Westshore Terminals Income Fund - 2007 third quarter report



    VANCOUVER, Nov. 2 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the third quarter ending September 30, 2007.
Please see attached Report to Unitholders for details.

    Westshore Terminals Income Fund
    Third Quarter Report
    For the nine months ended September 30, 2007
    -------------------------------------------------------------------------

    Dear Unitholders:

    The earnings and distributable cash of Westshore Terminals Income Fund
(the "Fund") are wholly dependent on the results of Westshore Terminals
Limited Partnership ("Westshore"). Westshore's results are determined largely
by the volume of coal shipped by its coal mine customers for sale in the
export market, the U.S. dollar denominated price received by Westshore's
customers for coal, the Canadian-U.S. dollar exchange rate and Westshore's
costs. Westshore's throughput charges for approximately half of the coal it
handles are calculated at present by reference to coal prices (see particulars
under "Outlook" section on page 7). Lower prices for hard coking coal resulted
in Elk Valley Coal Partnership (the "Coal Partnership"), which is Westshore's
principal customer, achieving lower average settlement prices for the 2007/08
coal year compared to the 2006/07 coal year. The weighted average price of
2007 calendar year coal sales by the Coal Partnership is expected to be
approximately US$96 per tonne, down approximately 15% from US$113 in 2006.
Furthermore, as Westshore has exposure to fluctuations in exchange rates as a
result of pricing mechanisms under its customer contracts, Westshore engages
in periodic currency hedging arrangements to provide partial shielding from
material short-term swings in the CDN/US dollar exchange rate.

    
    Westshore Terminals Income Fund
    -   Management's Discussion and Analysis of Financial Condition and
        Results of Operations
    

    This management's discussion and analysis refers to certain measures
other than those prescribed by Canadian Generally Accepted Accounting
Principles ("GAAP"). These measures do not have standardized meanings and may
not be comparable to similar measures presented by other trusts or
corporations. They are however determined by reference to the Fund's financial
statements. These non-GAAP measures are discussed because the Fund believes
that they provide investors with information in understanding the results of
the Fund's operations and financial position. The unaudited financial results
along with management's discussion and analysis contained in this report
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Fund's Annual Report for the year
ended December 31, 2006. The date of this management's discussion and analysis
and results of operations is November 3, 2007.
    The following table sets out selected consolidated financial information
for the Fund for the quarter ended September 30, 2007. As at November 3, 2007,
the Fund had 74,250,016 issued and outstanding trust units.

    
    -------------------------------------------------------------------------
    (In thousands of dollars                     Three Months   Three Months
     except per unit amounts)                       Ended          Ended
                                                 September 30,  September 30,
                                                     2007           2006
                                                       $              $
    -------------------------------------------------------------------------
    REVENUE
      Coal                                             36,937         36,741
      Other                                             2,361          1,184
    -------------------------------------------------------------------------
                                                       39,298         37,925
    EXPENSES
      Operating                                        16,870         17,980
      Administrative                                    1,798          1,857
    -------------------------------------------------------------------------
                                                       18,668         19,837
    -------------------------------------------------------------------------
    Earnings before depreciation and income taxes      20,630         18,088
    Depreciation                                        5,553          5,405
    -------------------------------------------------------------------------
    Earnings before income taxes                       15,077         12,683
    Recovery of (provision for) income taxes             (413)             9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings for the period                        14,664         12,692
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per trust unit                         0.197          0.180
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Standardized Distributable Cash(1)                 27,251         25,202
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions declared                             21,533         21,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions declared per trust unit               0.290          0.310
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to page 6 for Standardized Distributable Cash calculation.
    (2) Units issued and outstanding for 2006 were 70,381,111 and for 2007
        are 74,250,016

    The following tables set out selected consolidated financial information
for the Fund on a quarterly basis for the last eight quarters.

    -------------------------------------------------------------------------
    (In thousands of dollars                 Three Months Ended
     except per unit amounts) -----------------------------------------------
                                 Sept 30,    June 30,     Mar 31,     Dec 31,
                                   2007        2007        2007        2006
                                     $           $           $           $
    -------------------------------------------------------------------------
    Revenue
      Coal                        36,937      45,790      36,553      41,067
      Other                        2,361       2,370       1,058      (1,212)
    -------------------------------------------------------------------------
                                  39,298      48,160      37,611      39,855
    Expenses
      Operating                   16,870      17,906      17,113      16,287
      Administration               1,798       1,583       1,947       2,700
    -------------------------------------------------------------------------
                                  18,668      19,489      19,060      18,987
    -------------------------------------------------------------------------
    Earnings before depreciation
     and income taxes             20,630      28,671      18,551      20,868
    Depreciation                   5,553       5,552       5,553       5,470
    -------------------------------------------------------------------------
    Earnings before income taxes  15,077      23,119      12,998      15,398
    Recovery of (provision for)
     income taxes                   (413)     (6,589)(1)       -           -
    -------------------------------------------------------------------------
    Net earnings for the period   14,664      16,530      12,998      15,398
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per trust unit    0.197       0.223       0.175       0.219
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(2)                  21,533      18,563      19,305(3)   23,578
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions per unit    0.290       0.250       0.260(3)    0.335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in
     lieu of cash                      -           -           -       6,194
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in lieu
     of cash per unit                  -           -           -       0.088
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Non-cash tax provision recorded as a result of change in tax laws for
        income trusts. Refer to page 5.
    (2) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.
    (3) Includes an extraordinary distribution of $0.035. Refer to page 6.


    -------------------------------------------------------------------------
    (In thousands of dollars                 Three Months Ended
     except per unit amounts) -----------------------------------------------
                                 Sept 30,    June 30,     Mar 31,     Dec 31,
                                   2006        2006        2006        2005
                                     $           $           $           $
    -------------------------------------------------------------------------
    Revenue
      Coal                        36,741      41,583      38,463      43,523
      Other                        1,184       2,869         858       1,898
    -------------------------------------------------------------------------
                                  37,925      44,452      39,321      45,421
    Expenses
      Operating                   17,980      15,256      15,739      16,436
      Administration               1,857       2,577       1,739       2,077
    -------------------------------------------------------------------------
                                  19,837      17,833      17,478      18,513
    -------------------------------------------------------------------------
    Earnings before depreciation
     and income taxes             18,088      26,619      21,843      26,908
    Depreciation                   5,405       5,404       5,405       6,224
    -------------------------------------------------------------------------
    Earnings before income taxes  12,683      21,215      16,438      20,684
    Recovery of income taxes           9           -           -      42,267
    -------------------------------------------------------------------------
    Net earnings for the period   12,692      21,215      16,438      62,951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per trust unit    0.180       0.301       0.234       0.894
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(1)                  21,818      19,003      20,410      27,097
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions per unit    0.310       0.270       0.290       0.385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in lieu
     of cash                           -           -           -       1,540
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in lieu
     of cash per unit                  -           -           -       0.022
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.
    

    Results of Operations

    In the third quarter of 2007, Westshore shipped approximately 5.4 million
tonnes of coal, compared with 4.8 million tonnes shipped during the same
period in 2006. Based on information currently available, Westshore is
anticipating total throughput for 2007 to be between 20 and 21 million tonnes.
    Coal loading revenue of $36.9 million in the third quarter of 2007
compares to similar revenue levels of $36.7 million in the third quarter of
2006. The slight increase in revenue was due to an increase in volumes offset
by lower throughput rates, which reflect lower coal prices for the 2007/08
coal contract year compared to the 2006/07 coal year and a stronger Canadian
dollar against the US dollar year over year. The average loading rate in the
third quarter of 2007 was $6.89 per tonne compared to $7.73 per tonne for the
same period in 2006.
    Other revenue was $2.4 million in the third quarter of 2007 as compared
to $1.2 million in the third quarter of 2006. Unrealized hedging gains were
$0.2 million in the three months ended September 30, 2007, compared to
unrealized losses of $1.6 million in the third quarter of 2006. Realized
hedging gains in the third quarter of 2007 decreased by $1.4 million from the
third quarter in 2006 (See "Currency Fluctuations"). Interest income for the
quarter increased by approximately $0.2 million because the Fund has on hand
the proceeds of the equity financings undertaken to fund the equipment upgrade
project (See "Equipment Upgrade Project"). Demurrage and train detention costs
declined by $0.2 million from the same period in 2006.
    Operating expenses decreased from $18.0 million in the third quarter of
2006 to $16.9 million for the third quarter of 2007. This was primarily due to
lower maintenance costs in the third quarter of 2007 partially offset by
higher lease costs as a result of higher volumes. In the third quarter of
2006, maintenance costs included a major retrofit of one of the
stacker/reclaimers. Administrative expenses declined from $1.9 million in 2006
to $1.8 million in 2007. Overall for 2007, the Fund is expecting lower cash
distributions per unit than the prior year, which will result in a smaller
incentive fee for the manager being accrued in 2007.
    As a result of the foregoing, Westshore's earnings before depreciation
and income taxes increased to $20.6 million for the third quarter of 2007
compared to $18.1 million for the same period in 2006.

    Contract Rate Review

    Under the contract that governs coal from the Elkview mine (the "Elkview
Contract"), the Elk Valley Coal Partnership (the "Coal Partnership") gave
notice on September 30, 2004 requesting a review of the loading rate, with a
view to changing the rate effective April 1, 2005. The matter was heard before
an arbitrator, as provided for in the Elkview Contract, and a decision was
made in favour of Westshore in July 2006 confirming that there would be no
changes to the formula for determining the loading rate which will remain in
effect through the end of the contract term on March 31, 2010. The Supreme
Court of British Columbia granted the Coal Partnership leave to appeal the
arbitrator's decision to the Supreme Court of British Columbia. Westshore
appealed that decision and this appeal is expected to be heard in early 2008.
    In late August 2006, the Coal Partnership sent notice to Westshore
requesting a review of the charges under the Port Services Contract that
governs coal from the Fording River, Greenhills and Coal Mountain mines,
effective April 1, 2007. Discussions concerning the possibility of a change in
rate commenced as provided for under the agreement. If the matter cannot be
resolved between the parties, the matter would be determined by arbitration,
likely to be held in late 2008.

    Equipment Upgrade Project

    Westshore is proceeding with the upgrade to its existing equipment
previously announced. The cost of the upgrade is anticipated to be
approximately $49 million based on firm bids received and negotiated this
year. It is anticipated that the project will be completed in the fourth
quarter of 2009. Funding for the upgrade has been provided through $40 million
in equity financing, which was completed in March 2007. The balance of the
funds required will be sourced from Westshore's cash on hand.

    Taxation on Trusts in Canada

    Bill C-52 Budget Implementations Act, 2007 which contains legislative
provisions to implement the proposals to tax publicly traded income trusts in
Canada became law on June 22, 2007. Under these rules, distributions declared
by the Fund after January 1, 2011 will be taxed at a rate of 31.5% and the
distributions will be treated as taxable dividends in the hands of
unitholders. Unitholders will be entitled to a dividend tax credit which will
give credit for the level of taxation incurred by the Fund.
    The Fund has not provided for current income taxes in 2007 as the income
of the Fund is distributed to and taxed in the hands of unitholders. The
future taxation of distributions makes relevant for accounting purposes the
timing differences between the recognition of certain assets and liabilities
for tax and accounting purposes. For the quarter ended June 30, 2007, the Fund
provided for a future income tax expense of $6.6 million. This was a non-cash
item and was a one time charge to set up the provision for future taxes. An
additional non-cash provision of $0.4 million has been recorded in the quarter
ended September 30, 2007 to reflect changes in assets and liabilities and
their expected recognition for tax purposes. This future income tax expense
does not affect current distributions.

    Distribution Reinvestment Plan

    On April 5, 2007 the Fund announced a distribution reinvestment plan (the
"Plan"). Under the Plan, Canadian resident Unitholders will be able to
designate that all or a portion of the quarterly distributions payable on
their Fund Units be applied towards the purchase of existing Fund Units
through the facilities of the Toronto Stock Exchange at prevailing market
prices. No additional units will be issued from treasury under the Plan. The
first distribution to which the Plan was applicable was the distribution paid
on July 15, 2007. Unitholders should contact their brokers or Computershare
Investor Services Inc. if they wish to participate in the Plan. Additional
information on the Plan is also available on the Fund's website at
www.westshore.com.

    Currency Fluctuations

    Since April 1, 2003, the loading rates under most of Westshore's
long-term handling contracts have depended in whole or in part on the Canadian
dollar price realized for coal handled by Westshore. Since the contract price
for coal is set in U.S. dollars, the exchange rate affects the Canadian dollar
price and Westshore's loading rate. To mitigate the resulting risk, Westshore
has engaged in periodic hedging activities. In view of the continuing changes
in the value of the Canadian dollar relative to the US dollar, the exposure of
Westshore's revenues to such uncertainty and the amount of US dollar
pricing-based revenue that Westshore experiences, Westshore has recently
adopted a formal policy under which it will hedge by April 1 of each year not
less than 50% of its anticipated US dollar related revenues for the ensuing
coal year, based on the annual budget. Westshore has hedges in place through
December 17, 2007 but currently has no hedges in place for any period
thereafter. Westshore will continue to review opportunities for additional
future hedging.
    In the financial statements, the effect of currency fluctuations is shown
as impacting coal loading revenues before taking into account the effect of
hedging activities, the financial effect of which is accounted for as other
revenue. As stated in the audited Financial Statements of the Fund for the
year ending December 31, 2006, because Westshore's hedging transactions do not
qualify for "hedge accounting", the value of Westshore's forward exchange
contracts must be "marked to market" at each period end. On this basis, other
revenue for the first nine months ended September 30, 2007 was reduced by
$0.8 million of unrealized losses on forward exchange contracts, compared to
unrealized losses of $3.2 million for the first nine months of 2006.
Unrealized gains and losses are non-cash items. The cash effect of the hedging
program is recognized in other revenue as the forward exchange contracts
mature. For the nine months ended September 30, 2007, other revenue included a
realized gain of $2.6 million, compared to a realized gain of $5.3 million for
the same period in 2006. When the unrealized and realized gains and losses are
considered together, the net foreign exchange gain for the nine months ended
September 30, 2007 is $1.8 million compared to $2.1 million for the same
period in 2006.

    Liquidity and Capital Resources

    The Fund is obliged to distribute to Unitholders its cash inflows less
administrative costs of the Fund (and amounts, if any, which may be paid in
connection with any cash redemption of units). The Fund has no fixed
distribution requirements, distributions being solely a function of amounts
received by the Fund. Because the Fund's investment in Westshore is of a
passive nature, it is not anticipated that the Fund will require significant
capital resources to maintain its investment in Westshore on an ongoing basis.
The cost of ongoing maintenance and refurbishment of the equipment is well
within Westshore's financial capacity based solely on revenues less expenses
without any need for financing. The equipment upgrade is being funded entirely
from equity and cash resources, which will avoid any liquidity concerns with
debt service. As a result, the Fund does not anticipate any liquidity concerns
with the ongoing operations of Westshore.
    Westshore has in place with a Canadian chartered bank a $1 million
secured operating facility which, if required, can be utilized to meet working
capital requirements. This facility was not used during the third quarter and
remained undrawn at September 30, 2007. Westshore's distribution policy
involves leaving sufficient earnings before depreciation and unrealized gains
or losses on forward exchange contracts to cover cash requirements such as
capital expenditures and pension contributions.

    Quarterly Distributions

    On October 15, 2007, the Fund distributed $21,532,505 (representing $0.29
per trust unit) in cash for the third quarter of 2007 to Unitholders of record
on September 30, 2007 as compared with $21,818,144 ($0.31 per unit) in cash
for the third quarter of 2006. The Q3 2007 distribution for unitholder income
tax purposes was comprised entirely of income. This may vary when calculated
for the year as a whole.

    Standardized Distributable Cash

    References to "Standardized Distributable Cash" are to cash from
operating activities less capital expenditures, both measures recognized under
GAAP. Standardized Distributable Cash is a useful financial measure as an
indication of the Fund's ability to make distributions. It is a measure that
has been recommended by the CICA's Canadian Performance Reporting Board for
use by income funds in Canada as an indicator of financial performance. As one
of the factors that may be considered relevant by investors is the cash
available to be distributed by the Fund relative to the price of the Units,
the Fund believes that Standardized Distributable Cash is a useful
supplemental measure that may assist investors to assess an investment in the
Units.
    The Standardized Distributable Cash of the Fund is solely comprised of
distributions from Westshore which are impacted by the operating results of
Westshore. The following table sets out the Standardized Distributable Cash
calculation for the three and nine month periods ended September 30, 2007.

    
                               ----------------------------------------------
                                    3 months ended          9 months ended
                                        Sept 30                 Sept 30
                                   2007        2006        2007        2006
                               ----------------------------------------------
    Cash flows from operating
     activities                   40,506      26,129      82,848      66,207
    Less: Capital expenditures   (13,255)       (927)    (17,933)     (2,813)
                               ----------------------------------------------
    Standardized
     Distributable Cash           27,251      25,202      64,915      63,394
                               ----------------------------------------------
                               ----------------------------------------------
    Cash Distributions declared   21,533      21,818      59,401      61,231
                               ----------------------------------------------
                               ----------------------------------------------
    Basic and diluted
     Standardized Distributable
     Cash per unit                 0.367       0.358       0.874       0.901
                               ----------------------------------------------
                               ----------------------------------------------
    Cash Distributions per unit    0.290       0.310       0.800       0.870
                               ----------------------------------------------
                               ----------------------------------------------
    

    Change in Accounting Policies

    The Canadian Institute of Chartered Accountants issued new accounting
rules on financial instruments, hedges and comprehensive earnings that will
require the Fund to account for derivatives and financial assets held for
trading or available for sale at fair values. Loans, receivables and
investments held to maturity will be measured at amortized cost using the
effective interest rate method. Other financial liabilities will be measured
at fair value or at amortized cost using the effective interest rate method.
The effective interest rate method establishes the discount rate which equates
the estimated future cash flows with the net carrying amount of the financial
asset or liability.
    Other comprehensive earnings is the method used to record revenues,
expenses, gains and losses on net financial assets that are not required to be
included in earnings. Foreign currency translation gains and losses on
self-sustaining foreign operations will be included in other comprehensive
earnings. Comprehensive earnings are the sum of earnings for the period plus
other comprehensive earnings.
    The new rules do not have a significant impact on the Fund's financial
statements.

    Outlook

    The Fund's cash inflows are entirely dependent on Westshore's operating
results and are significantly influenced by four variables: the volume of coal
shipped through the Terminal; the US dollar denominated price received by
Westshore's customers for that coal; the Canadian-US dollar exchange rate; and
Westshore's operating and administrative costs.
    Critical to Westshore's ongoing success will be the ability of the Coal
Partnership to maintain and increase its coal export volumes while competing
with other suppliers for sales worldwide. Based on information currently
available, Westshore anticipates throughput volume to be between 20 and
21 million tonnes in 2007, at lower average loading rates than 2006, and with
the average loading rates in the last six months of 2007 being lower than in
the first six months. To date, Westshore has experienced no material impact to
throughput volumes from the equipment upgrade. Westshore shipped 1.7 million
tonnes in October even though only half of the site was accessible because of
the installations of new conveyors for most of the month.
    As announced in the Fording Canadian Coal Trust news release on July 30,
2007, the Coal Partnership has settled its customer contracts and this has
resulted in its average price for coal sales in the period April 1, 2007 to
March 31, 2008 to be approximately US$91 per tonne. This represents a
reduction of approximately 15% from the US dollar prices realized by the Coal
Partnership from the prior coal year. These prices represent sales for all
products, not only those exported through Westshore. These prices and the
recent further rise in the Canadian dollar relative to the US dollar, indicate
that Westshore's loading rate for tonnage shipped at a variable rate, and
hence its average loading rate, for the 2007/08 coal year will be lower than
for the 2006/07 coal year.
    For 2007 and based on current tonnage estimates as of the date of this
report, tonnages shipped at fixed rates are expected to account for
approximately 24% of the Terminal's throughput; tonnages shipped at variable
rates but subject to a cap, in effect for this year, are expected to account
for approximately 36% of throughput; and finally, tonnages shipped at full
variable rates are expected to account for approximately 40% of throughput at
the Terminal.
    Because of a combination of possible variations in tonnage, the US dollar
denominated coal price and exchange rates, it is not possible for the Fund to
predict accurately the level of its distributions for 2007. The third quarter
distribution was $0.29 per unit and distributions for the nine month period
ending September 30, 2007 were $0.765 per unit. If distributions for the
calendar year 2007 exceed $1.035 per unit, incentive fees will be payable by
Westshore to the Manager under the Management Agreement, as was the case in
2006.

    Forward-looking Statements

    The foregoing statements concerning tonnages, coal prices, exchange
rates, loading rates and variability of distributions are forward-looking
statements but reflect the current expectations of the Fund 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 are subject to the risks and
uncertainties outlined in the Fund'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.
    All forward-looking statements will be impacted by and are subject to the
risks set out under Risk Factors in the Fund's Annual Information Form.

    Additional Information

    Additional information relating to the Fund, including the Fund's latest
Annual Report and Annual Information Form, are available on SEDAR at
www.sedar.com and on Westshore's website at www.westshore.com.

    On behalf of the Trustees,

    (signed)

    William W. Stinson
    Chairman
    November 3, 2007



    
    The enclosed financial statements have not been reviewed by the Fund's or
Westshore's auditors.

    Consolidated Statements of Earnings, Comprehensive Earnings and
    Cumulative Earnings

    (in thousands of dollars,    Three months ended      Nine months ended
     except per unit amounts)       September 30            September 30
                                          $                       $
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    REVENUE
    Coal                          36,937      36,741     119,280     116,787
    Other                          2,361       1,184       5,789       4,911
    -------------------------------------------------------------------------
                                  39,298      37,925     125,069     121,698
    EXPENSES
    Operating                     16,870      17,980      51,889      48,975
    Administrative                 1,798       1,857       5,328       6,173
    -------------------------------------------------------------------------
                                  18,668      19,837      57,217      55,148
    -------------------------------------------------------------------------

    Earnings before depreciation
     and income taxes             20,630      18,088      67,852      66,550

    Depreciation                   5,553       5,405      16,658      16,214
    -------------------------------------------------------------------------

    Earnings before income taxes  15,077      12,683      51,194      50,336

    Recovery of (provision for)
     income taxes                   (413)          9      (7,002)          9
    -------------------------------------------------------------------------

    Net and comprehensive
     earnings for the period      14,664      12,692      44,192      50,345

    Cumulative earnings
     - Beginning of period       465,627     408,009     436,099     370,356
    -------------------------------------------------------------------------

    Cumulative earnings
     - End of period             480,291     420,701     480,291     420,701
    -------------------------------------------------------------------------

    Basic and diluted earnings
     per trust unit                0.197       0.180       0.595       0.715
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number
     of trust units
     outstanding              74,250,016  70,381,111  74,250,016  70,381,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows

    (in thousands of dollars)    Three months ended      Nine months ended
                                    September 30            September 30
                                          $                       $
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    Cash flows from operating
     activities
    Net earnings for the period   14,644      12,692      44,192      50,345
      Items not affecting cash
        Unrealized losses
         (gains) on forward
         exchange contracts         (202)      1,456         771       3,213
        Depreciation               5,553       5,405      16,658      16,214
        Future income tax expense    413           -       7,002           -
        Increase (decrease) in
         deferred employee
         future benefits costs       413          55         228        (148)
    -------------------------------------------------------------------------
                                  20,841      19,608      68,851      69,624
    Decrease (increase) in
     non-cash working capital     19,665       6,521      13,997      (3,417)
    -------------------------------------------------------------------------
                                  40,506      26,129      82,848      66,207
    -------------------------------------------------------------------------
    Cash flows from financing
     activities
    Distributions paid to
     unitholders                 (18,563)    (19,003)    (61,446)    (66,511)
    Issuance of units, net of
     share issuance costs              -           -      40,430           -
    -------------------------------------------------------------------------
                                 (18,563)    (19,003)    (21,016)    (66,511)
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Additions to plant
     and equipment               (13,255)       (927)    (17,933)     (2,813)
    -------------------------------------------------------------------------
                                 (13,255)       (927)    (17,933)     (2,813)
    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents          8,688       6,199      43,839      (3,117)
    Cash and cash equivalents
     - Beginning of period        69,706      30,588      34,555      39,904
    -------------------------------------------------------------------------
    Cash and cash equivalents
     - End of period              78,394      36,787      78,394      36,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow
     information
    Cash received for interest       749         546       1,839       1,261
    Income taxes received              -       1,625           -       1,791
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Balance Sheets

    (in thousands of dollars)                     September 30,  December 31,
                                                      2007           2006
                                                        $              $
    -------------------------------------------------------------------------
                                                   (Unaudited)     (Audited)

    ASSETS
    Current assets
    Cash and cash equivalents                          78,394         34,555
    Accounts receivable                                10,451         15,211
    Inventories                                         6,261          6,102
    Prepaid expenses                                    4,861          3,975
    Other assets                                        1,075          1,845
    -------------------------------------------------------------------------
                                                      101,042         61,668
    -------------------------------------------------------------------------

    Plant and equipment
    At cost                                           484,809        466,831
    Accumulated depreciation                         (358,848)      (342,205)
    -------------------------------------------------------------------------
                                                      125,961        124,626
    -------------------------------------------------------------------------

    Employee future benefits                           21,069         19,907
    Goodwill                                          365,541        365,541
    -------------------------------------------------------------------------
                                                      613,613        571,762
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & UNITHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities           27,650         17,367
    Distribution payable to unitholders                21,533         23,578
    -------------------------------------------------------------------------
                                                       49,183         40,945

    Employee future benefits                           19,150         17,760
    Future income taxes                                 7,002              -
    -------------------------------------------------------------------------
                                                       75,335         58,705
    Unitholders' Equity
    Capital contributions                             704,032        663,602
    Cumulative earnings                               480,291        436,099
    Cumulative distributions declared                (646,045)      (586,644)
    -------------------------------------------------------------------------
                                                      538,278        513,057
    -------------------------------------------------------------------------
                                                      613,613        571,762
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Notes to Financial Statements

    1.  Basis of presentation

        These interim financial statements do not contain all the information
        required for annual financial statements and should be read in
        conjunction with the financial statements and notes included in the
        Fund's Annual Report for the year ended December 31, 2006. These
        interim financial statements have not been audited or reviewed by
        external auditors.

    2.  Significant accounting policies

        These interim financial statements have been prepared in accordance
        with Canadian generally accepted accounting principles and follow the
        same accounting principles and methods of application as set out in
        Note 2 of the Fund's annual financial statements for the year ended
        December 31, 2006.

    3.  Financial Instruments

        Effective January 1, 2007, the Fund adopted the new accounting
        standards issued by the Canadian Institute of Chartered Accountants
        for financial instruments, hedges and comprehensive earnings. The
        recommendations required the Fund to account for derivatives and
        financial assets held for trading or available for sale at fair
        values. Loans, receivables and investments held to maturity are
        measured at amortized cost using the effective interest rate method.
        Other financial liabilities will be measured at fair value or at
        amortized cost using the effective interest rate method. The
        effective interest rate method establishes the discount rate which
        equates the estimated future cash flows with the net carrying amount
        of the financial asset or liability.

        Other comprehensive earnings is the method used to record revenue,
        expenses, gains and losses on net financial assets that are not
        required to be included in earnings. Foreign currency translation
        gains and losses on self-sustaining foreign operations will be
        included in other comprehensive earnings. Comprehensive earnings are
        the sum of earnings (loss) for the period plus other comprehensive
        earnings (loss).

        The new rules do not have a significant impact on the Fund's
        financial statements.

    4.  Employee future benefits

                                 Three months ended      Nine months ended
                                    September 30            September 30
                                  2007        2006        2007        2006
        ---------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

        Pension plan benefits  $      11   $    (509)  $  (1,162)  $  (1,527)
        Other retirement
         and post-employment
         benefits                    402         564       1,390       1,379
        ---------------------------------------------------------------------
        Employee future
         benefits expense
         (recovery)            $     413   $      55   $     228   $    (148)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    





For further information:

For further information: Nick Desmarais, Secretary, (604) 488-5295


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