Westshore Terminals Income Fund - 2010 first quarter report

VANCOUVER, May 6 /CNW/ - Westshore Terminals Income Fund (TSX: WTE-UN) announced today its earnings for the first quarter ending March 31, 2010. Please see attached Report to Unitholders for details.

    
    Westshore Terminals Income Fund
    First Quarter Report
    For the three months ended March 31, 2010
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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 US dollar denominated price received by Westshore's customers for coal, the CDN/US dollar exchange rate and Westshore's costs. In recent years, a substantial portion of Teck Coal's throughput was handled at loading rates that varied with the price of coal. However, as a result of a recently concluded agreement with Teck, a smaller portion of Teck's throughput will be at variable loading rates in 2010, and for the 2011/12 coal year none of the contracts with Teck will provide for variable pricing. Lower prices for hard coking coal resulted in Teck, which is Westshore's principal customer, achieving lower average settlement prices for the 2009/10 coal year (ended March 31, 2010) compared to the 2008/09 coal year. For the 2010/11 coal year, prices that have been publicly announced to date, including in Teck's release dated April 20, 2010, reflect increased coal prices in the US$200-$235 per tonne range. 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, 2009. The date of this management's discussion and analysis and results of operations is May 6, 2010.

The following table sets out selected consolidated financial information for the Fund for the quarter ended March 31, 2010. As at May 6, 2010 the Fund has 74,250,016 issued and outstanding trust units.

    
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    (In thousands of dollars except                     Three       Three
    per unit amounts)                                   Months      Months
                                                        Ended       Ended
                                                       March 31,   March 31,
                                                         2010        2009
                                                          $           $
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    REVENUE
      Coal loading                                        52,140      53,647
      Other                                                1,175       1,050
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                                                          53,315      54,697
    EXPENSES
      Operating                                           20,993      17,624
      Administrative                                       3,750       2,324
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                                                          24,743      19,948

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    Earnings before the undernoted                        28,572      34,749
    Interest income                                           62         155
    Depreciation                                          (5,247)     (5,401)
    Foreign exchange gain (loss)                             206      (3,002)
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    Earnings before income taxes                          23,593      26,501
    Provision for income taxes                               330         827
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    Net earnings                                          23,263      25,674
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    Net earnings per unit(1)                               0.313       0.346
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    Cash Distributions declared(2)                        31,185      17,820
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    Cash Distributions per unit                            0.420       0.240
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    Distribution of units in lieu of cash                      -       2,790
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    Distribution of units in lieu of cash per unit             -       0.038
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    (1) Weighted average units outstanding for the quarter ended March 31,
        2010 were 74,250,016 (March 31, 2009 - 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.

    
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    (In thousands of dollars
     except per unit amounts)               Three Months Ended
                              -----------------------------------------------
                                Mar 31,     Dec 31,     Sep 30,    Jun 30,
                                 2010        2009        2009       2009
                                  $           $           $          $
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    Revenue
      Coal loading                52,140      46,445      46,460      57,375
      Other                        1,175       1,029         833         939
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                                  53,315      47,474      47,293      58,314
    Expenses
      Operating                   20,993      22,172      19,323      16,593
      Administration               3,750       4,513       1,862       1,290
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                                  24,743      26,685      21,185      17,883
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    Earnings before the
     undernoted                   28,572      20,789      26,108      40,431
    Interest income                   62          71          74          73
    Depreciation                  (5,247)     (5,416)     (5,281)     (5,281)
    Foreign exchange gain (loss)     206         564        (219)      8,704
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    Earnings before income taxes  23,593      16,008      20,682      43,927
    Provision for (recovery of)
     income taxes                    330      (2,406)        446       1,121
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    Net earnings                  23,263      18,414      20,236      42,806
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    Net earnings per unit          0.313       0.248       0.273       0.576
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    Cash Distributions
     declared(1)                  31,185      29,700      23,760      20,790
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    Cash Distributions per unit    0.420       0.400       0.320       0.280
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    Distribution of units in
     lieu of cash                      -       4,650       3,720       3,255
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    Distribution of units in
     lieu of cash per unit             -       0.062       0.050       0.044
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    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.


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    (In thousands of dollars
     except per unit amounts)               Three Months Ended
                              -----------------------------------------------
                                Mar 31,     Dec 31,     Sep 30,    Jun 30,
                                 2009        2008        2008       2008
                                  $           $           $          $
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    Revenue
      Coal loading                53,647      88,425      73,764      62,762
      Other                        1,050       1,039         942       1,037
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                                  54,697      89,464      74,706      63,799
    Expenses
      Operating                   17,624      18,471      20,470      19,534
      Administration               2,324       8,076       7,228       6,982
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                                  19,948      26,547      27,698      26,516
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    Earnings before the
     undernoted                   34,749      62,917      47,008      37,283
    Interest income                  155         339         530         434
    Depreciation                  (5,401)     (5,573)     (5,572)     (5,572)
    Foreign exchange gain (loss)  (3,002)    (15,588)       (934)        (67)
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    Earnings before income taxes  26,501      42,095      41,032      32,078
    Provision for income taxes       827         613         870         190
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    Net earnings                  25,674      41,482      40,162      31,888
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    Net earnings per unit          0.346       0.559       0.541       0.429
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    Cash Distributions
     declared(1)                  17,820      39,353      38,610      34,897
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    Cash Distributions per unit    0.240       0.530       0.520       0.470
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    Distribution of units in
     lieu of cash                  2,790       3,988       3,913       3,536
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    Distribution of units in
     lieu of cash per unit         0.038       0.054       0.053       0.047
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    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.
    

Results of Operations

In the first quarter of 2010, Westshore shipped 6.1 million tonnes of coal, compared with 4.4 million tonnes shipped during the same period in 2009, an increase of 39%. Based on information currently available, Westshore is anticipating coal volumes to be in excess of 22 million tonnes in 2010 as a whole compared to 20 million tonnes in 2009, and at a lower average loading rate.

Coal loading revenue decreased by 3% to $52.1 million in the first quarter of 2010 from $53.6 million in the first quarter of 2009. The decrease in revenue was due to a decrease in the average loading rate and despite a 39% increase in volumes. The average loading rate in the first quarter of 2010 was $8.53 per tonne compared to $12.20 per tonne for the same period in 2009. Lower rates in Q1 2010 reflect the lower coal prices for the 2009/10 coal contract year, ended March 31, 2010 compared to the 2008/09 coal contract year ended March 31, 2009.

Other income was consistent with that of the first quarter of 2009 and consisted mostly of wharfage income. Operating expenses increased from $17.6 million in the first quarter of 2009 to $21.0 million in the first quarter of 2010, as a result of higher throughput. Administration expenses were $3.8 million in the first quarter of 2010 compared to $2.3 million in the first quarter of 2009 as a management incentive fee was accrued in 2010 whereas no accrual was made in 2009. Interest income for the first quarter of 2010 was consistent with that of the first quarter of 2009 as interest rates are still at low levels.

Foreign exchange, which includes both realized gains/losses and changes in the mark-to-market adjustment for unrealized gains/losses, increased to a $0.2 million gain for the three months ended March 31, 2010 from a $3.0 million loss in the first quarter of 2009. This increase was mainly caused by an improvement in the realized foreign exchange losses (see Currency Fluctuations).

Earnings before depreciation, interest, foreign exchange and income taxes were lower in the first quarter of 2010, at $28.6 million as compared to $34.7 million in the first quarter of 2009.

Taxation on Trusts in Canada

Bill C-52 Budget Implementations Act, 2007 contains legislative provisions to tax publicly traded income trusts in Canada. Under these rules, distributions declared by the Fund after January 1, 2011 will be taxed at a rate of 26.5% (2012 - 25%) 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 is currently exploring possible changes to its structure as a result of these rules. Further announcements of the Fund's intended actions will be provided at a later date when planning has been finalized.

The Fund has not provided for current income taxes in 2010 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 $0.3 million has been recorded in the quarter ended March 31, 2010 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. 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 the coal year commencing April 1, 2010 (for the 2010/11 coal year), loading rates for approximately 35% of the coal loaded at Westshore will be at fully variable rates and depend on the prices realized for coal by its customers, (including shipments from US customers). That portion is expected to be materially lower than the portion of the throughput that was at variable rates in 2009. Coal sales by Westshore's customers are priced on an annual basis in US 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, currency fluctuations are shown as affecting coal loading revenues before taking into account hedging activities, the financial effect of which is accounted for as foreign exchange. 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.

    
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    (In thousands of dollars)                           Three Months Ended
                                                              Mar 31
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                                                         2010        2009
                                                          $           $
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    Realized foreign exchange gains (losses)                (104)     (5,282)
    Unrealized foreign exchange gains                        310       2,280
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    Net foreign exchange gains (losses)                      206      (3,002)
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The Q1 unrealized foreign exchange gains have resulted from the weakening of the US/CDN dollar exchange rate in the quarter which increased the mark-to-market value of the outstanding forward exchange contracts. Unrealized foreign exchange gains and losses are non-cash items and do not impact current distributions.

Realized foreign exchange gains or losses affect cash flow and therefore impact unitholder distributions. The realized foreign exchange losses for the current year arose on cash balances held in foreign currencies, offset by gains realized on settled forward exchange contracts. This is a significant improvement over the prior year when the settlement of forward exchange contracts resulted in significant losses.

Liquidity and Capital Resources

The Fund generally distributes to Unitholders its income net of administrative costs of the Fund but 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 or to meet working capital requirements. Westshore's facility is a mature facility which does not require significant ongoing replacement of equipment. As a result, the Fund does not anticipate any liquidity concerns with the ongoing operations of Westshore.

During Q1 2010, Westshore extended the term (to February 11, 2011) 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 first quarter and remained undrawn at March 31, 2010. 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 an obligation to fund its pension plans in accordance with the plans' actuarial valuations. Westshore is anticipating its funding requirements in 2010 to be consistent with 2009 levels. Westshore does not anticipate any problems in meeting these obligations.

Obligations under operating leases for the years ending December 31 are as follows:

    
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    (In thousands of dollars)              Terminal
                                            lease       Other       Total
                                              $           $           $
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    2010                                      11,665         448      12,113
    2011                                      11,665         246      11,911
    2012                                      11,665         246      11,911
    2013                                      11,665           -      11,665
    2014                                      11,665                  11,665
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    Thereafter to 2026                       139,980           -     139,980
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The Fund does not have any long-term debt, material capital lease obligations, or other long-term obligations.

Quarterly Distributions

On April 15, 2010, the Fund distributed $31,185,007 (representing $0.42 per trust unit) to unitholders of record on March 31, 2010 as compared to $17,820,004 (representing $0.24 per trust unit) for the same period in 2009. $0.285 per unit of the Q1 2010 distribution is derived from the results of operations of Westshore in the current period, and the remaining $0.135 per unit comes from Westshore's cash reserves.

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 month periods ended March 31, 2010 and 2009.

    
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    (In thousands of dollars)                           Three Months Ended
                                                             March 31
                                                         2010        2009
                                                          $           $
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    Cash flows from operating activities                  44,061      28,169
    Less: Capital expenditures                            (1,628)        (32)
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    Standardized Distributable Cash                       42,433      28,137
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    Cash Distributions declared                           31,185      17,820
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    Basic and diluted Standardized Distributable
     Cash per unit                                         0.571       0.379
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    Cash Distributions per unit                            0.420       0.240
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Quarterly cash distributions will typically differ from Standardized Distributable Cash as the Fund bases its quarterly distributions on anticipated taxable income for the year in question and does not adjust them for fluctuations in working capital, which contributed significantly to cash flow from operations in the first quarter of 2010. Quarterly cash distributions are also impacted by the Fund's desire to provide smoother distributions throughout the year, and in Q1 2010 a portion of cash flow from operations was withheld for that purpose. Any particular quarterly distribution may therefore vary from Standardized Distributable Cash flow for that quarter. A portion of these differences was offset in Q1 2010 by the additional distribution of $0.135 per unit from the Fund's cash reserves.

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. 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. The amount of any such distributions is then added to the cost base of the units.

Critical Accounting Estimates

Plant and equipment: Depreciation

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method over the estimated useful production life of the assets. The estimated useful lives of plant and equipment range from 3 to 35 years. A change in the estimated useful lives of plant and equipment could result in either a higher or lower depreciation charge to net earnings.

Goodwill

Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, by comparing the fair value of Westshore to its carrying value, including goodwill. If the fair value of Westshore is less than its carrying value, a goodwill impairment loss is recognized as the excess of the carrying value of the goodwill over the fair value of the goodwill. The determination of fair value requires management to make assumptions and estimates about future coal prices, operating costs, foreign exchange rates and discount rates. Changes in any of these assumptions, such as lower coal prices, an increase in operating costs or an increase in discount rates could result in an impairment of all or a portion of the goodwill carrying value in future periods.

Employee Future Benefits

Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans, the costs of which are based on estimates. Actuarial calculations of benefit costs and obligations depend on Westshore's assumptions about future events. Major estimates and assumptions relate to expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs, as well as discount rates, withdrawal rates and mortality rates.

Provisions for Estimated Liabilities

Westshore makes certain provisions, including its portion of ship demurrage and train detention costs, which are often not finally determined until well after the year-end.

Westshore's customers incur demurrage penalties if a ship being loaded with their coal is not loaded within a specified number of hours after it is ready to load at the Terminal. They also receive credits for early completion of loading, but only at half the hourly rate of the demurrage penalty. Westshore shares these penalties and credits in respect of certain mines, except in certain situations where the customer bears the entire penalty and receives the entire credit. One such situation is if the coal to be loaded on the vessel is not at the Terminal when the vessel arrives. In Q1 2010, Westshore incurred $1.1 million in ship demurrage charges compared to $0.4 million in the same period in 2009. Under the new contract covering the Elkview, Line Creek and Cheviot mines, Westshore will not share demurrage (nor rail detention, referred to below), unlike under the Elkview contract which expired March 31, 2010.

The railways that deliver coal to the Terminal also claim detention charges from Westshore's customers in respect of any delays beyond a specified number of hours that occur between the commencement of loading at the mine and the completion of unloading at the Terminal. The railways also grant credits in respect of trains that complete the process in less than the specified number of hours. With certain exceptions, Westshore also shares these charges and credits in respect of certain mines. The cost to Westshore for train detention was $0.6 million in Q1 2010, compared to $0.2 million in the same period in 2009.

While Westshore endeavours to ensure that provisions are reasonable in the circumstances, actual costs may be greater or less than the provisions made for those costs.

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 both the Analysis and Implementation phases are in progress. The Fund has made an initial determination of which IFRS 1 elections will be utilized and which accounting policies will be adopted under IFRS. The financial impact on the opening balance sheet under IFRS on January 1, 2010 has been estimated but is not yet finalized. The fund is also analyzing how IFRS will impact financial statement disclosure and presentation. A more in-depth discussion of the expected accounting changes follows after the transition plan summary.

The following table highlights some of the key activities in the transition plan and expected completion dates.

    
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    Key Activity             Milestones              Status
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    Financial statement
     preparation

    - Identification of      Identification of       Identification of major
      significant            major differences and   accounting differences
      accounting             accounting policy       completed
      differences            choices made by the
    - Selection of           end of 2009             Completed initial
      accounting policy                              determination of
      choices                Quantification and      accounting changes as
    - Selection of choices   development of          of January 1, 2010 and
      available under        disclosure to occur     utilization of IFRS 1
      IFRS 1 (first-time     through 2010            elections (still subject
      adoption)                                      to change)
    - Financial statement
      format                                         Accounting policy
    - Changes in                                     choices made, subject
      disclosure                                     to any future
                                                     pronouncements issued
                                                     by IASB

                                                     IFRS accounting being
                                                     done simultaneously with
                                                     Canadian GAAP accounting

                                                     Detailed analysis
                                                     underway for financial
                                                     statement disclosure
                                                     options

                                                     Preparing rough drafts
                                                     of IFRS-compliant
                                                     financial statements
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    Infrastructure

    - Development of         Major knowledge         Formal course training
      knowledge and          training completed by   completed and more
      resources              end of 2009; new        courses being attended
    - IT impact assessment   developments monitored  throughout 2010
      and conversion         throughout 2010
                                                     Regular updates
                             IT systems ready to     provided to the audit
                             process information     committee
                             in parallel in 2010
                                                     IASB activity being
                                                     monitored on ongoing
                                                     basis

                                                     IT system accounting for
                                                     the Fund's activities
                                                     under both Canadian GAAP
                                                     and IFRS for 2010
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    Control Environment

    - Assessment of impact   Processes and           Impact assessment
      on ICFR and DC&P       documentation to be     started
    - Changes in processes   complete by end of
      to accommodate IFRS    2010                    Processes and policies
    - Documentation                                  being evaluated and
      requirements                                   amended to accommodate
                                                     accounting policy
                                                     choices
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    Business Policy

    - Assessment of impact   Assessment to be        Initial impact
      on financial           complete by mid-2010    assessment has been
      covenants                                      completed with respect
    - Assessment of impact                           to draft transition
      on capital adequacy                            balance sheet

                                                     Impact assessment to be
                                                     monitored throughout
                                                     2010
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    Financial Statement Impact - IFRS 1
    -----------------------------------
    

The Fund expects to use the IFRS 1 elections available for business combinations, leases, employee benefits, decommissioning liabilities and borrowing costs.

The employee benefits election will result in immediate recognition of all unamortized gains or losses on pension and non-pension post-retirement benefits with a corresponding adjustment to equity, thereby recognizing the plans' funded position on the balance sheet. This change will also have an impact on future income taxes.

The borrowing costs election allows the Fund to capitalize interest costs for constructed assets on a prospective basis. This will not have any immediate impact on the financial statements but could have a material effect if Westshore undertakes any significant capital projects using borrowed funds.

The remaining elections allow the Fund to avoid retrospective application for certain accounting standards and should not result in any material changes.

    
    IFRS - Accounting Policies and Choices
    --------------------------------------
    

To date, the Fund has identified one accounting policy choice which is significantly different from the Fund's current accounting policies. Under IAS 19 Employee Benefits, there are several options for the recognition of actuarial gains and losses for defined benefit pension plans. The Fund intends to recognize these actuarial gains and losses immediately as they occur with changes being recorded through other comprehensive income. This is a departure from the Fund's current accounting practice of amortizing actuarial gains and losses over the average remaining service life of the employees. The Fund is still finalizing the impact of IAS 19 and IFRIC 14 on the opening balance sheet and the 2010 first quarter results.

IAS 19 requires past service costs for defined benefit pension plans to be amortized through net income over the vesting period. IAS 19 also requires the immediate recognition of actuarial gains and losses through net income for non-pension post-retirement benefits. Under Canadian GAAP, both of these types of costs are amortized through net income over the average remaining service life of the employees which is a much longer period of time.

In previous quarters, the Fund noted certain IFRS that could have an impact on the financial statements. The Fund does not expect any significant changes from the adoption of the following IFRS except as noted:

    
    -   IAS 12 Income Taxes - any future income taxes attributable to
        actuarial gains and losses on employee future benefits will be
        recorded through other comprehensive income
    -   IAS 16 Property, Plant and Equipment
    -   IAS 36 Impairment of Assets
    -   IAS 37 Provisions, Contingent Liabilities and Contingent Assets -
        provisions must be disclosed separately so there are some potential
        disclosure changes
    

The accounting standards under IFRS continue to evolve and future changes could result in the identification of new financial statement impacts not previously noted or could require a revision to the financial statement impacts previously disclosed.

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 CDN/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 2010 throughput volumes to be in excess of 22 million tonnes, compared to 2009 levels of 20 million tonnes, and at a lower average loading rate than in 2009.

For the 2010/11 contract year and based on current tonnage estimates as of the date of this report, tonnages shipped at fixed rates are expected to account for approximately 65% of the Terminal's throughput and tonnages shipped at variable rates are expected to account for approximately 35% of throughput at the Terminal.

The first quarter distribution was $0.42 per unit compared to $0.24 per unit for the first quarter of 2009. If distributions for the 2010 calendar year exceed $1.035 per unit, incentive fees will be payable by Westshore to the Manager under the Management Agreement, as was the case in 2009. For 2010, 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. The basis for computation will change in 2011, as disclosed in the Fund's 2009 Annual Report.

The percentage of throughput shipped at variable rates is expected to decline significantly in 2010 as compared to 2009, and to decline further in 2011.

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
    May 6, 2010



    Westshore Terminals Income Fund
    Financial Statements

    Consolidated Balance Sheets
    (in thousands of dollars)
                                                      March 31,  December 31,
                                                        2010        2009
                                                          $           $
    -------------------------------------------------------------------------
                                                      (Unaudited)  (Audited)

    ASSETS
    Current assets
    Cash and cash equivalents                             94,219      81,486
    Accounts receivable                                    8,789      19,512
    Inventories                                            6,684       6,284
    Prepaid expenses                                       2,959         684
    Other assets                                           2,827       2,517
    -------------------------------------------------------------------------
                                                         115,478     110,483
    -------------------------------------------------------------------------

    Plant and equipment
    At cost                                              517,879     516,251
    Accumulated depreciation                            (412,927)   (407,680)
    -------------------------------------------------------------------------
                                                         104,952     108,571
    -------------------------------------------------------------------------

    Employee future benefits                              24,361      24,168
    Goodwill                                             365,541     365,541
    -------------------------------------------------------------------------
                                                         610,332     608,763
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & UNITHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities              23,456      16,348
    Distribution payable to unitholders                   31,185      29,700
    -------------------------------------------------------------------------
                                                          54,641      46,048

    Employee future benefits                              22,691      22,118
    Future income taxes                                    9,011       8,680
    -------------------------------------------------------------------------
                                                          86,343      76,846
    -------------------------------------------------------------------------

    Unitholders' equity
    Capital contributions                                704,032     704,032
    Cumulative earnings                                  749,643     726,380
    Cumulative distributions declared                   (929,686)   (898,495)
    -------------------------------------------------------------------------
                                                         523,989     531,917
    -------------------------------------------------------------------------

                                                         610,332     608,763
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Earnings,
    Comprehensive Earnings and Cumulative Earnings

    (in thousands of dollars,
     except per unit amounts)                           Three months ended
                                                             March 31
                                                                $
                                                         2010        2009
    -------------------------------------------------------------------------
                                                      (Unaudited) (Unaudited)

    REVENUE
    Coal loading                                          52,140      53,647
    Other                                                  1,175       1,050
    -------------------------------------------------------------------------
                                                          53,315      54,697
    EXPENSES
    Operating                                             20,993      17,624
    Administrative                                         3,750       2,324
    -------------------------------------------------------------------------
                                                          24,743      19,948
    -------------------------------------------------------------------------

    Earnings before the undernoted                        28,572      34,749
    Interest income                                           62         155
    Depreciation                                          (5,247)     (5,401)
    Foreign exchange gain (loss)                             206      (3,002)
    -------------------------------------------------------------------------
    Earnings before income taxes                          23,593      26,501

    Provision for income taxes                               330         827
    -------------------------------------------------------------------------

    Net earnings and comprehensive earnings
     for the period                                       23,263      25,674
    -------------------------------------------------------------------------

    Cumulative earnings - Beginning of period            726,380     619,251
    -------------------------------------------------------------------------

    Cumulative earnings - End of period                  749,643     644,925
    -------------------------------------------------------------------------

    Basic and diluted earnings per trust unit              0.313       0.346
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



    Consolidated Statements of Cash Flows
    (in thousands of dollars)
                                                        Three months ended
                                                             March 31
                                                                $
                                                         2010        2009
    -------------------------------------------------------------------------
                                                      (Unaudited) (Unaudited)

    Cash flows from operating activities
    Net earnings for the period                           23,263      25,674
      Items not affecting cash
      Change in unrealized gains and losses on
       forward exchange contracts                           (310)     (2,280)
      Depreciation                                         5,247       5,401
      Future income tax provision                            330         827
      Increase (decrease) in employee future
       benefits costs                                        380      (1,652)
    -------------------------------------------------------------------------
                                                          28,910      27,970

    Decrease in non-cash working capital                  15,151         199
    -------------------------------------------------------------------------
                                                          44,061      28,169
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Distributions paid to unitholders                    (29,700)    (39,353)
    -------------------------------------------------------------------------
                                                         (29,700)    (39,353)
    -------------------------------------------------------------------------
    Cash flows from investing activities
    Additions to plant and equipment                      (1,628)        (32)
    -------------------------------------------------------------------------
                                                          (1,628)        (32)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents      12,733     (11,216)

    Cash and cash equivalents - Beginning of period       81,486      75,034
    -------------------------------------------------------------------------

    Cash and cash equivalents - End of period             94,219      63,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
    Cash received for interest                                62         155
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Westshore Terminals Income Fund
    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, 2009. 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, 2009.

    3.  New accounting pronouncements

        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.

        On January 1, 2009, the Fund adopted the enhanced disclosure
        requirements of amended CICA Handbook Section 3862, Financial
        Instruments - Disclosures. Disclosures using a fair value hierarchy
        that reflects the significance of the inputs used in making the
        measurements is presented in Note 4 of these financial statements.

        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 and the 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.

    4.  Financial Instruments

        The carrying amounts reported in the consolidated balance sheet for
        short term financial assets and liabilities, which includes accounts
        receivable, accounts payable and accrued liabilities and
        distributions payable to unitholders, approximate fair values due to
        the immediate or short-term maturities of these financial
        instruments. 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.

        Following is a classification of fair value measurements recognized
        in the consolidated balance sheet using a fair value hierarchy that
        reflects the significance of the inputs used in making the
        measurements.

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

                           Fair value measurement at reporting date using:
                      -------------------------------------------------------
                                            Quoted
                                            prices
                                         in active  Significant
                                           markets        other  Significant
                                         identical   observable   observable
                             March 31,      assets       inputs       inputs
                                 2010     (Level 1)    (Level 2)    (Level 3)
        ---------------------------------------------------------------------
        Financial assets:

        Held-for trading
         securities:
        Cash and cash
         equivalents        $  94,219     $ 94,219     $      -     $      -

        Derivative
         instruments:
        Foreign exchange
         contracts              2,827            -        2,827            -
        ---------------------------------------------------------------------

        Total               $  97,046     $ 94,219     $  2,827     $      -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Cash and cash equivalents are classified as held for trading and
        therefore are recorded at fair value.

        The carrying amounts of foreign exchange contracts are equal to fair
        value, which is based on valuations obtained from the counterparty.
        The mark-to-market value is determined by the counterparty by
        multiplying the notional amount of the trade with the difference
        between the forward rate and the contract rate and discounting the
        resultant asset or liability by an applicable discount factor.

        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. Credit risk can also arise
        on foreign currency contracts held by the Fund.

        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 Coal, as this customer represented approximately
        72% of Westshore's throughput in Q1 2010 (Q1 2009 - 66%). 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 March
        31, 2010, there were no trade accounts receivable past due which were
        considered uncollectible and no reserve in respect of doubtful
        accounts was recorded.

        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 counter parties to its
        foreign exchange forward contracts as the counter parties are major
        Canadian financial institutions.

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

                                                                        2010

        Cash and cash equivalents                                     94,219
        Accounts receivable                                            8,789
        Other assets - foreign currency contracts                      2,827
        ---------------------------------------------------------------------
                                                                     105,835
        ---------------------------------------------------------------------

        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
        recent equipment upgrade was funded with additional equity.

        The financial liabilities of the Fund, which include accounts payable
        and accrued liabilities, have a contractual maturity of less than 1
        year. The Fund's foreign exchange contracts have maturities ranging
        form one month to seven months as at March 31, 2010.

        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 March 31, 2010.

        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 fair value of the Fund's outstanding foreign currency contracts
        at March 31, 2010 is an asset of $2,827,000 (March 31, 2009 -
        liability of $10,309,000). The fair market value of the Fund's
        foreign currency contracts has increased by $310,000 in 2010. The
        Fund is exposed to foreign currency exchange rate risk on its foreign
        currency contracts. The value of these financial instruments
        fluctuate with changes in the US/CAD dollar exchange rate. As at
        March 31, 2010, the Fund has put options with notional amounts
        totaling $14 million to exchange US dollars for Canadian dollars with
        a strike price of $1.218. The counterparty has call options with
        notional amounts totaling $14 million to exchange US dollars for
        Canadian dollars with a strike price of $1.29. A $0.01 increase in
        the US/Canadian exchange rate at March 31, 2010 would have reduced
        the value of the US dollar foreign exchange contracts by
        approximately $137,000 for the quarter ended March 31, 2010. The
        impact would have resulted in a reduction in net earnings and
        comprehensive earnings by $137,000 for the quarter ended March 31,
        2010. From the beginning of 2010 to March 31, 2010, the US dollar has
        weakened by approximately 3% against the Canadian dollar.

        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 March
        31, 2010, a 1% change in interest rates would have impacted net
        earnings and comprehensive earnings for the year to date by
        approximately $236,000.

    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
        2010, 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 March 31, 2010.

    6.  Employee future benefits

        The total benefit cost of the Company's defined benefit and other
        retirement and post employment benefit plans was $1.6 million for the
        three months ended March 31, 2010 ($1.0 million for the three months
        ended March 31, 2009).

                              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
    

SOURCE Westshore Terminals Investment Corporation

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


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