Oceanex Reports Solid Third Quarter Results



    MONTREAL, Oct. 29 /CNW Telbec/ - Oceanex Income Fund (TSX: OAX.UN) today
announced net income of $4.0 million or $0.46 per unit for the third quarter
2007 compared to $2.1 million, or $0.24 per unit a year earlier. Operating
income was $5.3 million compared to operating income of $2.0 million in the
third quarter of 2006.
    "We are pleased to report another strong quarterly performance with
higher freight rates, volume growth to Newfoundland and lower operating costs
due to the smaller ship fleet, contributing to the improvement in third
quarter operating income over the same period last year," said Peter Henrico,
President and Chief Executive Officer.
    Revenue was $35.1 million, $1.4 million or 4.2% above third quarter last
year. Higher freight rates, inclusive of fuel surcharge, and a 3.8% increase
in shipments to Newfoundland accounted for the higher revenue. Container
volume was marginally lower at 24,061 TEUs (twenty-foot equivalent units)
compared to 24,506 TEUs while vehicle shipments increased 12.7% to 5,302 units
due to continuing strong vehicle sales.
    Montreal container volume to Newfoundland increased 4.8% compared to
third quarter 2006, while Halifax carryings were up 2.0% in spite of seven
fewer sailings. The reduced number of sailings in Halifax was due to the
termination of the mid-week sailing in fourth quarter 2006. Backhaul volume,
consisting primarily of fish exports and paper products, was 23.2% lower than
third quarter, 2006.
    Operating expenses were $24.9 million for the quarter, a reduction of
$1.5 million or 5.6% compared to third quarter last year mostly due to lower
vessel costs, reflecting operations with three vessels compared to four in the
same period last year.
    Selling and administrative expenses were $2.9 million, $0.8 million or
40.0% higher. Provisions for employee incentive programs and corporate costs
accounted for the increase. Amortization expense, including amortization of
scheduled dry dock costs, was $2.0 million compared to $2.1 million for the
third quarter, 2006. We also recorded an impairment loss of $1.1 million in
the third quarter of 2006 following our decision to withdraw the Cicero from
service.
    An investment loss of $0.2 million was recorded for the quarter following
the reduction in market value of the Ship Replacement Fund which included an
unrealized loss of $1.4 million. Effective for 2007 and subsequent years,
investment income includes unrealized gains and losses. Interest expense was
unchanged at $0.8 million.
    Income before tax was $4.3 million compared to $1.7 million. Income tax
expense was $0.3 million compared with an income tax recovery of $0.4 million
in the third quarter last year.
    Cash flow from operations was $10.8 million compared to $6.1 million in
third quarter 2006. Higher net income before future income tax provision and
changes in non-cash working capital items accounted for the improvement.

    YEAR-TO-DATE RESULTS

    Nine-month consolidated revenue was $94.8 million, $2.6 million or 2.8%
higher than the same period in 2006 due to higher average freight rates and
improved cargo mix. Overall container volume, at 61,900 TEUs was 4.2% lower
than last year's 64,626 TEUs. Stronger overall volume to Newfoundland was
offset by continuing weak backhaul traffic which was 25.4% lower. Vehicle
shipments increased 1,402 units or 8.7% to 17,534 units, a reflection of
strong vehicle sales during the second and third quarters.
    Operating expenses were $69.2 million, $5.4 million or 7.2% lower than
the corresponding period last year primarily due to a smaller vessel fleet.
    Selling and administrative expenses were $7.7 million, $1.9 million or
32.4% higher than the same period last year due primarily to higher employee
costs, professional fees and costs relating to the review process for the
acquisition of the assets of the Fund. Operating income was $12.0 million,
compared to income of $4.8 million in the same period last year.
    Investment income from the ship replacement fund (SRF) was $1.3 million,
including $1.8 million in unrealized losses compared to $1.5 million in the
first nine months of 2006. Starting in 2007, investment income from the SRF
includes all realized and unrealized gains and losses relating to changes in
the market value of the SRF. Interest at $2.5 million, was similar to the
first nine months last year.
    Income before income taxes was $10.8 million compared to $3.8 million.
After income tax expense of $0.6 million (a recovery of $1.9 million last
year), net income was $10.2 million compared to $5.7 million in 2006.

    DISTRIBUTIONS

    For the quarter ended September 30, 2007, the Fund paid cash
distributions of $2.5 million or $28.11 per 100 trust units, ($7.4 million or
$84.33 per 100 trust units year-to-date). These distributions were identical
to those made in 2006.

    RECENT DEVELOPMENTS

    As announced on September 19, 2007, Oceanex Income Fund (the "Fund")
entered into a Purchase Agreement pursuant to which it has agreed to sell
substantially all of its assets to South Coast Partners Limited Partnership
for a purchase price equal to approximately $166.0 million (the "Proposed
Transaction"). If the Proposed Transaction is approved and completed, the
purchase price will be used by the Fund to redeem all of its issued and
outstanding units for $19.00 per unit in cash. Subsequent to the redemption of
the units, the Fund will be wound up.
    The Proposed Transaction is subject to approval by at least two-third of
the votes cast at a special meeting of the Unitholders and other customary
closing conditions. A special meeting of Unitholders to approve the terms of
the Proposed Transaction (the "Special Meeting") has been called for
November 2, 2007.
    The Fund expects to declare and pay its normal monthly distribution for
the month of October. If the Proposed Transaction is completed, the Fund will
pay a pro rata distribution for the month of November on the closing date or
shortly thereafter (the "Redemption Date"). Such distributions are permitted
to be made in accordance with the terms and conditions of the Purchase
Agreement as are more fully described in the Information Circular issued by
the Fund. The Purchase Agreement and the Information Circular have been filed
with Canadian securities regulatory authorities and are available
electronically with the Fund's other continuous disclosure documents at
www.sedar.com.

    OUTLOOK

    For the remainder of 2007, the Company expects volume to Newfoundland to
remain strong, driven by continuing growth in the retail and construction
sectors and shipments from road carriers. We also anticipate continuing to
benefit from lower comparable operating costs due to the reduced size of the
ship fleet. However, export traffic from Newfoundland, particularly in the
fishery sector, has not met our expectations and should remain weak for the
balance of the year.

    COMPARATIVE

    Following the adoption of new accounting rules for scheduled dry dock
costs, comparative 2006 figures have been restated where applicable. In
addition, following the adoption of new accounting standards for financial
instruments, the opening retained earnings balance was restated.
    For more information, consult the Fund's Management Discussion and
Analysis (MD&A) filed on SEDAR for the quarter ended September 30, 2007.

    FORWARD LOOKING STATEMENT

    This press release may contain forward looking statements. All statements
other than statements of historical fact contained in this press release are
forward looking statements, including, without limitation, statements
regarding the future financial position, status for income tax purposes,
distribution levels, business strategy, proposed transactions, budgets,
litigation, projected costs and plans and objectives of or involving the Fund
or the Company. Readers can identify many of these statements by looking for
words such as "believes", "expects", "will", "intends", "projects",
"anticipates", "estimates", "continues" or similar words or the negative
thereof. These forward looking statements may include statements with respect
to the amount and timing of the payment of the distributions of the Fund.
There can be no assurance that the plans, intentions or expectations upon
which these forward looking statements are based will occur. Forward looking
statements are subject to risks, uncertainties and assumptions, including, but
not limited to, those discussed in this press release and in the reports of
the Fund, including its Annual Information Form and Management's Discussion
and Analysis, on file with Canadian securities regulatory authorities which
may be accessed through the SEDAR website (www.sedar.com) or at the Fund's
website (www.oceanex.com) or by contacting the Secretary of the Fund.
    Some of the factors that could affect future results and could cause
results to differ materially from those expressed in the forward looking
statements contained herein include: risks relating to changes in economic
conditions; dependence upon key customers; competition; marine accidents or
other property losses; insurance recoveries; strikes or lock-outs involving
unionized employees; government regulation; the Company's ability to adapt to
changing market conditions; dependence of the Fund on the Company; leverage
and restrictive covenants in agreements relating to current and future
indebtedness of the Company; restrictions on the potential growth of the
Company as a consequence of the payment by the Company of substantially all of
its operating cash flow; income tax; and risks related to the closing of the
Proposed Transaction to sell substantially all of the assets of the Fund to
South Coast Partners Limited Partnership. Readers are cautioned that the
foregoing list of factors is not exhaustive.
    The forward looking statements contained in this press release are
expressly qualified in their entirety by this cautionary statement. The
forward looking statements included in this press release are made as of the
date of this press release and the Fund assumes no obligation to update or
revise them to reflect new information, events or circumstances or otherwise
except as may be expressly required by applicable securities law.

    Oceanex Income Fund is a Montreal based limited purpose trust that
operates through its wholly owned subsidiary Oceanex Inc. Oceanex provides
intermodal transportation between points throughout North America and
Newfoundland and Labrador.
    Oceanex Income Fund is traded on the Toronto Stock Exchange under the
symbol "OAX.UN". Learn more about Oceanex at www.oceanex.com.


    
                             OCEANEX INCOME FUND
                      CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 2007


    Notice:  The attached consolidated financial statements as at
    -------  September 30, 2007 and for the three and nine-month periods
             ended September 30, 2007 and 2006, have been prepared by
             management of Oceanex Inc. in accordance with Canadian GAAP and
             have not been reviewed by the external auditors of
             Oceanex Income Fund.

    October 29, 2007


    OCEANEX INCOME FUND
    CONSOLIDATED BALANCE SHEETS
    (Unaudited - In thousands of dollars)

                                                    September 30 December 31
    -------------------------------------------------------------------------
                                                            2007        2006
    ASSETS                                                     $           $
                                                                 (restated -
                                                                  see note 1)
    Current assets
      Cash and cash equivalents                           14,288       7,928
      Accounts receivable                                 14,330      13,502
      Prepaid expenses, supplies and other
       current assets                                      2,543       1,816
      Income taxes receivable                                  -       1,492
    -------------------------------------------------------------------------
                                                          31,161      24,738

    Capital assets                                        81,818      85,242

    Deferred charges (notes 1 and 3)                       2,152       3,101

    Ship replacement fund (notes 1 and 7)                 32,762      22,354

    Goodwill                                              18,740      18,740

    -------------------------------------------------------------------------
                                                         166,633     154,175
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY

    Current liabilities
      Trade accounts payable and accrued liabilities       7,575       6,716
      Other current liabilities                            5,371       3,833
      Income taxes payable                                    41           -
      Distributions payable to unitholders                   817         817
      Current portion of long-term debt                    4,019       3,949
    -------------------------------------------------------------------------
                                                          17,823      15,315

    Long-term debt (note 1)                               41,793      44,700

    Derivative liability (notes 1 and 7)                   1,251           -

    Employee future benefit obligations (note 8)           1,128         741

    Future income tax liability (note 6)                  12,796      10,533

    Unitholders' equity
      Trust units                                         80,662      80,662
      Retained earnings                                   12,024       2,224
      Accumulated other comprehensive loss                  (844)          -
    -------------------------------------------------------------------------
                                                          91,842      82,886
    -------------------------------------------------------------------------
                                                         166,633     154,175
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    OCEANEX INCOME FUND
    CONSOLIDATED STATEMENTS OF INCOME
    (Unaudited - In thousands of dollars, except per unit amounts)

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                         (restated -             (restated -
                                          see note 1)             see note 1)

                                       $           $           $           $

    Revenue                       35,088      33,683      94,820      92,230

    Expenses
    Operating                     24,937      26,421      69,210      74,585
    Selling and administrative     2,868       2,049       7,724       5,835
    Amortization (notes 1 and 4)   1,955       2,106       5,864       5,880
    Impairment loss (note 10)          -       1,102           -       1,102

    -------------------------------------------------------------------------

    Operating income               5,328       2,005      12,022       4,828


    (Loss) income from ship
     replacement fund
     (notes 1 and 5)                (223)        555       1,333       1,548
    Interest on long-term debt
     (note 1)                       (832)       (833)     (2,535)     (2,570)

    -------------------------------------------------------------------------

    Income before income tax
     expense (recovery)            4,273       1,727      10,820       3,806

    Income tax expense
     (recovery) (note 6)             315        (421)        642      (1,898)

    -------------------------------------------------------------------------

    Net income                     3,958       2,148      10,178       5,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and fully diluted
     earnings per trust unit        0.46        0.24        1.17        0.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    OCEANEX INCOME FUND
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited - In thousands of dollars)

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                         (restated -             (restated -
                                          see note 1)             see note 1)

    OPERATING ACTIVITIES               $           $           $           $

      Net income                   3,958       2,148      10,178       5,704
      Items not affecting cash:
        Amortization               1,955       2,106       5,864       5,880
        Amortization of long
         term debt discount           38          40         116         155
        Employee future benefit
         obligations                 153         126         387         379
        Future income taxes          275        (398)        602      (1,022)
        Gain on disposal of
         capital assets              (20)        (35)       (178)       (278)
        Loss (income) from the
         ship replacement fund       223        (555)     (1,333)     (1,548)
        Impairment loss                -       1,102           -       1,102

      Addition to deferred dry
       dock costs                      -           -           -      (2,236)
      Refundable income taxes         (5)        (11)        (27)        656
      Change in non-cash working
       capital items related to
       operating activities        4,230       1,538       2,462      (4,387)

    -------------------------------------------------------------------------

      Cash flows related to
       operating activities       10,807       6,061      18,071       4,405

    -------------------------------------------------------------------------

    FINANCING ACTIVITIES

      Addition to deferred
       transaction costs            (699)          -        (699)          -
      Repayment of long-term debt   (990)       (789)     (2,953)     (2,361)
      Distributions to
       unitholders                (2,453)     (2,453)     (7,358)     (7,358)
    -------------------------------------------------------------------------

      Cash flows related to
       financing activities       (4,142)     (3,242)    (11,010)     (9,719)

    -------------------------------------------------------------------------

    INVESTING ACTIVITIES

      Purchase of capital assets      (5)     (1,229)       (928)     (1,409)
      Proceeds on disposal of
       capital assets                 20          39         227         282
    -------------------------------------------------------------------------

      Cash flows related to
       investing activities           15      (1,190)       (701)     (1,127)

    -------------------------------------------------------------------------

      Net change in cash and
       cash equivalents during
       the period                  6,680       1,629       6,360      (6,441)
      Cash and cash equivalents
       - beginning of period       7,608         937       7,928       9,007

    -------------------------------------------------------------------------

      Cash and cash equivalents
       - end of period            14,288       2,566      14,288       2,566
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    OCEANEX INCOME FUND
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (Unaudited - In thousands of dollars)

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                       $           $           $           $

    Net income                     3,958       2,148      10,178       5,704

    Other Comprehensive income,
    ---------------------------
     net of income taxes:
     --------------------
    (Loss) gain on derivative
     designated as cash flow hedge  (339)          -         645           -
    -------------------------------------------------------------------------
    Comprehensive income           3,619       2,148      10,823       5,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    CONSOLIDATED STATEMENTS OF ACCUMULATED COMPREHENSIVE LOSS
    (Unaudited - In thousands of dollars)

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                       $           $           $           $

    Accumulated other comprehensive
     loss, beginning of period      (505)          -           -           -

    Restatement of opening balance,
    -------------------------------
     net of income taxes (note 1)
     ----------------------------
      Financial instrument -
       Derivative liability            -           -      (1,489)          -

    (Loss) gain on derivative
     designated as cash flow
     hedge, net of income taxes     (339)          -         645           -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive loss, end
     of period                      (844)          -        (844)          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    OCEANEX INCOME FUND
    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
    (Unaudited - In thousands of dollars)

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                         (restated -             (restated -
                                          see note 1)             see note 1)
    Retained earnings (deficit),       $           $           $           $
     beginning of period, as
     previously reported          10,346      (1,329)       (721)       (372)

    Restatement of prior period,
    ----------------------------
     net of income taxes (note 1)
     ----------------------------
      Change in dry dock
       accounting policy               -       3,578       2,945       3,303
      Financial instrument -
       Ship replacement fund at
       market value                    -           -       6,773           -
    -------------------------------------------------------------------------

    Restated opening retained
     earnings, beginning of
     period                       10,346       2,249       8,997       2,931

      Net income                   3,958       2,148      10,178       5,704
      Refundable income taxes        173         (11)        207         656
      Distributions to
       unitholders (note 9)       (2,453)     (2,453)     (7,358)     (7,358)

    -------------------------------------------------------------------------
    Retained earnings, end of
     period                       12,024       1,933      12,024       1,933
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes


    OCEANEX INCOME FUND
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    For the nine-month period ended September 30, 2007
    (Unaudited - All tabular figures are in thousands of dollars)


    1. Summary of significant accounting policies

    These unaudited consolidated financial statements as at September 30, 2007
and for the three and nine-month periods ended September 30, 2007 and 2006
have been prepared by management of Oceanex Inc. (the "Company") and have not
been reviewed by the external auditors of Oceanex Income Fund (the "Fund").
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") using the same accounting
policies as outlined in Note 1 of the Fund's audited consolidated financial
statements for the year ended December 31, 2006, except as explained below.
They do not include all of the information and disclosure required by GAAP for
annual financial statements. Accordingly, readers should refer to the Fund's
audited consolidated financial statements published in the Fund's annual
report and the accompanying notes.
    The consolidated financial results of the Fund are directly influenced by
freight volumes which vary during the year, being at their lowest from
mid-December through March, and reaching their maximum in early Summer and in
the Fall.

    Vessel dry dock costs

    In 2006, the United States Financial Accounting Standards Board ("FASB")
issued a Staff Position that addresses accounting for planned major
maintenance activities ("PMMA"); the Fund believes that dry-dock costs are
PMMA. The Fund's accounting policy for dry-dock costs for the year ended
December 31, 2006 was to accrue-in-advance while the guidance in this Staff
Position precludes the accrue-in-advance method for years beginning on or
after December 15, 2006, and recommends one of the direct expensing, built-in
overhaul or deferral methods. Such a change in accounting policy must be
applied retroactively with restatement of prior periods. Currently, there are
no formal Canadian guidelines on how to account for PMMA. In the absence of
Canadian guidelines, the Fund decided to follow the FASB Staff Position and to
adopt the deferral method on January 1, 2007.
    Under the deferral method, dry dock costs are deferred when incurred and
amortized on a straight-line basis over the period to the next scheduled dry
dock. In the event of a change in the timing of the next scheduled dry dock,
the amortization of deferred dry dock costs is modified prospectively and the
impact of such modification could be material. The adoption by the Fund of
this new accounting policy for PMMA has been applied retroactively and the
2006 consolidated financial statements presented for comparative purposes have
been restated.
    The impact of this restatement on the Fund's 2006 opening balance sheet
was an increase in deferred dry dock costs of $438,000, a decrease in dry dock
accruals of $4,734,000, an increase in future income tax liability of
$1,869,000, and an increase in retained earnings of $3,303,000. For the third
quarter of 2006, operating expenses were increased by $794,000 ($15,000
year-to-date), a new dry dock amortization expense of $374,000 was recorded in
the quarter ($935,000 year-to-date), and the third quarter future income tax
recovery was increased by $393,000 for a decrease of $775,000 in net income or
$0.09 per trust unit (an increase of $450,000 in future income tax recovery
for a decrease in net income of $500,000, or $0.06 per trust unit
year-to-date).

    Comprehensive income, financial instruments - recognition and
    measurement, and hedges

    In 2005, the Canadian Institute of Chartered Accountants ("CICA") issued
Handbook Sections 1530, "Comprehensive income", 3855, "Financial instruments -
recognition and measurement" and 3865, "Hedges". The new statement of
comprehensive income shows the change in equity (net assets) of an enterprise
during a period from transactions and other events and circumstances from
non-owner sources. The new financial instruments sections establish standards
for recording and measuring financial assets, financial liabilities and
non-financial derivatives. The Fund adopted these rules effective January 1,
2007 and changed its accounting policies, with a restatement of the January 1,
2007, opening retained earnings.

    Ship replacement fund

    In accordance with the new CICA Handbook section 3855, "Financial
    instruments - recognition and measurement", the Fund has designated the
    ship replacement fund ("SRF") as financial instruments held for trading
    and all realized and unrealized gains and losses relating to changes in
    the SRF market value are now recorded as investment income or loss in the
    statement of income. The Fund's 2007 opening balance sheet was adjusted
    by increasing the SRF accounting value by $9,075,000 to its January 1,
    2007, market value, and by increasing the future income tax liability by
    $2,302,000 for a net increase of $6,773,000 on opening retained earnings.

    Hedges

    In accordance with the new CICA Handbook section 3865, "Hedges", the
    Company's interest rate swap agreement is a "Cash flow hedge" and the
    Fund has elected to apply hedge accounting for this swap as all criteria
    under Section 3865 are met. The swap is therefore recorded on the balance
    sheet at its fair value and any change in fair value of the swap is
    recognized in the statement of other comprehensive income. The Fund's
    2007 opening balance sheet was adjusted by recording a new long term
    liability of $2,243,000, by reducing the future income tax liability by
    $754,000, for a net increase of $1,489,000 on opening accumulated other
    comprehensive loss.

    Long-term debt and interest expense on long-term debt

    In accordance with the new CICA Handbook section 3855, "Financial
    instruments - recognition and measurement", the financing fees that are
    directly attributable to the issuance of the long-term debt have been re-
    classified as a reduction of the debt, and the amortization of those fees
    is now part of interest on long-term debt. The Fund's 2007 opening
    balance sheet was adjusted by removing the deferred financing fees
    balance of $921,000, and by reducing long-term debt by that same amount.
    Interest expense on long-term debt included amortization of deferred
    financing fees of $38,000 and $116,000 for the three and nine-month
    periods ended on September 30, 2007 ($40,000 and $155,000 respectively
    for 2006).

    2. Proposed transaction

    On September 19, 2007, the Fund entered into a Purchase Agreement pursuant
to which it has agreed to sell substantially all of its assets to South Coast
Partners Limited Partnership for a purchase price equal to approximately
$166.0 million (the "Proposed Transaction"). If the Proposed Transaction is
approved and completed, the purchase price is expected to be used by the Fund
to redeem all of its issued and outstanding units for $19.00 per unit in cash.
Subsequent to the redemption of the units, the Fund will be wound up. The
Proposed Transaction is subject to approval by at least two-third of the votes
cast at a special meeting of the Unitholders and other customary closing
conditions. A special meeting of Unitholders to approve the terms of the
Proposed Transaction (the "Special Meeting") has been called for November 2,
2007.


    3. Deferred charges

                                                    September 30 December 31
    -------------------------------------------------------------------------
                                                            2007        2006
                                                                 (restated -
                                                                  see note 1)

                                                               $           $

    Deferred dry dock costs                                1,453       3,101
    Deferred transaction costs                               699           -
    -------------------------------------------------------------------------
                                                           2,152       3,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    On September 19, 2007, the Fund entered into a Purchase Agreement to sell
substantially all of its assets to South Coast Partners Limited Partnership
the Proposed Transaction as described in note 2. As at September 30, 2007, the
Fund had incurred costs of approximately $0.7 million related to the
transaction. The transaction is expected to be completed sometime in November
2007.


    4. Amortization

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                         (restated -             (restated -
                                          see note 1)             see note 1)
                                       $           $           $           $

    Capital assets                 1,253       1,605       3,739       4,565
    Assets under capital lease       188         127         564         380
    Deferred dry dock costs          514         374       1,561         935
    -------------------------------------------------------------------------
                                   1,955       2,106       5,864       5,880
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    5. Income from the ship replacement fund

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                       $           $           $           $

    Dividend and interest income     171         299         804         805
    Administration expense           (34)        (28)        (88)        (80)
    Realized change in market
     value                         1,048         284       2,449         823
    Unrealized change in market
     value (see note 1)           (1,408)          -      (1,832)          -
    -------------------------------------------------------------------------
                                    (223)        555       1,333       1,548
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    6. Income taxes

    The reconciliation of income tax computed at combined statutory tax rates
to income tax expense (recovery) is:

                                  Three-month period       Nine-month period
                                  ended September 30      ended September 30
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                         (restated -             (restated -
                                          see note 1)             see note 1)
                                       $           $           $           $

    Income before income tax
     expense (recovery)            4,273       1,727      10,820       3,806
    -------------------------------------------------------------------------

    Combined income tax expense
     at statutory rates - 35.48%
     (2006 - 35.65%)               1,516         616       3,839       1,357
    Impact of interest expense
     of the Company paid to the
     Fund, eliminated on
     consolidation                  (815)       (820)     (2,447)     (2,459)
    Tax-rate differential on
     passive income                   83           -         107         316
    Non-taxable portion of capital
     gains                            64         (51)       (109)       (147)
    Dividends from Canadian
     corporations                    (17)         (9)        (41)        (43)
    Impact of change in
     substantively enacted tax
     rates                             -           -        (317)       (632)
    Reversal of tax reserve         (540)          -        (540)          -
    Other                             24        (157)        150        (290)
    -------------------------------------------------------------------------
                                     315        (421)        642      (1,898)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Represented by:
    Current income taxes (recovery)   40         (23)         40        (876)
    Future income taxes (recovery)   275        (398)        602      (1,022)
    -------------------------------------------------------------------------
                                     315        (421)        642      (1,898)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    The tax effect of significant temporary differences is as follows:

                                                    September 30 December 31
                                                            2007        2006
                                                                 (restated -
                                                                  see note 1)

                                                               $           $

    Capital assets                                         9,025       8,599
    Goodwill                                               1,148       1,126
    Non-capital loss carryforwards                             -        (714)
    Financing fees                                           149         146
    Dry docks                                              1,614       1,833
    Timing of accruals                                      (427)       (313)
    Carrying value of investment in excess of tax basis    1,694        (144)
    Interest rate swap agreement                            (407)          -
    -------------------------------------------------------------------------
    Net future income tax liability                       12,796      10,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7. Financial instruments

    Ship replacement fund

    The ship replacement fund consists of investments in money market
investments, Canadian and foreign bonds and debentures and Canadian and
foreign corporate equity instruments. The investments in bonds and debentures
mature between June 2, 2008 and December 1, 2031 and have coupon rates ranging
from 3.0% to 7.88%. No individual investment accounts for more than 10% of the
total value of the ship replacement fund.
    The book and market values of the different classes of financial assets in
the ship replacement fund are as follows:

                                     Book value             Market value
                               September    December   September    December
                                      30          31          30          31
    -------------------------------------------------------------------------
                                    2007        2006        2007        2006
                                       $           $           $           $

    Cash and money market          2,266         758       2,237         755
    Canadian bonds and debentures  9,710       8,913      10,333       9,720
    Foreign bonds and debentures     415         410         339         367
    Canadian corporate equity
     instruments                   4,032       4,763      10,488      12,848
    Foreign corporate equity
     instruments                   9,096       7,510       9,365       7,739

    -------------------------------------------------------------------------
                                  25,519      22,354      32,762      31,429
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The ship replacement fund's financial assets denominated in foreign
currencies are exposed to risks related to fluctuations in foreign exchange
rates.

    Interest rate risk

    The Company's exposure to interest rate risk related to its long-term loan
has been mitigated by entering into a swap agreement. The approximate fair
value of this swap as at September 30, 2007, had the Company decided to
terminate the agreement, would have been a liability of $1,251,000 (a
liability of $2,243,000 as at December 31, 2006). Since January 2007, this
liability is recorded as a long-term derivative liability on the Fund's
balance sheet.

    Long-term debt

    The carrying value of the Company's term loan approximates its fair value
due to its floating market rate. The carrying values of the obligations under
capital leases approximate their fair values.

    8. Employee future benefit obligations

    Total net benefit costs for the three-month and nine-month periods ended
September 30, 2007 were $181,000 and $488,000 respectively ($176,000 and
$520,000 for 2006).

    9. Distributions to unitholders

    The Fund's policy is to make distributions to unitholders equal to cash
flows from operations before variations in working capital and such reserves
for working capital, dry dock costs and capital expenditures as may be
considered appropriate by the directors of the Company. For the three-month
and nine-month periods ended September 30, 2007, the Fund made cash
distributions of $2,453,000 and $7,358,000 respectively ($0.2811 and $0.8433
per unit), same as in 2006.

    10. Impairment loss on vessel

    In October 2006, the Company decided to withdraw the Cicero from service.
As a result, the Company recorded an impairment loss of $1.1 million in the
third quarter of 2006 based on management's best estimate of the vessel's fair
value at the time. Upon the sale of the vessel in December 2006, the Company
recorded an additional loss of $0.8 million for a total loss on disposal of
$1.9 million.

    11. Comparative figures

    Certain comparative figures have been reclassified to conform with the
presentation used in the current period.
    
    %SEDAR: 00009429EF




For further information:

For further information: Daniel Bélisle, Vice-President, Finance &
Administration, Oceanex Inc., (514) 875-9244, dbelisle@oceanex.com

Organization Profile

OCEANEX INCOME FUND

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