Westshore showed that the Terminal currently has a functional throughput capacity of 24 million tonnes per annum. In
1997, Westshore’s record year to date, the Terminal handled 23.5 million tonnes, and the Terminal handled 23.3 million
tonnes in 2001.
The Terminal has two incoming systems (the tandem and single rotary dumpers) and two outgoing systems (Berths 1
and 2), but only three stacker/reclaimers to operate between the incoming and outgoing systems. The design of the
expanded terminal site in 1982 contemplated the addition of a fourth stacker/reclaimer, which, together with associated
conveyor systems, is the principal addition now contemplated. Westshore will also convert the second barrel of the
tandem rotary dumper to accommodate the shorter “US style” aluminum rail cars, the use of which has become the
industry norm. The first barrel of the tandem dumper was converted for that purpose in 1998. These additions will make
the Terminal site more productive and efficient, so that the waiting and unloading/loading times for trains and vessels will
be reduced, avoiding congestion which would otherwise result from the anticipated increase in shipments. The upgrades
will be within the existing Terminal site, and are not expected to result in any increase in the discharges governed by
Westshore’s environmental permits.
The anticipated cost of the upgrades will be funded principally by $40 million in equity raised though the rights offering
and private placement which were completed in March 2007, with the remainder funded from cash on hand. The
upgrades are expected be complete in late 2009. Westshore expects that it will be able to complete the upgrades without
any material disruption of its throughput capacity in the implementation phase. To date, Westshore has experienced no
material impact to throughput volumes from the equipment upgrade, even though for periods in the fourth quarter only
half of the site was accessible because of the installation of new conveyors.
10
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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 29.5% (2012 – 28%) 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. For the quarter ended
June 30, 2007, the Fund provided for a future income tax expense of $6.6 million. This was a non-cash item and was a
one time charge to set up the provision for future taxes. An additional non-cash provision of $0.1 million has been
recorded in the quarter ended December 31, 2007 to reflect changes in assets and liabilities and their expected recognition
for tax purposes. This future income tax expense does not affect current distributions.
Results of Operations
Westshore loaded 21.2 million tonnes of coal during 2007 as compared to 19.0 million tonnes during 2006. Coal
loading revenue decreased by 1% to $156.7 million in 2007 compared with $157.9 million in 2006. The slight decrease was
due to a decrease of 11% in the average loading rate for the year as a whole, offset by the increase in volume loaded.
In 2007, the loading rates for 43% of the coal handled at Westshore were tied to the average price in Canadian dollars
realized by the Coal Partnership for that coal. The average Canadian dollar coal price realized by the Coal Partnership for
shipments through Westshore in the fourth quarter of 2007 was $89 per tonne, which was down from $125 per tonne in
the fourth quarter of 2006. For the calendar year of 2007, the average realized coal price was $105 per tonne which was
down from $127 per tonne in 2006. In the fourth quarter of 2007, loading revenue was $37.4 million as compared to
$41.1 million in the fourth quarter of 2006, on shipments of 5.6 million tonnes in the fourth quarter of 2007, as compared
to 5.2 million tonnes in the fourth quarter of 2006.
Other income increased to $9.0 million in 2007 from $3.7 million in 2006. Foreign exchange gains from hedging and
interest income were the main factors affecting other income in 2007. Foreign exchange gains, which includes both
realized gains and changes in the mark-to-market adjustment for unrealized gains, increased to $2.4 million in 2007 from
$0.5 million in 2006. This increase was mainly caused by a much smaller reduction in the mark-to-market adjustment of
the value of the forward exchange contracts, offset by realized foreign exchange gains decreasing by $3.1 million from the
prior year. Interest income for the year increased by $1.4 million because the Fund has on hand the proceeds of the equity
financings undertaken to fund the equipment upgrade project. Changes in the other elements included in other income,
including the provision for demurrage costs, offset each other..
Operating and administrative expenses increased from $74.1 million in 2006 to $78.3 million in 2007. An increase in
lease costs due to increased throughput, together with higher maintenance costs, was partially offset by a decrease in the
incentive fee of $0.7 million payable to the Manager (based on lower cash distributions to Unitholders).
11
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Earnings before depreciation and income taxes were relatively flat in 2007, at $87.3 million as compared to $87.4
million in 2006. Earnings before depreciation and income taxes for the fourth quarter of 2007 were $19.5 million,
compared to $20.9 million for the fourth quarter of 2006.
Currency Fluctuations
The loading rates for approximately half of the coal loaded at Westshore depend on the Canadian dollar price realized
for coal. 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 and opportunity for additional future hedging. As of mid-
December 2007, all US dollar hedges that had been in place expired. For the coming coal year, given the uncertainty as to
coal prices and unprecedented volatility in the coal markets, the Fund has delayed putting hedges in place until more
information is available.
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 Financial Statements of the Fund for 2007, because Westshore’s hedging transactions do not qualify for “hedge
accounting” treatment, 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, 2007 included a $1.7 million reduction in
unrealized gains on forward exchange contracts, compared to a $6.5 million reduction in unrealized gains for 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.
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.
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 2008. The variance year over year will be
ultimately impacted by the average coal price settled by the Coal Partnership and total volumes shipped through the
terminal. Once these rates are announced, the Fund will be in a better position to provide guidance on distributions and
sensitivities. Based on the information currently available to it, Westshore is budgeting for similar volumes in 2008 as
compared to 2007, and a higher average loading rate to take effect mid year. 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 2007 and 2006.
12
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Fund is obliged to distribute to Unitholders its cash inflows, less 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 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 current equipment addition and upgrade is being funded primarily from
equity, 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 that, if required, can be
utilized to meet working capital requirements. This facility was not used during the year and remained undrawn at
December 31, 2007. Westshore’s distribution policy involves leaving sufficient earnings before depreciation, interest and
unrealized gains or losses on forward exchange contracts to cover expected cash requirements such as capital expenditures
and special pension contributions.
Obligations under operating leases for the years ending December 31 are as follows:
2008
2009
2010
2011
2012
Thereafter to 2026
Terminal
lease
$
11,665
11,665
11,665
11,665
11,665
163,310
Other
$
400
400
379
-
-
-
Total
$
12,065
12,065
12,044
11,665
11,665
163,310
The Fund does not have any long-term debt, material capital lease obligations, or other long-term obligations.
Transactions with Related Parties
In 2007, Westshore paid $2,393,000 (excluding GST) to the Manager for management services provided under the
Management Agreement between Westshore and the Manager, comprised of the annual base management fee of $750,000
(excluding GST) and an incentive fee of $1,643,000 (excluding GST).
The Management Agreement provides for incentive fees to be payable by Westshore to the Manager in the event that
distributions to the Fund from Westshore exceed certain amounts. Those fees are computed on the following basis: 15%
of cash distributions between $1.035 - $1.125 per unit; 25% of cash distributions between $1.125 - $1.260 per unit; and
35% of cash distributions above $1.260 per unit.
In 2007, the Fund also paid $250,000 (excluding GST) to the Manager for administration services provided under the
Amended Administration Agreement dated September 29, 2005 between the Fund and the Manager. Under the Amended
13
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Governance Agreement dated September 29, 2005, the Manager is entitled to appoint a majority of the directors of the
general partner of Westshore.
Significant Accounting Policies
The Fund’s significant accounting policies are found in note 2 of Westshore’s financial statements beginning on
page 20.
Critical Accounting Estimates
The preparation of financial statements and related disclosure in accordance with GAAP requires the Fund to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and contingencies.
These estimates are based on historical experience and on assumptions that are considered at the time to be reasonable
under the circumstances. Under different assumptions or conditions, the actual results may differ, potentially materially,
from those previously estimated.
The following is a discussion of the accounting estimates of Westshore that are significant in determining Westshore’s
financial results.
Plant and equipment; Depreciation
Plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the unit-of-
production method over the estimated useful production life of the assets. The estimated useful lives of plant and
equipment range from 3 to 35 years. A change in the estimated useful lives of plant and equipment could result in either a
higher or lower depreciation charge to net earnings.
Goodwill
Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate
that the asset might be impaired, by comparing the fair value of Westshore to its carrying value, including goodwill. If the
fair value of Westshore is less than its carrying value, a goodwill impairment loss is recognized as the excess of the carrying
value of the goodwill over the fair value of the goodwill. The determination of fair value requires management to make
assumptions and estimates about future coal prices, operating costs, foreign exchange rates and discount rates. Changes in
any of these assumptions, such as lower coal prices, an increase in operating costs or an increase in discount rates could
result in an impairment of all or a portion of the goodwill carrying value in future periods.
Employee Future Benefits
Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans, the
costs of which are based on estimates. Actuarial calculations of benefit costs and obligations depend on Westshore’s
assumptions about future events. Major estimates and assumptions relate to expected plan investment performance, salary
escalation, retirement ages of employees and expected health care costs, as well as discount rates, withdrawal rates and
mortality rates.
14
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Provisions for Estimated Liabilities
Westshore makes certain provisions, including its portion of ship demurrage and train detention costs, which are often
not finally determined until well after the year-end.
Westshore’s customers incur demurrage penalties if a ship being loaded with their coal is not loaded within a specified
number of hours after it is ready to load at the Terminal. They also receive credits for early completion of loading, but
only at half the hourly rate of the demurrage penalty. Westshore shares these penalties and credits with its customers,
except in certain situations where the customer bears the entire penalty and receives the entire credit. One such situation,
which was prevalent in 2007, is if the coal to be loaded on the vessel is not at the Terminal when the vessel arrives. In
2007, Westshore incurred demurrage costs of $0.6 million as compared to $1.2 million in the prior year.
The railways that deliver coal to the Terminal also claim detention charges from Westshore’s customers in respect of
any delays beyond a specified number of hours that occur between the commencement of loading at the mine and the
completion of unloading at the Terminal. The railways also grant credits in respect of trains that complete the process in
less than the specified number of hours. With certain exceptions, Westshore also shares these charges and credits equally
with its customers. The cost to Westshore for train detention was $0.7 million in 2007 compared to $0.3 million in 2006
(net of a $0.4 million reduction in the train detention reserve from prior years).
While Westshore endeavours to ensure that provisions are reasonable in the circumstances, actual costs may be greater
or less than the provisions made for those costs.
Disclosure Controls And Procedures
“Disclosure controls and procedures” are defined as follows in Multilateral Instrument 52-109 - Certification of
Disclosure in Issuers' Annual and Interim Filings:
“Disclosure controls and procedures” means controls and other procedures of an issuer that are designed to provide
reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted by it under provincial and territorial securities legislation is recorded, processed, summarized and reported
within the time periods specified in the provincial and territorial securities legislation and include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by an issuer in its annual filings, interim filings or
other reports filed or submitted under provincial and territorial securities legislation is accumulated and communicated to the
issuer’s management, including its chief executive officers and chief financial officers (or persons who perform similar
functions to a chief executive officer or a chief financial officer), as appropriate to allow timely decisions regarding required
disclosure.”
The Chief Executive Officer and the Chief Financial Officer of the Fund, in conjunction with management of the
General Partner, have evaluated the effectiveness of the design and operation of the disclosure controls and procedures of
Westshore, the General Partner and the Fund as of December 31, 2007 and have concluded that such disclosure controls
and procedures provide reasonable assurance that information required to be disclosed by the Fund in its annual filings,
interim filings or other reports filed or submitted by it under provincial and territorial securities legislation is recorded,
processed, summarized and reported within the time periods specified in such legislation.
Additional information relating to the Fund and Westshore, including the Fund’s most recent annual information form,
is available at www.sedar.com.
15
Westshore Terminals Income Fund
Financial Reporting
Management’s Report
The consolidated financial statements and other information in this annual report have been prepared by and are the
responsibility of the management of the Fund. The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada and reflect where necessary management’s best estimates and
judgments.
Management is also responsible for maintaining systems of internal and administrative controls to provide reasonable
assurance that the Fund’s assets are safeguarded, that transactions are properly executed in accordance with appropriate
authorization and that the accounting systems provide timely, accurate and reliable financial information.
The Trustees are responsible for assuring that management fulfills its responsibility for financial reporting and internal
control. The Trustees perform this responsibility at meetings where significant accounting, reporting and internal control
matters are discussed and the consolidated financial statements and annual report are reviewed and approved.
The consolidated financial statements have been audited on behalf of the Unitholders by PricewaterhouseCoopers
LLP, Chartered Accountants, in accordance with Canadian generally accepted auditing standards. The Auditors’ Report
outlines the scope of their examination and their independent professional opinion on the fairness of these financial
statements.
William W. Stinson
Trustee
____________________________________________________________________________________________________
Dallas H. Ross
Trustee
Auditors’ Report
To the Unitholders of Westshore Terminals Income Fund
We have audited the consolidated balance sheets of Westshore Terminals Income Fund (the Fund) as at December
31, 2007 and 2006 and the consolidated statements of earnings, comprehensive earnings and cumulative earnings and cash
flows for the years then ended. These financial statements are the responsibility of the Fund’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of
the Fund as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Vancouver, B.C.
March 18, 2008
16
Westshore Terminals Income Fund
Consolidated Balance Sheets
As at December 31, 2007 and 2006
(figures in tables are expressed in thousands of dollars, except unit amounts)
2007
$
72,742
11,181
6,162
972
38
91,095
492,889
(364,200)
128,689
20,975
365,541
606,300
27,826
26,730
54,556
19,364
6,738
80,658
704,032
494,385
(672,775)
525,642
606,300
2006
$
34,555
15,211
6,102
3,975
1,845
61,688
466,831
(342,205)
124,626
19,907
365,541
571,762
17,367
23,578
40,945
17,760
-
58,705
663,602
436,099
(586,644)
513,057
571,762
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Other assets (note 12)
Plant and equipment (note 3)
At cost
Accumulated depreciation
Employee future benefits (note 9)
Goodwill
Liabilities and Unitholders’ Equity
Current liabilities
Accounts payable and accrued liabilities (note 8)
Distribution payable to unitholders (note 5)
Employee future benefits (note 9)
Future income taxes (note 6)
Unitholders’ equity
Capital contributions (note 4)
Cumulative earnings
Cumulative distributions declared
Contingencies and Commitments (note 10)
17
Westshore Terminals Income Fund
Consolidated Statements of Earnings, Comprehensive Earnings,
and Cumulative Earnings
For the years ended December 31, 2007 and 2006
(figures in tables are expressed in thousands of dollars, except unit amounts)
2007
$
Revenue
Coal
Other (note 12)
Expenses
Operating
Administrative
Earnings before depreciation and income taxes
Depreciation
Earnings before income taxes
Provision for (recovery of) income taxes (note 6)
Net and comprehensive earnings for the year
Cumulative earnings - Beginning of year
Cumulative earnings - End of year
Basic and diluted earnings per trust unit
156,717
8,956
165,673
70,035
8,310
78,345
87,328
22,304
65,024
6,738
58,286
436,099
494,385
0.792
2006
$
157,854
3,699
161,553
65,262
8,873
74,135
87,418
21,684
65,734
(9)
65,743
370,356
436,099
0.934
Weighted average number of trust units outstanding
73,587,701
70,381,111
18
Westshore Terminals Income Fund
Consolidated Statements of Cash Flows
For the years ended December 31, 2007 and 2006
(figures in tables are expressed in thousands of dollars, except unit amounts)
Cash flows from operating activities
Net earnings and comprehensive earnings for the year
Items not affecting cash
Movement in unrealized gain on forward exchange
contracts (note 12)
Depreciation
Future income tax provision (note 6)
Increase (decrease) in deferred employee future benefits costs
Change in non-cash working capital
Cash flows from financing activities
Distributions paid to unitholders
Issuance of units, net of share issuance costs
Cash flows from investing activities
Additions to plant and equipment
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents - Beginning of year
Cash and cash equivalents - End of year
Supplemental cash flow information
Cash received for interest
Income taxes recovered
Non-cash activities
2007
$
2006
$
58,286
65,743
1,808
22,304
6,738
536
89,672
16,698
106,370
(82,979)
40,430
(42,549)
(25,634)
38,187
34,555
72,742
2,536
-
6,449
21,684
-
(393)
93,483
(6,519)
86,964
(88,329)
-
(88,329)
(3,984)
(5,349)
39,904
34,555
1,103
1,809
Increase in accounts payable related to additions to plant and equipment
733
-
19
Notes to the Financial Statements
1 Organization and basis of presentation
Westshore Terminals Income Fund (the Fund) is an open-ended trust created under the laws of the
Province of British Columbia by a Declaration of Trust made as of December 2, 1996. The Fund was
created to acquire 100% of the issued and outstanding common shares and $470 million of unsecured
subordinated notes (the Notes) of Westshore Terminals Ltd. (Westshore) from Westar Group Ltd.
(Westar). The acquisition of common shares and Notes was financed by the public issue of trust units of
the Fund. On January 5, 2005, an additional $175 million of senior subordinated notes were issued to
the Fund by Westshore.
The Fund completed a reorganization on October 2, 2005 under which it replaced its interest in
Westshore with an interest in Westshore Terminals Limited Partnership (Westshore LP) which was
formed under the laws of British Columbia. Following the completion of the reorganization, the Fund
holds all of the limited partnership units of Westshore LP. The general partner is a newly incorporated
company under the laws of British Columbia, now named Westshore Terminals Ltd. (the General
Partner).
Westshore LP acquired and now operates the business (the Business) previously carried on by Westshore
at the coal storage and loading facility located at Roberts Bank, British Columbia. The operations of the
Business have not changed as a result of the reorganization and the Fund continues to own 100% of the
Business. As before, the Fund carries on no business of its own, its activities being restricted to the
ownership of properties including securities of other entities.
These consolidated financial statements include the accounts of the Fund and its variable interest entity,
Westshore LP. All significant inter-entity transactions and balances have been eliminated on
consolidation of Westshore LP.
2 Significant accounting policies
Accounting principles
These consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in Canada.
Variable interest entities
Under Accounting Guideline 15, “Consolidation of Variable Interest Entities” (AcG-15), it was
determined that the Fund’s investment in Westshore LP meets the criteria for being a Variable Interest
Entity (VIE) and that the Fund is the primary beneficiary of this entity. A primary beneficiary is an
enterprise that will absorb a majority of the VIE’s expected losses, receive a majority of its expected
residual return, or both. As a result, the Fund has consolidated Westshore LP.
20
Notes to the Financial Statements
Financial instruments
Effective on January 1, 2007, the Fund adopted the following new accounting standards: Canadian
Institute of Chartered Accountants (CICA) Handbook section 1530, Comprehensive Income; and CICA
Handbook section 3855, Financial Instruments – Recognition and Measurement.
Section 3855 requires the Fund to account for financial assets as held for trading or available for sale at
fair values. Loans, receivables and investments held to maturity are measured at amortized costs using
the effective interest rate method.
Upon adoption of Section 3855, the Fund has classified its cash and cash equivalents as held for trading
financial assets; accounts receivables as loans and receivables; accounts payable and accrued liabilities,
distribution payable to unitholders as other financial liabilities.
Section 1530 requires a new consolidated statement of comprehensive earnings as part of the Fund’s
consolidated financial statements. 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. The
Fund’s comprehensive earnings is the sum of earnings (loss) for the period plus other comprehensive
earnings (loss).
These new standards do not have significant impact on the Fund’s consolidated financial statements.
Embedded derivatives
Certain contractual terms are considered to behave in a similar fashion to a derivative contract and
parties to the contracts are therefore required to separate the accounting for these embedded derivatives
from the accounting for the host contract. Once separated, these embedded derivatives are subject to the
general derivative accounting guidelines outlined in CICA Section 3855. For the Fund, these terms
typically relate to the currency in which the contract is denominated. There are exemptions for contracts
that are written in a currency that is not the functional currency of one of the substantial parties to the
contract but which is a currency in common usage in the economic environment of one of the contracting
parties. The Fund has elected to use this exemption available in accounting for certain purchase
agreements for equipment entered into with a supplier located in Sweden. The affected purchase
agreements have payments denominated in Canadian dollars and Euros.
Asset retirement obligations
An asset retirement obligation is a legal obligation associated with the retirement of an owned or leased,
tangible, long-lived asset. The Fund recognizes the fair value of an estimated asset retirement obligation
when a legal obligation is present and a reasonable estimate of fair value can be made.
Westshore LP’s terminal site is leased from the Vancouver Port Authority (the VPA). A new lease
agreement was signed on November 2, 2006, which is effective January 1, 2007. The lease runs until
December 31, 2026, and may be extended at Westshore LP’s option for a further 20 years. At the expiry
of the lease in 2046, assuming Westshore LP has not been successful in further extending the lease, the
VPA has the option to acquire the assets of the terminal at fair value or require Westshore LP to return
the site to its original condition. Westshore LP believes that the probability that the VPA will elect to
enforce site restoration is negligible and any liability related to an asset retirement obligation would not
be material as at December 31, 2007.
21
Notes to the Financial Statements
Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit with banks and highly liquid short-term interest-
bearing securities with maturities at their purchase date of three months or less.
Inventories
Inventories of spare parts and supplies are valued at average cost less a provision for obsolescence.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful life of the assets.
Automobiles
Conveyor belts
Computer software
Mobile equipment
Land improvements
Buildings
Fixed machinery
Goodwill
3 years
5 years
3 years to 5 years
5 years to 25 years
15 years to 30 years
8 years to 35 years
8 years to 35 years
Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
Revenue recognition
Coal handling revenue is recognized when a customer’s coal is loaded onto a ship and ready for export
from the terminal site.
Income taxes
The income of Westshore LP is taxed directly in the hands of the Fund and the General Partner. It is
expected that the Fund and Westshore LP will operate so that substantially all net income of the Business
will be taxed in the hands of the unitholders.
Legislative provisions proposed under Bill C-52 Budget Implementation Act 2007, 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 29.5% (2012 – 28%) and the distributions will be
treated as taxable dividends in the hands of the unitholders.
The Fund has measured future income tax assets and liabilities associated with the change in legislation.
Future income tax assets and liabilities have been recognized for temporary difference between the tax
basis of an asset or liability and its carrying amount on the balance sheet. These balances are calculated
using the substantively enacted tax rates anticipated to apply in the periods that the temporary
differences are expected to reverse.
22
Notes to the Financial Statements
Employee future benefits
Westshore LP accrues its obligations under employee benefit plans, net of plan assets, and applies the
following policies:
• The measurement date used for accounting purposes is December 31, 2007.
• The cost of pensions and other retirement benefits earned by employees is actuarially determined
using the projected accrued benefit method pro-rated on length of service and best estimates of
expected plan investment performance, salary escalation, retirement ages of employees and expected
health care costs.
• For the purpose of calculating the expected return on plan assets, those assets are valued at fair
value.
• Past service costs from plan amendments are amortized on a straight-line basis over the average
remaining service period of employees active at the date of amendment.
• The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the
fair value of plan assets is amortized over the average remaining service period of active employees.
Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect certain amounts reported
in the financial statements and accompanying notes. Significant areas requiring the use of management
estimates relate to the determination of net recoverable value of assets, useful lives of plant and
equipment, insurance proceeds receivable, train detention and ship demurrage costs, determination of
actuarial assumptions and provision for contingencies. Actual results could differ from those estimates.
New accounting pronouncements
The CICA has issued three new standards which may affect the financial disclosures and results of
operations of the Fund for interim and annual periods beginning January 1, 2008. The Fund will adopt
the requirements commencing in the interim period ending March 31, 2008 and is considering the impact
this will have on the consolidated financial statements.
Section 1535 – Capital Disclosures
This Section establishes standards for disclosing information about an entity’s capital and how it is
managed. Under this standard an entity will be required to disclose the following, based on the
information provided internally to the entity’s key management personnel:
a) qualitative information about its objectives, policies and processes for managing capital;
b) summary quantitative data about what it manages as capital;
c) whether during the period it complied with any externally imposed capital requirements, to which it
is subject;
23
Notes to the Financial Statements
d) when the entity has not complied with such externally imposed capital requirements, the
consequences of such non-compliance.
Section 3031 – Inventories
This Section prescribes the accounting treatment for inventories and provides guidance on the
determination of costs and its subsequent recognition as an expense, including any write-down to net
realizable value. It also provides guidance on the cost formulas that are used to assign costs to
inventories.
Section 3862 Financial Instruments – Disclosures
This Section requires entities to provide disclosure of quantitative and qualitative information in their
financial statements that enable users to evaluate (a) the significance of financial instruments for the
entity’s financial position and performance; and (b) the nature and extent of risks arising from financial
instruments to which the entity is exposed during the period and at the balance sheet date, and
management’s objectives, policies and procedures for managing such risks. Entities will be required to
disclose the measurement basis or bases used, and the criteria used to determine classification for
difference types of instruments.
The Section requires disclosures to be made, including the criteria for:
a) designating financial assets and liabilities as held for trading;
b) designating financial assets as available-for-sale; and
c) determining when impairment is recorded against the related financial asset or when an allowance
account is used.
3 Plant and equipment
Buildings and land improvements
Machinery and equipment
Deferred preproduction costs
Construction in progress
Cost
$
34,255
447,806
2,663
8,165
Accumulated
depreciation
$
26,026
335,511
2,663
-
2007
Net
$
8,229
112,295
-
8,165
492,889
364,200
128,689
24
Notes to the Financial Statements
Cost
$
33,345
428,243
2,663
2,580
Accumulated
depreciation
$
24,906
314,735
2,564
-
2006
Net
$
8,439
113,508
99
2,580
466,831
342,205
124,626
Buildings and land improvements
Machinery and equipment
Deferred preproduction costs
Construction in progress
4 Trust units
The Declaration of Trust provides that an unlimited number of trust units may be issued. Each unit
represents an equal and undivided beneficial interest in any distribution from the Fund and in the net
assets in the event of termination or windup. All units are of the same class with equal rights and
privileges. Units may be issued for consideration payable in instalments, with such units being held as
security for unpaid instalments.
Westshore Terminals Holdings Trust (the Trust) has been established as an unincorporated open-ended
limited purpose trust under the laws of British Columbia with the Fund as the sole holder of trust units of
the Trust. The Fund, the Trust and Westshore LP have entered into an exchange agreement (the
Exchange Agreement) under which the Fund will have the right to transfer Westshore LP units to the
Trust in consideration for the issuance by the Trust of Trust notes.
Trust units are redeemable at the holders’ option at amounts related to market prices at the time, subject
to a maximum of $250,000 in cash redemptions by the Fund in any particular month. This limitation can
be waived at the discretion of the Trustees. Redemptions in excess of $250,000, assuming no waiving of
the limitation, shall be paid by way of a distribution of a pro-rata number of Trust notes.
During 2007, the Fund completed a $20 million private placement and a $20 million rights offering. The
Fund issued 3,868,905 units and received $40,430,000 in proceeds.
Capital contributions are as follows:
December 31, 2007
December 31, 2006
Number of
units
74,250,016
70,381,111
Capital
contributions
$
704,032
663,602
25
Notes to the Financial Statements
5 Distributions payable to unitholders
Distributions to unitholders are made quarterly.
During the year ended December 31, 2007, the Fund declared cash distributions to unitholders of
$86,131,000 (2006 - $84,809,000) or $1.160 (2006 - $1.205) per unit. The amounts and record dates of
the distributions were as follows:
March 31
June 30
September 30
December 31
Total
$
19,305
18,563
21,533
26,730
86,131
2007
Per unit
$
0.260
0.250
0.290
0.360
1.160
Total
$
20,410
19,003
21,818
23,578
84,809
2006
Per unit
$
0.290
0.270
0.310
0.335
1.205
The distribution of $26,730,000 ($0.0.360 per unit) payable to unitholders of record on December 31,
2007 was paid on or before January 16, 2008.
In 2006, an additional non-cash distribution of $0.088 per unit was made to allocate the income of the
Fund that exceeded the cash distributions declared during the year. As provided by the Fund’s
Declaration of Trust, the distribution automatically occurred on December 31, 2006 by way issuance of
additional trust units with the same value. These units were immediately consolidated so that each
unitholder continued to hold the same number of units that existed before the distribution.
The distributions declared in 2007 and 2006 have been allocated as follows for income tax purposes:
Total
$
84,736
1,395
86,131
-
86,131
2007
Per unit
$
1.141
0.019
1.160
-
1.160
Total
$
84,809
-
84,809
6,194
91,003
2006
Per unit
$
1.205
-
1.205
0.088
1.293
Cash distributions
Income
Return of capital
Total cash distributions
Non-cash distributions
Total distributions
6
Income taxes
The tax bases of the Fund’s consolidated assets and liabilities are less than, on a net basis, the carrying
amounts by $70,942,637 (2006 - $92,695,042).
26
Notes to the Financial Statements
A reconciliation of income taxes at the statutory tax rate to actual income taxes is as follows:
Income tax expense at statutory Canadian rate
Future income tax balance charged to income
Fund distributions deductible for tax purposes
Non-deductible expenses
Temporary differences not recorded through
future income tax expense
Income tax provision (recovery)
Represented by:
Current income tax recovery
Future income tax provision
The temporary differences are as follows:
Future income tax liability
Plant and equipment
Pension assets
Other assets
Non-pension post-retirement liability
Accounts payable and accrued liabilities
Expected reversal of temporary differences prior to
January 2011
2006
$
28,430
-
(39,445)
129
10,877
(9)
(9)
-
(9)
2007
$
28,415
6,738
(37,029)
32
8,582
6,738
-
6,738
6,738
2007
$
21,897
5,970
11
(5,512)
(2,173)
20,193
(13,455)
6,738
Based on a current estimate of the income tax liability at the beginning of 2011, the Fund has recorded a
future income liability and corresponding non-cash future tax charge to net income. This non-cash
charge is based on temporary differences between the accounting and tax basis of the assets and
liabilities expected to reverse after January 1, 2011.
7 Bank operating facility
Westshore LP has a $1 million (2006 - $1 million) operating facility which is secured by an
unconditional guarantee by the Fund. No amounts were outstanding on this facility as at December 31,
2007 and 2006. Westshore LP has various interest options under the operating facility that are based on
the lender’s prime lending rate. The lender charges a standby fee of 0.25% per annum on the undrawn
portion of the facility.
27
Notes to the Financial Statements
8 Related party transactions
Administration agreement
The Fund has an administration agreement with Westar Management Ltd. (Westar Management). Under
the terms of the agreement, Westar Management is responsible for administering and managing the
Fund. Westar Management earns a fee of $250,000 per annum plus reimbursement of certain out-of-
pocket costs for providing these services, and if the costs of administering the Fund exceed $400,000 in
any year, Westar Management will also be reimbursed for such excess costs. The agreement can be
terminated on 180 days’ notice, or immediately under certain circumstances.
Westar Management earned a fee of $250,000 for the year ended December 31, 2007 (2006 - $250,000)
under the administration agreement. These fees are included in administrative expense on the
consolidated statements of earnings, comprehensive earnings and cumulative earnings.
Management agreement
Westshore LP has a management agreement with Westar Management. Under the terms of the
agreement, Westar Management is responsible for providing executive management and other services
to Westshore LP. The initial term of the agreement is 15 years, and the agreement is renewed thereafter
for successive five-year terms unless Westshore LP gives notice of non-renewal at least 12 months
before the end of the relevant term. The management agreement may be terminated by Westshore LP in
certain circumstances, and Westar Management can terminate the agreement at any time on 12 months’
notice. Westar Management earns a fee of $750,000 per annum plus reimbursement of reasonable
out-of-pocket expenses for providing these services. In addition, as an incentive to Westar Management
to enhance the cash flow of Westshore LP, Westar Management is entitled to earn incentive fees that will
be payable annually when the per-unit cash distributions to unitholders exceed certain defined levels.
Westar Management earned a base management fee of $750,000 and an incentive fee of $1,643,000 for
the year ended December 31, 2007 (2006 - $750,000 and $2,358,000 respectively) under the
management agreement. These fees are included in administrative expenses on the consolidated
statements of earnings, comprehensive earnings and cumulative earnings. The incentive fee of
$1,643,000 is included in accounts payable and accrued liabilities on the consolidated balance sheets.
9 Employee future benefits
Westshore LP has two defined benefit pension plans (the Retirement Plan and the Pension Plan) and
provides other retirement and post-employment benefits for most of its employees. Other retirement and
post-employment benefits include a severance benefit plan, life insurance, dental, extended health and
medical services plan.
28
Notes to the Financial Statements
Information about Westshore LP’s defined benefit pension plans and other benefit obligations using a
measurement date of December 31, 2007 is as follows:
Accrued benefit obligation
Balance - Beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial (gains) losses
Plan Improvements
Pension plan benefits
Other benefits
2007
$
2006
$
2007
$
64,562
995
3,246
(3,077)
(2,807)
4,142
63,086
1,000
3,152
(3,250)
243
331
26,139
982
1,403
(1,671)
(663)
504
2006
$
24,535
698
1,266
(909)
549
-
Balance - End of year
67,061
64,562
26,694
26,139
Plan assets
Fair value - Beginning of year
Actual return on assets
Employer contributions
Benefits paid
74,676
1,754
596
(3,077)
65,108
9,752
3,066
(3,250)
-
-
1,671
(1,671)
Fair value - End of year
73,949
74,676
-
-
-
909
(909)
-
Balances - December 31
Funded status - plan surplus (deficit)
Unamortized net actuarial losses
Unamortized past service costs
6,888
8,012
6,075
10,114
7,329
2,464
(26,694)
6,238
1,092
(26,139)
7,455
924
Accrued benefit asset (liability)
20,975
19,907
(19,364)
(17,760)
All pension plans are fully funded by Westshore LP. The other benefit plans have no assets.
The financial information with respect to the defined benefit pension plans and other benefit obligations
is based on the following funding valuations:
Pension plan
Retirement plan
Most recent
valuation date
Date of next
required
valuation
January 1, 2007
January 1, 2007
January 1, 2008
January 1, 2010
29
Notes to the Financial Statements
The significant actuarial assumptions adopted in measuring Westshore LP’s accrued benefit obligations
(and costs) are as follows (weighted average assumptions as of December 31):
Benefit obligations
Discount rate
Rate of increase in future
compensation
Benefit costs
Discount rate
Rate of increase in future
compensation
Expected long-term rate of return on plan
assets
Pension
benefits
%
2007
Other
benefits
%
Pension
benefits
%
2006
Other
benefits
%
5.50
3.00
5.00
3.00
7.25
5.50
3.00
5.00
3.00
-
5.00
3.00
5.00
3.00
7.25
5.00
3.00
5.00
3.00
-
The average rate of compensation increase is expected to be inflation with an adjustment for merit and
productivity gains.
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered extended
health care benefits was assumed over the first ten years and 5% thereafter. The annual rates of increase
in the per capita cost of MSP and dental benefits are 0% and 3%, respectively.
The impact of a 1% point change in assumed drug and other health benefit costs would have the
following effects:
Effect on benefit costs
Effect on benefit obligation
1% decrease
1% increase
(291)
(2,556)
376
3,186
30
Notes to the Financial Statements
Westshore LP’s defined benefit plans’ weighted-average asset allocations at the measurement date, by
asset category, are as follows:
Cash and fixed income
Canadian equities
Foreign equities
Contributions for the year ended December 31:
Contributions to funded pension plans
Benefits paid directly to beneficiaries for other non-funded
post-employment benefits
2007
%
34
22
44
100
2007
$
596
1,671
2,267
2006
%
33
22
45
100
2006
$
3,066
909
3,975
Westshore LP’s net benefit plan expense (income) for the years ended December 31, 2007 and 2006 is as
follows:
2007
2006
Incurred
in year
$
Deferral and
amortization
adjustments(1)
$
Recognized
in year
$
Incurred
in year
$
Deferral and
amortization
adjustments(1)
$
Recognized
in year
$
995
3,246
(1,754)
(2,807)
-
(320)
982
1,403
(663)
-
1,722
-
-
(3,570)
2,887
531
995
3,246
1,000
3,152
(5,324)
80
531
(9,752)
243
-
(152)
(472)
(5,357)
-
-
1,217
336
1,553
982
1,403
554
336
698
1,266
549
-
3,275
2,513
-
-
5,038
531
508
6,077
-
-
69
280
349
1,000
3,152
(4,714)
774
508
720
698
1,266
618
280
2,862
Pension plan benefits
Current service cost
Interest cost
Expected return on plan
assets
Net actuarial (gains) losses
Past service costs
Other benefits
Current service cost
Interest cost
Net actuarial (gains) losses
Past service costs
(1) The net impact of deferral and amortization adjustments to recognize the long-term nature of
employee future benefits.
31
Notes to the Financial Statements
10 Contingencies and Commitments
In 2004, Elk Valley Coal Partnership (the Coal Partnership) gave notice to Westshore LP under the
contract for one of its operations requesting a review of the loading rate effective April 1, 2005. Under
the terms of the contract, the loading rate is linked to the Canadian dollar price received for coal. In
2006, an arbitrator decided in favour of Westshore LP confirming that there would be no changes to the
loading rate in the contract. The Supreme Court of British Columbia granted the Coal Partnership leave
to appeal the decision. Westshore LP appealed that decision. The appeal was heard February 5, 2008.
The decision of the Court of Appeal remains outstanding. Westshore LP will have exposure to losses if
any significant changes are made to rates charged under this agreement.
In August 2006, the Coal Partnership sent notice to Westshore LP requesting a review of the loading rate
charged under the Port Services Contract that governs coal from the Fording, Greenhills and Coal
Mountain mines, effective April 1, 2007. Discussions concerning the possibility of change in the loading
rate commenced as provided for under the agreement. If the matter cannot be resolved between the
parties, the matter would be determined by arbitration.
Westshore LP is committed under operating leases to the rental of property, facilities, and equipment.
Westshore LP’s terminal site is leased (the Lease) from the VPA. Charges payable by Westshore LP
under the Lease comprise an annual base land and waterlot rental fee of $5,206,531 (2006 - $5,172,460)
and an annual participation rental based on the volume of coal shipped. A minimum participation rental
per tonne of $6,494,400 (2006 - $6,494,400) is charged based on a minimum annual tonnage (MAT) of
17.6 million tonnes. A higher participation rental per tonne is charged on tonnage in excess of the MAT.
Westshore LP paid $3,436,818 (2006 - $1,311,378) in relation to the higher participation rental.
In 2006, Westshore LP signed a new lease with the VPA effective January 1, 2007. The term of the
lease is until December 31, 2026, with further options to extend the term to December 31, 2046. Unless
Westshore LP completes an equipment upgrade within 36 months of the permit issuance at a cost of at
least approximately $42 million, the VPA has the right to cancel the renewal options. Westshore LP
commenced this equipment upgrade in 2007.
Future minimum operating lease payments for the years ending December 31 (assuming the VPA does
not exercise its right to adjust the lease rates) are as follows:
2008
2009
2010
2011
2012
Thereafter to 2026
Terminal
lease
$
11,665
11,665
11,665
11,665
11,665
163,310
Other
$
400
400
379
-
-
-
Total
$
12,065
12,065
12,044
11,665
11,665
163,310
32
Notes to the Financial Statements
11 Significant customers
Fording Trust holds a 60% interest in the Coal Partnership. During the year ended December 31, 2007,
approximately 89% (2006 - 92%) of Westshore LP’s revenue was earned from the mines of the Coal
Partnership. As at December 31, 2007, the receivable from the Coal Partnership was $6.9 million (2006 -
$12.4 million).
12 Financial instruments
Foreign exchange risk
The loading rate for approximately half of the Coal Partnership’s coal handled by Westshore LP in 2007
was a function of the Canadian dollar price realized by the Coal Partnership for its coal. As the Coal
Partnership’s coal is sold to its customers based on a U.S. dollar selling price, Westshore LP’s revenues
will be affected by the conversion of the U.S. dollar sales to Canadian dollars.
Westshore LP uses forward exchange contracts to mitigate exposure to fluctuations in the relative
exchange rates. During December 2007, Westshore LP’s hedges expired.
Fair value of financial instruments
Fair value estimates for foreign exchange contracts are based on quoted market prices for comparable
contracts and represent the amount Westshore LP would have received from or paid to, a counterparty to
unwind the contracts at the market rate in effect at December 31. Westshore LP’s forward exchange
contracts were marked to marked and had a fair value of $38,456 at December 31, 2007. Other revenue
on the consolidated statements of earnings and cumulative earnings includes a mark to market loss of
$1,463,000 (2006 - $6,510,000).
33
Corporate Information
Westshore Terminals Income Fund
Trustees
William W. Stinson
Chairman
Corporate Director
Gordon Gibson
Corporate Director
Michael J. Korenberg
Managing Director, Vice Chairman
The Jim Pattison Group
Dallas H. Ross
Partner
Kinetic Capital Partners
Jim G. Gardiner
Corporate Director
Executive Officers
William W. Stinson
Chief Executive Officer
Doug Souter
Chief Financial Officer
Secretary
Nick Desmarais
Managing Director, Legal Services
The Jim Pattison Group
Westshore Terminals Ltd.
(general partner of Westshore
Terminals Limited Partnership)
Officers
William W. Stinson
President
Denis Horgan
Vice-President and General Manager
Nick Desmarais
Secretary
Directors
Glen Clark
34
Auditors
PricewaterhouseCoopers LLP
Vancouver, British Columbia
Principal Office
1800 – 1067 West Cordova Street
Vancouver, British Columbia V6C 1C7
Telephone: 604.488.5295
604.687.2601
Facsimile:
Registrar and Transfer Agent
Computershare Trust Company of Canada
Vancouver and Toronto
Stock Exchange Listing
The Toronto Stock Exchange
Trading Symbol
WTE.UN
Annual General Meeting
The Annual General Meeting of Unitholders
will be held on Tuesday, June 17, 2008 at
9:00 a.m. at the Marriott Pinnacle Hotel,
Vancouver, British Columbia
Executive Vice President
The Jim Pattison Group
Nick Desmarais
Managing Director, Legal Services
The Jim Pattison Group
Dallas H. Ross
Partner, Kinetic Capital Partners
Doug Souter
Corporate Director
William W. Stinson
Corporate Director