Westshore Terminals Investment Corporation Second Quarter Report For the six months ended June 30, 2012

Transcription

1 Westshore Terminals Investment Corporation Second Quarter Report For the six months ended June 30, 2012 The Corporation derives its cash inflows from its investment in Westshore Terminals Limited Partnership ( Westshore ) by way of distributions on Westshore s limited partnership units. Effective July 19, 2012, Westshore Terminals Holdings Ltd. ( Holdings ) was wound up into the Corporation. The wind-up will not have any impact on operations but the simpler corporate structure is expected to reduce administration costs and streamline cash distributions as the Corporation now holds the limited partnership units directly. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia (the Terminal ). All of Westshore s operating revenues are derived from rates charged for loading coal onto seagoing vessels. Westshore s results are significantly affected by the volumes of coal shipped by different customers for sale in the export market, the rates per tonne charged by Westshore and Westshore s costs. Contracts entered into in 2011 provide significant volume commitments, much of which are at fixed rates. Shipments under those contracts are expected to provide a stable base for revenues over the next few years, with the possibility of increased revenues from shipments in excess of committed volumes and increased rates under certain contracts that provide an element of price participation. Forward-looking Statements Statements in this management s discussion and analysis concerning future revenues, expected tonnages, coal prices, strengths of markets for metallurgical and thermal coal, expected throughput volumes, future throughput capacity, the proportion of throughput to be shipped at variable rates, cost of and timing to complete capital projects, exchange rates, loading rates and variability of dividends are forward-looking statements that reflect the current expectations of the Corporation and Westshore with respect to future events and performance. Wherever used, the words may, will, anticipate, intend, expect, plan, believe, and similar expressions identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. Forward-looking statements are based on information available at the time they are made, assumptions made by management, and management s good faith belief with respect to future events, and will be impacted by and are subject to the risks and uncertainties outlined in the Corporation s Annual Information Form that could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations. Management s Discussion & Analysis of Financial Condition and Results of Operations The unaudited financial results along with management s discussion and analysis contained in this report should be read in conjunction with the management s discussion and analysis included in the Corporation s Annual Report for the year ended December 31, The date of this management s discussion and analysis and results of operations is August 7, The following table sets out selected consolidated financial information for the Corporation for the quarter ended June 30, As at August 7, 2012 the Corporation has 74,250,016 issued and outstanding shares. On July 1, 2012, the Corporation completed a capital restructuring (all of which is more particularly described in the Corporation s information circular dated May 15, 2012) which eliminated the $371 million principal amount of 10.5% notes (the Holdings Notes ) issued by Holdings. Payments of interest and dividends for Q were on a comparable basis to Q1 2012, but for subsequent quarters, shareholders will no longer receive interest payments under the Holdings Notes and instead all distributions will generally be in the form of dividends. 1

2 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations (In thousands of Canadian dollars except per share and Note Receipt amounts) Three Months Ended June 30, 2012 $ Three Months Ended June 30, 2011 $ Revenue 65,581 51,675 Cash flow from operations before changes in working capital and income tax payments 32,990 26,461 Profit before taxes 21,110 14,524 Profit for the period 16,011 10,516 Profit for the period per share (1) Interest accrued on Holdings Notes 9,745 9,745 Interest accrued per Note Receipt Dividends declared 14,108 8,167 Dividends declared per share (1) Weighted average shares outstanding for the quarters ended June 30, 2012 and 2011 was 74,250,016. The following tables set out selected consolidated financial information for the Corporation on a quarterly basis for the last eight quarters. The quarterly data for 2010 represents consolidated financial information for Westshore Terminals Income Fund ( Fund ), the predecessor to the Corporation (see the Corporation s 2011 Annual Report for further details on the conversion of the Fund ). (In thousands of Canadian dollars except per share and Note Receipt Three Months Ended amounts) Jun 30, 2012 Mar 31, 2012 Dec 31, 2011 Sep 30, 2011 $ $ $ $ Revenue 65,581 48,557 55,447 55,639 Cash flow from operations before changes in working capital and income tax payments 32,990 17,657 29,833 26,861 Profit before income taxes 21,110 5,549 18,119 15,212 Profit for the period 16,011 4,162 13,357 10,963 Profit for the period per share Interest paid / accrued on Holdings Notes 9,746 9,745 9,745 9,745 Interest paid / accrued per Note Receipt Dividends declared 14,108 12,623 9,653 11,880 Dividends declared per share

3 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations (In thousands of Canadian dollars except per share/trust Unit and Note Three Months Ended Receipt amounts) Jun 30, 2011 Mar 31, 2011 Dec 31, 2010 Sep 30, 2010 $ $ $ $ Revenue 51,675 50,076 55,315 61,632 Cash flow from operations before changes in working capital 26,461 22,959 22,099 31,278 Profit (loss) before income taxes 14,524 11,069 (19,619) (7,432) Profit (loss) for the period 10,516 8,157 (18,547) (7,415) Profit (loss) for the period per share/trust Unit (0.25) (0.10) Interest paid / accrued on Holdings Notes 9,746 9, Interest paid / accrued per Note Receipt Dividends declared 8,167 10, Dividends declared per share Cash Distributions declared (1) ,011 34,155 Cash Distributions per Trust Unit (1) Cash distributions in 2010 include Trust Unit distributions as declared by the trustees of the Fund. IFRS requires Trust Unit distributions to be presented as an interest expense which affects profit or loss for the period. Results of Operations In the second quarter of 2012, Westshore shipped 7.0 million tonnes, consistent with the 7.0 million tonnes shipped during the same period in These levels were achieved despite a planned maintenance shut down from March 23 to April 6 to replace the chutes in three transfer towers. The Terminal took advantage of the downtime to perform significant maintenance and update a number of control systems on the site. Of the tonnes shipped in the second quarter, 58% was metallurgical coal and 41% was thermal coal, compared to 57% and 42% respectively for the same period last year. Based on information currently available, Westshore is anticipating coal volumes for 2012 to be at approximately the same levels as those handled in 2011, despite the March shutdown and a further six week planned interruption to replace the existing single dumper with a double dumper (to occur at the end of September 2012), which is part of a further $43 million capital upgrade. Coal loading revenue increased by 28.4% to $64.6 million in the second quarter of 2012 from $50.3 million in the second quarter of The average loading rate in the second quarter of 2012 was $9.21 per tonne compared to $7.15 per tonne for the same period in The increase in the average rate compared to the prior year was primarily due to a higher average rate paid by Westshore s customers as a result of the change in the contract rates. Other income was consistent with that of the second quarter of 2011 and consisted mostly of wharfage income. Operating expenses increased from $24.7 million in the second quarter of 2011 to $31.6 million in the second quarter of 2012 principally due to increases in outside services and wages resulting from significantly accelerated maintenance projects during the quarter. These projects, which had been planned for this year and for subsequent periods, were undertaken during the quarter to take advantage of the downtime at the terminal. Administration expenses were $2.6 million in the second quarter of 2012, consistent with $2.5 million in the second quarter of Net finance costs for the second quarter of 2012 were $9.7 million, which is consistent with the second quarter of Finance costs are substantially all interest expense on the Holdings Notes. 3

4 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations Foreign exchange, which includes both realized gains/losses and changes in the mark-to-market adjustment for unrealized gains/losses saw a slight increase with a $0.4 million gain for the second quarter of 2012 compared to a $0.2 million loss for the same period in the prior year. This was primarily driven by the appreciation of the US dollar relative to the Canadian dollar, which resulted in Westshore s US cash balance having a higher value in Canadian dollars. Income tax expense increased to $5.1 million in the second quarter of 2012 from $4.0 million in the second quarter of The increase resulted from a higher current tax expense which is consistent with the increase in profit from the prior year. Other comprehensive income decreased from a $2.9 million gain in the second quarter of 2011 to a $2.7 million loss in the second quarter of Other comprehensive income includes actuarial gains and losses on the defined benefit post-retirement obligations which are primarily impacted by the discount rate used and the plan asset value performance. The discount rate did not change in the second quarter but plan asset values decreased significantly as stock markets underperformed, resulting in the other comprehensive loss for the quarter. In the second quarter of 2011, pension regulations were changed which reduced Westshore s minimum funding requirements for accounting purposes, resulting in a reversal of the impairment charge previously recognized. This gain was offset by a decline in the pension plan asset values during the quarter. Profit was higher in the second quarter of 2012 at $16.0 million, as compared to $10.5 million in the second quarter of 2011, principally due to higher revenues offset by higher operating expenses. Cash Flows Cash flow from operations represents the funds available to the Corporation to cover capital expenditures and interest obligations and to pay dividends to shareholders. Cash flow from operations increased from $27.5 million in the second quarter of 2011 (when no payment was made on account of income tax) to $29.2 million in the second quarter of 2012 (after reduction by a $5.7 million tax payment). Cash flows before changes in working capital and income tax payments increased in line with an increase in profits resulting primarily from higher average loading rates. Working capital changes in the second quarter of 2012 were fairly flat as accounts payable and accrued liabilities increases were offset by additional prepaid expenses. Cash used for financing activities for the second quarter of 2012 was $22.3 million as opposed to cash used of $20.1 million for the second quarter of Dividend and interest payments for the 2012 first quarter distribution, which were paid in the second quarter of 2012, were higher than the 2011 first quarter distributions, which were paid in the second quarter of Cash used in investing activities increased from $0.4 million in the second quarter of 2011 to $5.9 million in the second quarter of 2012 as Westshore incurred expenditures for the capital upgrade project (double dumper upgrade and chute replacements). Quarterly Distributions On July 13, 2012, holders of Units of record on June 30, 2012 received an aggregate of $23,852,818 (representing $ per Unit) as compared to a distribution of $17,912,816 (representing $ per Unit) for 4

5 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations the same period in $0.190 per Unit of the Q distribution was an eligible dividend declared on the Common Shares of the Corporation, and the remaining $ per Unit was interest on the Holdings Notes. As of July 1, 2012 the Holding Notes have been eliminated following the Corporation s capital restructuring. In future quarters, the Corporation anticipates paying dividends only. The change in capital structure will have an impact on future distributions as there will be no interest payment on the Holdings Notes, nor any related deduction of interest, thereby increasing the current tax expense and reducing free cash flow available for the payment of distributions. However, to the extent that distributions to shareholders are entirely dividends (as opposed to prior distributions to Unitholders which were a mix of interest and dividends), taxable Canadian shareholders will receive a dividend tax credit. The Directors intend to set each quarterly dividend in the context of the Corporation s overall profitability, free cash flow and other business needs, including capital and debt repayment requirements. Quarterly dividends may also reflect the Corporation s desire to provide a smoothing of dividends throughout the calendar year. Effective July 19, 2012, as a result of the wind up of Holdings, the Corporation now holds all of the limited partnership units of Westshore. Westshore s distribution policy is to distribute to the Corporation substantially all of its earnings before depreciation and other non-cash items, less amounts to cover the expected cash requirements of Westshore, such as capital expenditures, pension contributions, debt repayments and expenditures related to growth opportunities that may be considered. The Corporation s current dividend policy is to declare and pay dividends to shareholders equal to the amount of the distributions received from Westshore, net of corporate tax payments and the Corporation s administration expenses, which are expected. Outlook The cash inflows of the Corporation are entirely dependent on Westshore s operating results and are significantly influenced by the volume of coal shipped through the Terminal, the rates charged to customers for loading that coal, and Westshore s operating and administrative costs. Because of a combination of possible variations in tonnage, rates and capital needs for growth opportunities, the Corporation cannot predict accurately the level of its dividends for 2012 or future years. The variance in revenues from 2011 will ultimately be impacted by numerous factors, including total volumes shipped through the Terminal, the distribution of throughput by mine, prices realized by U.S. shippers and foreign exchange rates. Based on the information currently available to it, Westshore is anticipating volume levels in 2012 to be comparable to volumes shipped in Westshore anticipates that for the last six months of 2012 the average loading rate will be higher than the average loading rate in the first six months, and that the average loading rate for 2012 as a whole will be higher than the average for 2011 as a whole. If Westshore s free cash flow for the calendar year exceeds $42 million, incentive fees will be payable by Westshore to the Manager under the Management Agreement (as defined below) to a maximum of $5 million. The Corporation s net earnings will be impacted in future quarters by the elimination of the Holdings notes as the Corporation will no longer have the associated interest expense deduction when calculating its taxable income. This change is projected to increase annual tax expense by approximately $9.7 million. 5

6 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Corporation expects to declare and pay dividends to holders of its Common Shares essentially equal to amounts received from Westshore less the Corporation s tax expenses and operating costs. It is not anticipated that the Corporation will require significant capital resources to maintain its indirect investment in Westshore on an ongoing basis or to meet its working capital requirements. The costs of ongoing maintenance and refurbishment of the equipment and costs required to meet 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 additions. Westshore s distribution policy involves retaining sufficient earnings before depreciation and other non-cash items to cover cash requirements such as non-material capital expenditures, pension contributions and debt repayments. As a result, the Corporation does not anticipate any liquidity concerns with the ongoing operations of Westshore. Westshore has undertaken a significant project involving the refurbishment of the chutes in a number of transfer towers at a cost of $10.7 million and took advantage of the major site shutdown to perform a number of maintenance projects during the quarter. The chute project was completed in early April 2012 and was funded from cash on hand. The Corporation is also undertaking a further capital expansion to replace the existing single dumper with a double dumper and additions of related equipment, to be completed by the end of Westshore is financing this expansion by way of term bank debt, which does not specifically require principal repayments prior to maturity and so should not give rise to any liquidity issues. The board of directors may however, choose to repay some or all of the principal during the four year debt term. No further amounts were drawn on the bank debt in the second quarter, leaving the balance at $20 million, although Westshore expects to make another draw in the third quarter to cover projected capital costs. Westshore has a $10 million operating facility with a Canadian chartered bank which, if required, can be utilized to meet working capital requirements. This facility was not used during the second quarter and remained undrawn at June 30, 2012, although Westshore has an outstanding letter of credit for $4.1 million. The term of the operating facility expires on August 31, 2012 and is anticipated to be renewed without issue. Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans which it is required to fund each year. At the present time, Westshore expects to fund its post-retirement obligations at levels higher than 2011 at approximately $4.9 million. Westshore does not anticipate any problems in meeting these obligations. Future minimum operating lease rentals are payable as follows: June 30, December 31, Less than 1 year $ 11,968 $ 11,968 Between 1 and 5 years 47,071 47,071 More than 5 years 111, ,218 $ 170,407 $ 176,257 Westshore has a commitment of $22.9 million with respect to equipment purchases that are to be delivered and paid for in the next 12 months. 6

7 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations The Corporation does not have any material capital lease obligations, or other long-term obligations. As a result of the Corporation s capital restructuring, the Holdings Notes and the debt obligation arising thereunder are no longer in existence. Related Party Transactions Westar Management Ltd. (the Manager ) provides management services to Westshore pursuant to a management agreement dated December 31, 2010 (the Management Agreement ). Westshore pays an annual base management fee of $950,000 (excluding HST) and an incentive fee based on a percentage of free cash flow above $42 million, starting at 1.5% and rising to 6%, subject to an annual cap on the incentive fee of $5 million. The annual base management fee is paid in monthly installments, and $475,000 was paid in this regard by Westshore for the six month period ended June 30, The Manager also provides administration services to the Corporation pursuant to an administration agreement dated December 31, The Corporations pays an annual base administration fee of $325,000 (excluding HST). The base administration fee is paid in monthly installments and $163,000 was paid by the Corporation to the Manager for the six month period ended June 30, Changes in Accounting Policies The Corporation s accounting policies are found in note 3 of the Corporation s financial statements beginning on page 16. There were no changes in accounting policies during the six months ended June 30, 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 net earnings. 7

8 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations Asset Retirement Obligations Westshore is required to recognize the fair value of an estimated asset retirement obligation when a legal obligation is present and a reasonable estimate of fair value can be made. 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 negligible and any liability related to an asset retirement obligation would not be material, although any change in the estimate of site restoration costs or the probability of incurring those 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. 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 and the likelihood of realization of deferred tax assets. Provisions for Estimated Liabilities Westshore makes certain provisions, including its portion of ship demurrage and train detention costs, which are often not finally determined until well after the year-end. While Westshore endeavours to ensure that provisions are reasonable in the circumstances, actual costs may be greater or less than the provisions made for those costs. Because of changes in contract provisions, the impact of such liabilities is not expected to be material in the future. 8

9 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations New standards and interpretations not yet adopted: Amendments to IAS 1 Presentation of Financial Statements In June 2011 the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted. The Corporation intends to adopt the amendments in its financial statements for the annual period beginning on January 1, As the amendments only require changes in the presentation of items in other comprehensive income, the Corporation does not expect the amendments to IAS 1 to have a material impact on the financial statements. IFRS 10 - Consolidated Financial Statements In May 2011, the IASB issued IFRS 10 - Consolidated Financial Statements which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 10 replaces the guidance in IAS 27 Consolidated and Separate Financial Statements. The Corporation intends to adopt IFRS 10 in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 10 to have a material impact on the financial statements. IFRS 12 - Disclosure of Interests in Other Entities In May 2011, the IASB issued IFRS 12 - Disclosure of Interests in Other Entities. The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. The effective date of this standard is January 1, 2013, but early adoption is permitted. The Corporation intends to adopt IFRS 12 in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 12 to have a material impact on the financial statements. IFRS 13 - Fair Value Measurement In May 2011, the IASB issued IFRS 13 - Fair Value Measurement which is effective prospectively for annual periods beginning on or after January 1, The objective of IFRS 13 is to define fair value, set out in a single IFRS framework for measuring fair value, and establish disclosure requirements regarding fair value measurements. The Corporation intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 13 to have a material impact on the financial statements. Amendments to IAS 19 Employee Benefits In June 2011 the IASB published an amended version of IAS 19 Employee Benefits. Adoption of the amendment is required for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Corporation intends to adopt the amendments in its financial statements for the annual period beginning on January 1, The Corporation does not expect the amendments to IAS 19 to have a material impact on the financial statements. 9

10 Westshore Terminals Investment Corporation Management s Discussion & Analysis of Financial Condition and Results of Operations Disclosure Controls and Procedures and Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls and procedures. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. There have been no changes in Westshore s internal control over financial reporting or disclosure controls and procedures during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to affect, the Corporation s financial and other reporting. Additional Information Additional information relating to the Corporation, including the Corporation s latest Annual Report and Annual Information Form, are available on SEDAR at and on Westshore s website at On behalf of the Directors, William W. Stinson Chairman August 7,

11 Unaudited Condensed Consolidated Statement of Financial Position (Expressed in thousands of Canadian dollars) Assets June 30, December 31, Note Current assets: Cash and cash equivalents $ 53,979 $ 65,587 Accounts receivable 15,779 21,780 Inventories 8,700 8,308 Prepaid expenses 2, ,671 96,409 Property, plant, and equipment: At cost 555, ,039 Accumulated depreciation (439,795) (436,858) 116, ,181 Goodwill 365, ,541 Deferred income taxes 6 6,828 5,960 Liabilities and Shareholders Equity $ 569,053 $ 569,091 Current liabilities: Accounts payable and accrued liabilities $ 27,609 $ 31,073 Provisions 10 2,682 2,631 Income tax payable ,979 Other liabilities - 79 Accrued interest payable 9,773 9,757 Dividends payable to shareholders 14,108 9,653 54,783 68,172 Employee future benefits 8 60,003 56,965 Revolving credit facility 9 20,000 - Holdings notes payable 9 371, , , ,387 Shareholders equity: Share capital 1,335,015 1,335,015 Deficit (1,271,998) (1,262,311) Commitments (note 11) Subsequent events (notes 1 and 9) See accompanying notes to unaudited condensed consolidated financial statements. Approved on behalf of the Board: 63,017 72,704 $ 569,053 $ 569,091 William W. Stinson, Director M. Dallas H. Ross, Director 1

12 Unaudited Condensed Consolidated Statements of Comprehensive Income (Expressed in thousands of Canadian dollars) Three months ended Six months ended June 30, June 30, Note Revenue: Coal loading $ 64,584 $ 50,312 $ 112,053 $ 99,178 Other 997 1,363 2,085 2,573 65,581 51, , ,751 Expenses: Operating 31,567 24,725 61,712 51,215 Administrative 2,630 2,543 5,404 5,149 34,197 27,268 67,116 56,364 Other: Foreign exchange gain (loss) 366 (205) 46 (438) Loss on write-down of plant and equipment (965) - (965) - Profit from operating activities 30,785 24,202 46,103 44,949 Net finance costs 4 (9,675) (9,678) (19,447) (19,356) Profit before income tax 21,110 14,524 26,656 25,593 Income tax expense 5 5,099 4,008 6,485 6,920 Profit for the period 16,011 10,516 20,171 18,673 Other comprehensive income (loss): Defined benefit plan actuarial gains (losses) 8 (3,562) 3,800 (4,171) 3,608 Income tax recovery (expense) on other comprehensive income (loss) 891 (950) 1,043 (902) Other comprehensive income (loss) for the period, net of income tax (2,671) 2,850 (3,128) 2,706 Total comprehensive income for the period $ 13,340 $ 13,366 $ 17,043 $ 21,379 Profit per share: Basic and diluted profit per share $ 0.22 $ 0.14 $ 0.27 $ 0.25 See accompanying notes to unaudited condensed consolidated interim financial statements. 2

13 Unaudited Condensed Consolidated Statement of Changes in Equity (Expressed in thousands of Canadian dollars) Six month periods ended June 30, 2012 and June 30, 2011 Share capital Deficit Total Balance at December 31, 2010 $ - $ (296,809) $ (296,809) Profit for the period - 18,673 18,673 Other comprehensive gain: Defined benefit plan actuarial gains, net of tax of $902-2,706 2,706 Total comprehensive income for the period - 21,379 21,379 Contributions by and distributions to shareholders of the Company: Issuance of common shares on exchange of Trust Units 1,335,015 (962,024) 372,991 Dividends to shareholders - (18,563) (18,563) Total contributions by and distributions to shareholders of the Company 1,335,015 (980,587) 354,428 Balance at June 30, 2011 $ 1,335,015 $ (1,256,017) $ 78,998 Share capital Deficit Total Balance at December 31, 2011 $ 1,335,015 $ (1,262,311) $ 72,704 Profit for the period - 20,171 20,171 Other comprehensive loss: Defined benefit plan actuarial losses, net of tax - (3,128) (3,128) Total comprehensive income for the period - 17,043 17,043 Distributions to shareholders of the Company: Dividends to shareholders - (26,730) (26,730) Balance at June 30, 2012 $ 1,335,015 $ (1,271,998) $ 63,017 See accompanying notes to unaudited condensed consolidated financial statements. 3

14 Unaudited Condensed Consolidated Statement of Cash Flows (Expressed in thousands of Canadian dollars) Six months ended June 30, 2012 and June 30, 2011 Cash provided by (used in): Operations: Profit for the period $ 20,171 $ 18,673 Adjustments for: Foreign exchange contracts (79) (155) Depreciation 4,789 4,986 Employee future benefits liability (1,132) (360) Net finance costs 19,447 19,356 Income tax expense 6,486 6,920 Loss on disposal of fixed assets ,647 49,420 Changes in non-cash operating working capital and other: Accounts receivable 6,001 (297) Inventories (392) (20) Prepaid expenses (1,479) (1,190) Accounts payable and accrued liabilities and provisions (3,413) (981) 717 (2,488) Income tax paid (20,680) - 30,684 46,932 Financing: Interest received Interest paid to noteholders/unitholders (19,491) (45,757) Dividends paid to shareholders (22,275) (10,395) Revolving credit facility 20,000 - (21,706) (56,017) Investments: Property, plant and equipment, net (20,586) (1,395) Decrease in cash and cash equivalents (11,608) (10,480) Cash and cash equivalents, beginning of the period 65,587 62,900 Cash and cash equivalents, end of the period $ 53,979 $ 52,420 Supplementary information: Non-cash transactions: Issuance of common shares $ - $ 1,335,015 Issuance of notes payable - 371,250 Exchange of Trust Units - 744,241 See accompanying notes to unaudited condensed consolidated financial statements. 4

15 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Reporting entity: The Corporation derived its cash inflows from its investment in Westshore Terminals Limited Partnership ( Westshore ) by way of distributions on Westshore s limited partnership units. Effective July 19, 2012, Westshore Terminals Holdings Ltd. ( Holdings ) was wound up into the Corporation. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia (the Terminal ). All of Westshore s operating revenues are derived from rates charged for loading coal onto seagoing vessels. The Corporation is domiciled in Canada. The address of the Company s registered office is West Cordova Street, Vancouver, BC V6C 1C7. The condensed consolidated interim financial statements of the Corporation as at and for the three and six month periods ended June 30, 2012 comprise the Corporation and its subsidiaries (together referred to as the Corporation ). The consolidated annual financial statements of the Corporation as at and for the period ended December 31, 2011 which were prepared under International Financial Reporting Standards are available upon request from the Company s registered office, at or on SEDAR at 2. Basis of preparation: (a) Statement of compliance: These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) IAS 34, Interim Financial Reporting (IAS 34). These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements and notes included in the Corporation s Annual Report for the year ended December 31, These condensed consolidated interim financial statements were authorized for issue by the Board of Directors on August 7, (b) Basis of measurement: These condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: 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. 5

16 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Basis of preparation (continued): (c) Functional and presentation currency: These condensed consolidated interim financial statements are presented in Canadian dollars, which is the Corporations 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 condensed consolidated interim financial statements in conformity with IAS 34 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. Information about 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 obligations, train detention and ship demurrage costs and accruals at period end, measurement of defined benefit obligations, and deferred income tax amounts. 3. Significant accounting policies: (a) Financial instruments: The Corporation has chosen to early adopt IFRS 9, Financial Instruments, with an effective date of January 1, Under this new standard, financial assets are measured at fair value unless those assets are held to collect contractual cash flows which include only principal and interest payments on those assets, in which case they are recorded at historical amortized cost. Financial liabilities are measured at amortized cost unless they are designated as fair value through profit or loss. The Corporation s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, provisions, income tax payable, interest payable to noteholders, dividends payable to shareholders and notes payable. (b) New standards and interpretations not yet adopted: Amendments to IAS 1 Presentation of Financial Statements In June 2011 the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted. The Corporation intends to adopt the amendments in its financial statements for the annual period beginning on January 1, As the amendments only require changes in the presentation of items in other comprehensive income, the Corporation does not expect the amendments to IAS 1 to have a material impact on the financial statements. 6

17 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Significant accounting policies (continued): (b) New standards and interpretations not yet adopted (continued): IFRS 10 - Consolidated Financial Statements In May 2011, the IASB issued IFRS 10 - Consolidated Financial Statements which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 10 replaces the guidance in IAS 27 Consolidated and Separate Financial Statements. The Corporation intends to adopt IFRS 10 in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 10 to have a material impact on the financial statements. IFRS 12 - Disclosure of Interests in Other Entities In May 2011, the IASB issued IFRS 12 - Disclosure of Interests in Other Entities. The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. The effective date of this standard is January 1, 2013, but early adoption is permitted. The Corporation intends to adopt IFRS 12 in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 12 to have a material impact on the financial statements. IFRS 13 - Fair Value Measurement In May 2011, the IASB issued IFRS 13 - Fair Value Measurement which is effective prospectively for annual periods beginning on or after January 1, The objective of IFRS 13 is to define fair value, set out in a single IFRS framework for measuring fair value, and establish disclosure requirements regarding fair value measurements. The Corporation intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on January 1, The Corporation does not expect IFRS 13 to have a material impact on the financial statements. Amendments to IAS 19 Employee Benefits In June 2011 the IASB published an amended version of IAS 19 Employee Benefits. Adoption of the amendment is required for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Corporation intends to adopt the amendments in its financial statements for the annual period beginning on January 1, The Corporation does not expect the amendments to IAS 19 to have a material impact on the financial statements. 4. Finance costs: Three months ended Six months ended June 30, June 30, Interest income $ 71 $ 68 $ 44 $ 135 Interest paid or accrued to noteholders (9,746) (9,746) (19,491) (19,491) Net finance costs recognized in profit or loss $ (9,675) $ (9,678) $ (19,447) $ (19,356) 7

18 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Income tax expense: Three months ended Six months ended June 30, June 30, Current tax expense $ 5,263 $ 4,037 $ 6,312 $ 7,080 Deferred tax expense (recovery) (164) (29) 173 (160) Total tax expense $ 5,099 $ 4,008 $ 6,485 $ 6,920 Reconciliation of effective tax rate: Profit before income tax $ 21,110 $ 14,524 $ 26,656 $ 25,593 Statutory rate 25.00% 26.50% 25.00% 26.50% Expected income tax expense $ 5,277 $ 3,849 $ 6,664 $ 6,782 Tax effect of non-deductible expenses Other (178) 148 (178) 128 Actual income tax expense $ 5,099 $ 4,008 $ 6,486 $ 6, Deferred tax assets and liabilities: June 30, December 31, Deferred tax assets: Non-pension defined benefits liability $ 11,943 $ 11,238 Pension defined benefits liability 3,057 3,003 Foreign exchange contracts - 20 Non-capital loss carryforwards 2,215 1,551 Total assets 17,215 15,812 Deferred tax liabilities: Other (1,284) (949) Property, plant and equipment (9,103) (8,903) Total liabilities (10,387) (9,852) Net deferred income tax assets $ 6,828 $ 5, Profit per share: Basic earnings per share: The calculation of basic profit per share for the three and six months ended June 30, 2012 was based on profit attributable to shareholders of $16,011,000 and $20,171,000, respectively (2011 $10,516,000 and $18,673,000 respectively) and a weighted average number of common shares outstanding of 74,250,016 for both periods. 8

19 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Employee benefits: June 30, December 31, Present value of unfunded obligations $ 47,774 $ 44,952 Present value of funded obligations 89,106 85,471 Total present value of obligations 136, ,423 Fair value of plan assets (76,877) (73,458) Recognized liability for defined benefit obligations $ 60,003 $ 56,965 The Corporation makes contributions to two non-contributory defined benefit plans that provide 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. Other post Movement in the present value of the Pension obligations retirement benefits defined benefit obligations Defined benefit obligations at January 1 $ 85,471 $ 83,683 $ 44,952 $ 39,781 Benefits paid by the plan (2,178) (2,160) (675) (642) Current and past service costs and interest (see below) 3,099 3,341 1,832 1,626 Actuarial losses in other comprehensive income (see below) 2, , Adjustment to impairment for future contributions in other comprehensive income (see below) - (5,071) - - Defined benefit obligations at June 30 $ 89,106 $ 80,273 $ 47,774 $ 41,081 Other post Movement in the fair value of the Pension assets retirement benefits defined benefit plan assets Fair value of plan assets at January 1 $ 73,458 $ 73,205 $ - $ - Contributions paid into the plan 2,897 2, Benefits paid by the plan (2,178) (2,160) (675) (642) Expected return on plan assets 2,492 2, Actuarial gains (losses) in other comprehensive income 208 (666) - - Fair value of plan assets at June 30 $ 76,877 $ 75,063 $ - $ - 9

20 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Employee benefits (continued): Three months ended Six months ended Pension obligations June 30, June 30, expense recognized in profit or loss Current service costs $ 350 $ 316 $ 700 $ 632 Past service costs Interest on obligation 1,009 1,023 2,021 2,052 Expected return on plan assets (1,252) (1,279) (2,491) (2,562) $ 134 $ 60 $ 608 $ 779 Three months ended Six months ended Other post retirement benefits June 30, June 30, expense recognized in profit or loss Current service costs $ 351 $ 287 $ 701 $ 575 Past service costs Interest on obligation ,077 1,051 $ 908 $ 814 $ 1,832 $ 1,626 The expense is recognized in operating expenses in the profit for the periods. Three months ended Six months ended June 30, June 30, Actual return on plan assets $ (1,940) $ (645) $ 2,608 $ 2,032 Actuarial gains and losses recognized in other comprehensive income: Three months ended Six months ended June 30, June 30, Cumulative amount at beginning of period $ (16,098) $ (514) $ (15,489) $ (322) Recognized during the period (3,562) 3,800 (4,171) 3,608 Cumulative amount at June 30 $ (19,660) $ 3,286 $ (19,660) $ 3,286 10

21 Notes to the Unaudited Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Three and six month periods ended June 30, 2012 and Loans and borrowings: This note provides information about the contractual terms of the Corporation s interest-bearing loans and borrowings, which are measured at amortized cost. June 30 December 31, Non-current liabilities: Notes payable $ 371,250 $ 371,250 Revolving credit facility 20,000 - $ 391,250 $ 371,250 Westshore has a $10 million operating facility which remained undrawn at June 30, The term of this operating facility expires in August Westshore has a $50 million revolving credit facility to be utilized for capital expenditures and investments, of which $20 million was drawn at June 30, The credit facility has a five-year term ending August 31, The revolving credit facility bears interest at bank prime of 3% as of June 30, 2012 and no repayments are required until maturity. At June 30, 2012, the Corporation has $371,250,000 of Holdings Notes payable outstanding. Pursuant to the Arrangement Resolution approved by shareholders at the Annual General and Special Meeting on June 19, 2012, a capital restructuring occurred on July 1, 2012 involving an exchange of all of the Holdings note receipts for additional common shares of the Company. Immediately following such exchange, all of the issued and outstanding common shares were consolidated such that each Shareholder holds the same number of common shares after the consolidation as such Shareholder held prior to the exchange and consolidation. The Corporation believes that the fair value of the Holdings Notes payable at June 30, 2012 is $371,250,