Westshore Terminals Income Fund - 2009 third quarter report

VANCOUVER, Nov. 5 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN) announced today its earnings for the third quarter ending September 30, 2009. Please see attached Report to Unitholders for details.

    
    Westshore Terminals Income Fund
    Third Quarter Report
    For the nine months ended September 30, 2009
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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 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 45% 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 November 5, 2009.

The following table sets out selected consolidated financial information for the Fund for the quarters ended September 30, 2009 and 2008. As at November 5, 2009 the Fund has 74,250,016 issued and outstanding trust units.

    
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    (In thousands of dollars         Three Months Ended   Three Months Ended
     except per unit amounts)        September 30, 2009   September 30, 2008
                                             $                    $
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    REVENUE
      Coal loading                               46,460               73,764
      Other                                         833                1,055
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                                                 47,293               74,819
    EXPENSES
      Operating                                  19,323               20,470
      Administrative                              1,862                7,228
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                                                 21,185               27,698
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    Earnings before the undernoted               26,108               47,121
    Interest income                                  74                  530
    Depreciation                                 (5,281)              (5,572)
    Foreign exchange gain (loss)                   (219)              (1,047)
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    Earnings before income taxes                 20,682               41,032
    Provision for income taxes                      446                  870
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    Net earnings                                 20,236               40,162
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    Net earnings per unit(1)                      0.273                0.541
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    Cash Distributions declared(2)               23,760               38,610
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    Cash Distributions per unit                   0.320                0.520
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    Distributions of units in lieu of cash            -                3.913
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    Distribution of units in lieu of cash
     per unit                                         -                0.053
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    (1) Weighted average units outstanding for the quarter ended September
        30, 2009 were 74,250,016 (September 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.

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    (In thousands of dollars                 Three Months Ended
    except per unit amounts)  ----------------------------------------------
                                Sept 30,    June 30,     Mar 31,     Dec 31,
                                  2009        2009        2009        2008
                                    $           $           $           $
    -------------------------------------------------------------------------
    Revenue
      Coal loading                46,460      57,375      53,647      88,425
      Other                          833         939       1,050       1,946
    -------------------------------------------------------------------------
                                  47,293      58,314      54,697      90,371
    Expenses
      Operating                   19,323      16,593      17,624      18,471
      Administration               1,862       1,290       2,324       8,076
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                                  21,185      17,883      19,948      26,547
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    Earnings before the
     undernoted                   26,108      40,431      34,749      63,824
    Interest income                   74          73         155         339
    Depreciation                  (5,281)     (5,281)     (5,401)     (5,573)
    Foreign exchange gain (loss)    (219)      8,704      (3,002)    (16,495)
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    Earnings before income
     taxes                        20,682      43,927      26,501      42,095
    Provision for income taxes       446       1,121         827         613
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    Net earnings                  20,236      42,806      25,674      41,482
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    Net earnings per unit          0.273       0.577       0.346       0.559
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    Cash Distributions
     declared(1)                  23,760      20,790      17,820      39,353
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    Cash Distributions per unit    0.320       0.280       0.240       0.530
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    Distribution of units in
     lieu of cash                      -           -           -       3,988
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    Distribution of units in
     lieu of cash per unit             -           -           -       0.054
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    (1) Refer to page 7 for a comparison of cash distributions to
        Standardized Distributable Cash.



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    (In thousands of dollars                 Three Months Ended
    except per unit amounts)  ----------------------------------------------
                                Sept 30,    June 30,     Mar 31,     Dec 31,
                                  2008        2008        2008        2007
                                    $           $           $           $
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    Revenue
      Coal loading                73,764      62,762      35,145      37,437
      Other                        1,055       1,036         968       2,444
    -------------------------------------------------------------------------
                                  74,819      63,798      36,113      39,881
    Expenses
      Operating                   20,470      19,534      18,521      18,660
      Administration               7,228       6,982       1,874       2,982
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                                  27,698      26,516      20,395      21,642
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    Earnings before the
     undernoted                   47,121      37,282      15,718      18,239
    Interest income                  530         434         610         697
    Depreciation                  (5,572)     (5,572)     (5,572)     (5,646)
    Foreign exchange gain
     (loss)                       (1,047)        (66)        858         540
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    Earnings before income
     taxes                        41,032      32,078      11,614      13,830
    Provision for (recovery of)
     income taxes                    870         190         281        (264)
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    Net earnings                  40,162      31,888      11,333      14,094
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    Net earnings per unit          0.541       0.429       0.153       0.190
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    Cash Distributions
     declared(1)                  38,610      34,897      20,790      26,730
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    Cash Distribution per unit     0.520       0.470       0.280       0.360
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    Distribution of units in
     lieu of cash                  3,913       3,536       2,107           -
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    Distribution of units in
     lieu of cash per unit         0.053       0.047       0.028           -
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    (1) Refer to page 6 for a comparison of cash distributions to
        Standardized Distributable Cash.
    

Results of Operations

In the third quarter of 2009, Westshore shipped 5.4 million tonnes of coal, compared with 5.3 million tonnes shipped during the same period in 2008, an increase of 2.6%. 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 37% to $46.5 million in the third quarter of 2009 from $73.8 million in the third quarter of 2008. This decrease was expected due to the historically high average loading rate in the third quarter of 2008. The average loading rate in the third quarter of 2009 was $8.58 per tonne compared to $13.98 per tonne for the same period in 2008. It is anticipated that Q4 2009 loading rates will be similar to rates in Q3 2009. 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.

Other income decreased slightly compared to that of the third quarter of 2008 and consists mostly of wharfage income. Operating expenses decreased from $20.5 million in the third quarter of 2008 to $19.3 million in the third quarter of 2009, primarily due to lower maintenance costs. Administrative expenses in the third quarter of 2009 were $1.9 million compared to $7.2 million for the same period in 2008, as a result of lower management contract incentive fees. The expenses for the third 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 a lower average rate for 2009. Interest income for the third quarter of 2009 decreased by $0.5 million compared to the third quarter of 2008 due to lower interest rates.

Foreign exchange, which includes both realized gains/losses and changes in the mark-to-market adjustment for unrealized gains/losses, decreased to a $0.2 million loss for the three months ended September 30, 2009 from a $1.0 million loss in the third quarter of 2008. The current period loss was driven primarily by $0.5 million of realized foreign exchange losses, offset by a small increase in the unrealized foreign exchange gains on unsettled forward contracts. The prior period loss was driven almost entirely by unrealized foreign exchange losses on unsettled forward contracts as the Canadian dollar weakened against the US dollar during that quarter. (see Currency Fluctuations.)

Earnings before depreciation, interest, foreign exchange and income taxes were lower in the third quarter of 2009, at $26.1 million as compared to $47.1 million in the third 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 shipped from the Fording River, Greenhills and Coal Mountain mines after 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. For 2009, the Elkview contract is anticipated to represent approximately 29% of Westshore's coal loading revenues. Teck holds a 46% interest in the Company that owns the Neptune terminal, which is Westshore's most direct competitor.

Equipment Upgrade Project

The previously announced equipment upgrade is nearing completion. 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 $0.4 million has been recorded in the quarter ended September 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 45% 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, 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.

    
                              -----------------------------------------------
                              3 months ended Sept 30  9 months ended Sept 30
                                 2009        2008        2009        2008
                                   $           $           $           $
                              -----------------------------------------------
    Realized foreign
     exchange gains (losses)        (468)        (88)     (9,261)        (20)
    Unrealized foreign
     exchange gains (losses)         249        (959)     14,744        (168)
                              -----------------------------------------------
    Net foreign exchange
     gains (losses)                 (219)     (1,047)      5,483        (188)
                              -----------------------------------------------
                              -----------------------------------------------
    

The current year unrealized foreign exchange gains have resulted from the reversal of unrealized foreign exchange losses that existed at December 31, 2008, triggered partially by the settlement of forward contracts throughout the year and partially by the strengthening of the Canadian dollar versus the US dollar. Realized foreign exchange affects cash flow and therefore impacts unitholder distributions. 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 third quarter and remained undrawn at September 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:

    
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    (In thousands of dollars)         Terminal
                                        lease          Other          Total
                                          $              $              $
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    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
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Westshore has commitments of approximately $6.4 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 October 15, 2009, the Fund distributed $23,760,005 (representing $0.32 per trust unit) in cash for the third quarter of 2009 to Unitholders of record on September 30, 2009 as compared with $38,610,008 (representing $0.52 per trust unit) in cash for the third 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 fourth quarter of 2009 would be lower than those budgeted if they were based solely on the anticipated results in that quarter. Actual results in that quarter will also affect the 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 nine month periods ended September 30, 2009 and 2008 respectively.

    
                              -----------------------------------------------
                              3 months ended Sept 30  9 months ended Sept 30
                                 2009        2008        2009        2008
                                   $           $           $           $
                              -----------------------------------------------
    Cash flows from operating
     activities                   33,189      36,996     104,925      88,774
    Less: Capital expenditures    (2,203)     (2,430)    (11,472)     (4,685)
                              -----------------------------------------------
    Standardized Distributable
     Cash                         30,986      34,566      93,453      84,089
                              -----------------------------------------------
                              -----------------------------------------------
    Cash Distributions declared   23,760      38,610      62,370      94,298
                              -----------------------------------------------
                              -----------------------------------------------
    Basic and diluted
     Standardized Distributable
     Cash per unit                 0.417       0.466       1.259       1.132
                              -----------------------------------------------
                              -----------------------------------------------
    Cash Distributions per unit    0.320       0.520       0.840       1.270
                              -----------------------------------------------
                              -----------------------------------------------
    

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 September 30, 2008, the cash distribution was greater than the Standardized Distributable Cash for that quarter, whereas for the three months ended September 30, 2009, the cash distribution was less than Standardized Distributable Cash. Standardized Distributable Cash for the third quarter of 2009 and 2008 included material working capital changes which are not considered when determining quarterly distributions.

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 September 30, 2009.

    
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         Key Activity             Milestones                 Status
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    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                             Further analysis of
       adoption)                                      IFRS 1 elections to
    -  Financial statement                            determine which
       format                                         elections will be
    -  Changes in disclosure                          adopted
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    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 2009 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.

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 30% of throughput; and finally, tonnages shipped at full variable rates are expected to account for approximately 45% of throughput at the Terminal.

The third quarter distribution was $0.32 per unit compared to $0.52 per unit for the third quarter of 2008. Results in Q4 will affect the level of the Q4 distribution, either positively or negatively. If distributions for the 2009 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 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,

    William W. Stinson,
    Chairman
    November 5, 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             Three months ended      Nine months ended
     dollars, except per            September 30            September 30
     unit amounts)                        $                       $
                                  2009        2008        2009        2008
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)

    REVENUE
    Coal loading                  46,460      73,764     157,482     171,671
    Other                            833       1,055       2,822       1,499
    -------------------------------------------------------------------------
                                  47,293      74,819     160,304     173,170
    EXPENSES
    Operating                     19,323      20,470      53,540      57,052
    Administrative                 1,862       7,228       5,476      16,064
    -------------------------------------------------------------------------
                                  21,185      27,698      59,016      73,116
    -------------------------------------------------------------------------

    Earnings before the
     undernoted                   26,108      47,121     101,288     100,054
    Interest income                   74         530         302       1,574
    Depreciation                  (5,281)     (5,572)    (15,963)    (16,716)
    Foreign exchange gain (loss)    (219)     (1,047)      5,483        (188)
    -------------------------------------------------------------------------

    Earnings before income
     taxes                        20,682      41,032      91,110      84,724
    Provision for income taxes       446         870       2,394       1,341
    -------------------------------------------------------------------------

    Net earnings and
     comprehensive earnings
     for the period               20,236      40,162      88,716      83,383
    -------------------------------------------------------------------------

    Cumulative earnings -
     Beginning of period         687,730     537,606     619,250     494,385
    -------------------------------------------------------------------------

    Cumulative earnings -
     End of period               707,966     577,768     707,966     577,768
    -------------------------------------------------------------------------

    Basic and diluted earnings
     per trust unit                0.273       0.541       1.195       1.123
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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      Nine months ended
                                    September 30            September 30
                                          $                       $
                                  2009        2008        2009        2008
    -------------------------------------------------------------------------
                              (Unaudited) (Unaudited) (Unaudited) (Unaudited)
    Cash flows from
     operating activities
    Net earnings for the period   20,236      40,162      88,716      83,383
      Items not affecting cash
        Change in unrealized
         gains and losses on
         forward exchange
         contracts                  (249)        959     (14,744)        168
        Depreciation               5,281       5,572      15,963      16,716
        Future income tax
         provision                   446         870       2,394       1,341
        Increase (decrease)
         in employee future
         benefits costs              944         575      (2,471)         45
    -------------------------------------------------------------------------
                                  26,658      48,138      89,858     101,653
    Decrease (increase) in
     non-cash working capital      6,531     (11,142)     15,068     (12,879)
    -------------------------------------------------------------------------
                                  33,189      36,996     104,926      88,774
    -------------------------------------------------------------------------
    Cash flows from financing
     activities
    Distributions paid to
     unitholders                 (20,790)    (34,898)    (77,963)    (82,418)
    -------------------------------------------------------------------------
                                 (20,790)    (34,898)    (77,963)    (82,418)
    -------------------------------------------------------------------------
    Cash flows from investing
     activities
    Additions to plant and
     equipment                    (2,203)     (2,430)    (11,472)     (4,685)
    -------------------------------------------------------------------------
                                  (2,203)     (2,430)    (11,472)     (4,685)
    -------------------------------------------------------------------------

    Increase in cash and cash
     equivalents                  10,196        (332)     15,491       1,671

    Cash and cash equivalents -
     Beginning of period          80,329      74,745      75,034      72,742
    -------------------------------------------------------------------------

    Cash and cash equivalents -
     End of period                90,525      74,413      90,525      74,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
    Cash received for interest        74         530         302       1,574
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Balance Sheets

    (in thousands of dollars)                     September 30,  December 31,
                                                       2009          2008
                                                         $             $
    -------------------------------------------------------------------------
                                                   (Unaudited)     (Audited)
    ASSETS
    Current assets
    Cash and cash equivalents                          90,525         75,034
    Accounts receivable                                 9,772         29,313
    Inventories                                         6,054          6,478
    Prepaid expenses                                    4,658            672
    Other assets                                        2,154              -
    -------------------------------------------------------------------------
                                                      113,163        111,497
    -------------------------------------------------------------------------

    Plant and equipment
    At cost                                           512,325        500,881
    Accumulated depreciation                         (402,264)      (386,329)
    -------------------------------------------------------------------------
                                                      110,061        114,552
    -------------------------------------------------------------------------

    Employee future benefits                           23,081         23,303
    Goodwill                                          365,541        365,541
    -------------------------------------------------------------------------
                                                      611,846        614,893
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & UNITHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities           15,382         16,293
    Distribution payable to unitholders                23,760         39,353
    Other liabilities                                       -         12,590
    -------------------------------------------------------------------------
                                                       39,142         68,236

    Employee future benefits                           18,415         21,108
    Future income taxes                                11,086          8,692
    -------------------------------------------------------------------------
                                                       68,643         98,036
    -------------------------------------------------------------------------

    Unitholders' equity
    Capital contributions                             704,032        704,032
    Cumulative earnings                               707,966        619,250
    Cumulative distributions declared                (868,795)      (806,425)
    -------------------------------------------------------------------------
                                                      543,203        516,857
    -------------------------------------------------------------------------

                                                      611,846        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 September 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 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:

                                                                        2009

        Cash and cash equivalents                                     90,525
        Accounts receivable                                            9,772
        ---------------------------------------------------------------------
                                                                     100,297
        ---------------------------------------------------------------------

        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 September 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
        September 30, 2009, would have reduced the value of the US dollar
        foreign exchange contracts by approximately $427,000. The impact
        would have resulted in a reduction in net earnings and comprehensive
        earnings of $427,000. From the beginning of the year to September 30,
        2009, the US dollar has weakened by approximately 12.4% against the
        Canadian dollar and the fair market value of the Fund's foreign
        currency forward contracts has increased by $14.8 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
        September 30, 2009, a 1% change in interest rates would have impacted
        net earnings and comprehensive earnings for the year to date by
        approximately $679,000.

    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 September 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
        $2,471,000 for the nine months ended September 30, 2009 (expense of
        $45,000 for the nine months ended September 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
    

SOURCE Westshore Terminals Investment Corporation

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


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