WESTSHORE TERMINALS INCOME FUND
ANNUAL REPORT
2008
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
19
42
Westshore Terminals Income Fund
Financial Highlights
Westshore Terminals Income Fund (Consolidated)
(In thousands of Canadian dollars except per unit amounts and tonnage)
Tonnage (in thousands)
Revenue
Coal
Other
Earnings before depreciation, interest, foreign exchange
and income taxes
Cash Distributions declared
Cash Distributions per unit
2008
2007
21,079
21,160
$
260,096 $
5,005
265,101
163,945
133,650
$
1.80 $
156,717
5,239
161,956
82,343
86,131
1.16
Units outstanding at December 31
74,250,016
74,250,016
20.14 $
7.80 $
9.60 $
15.96
10.53
14.49
48,723,436
53,988,043
Trading Statistics
High
Low
Close
Volume
$
$
$
1
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Dear Unitholder:
For the twelve months ending December 31, 2008, the Fund declared cash distributions to Unitholders of
$133,650,028 ($1.80 per unit). This was more than 50% higher than the cash distributions declared in 2007.
With anticipated declines in volumes and in the Canadian dollar price for coal in the 2009/10 contract year as
compared to the 2008/09 contract year, the Fund expects distributions in 2009 to be significantly reduced
compared to 2008.
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 2008, Westshore loaded 21.1 million tonnes
of coal as compared to 21.2 million tonnes shipped in 2007.
The Fund’s consolidated earnings before depreciation, interest, foreign exchange and income taxes for 2008
were $163.9 million compared to $82.3 million in 2007. Coal loading revenue increased 66% from $156.7 million
in 2007 to $260.1 million in 2008. A higher average loading rate was responsible for the significant increase.
Under Westshore’s arrangements with its primary customer, the loading rate for 42% of the coal loaded by
Westshore in 2008 was a function of the price in Canadian dollars realized by the customer for that coal. The
pricing of coal for the 2009/10 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 per annum. Funding for the capital upgrade was
provided through the issue of units which was 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.
Westshore has successfully defended the 2006 decision reached by an arbitrator in favour of Westshore which
determined that there was no basis to change the coal loading rates under the contract for coal shipped from the
Elkview mine. Accordingly, the formula for determining the loading rate, which has been in force since 2000
under the contract, continues for the remaining term to March 2010.
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 27, 2009
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. Additional information and disclosure relating to the Fund can be found on SEDAR at www.sedar.com.
Unless otherwise indicated, the information presented in this Annual Report is stated as at March 27, 2009.
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 comprised of the distributions received by the Fund 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 42% of the
throughput in 2008 were based on the prices for coal received by Teck Coal. Significantly higher prices for hard coking
coal resulted in Westshore’s customers achieving materially higher average settlement prices for the 2008/09 coal year
(ending March 31, 2009) compared to the 2007/08 coal year (ending March 31, 2008).
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 and continues to 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 and continues to do so.
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 23.)
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 useful 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, nominates 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, 2008, 2007 and 2006, which were prepared in Canadian dollars using Canadian GAAP.
(In thousands of Canadian dollars except per unit amounts)
Coal loading revenues
Other revenues
2008
260,096
5,005
265,101
124,865
1.682
123,319
133,650
1.800
13,544
0.182
614,893
29,800
2007
$ 156,717
5,239
161,956
58,286
0.792
80,736
86,131
1.160
-
-
606,300
26,102
2006
$ 157,854
3,558
161,412
65,743
0.934
82,980
84,809
1.205
6,194
0.088
571,762
17,760
Net Earnings
Net Earnings per unit(1)
Standardized Distributable Cash
Cash Distributions declared
Cash Distributions per unit
Distributions of units in lieu of cash(2)
Distributions of units in lieu of cash per unit(2)
Total Assets
Total Long Term Liabilities(3)
(1) The weighted average units outstanding for 2008 were 74,250,016 (2007 – 73,587,701, 2006 – 70,381,111)
(2) In 2008 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.
(3) Refer to p. 11 for discussion of 2008 future income tax liability.
As shown above, cash distributions declared to Unitholders for 2008 were $133,650,028 ($1.80 per unit) compared to
$86,131,000 ($1.160 per unit) for 2007, the increase resulting from higher loading rates in 2008 compared to the prior year.
Distributions were made quarterly during 2008. The distributions from the Fund in 2008 to Unitholders were considered
income for income tax purposes. The distributions from the Fund in 2007 to Unitholders 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.
References to “Standardized Distributable Cash” are to cash from operating activities less capital expenditures, both
measures recognized under GAAP. Standardized Distributable Cash is a non-GAAP 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, 2008 and 2007 respectively.
3 months ended Dec 31
12 months ended Dec 31
2008
2007
2008
2007
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
42,697
(3,467)
39,230
39,353
0.528
23,522
(7,641)
15,881
26,730
0.214
131,471
(8,152)
123,319
133,650
1.661
106,370
(25,634)
80,736
86,131
1.087
0.530
0.360
1.800
1.160
For the twelve 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 cash distributions based on
its annual results and expects that any particular quarterly cash distribution may vary somewhat from Standardized
Distributable Cash for that quarter.
For the twelve months ended December 31, 2008, cash distributions and Standardized Distributable Cash were higher
than in the prior year due to the significant increase in revenues earned in 2008 as a result of the higher coal price. Cash
distributions for the twelve months ended December 31, 2008 exceeded Standardized Distributable Cash primarily
because of the increase in working capital over the prior year which reduced cash flows from operating activities. Annual
cash distributions will typically differ from Standardized Distributable Cash as the Fund bases its distributions on taxable
income and does not adjust them for fluctuations in working capital. Without the working capital change, the cash flows
from operating activities and Standardized Distributable Cash for 2008 would have been higher. However, the level of
cash distributions was reduced as the Fund made a modest addition to its cash reserves during 2008 in view of
uncertainties and recent volatilities in markets for metallurgical coal.
Because the Fund’s investments 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 usually attempts to estimate its taxable income for the year and to make cash 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. The amount of any such distributions is
then added to the cost base of the units.
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 Canadian dollars except per unit
amounts)
12 Months Ended
Dec 31, 2008
$
Mar 31, 2008
$
Three Months Ended
June 30, 2008
$
Sept 30, 2008
$
Dec 31, 2008
$
Revenue
Coal loading
Other
Expenses
Operating
Administration
Earnings before the undernoted
Interest Income
Depreciation
Foreign exchange gain (loss)
Earnings before income taxes
Provision for income taxes
Net earnings
Net earnings per unit(1)
Cash Distributions declared(2)
Cash Distributions per unit
Distribution of units in lieu of cash
Distribution of units in lieu of cash per unit
260,096
5,005
265,101
76,996
24,160
101,156
163,945
1,913
(22,289)
(16,750)
126,819
1,954
124,865
1.682
133,650
1.800
13,544
0.182
35,145
968
36,113
18,521
1,874
20,395
15,718
610
(5,572)
858
11,614
281
11,333
0.153
20,790
0.280
2,107
0.028
62,762
1,036
63,798
19,534
6,982
26,516
37,282
434
(5,572)
(66)
32,078
190
31,888
0.429
73,764
1,055
74,819
20,470
7,228
27,698
47,121
530
(5,572)
(1,047)
41,032
870
40,162
0.541
34,897
38,610
0.470
3,536
0.047
0.520
3,913
0.053
88,425
1,946
90,371
18,471
8,076
26,547
63,824
339
(5,573)
(16,495)
42,095
613
41,482
0.559
39,353
0.530
3,988
0.054
(In thousands of Canadian dollars except per unit
amounts)
12 Months Ended
Dec 31, 2007
$
Three Months Ended
Mar 31, 2007
$
June 30, 2007
$
Sept 30, 2007
$
Dec 31, 2007
$
Revenue
Coal
Other
Expenses
Operating
Administration
Earnings before the undernoted
Interest income
Depreciation
Foreign exchange gain
Earnings before income taxes
Provision for (recovery of) income taxes
Net earnings
$ 156,717
5,239
161,956
71,303
8,310
79,613
82,343
2,536
(22,304)
2,449
65,024
6,738
58,286
7
36,553
854
37,407
17,412
1,947
19,359
18,048
380
(5,553)
123
12,998
-
12,998
45,790
995
46,785
18,266
1,583
19,849
26,936
710
(5,552)
1,025
36,937
946
37,883
16,965
1,798
18,763
19,120
749
(5,553)
761
23,119
6,589
16,530
15,077
413
14,664
$ 37,437
2,444
39,881
18,660
2,982
21,642
18,239
697
(5,646)
540
13,830
(264)
14,094
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
(In thousands of Canadian dollars except per unit
amounts)
12 Months Ended
Dec 31, 2007
$
Three Months Ended
Mar 31, 2007
$
June 30, 2007
$
Sept 30, 2007
$
Dec 31, 2007
$
Net earnings per unit(1)
Cash Distributions declared(2)
Cash Distributions per unit
0.792
0.182
86,131
1.160
19,305
0.260
0.223
18,563
0.250
0.197
21,533
0.290
0.190
26,730
0.360
(1)
(2)
Weighted average units outstanding during 2008 are 74,250,016. 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
are 71,498,794.
Refer to page 6 for a comparison of Cash Distributions to Standardized Distributable Cash.
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 from mines in the north-
western United States. Coal shipped from the mines owned by Teck Coal, which is Westshore’s largest customer,
accounted for 79% of Westshore’s volumes in 2008.
Coal is delivered to the Terminal in unit trains operated by the Canadian Pacific, CN and BNSF Railways, and by
Union Pacific 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
2008
Tonnes
14,591
5,488
628
372
%
69
26
3
2
2007
Tonnes
13,004
7,144
747
265
%
61
34
4
1
2006
Tonnes
12,246
5,928
639
146
%
65
31
3
1
21,079
100
21,160
100
18,959
100
During 2008, 82% of Westshore’s volume was metallurgical coal (88% in 2007), with the remaining 18% being thermal
coal (12% in 2007). There continues to be an emphasis on both the quality and blending of coal at the Terminal to ensure
that the end-customer receives the contractually specified type of coal.
8
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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 2005/06 coal year, which declined somewhat in the 2006/07 coal year, but as a result of a combination of
factors, the price for metallurgical coal for 2008/09 coal year increased significantly to US$300 per tonne levels. 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 was further reduced as a result of flooding in
Australia that disrupted production for several metallurgical coal producers. For the 2009/10 coal year, it is anticipated,
due to a world wide economic slow down, that the price for metallurgical coal will be materially reduced from last year’s
pricing. Based on information from its customers, Westshore also anticipates that its throughput volumes will be lower.
With its five mines in British Columbia and one in Alberta, four of which are covered by contracts with Westshore,
Teck Coal 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 Teck Coal, Westshore expects to benefit
from increased sales which Teck Coal 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 in most years since 2005.
Westshore has contracts relating to four of the six metallurgical coal mines that are owned by Teck Coal. The other
two mines are Cardinal River and Line Creek, which ship through Neptune or, under a swap tonnage arrangement,
through Westshore. Westshore’s contract relating to the Elkview mine runs to March 31, 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 Teck Coal for that coal. If the Elkview contract is not renewed, or is renewed on different
terms, the portion of the coal that Westhshore handles at rates tied to the price of coal could be reduced.
In 2006, Teck Coal’s predecessor 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. The legal proceedings relating to the contract that governs coal from the
Elkview Mine have been concluded in Westshore’s favour. The formula for determining the loading rate which has been
in force under the contract since 2000, continues for the remaining term of the contract to March 2010.
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 2008, 2.2 million tonnes of thermal coal for the Coal Valley mine were
shipped through the Terminal compared to 2.1 million tonnes in 2007. Westshore also has a contract with Grande Cache
Coal Corporation for handling coal production from its Grande Cache operations in Alberta, which expires on March 31,
2013. Westshore loaded 1.1 million tonnes under this contract in 2008, compared to 1.3 million tonnes in 2007. The
contracts with Coal Valley Resources Ltd. and Grande Cache Coal Corporation each have a pricing mechanism based on
fixed rates (with escalation clauses).
Since late 2007, Westshore has experienced renewed interest from US coal producers (primarily of thermal coal) in
making shipments through Westshore, and has entered into a number of short term contracts with such producers.
Shipments under those contracts accounted for 5% of Westshore’s volume in 2008. As a result of these volumes the
9
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
percentage of Westshore’s overall shipments that were comprised of thermal coal increased from 12% in 2007 to 18% in
2008.
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 Vancouver Fraser Port Authority (“VFPA”), the renewal terms of 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 VFPA 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 Canadian Coal 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
mines were 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 being undertaken. As part of this equipment upgrade project, Westshore
has converted 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 to 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.
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 27.5% (2012 – 26%) and the distributions will be treated as taxable
dividends in the hands of unitholders. Unitholders will be entitled to a dividend tax credit which will give credit for the
level of taxation incurred by the Fund.
The Fund has not provided for current income taxes in 2008 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 tax assets and tax liabilities for 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 $2.0 million has been
recorded in the year ended December 31, 2008 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 21.1 million tonnes of coal during 2008 as compared to 21.2 million tonnes during 2007. Coal
loading revenue increased by 66% to $260.1 million in 2008 compared with $156.7 million in 2007. The significant
increase was due to an increase of 66% in the average loading rate for the year as a whole.
In 2008, the loading rates for 42% of the coal handled at Westshore were tied to the average price in Canadian dollars
realized by Teck Coal for that coal. The average Canadian dollar coal price realized by Teck Coal for shipments through
Westshore in the fourth quarter of 2008 was $340 per tonne, which was up from $89 per tonne in the fourth quarter of
2007. For the calendar year of 2008, the average realized coal price was $235 per tonne which was up from $105 per tonne
in 2007. In the fourth quarter of 2008, loading revenue was $88.4 million as compared to $37.4 million in the fourth
quarter of 2007, on shipments of 5.2 million tonnes in the fourth quarter of 2008, as compared to 5.6 million tonnes in the
fourth quarter of 2007.
Other income was consistent with that of the prior year and consists mostly of wharfage income. Operating and
administrative expenses increased from $79.6 million in 2007 to $101.2 million in 2008, resulting from higher maintenance
costs and an increase in the incentive fee of $15.9 million payable to the Manager. This fee is determined under the
Management Agreement pursuant to a pre-set formula and in 2008 was based on significantly higher cash distributions to
Unitholders. Interest income for the year decreased by $0.6 million because the Fund has spent some of the funds on
hand from the equity financings undertaken in 2007 to cover the cost of the equipment upgrade project.
Foreign exchange gains, which includes both realized gains/losses and changes in the mark-to-market adjustment for
unrealized gains/losses, decreased to a $16.8 million loss in 2008 from a $2.4 million gain in 2007. This decrease was
mainly caused by significant reductions in the mark-to-market adjustment of the value of the foreign exchange contracts
(see Currency Fluctuations), and by realized foreign exchange gains decreasing by $8.2 million from the prior year.
Earnings before depreciation, interest, foreign exchange and income taxes were significantly higher in 2008, at $163.9
million as compared to $82.3 million in 2007. Earnings before depreciation, income, foreign exchange and income taxes
for the fourth quarter of 2008 were $63.8 million, compared to $18.2 million for the fourth quarter of 2007.
11
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Currency Fluctuations
Westshore expects that in 2009 the loading rates for approximately 45% of the coal loaded at Westshore will 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.
In the financial statements, the effect of currency fluctuations is shown as affecting coal loading revenues before taking
into account the effect of hedging activities, the financial effect of which is accounted for as foreign exchange. As
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, foreign exchange losses for the year
ended December 31, 2008 included $12.6 million in unrealized losses on forward exchange contracts, compared to $1.5
million in unrealized gains for 2007. Unrealized hedging gains or losses are non-cash items. The cash effect of the
hedging activities is recognized in foreign exchange gains 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 probable variations in tonnage, the US dollar denominated coal price and fluctuations in
exchange rates, it is not possible for the Fund to predict accurately the level of its distributions for 2009. The variance year
over year will be ultimately impacted by the average coal price settled by Teck Coal and total volumes shipped through the
Terminal. Based on the information currently available to it, Westshore is anticipating lower volumes in 2009 as compared
to 2008, and a lower average loading rate. If cash distributions for the calendar year 2009 exceed $1.035 per unit, incentive
fees will be payable by Westshore to the Manager under the Management Agreement.
Liquidity and Capital Resources
The Fund is obliged to distribute to Unitholders its income (net of administrative costs of the Fund and any amounts
which may be paid in connection with any cash redemption of units). The Fund has no fixed distribution requirements,
distributions being solely a function of amounts received by the Fund from Westshore. It is not anticipated that the Fund
will require significant capital resources to maintain its investment in Westshore on an ongoing basis. Westshore’s facility
is a mature facility which does not require significant ongoing replacement of equipment. The cost of ongoing
maintenance and refurbishment of the equipment is well within Westshore’s financial capacity based solely on revenues
less expenses without any need for financing. The current equipment addition and upgrade is being funded primarily from
funds raised from issuing equity, which will assist in avoiding any liquidity concerns with debt service. As a result, the
Fund does not anticipate any liquidity concerns with the ongoing operations of Westshore.
12
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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 2008 and remained undrawn at
December 31, 2008. 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.
Westshore has post-retirement benefit obligations under its pension plan and other post-retirement benefit plans which
it is required to fund each year. As a result of the downturn in financial markets, Westshore is anticipating its funding
requirements to increase by approximately $4.5 million in 2009. Westshore does not anticipate any problems in meeting
these funding obligations as the contributions are deductible from taxable income and therefore funded by operating cash
flows, although this will result in reduction of cash distributions to Unitholders.
Obligations under operating leases for the years ending December 31 are as follows:
2009
2010
2011
2012
2013
Thereafter to 2026
Terminal
lease
$
11,701
11,701
11,701
11,701
11,701
152,113
Other
$
457
457
-
-
-
-
Total
$
12,158
12,158
11,665
11,665
11,665
152,113
Westshore has a commitment of approximately $13,815,000 with respect to commitment purchases that are to be paid
in 2009.
The Fund does not have any long-term debt, material capital lease obligations, or other long-term obligations.
Transactions with Related Parties
In 2008, Westshore paid $18,302,000 (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), an amount unchanged since 1997, and an incentive fee of $17,552,000 (excluding GST) (2007: base fee
of $750,000 and $1,643,000 incentive fee).
The Management Agreement provides for incentive fees to be payable by Westshore to the Manager in the event that
distributions exceed certain amounts. Those contingent fees (established in 1997) 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 2008, 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 (an amount also set
and unchanged since 1997). Under the Amended Governance Agreement dated September 29, 2005, the Manager is
entitled to appoint a majority of the directors of the General Partner.
13
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Changes In Accounting Policies
The Fund’s changes in accounting policies are found in note 2 of Westshore’s financial statements beginning on
page 23.
Inventories
On January 1, 2008, the Fund adopted the new requirements of CICA Handbook Section 3031 for inventories. The
standard provides more comprehensive guidance on the determination of costs and the cost formulas that are used to
assign costs to inventories. Inventories are required to be valued at the lower cost and net realizable value.
The adoption of this standard did not have a material impact on the consolidated financial statements of the Fund.
Financial Instruments
On January 1, 2008, the Fund adopted the new requirements of the CICA Handbook Section 3862 and 3863 for
financial instruments. The Standard requires additional disclosure on the Fund’s risks with respect to financial instruments
and how the Fund manages these risks. This information is presented in Note 12 to the accompanying financial
statements.
Capital Disclosures
On January 1, 2008, the Fund adopted the new requirements of CICA Handbook Section 1535 for capital disclosures.
The standard requires additional disclosure about the Fund’s capital and how it is managed along with external
requirements or restrictions on that capital. This information is provided in Note 13 to the accompanying consolidated
financial statements.
Goodwill and Intangible Assets
In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets. This new accounting
standard, which applies to the Fund commencing January 1, 2009, replaces Section 3062, Goodwill and Other Intangible Assets.
Section 3064 expands on the standards for recognition, measurement, and disclosure of goodwill and intangible assets.
The Fund does not expect that the adoption of this new standard will have any impact on its financial statements,
disclosure, or results of operations.
Credit Risk and the Fair Value of Financial Assets and Liabilities
On January 23, 2009, the CICA Emerging Issues Committee (EIC) issued EIC-173, Credit Risk and Fair Value of
Financial Assets and Liabilities. EIC-173 is effective for interim and annual financial statements ending on or after January
20, 2009. EIC-173 provides guidance that an entity’s own credit risk of counterparties should be taken into account in
determining the fair value of financial assets and liabilities. Adoption of this guidance is to be applied retrospectively
without restatement to prior periods. The Fund will adopt this guidance in its March 31, 2009 interim financial statements
and it is currently evaluating the impact on its consolidated financial statements.
14
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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.
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 is
15
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
if the coal to be loaded on the vessel is not at the Terminal when the vessel arrives. In 2008, Westshore incurred
demurrage costs of $0.5 million as compared to $0.6 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 $0.6 million in 2008 compared to $0.7 million in 2007.
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.
International Financial Reporting Standards (IFRS)
The use of IFRSs for financial reporting in Canada will become applicable for the year beginning January 1, 2011. The
Fund has developed an implementation strategy which established a timeline for the identification of significant
differences between Canadian GAAP and IFRS and the implementation of business process changes needed to support
IFRS. The Fund is currently in the process of identifying material changes to the financial statements that will occur with
the conversion to IFRS.
Internal Controls Over Financial Reporting
The Fund maintains a system of internal controls over financial reporting, as defined by National Instrument 52-109,
Certification of Disclosure in Issuers’ Annual and Interim Filings, in order to provide reasonable assurance regarding the reliability
of the Fund's financial reporting and the preparation of financial information for external purposes in accordance with
Canadian GAAP.
The Chief Executive Officer and Chief Financial Officer of the Fund have evaluated, or caused to be evaluated under
their supervision, the effectiveness of the Fund’s internal controls over financial reporting as of December 31, 2008.
Based on that assessment, it was determined that the Fund’s internal controls over financial reporting were appropriately
designed and were operating effectively. No material changes were identified in the Fund’s internal controls over financial
reporting during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially
affect, the Fund’s internal controls over financial reporting.
It should be noted that a control system, including the Trust’s disclosure and internal controls and procedures, no
matter how well conceived can provide only reasonable, but not absolute, assurance that the objectives of the control
system will be met and it should not be expected that the disclosure and internal controls and procedures will prevent all
errors or fraud.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions.
16
Westshore Terminals Income Fund
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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 tested the operation of the disclosure controls and
procedures of Westshore, the General Partner and the Fund as of December 31, 2008 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.
17
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 KPMG 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
18
KPMG LLP
Chartered Accountants
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone
Fax
Internet
(604) 691-3000
(604) 691-3031
www.kpmg.ca
AUDITORS' REPORT
To the Unitholders of
Westshore Terminals Income Fund
We have audited the consolidated balance sheet of Westshore Terminals Income Fund (the Fund) as
at December 31, 2008 and the consolidated statements of earnings, comprehensive earnings and
cumulative earnings and cash flows for the year 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 audit.
We conducted our audit 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, 2008 and the results of its operations and its cash
flows for the year then ended in accordance with Canadian generally accepted accounting principles.
The consolidated financial statements as at December 31, 2007 and for the year then ended were
audited by other auditors, who expressed an opinion without reservation on those statements in their
report, dated March 18, 2008.
Chartered Accountants
Vancouver, Canada
February 13, 2009
KPMG LLP, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
19
WESTSHORE TERMINALS INCOME FUND
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
December 31, 2008 and 2007
Assets
Current assets:
Cash and cash equivalents
Accounts receivable (note 11)
Inventories
Prepaid expenses
Other assets (note 12(c))
Plant and equipment (note 3)
Employee future benefits (note 9)
Goodwill
Liabilities and Unitholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
Distribution payable to unitholders (note 5)
Other liabilities (note 12(c))
Employee future benefits (note 9)
Future income taxes (note 6)
Unitholders' equity:
Capital contributions (note 4)
Cumulative earnings
Cumulative distributions declared (note 5)
Contingencies and commitments (note 10)
Subsequent events (notes 5 and 7)
2008
2007
$ 75,034
29,313
6,478
672
-
111,497
$ 72,742
11,181
6,162
972
38
91,095
114,552
128,689
23,303
20,975
365,541
365,541
$ 614,893
$ 606,300
$ 16,293
39,353
12,590
68,236
21,108
8,692
$ 27,826
26,730
-
54,556
19,364
6,738
704,032
619,250
(806,425)
516,857
704,032
494,385
(672,775)
525,642
$ 614,893
$ 606,300
See accompanying notes to consolidated financial statements.
Approved on behalf of the Trustees
William W. Stinson, Trustee
Dallas H. Ross, Trustee
Trustee
Trustee
20
WESTSHORE TERMINALS INCOME FUND
Consolidated Statements of Earnings, Comprehensive Earnings and Cumulative Earnings
(Expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
Revenue:
Coal loading
Other
Expenses:
Operating
Administrative (note 8)
Earnings before the undernoted
Depreciation
Interest income
Foreign exchange gain (loss)
Earnings before income taxes
Income taxes (note 6)
Net earnings and comprehensive earnings for the year
2008
2007
$ 260,096
5,005
265,101
$ 156,717
5,239
161,956
76,996
24,160
101,156
163,945
71,303
8,310
79,613
82,343
(22,289)
(22,304)
1,913
(16,750)
126,819
1,954
124,865
2,536
2,449
65,024
6,738
58,286
Cumulative earnings, beginning of year
494,385
436,099
Cumulative earnings, end of year
$ 619,250
$ 494,385
Basic and diluted earnings per trust unit
$
1.682
$
0.792
Weighted average number of trust units outstanding
74,250,016
73,587,701
See accompanying notes to consolidated financial statements.
21
WESTSHORE TERMINALS INCOME FUND
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2008 and 2007
Cash flows provided by (used in) operating activities:
Net earnings for the year
Items not affecting cash:
Unrealized loss on foreign exchange contracts (note 12)
Depreciation
Future income tax provision (note 6)
Increase (decrease) in employee future benefits
asset/liability
Changes in non-cash working capital:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Cash flows provided by (used in) financing activities:
Distributions paid to unitholders
Issuance of units, net of unit issuance costs
Cash flows used in investing activities:
Additions to plant and equipment
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
2008
2007
$ 124,865
$ 58,286
12,628
22,289
1,954
(584)
161,152
(18,132)
(316)
300
(11,533)
131,471
(121,027)
-
(121,027)
1,808
22,304
6,738
536
89,672
4,030
(60)
3,003
9,725
106,370
(82,979)
40,430
(42,549)
(8,152)
(25,634)
2,292
72,742
38,187
34,555
Cash and cash equivalents, end of year
$ 75,034
$ 72,742
Supplemental cash flow information:
Cash received for interest
Non-cash activities:
$
1,913
$
2,536
Increase in accounts payable related to additions to
plant and equipment
-
733
See accompanying notes to consolidated financial statements.
22
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
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 (the Partnership) 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 the Partnership. The general partner is a
newly incorporated company under the laws of British Columbia, now named Westshore
Terminals Ltd. (the General Partner).
The Partnership 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 subsidiaries,
including its variable interest entity, the Partnership. All significant inter-entity transactions and
balances have been eliminated on consolidation of the Fund.
2. Significant accounting policies:
(a) Accounting principles:
These consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in Canada.
(b) Variable interest entities:
Under Accounting Guideline 15, Consolidation of Variable Interest Entities (AcG-15), it was
determined that the Fund's investment in the Partnership 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 consolidates
the Partnership.
23
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
2. Significant accounting policies (continued):
(c) Financial instruments:
The Fund’s financial instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities and distributions payable to unitholders. The
carrying amounts of these financial instruments recorded on the consolidated balance sheets
are reasonable estimates of their fair values due to the relatively short periods to maturity and
commercial terms of these instruments.
Cash and cash equivalents are classified as held-for-trading and are recorded at fair value on
the consolidated balance sheets. Accounts receivable are classified as loans and
receivables and are recorded at amortized cost. Accounts payable and distributions payable
to unitholders are classified as other financial liabilities and are recorded at amortized cost.
The Fund’s financial instruments also include foreign exchange contracts, which are
derivative instruments that are classified as held-for-trading and are recorded at fair value.
Fair value is determined based on valuations obtained from the counterparty. The mark-to-
market value is determined by the counterparty by multiplying the notional amount of the
trade with the difference between the forward rate and the contract rate and discounting the
resultant asset or liability by an applicable discount factor. The changes in fair value
fluctuations are recorded in foreign exchange.
(d) 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.
(e) 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.
24
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
2. Significant accounting policies (continued):
(e) Asset retirement obligations (continued):
The Partnership's terminal site is leased from the Vancouver Fraser Port Authority (the
VFPA). A new lease agreement was signed on November 2, 2006, which is effective as of
January 1, 2007. The current lease runs until December 31, 2026, and may be extended at
the Partnership's option for a further 20 years. At the expiry of the lease in 2046, assuming
the Partnership has not been successful in further extending the lease, the VFPA has the
option to acquire the assets of the terminal at fair value or require the Partnership to return
the site to its original condition. The Partnership believes that the probability that the VFPA
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, 2008.
(f) 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.
(g) Inventories:
Inventories of spare parts and supplies are valued at the lower of cost less a provision for
obsolescence and net realizable value. Cost is determined using the weighted average cost
method and includes the invoiced cost and other directly attributable costs of acquiring the
inventory.
(h) 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.
Asset
Automobiles
Conveyor belts
Computer software
Mobile equipment
Land improvements
Buildings
Fixed machinery
Term
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
Plant and equipment is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount for the asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount that the carrying amount of the asset exceeds its fair value.
25
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
2. Significant accounting policies (continued):
(i) 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. Any excess of the carrying value
over fair value is charged to earnings in the period in which the impairment is determined.
(j) Revenue recognition:
Coal loading revenue is recognized when a customer's coal is loaded onto a ship and ready
for export from the terminal site. Coal loading revenue is recorded based on contract specific
loading rates. Other revenue consists primarily of wharfage fees which are recorded based
upon the period of time a ship is at the port.
(k) Income taxes:
The income of the Partnership is taxed directly in the hands of the Fund and the General
Partner. It is expected that the Fund and the Partnership will operate so that substantially all
net income of the Business will be allocated to and taxed in the hands of the unitholders.
Legislative provisions under Bill C-52 Budget Implementation Act 2007, which requires tax to
be paid by 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
27.5% (2012 - 26.0%) and the distributions will be treated as taxable dividends in the hands
of 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
differences 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.
The effect on future income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the substantive enactment date. The amounts of future
income tax assets is limited to the amount that is more likely than not to be realized.
(l) Employee future benefits:
The Partnership accrues its obligations under employee benefit plans, net of plan assets, and
applies the following policies:
(cid:120)
(cid:120)
The measurement date used for accounting purposes is December 31, 2008 and 2007,
respectively.
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 future health care costs.
26
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
2. Significant accounting policies (continued):
(l) Employee future benefits (continued):
(cid:120)
For the purpose of calculating the expected return on plan assets, those assets are
valued at fair value.
(cid:120) 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 the amendments.
(cid:120)
(cid:120)
(cid:120)
The excess of the net actuarial gain (loss) over 10% of the greater of the benefit
obligation and the fair value of plan assets at the beginning of the year is amortized over
the average remaining service period of active employees.
The discount rate used to value liabilities is based on AA Corporate bond yields.
The expected weighted average remaining service life of employees covered by the
defined benefit pension plan is ten years (2007 - nine years).
(m) Foreign exchange:
The functional and reporting currency of the Fund and its subsidiaries is the Canadian dollar.
Transactions which are denominated in other currencies are translated into their Canadian
dollar equivalents at exchange rates prevailing at the transaction date. The carrying values
of monetary assets and liabilities denominated in foreign currencies are adjusted at each
balance sheet date to reflect exchange rates prevailing at that date.
(n) 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 reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of management estimates
relate to the determination of net recoverable value of assets, useful lives of plant and
equipment, asset retirement obligations, train detention and ship demurrage costs and
accruals at period end, determination of actuarial assumptions, provision for contingencies
and future income tax amounts. Actual results could differ from those estimates.
(o) New accounting standards:
(i)
Inventories:
On January 1, 2008, the Fund adopted the Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3031, Inventories. Section 3031 provides more extensive
guidance on the measurement and disclosure of inventory. The adoption of this standard
did not have a material impact on the consolidated financial statements for the Fund.
27
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
2. Significant accounting policies (continued):
(o) New accounting standards (continued):
(ii) Financial instruments:
On January 1, 2008, the Fund adopted the CICA Handbook Section 1535, Capital
Disclosures, Section 3862, Financial Instruments - Disclosure and Section 3863,
Financial Instruments - Presentation. Section 1535 establishes standards for disclosing
information about an entity’s capital and how it is managed. Sections 3862 and 3863
revise disclosure and presentation of financial instruments and place increased emphasis
on disclosures about the nature and extent of risks arising from financial instruments and
how those risks are managed. See notes 12 and 13 for additional disclosures.
(p) Future accounting standards:
(i) Goodwill and intangible assets:
In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible
Assets. This new accounting standard, which applies to fiscal years beginning on or
after October 1, 2008, replaces Section 3062, Goodwill and Other Intangible Assets.
Section 3064 expands on the standards for recognition, measurement, and disclosure of
goodwill and intangible assets. The Fund does not expect that the adoption of this new
standard will have any impact on its financial statements, disclosures, or results of
operations.
(ii) International Financial Reporting Standards:
In January 2006, the Canadian Accounting Standards Board announced its decision that
requires all publicly accountable entities to report under International Financial Reporting
Standards (IFRS). The Fund’s consolidated financial statements are to be prepared in
accordance with IFRS for the fiscal year commencing January 1, 2011. The Fund is
currently evaluating the impact of these new standards.
(iii) Credit risk and the fair value of financial assets and liabilities:
On January 23, 2009, the CICA Emerging Issues Committee (EIC) issued EIC-173,
Credit Risk and the Fair Value of Financial Assets and Liabilities. EIC-173 is effective for
interim and annual financial statements ending on or after January 20, 2009. EIC-173
provides guidance that an entity’s own credit risk of counterparties should be taken into
account in determining the fair value of financial assets and liabilities. Adoption of this
guidance is to be applied retrospectively without restatement to prior periods. The Fund
will adopt this guidance in its March 31, 2009 interim financial statements and it is
currently evaluating the impact on its consolidated financial statements.
(q) Comparative figures:
Certain of the comparative figures have been reclassified to conform to the current year’s
presentation.
28
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
3. Plant and equipment:
2008
Cost
Accumulated
depreciation
Net book
value
Buildings and land improvements
Machinery and equipment
Construction in progress
$ 34,041
454,346
9,831
$ 27,154
356,512
-
$
6,887
97,834
9,831
$ 498,218
$ 383,666
$ 114,552
2007
Cost
Accumulated
depreciation
Net book
value
Buildings and land improvements
Machinery and equipment
Construction in progress
$ 34,255
447,806
8,165
$ 26,026
335,511
-
$
8,229
112,295
8,165
$ 490,226
$ 361,537
$ 128,689
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 the Partnership have entered into an
exchange agreement (the Exchange Agreement) under which the Fund will have the right to
transfer Partnership 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 $20,000,000 private placement and $20,000,000 rights
offering. The Fund issued 3,868,905 units and received $40,430,000 in proceeds.
29
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
4. Trust units (continued):
Capital contributions are as follows:
December 31, 2008
December 31, 2007
5. Distributions to unitholders:
Cumulative distribution declared to unitholders:
Cumulative distributions to December 31, 2006
Distributions declared in 2007
Cumulative distributions to December 31, 2007
Distributions declared in 2008
Cumulative distributions to December 31, 2008
Distributions to unitholders are made quarterly.
Number of
units
Capital
contributions
74,250,016
74,250,016
$ 704,032
704,032
$ 586,644
86,131
672,775
133,650
$ 806,425
During the year ended December 31, 2008, the Fund declared cash distributions to unitholders of
$133,650,000 (2007 - $86,131,000) or $1.80 per unit (2007 - $1.16 per unit). The amounts and
record dates of the cash distributions declared were as follows:
2008
2007
Total
Per unit
Total
Per unit
March 31
June 30
September 30
December 31
$ 20,790
34,897
38,610
39,353
$
0.28
0.47
0.52
0.53
$ 19,305
18,563
21,533
26,730
$
0.26
0.25
0.29
0.36
$ 133,650
$
1.80
$ 86,131
$
1.16
The distribution of $39,353,000 ($0.53 per unit) payable to unitholders of record on December 31,
2008 was paid on or before January 16, 2009.
In 2008, additional non-cash unit distributions totalling $0.182 per unit were 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 units were immediately consolidated so that each
unitholder continued to hold the same number of units that existed before the distribution.
30
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
5. Distributions payable to unitholders (continued):
The non-cash distribution of units for the year ended December 31, 2008 were as follows:
March 31
June 30
September 30
December 31
Total
Per Unit
2,107
3,536
3,913
3,988
$ 0.028
0.047
0.053
0.054
13,544
$ 0.182
The distributions declared in 2008 and 2007 have been allocated as follows for income tax
purposes:
2008
2007
Total
Per unit
Total
Per unit
Cash distributions:
Income
Return of capital
$ 133,650
-
$ 1.800
-
$ 84,736
1,395
$ 1.141
0.019
Total cash distributions
Non-cash distributions
133,650
13,544
1.800
0.182
86,131
-
1.160
-
Total distributions
$ 147,194
$ 1.982
$ 86,131
$ 1.160
6.
Income taxes:
At December 31, 2008, the tax bases of the Fund's consolidated assets and liabilities are less
than, on a net basis, the carrying amounts by $51,600,237 (2007 - $70,942,637).
A reconciliation of income taxes at the statutory tax rate of 31.0% (2007 - 34.12%) to actual
income taxes is as follows:
Income tax expense at statutory Canadian rate
Tax effect of deduction for net income of the Fund
distributed to Unitholders
Tax effect of change in temporary difference expected
to reverse after 2010
Change in future income tax rate
2008
2007
$ 39,314
$ 22,186
(39,314)
(22,186)
2,427
(473)
6,738
-
Income tax provision
$
1,954
$
6,738
31
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
6.
Income taxes (continued):
Represented by:
Current income tax provision
Future income tax provision
The temporary differences are as follows:
Future income tax liability:
Plant and equipment
Pension assets
Other assets (liabilities)
Non-pension post-retirement liability
Accounts payable and accrued liabilities
2008
2007
$
-
1,954
$
-
6,738
$
1,954
$
6,738
2008
2007
$ 16,240
6,107
(3,293)
(5,532)
-
13,522
$ 21,897
5,970
11
(5,512)
(2,173)
20,193
Expected reversal of temporary differences prior to January 2011
(4,830)
(13,455)
Total
$
8,692
$
6,738
Based on a current estimate of the income tax liability at the beginning of 2011, the Fund has
recorded a future income tax liability and corresponding non-cash future tax expense. The future
income tax liability is based on temporary differences between the accounting and tax basis of
the assets and liabilities estimated to exist at January 1, 2011 and reverse thereafter.
7. Bank operating facility:
The Partnership has a $1,000,000 (2007 - $1,000,000) operating facility which is secured by an
unconditional guarantee by the Fund. No amounts were outstanding on this facility as at
December 31, 2008 and 2007. The Partnership 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. The term of the credit facility was
extended to February 11, 2010 subsequent to December 31, 2008.
32
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
8. Related party transactions:
(a) 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 by the Fund on
180 days' notice, or immediately under certain circumstances.
Westar Management earned a fee of $250,000 for the year ended December 31, 2008 (2007
- $250,000) under the administration agreement. These fees are included in administrative
expense on the consolidated statements of earnings, comprehensive earnings and
cumulative earnings.
(b) Management agreement:
The Partnership 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 the Partnership. The initial term of the agreement is 15 years up to
January 30, 2012, and the agreement is renewed thereafter for successive five-year terms
unless the Partnership gives notice of non-renewal at least 12 months before the end of the
relevant term. The management agreement may be terminated by the Partnership in certain
circumstances, and Westar Management can terminate the agreement at any time on 12
months' notice.
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 flows of the
Partnership, 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 earns a
Westar Management earned a base management fee of $750,000 and an incentive fee of
$17,552,000 for the year ended December 31, 2008 (2007 - $750,000 and $1,643,000
respectively) under the management agreement.
These fees are included in administrative expense on the consolidated statements of
earnings, comprehensive earnings and cumulative earnings.
(c) The Partnership paid $240,000 to an entity related to Westar Management under the terms of
market-based automobile leases.
33
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
9. Employee future benefits:
The Partnership 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.
Information about the Partnership's defined benefit pension plans and other benefit obligations
using a measurement date of December 31, 2008 and 2007 respectively is as follows:
Pension plan benefits
2007
2008
Other benefits
2008
2007
Accrued benefit obligation:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial gains
Plan improvements
$ 67,061
1,062
3,794
(3,777)
(10,156)
1,836
$ 64,562
995
3,246
(3,077)
(2,807)
4,142
$ 26,694
941
1,507
(1,412)
(4,941)
-
$ 26,139
982
1,403
(1,671)
(663)
504
Balance, end of year
$ 59,820
$ 67,061
$ 22,789
$ 26,694
Plan assets:
Fair value, beginning of year $ 73,949
(18,792)
Actual return on assets
3,127
Employer contributions
(3,777)
Benefits paid
$ 74,676
1,754
596
(3,077)
$
-
-
1,412
(1,412)
$
-
-
1,671
(1,671)
Fair value, end of year
$ 54,507
$ 73,949
$
-
$
-
Balances, December 31:
Funded status - plan
surplus (deficit)
Unamortized net actuarial
losses
Unamortized past service
costs
$
(5,313)
$
6,888
$ (22,789)
$ (26,694)
21,814
6,802
8,012
6,075
925
756
6,238
1,092
Accrued benefit asset (liability)
$ 23,303
$ 20,975
$ (21,108)
$ (19,364)
The pension plans are entirely funded by the Partnership. The Partnership’s contributions to the
pension plans are based on independent actuarial valuations. The other benefit plans have no
assets and an annual expense is recorded on an accrual basis based on independent actuarial
determinations, considering among other factors, health care cost escalation.
34
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
9. Employee future benefits (continued):
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, 2008
January 1, 2007
January 1, 2009
January 1, 2010
The significant actuarial assumptions adopted in measuring the Partnership's accrued benefit
obligations (and costs) are as follows (weighted average assumptions as of December 31):
2008
Pension
benefits
%
Other
benefits
%
2007
Pension
benefits
%
Other
benefits
%
Benefit obligations:
Discount rate at December 31
Rate of increase in future
compensation
Benefit costs:
Discount rate at January 1
Rate of increase in future
compensation
Expected long-term rate
of return on plan assets
7.25
3.00
5.50
3.50
7.00
7.25
3.00
5.50
3.50
-
5.50
3.00
5.00
3.00
7.25
5.50
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 seven years and 5% thereafter. The
annual rates of increase in the per capita cost of medical service plan 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
35
1% decrease
1% increase
$
(297)
(2,026)
$ 384
2,494
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
9. Employee future benefits (continued):
The Partnership'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
2008
%
43
25
32
100
2007
%
34
22
44
100
The Partnership's contributions for the years ended December 31 are as follows:
2008
2007
Contributions to funded pension plans
Benefits paid directly to beneficiaries for other non-funded
post-employment benefits
$ 3,127
$
596
1,412
1,671
$ 4,539
$ 2,267
The Partnership's net benefit plan expense (income) for the years ended December 31, 2008 and
2007 is as follows:
2008
Deferral and
amortization
adjustments (1)
Incurred
in year
Recognized
in year
Incurred
in year
Deferral and
amortization
adjustments (1)
Recognized
in year
2007
Pension plan benefits:
Current service
cost
Interest cost
Expected return
on plan assets
$
1,062
3,794
$
-
-
$ 1,062
3,794
$
995
3,246
$
-
-
$
995
3,246
18,792
(24,130)
(5,338)
(1,754)
(3,570)
(5,324)
Net actuarial
losses (gains)
Past service costs
(10,156)
-
10,328
1,109
172
1,109
(2,807)
-
2,887
531
80
531
$
13,492
$ (12,693)
$
799
$
(320)
$
(152)
$
(472)
36
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
9. Employee future benefits (continued):
2008
Deferral and
amortization
adjustments (1)
Incurred
in year
Recognized
in year
Incurred
in year
Deferral and
amortization
adjustments (1)
Recognized
in year
2007
Other benefits:
Current service
cost
Interest cost
Net actuarial
losses (gains)
Past service costs
$
941
1,507
$
-
-
$
941
1,507
$
982
1,403
$
-
-
$
982
1,403
(4,941)
-
5,313
336
372
336
(663)
-
1,217
336
554
336
$ (2,493)
$ 5,649
$ 3,156
$ 1,722
$ 1,553
$ 3,275
(1) The net impact of deferral and amortization adjustments is to recognize the long-term nature
of employee future benefits.
10. Contingencies and commitments:
In August 2006, the Elk Valley Coal Partnership (the Coal Partnership) sent notice to the
Partnership 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 changes 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. No amounts have been recorded in respect of this matter as the final
outcome, and financial impact, if any, is not currently determinable.
The Partnership is committed under operating leases to the rental of property, facilities, and
equipment.
The Partnership's terminal site is leased (the Lease) from the VFPA. Charges payable by the
Partnership under the Lease comprise an annual base land and waterlot rental fee of $5,206,531
(2007 - $5,206,531) and an annual participation rental based on the volume of coal shipped. A
minimum participation rental of $6,494,400 (2007 - $6,494,400) is charged based on a minimum
annual tonnage (MAT) of 17.6 million tomes. A higher participation rental per tonne is charged
on tonnage in excess of the MAT. In 2008, the Partnership paid $3,358,586 (2007 - $3,436,818)
in relation to the higher participation rental.
37
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
10. Contingencies and commitments (continued):
In 2006, the Partnership signed a new lease with the VFPA effective January 1, 2007. The term
of the lease is until December 31, 2026, with the Partnership having further options to extend the
term to December 31, 2046. Unless the Partnership completes an equipment upgrade within 36
months of the permit issuance at a cost of at least $42,000,000, the VFPA has the right to cancel
the renewal options. The Partnership commenced this equipment upgrade in 2007 and it has
continued throughout 2008.
Future minimum operating lease payments for the years ending December 31 (assuming
minimum annual tones and the VFPA does not exercise its right to adjust the lease rates) are as
follows:
2009
2010
2011
2012
2013
Thereafter to 2026
Terminal
lease
$ 11,701
11,701
11,701
11,701
11,701
152,113
Other
$ 457
457
-
-
-
-
Total
$ 12,122
12,122
11,665
11,665
11,665
151,645
The Partnership has a commitment of approximately $13,815,000 with respect to equipment
purchases that are to be paid in 2009.
11. Significant customers:
Teck Cominco Limited holds a 100% interest in the Coal Partnership. During the year ended
December 31, 2008, approximately 90% (2007 - 89%) of the Partnership's revenue was earned
from the mines owned by the Coal Partnership. As at December 31, 2008, the receivable from
the Coal Partnership was $22,100,000 (2007 - $6,900,000).
38
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
12. Financial instruments:
The Fund is exposed to various risks associated with its financial instruments, which include
credit risk, liquidity risk, and market risk.
(a) Credit risk:
Credit risk is the risk of financial loss to the Fund if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. Credit risk arises primarily from accounts
receivable and cash and cash equivalents. Credit risk can also arise on foreign currency
contracts entered into.
The Fund’s exposure to credit risk is influenced by the profitability of coal mining companies,
which are heavily impacted by the price of the coal. The accounts receivable are
concentrated with one customer, The Coal Partnership, as this customer represented
approximately 90% of Westshore’s revenues in 2008 (2007 - 89%). Westshore does not
have any collateral or security over receivables. Westshore monitors the financial health of
its customers and regularly reviews its accounts receivable for impairment. As at
December 31, 2008, there were no trade accounts receivable past due which were
considered uncollectible and no reserve in respect of doubtful accounts was recorded.
The Fund limits its exposure to credit risk arising from cash equivalents by only investing in
money market funds with a major Canadian financial institution. The Fund does not expect
any credit losses in the event of non-performance by counterparties to its foreign exchange
contracts as the counterparties are major Canadian financial institutions.
The carrying amount of financial assets represents the maximum credit exposure. The
maximum exposure to credit risk is:
Cash and cash equivalents
Accounts receivable
(b) Liquidity risk:
$ 75,034
29,313
$ 104,347
Liquidity risk is the risk that the Fund will not be able to meet its obligations as they fall due.
The Fund continually monitors its financial position to ensure that it has sufficient liquidity to
discharge its obligations when due. The Fund’s distribution obligation to unitholders is
funded from operating income and the current equipment upgrade has been funded with
additional equity raised in 2007.
The financial liabilities of the Fund, which include accounts payable and accrued liabilities
and distributions payable have a contractual maturity of less than one year. The Fund’s
foreign exchange contracts have maturities ranging from one month to sixteen months at
December 31, 2008.
39
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
12. Financial instruments (continued):
(b) Liquidity risk (continued):
Westshore also maintains a $1,000,000 operating facility that can be drawn down to meet
short-term financing needs. No amounts were outstanding on this facility at December 31,
2008.
(c) Market risk:
The significant market risk exposures affecting the financial instruments held by the Fund are
those related to foreign currency exchange rates and interest rates:
(i) Foreign currency exchange rates:
The fair value of the Fund’s outstanding foreign currency contracts at December 31,
2008 is a liability of $12,590,000 (2007 - asset of $38,000). The fair market value of the
Fund’s foreign currency contracts has decreased by $12,628,000 in 2008. The Fund is
exposed to foreign currency exchange rate risk on its foreign currency contracts. The
value of these financial instruments fluctuate with changes in the CAD/US dollar
exchange rate and the CAD/Euro exchange rate. A $0.01 increase in the US/Canadian
exchange rate at December 31, 2008 would have reduced the value of the US dollar
foreign exchange contracts by approximately $900,000 and a $0.01 increase in the
Euro/Canadian exchange rate at December 31, 2008 would have increased the value of
the Euro foreign exchange contracts by approximately $20,000. The net impact would
have resulted in a reduction in net earnings and comprehensive earnings by $880,000.
From the beginning of 2008 to December 31, 2008, the Euro has strengthened by
approximately 2% against the Canadian dollar and the US dollar has strengthened by
approximately 7% against the Canadian dollar.
(ii) Interest rates:
The Fund has limited exposure to interest rate risk on the cash equivalents (short-term
investments). Money market fund returns are correlated with Canadian T-bills and
Bankers’ Acceptances of major Canadian financial institutions. Based on the cash
balance at December 31, 2008, a 1% change in interest rates would have impacted net
earnings and comprehensive earnings by approximately $750,000.
40
WESTSHORE TERMINALS INCOME FUND
Notes to Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except unit amounts)
Years ended December 31, 2008 and 2007
13. Capital disclosure:
The capital of the Fund consists solely of unitholders’ equity which includes issued trust units and
cumulative earnings less cumulative distributions.
The objective of the Fund is to maintain a stable capital base and ensure that the capital structure
does not interfere with the Fund’s ability to meet its distribution requirements on the trust units.
The Fund’s Declaration of Trust provides that an amount equal to the net income of the Fund will
be distributed each year to Unitholders in order to eliminate the Fund’s net income. To the extent
that the net income of the Fund exceeds the cash distributed during the year, the Fund will
allocate non-cash distribution of units to Unitholders which will be immediately consolidated so
that each Unitholder continues to hold the same number of Trust Units that existed before the
distribution. In 2009, the Fund expects that its quarterly distributions to unitholders will be funded
by earnings and operating cash flows.
The trust units are governed by the Second Amended and Restated Declaration of Trust dated
September 29, 2005, which provides that non-residents of Canada may not own more than 49%
of the trust units at any time. The Fund continually monitors the non-resident ownership levels to
the best of its ability given the practical limitations regarding beneficial ownership interest. The
Fund believes that it has always had substantially less than 49% non-Canadian ownership.
The Fund is not subject to externally imposed capital requirements. There have been no
changes in how the Fund manages its capital during the period ended December 31, 2008.
41
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
Auditors
KPMG 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 16, 2009 at
9:00 a.m. at the Marriott Pinnacle Hotel,
Vancouver, British Columbia
Westshore Terminals Ltd.
(general partner of Westshore
Terminals Limited Partnership)
Directors
Glen Clark
Executive Vice President
The Jim Pattison Group
Officers
William W. Stinson
President
Denis Horgan
Vice-President and General Manager
Nick Desmarais
Secretary
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
42