WESTSHORE TERMINALS
INVESTMENT CORPORATION
ANNUAL REPORT
2017
27773.138781.JS.14759466.2
W
estshore Terminals Investment Corporation (the “Corporation”) owns all of
the limited partnership units of Westshore Terminals Limited Partnership, a
partnership established under the laws of British Columbia (“Westshore”). It derives its cash
inflows from its investment in Westshore by way of distributions on its limited partnership
units. Westshore operates the coal storage and loading terminal at Roberts Bank, British
Columbia (the “Terminal”), which is the largest coal loading facility on the west coast of the
Americas. The principal office of the entities is located at 1800 - 1067 West Cordova Street,
Vancouver, British Columbia, V6C 1C7.
Table of Contents
Financial Highlights
Directors' Letter and Report to Shareholders
Management's Discussion and Analysis
Consolidated Financial Statements
Corporate Information
2
3
5
27
54
27773.138781.JS.14759466.2
Financial Highlights
(In thousands of Canadian dollars except tonnage and share amounts)
2017
2016
Tonnage (in thousands)
Coal loading revenue
Profit before taxes
Profit for the year
Profit for the year per share
Dividends declared
Dividends declared per share
Shares outstanding at December 31
Share Trading Statistics
High
Low
Close
Annual Volume
Share price as of March 19, 2018 closed at $21.99
29,034
322,199
148,916
109,392
1.51
46,093
0.64
70,937,537
29.05
19.07
26.29
29,507,127
$
$
$
$
$
$
$
$
$
25,841
287,152
161,453
119,422
1.62
47,149
0.64
73,560,954
28.95
9.84
25.89
36,403,964
$
$
$
$
$
$
$
$
$
2
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Directors’ Letter and Report to Shareholders
Dear Shareholder:
2017 was a solid year of progress on many fronts for Westshore.
Total throughput for the year was 29 million tonnes (25.8 million tonnes in 2016) compared to an original estimate
of 27 million tonnes. Coal prices rose significantly in the latter half of 2016 and remained strong during most of 2017,
which garnered additional sales for our customers. As we have seen in recent years it is not possible to predict future
coal prices in the short or long term.
The $270 million capital upgrade project is on schedule and under budget. Two of the three new stacker
reclaimers are now operational. The third stacker reclaimer is expected to be assembled during the second half of
2018 and will be operational in late 2018 or early 2019.
During the year, Westshore secured the services of an outside service provider to switch BNSF trains which,
while adding some costs, increases the number of BNSF trains that the Terminal can handle.
During 2017, Westshore successfully concluded negotiation of a new collective agreement with ILWU local 514
(foremen). All three union locals now have collective agreements expiring in January 31, 2020.
2017 was not without its challenges. In particular, Q1 throughput volume was light (5.9 million tonnes compared
to 6.8 million tonnes in 2016) due to weaker than expected customer sales, rail performance, and some operational
issues at Westshore. Much of the slower start was made up in Q2 and Q3 when a total of 16 million tonnes was
shipped (compared to 12.6 million tonnes in 2016). Q4 started slowly due to light customer shipments and winter
weather challenges, but finished more strongly in December for quarterly throughput of 7.1 million tonnes (2016 –
6.4 million tonnes).
For 2018, based on information from its customers and agreements in place, Westshore anticipates throughput
volume to be approximately 30 million tonnes. Ultimately, the level of throughput will depend on customer sales, rail
performance and performance at Westshore.
The Corporation renewed its normal course issuer bid (“NCIB”) effective April 11, 2017 for another year and on
August 15, 2017 obtained regulatory approval to increase the number of Common shares that the Corporation may
acquire up to April 10, 2018 to a total of 3,663,858 Common shares. During 2017 a total of 2,612,317 common shares
were purchased for a total of $60.6 million. In 2016, 316,100 Common shares were repurchased for a total of $6.1
million.
Westshore expects throughput capacity to improve as we complete key stages of the major capital project. We
continue to work with existing as well as potential new customers to increase our throughput volume to match
increasing capacity. In addition, Westshore continues to review all facets of its operations with a view of reducing
costs and maximizing efficiencies.
We look forward to continuing to build for the future by reinvesting in the terminal so we can best service our
existing and future customers.
3
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Directors’ Letter and Report to Shareholders
For the Board of Directors,
(Signed) “William Stinson”
William Stinson
Chairman of the Board of Directors
Vancouver, B.C.
March 19, 2018
4
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
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 of Westshore Terminals Investment Corporation (“the Corporation”) and the notes thereto for
the year ended December 31, 2017. This discussion and analysis has been based upon the consolidated financial
statements prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion and
analysis is the responsibility of management of the Corporation. Additional information and disclosure can be found
on SEDAR at www.sedar.com. Unless otherwise indicated, the information presented in this Management’s Discussion
and Analysis (“MD&A”) is stated as at March 19, 2018.
All amounts are presented in Canadian dollars unless otherwise noted.
Caution Concerning Forward-Looking Statements
This MD&A contains certain forward-looking statements, which reflect the current expectations of the Corporation and Westshore with
respect to future events and performance. Forward-looking statements are based on information available at the time they are made,
assumptions by management, and management’s good faith belief with respect to future events. They speak only as of the date of this MD&A,
and are subject to inherent risks and uncertainties, including those risk factors outlined in the annual information form of the Corporation
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 information included in this document includes statements with respect to future revenues, expected loading rates, strength
of markets for metallurgical and thermal coal, expected throughput volumes, future throughput capacity, the effect of the Canadian/US dollar
exchange rate, the future cost of post-retirement benefits, expected timing for shipments from a new customer, cost of and timing to complete
capital projects and environmental upgrades and the anticipated level of dividends.
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 estimates, predictions, forecasts, conclusions or projections. Readers of this MD&A should not place undue reliance on
forward-looking statements as a number of risk 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. Specific risk factors include global demand and
competition in the supply of seaborne coal, the ability of customers to maintain or increase sales or deliver coal to the Terminal, fluctuations
in exchange rates, and the Corporation’s ability to renegotiate key customer contracts in the future on favourable terms or at all. See the
risk factors outlined in the annual information form referred to above.
5
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
General
The Corporation was incorporated under the Business Corporations Act (British Columbia) on September 28, 2010
and is domiciled in Canada. The registered and head office of the Corporation is located at Suite 1800, 1067 West
Cordova Street, Vancouver, British Columbia V6C 1C7. The Corporation owns all of the limited partnership units of
Westshore Terminals Limited Partnership (“Westshore”), a limited partnership established under the laws of British
Columbia.
The Corporation derives its cash inflows from its investment in Westshore by way of distributions on Westshore’s
limited partnership units. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia
(the “Terminal”). Substantially all of Westshore’s operating revenues in 2018 are expected to be derived from rates
charged for loading coal onto seagoing vessels.
Westshore’s results are affected by various factors, including the volume of coal shipped by each customer, and their
contracted rate per tonne, as well as Westshore’s operating costs. Customer contracts continue to provide fixed volume
commitments at fixed rates for a substantial portion of the Terminal’s estimated capacity which, as anticipated, is
somewhat reduced for the duration of our major capital project. Westshore also receives reservation payments from a
new customer developing a metallurgical coal mine in Alberta. These payments will be recognized as revenue over the
term of the loading contract.
This MD&A has been prepared by the Corporation to accompany the financial statements of the Corporation for
the financial year ended December 31, 2017.
6
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Structure
The following chart illustrates the Corporation’s primary structural relationships. The Corporation holds all of the
limited partnership units of Westshore and all of the common shares of Westshore Terminals Ltd. (the “General
Partner”), the general partner of Westshore. Westar Management Ltd. (the “Manager”) provides management services
to Westshore and administrative services to the Corporation, and appoints three of the seven directors of the General
Partner. Details of these arrangements will be included in the Information Circular for the Corporation’s 2018 Annual
Meeting.
7
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Selected Financial Information
The following financial data is derived from the Corporation’s audited consolidated financial statements for the years
ended December 31, 2017, 2016 and 2015, which were prepared in Canadian dollars using IFRS.
Revenue(1)
Profit before taxes
Profit for the period
Profit for the period per share(2)
Dividends declared
Dividends declared per share
Total assets
Total long term liabilities
2017
$
330,031
148,916
109,392
1.51
46,093
0.64
857,249
134,387
2016
$
324,463
161,453
119,422
1.62
47,149
0.64
823,867
121,898
2015
$
365,817
206,692
152,931
2.06
85,215
1.15
752,906
120,516
(1) 2015 and 2016 include as revenues payments received in connection with the restructuring of certain agreements.
(2) The weighted average number of Common Shares outstanding for 2017 was 72,397,447, for 2016 was 73,705,793, and for 2015
was 74,128,107.
The following tables set out selected consolidated financial information for the Corporation on a quarterly basis for
the last eight quarters.
(In thousands of Canadian dollars except per share amounts and
where noted)
Three Months Ended
Dec 31, 2017
$
Sep 30, 2017
$
Jun 30, 2017 Mar 31, 2017
$
$
96,277
49,607
36,702
0.51
11,459
0.16
608
14,599
86,388
44,822
33,160
0.45
11,560
0.16
1,092
23,262
66,577
18,699
13,826
0.19
11,724
0.16
283
7,297
Revenue
Profit before taxes
Profit for the period
Profit for the period per share
Dividends declared
Dividends declared per share
Shares repurchased (000 shares)
Cost of shares repurchased
27773.138781.JS.14759466.2
80,789
35,788
25,704
0.36
11,350
0.16
630
15,410
8
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
(In thousands of Canadian dollars except per share amounts and
where noted)
Revenue1
Profit before taxes
Profit for the period
Profit for the period per share
Dividends declared
Dividends declared per share
Shares repurchased (000 shares)
Cost of shares repurchased
Three Months Ended
Dec 31, 2016
$
Sep 30, 2016
$
Jun 30, 2016 Mar 31, 2016
$
$
88,133
43,665
32,349
0.44
11,770
0.16
36
914
80,309
35,135
25,989
0.35
11,774
0.16
42
798
73,787
39,519
29,234
0.40
11,786
0.16
238
4,358
82,234
43,134
31,850
0.43
11,819
0.16
-
-
(1) Includes revenues from payments received in connection with the restructuring of certain agreements.
Summary Description of Business
General
Westshore operates a coal storage and loading facility at Roberts Bank, British Columbia that is the largest coal
loading facility on the west coast of the Americas. Westshore operates on a throughput basis and receives handling
charges from its customers based on the volume of coal loaded on vessels at the Terminal. Westshore does not take
title to the coal it handles. Market conditions for coal affect the competitiveness of Westshore’s customers and,
therefore, may affect the volume of coal handled by Westshore. Westshore has contracts to ship coal from mines in
British Columbia and one mine in Alberta, as well as from three mines in the north-western United States. Coal shipped
from the mines owned by Teck Coal Limited (“Teck”), which is Westshore’s largest customer, accounted for 63% of
Westshore’s throughput by volume in 2017 (2016 – 74%).
Coal is delivered to the Terminal in unit trains operated primarily by Canadian Pacific and BNSF Railways and is
then unloaded and either directly transferred onto a ship or stockpiled for future ship loading. Ultimately, the coal is
loaded onto ships that are destined for approximately 18 countries world-wide, with the largest volumes being shipped
to Asia.
Markets & Customers
Shipments of coal through the Terminal by destination for the past three years were as follows:
9
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Shipments by Destination
(Expressed in thousands of metric tonnes)
Korea
Japan
China
Europe
Taiwan
S. America
India
Other
Total
2017
Volume
10,848
6,316
3,410
2,385
2,145
1,669
1,399
862
29,034
%
37
22
12
8
7
6
5
3
100
2016
Volume
6,861
6,585
3,251
2,549
1,482
2,780
1,954
379
25,841
%
27
25
12
10
6
11
8
1
100
2015
Volume
9,370
6,198
3,972
3,599
1,093
3,055
1,326
235
28,848
%
32
21
14
12
4
11
5
1
100
During 2017, 61% of Westshore’s volume was steel making coal (74% in 2016) and 39% was thermal coal (26% in
2016).
Westshore’s customers compete with other suppliers of coal throughout the world. With respect to steel-making
coal, Australian coal mines are the most prominent competitors. There have been significant variations in the supply-
demand balance in seaborne steel-making coal, resulting in notable variations in recent years in the prices obtained for
such coal. Pricing of the relevant kind of coal is crucial to the results of Westshore’s customers who must obtain
adequate prices to sustain their operations.
Customer Contracts
With its five mines in British Columbia and one in Alberta, Teck is Westshore’s largest customer. It is the second
largest supplier of seaborne steel making coal in the world. Westshore’s current contract to handle coal from Teck’s
mines runs to March 31, 2021. Under this contract, Teck has committed to ship 19 million tonnes per contract year at
fixed rates. Westshore expects that Teck will ship most of the remaining coal from its mines through Neptune Bulk
Terminals.
Westshore’s contracts with its US thermal coal producers have different expiry dates, with the earliest expiring at the
end of 2020. In 2015 and 2016, Westshore renegotiated contracts with two US customers following significant declines
in seaborne thermal coal markets. These contracts (which have since been further modified) are better aligned with
fluctuating coal prices and give the customers some flexibility in terms of shipping volumes. In both 2015 and 2016,
Westshore received payments as part of contract restructurings in addition to loading charges for volumes shipped.
There were no such additional payments in 2017, when shipments from US producers accounted for approximately
36% of Westshore’s throughput by volume (25% in 2016).
In 2014, Westshore entered into an agreement with Riversdale Resources Limited (“Riversdale”), a Canadian
company with a planned steel-making coal mine being developed in Blairmore, Alberta. Under the terms of the
agreement, Riversdale pays Westshore reservation fees to hold 4.5 million tonnes of capacity at Westshore. The
10
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
agreement provides for a throughput commitment at fixed rates through 2030. Production is expected to start in 2020
or 2021 and ramp up thereafter.
Labour
During 2017, Westshore successfully concluded negotiation of a new collective agreement with ILWU local 514
(foremen). All three union locals now have collective agreements expiring in January 31, 2020.
Facilities
Commencing in 2007, Westshore undertook two significant equipment upgrades at an aggregate cost of
approximately $110 million. Prior to those improvements the Terminal’s functional throughput capacity was assessed
at somewhat less than 24 million tonnes per annum.
The first program, completed in 2010 at a cost of $51 million, involved the addition of a fourth stacker/reclaimer
with associated conveyor system, and conversion of the second barrel of the tandem rotary dumper to accommodate
shorter aluminum rail cars, the use of which has become the industry norm. All four stacker/reclaimers were automated
and other systems were updated. This program increased the Terminal’s capacity, allowing it to handle a then record
27.3 million tonnes in 2011.
Despite this program, Westshore was unable to make commitments to its existing customers for the throughput
volumes they desired. Accordingly, Westshore undertook a further capital upgrade consisting of replacing the existing
single dumper with a double dumper and addition of related equipment, at a cost of $45 million. This project was
completed late in 2012 and initially was partly financed with bank debt. In addition, a significant maintenance program
was completed in 2012 to replace chutes in four transfer towers at a cost of $14 million to improve the flow of product.
After these upgrades, terminal throughput capacity was estimated to be approximately 33 million tonnes, under then
current operating conditions. Westshore loaded over 30 million tonnes in each of 2013 and 2014.
In early 2013, Westshore approved a further capital expenditure program to replace the three oldest
stacker/reclaimers and a shiploader at Berth 1 with new equipment (referred to as the “Capital Project”). By acquiring
this new equipment, Westshore expects to significantly enhance its operational efficiencies in several respects, including
standardizing spare parts, and reducing overall maintenance downtime and the costs involved in maintaining older
equipment. The new stacker/reclaimers will have an anticipated useful life of approximately 30 years. The Capital
Project has replaced the various structures on the site including the 42-year old outdated and inefficient administration,
operations and maintenance buildings with one consolidated complex, which was completed in 2016. This Capital
Project is being completed in stages, ending in early 2019.
The new equipment is being delivered and installed in a phased sequence so as to minimize disruption to the
operations. No additional equipment is being added to the site, nor is the site footprint being increased. Additional
throughput capacity is expected to result only from the improved productivity of the new equipment, operating
efficiencies, and reduced maintenance downtime. Currently, and depending on our customer mix, it is estimated that an
additional 2 million tonnes per year of capacity could be achievable following completion of the Capital Project.
11
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
In 2016 the new shiploader for Berth 1 was delivered and commissioned, and the first replacement stacker/reclaimer
was delivered and assembled. Commissioning of the first stacker/reclaimer was completed in Q2 2017. This has been,
and continues to be, a significant undertaking for Westshore, and has resulted in some anticipated reduction in capacity.
The second new stacker/reclaimer was delivered and assembled in 2017, and became operational in February 2018. The
third new stacker/reclaimer is due for delivery in mid-2018. The project remains on time and under budget. Following
completion of the capital project, Westshore will have an updated terminal facility with modernized equipment and
options to lease until December 31, 2066. Capital improvements and upgrades are part of continuous review and
management focus to improve the overall operations and capacity of the terminal.
Results of Operations
(In thousands of Canadian dollars)
Revenue:
Coal loading
Other
Expenses:
Operating
Administrative
Other:
Foreign exchange gain (loss)
Gain (loss) on disposal of plant
Net finance costs
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income (loss), net of
income tax:
Total comprehensive income for the
period
Quarterly analysis
Three Months Ended
December 31,
2017
$
December 31,
2016
$
Year Ended
December 31,
2017
$
December 31,
2016
$
78,354
2,435
80,789
41,073
3,864
44,937
568
-
(632)
35,788
10,084
25,704
70,567
17,566
88,133
39,192
4,287
43,479
(76)
3
(916)
43,665
11,316
32,349
322,199
7,832
330,031
164,784
14,967
179,751
1,429
-
(2,793)
148,916
39,524
109,392
287,152
37,311
324,463
143,904
15,111
159,015
162
(450)
(3,707)
161,453
42,031
119,422
(3,766)
26,729
688
15,584
21,938
59,078
110,080
135,006
Tonnage shipped for Q4 2017 was 7.1 million tonnes compared to 6.4 million tonnes for the same period in 2016.
Of the tonnes shipped in Q4 2017, 54% was metallurgical coal and 46% was thermal coal, compared to 69% and 31%
respectively for the same period in the prior year. Metallurgical coal sales for our primary customer were slightly weaker
in Q4 2017 than the record Q4 volume reported by that customer in Q4 2016. Increased throughput of thermal coal in
2017 compared to the weaker levels experienced in the same period in 2016 account for the year over year increase.
12
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Coal loading revenue increased by 11.0% to $78.4 million for Q4 2017 compared to $70.6 million for the same
period in 2016. Volumes were up 11.0% for the quarter and the average loading rate in Q4 2017 was $11.01 per tonne,
consistent with the same period in 2016.
Other revenue, totalling $2.4 million in Q4, consisted primarily of wharfage fees. Other revenue for the same period
in 2016 was $17.6 million and included customer contract restructuring payments and shortfall payments which were
negligible in 2017.
Operating expenses increased by 4.8% to $41.1 million for Q4 2017 compared to $39.2 million for the same period
in 2016, due to increased volumes loaded.
Administration expenses of $3.9 million in Q4 2017 decreased slightly from the $4.3 million incurred in the same
period of 2016 primarily due to the lower management incentive fee in 2017.
Net finance costs decreased slightly to $0.6 million in Q4 2017 from $0.9 million during the same period of 2016.
The net interest cost components of the employee benefit plan expense are recorded in net finance costs.
Income tax expense decreased to $10.1 million in Q4 2017 from $11.3 million in Q4 2016 in line with the decreased
profit before taxes.
Profit in the quarter decreased to $25.7 million in 2017 from $32.3 million in 2016, as revenue from customer
contract restructuring payments was replaced by coal loading revenue, with associated costs.
Other comprehensive income or loss includes actuarial gains and losses on the defined benefit post-retirement
obligations which are primarily impacted by the discount rate used, membership assumptions and the plan asset
performance (relative to actuarial expectations).
After tax, other comprehensive income (loss) for the fourth quarter decreased to a loss of $3.8 million in 2017 from
an income of $26.7 million in 2016. The change in the fourth quarter of 2017 was caused by a 0.50% decrease in the
discount rate since the end of the third quarter which increased the post-retirement obligations. This large decrease was
partially offset by a gain resulting from the reduction of MSP premiums and plan assets performing better than actuarial
expectations. The change in the fourth quarter of 2016 was caused by a 0.75% increase in the discount rate, better plan
asset performance relative to actuarial expectations, and better retiree medical costs than actuarial expectations.
Full year analysis
Tonnage shipped in 2017 was 29.0 million tonnes compared to 25.8 million tonnes in 2016. Of the tonnes shipped
in 2017, 61% was metallurgical coal and 39% was thermal coal, compared to 74% and 26% respectively for 2016. Higher
volumes in 2017 are the result of higher shipment levels by our U.S. customers.
Coal loading revenue increased by 12.2% to $322.2 million in 2017 from $287.2 million in 2016. Volumes were up
12.4% year over year and the average loading rate for 2017 was $11.10 per tonne compared to $11.11 per tonne for
2016.
Other revenue totalling $7.8 million, consisted primarily of wharfage income. Other revenue for the same period in
2016 was $37.3 million, the majority of which were payments under restructured agreements.
13
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Operating expenses increased by 14.5% to $164.8 million compared to $143.9 million for the same period in 2016.
Significant components of the increase are attributable to higher volumes, increased maintenance costs, additional
benefit costs and wage increases arising from the settlement of the collective bargaining agreements, and higher
depreciation as components of the Capital Project are now in use.
Administrative expenses decreased to $15.0 million in 2017 from $15.1 million in 2016.
Net finance costs decreased to $2.8 million in 2017 from $3.7 million in 2016. Interest costs were lower in 2017 on
the post-retirement liabilities, and operating interest income was higher as there were no costs associated with obtaining
the new credit facility or interest rate swaps unlike in 2016.
Income tax expense decreased to $39.5 million in 2017 from $42.0 million in 2016. The lower tax expense is due to
lower profits before taxes recognized in the period.
Profit decreased by $10.0 million to $109.4 million in 2017 from $119.4 million in 2016. Increased expenses, some
of which are related to increased volumes, and the absence of customer contract restructuring payments account for
the decrease.
Other comprehensive income or loss includes actuarial gains and losses on the defined benefit post-retirement
obligations which are primarily impacted by the discount rate used, membership assumptions and the plan asset
performance (relative to actuarial expectations).
After tax other comprehensive income decreased to $0.7 million in 2017 from $15.6 million in 2016. The change in
2017 was caused by a 0.50% decrease in the discount rate which increased the post-retirement obligations, offset by a
gain resulting from the reduction of MSP premiums and better plan asset performance relative to actuarial expectations.
The change in 2016 was caused by better plan asset performance relative to actuarial expectations and better retiree
medical costs than actuarial expectations.
14
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Cash Flows
Cash flows from operations are available to the Corporation to fund capital and other expenditures, establish
reserves and pay dividends to and repurchase shares from shareholders.
(In thousands of Canadian dollars)
Operating cash flows before working capital
changes and income tax payments
Working capital changes
Income tax paid
Cash flows provided by operations
Cash flows used in financing activities
Cash flows used in investing activities
Decrease in cash and cash equivalents
Quarterly analysis
Three Months Ended
Year Ended
December 31,
2017
$
December 31,
2016
$
December 31,
2017
$
December 31,
2016
$
41,080
2,861
(15,977)
27,964
(27,943)
(26,424)
(26,403)
50,231
123
(10,799)
39,555
(12,169)
(33,465)
(6,079)
169,467
11,313
(47,578)
133,202
(106,612)
(48,827)
(22,237)
186,604
(17,426)
(54,679)
114,499
(52,788)
(68,908)
(7,197)
Operating cash flows before changes in working capital and income tax payments for the fourth quarter decreased
to $41.1 million in 2017 from $50.2 million for the same period in 2016. The increase in coal loading revenues, net of
increased operating expenses, was outweighed by the absence in 2017 of payments that were received in 2016 in
connection with the restructuring of customer contracts. Working capital changes in the fourth quarter increased to a
$2.9 million inflow in 2017 from a $0.1 million inflow for the same period in 2016. Changes were primarily due to
changes in accounts receivable, accounts payable and deferred revenue which fluctuate depending on timing of receipts
and payments. Income tax payments in the fourth quarter increased to $16.0 million in 2017 from $10.8 million for the
same period in 2016. The increase is primarily due to the payment of 50% of reassessed taxes being disputed. See
“Liquidity and Capital Resources” section for more information. As a result, cash flow from operations in the fourth
quarter decreased to $28.0 million in 2017 from $39.6 million for the same period in 2016.
Cash used in financing activities for the fourth quarter increased to $27.9 million in 2017 from $12.2 million for the
same period in 2016 due to normal course issuer bid share purchases. During Q4 2017, the Corporation purchased
under its NCIB 629,900 shares for approximately $15.4 million (Q4 2016 - 35,700 shares purchased for approximately
$0.9 million).
Cash used in investing activities for the fourth quarter decreased to $26.4 million in 2017 from $33.5 million for the
same period in 2016 primarily due to timing of payments. The capital expenditures in both periods consisted primarily
of costs capitalized for the $270 million Capital Project, and at the end of the quarter, a liability of $27.5 million had
been incurred but was not yet invoiced or paid for.
15
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Full year analysis
Operating cash flows before changes in working capital and income tax payments decreased to $169.5 million in
2017 from $186.6 million in 2016. The increase in coal loading revenues, net of increased operating expenses, was
outweighed by the absence in 2017 of payments that were received in 2016 in connection with the restructuring of
customer contracts. Working capital changes increased to a $11.3 million inflow in 2017 from a $17.4 million outflow
in 2016. Changes were primarily due to changes in accounts receivable, accounts payable and deferred revenue which
fluctuates depending on timing of receipts and payments. Income tax payments decreased to $47.6 million in 2017 from
$54.7 million in 2016. The 2017 payment in respect of reassessed taxes was more than offset by the final tax payment
on account of the 2015 taxation year which were made the first quarter of 2016. As a result, cash flow from operations
increased to $133.2 million in 2017 from $114.5 million in 2016.
Cash flows used in financing activities increased to $106.6 million in 2017 from $52.8 million in 2016. This increase
is due to normal course issuer bid share purchases. For the year ended December 31, 2017, the Corporation purchased
2,612,317 shares under its NCIB for approximately $60.6 million (December 31, 2016 – 316,100 shares purchased for
approximately $6.1 million).
Cash flows used in investing activities decreased to $48.8 million in 2017 from $68.9 million in 2016. The capital
expenditures in both periods consisted primarily of costs capitalized for the $270 million Capital Project. The decrease
results from the timing of invoices and Westshore expects that $27.5 million of accruals will be paid in 2018.
Liquidity and Capital Resources
Capital expenditures required to maintain the Terminal’s existing throughput capacity and refurbish equipment in
the ordinary course of business have increased over the past several years. Rather than continuing to incur increasing
costs of this nature on an ongoing basis, the Corporation determined to undertake the replacement of the three older
stacker / reclaimers, a shiploader and related equipment. Together with the construction of the new office and shops,
these replacements are now projected to cost less than the budgeted $270 million and are being implemented in phases,
ending in 2019. The Capital Project is being financed through retention of cash. Meeting annual capital requirements,
along with managing variations in working capital, are well within Westshore’s financial capacity based solely on
revenues less expenses, without any need for financing except for material capital improvements. As a result, the
Corporation does not anticipate any liquidity concerns with the ongoing operations of Westshore.
Westshore is undergoing an income tax audit and the Canada Revenue Agency has provided reassessments for the
2012 to 2015 taxation years resulting from disputed capital cost allowance claims. The total reassessed taxes and interest
is $18,000,000. The Corporation believes that the CRA’s position is incorrect and has filed a Notice of Objection with
CRA Appeals Division. The Corporation remitted half of the reassessed taxes and interest while the amounts are in
dispute. These amounts will be fully recovered if the Corporation is successful in its appeal.
Westshore has a $30 million operating facility with a Canadian chartered bank that is used for a letter of credit related
to pension funding and is available for day to day operations. The facility matures on August 30, 2019 and is secured by
a pledge of all the assets of Westshore. The operating facility bears interest at the 1 month BA rate plus a margin and
no repayments will be required until maturity. There is an outstanding letter of credit of $15.3 million issued under this
facility. This is the only amount drawn on the facility at year end.
16
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans
which it is required to fund each year. Westshore’s cash funding requirements were $6.7 million in 2017 (2016 – $7.7
million), which was comprised of $5.2 million (2016 – $6.0 million) for contributions to the pension plans and $1.5
million (2016 - $1.7 million) for payments for other post-retirement benefits. Pension funding in 2017 decreased over
the prior year as contributions in 2016 included $0.7 million of special payments to fund vested plan improvements.
The balance sheet at December 31, 2017 reflects $93.5 million of net obligations for post-retirement pension benefits
and other post-retirement benefits compared to $89.7 million at December 31, 2016. The change in 2017 was primarily
caused by a decrease in the discount rate and increased obligations related to negotiated union agreements somewhat
offset by strong plan asset performance. This balance would decline in the future if long term interest rates increase,
and increase if such rates were to fall. Based on current benefit levels, every 0.25% decrease or increase in interest rates
results in a $8.5 million increase or decrease respectively in the post-retirement benefits obligations.
Future minimum payments under Westshore’s operating leases, primarily with the Vancouver Fraser Port Authority
(“VFPA”), are as follows:
2018
2019
2020
2021
2022
Thereafter
Terminal Lease
Other
Total
$
11,701
11,701
11,701
11,701
11,701
46,804
$
290
$
-
-
-
-
-
11,991
11,701
11,701
11,701
11,701
46,804
In addition to the above minimum operating lease payments, Westshore also pays an annual participation rental fee to
VFPA based on the volume of coal shipped in excess of 17.6 million tonnes.
As at December 31, 2017, Westshore has a commitment of $51.8 million with respect to equipment purchases. Of
that total commitment, $51.1 million relates to equipment to be delivered and paid for as part of the Capital Project.
Westshore does not have any material capital lease obligations, or other long-term obligations.
Financial Instruments
Westshore receives some of its revenue in US dollars and is therefore exposed to foreign currency exchange rate
risk. Westshore enters into foreign currency contracts for a portion of its exposed revenue to mitigate that risk. The
value of these financial instruments fluctuates with changes in the USD/CAD dollar exchange rate.
As at December 31, 2017, Westshore had entered into put options with notional amounts totalling US$48.0 million
to exchange US dollars for Canadian dollars with a strike price of $1.2990 - $1.3278. The counterparties have call
options with notional amounts totalling US$48.0 million to exchange US dollars for Canadian dollars with a strike price
of $1.21 - $1.25.
17
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
As these foreign exchange contracts have not been designated as hedges, the fair value of these foreign exchange
contracts at December 31, 2017, being an asset of $325,000 (measured based on Level 2 of the fair value hierarchy), has
been recorded in other assets and a gain of $419,000 has been recognized in foreign exchange gain for the year ended
December 31, 2017.
The carrying amounts of these contracts are equal to fair value, which is based on valuations obtained from the
counterparties. 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.
Distributions
Distributions by the Corporation over the last two years were as follows:
(In thousands of Canadian dollars except per share amounts)
Total Dividends on Common Shares
Total Dividends per Common Share
2017
$
46,093
0.64
2016
$
47,149
0.64
The same dividend level has been in effect since the fourth quarter of 2015 and is subject to periodic review based
on factors including operating performance, current and anticipated market conditions, funds applied to repurchase
shares, other opportunities that may come before Westshore, and other potential capital upgrade projects.
Outlook
The cash inflows of the Corporation are entirely dependent on Westshore’s operating results. They are affected by
the volume and mix of coal shipped through the Terminal, the rates charged to customers for the handling of that coal,
and Westshore’s operating and administrative costs. Customer contracts that run to 2021 continue to provide significant
customer volume commitments at fixed rates.
The variance in revenues from 2017 will ultimately be impacted by numerous factors, including total volumes
shipped through the Terminal, the distribution of throughput by customer and foreign exchange rates. Based on the
information currently available to it, Westshore is anticipating throughput volume in 2018 to be approximately 30 million
tonnes compared to 29 million tonnes in 2017.
The second new stacker reclaimer included in the Capital Project became operational in February, 2018. The third
stacker reclaimer will arrive in 2018, and is expected to be operational in late 2018 or early 2019.
Related Party Transactions
Westar Management Ltd. (the “Manager”) provides management services to Westshore pursuant to a management
agreement (the “Management Agreement”). Westshore pays an annual management fee to the Manager and an incentive
fee based on a percentage of annual profit above $42 million, subject to a cap of $7.5 million per annum. The annual
base management fee for 2017 was $1,545,000 (2016 - $1,500,000) which will escalate at 3% annually. The incentive fee
for the year ended December, 31, 2017 was $4,254,000 and was paid subsequent to December 31, 2017 (2016 -
$5,197,000 paid in 2017).
18
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
The Manager also provides administration services to the Corporation pursuant to an administration agreement.
The Corporation pays an annual administration fee in monthly installments. The fee paid to the Manager for 2017 was
$515,000 (2016 - $500,000), which will increase by 3% per annum.
Changes in Accounting Policies
The Corporation’s accounting policies are found in note 3 of the Corporation’s financial statements beginning on
page 29. There were no significant changes in accounting policies in 2017.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with IFRS requires the Corporation to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, 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 that are significant in determining the Corporation’s
financial results.
Plant and equipment: Depreciation
Plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight
line method over the estimated useful production life of the assets. The estimated useful lives of plant and equipment
range from 3 to 35 years and are reviewed annually. A change in the estimated useful lives of plant and equipment
could result in either a higher or lower depreciation charge to profit for the period.
Asset Retirement Obligations
Westshore is required to recognize the fair value of an estimated asset retirement obligation when a legal or
constructive obligation is present, a reliable estimate of the obligation can be made and it is probable that Westshore
will be required to settle the obligation. At the expiry of the Terminal’s lease, the VFPA has the option to acquire the
assets of the Terminal at fair value or require Westshore to return the site to its original condition. Westshore believes
that the probability that the VFPA will elect to enforce site restoration is remote. Any change in the estimate of the
probability of incurring such costs could have a material impact on the asset retirement obligation.
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 loading rates, customer shipments, operating costs,
foreign exchange rates and discount rates. Changes in any of these assumptions, such as lower coal loading rates, a
decline in customer shipments, 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.
19
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
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.
Deferred Income Taxes
Deferred 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. The deferred income tax balances can be affected by
a change in the estimate of when temporary differences reverse, the likelihood of realization of deferred tax assets, and
the classification of assets for tax purposes.
Income Tax Disputes
Current and deferred taxes are recorded after considering the Corporation’s estimate of the likely outcomes of
disputed tax positions. A provision for disputed income taxes may be recorded if it is probable that the exposure will
materialize and the actual resolution of any tax dispute may result in tax liabilities that are different than the recorded
amounts.
Future Accounting Standards:
IFRS 15 – Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers, which will supersede IAS 18 – Revenue
and related interpretations. The standard contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step
analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and
judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The
Corporation intends to adopt IFRS 15 in its financial statements for the annual period beginning on January 1, 2018.
The Corporation has performed an assessment of the impact of the new standard, and there will be no significant
impact on its financial statements upon adoption.
IFRS 9 – Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to
classification and measurement of financial assets and financial liabilities, as defined in IAS 39. The Corporation intends
to adopt IFRS 9 in its financial statements for the annual period beginning on January 1, 2018.
The Corporation has performed an assessment of the impact of the new standard, and there will be no significant
impact on its financial statements upon adoption.
20
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
IFRS 16 – Leases
On January 13, 2016 the IASB issued IFRS 16 – Leases, which will supersede IAS 17 – Leases. The standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-
use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. The Corporation intends to adopt IFRS 16 in its financial statements for the annual period beginning on
January 1, 2019. The extent of the impact of adoption of this standard has not yet been determined.
Internal Controls Over Financial Reporting
The Corporation 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 (“National Instrument 52-109”), in order to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial information for
external purposes in accordance with IFRS.
The Chief Executive Officer and Chief Financial Officer of the Corporation have caused to be evaluated under their
supervision, the effectiveness of the Corporation’s internal controls over financial reporting as of December 31, 2017.
Based on that assessment, it was determined that the internal controls over financial reporting were appropriately
designed and were operating effectively. No material changes were identified in the Corporation’s internal controls over
financial reporting during the year ended December 31, 2017 that have materially affected the Corporation’s internal
controls over financial reporting, or are reasonably likely to materially affect the Corporation’s internal controls over
financial reporting.
It should be noted that a control system, including the Corporation’s 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.
21
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Disclosure Controls And Procedures
“Disclosure controls and procedures” are defined as follows in National Instrument 52-109:
“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 officer and chief financial officer (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.”
As required by National Instrument 52-109, the Chief Executive Officer and the Chief Financial Officer of the
Corporation, 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
Corporation as of December 31, 2017 and have concluded that such disclosure controls and procedures provide
reasonable assurance that information required to be disclosed in the annual filings, interim filings or other reports filed
or submitted 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 Corporation and Westshore, including the Corporation’s annual information
form, is available at www.sedar.com.
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 Corporation. The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards 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 Corporation’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 Directors are responsible for assuring that management fulfills its responsibility for financial reporting and
internal control. The Directors 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.
22
27773.138781.JS.14759466.2
Westshore Terminals Investment Corporation
Management’s Discussion & Analysis of
Financial Condition and Results of Operations
The consolidated financial statements have been audited on behalf of the shareholders by KPMG LLP, Chartered
Professional Accountants, in accordance with International Financial Reporting Standards. The Auditors’ Report
outlines the scope of their examination and their independent professional opinion on the fairness of these financial
statements.
(Signed) “William W. Stinson”
William W. Stinson
Director
(Signed) “M. Dallas H. Ross”
M. Dallas H. Ross
Director
23
27773.138781.JS.14759466.2
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Westshore Terminals Investment Corporation
We have audited the accompanying consolidated financial statements of Westshore Terminals
Investment Corporation, which comprise the consolidated statements of financial position as
at December 31, 2017 and 2016, the consolidated statements of comprehensive income,
changes in equity and cash flows for the years then ended, and notes, comprising a summary
of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards, and for
such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based
on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
including
the assessment of
the risks of material misstatement of
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on our
judgment,
the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
24
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Westshore Terminals Investment Corporation as at
December 31, 2017 and 2016, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International Financial Reporting
Standards.
Chartered Professional Accountants
March 19, 2018
Vancouver, Canada
25
WESTSHORE TERMINALS INVESTMENT CORPORATION
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Income taxes recoverable
Property, plant, and equipment:
At cost
Accumulated depreciation
Goodwill
Other assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Dividends payable to shareholders
Deferred revenue
Deferred income taxes
Employee future benefits
Shareholders' equity (deficit):
Share capital
Deficit
Note
December 31,
2017
December 31,
2016
$
$
$
68,518
16,733
14,283
2,134
13,432
115,100
822,485
(448,651)
373,834
365,541
2,774
857,249
76,759
5,611
-
11,350
93,720
20,239
20,647
93,501
228,107
1,630,145
(1,001,003)
629,142
$
$
$
90,755
9,426
13,217
2,147
767
116,312
811,144
(472,396)
338,748
365,541
3,266
823,867
61,898
2,484
94
11,770
76,246
16,365
15,794
89,739
198,144
1,690,176
(1,064,453)
625,723
$
857,249
$
823,867
5
13
13
9
8
11
9
Commitments and contingencies (note 15)
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board:
(Signed) "William W. Stinson"
William W. Stinson
Director
(Signed) "M. Dallas H. Ross"
M. Dallas H. Ross
Director
26
WESTSHORE TERMINALS INVESTMENT CORPORATION
Consolidated Statements of Comprehensive Income
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2017 and 2016
Note
2017
2016
Revenue:
Coal loading
Other
Expenses:
Operating
Administrative
Other:
Foreign exchange gain
Loss on disposal of plant equipment
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income:
Items that will not be recycled to net income:
Defined benefit plan actuarial gains
Income tax expense on other
comprehensive loss
Other comprehensive income for the
year, net of income tax
Total comprehensive income for the year
Profit per share:
Basic and diluted earnings per share
Weighted average number of shares outstanding
See accompanying notes to consolidated financial statements.
27
$
322,199
7,832
330,031
164,784
14,967
179,751
1,429
-
(2,793)
148,916
39,524
109,392
930
(242)
688
$
$
110,080
1.51
72,397,447
$
$
$
287,152
37,311
324,463
143,904
15,111
159,015
162
(450)
(3,707)
161,453
42,031
119,422
21,059
(5,475)
15,584
135,006
1.62
73,705,793
4
6
7
11
7
10
WESTSHORE TERMINALS INVESTMENT CORPORATION
Consolidated Statements of Changes in Equity
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2017 and 2016
Balance at January 1, 2016
$
1,697,444
$
(1,153,509)
$
543,935
Share capital
Deficit
Total
Profit for the year
Other comprehensive income:
Defined benefit plan actuarial gains, net of tax
Total comprehensive income for the year
Distributions to shareholders of the Corporation:
Dividends declared to shareholders
-
-
-
-
Adjustments due to share repurchases
(7,268)
119,422
119,422
15,584
15,584
135,006
135,006
(47,149)
1,199
(47,149)
(6,069)
Balance at December 31, 2016
$
1,690,176
$
(1,064,453)
$
625,723
Balance as at January 1, 2017
$
1,690,176
$
(1,064,453)
$
625,723
Share capital
Deficit
Total
Profit for the year
Other comprehensive income:
Defined benefit plan actuarial gains, net of tax
Total comprehensive income for the year
Distributions to shareholders of the Corporation:
Dividends declared to shareholders
-
-
-
-
Adjustments due to share repurchases
(60,031)
109,392
109,392
688
688
110,080
110,080
(46,093)
(537)
(46,093)
(60,568)
Balance at December 31, 2017
$
1,630,145
$
(1,001,003)
$
629,142
See accompanying notes to consolidated financial statements.
28
WESTSHORE TERMINALS INVESTMENT CORPORATION
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2017 and 2016
Cash provided by (used in):
Operations:
Profit for the year
Adjustments for:
Foreign exchange contracts
Depreciation
Employee future benefits liability
Net finance costs
Income tax expense
Loss on disposal of plant equipment
Changes in non-cash operating working capital and other:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Income taxes paid
Financing:
Interest received
Dividends paid to shareholders
Share purchases
Investments:
Property, plant and equipment, net
Other assets
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Supplemental information:
Non-cash transactions:
Shares purchased but not settled at year end
Capital expenditures unpaid at year end
$
$
See accompanying notes to consolidated financial statements.
29
2017
2016
$
109,392
$
119,422
(418)
17,034
1,142
2,793
39,524
-
169,467
(7,307)
(1,066)
13
12,672
7,001
11,313
(47,578)
133,202
757
(46,513)
(60,856)
(106,612)
(49,643)
816
(48,827)
(22,237)
90,755
68,518
-
27,536
$
$
124
13,380
7,490
3,707
42,031
450
186,604
(84)
(501)
(4)
(15,865)
(972)
(17,426)
(54,679)
114,499
191
(47,198)
(5,781)
(52,788)
(69,725)
817
(68,908)
(7,197)
97,952
90,755
288
25,059
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
1. Reporting entity:
Westshore Terminals Investment Corporation was incorporated under the Business Corporation Act (British
Columbia) on September 28, 2010 and is domiciled in Canada. The registered and head office is located at Suite
1800, 1067 West Cordova Street, Vancouver, British Columbia, V6C 1C7. These consolidated financial statements
as at and for the year ended December 31, 2017 comprises Westshore Terminals Investment Corporation and its
subsidiaries (together referred to as the “Corporation”). The Corporation owns all of the limited partnership units
of Westshore Terminals Limited Partnership (“Westshore”), a partnership established under the laws of British
Columbia.
The Corporation derives its cash inflows from its investment in Westshore by way of distributions on Westshore’s
limited partnership units. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia
(the “Terminal”). Substantially all of Westshore’s operating revenues are derived from rates charged for loading
coal onto seagoing vessels.
2. Basis of preparation:
(a) Statement of compliance:
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS).
The consolidated financial statements were authorized for issue by the Board of Directors on March 19, 2018.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis except for the following
material items in the statement of financial position:
non derivative financial instruments classified as fair value through profit or loss are measured at fair value;
derivative financial instruments are measured at fair value; and
the defined benefit obligation is recognized as the present value of the defined benefit obligation, measured
at fair value, less plan assets at fair value.
(c) Functional and presentation currency:
These consolidated financial statements are presented in Canadian dollars, which is the Corporation and its
subsidiaries’ functional currency. All financial information presented in Canadian dollars has been rounded to
the nearest thousand.
(d) Use of estimates and judgments:
The preparation of the consolidated financial statements in conformity with IFRS requires management to
make judgments, estimates, and assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment relate
to the determination of net recoverable value of assets, useful lives of plant and equipment, asset retirement
30
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
obligations, measurement of defined benefit obligations, derivative instruments and deferred income tax
amounts.
3. Significant accounting policies:
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements.
(a) Basis of consolidation:
(i) Subsidiaries:
Subsidiaries are entities controlled by the Corporation. The financial statements of subsidiaries are included
in the consolidated financial statements from the date that control commences until the date the control
ceases.
(ii) Transactions eliminated on consolidation:
Intra-corporation balances and transactions, and any unrealized income and expenses arising from intra-
corporation transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency:
The functional and reporting currency of the Corporation 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 reporting date to reflect exchange rates prevailing at that
date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the
functional currency at the beginning of the period, adjusted for effective interest and payments during the
period, and the amortized cost in the foreign currency translated at the exchange rate at the end of the period.
Foreign exchange gains and losses are recognized under ‘Foreign exchange gain (loss)’ in profit or loss.
(c) Financial instruments:
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual
provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the
cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are
transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.
Financial assets and financial liabilities are measured initially at fair value plus transactions cost, except for
financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at
fair value.
Cash and cash equivalents
The Corporation considers deposits in banks, certificates of deposit and short-term investments with original
maturities of three months or less when acquired as cash and cash equivalents. Cash and cash equivalents are
classified as loans and receivables.
31
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Receivables
Receivables are classified as loans and receivables. Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. After initial recognition these are
measured at amortized cost using the effective interest method, less provision for impairment. Discounting is
omitted where the effect of discounting is immaterial.
Individual receivables are considered for impairment when they are past due or when other objective evidence
is received that a specific counterparty will default.
Financial liabilities
Financial liabilities of the Corporation are classified as other financial liabilities. Other financial liabilities are
non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market.
After initial recognition these liabilities are measured at amortized cost using the effective interest method, less
provision for impairment. Discounting is omitted where the effect of discounting is immaterial. Other financial
liabilities comprise accounts payable and accrued liabilities, dividends payable and the revolving credit facility.
Derivative financial instruments
Changes in fair value of derivative financial instruments not designated in a hedge relationship are recognized
immediately in profit or loss.
(d) Property, plant and equipment:
(i) Recognition and measurement:
Items of property, plant, and equipment are measured at historical cost less accumulated depreciation and
accumulated impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and direct labour, any other costs directly attributable to
bringing the assets to a working condition for their intended use, the costs of dismantling and removing
the items and restoring the site on which they are located, and borrowing costs on qualifying assets.
Borrowing costs attributable to the construction of a qualifying asset are included in the cost of the asset.
Other borrowing costs are recognized as an expense.
When parts of an item of property, plant, and equipment have different useful lives, they are accounted for
as separate items of property, plant, and equipment.
The gain or loss on disposal of an item of property, plant, and equipment is determined by comparing the
proceeds from disposal with the carrying amount of the property, plant, and equipment, and is recognized
net within other income/expenses in profit or loss.
(ii) Depreciation:
Depreciation is based on the cost of an asset less its residual value. Significant components of individual
assets are assessed, and if a component has a useful life that is different from the remainder of the asset,
then that component is depreciated separately.
32
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each
component of an item of property, plant, and equipment. The estimated useful lives for the current and
comparative periods are as follows:
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
Depreciation methods, useful lives, and residual values are reviewed at each financial year end and adjusted
if appropriate.
(e) Impairment:
Non-Financial assets
The carrying values of the Corporation’s non-financial assets are reviewed at each reporting date to assess
whether there is any indication of impairment. If any such indication is present, then the recoverable amount
of the assets is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For the purposes of impairment testing, assets are grouped at the lowest levels that
generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or
groups of assets (the “cash-generating unit”).
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its
estimated recoverable amount. Impairment losses are recognized in profit and loss. Impairment losses
recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment charge is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it
is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more
events have had a negative effect on the estimated future cash flows of that asset.
33
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Corporation on terms that the Corporation would not consider otherwise,
or indications that a debtor or issuer will enter bankruptcy.
The Corporation considers evidence of impairment for financial assets, and in particular receivables, at both a
specific asset and collective level.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows, discounted at the original
effective interest rate.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss is recognized. For financial assets measured at amortized cost, this reversal is recognized in
profit or loss.
(f) Goodwill:
Goodwill is recognized on a business combination at the acquisition date and is initially measured at the fair
value of the consideration transferred less the net recognized amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
Goodwill is subsequently measured at cost less accumulated impairment losses. 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 profit or loss in the period in
which the impairment is determined.
(g) Inventories:
Inventories of spare parts and supplies are measured at the lower of cost 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) Employee benefits:
Defined benefit plans
A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. The
Corporation’s net obligation in respect of defined benefit pension plans is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in return for their service in the current
and prior periods; that benefit is discounted to determine its present value and the fair value of plan assets is
deducted. The discount rate used to determine the present value of the obligation is the yield at the reporting
date on high quality corporate bonds that have maturity dates approximating the term of the Corporation’s
obligations and that are denominated in the same currency in which the benefits are expected to be paid.
34
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
The calculation is performed annually by a qualified actuary using the projected unit credit method. When the
calculation results in a benefit to the Corporation, the recognized asset is limited to the present value of
economic benefits available in the form of any future refunds from the plan or reductions in the future
contributions to the plan. In order to calculate the present value of economic benefits, consideration is given
to any minimum funding requirements that apply to any plan in the Corporation. An economic benefit is
available to the Corporation if it is realizable during the life of the plan, or on settlement of the plan liabilities.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by
employees is recognized in profit or loss on the date of improvement.
The Corporation recognizes all actuarial gains and losses arising from defined benefit plans immediately in
other comprehensive income and expenses related to defined benefit plans in profit or loss.
Other long-term employee benefits
The Corporation’s net obligation in respect of long-term employee benefits other than pension plans is the
amount of future benefit that employees have earned in return for their service in the current and prior periods;
that benefit is discounted to determine its present value, and the fair value of any related assets is deducted.
The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates
approximating the terms of the Corporation’s obligations. The calculation is performed using the projected
unit credit method. Any actuarial gains and losses are recognized immediately in other comprehensive income
in the period in which they arise.
(i) Revenue:
Coal loading revenue is recognized when a customer’s coal is completely 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 includes all revenue other than Coal loading revenue and principally relates to fees earned under take
or pay contracts where the coal has not been delivered. Other revenue also includes revenue earned for securing
future volumes which is initially deferred and recognized over the term of the contract and wharfage fees which
are recorded based upon the period of time a ship is at the terminal.
(j) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required
to settle the obligation.
Decommissioning liabilities
The Corporation’s terminal site is leased from the Vancouver Fraser Port Authority (the “VFPA”). A new
lease agreement became effective as of January 1, 2015. The current lease runs until December 31, 2026, and
may be extended at the Partnership's option for further periods up to 40 years. At the expiry of the lease term,
assuming the Corporation 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 Corporation to return the site to its original
condition. The Corporation believes that the probability that the VFPA will elect to enforce site restoration is
remote.
35
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
(k) Income tax:
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit
or loss except to the extent they relate to items recognized directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary difference, to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized.
(l) New standards and interpretations not yet adopted:
A number of new standards, and amendments to standards and interpretations, are not yet effective for the
year ended December 31, 2017, and have not been applied in preparing these consolidated financial statements.
IFRS 15 – Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers, which will supersede IAS 18 –
Revenue and related interpretations. The standard contains a single model that applies to contracts with
customers and two approaches to recognizing revenue: at a point in time or over time. The model features a
contract-based five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount
and/or timing of revenue recognized. The Corporation intends to adopt IFRS 15 in its financial statements
for the annual period beginning on January 1, 2018. The Corporation has performed an assessment of the
impact of the new standard and there will be no significant impact on its financial statements upon adoption.
IFRS 9 – Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to
classification and measurement of financial assets and financial liabilities, as defined in IAS 39. The Corporation
intends to adopt IFRS 9 in its financial statements for the annual period beginning on January 1, 2018. The
Corporation has performed an assessment of the impact of the new standard, and there will be no significant
impact on its financial statements upon adoption.
36
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
IFRS 16 – Leases
On January 13, 2016 the IASB issued IFRS 16 – Leases, which will supersede IAS 17 – Leases. The standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases
with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize
a right-of-use asset representing its right to use the underlying asset and a lease liability representing its
obligation to make lease payments. The Corporation intends to adopt IFRS 16 in its financial statements for
the annual period beginning on January 1, 2019. The extent of the impact of adoption of this standard has not
yet been determined.
4. Expenses:
Recorded in operating and administrative expenses on the consolidated statements of comprehensive income
was:
Salaries, wages and benefits
Depreciation
2017
2016
$ 130,313
17,034
$
115,046
13,380
37
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
5. Plant and equipment:
Buildings and land
improvements
Machinery and
equipment
Construction in
progress
Cost:
Balance at January 1, 2016
Additions
Transfers
Disposals
Balance at December 31, 2016
Balance at January 1, 2017
Additions
Transfers
Disposals
Balance at December 31, 2017
Accumulated depreciation:
Balance at January 1, 2016
Depreciation
Disposals
Balance at December 31, 2016
Balance at January 1, 2017
Depreciation
Disposals
Balance at December 31, 2017
Carrying amounts:
At December 31, 2016
At December 31, 2017
$
$
$
$
$
600,359
-
41,663
(9,580)
632,442
632,442
-
52,205
(40,779)
643,868
439,156
11,417
(9,580)
440,993
440,993
15,306
(40,779)
415,520
191,449
228,348
$
$
$
$
$
62,201
91,479
(50,892)
-
102,788
102,788
52,120
(56,907)
-
98,001
-
-
-
-
-
-
-
-
102,788
98,001
$
$
$
$
$
$
$
$
$
$
71,364
-
9,229
(4,679)
75,914
75,914
-
4,702
-
80,616
33,669
1,963
(4,229)
31,403
31,403
1,728
-
33,131
44,511
47,485
38
Total
733,924
91,479
-
(14,259)
811,144
811,144
52,120
-
(40,779)
822,485
472,825
13,380
(13,809)
472,396
472,396
17,034
(40,779)
448,651
338,748
373,834
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
6. Finance costs:
Interest income, net
Employee benefit interest expense, net
Unrealized gain on interest rate hedging contracts
2017
2016
$
$
(757)
3,550
-
(191)
4,037
(139)
Net finance costs
$
2,793
$
3,707
7. Income tax expense:
Tax expense recognized in profit
Current income tax expense
Deferred tax expense (recovery)
Tax expense recognized in other comprehensive income
Defined benefit plans
Reconciliation of effective tax rate:
Profit before income tax
Statutory rate
Expected income tax expense
Permanent differences
Rate changes
Other
2017
2016
$
34,912
4,612
39,524
$
42,718
(687)
42,031
242
5,475
2017
2016
$ 148,916
26.00%
$
161,453
26.00%
38,718
40
767
(1)
41,978
32
-
21
Actual income tax expense
$
39,524
$
42,031
39
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
8. Deferred tax assets and liabilities:
Deferred tax assets:
Non-pension defined benefits liability
Post-retirement benefits
Financing fees
Hedging
Total assets
Deferred tax liabilities:
Property, plant and equipment
Total liabilities
December 31,
2017
December 31,
2016
$
$
22,618
2,628
(88)
7
25,165
(45,812)
(45,812)
20,225
3,107
25
9
23,366
(39,160)
(39,160)
(15,794)
Net deferred income tax liabilities
$
(20,647)
$
9. Share capital:
Authorized:
Unlimited number of common shares, no par value
Issued:
Common shares
2017
2016
70,937,537 (2016 - 73,560,954) issued and outstanding
common shares
$
1,630,145
$
1,690,176
The holders of the common shares are entitled to receive dividends as declared from time to time, and are entitled
to one vote per share at meetings of the Corporation.
During the year ended December 31, 2017, the Corporation repurchased 2,612,317 (2016 - 316,100) shares for
$60,568,000 (2016 - $6,069,000), under the Corporation’s normal course issuer bid.
Subsequent to year end, the Corporation repurchased 698,637 shares for a total cost of $9,638,000. The shares have
been cancelled and will result in a decrease to contributed surplus and common shares.
The Corporation has declared the following dividends in 2017 (2016 - $47,149,000).
40
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Record Date
March 31
June 30
September 30
December 31
10. Profit per share:
Earnings per share:
Payment Date
April 13
July 15
October 15
January 15
$
Per Share
0.16
0.16
0.16
0.16
Total
11,724
11,560
11,459
11,350
46,093
$
$
The calculation of basic profit per share for the year ended December 31, 2017 was based on profit attributable to
shareholders and a weighted average number of common shares outstanding.
Profit for the year
Weighted average number of Common shares outstanding
Basic and diluted earnings per share
Shares repurchased
Total cost of shares repurchased
The Company has no dilutive securities.
11. Employee future benefits:
2017
2016
109,392
$
119,422
72,397,447
73,705,793
1.51
2,612,317
60,568
$
$
1.62
316,100
6,069
$
$
$
The Corporation makes contributions to two non-contributory defined benefit plans and one non-contributory
defined contribution plan that provides pension benefits for employees upon retirement. The Corporation also
provides two non-contributory, other post-retirement benefit plans that provide retiring allowances and other
medical benefits after retirement.
41
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Present value of unfunded obligations
Present value of funded obligations
Total present value of obligations
Fair value of plan assets
Recognized liability for defined benefit obligations
Plan assets are comprised of the following investments:
Equity securities
Fixed income securities
Cash and cash equivalents
December 31,
2017
December 31,
2016
$
$
$
$
83,768
145,061
228,829
(135,328)
$
77,789
132,504
210,293
(120,554)
93,501
$
89,739
2017
2016
99,412
33,615
2,301
135,328
$
$
86,083
31,745
2,726
120,554
Asset and Liability Movements:
Movement in the present value of the
defined benefit obligations
Pension obligations
December 31,
Other post retirement
benefits
December 31,
Defined benefit obligation at January 1
Benefits paid by the plan
Current and past service costs and
interest (see below)
Actuarial losses (gains) in other
comprehensive income (see below)
2017
2016
2017
2016
$
132,504
(5,220)
$
125,193
(6,557)
$
77,789
(1,537)
$
80,630
(1,678)
9,508
8,269
14,722
(854)
6,245
1,271
8,237
(9,400)
Defined benefit obligations
$
145,061
$
132,504
$
83,768
$
77,789
Movement in the fair value of the defined
benefit plan assets
Pension assets
December 31,
Other post retirement
benefits
December 31,
2017
2016
2017
2016
42
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Fair value of plan assets at January 1
Contributions paid into the plan
Benefits paid by the plan
Expected return on plan assets (see below)
Non-investment expense (see below)
Actuarial gains (losses) in other
$
$
120,554
5,227
(5,220)
4,517
(220)
$
106,552
5,993
(6,557)
3,981
(220)
comprehensive income (see below)
10,470
10,805
Fair value of plan assets
$
135,328
$
120,554
$
Profit and Loss:
Profit and loss includes the following amounts in respect of post-retirement obligations:
-
1,537
(1,537)
-
-
-
-
$
$
-
1,678
(1,678)
-
-
-
-
Pension obligations expense recognized in profit and loss
2017
2016
Service costs:
Current service costs
Past service costs
Non-investment expenses
Net interest costs
Interest cost
Expected return on plan assets
$
1,798
2,635
220
4,653
5,075
(4,517)
558
$
2,441
7,410
220
10,071
4,871
(3,981)
890
$
5,211
$ 10,961
43
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Other post-retirement benefits expense recognized in profit and loss
2017
2016
Current service costs
Past service costs
Interest costs
$
3,017
236
2,992
$
2,993
2,097
3,147
$
6,245
$
8,237
The current and past service costs are recognized in operating expenses and net interest costs are included in net
finance costs.
Actuarial gains (losses) recognized in other comprehensive income
2017
2016
Cumulative amount at beginning of year
Actuarial gain - plan experience
Actuarial loss - demographic assumption changes
Actuarial loss - financial assumption changes
Return on plan assets greater than expected return
Cumulative amount at December 31
Funding and Assumptions:
$
(19,073) $
646
(1,613)
(8,573)
10,470
(40,132)
15,449
-
(5,195)
10,805
$
(18,143) $
(19,073)
The pension plans are entirely funded by the Corporation. The Corporation’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.
During the year ended December 31, 2017, the Corporation made total contributions of $6,764,000 to all of its
pension and other benefit plans.
The financial information with respect to the defined benefit pension plan obligations is based on the following
funding valuations:
Union Pension plan
Salaried Retirement plan
Most recent valuation
date
Date of next required
valuation
January 1, 2017
January 1, 2016
January 1, 2018
January 1, 2019
44
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
The significant actuarial assumptions adopted in measuring the Corporation's accrued benefit obligations (and
costs) are as follows (weighted average assumptions as of December 31):
2017
2016
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
Benefit obligations:
Discount rate at December 31
3.25%
3.25%
3.75%
3.75%
Benefit costs:
Discount rate at January 1
Expected long-term rate of return on plan assets
3.75%
3.75%
3.75%
-
3.75%
3.75%
3.75%
-
For measurement purposes, a 7.5% per annum increase in the per capita cost of covered extended health care
benefits was assumed for 2016, grading down by 0.30% per annum to 4.50% in 2026. The per annum increase in
the per capita cost of medical service plan is 4.00%. The annual rate of increase in the per capita cost of dental
benefits is 4.00%.
Sensitivity Analysis:
Assumed discount rates and medical cost trend rates have a significant effect on the accrued benefit obligation. A
one percentage point change in these assumptions would have the following effects on the accrued benefit
obligation for 2017:
Pension benefit plans
Discount rate
Other post retirement benefit plans
Discount rate
Initial medical cost trend rate
12. Loans and borrowings:
1% decrease
1% increase
$
17,109
$
(17,109)
16,808
(11,269)
(16,808)
13,999
The Corporation has a $30 million operating facility with a Canadian chartered bank that is used for a letter of credit
relating to pension funding and day to day operations. The facility matures on August 30, 2019 and is secured by a
pledge of all of the assets of the Corporation. The operating facility bears interest at the 1 month BA rate plus a
margin and no repayments will be required until maturity. There is an outstanding letter of credit of $15.3 million
drawn on this facility (see Note 15).
Under its credit facility, the Corporation is required to comply with certain financial covenants. At December 31,
2017, the Corporation was in compliance with these financial covenants.
For more information about the Corporation’s exposure to interest rate, foreign currency and liquidity risk, please
see note 17.
45
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
13. Financial instruments:
The carrying amounts of financial assets and liabilities reported in the consolidated statement of financial position
approximate their fair values.
Financial instruments carried at fair value, by the levels in the fair value hierarchy, are as follows:
Fair value measurement at reporting date using:
Quoted prices in
active markets
identical assets
(Level 1)
December 31,
2017
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
Financial assets:
Derivative instruments:
Foreign exchange contracts
$
325
-
$
325
-
As at December 31, 2017, Westshore had entered into put options with notional amounts totaling US$48.0 million
to exchange US dollars for Canadian dollars with a strike price of $1.2990 - $1.3278. The counterparties have call
options with notional amounts totaling US$48.0 million to exchange US dollars for Canadian dollars with a strike
price of $1.21 - $1.25.
As these foreign exchange contracts have not been designated as hedges, the fair value of these foreign exchange
contracts at December 31, 2017, being an asset of $325,000 (December 31, 2016 - a liability of $94,000) (measured
based on Level 2 of the fair value hierarchy), has been recorded in other assets and a gain of $419,000 (year ended
December 31, 2016 - loss of $124,000) has been recognized in foreign exchange gain for the year ended December
31, 2017.
The carrying amounts of these contracts are equal to fair value, which is based on valuations obtained from the
counterparties. 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.
14. Operating leases:
The Corporation is committed under operating leases to the rental of property, facilities, and equipment.
The Corporation's terminal site is leased from the Vancouver Fraser Port Authority. The term of the lease is until
December 31, 2026 with the Corporation having further options to extend the term to December 31, 2066. Charges
payable by the Corporation under the lease comprise an annual base land and waterlot rental fee of $5,207,000
(2016 - $5,207,000) and an annual participation rental fee based on the volume of coal shipped. A minimum
participation rental fee of $6,494,000 (2016 - $6,494,000) is charged based on a minimum annual tonnage (MAT)
of 17.6 million tonnes. A higher participation rental fee per tonne is charged on tonnage in excess of the MAT. In
2017, the Corporation paid $9,381,000 (2016 - $7,839,000) in relation to the higher participation rental fee.
46
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Future minimum operating lease payments for the years ending December 31 (assuming minimum annual tonnes)
are as follows:
2018
2019
2020
2021
2022
Thereafter
Terminal Lease
Other
Total
$
11,701
11,701
11,701
11,701
11,701
46,804
$
290
$
-
-
-
-
-
11,991
11,701
11,701
11,701
11,701
46,804
15. Commitments and Contingencies:
The Corporation has provided a letter of credit of $15,269,000 (December 31, 2016: $15,269,000) related to pension
funding.
The Corporation has commitments of $51,753,000 with respect to equipment purchases. Of that total commitment,
$51,103,000 relates to equipment to be delivered and paid for as part of the Capital Project.
The Corporation also pays an annual participation rental fee based on the volume of coal shipped in excess of 17.6
million tonnes (Note 14).
The Corporation faces disputes and audits that have arisen in the ordinary course of business and believes that their
outcome will not have a material adverse effect on our operating results, liquidity or financial position.
16. Major Customers:
The Corporation had certain customers whose throughput individually represented 10% or more of the
Corporation’s total throughput.
For the year ended December 31, 2017, two customers accounted for 82% (2016 - 95%) and three customers
accounted for 95% (2016 - 97%) of throughput.
17. Financial risk management:
The Corporation is exposed to various risks associated with its financial instruments, which include credit risk,
liquidity risk and market risk. Further quantitative disclosures are included throughout these consolidated financial
statements.
(a) Credit risk:
Credit risk is the risk of financial loss to the Corporation 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 held by the Corporation.
The Corporation’s exposure to credit risk is influenced by the profitability of coal mining companies, which is
heavily impacted by the price of the coal. The Corporation does not have any collateral or security for its
receivables. The Corporation monitors the financial health of its customers and regularly reviews its accounts
47
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
receivable for impairment. As at December 31, 2017 and 2016, there were no trade accounts receivable past
due which were considered uncollectible and no reserve in respect of doubtful accounts was recorded.
The Corporation limits its exposure to credit risk arising from cash equivalents by only investing in money
market funds with a major Canadian financial institution. The Corporation does not expect any credit losses
in the event of non-performance by counter parties to its foreign exchange forward contracts as the counter
parties 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:
2017
68,518
16,733
85,251
$
$
2016
90,755
9,426
100,181
$
$
Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they become due. The
Corporation continually monitors its financial position to ensure that it has sufficient liquidity to discharge its
obligations when due.
The current financial liabilities of the Corporation, which include accounts payable and accrued liabilities,
income tax payable and dividends payable to shareholders, have a contractual maturity of less than 1 year.
The Corporation also maintains a $30 million operating facility that is used for pension funding. The
Corporation has an outstanding letter of credit for $15,269,000 against this facility.
(c) Market risk:
The significant market risk exposures affecting the financial instruments held by the Corporation are those
related to foreign currency exchange rates and interest rates.
(i) Foreign currency exchange rates:
The Corporation holds some cash denominated in foreign currencies and the Canadian-dollar value of
these cash balances fluctuates with changes in the exchange rate. As at December 31, 2017, the Corporation
held US$9.7 million (2016 – US$10.4 million). A $0.01 increase in the US/Canadian exchange rate would
have increased the Canadian dollar value of this cash balance and increased foreign exchange gains by
$97,000 for the year.
The accounts receivable due from US customers are denominated in US dollars. The US dollar
denominated accounts receivable outstanding as at December 31, 2017 was $2,086,000 (2016 - $1,281,000).
48
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
The Corporation is exposed to foreign currency exchange rate risk on its foreign currency contracts. The
value of these financial instruments fluctuates with changes in the US/CAD dollar exchange rate. See note
13 for more information.
(ii) Interest rates:
The Corporation has limited exposure to interest rate risk on the cash equivalents. Money market fund
returns are correlated with Canadian T-bills and Bankers’ Acceptances of major Canadian financial
institutions.
The Corporation also has interest rate risk on the revolving credit facility. The revolving credit facility
carries an interest rate that floats with market rates.
18. Capital management:
The capital of the Corporation consists solely of shareholders’ equity which includes issued share capital and deficit.
The objective of the Corporation is to maintain a stable capital base and ensure that the capital structure does not
interfere with the Corporation’s ability to meet its distribution policy or fund future projects. The same dividend
level has been in effect since the fourth quarter of 2015 and is subject to periodic review based on factors including
funds applied to repurchase shares, other opportunities that may come before Westshore, other potential capital
upgrade projects, operating performance and current market conditions.
19. Related party transactions:
Administration agreement
Westar Management Ltd.
Management agreement:
Westar Management Ltd. - base fee
Management agreement:
Westar Management Ltd. - Incentive fee
Insurance premiums:
Affiliate of Westar Management Ltd.
Vehicle leases:
Affiliate of Westar Management Ltd.
Director fees:
Director fees
49
2017
2016
$
515
$
500
1,545
1,500
4,254
5,197
806
394
551
777
508
593
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Westshore Terminals Investment Corporation
Directors
William W. Stinson
Corporate Director
M. Dallas H. Ross
Partner, Kinetic Capital Partners
Clark Hollands
Corporate Director
Michael J. Korenberg
Corporate Director
Brian A. Canfield
Corporate Director
Doug Souter
Corporate Director
Glen Clark
President, The Jim Pattison Group
Officers
William W. Stinson
Chairman, Chief Executive Officer &President
M. Dallas H. Ross
Chief Financial Officer
Nick Desmarais
Secretary & Vice President of Corporate Development
Stock Exchange Listing
Toronto Stock Exchange
Trading Symbol
WTE
Registrar and Transfer Agent
Computershare Investor Services Inc.
Vancouver and Toronto
Auditors
KPMG LLP
Vancouver, British Columbia
Principal Office
1800 – 1067 West Cordova Street
Vancouver, British Columbia V6C 1C7
Telephone:
Facsimile:
604.688.6764
604.687.2601
50
WESTSHORE TERMINALS INVESTMENT CORPORATION
Notes to the Consolidated Financial Statements
(Tabular amounts expressed in thousands of Canadian dollars, except share amounts)
Years ended December 31, 2017 and 2016
Westshore Terminals Ltd.
William W. Stinson
Director & President and Chairman
M. Dallas H. Ross
Director
Glen Clark
Director
Clark Hollands
Director
Michael J. Korenberg
Director
Doug Souter
Director
Brian A. Canfield
Director
Glenn Dudar
Vice-President & General Manager
Nick Desmarais
Secretary
51