Westshore Terminals Income Fund - 2009 second quarter report



    VANCOUVER, Aug. 6 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the second quarter ending June 30, 2009.
Please see attached Report to Unitholders for details.


    
    Westshore Terminals Income Fund
    Second Quarter Report
    For the six months ended June 30, 2009
    -------------------------------------------------------------------------
    

    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 a portion of the coal it handles are
calculated at present by reference to coal prices. For 2009 as a whole,
Westshore estimates the portion of coal handled at fully variable rates will
be approximately 40% of its throughput. Higher prices for hard coking coal
resulted in Teck Resources Limited ("Teck"), which is Westshore's principal
customer, achieving higher average settlement prices for the 2008/09 coal year
(ended March 31, 2009) compared to the 2007/08 coal year. For the 2009/10 coal
year, prices are down significantly from prices in the 2008/09 coal year, but
still at strong prices based on historical rates. As Westshore has some
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 some 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 valuable 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, 2008. The date of this management's discussion
and analysis and results of operations is August 6, 2009.
    The following table sets out selected consolidated financial information
for the Fund for the quarters ended June 30, 2009 and 2008. As at August 6,
2009 the Fund has 74,250,016 issued and outstanding trust units.

    
    -------------------------------------------------------------------------
    (In thousands of dollars except              Three Months   Three Months
     per unit amounts)                              Ended          Ended
                                                   June 30,       June 30,
                                                    2009           2008
                                                      $              $
    -------------------------------------------------------------------------
    REVENUE
      Coal loading                                     57,375         62,762
      Other                                               939          1,036
    -------------------------------------------------------------------------
                                                       58,314         63,798
    EXPENSES
      Operating                                        16,593         19,534
      Administrative                                    1,290          6,982
    -------------------------------------------------------------------------
                                                       17,883         26,516
    -------------------------------------------------------------------------
    Earnings before the undernoted                     40,431         37,282
    Interest income                                        73            434
    Depreciation                                       (5,281)        (5,572)
    Foreign exchange gain (loss)                        8,704            (66)
    -------------------------------------------------------------------------
    Earnings before income taxes                       43,927         32,078
    Provision for income taxes                          1,121            190
    -------------------------------------------------------------------------
    Net earnings                                       42,806         31,888
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit(1)                            0.577          0.429
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions declared(2)                     20,790         34,897
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions per unit                         0.280          0.470
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions of units in lieu of cash                  -          3,536
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in lieu of cash per unit          -          0.047
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Weighted average units outstanding for the quarter ended June 30,
        2009 were 74,250,016 (June 30, 2008 - 74,250,016)
    (2) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.

    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)  ----------------------------------------------
                                 June 30,     Mar 31,     Dec 31,    Sept 30,
                                   2009        2009        2008        2008
                                    $           $           $           $
    -------------------------------------------------------------------------
    Revenue
      Coal loading                57,375      53,647      88,425      73,764
      Other                          939       1,050       1,946       1,055
    -------------------------------------------------------------------------
                                  58,314      54,697      90,371      74,819
    Expenses
      Operating                   16,593      17,624      18,471      20,470
      Administration               1,290       2,324       8,076       7,228
    -------------------------------------------------------------------------
                                  17,883      19,948      26,547      27,698
    -------------------------------------------------------------------------
    Earnings before the
     undernoted                   40,431      34,749      63,824      47,121
    Interest income                   73         155         339         530
    Depreciation                  (5,281)     (5,401)     (5,573)     (5,572)
    Foreign exchange gain (loss)   8,704      (3,002)    (16,495)     (1,047)
    -------------------------------------------------------------------------
    Earnings before income taxes  43,927      26,501      42,095      41,032
    Provision for income taxes     1,121         827         613         870
    -------------------------------------------------------------------------
    Net earnings                  42,806      25,674      41,482      40,162
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit          0.577       0.346       0.559       0.541
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(1)                  20,790      17,820      39,353      38,610
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions per unit    0.280       0.240       0.530       0.520
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in
     lieu of cash                      -           -       3,988       3,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in
     lieu of cash per unit             -           -       0.054       0.053
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.


    -------------------------------------------------------------------------
    (In thousands of dollars                 Three Months Ended
     except per unit amounts)  ----------------------------------------------
                                 June 30,     Mar 31,     Dec 31,    Sept 30,
                                   2008        2008        2007        2007
                                    $           $           $           $
    -------------------------------------------------------------------------
    Revenue
      Coal loading                62,762      35,145      37,437      36,937
      Other                        1,036         968       2,444         946
    -------------------------------------------------------------------------
                                  63,798      36,113      39,881      37,883
    Expenses
      Operating                   19,534      18,521      18,660      16,965
      Administration               6,982       1,874       2,982       1,798
    -------------------------------------------------------------------------
                                  26,516      20,395      21,642      18,763
    -------------------------------------------------------------------------
    Earnings before the
     undernoted                   37,282      15,718      18,239      19,120
    Interest income                  434         610         697         749
    Depreciation                  (5,572)     (5,572)     (5,646)     (5,553)
    Foreign exchange gain (loss)     (66)        858         540         761
    -------------------------------------------------------------------------
    Earnings before income taxes  32,078      11,614      13,830      15,077
    Provision for (recovery of)
     income taxes                    190         281        (264)        413
    -------------------------------------------------------------------------
    Net earnings                  31,888      11,333      14,094      14,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per unit          0.429       0.153       0.190       0.197
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(1)                  34,897      20,790      26,730      21,533
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distribution per unit     0.470       0.280       0.360       0.290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in
     lieu of cash                  3,536       2,107           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of units in
     lieu of cash per unit         0.047       0.028           -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.
    


    Results of Operations

    In the second quarter of 2009, Westshore shipped 5.1 million tonnes of
coal, compared with 5.4 million tonnes shipped during the same period in 2008,
a decrease of 5.6%. Lower shipment levels during the second quarter of 2009
were primarily due to lower shipment levels from Teck, partially offset by
increased thermal coal shipments. In its release dated June 19, 2009 Teck
indicated that its coal volumes are expected to improve for the balance of the
year. Based on information currently available, Westshore is anticipating coal
volumes of approximately 20 million tonnes in 2009 as a whole compared to 21.1
million tonnes in 2008, at a lower average loading rate.
    Coal loading revenue decreased by 8.6% to $57.4 million in the second
quarter of 2009 from $62.8 million in the second quarter of 2008. More than
half of this decrease is attributable to reduced throughput volumes. The
average loading rate in the second quarter of 2009 was $11.28 per tonne
compared to $11.62 per tonne for the same period in 2008. In 2008, the average
rate per tonne was comparatively low in the first quarter, rose in the second
quarter and reached historically high levels in the third and fourth quarters,
which continued into the first quarter of 2009. The average rate was expected
to fall significantly in the second quarter of 2009, but only fell
approximately 7.5% from the first quarter of 2009, as coal prices realized by
customers were higher than anticipated. Westshore understands that this was
due to carry over tonnage shipped in the 2009/10 coal year at prices that
applied for the 2008/09 coal year. Based on expected prices announced by Teck,
Westshore expects the average loading rate to fall significantly in the last
six months of 2009 from the average rate in the first six months.
    Other income was consistent with that of the second quarter of 2008 and
consists mostly of wharfage income. Operating expenses decreased from $19.5
million in the second quarter of 2008 to $16.6 million in the second quarter
of 2009, as a result of lower throughput levels. Administrative expenses in
the second quarter to 2009 were $1.3 compared to $7.0 million for the same
period in 2008, as a result of lower management contract incentive fees. The
expenses for the second quarter of 2008 included the partial accrual of the
higher management fee that was earned in 2008 as a result of record
distributions by the Fund. The management fee is expected to be substantially
lower in 2009, since the distributions will be lower as a result of expected
reduced volumes and a lower average rate for 2009. Interest income for the
second quarter of 2009 decreased by $0.4 million due to lower interest rates
and because the Fund has spent some of its cash on the equipment upgrade
project.
    Foreign exchange, which includes both realized gains/losses and changes
in the mark-to-market adjustment for unrealized gains/losses, increased to a
$8.7 million gain for the three months ended June 30, 2009 from a $0.1 million
loss in the second quarter of 2008. This increase was mainly caused by a
reversal of the unrealized mark-to-market losses on the US dollar forward
contracts, due to the strengthening of the Canadian dollar, offset by losses
realized on forward contracts that settled in the quarter (see Currency
Fluctuations).
    Earnings before depreciation, interest, foreign exchange and income taxes
were higher in the second quarter of 2009, at $40.4 million as compared to
$37.3 million in the second quarter of 2008.

    Contract Rate Review and Renewal

    In August 2006, Teck 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. If the
parties are unable to resolve the Port Services Contract matter by
negotiation, the matter will have to be determined by arbitration.
    The agreement with Teck that covers coal from the Elkview Mine expires
March 31, 2010. Initial discussions have commenced concerning a replacement
contract. There can be no assurance that the contract will be renewed, or
that, if the contract is renewed, its terms, including provisions relating to
volume and rate, will be the same as those of the expiring contract.

    Equipment Upgrade Project

    Westshore is proceeding with the upgrade to its existing equipment
previously announced. The cost of the upgrade remains on budget at
approximately $49 million. The project consists of new conveyors, an upgrade
to the tandem rotary rail car dumper and a fourth stacker reclaimer. The
conveyors and rail car dumper upgrade have been completed and the stacker
reclaimer is due to be operational by the end of 2009. Funding for the upgrade
has been provided principally 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

    Distributions declared by the Fund after January 1, 2011 will be taxed at
a rate of 27.5% (2012 - 26%) and the distributions will be treated as taxable
dividends in the hands of unitholders. Unitholders will be entitled to a
dividend tax credit which will give credit for the level of taxation incurred
by the Fund.
    The Fund has not provided for current income taxes in 2009 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. A non-cash expense of $1.1 million has been
recorded in the quarter ended June 30, 2009 to reflect changes in assets and
liabilities and their expected recognition for tax purposes. This future
income tax expense does not affect current distributions.
    On March 12, 2009, Bill C-10, Budget Implementation Act 2009, received
Royal Assent. Bill C-10, among other things, provides rules which permit
income trusts to convert to corporations on a tax-deferred basis. Management
and its tax advisors are reviewing these rules to determine the most
appropriate course of action for the Fund.

    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.
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

    Westshore expects that in 2009, the loading rates for approximately 40%
of the coal loaded at Westshore will be at fully variable rates and depend on
the Canadian dollar price realized for coal by its customers. Coal sales by
Westshore's customers are priced on an annual basis in U.S. dollars, with the
result that the Canadian dollar price received fluctuates within the year
because of exchange rate movements. To mitigate the resulting risk, Westshore
has engaged in periodic hedging activities. Westshore has adopted a policy
under which it expects to hedge by April 30 of each year a portion of its
anticipated US dollar related revenues for that coal year, based on the annual
budget. Westshore will continue to review the need for additional future
hedging.
    In the financial statements, the effect of currency fluctuations is shown
as affecting coal loading revenues before taking into account the effect of
hedging activities, the financial effect of which is accounted for as foreign
exchange. During the six months ended June 30, 2009, Westshore realized
foreign exchange losses of $8.8 million compared to no realized foreign
exchange gains or losses for the same period in 2008. Realized foreign
exchange affects cash flow and therefore impacts unitholder distributions.
    As Westshore's hedging transactions do not qualify for "hedge accounting"
treatment, the value of Westshore's outstanding foreign exchange contracts
must be "marked to market" at each period end. On this basis, Westshore
recognized an unrealized foreign exchange gain of $14.5 million during the six
months ended June 30, 2009, which compares to a $0.8 million gain for the same
period last year. Unrealized foreign exchange gains and losses are non-cash
items and do not impact current distributions.

    Liquidity and Capital Resources

    The Fund is obliged to distribute to Unitholders its income (net of
administrative costs of the Fund and any amounts which may be paid in
connection with any cash redemption of units). The Fund has no fixed
distribution requirements, distributions being solely a function of amounts
received by the Fund from Westshore. It is not anticipated that the Fund will
require significant capital resources to maintain its investment in Westshore
on an ongoing basis. Westshore's facility is a mature facility which does not
require significant ongoing replacement of equipment. The cost of ongoing
maintenance and refurbishment of the equipment is well within Westshore's
financial capacity based solely on revenues less expenses without any need for
financing. The current equipment addition and upgrade is being funded
primarily from funds raised from issuing equity, which will assist in avoiding
any liquidity concerns with debt service. As a result, the Fund does not
anticipate any liquidity concerns with the ongoing operations of Westshore.
    During Q1 2009, Westshore extended the term (to February 11, 2010) of its
$1 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, 2009.
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.
    Westshore has obligations under its pension plan and other
post-retirement benefit plans which it is required to fund each year. As a
result of the downturn in financial markets, Westshore's funding requirements
have increased and Westshore expects to contribute $4.8 million in 2009, up
from $3.1 million in 2008. Westshore does not anticipate any problems in
meeting these funding obligations as the contributions are deductible from
taxable income and therefore funded by operating cash flows, although this
will result in a reduction of cash distributions to Unitholders.
    Obligations under operating leases for the years ending December 31 are
as follows:

    
    -------------------------------------------------------------------------
    (In thousands of dollars)         Terminal
                                        lease          Other          Total
                                          $              $              $
    -------------------------------------------------------------------------
    2009                                11,701            457         12,158
    2010                                11,701            457         12,158
    2011                                11,701              -         11,665
    2012                                11,701              -         11,665
    2013                                11,701              -         11,665
    Thereafter to 2026                 152,113              -        152,113
    -------------------------------------------------------------------------
    

    Westshore has commitments of approximately $6,085,000 with respect to
purchases of equipment associated with the equipment upgrade and other capital
projects that are to be paid in the remainder of 2009.
    The Fund does not have any long-term debt, material capital lease
obligations, or other long-term obligations.

    Quarterly Distributions

    On July 15, 2009, the Fund distributed $20,790,005 (representing $0.28
per trust unit) in cash for the second quarter of 2009 to Unitholders of
record on June 30, 2009 as compared with $34,897,508 (representing $0.47 per
trust unit) in cash for the second quarter of 2008. The Fund is attempting to
make the four quarterly distributions in 2009 as consistent as possible in the
face of changing coal markets and in anticipation of lower expected financial
results in the second half of the year compared to the first half, due to
expected lower throughput rates. Distributions for the third and fourth
quarters of 2009 would be lower than those budgeted if they were based solely
on the anticipated results in those quarters. Results in those quarters will
affect the actual level of distributions.

    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 financial measure that indicates
the Fund's ability to make distributions. It is a measure that has been
recommended by the CICA's Canadian Performance Reporting Board for use by
income funds in Canada as an indicator of financial performance. As one of the
factors that may be considered relevant by investors is the cash available to
be distributed by the Fund relative to the price of the Units, the Fund
believes that Standardized Distributable Cash is a useful supplemental measure
that may assist investors to assess an investment in the Units.
    The Standardized Distributable Cash of the Fund is substantially
comprised of distributions from Westshore which are impacted by the operating
results of Westshore. The following table sets out the Standardized
Distributable Cash calculation for the three and six month periods ended June
30, 2009 and 2008 respectively.

    
                               ----------------------------------------------
                               3 months ended June 30  6 months ended June 30
                                  2009        2008        2009        2008
                                    $           $           $           $
                               ----------------------------------------------
    Cash flows from operating
     activities                   43,568      35,349      71,736      51,778
    Less: Capital expenditures    (9,237)       (341)     (9,269)     (2,255)
                               ----------------------------------------------
    Standardized Distributable
     Cash                         34,331      35,008      62,467      49,523
                               ----------------------------------------------
                               ----------------------------------------------
    Cash Distributions declared   20,790      34,897      38,610      55,687
                               ----------------------------------------------
                               ----------------------------------------------
    Basic and diluted
     Standardized Distributable
     Cash per unit                  0.46        0.47        0.84        0.67
                               ----------------------------------------------
                               ----------------------------------------------
    Cash Distributions per unit     0.28        0.47        0.52        0.75
                               ----------------------------------------------
                               ----------------------------------------------
    

    The Fund plans its quarterly distributions based on anticipated annual
results for the year in question and budgets for fairly even distributions
over the four quarters of the year. Any particular quarterly distribution may
therefore vary from Standardized Distributable Cash flow for that quarter. For
the three months ended June 30, 2008, the cash distribution was comparable to
Standardized Distributable Cash for that quarter, whereas for the three months
ended June 30, 2009, the cash distribution was less than Standardized
Distributable Cash as a portion was retained to supplement distributions in
the last half of the year when revenues are expected to decrease as a result
of anticipated lower coal prices.
    Because the Fund's investments consist of substantially all the limited
partnership units of Westshore, virtually all of the taxable income of
Westshore for any year is automatically allocated to the Fund. While the Fund
usually attempts both to estimate its taxable income for the year and to make
distributions for the year as close as possible to that taxable income, it is
normal for there to be some discrepancy between the taxable income of the Fund
and cash distributions by the Fund. In order to deal with the situation where
the taxable income of the Fund exceeds cash distributions, the Declaration of
Trust provides that an amount equal to the excess will be distributed to
unitholders in the form of additional trust units, which are then
consolidated. This results in an increase to the cost base of the units equal
to the amount of any such distributions.

    
    Change in Accounting Policies

    Inventories
    

    On January 1, 2008, the Fund adopted the new requirements of CICA
Handbook Section 3031 for inventories. The standard provides more
comprehensive guidance on the determination of costs and the cost formulas
that are used to assign costs to inventories. Inventories are required to be
valued at the lower of cost and net realizable value.
    The adoption of this standard did not have a material impact on the
consolidated financial statements of the Fund.

    Financial Instruments

    On January 1, 2008, the Fund adopted the new requirements of the CICA
Handbook Section 3862 and 3863 for financial instruments. The standard
requires additional disclosure on the Fund's risks with respect to financial
instruments and how the Fund manages these risks. This information is
presented in Note 4 to the accompanying financial statements.

    Capital Disclosures

    On January 1, 2008, the Fund adopted the new requirements of CICA
Handbook Section 1535 for capital disclosures. The standard requires
additional disclosure about the Fund's capital and how it is managed along
with external requirements or restrictions on that capital. This information
is provided in Note 5 to the accompanying consolidated financial statements.

    Goodwill and Intangible Assets

    On January 1, 2009, the Fund adopted the new requirements of CICA
Handbook Section 3064, Goodwill and Other Intangible Assets. Section 3064
expands on the standards for recognition, measurement, and disclosure of
goodwill and intangible assets. The adoption of this new standard did not have
any impact on the consolidated financial statements of the Fund.

    Credit Risk and the Fair Value of Financial Assets and Liabilities

    On January 23, 2009, the CICA Emerging Issues Committee (EIC) issued
EIC-173, Credit Risk and Fair Value of Financial Assets and Liabilities.
EIC-173 is effective for interim and annual financial statements ending on or
after January 20, 2009. EIC-173 provides guidance that an entity's own credit
risk of counterparties should be taken into account in determining the fair
value of financial assets and liabilities. Adoption of this guidance is to be
applied retrospectively without restatement to prior periods. The Fund has
evaluated the impact of this new standard and concluded that it does not have
a material impact on its financial statements.

    International Financial Reporting Standards (IFRS)

    The use of IFRS for financial reporting in Canada will be applicable for
the fiscal year beginning January 1, 2011. The Fund's IFRS transition plan
consists of three main phases - Scoping, Analysis and Implementation. The
Scoping phase involves a high-level analysis of the significant accounting
differences between IFRS and Canadian GAAP and determining the potential
impact of the new accounting standards on business areas such as information
technology, internal controls and disclosure controls. The Analysis phase
involves a more comprehensive analysis of the accounting standards, including
the development of accounting policies and the quantification of the
conversion impact. The Implementation phase executes the changes identified in
the Analysis phase.
    The Fund has completed the Scoping phase and identified the following
standards which could have a material impact on recognition, measurement and
disclosure: income taxes; property, plant and equipment; employee benefits;
provisions and contingencies; and impairment of assets. The Fund is unable to
quantify the impact of the new accounting standards at this time.
    IFRS 1 contains several optional elections that allow a company upon
first-time adoption of IFRS to avoid retrospective application of certain
standards, particularly in cases where the cost of preparing retrospective
information exceeds the benefits to users of financial statements. The Fund
has considered the available elections under IFRS 1 but will not formally
adopt them until more progress has been made in the Analysis phase of the
project.
    The following table highlights some of the key activities in the
transition plan and what has been accomplished as of June 30, 2009.

    
    -------------------------------------------------------------------------
          Key Activity             Milestones                 Status
    -------------------------------------------------------------------------
    Financial statement       Identification of       Identification of major
    preparation               major differences and   differences completed
                              accounting policy
    -  Identification         choices made by the     Priority and
       of significant         end of 2009             difficulties assigned
       accounting                                     to each new accounting
       differences            Quantification and      standards
    -  Selection of           development of
       accounting policy      disclosure to occur     Detailed analysis
       choices                through 2010            required for individual
    -  Selection of choices                           accounting standards
       available under
       IFRS 1 (first-time
       adoption)
    -  Financial statement
       format
    -  Changes in disclosure
    -------------------------------------------------------------------------
    Infrastructure            Major knowledge         Formal course training
                              training completed      completed
    -  Development of         by end of 2009;
       knowledge and          new developments        IASB activity being
       resources              monitored               monitored on ongoing
    -  IT impact assessment   throughout 2010         basis
       and conversion
                              IT systems ready to     IT assessment being
                              process information     done in conjunction
                              in parallel in 2010     with detailed analysis
                                                      of accounting standards
    -------------------------------------------------------------------------
    Control Environment       Processes and           Impact assessment being
                              documentation to be     done in conjunction
    -  Assessment of impact   complete by end of      with detailed analysis
       on ICFR and DC&P       2010                    of accounting standards
    -  Changes in processes
       to accommodate IFRS
    -  Documentation
       requirements
    -------------------------------------------------------------------------
    Business Policy           Assessment to be        Impact assessment being
                              complete by mid-2010    done in conjunction
    -  Assessment of impact                           with detailed analysis
       on financial                                   of accounting standards
       covenants
    -  Assessment of impact
       on capital adequacy
    -------------------------------------------------------------------------
    

    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. In view of differences in
loading rates between its various contracts, Westshore cannot provide a
reliable indication of the effect of changes in pricing, exchange rates and
tonnage on distributions, which will depend in part on which mines ship the
tonnage. Accordingly, Westshore is not providing a discussion of
sensitivities.
    Critical to Westshore's ongoing success will be the ability of its
customers, including Teck in particular, to maintain and increase their coal
export volumes while competing with other suppliers for sales worldwide. Based
on information currently available, Westshore anticipates throughput volumes
of approximately 20 million tonnes compared to 2008 levels of 21.1 million
tonnes and at a lower average loading rate than in 2008, with the average
loading rates in the last six months of 2009 being significantly lower than in
the first six months. Actual volumes may change depending on coal demand. To
date, Westshore has experienced no material impact to throughput volumes from
the equipment upgrade.
    As announced in Teck's news release dated July 30, 2009, Teck has
achieved settlements for most of its tonnage for the 2009/10 coal year. Teck
has indicated that it has achieved settlement prices of US$128 per tonne for
its highest quality products, and that the average selling price for the
2009/10 coal year will reflect a range of hard coking coal products of various
qualities as well as thermal and PCI coal, which normally comprise about 10%
of its coal sales volumes. The highest price of US$128 per tonne for the
2009/10 coal year can be compared to the average price of US$204 realized by
Teck in the first quarter of 2009.
    For 2009 and based on current tonnage estimates as of the date of this
report, tonnages shipped at fixed rates are expected to account for
approximately 25% 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 35% of throughput; and finally, tonnages shipped at full
variable rates are expected to account for approximately 40% of throughput at
the Terminal.
    The second quarter distribution was $0.28 per unit compared to $0.47 per
unit for the second quarter of 2008. Results in subsequent quarters will
determine the level of distributions, either positively or negatively. If
distributions for the calendar year 2008 exceed $1.035 per unit, incentive
fees will be payable by Westshore to the Manager under the Management
Agreement, as was the case in 2008. Those fees are computed on the following
basis: 15% of Fund distributable cash between $1.035 - $1.125 per unit; 25% of
Fund distributable cash between $1.125 - $1.260 per unit; and 35% of Fund
distributable cash above $1.260 per unit.

    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 will be impacted by 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.

    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
    August 6, 2009


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

    Consolidated Statements of Earnings, Comprehensive Earnings and
    Cumulative Earnings

    (in thousands of dollars,   Three months ended       Six months ended
     except per unit amounts)         June 30                 June 30
                                         $                       $
                                 2009        2008        2009        2008
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    REVENUE
    Coal                          57,375      62,762     111,022      97,907
    Other                            939       1,036       1,989       2,004
    -------------------------------------------------------------------------
                                  58,314      63,798     113,011      99,911
    EXPENSES
    Operating                     16,593      19,534      34,217      38,055
    Administrative                 1,290       6,982       3,614       8,856
    -------------------------------------------------------------------------
                                  17,883      26,516      37,831      46,911
    -------------------------------------------------------------------------

    Earnings before the
     undernoted                   40,431      37,282      75,180      53,000
    Interest income                   73         434         228       1,044
    Depreciation                  (5,281)     (5,572)    (10,682)    (11,144)
    Foreign exchange gain (loss)   8,704         (66)      5,702         792
    -------------------------------------------------------------------------

    Earnings before income
     taxes                        43,927      32,078      70,428      43,692
    Provision for income taxes     1,121         190       1,947         471
    -------------------------------------------------------------------------

    Net earnings and
     comprehensive earnings
     for the period               42,806      31,888      68,481      43,221
    -------------------------------------------------------------------------

    Cumulative earnings -
     Beginning of period         644,925     505,718     619,250     494,385
    -------------------------------------------------------------------------

    Cumulative earnings -
     End of period               687,731     537,606     687,731     537,606
    -------------------------------------------------------------------------

    Basic and diluted earnings
     per trust unit                0.577       0.429       0.922       0.582
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



    Consolidated Statements of Cash Flows

    (in thousands of dollars)   Three months ended       Six months ended
                                      June 30                 June 30
                                         $                       $
                                 2009        2008        2009        2008
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    Cash flows from operating
     activities
    Net earnings for the period   42,806      31,888      68,481      43,221
      Items not affecting cash
        Change in unrealized
         gains and losses on
         forward exchange
         contracts               (12,214)         67     (14,495)       (791)
        Depreciation               5,281       5,572      10,682      11,144
        Future income tax
         provision                 1,121         190       1,948         471
        Decrease in deferred
         employee future
         benefits costs           (1,763)       (714)     (3,415)       (530)
    -------------------------------------------------------------------------
                                  35,231      37,003      63,201      53,515
    Decrease (increase) in
     non-cash working capital      8,337      (1,654)      8,535      (1,737)
    -------------------------------------------------------------------------
                                  43,568      35,349      71,736      51,778
    -------------------------------------------------------------------------
    Cash flows from financing
     activities
    Distributions paid to
     unitholders                 (17,820)    (20,790)    (57,173)    (47,520)
    -------------------------------------------------------------------------
                                 (17,820)    (20,790)    (57,173)    (47,520)
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Additions to plant and
     equipment                    (9,237)       (341)     (9,269)     (2,255)
    -------------------------------------------------------------------------
                                  (9,237)       (341)     (9,269)     (2,255)
    -------------------------------------------------------------------------

    Increase in cash and
     cash equivalents             16,511      14,218       5,295       2,003

    Cash and cash equivalents -
     Beginning of period          63,818      60,527      75,034      72,742
    -------------------------------------------------------------------------

    Cash and cash equivalents -
     End of period                80,329      74,745      80,329      74,745
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
    Cash received for interest        73         434         228       1,044
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Balance Sheets

    (in thousands of dollars)                        June 30,    December 31,
                                                      2009          2008
                                                        $             $
    -------------------------------------------------------------------------
                                                    (Unaudited)    (Audited)
    ASSETS
    Current assets
    Cash and cash equivalents                          80,329         75,034
    Accounts receivable                                21,208         29,313
    Inventories                                         6,130          6,478
    Prepaid expenses                                    5,570            672
    Other assets                                        1,905              -
    -------------------------------------------------------------------------
                                                      115,142        111,497
    -------------------------------------------------------------------------

    Plant and equipment
    At cost                                           510,137        500,881
    Accumulated depreciation                         (396,999)      (386,329)
    -------------------------------------------------------------------------
                                                      113,139        114,552
    -------------------------------------------------------------------------

    Employee future benefits                           24,467         23,303
    Goodwill                                          365,541        365,541
    -------------------------------------------------------------------------
                                                      618,289        614,893
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & UNITHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities           21,280         16,293
    Distribution payable to unitholders                20,790         39,353
    Other liabilities                                       -         12,590
    -------------------------------------------------------------------------
                                                       42,070         68,236

    Employee future benefits                           18,857         21,108
    Future income taxes                                10,640          8,692
    -------------------------------------------------------------------------
                                                       71,567         98,036
    -------------------------------------------------------------------------

    Unitholders' equity
    Capital contributions                             704,032        704,032
    Cumulative earnings                               687,731        619,250
    Cumulative distributions declared                (845,041)      (806,425)
    -------------------------------------------------------------------------
                                                      546,722        516,857
    -------------------------------------------------------------------------

                                                      618,289        614,893
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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, 2008. 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, 2008.

    3.  New accounting pronouncements

        On January 1, 2008, the Fund adopted the new requirements of CICA
        Handbook Section 3031 for inventories. The standard provides more
        comprehensive guidance on the determination of costs and the cost
        formulas that are used to assign costs to inventories. Inventories
        are required to be valued at the lower of cost and net realizable
        value. The adoption of this standard did not have a material impact
        on the consolidated financial statements of the Fund.

        On January 1, 2008, the Fund adopted the new requirements of the CICA
        Handbook Section 3862 and 3863 for financial instruments. The
        standard requires additional disclosure on the Fund's risks with
        respect to financial instruments and how the Fund manages these
        risks. This information is presented in Note 4 to the accompanying
        financial statements.

        On January 1, 2008, the Fund adopted the new requirements of the CICA
        Handbook Section 1535 for capital disclosures. The standard requires
        additional disclosure about the Fund's capital and how it is managed
        along with external requirements or restrictions on that capital.
        This information is provided in Note 5 to the accompanying
        consolidated financial statements.

        On January 1, 2009, the Fund adopted the new requirements of the CICA
        Handbook Section 3064, Goodwill and Other Intangible Assets. Section
        3064 expands on the standards for recognition, measurement, and
        disclosure of goodwill and intangible assets. The adoption of this
        new standard did not have any impact on the consolidated financial
        statements of the Fund.

    4.  Financial Instruments

        The Fund's financial instruments include cash and cash equivalents,
        accounts receivable, accounts payable and distributions payable to
        unitholders. The carrying amounts of these financial instruments
        recorded on the consolidated balance sheet are reasonable estimates
        of their fair values due to the relatively short periods to maturity
        and commercial terms of these instruments.

        Cash and cash equivalents are classified as financial assets held for
        trading and are recorded at fair value on the consolidated balance
        sheet. Accounts receivable are classified as loans and receivables
        and are recorded at amortized cost. Accounts payable and
        distributions payable to unitholders are classified as other
        financial liabilities and are recorded at amortized cost.

        The Fund's financial instruments also include foreign exchange
        forward contracts, which are derivative financial instruments that
        are classified as held-for-trading and are recorded at fair value.
        Fair value is measured using the quoted market rate for forward
        contracts of a similar maturity date.

        Financial risk management and exposure

        The Fund is exposed to various risks associated with its financial
        instruments, which include credit risk, liquidity risk and market
        risk.

        Credit Risk

        Credit risk is the risk of financial loss to the Company if a
        customer or counterparty to a financial instrument fails to meet its
        contractual obligations. Credit risk arises primarily from accounts
        receivable and cash and cash equivalents.

        The Company's exposure to credit risk is influenced by the
        profitability of coal mining companies, which is heavily impacted by
        the price of the coal. The accounts receivable are concentrated with
        one customer, Teck, as this customer represented approximately 90% of
        Westshore's revenues in 2008. Westshore does not have any collateral
        or security for its receivables. Westshore monitors the financial
        health of its customers and regularly reviews its accounts receivable
        for impairment. As at June 30, 2009, there were no trade accounts
        receivable past due which were considered uncollectible and no
        reserve in respect of doubtful accounts was set up.

        The Fund limits its exposure to credit risk arising from cash
        equivalents by only investing in money market funds with a major
        Canadian financial institution. The Fund does not expect any credit
        losses in the event of non-performance by counterparties to its
        foreign exchange forward contracts as the counterparties are major
        Canadian financial institutions.

        The carrying amount of financial assets represents the maximum credit
        exposure. The maximum exposure to credit risk is:

                                                                        2009

        Cash and cash equivalents                                     80,329
        Accounts receivable                                           21,208
        ---------------------------------------------------------------------
                                                                     101,537
        ---------------------------------------------------------------------

        Liquidity Risk

        Liquidity risk is the risk that the Fund will not be able to meet its
        obligations as they fall due. The Fund continually monitors its
        financial position to ensure that it has sufficient liquidity to
        discharge its obligations when due. The Fund's distribution
        obligation to unitholders is funded from operating income and the
        current equipment upgrade has been funded with additional equity and
        from cash reserves, which will avoid liquidity concerns with debt
        service.

        The financial liabilities of the Fund, which include accounts payable
        and accrued liabilities, have a contractual maturity of less than
        1 year.

        Westshore also maintains a $1 million operating facility that can be
        drawn down to meet short term financing needs. No amounts were
        outstanding on this facility at June 30, 2009.

        Market Risk

        The significant market risk exposures affecting the financial
        instruments held by the Fund are those related to foreign currency
        exchange rates and interest rates.

        Foreign currency exchange rates

        The Fund is exposed to foreign currency exchange rate risk on its
        foreign currency forward contracts. The value of these financial
        instruments fluctuates with changes in the CDN/US dollar exchange
        rate. A $0.01 increase in the US/Canadian exchange rate at June 30,
        2009, would have reduced the value of the US dollar foreign exchange
        contracts by approximately $569,000. The impact would have resulted
        in a reduction in net earnings and comprehensive earnings of
        $569,000. From the beginning of the year to June 30, 2009, the US
        dollar has weakened by approximately 5.1% against the Canadian
        dollar. The fair market value of the Fund's foreign currency forward
        contracts has increased by $14.5 million.

        Interest rates

        The Fund has limited exposure to interest rate risk on the cash
        equivalents (short-term investments). Money market fund returns are
        correlated with Canadian T-bills and Bankers' Acceptances of major
        Canadian financial institutions. Based on the cash balance at
        June 30, 2009, a 1% change in interest rates would have impacted net
        earnings and comprehensive earnings for the year to date by
        approximately $402,000.

    5.  Capital Disclosures

        The capital of the Fund consists solely of unitholders' equity which
        includes issued trust units and cumulative earnings less cumulative
        distributions.

        The objective of the Fund is to maintain a stable capital base and
        ensure that the capital structure does not interfere with the Fund's
        ability to meet its distribution requirements on the trust units. In
        2009, the Fund expects that its quarterly distributions to
        unitholders will be funded by earnings and operating cash flows.

        The trust units are governed by the Second Amended and Restated
        Declaration of Trust dated September 29, 2005, which provides that
        non-residents of Canada may not own more than 49% of the trust units
        at any time. The Fund continually monitors the non-resident ownership
        levels to the best of its ability given the practical limitations
        regarding beneficial ownership interest. The Fund believes that it
        has always had substantially less than 49% non-Canadian ownership.

        The Fund's trust units are not subject to externally imposed capital
        requirements. There have been no changes in how the Fund manages its
        capital during the period ended June 30, 2009.

    6.  Employee future benefits

        The total benefit cost of the Company's defined benefit and other
        retirement and post employment benefit plans was a recovery of
        $3,415,000 for the six months ended June 30, 2009 (recovery of
        $530,000 for the six months ended June 30, 2008).


                              Corporate Office
                       Westshore Terminals Income Fund
                       1800 - 1067 West Cordova Street
                    Vancouver, British Columbia  V6C 1C7
              Telephone: 604.488.5295  Facsimile: 604.687.2601
                              www.westshore.com
    





For further information:

For further information: Nick Desmarais, Secretary, (604) 488-5214


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