Fording's Income and Distributions Up Substantially Due to Higher
Coal Prices CALGARY, July 22 /PRNewswire-FirstCall/ -- Fording
Canadian Coal Trust (TSX: FDG.UN, NYSE: FDG) today announced strong
second quarter results. Net income was $123 million in the second
quarter, up from $13 million in 2004, largely due to higher
metallurgical coal sales prices. Net income before unusual items
and future income taxes was $162 million in the second quarter of
2005 compared with $43 million in 2004. On a year-to-date basis,
net income increased to $189 million from $23 million in 2004.
Year-to-date net income before unusual items and future income
taxes was $222 million in 2005 compared with $47 million in 2004.
Cash available for distribution for the second quarter of 2005 was
$151 million ($3.09 per unit)compared with $50 million ($1.03 per
unit) in 2004. On a year-to-date basis, cash available for
distribution was $221 million ($4.51 per unit) in 2005 compared
with $69 million ($1.45 per unit) in 2004. "We were able to
increase distributions in the second quarter as the effect of new
higher coal year prices began to be realized," said Jim Popowich,
President of Fording Canadian Coal Trust. "In addition, Elk Valley
Coal's production volumes were higher in 2005 than in 2004. Coal
delivery and vessel arrivals in the first half of 2005 were
scheduled in order to build-up coal inventory volumes and product
mix to appropriate operating levels. This, combined with rail
capacity constraints, contributed to lower sales volumes. "We
expect our results to continue to improve in the second half of the
year as the full benefit of higher coal prices are realized, sales
volumes increase and expansion plans at Cardinal River and Fording
River are completed. Reaching Elk Valley Coal's sales volume target
will require that rail and port service providers meet its needs
and customers meet contractual commitments on a timely basis."
Highlights for the Second Quarter: - Revenues were $469 million, up
51% from 2004 mainly on the strength of higher coal sales prices,
partially offset by a higher Canadian dollar. - Cash available for
distribution increased to $151 million from $50 million due to
higher coal sales prices. - Cost of product sold increased 10% to
$124 million from $112 million primarily due to higher overburden
volumes and mining costs. - Transportation costs increased 20% to
$146 million from $122 million in 2004, reflecting higher rail
rates from the new contract with Canadian Pacific Railway as well
as higher port rates due to increased coal prices. - Corporate
income and provincial mineral taxes and Crown royalties increased
$49 million in the second quarter compared with 2004, due mainly to
higher coal prices. - Unitholders approved the reorganization of
the Trust's subsidiaries at the Special and Annual Meeting held in
May. The reorganization will not proceed unless a favourable
advance tax ruling is obtained from the Canada Revenue Agency. The
Trust has not yet received a ruling.
------------------------------------------ Conference Call and
Webcast A conference call to discuss these results will be held
Monday, July 25 at 8:00 a.m. Mountain time, 10:00 a.m. Eastern
time. To participate in the conference call, please dial
1-800-814-4859 or 416-640-4127 approximately 10 minutes prior to
the call. A live and archived audio webcast of the conference call
will also be available on the Trust's website
http://www.fording.ca/. About Fording Fording Canadian Coal Trust
is an open-ended mutual fund trust. Through investments in
metallurgical coal and industrial minerals mining and processing
operations, the Trust makes quarterly cash distributions to
unitholders. The Trust, through its wholly owned subsidiary,
Fording Inc., holds a 60% interest in the Elk Valley Coal
Partnership and is the world's largest producer of the industrial
mineral wollastonite. Elk Valley Coal, comprised of Canada's senior
metallurgical coal mining properties, is the world's second largest
exporter of metallurgical coal, and expects to supply approximately
27 million tonnes of high-quality coal products to the
international steel industry in 2005. The Trust's shares are traded
on the Toronto Stock Exchange under the ticker symbol FDG.UN and on
the New York Stock Exchange under the symbol FDG. Management's
Discussion and Analysis July 22, 2005
-------------------------------------------------------------------------
This management's discussion and analysis should be read in
conjunction with our unaudited consolidated financial statements
and the notes thereto for the quarter ended June 30, 2005,
management's discussion and analysis and consolidated financial
statements for the year ended December 31, 2004, and other public
disclosure documents of the Fording Canadian Coal Trust and Old
Fording. Fording Canadian Coal Trust ---------------------------
Fording Canadian Coal Trust is an open-ended mutual fund trust
created pursuant to a declaration of trust and governed by the laws
of Alberta. The Trust does not carry on any active business.
Through its wholly owned operating subsidiary, Fording Inc., the
Trust consolidates a 60% interest in the metallurgical coal
operations owned by Elk Valley Coal Partnership and a 100% interest
in the industrial mineral operations owned by the NYCO companies.
The Trust uses the cash it receives from its investments to make
quarterly distributions to its unitholders. References to "we" and
"our" in management's discussion and analysis are to the Trust and
Fording Inc., and their consolidated interest in Elk Valley Coal
and NYCO as the context requires. Elk Valley Coal ---------------
Elk Valley Coal is the second largest supplier of seaborne hard
coking coal in the world, with approximately 21% of the global
market in 2005. Hard coking coal is a premium coal used primarily
for making coke by integrated steel mills, which account for
approximately 60% of worldwide steel production. The seaborne hard
coking coal market is characterized by the global nature of
international steel-making, the relative concentration of quality
metallurgical coal deposits in Australia, Canada and the United
States and the comparatively low cost of seaborne transportation.
Elk Valley Coal has six operating mines. The Fording River, Coal
Mountain, Elkview and Line Creek mines along with the Greenhills
mine (which is operated by a joint venture in which Elk Valley Coal
has an 80% interest) are located in the Elk Valley region of
southeast British Columbia. The Cardinal River mine operates in
west-central Alberta. Elk Valley Coal also owns numerous other
properties, including the coal preparation plant and coal resources
at the former Quintette mine and other coal resources in British
Columbia as well as a 46% interest in Neptune Terminals in
Vancouver, British Columbia. The Trust's results pertaining to Elk
Valley Coal consist of our proportionate interest in the operations
of the six mines as well as corporate costs related to these
operations. Also included are hedging gains and losses, and mineral
taxes that are recorded in Fording Inc. but attributable to Elk
Valley Coal's earnings. NYCO ---- NYCO consists of the subsidiaries
of Fording Inc. that operate wollastonite mining operations in New
York State and Mexico and a tripoli mining operation in Missouri.
NYCO is the world's leading producer of wollastonite. Wollastonite
is an industrial mineral that is used in the manufacture of
automotive composites, adhesives and sealants, metallurgical
fluxes, friction material, paints and corrosion-resistant coatings,
fire-resistant construction wallboard, cement-based products and
ceramics. Tripoli is an industrial mineral that is used primarily
in buffing and polishing applications. Important Information
Regarding Comparative Financial Statements
----------------------------------------------------------------
When the Elk Valley Coal Partnership was formed in February 2003,
the Trust had a 65% interest with the remainder held by Teck
Cominco, the managing partner. The partnership agreement permitted
Teck Cominco to increase its interest in Elk Valley Coal by
achieving a certain level of synergies through its management of
the partnership assets. Teck Cominco achieved the synergy
objectives and the partners agreed that the Trust's interest would
be reduced to 62% effective April 1, 2004, 61% on April 1, 2005,
and to 60% on April 1, 2006. The financial results and other
information presented in this report reflect the Trust's 65%
interest in Elk Valley Coal from January 1, 2004 to March 31, 2004,
and 60% interest commencing with the second quarter of 2004. The
Trust accounted for the estimated effect of the 5% reduction in its
interest in Elk Valley Coal in its financial results in the second
quarter of 2004. The additional distribution entitlements received
since March 31, 2004, have been or will be included in cash
available for distribution over the period ending March 31, 2006.
Accordingly, readers are cautioned that certain information
included in this document for prior periods may not be directly
comparable due to the reduction of the Trust's interest in Elk
Valley Coal effective April 1, 2004. All financial information in
this management's discussion and analysis and financial statements
is unaudited. The Trust reports its financial information in
Canadian dollars and all monetary amounts set forth herein are
expressed in Canadian dollars unless otherwise stated. Non-GAAP
Financial Measures --------------------------- This management's
discussion and analysis refers to certain financial measures that
are not determined in accordance with GAAP in Canada or the United
States. Financial measures such as cash available for distribution,
distributable cash and net income before unusual items and future
income taxes are not measures recognized under GAAP and do not have
standardized meanings prescribed by GAAP. We discuss these
measures, which have been derived from our financial statements and
applied on a consistent basis, because we believe that they
facilitate the understanding of the results of our operations and
financial position and are relevant measures of the ability of the
Trust to earn and distribute cash returns to unitholders. These
measures may differ from those made by other issuers and
accordingly, may not be comparable to such measures as reported by
other trusts or corporations. Caution on Forward-looking
Information -------------------------------------- Certain
information included in this document is of a forward-looking
nature. Forward-looking information is subject to known and unknown
risks, as well as uncertainties and other factors. Accordingly,
actual results may differ materially from those expressed or
implied in forward-looking information. Some of the risks,
uncertainties and other factors affecting Fording Canadian Coal
Trust are discussed in our public filings with the securities
regulatory authorities in Canada and the United States. Copies of
Fording Canadian Coal Trust's Canadian filings, including our most
recent management information circular, annual information form,
annual report, quarterly reports, material change reports and news
releases, are available online at http://www.sedar.com/, and copies
of our U.S. filings, including our most recent annual report on
Form 40-F as supplemented by submissions under Form 6- K, are
available at http://www.sec.gov/. Information in this document is
presented as of July 22, 2005 and is subject to change after this
date. However, Fording Canadian Coal Trust disclaims any intention
or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Overview -------- The table below summarizes our financial results
and some of our key operating statistics on a consolidated basis.
Three months ended Six months ended June 30 June 30 (millions of
Canadian --------------------- --------------------- dollars,
except as noted) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenue $ 468.9 $ 309.7 $ 763.8 $ 554.9 Income from operations $
179.7 $ 53.6 $ 247.3 $ 62.6 Net income $ 123.3 $ 12.6 $ 188.6 $
23.3 Net income before unusual items and future income taxes $
161.7 $ 42.8 $ 222.1 $ 46.8 Basic and diluted earnings per unit:
Net income $ 2.52 $ 0.26 $ 3.85 $ 0.49 Net income before unusual
items and future income taxes $ 3.30 $ 0.88 $ 4.53 $ 0.98
Metallurgical Coal Statistics: Coal production (million tonnes) 4.1
4.0 8.1 7.9 Coal sales (million tonnes) 3.8 4.1 7.2 7.7 Average
sales price U.S.$/tonne $ 94.00 $ 51.10 $ 78.60 $ 48.40 CDN$/tonne
$ 119.40 $ 72.30 $ 102.40 $ 68.50 Operating expenses Cost of
product sold (CDN$/tonne) $ 30.40 $ 25.80 $ 29.40 $ 27.20
Transportation (CDN$/tonne) $ 37.70 $ 29.40 $ 34.10 $ 28.10
Industrial Minerals Statistics (Wollastonite): Sales (thousands of
tonnes) 24 21 45 42 Average sales price (U.S.$/tonne) $ 384 $ 430 $
389 $ 438 Proposed Trust Reorganization The proposed reorganization
of the Trust's subsidiaries is intended to maintain a flow-through
structure that effectively results in distributions received from
Elk Valley Coal and NYCO not being taxed at the Fording Inc. level.
Instead, distributions received by Fording Inc., and indirectly by
the Trust, would be taxed at the unitholder level when
distributions are paid to the unitholder. If it proceeds, the
reorganization takes the current structure from a "trust on
corporation on partnership" structure to a "trust on partnership on
partnership" structure. The reorganization would result in the
units being a more competitive currency comparable to other
flow-through structures should the Trust decide to issue units for
future acquisitions, expansions or other opportunities. At the 2005
Annual and Special Meeting, unitholders approved the special
resolution regarding the reorganization. Completion of the
reorganization transaction is subject to receipt of certain
judicial, regulatory and third- party approvals, including a
favourable advance tax ruling from the Canada Revenue Agency, and
the approval of the Trustees to proceed with the reorganization.
The Trust has not yet received the ruling. When known, a news
release will be issued with the outcome. Completion of the
transaction is expected to take approximately two weeks after a
decision to proceed is made. The reorganization is not expected to
have a material impact on the manner in which the Trust's
distributable cash is calculated and distributed to unitholders. It
is anticipated that unitholders should not recognize any income,
gain or loss as a result of the reorganization for Canadian and/or
U.S. income tax purposes. Cash Available for Distribution The
increase in cash available for distribution in the first quarter of
2005 generally reflects higher sales prices and earnings from Elk
Valley Coal's metallurgical coal operations. Distributions declared
and paid in the second quarter were $2.80 per unit. Three months
ended Six months ended June 30 June 30 (millions of Canadian
--------------------- --------------------- dollars, except as
noted) 2005 2004 2005 2004
-------------------------------------------------------------------------
Cash available for distribution $ 151.2 $ 50.2 $ 221.0 $ 69.1
Distributions declared $ 137.2 $ 49.0 $ 200.9 $ 96.0 Weighted
average number of units outstanding (in millions) 49.0 48.6 49.0
47.8 Per unit amounts: Cash available for distribution $ 3.09 $
1.03 $ 4.51 $ 1.45 Distributions declared $ 2.80 $ 1.00 $ 4.10 $
2.00 The 2004 year-to-date distributions declared exceeded cash
available for distribution. Some of the cash that was available
from results of the fourth quarter of 2003 was carried over and
included in distributions to unitholders in the first quarter of
2004. The reconciliation from net income to net income before
unusual items and future income taxes, which is a non-GAAP measure,
is provided in the following table: Three months ended Six months
ended June 30 June 30 --------------------- ---------------------
(millions of Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Net income per financial statements $ 123.3 $ 12.6 $ 188.6 $ 23.3
Add (deduct): Reduction of interest in Elk Valley Coal - 37.5 (9.5)
37.5 Income from change in inventory valuation - - - (10.8) Future
income tax expense (recovery) 38.4 (7.3) 43.0 (3.2)
--------------------- --------------------- Net income before
unusual items and future income taxes $ 161.7 $ 42.8 $ 222.1 $ 46.8
--------------------- --------------------- ---------------------
--------------------- Income from Operations ----------------------
Elk Valley Coal(1) Three months ended Six months ended June 30 June
30 (millions of Canadian ---------------------
--------------------- dollars, except as noted) 2005 2004 2005 2004
-------------------------------------------------------------------------
Statistics Coal production (millions of tonnes) 4.1 4.0 8.1 7.9
Coal sales (millions of tonnes) 3.8 4.1 7.2 7.7 Average sales price
(per tonne) U.S.$ $ 94.00 $ 51.10 $ 78.60 $ 48.40 CDN$ $ 119.40 $
72.30 $ 102.40 $ 68.50 Operating expenses (per tonne) Cost of
product sold $ 30.40 $ 25.80 $ 29.40 $ 27.20 Transportation $ 37.70
$ 29.40 $ 34.10 $ 28.10 Income from operations Revenue $ 456.9 $
295.9 $ 740.8 $ 527.9 Cost of product sold 116.3 105.8 212.8 210.6
Transportation 144.4 119.9 246.6 216.8 Selling, general and
administration 3.9 2.7 7.0 10.3 Depreciation and depletion 9.9 13.5
21.4 27.7 --------------------- --------------------- Income from
operations $ 182.4 $ 54.0 $ 253.0 $ 62.5 ---------------------
--------------------- --------------------- ---------------------
(1) Amounts reflect Fording's 60% interest in Elk Valley Coal Sales
volumes were lower in the second quarter of 2005 compared with 2004
due mainly to rail capacity constraints and scheduling of vessel
arrivals to build appropriate inventory volumes and product mix at
the ports. This allows Elk Valley Coal to build inventories of
varying specifications to more desirable levels for the efficient
loading of vessels. Port inventory volumes are now expected to
support shipping programs in the second half of the year. In
addition, coal production at Cardinal River was lower than
anticipated in the second quarter. The Trust's share of coal sales
volumes was also lower on a year-to-date basis in 2005 compared
with 2004 due in part to the 5% reduction in the Trust's interest
in Elk Valley Coal, which was effective the second quarter of 2004.
The carry over of 2004 coal-year contract pricing commitments were
largely fulfilled during the quarter at which time the higher U.S.
dollar prices for the 2005 coal year began to be realized. Second
quarter revenues benefited from the increase in prices, slightly
offset by a lower effective U.S./Canadian dollar exchange rate.
Cost of product sold increased 10% for the second quarter and
slightly year-to-date compared with the same periods in 2004,
primarily due to higher overburden volumes and mining costs. Unit
cost of product sold increased 18% in the second quarter and 8% for
the year-to-date from 2004 levels. Unit costs in 2005 reflect
continuing high diesel costs as well as higher mine strip ratios
combined with lower yields. In addition, higher than anticipated
mining costs at Cardinal River operations were due to higher than
planned strip ratios and difficult mining conditions in the Cheviot
pit during the early stages of operation. As expected, a
significant impact on income from operations continues to be the
increase in transportation costs due to higher rail and port rates.
Transportation costs were up 20% to $144 million in the second
quarter and 14% to $247 million year-to-date compared with the same
period in 2004. Rail rates increased due to the new rail contract
while port rates increased as a result of higher coal prices.
Demurrage charges were down significantly to approximately $4
million for the first six months of 2005, compared with $10 million
in 2004. Transportation costs include the cost of rail service,
port charges, ocean freight costs on shipments where Elk Valley
Coal, rather than the customer, pays for the expense and other
costs such as coal testing fees and demurrage charges for vessel
waiting times. Year-to-date, selling, general and administration
costs decreased 33%. This is largely due to costs incurred in the
first quarter of 2004 pursuant to change in control agreements with
certain former senior executives. Lower depletion expense at the
Cardinal River operations and the build-up of inventory were the
main contributors to the 21% decrease in depreciation and depletion
expense in the first half of 2005 compared with 2004. Elk Valley
Coal continued with the negotiation of agreements to complete the
transaction with POSCO and Nippon Steel Corporation that provides
for 10- year sales contracts and a 2.5% equity investment by each
company in a new entity that will own and operate the Elkview mine.
The completion of the transaction is expected during the third
quarter of 2005. Expansion Projects Expansion work continued in the
second quarter to support Elk Valley Coal's plans to increase its
annualized productive capacity to 28 million tonnes per year by the
end of 2005. Delays in the delivery of mining equipment, reduced
equipment availability and difficult mining conditions impacted
coal release at Cardinal River. It is anticipated that the full
annualized production rate of 2.8 million tonnes per year will be
achieved at the mine near the end of the year. Capacity expansion
of the Fording River operations is progressing on schedule and is
expected to be completed as planned in the third quarter of 2005.
Capital spending for the Elkview mine's capacity expansion has been
increased in 2005 for the purchase of mining equipment. Preliminary
drilling to evaluate the extent of coal resources at properties
near the former Quintette mine in northeast British Columbia is
underway and is expected to be completed by the end of 2005. Any
future decision to develop the properties would depend on several
variables such as customer support, favourable long-term market
conditions and the desired exploration results. If a decision to
proceed was made, it would take approximately two years to achieve
commercial production. NYCO Three months ended Six months ended
June 30 June 30 (millions of Canadian ---------------------
--------------------- dollars, except as noted) 2005 2004 2005 2004
-------------------------------------------------------------------------
Statistics - Wollastonite Sales (thousands of tonnes) 24 21 45 42
Average sales price (U.S.$ per tonne) $ 384 $ 430 $ 389 $ 438
Income from operations Revenue $ 12.0 $ 13.8 $ 23.0 $ 27.0 Cost of
product sold 7.8 6.6 15.5 13.6 Transportation 1.8 2.2 3.6 4.0
Selling, general and administration 1.1 1.3 2.1 2.2 Depreciation
and depletion 1.1 1.3 2.2 2.6 ---------------------
--------------------- Income (loss) from operations $ 0.2 $ 2.4 $
(0.4) $ 4.6 --------------------- ---------------------
--------------------- --------------------- Income from NYCO's
operations decreased approximately $2 million in the second quarter
and $5 million year-to date in 2005 compared with the respective
periods in 2004, primarily due to lower sales prices and the impact
of a higher Canadian dollar. Cost of product sold increased due to
higher processing and mining costs. Corporate Three months ended
Six months ended June 30 June 30 ---------------------
--------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Selling, general and administration $ 2.8 $ 2.2 $ 4.9 $ 3.2
Depreciation, depletion 0.1 0.6 0.4 1.3 ---------------------
--------------------- Loss from operations $ 2.9 $ 2.8 $ 5.3 $ 4.5
--------------------- --------------------- ---------------------
--------------------- Corporate costs include general and
administration expenses not allocated to specific business
segments, and depreciation and depletion on corporate assets. Other
Income and Expenses ------------------------- Three months ended
Six months ended June 30 June 30 ---------------------
--------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Interest expense $ (2.7) $ (2.4) $ (5.4) $ (7.5) Other income
(expense), net (3.5) (0.2) (4.2) 13.5 Reduction of interest in Elk
Valley Coal - (37.5) 9.5 (37.5) ---------------------
--------------------- $ (6.2) $ (40.1) $ (0.1) $ (31.5)
--------------------- --------------------- ---------------------
--------------------- The decrease in interest expense for the six
months ended June 30, 2005 is due to lower interest rates on the
new loan facility put in place in mid- February 2005. Other income
and expenses includes interest and investment income, foreign
exchange gains and losses on U.S. denominated debt and
miscellaneous items. The increase in expense in the second quarter
of 2005 is largely due to a non-cash foreign exchange translation
loss on the U.S. dollar denominated bank debt. Included in
year-to-date 2005 other income and expenses was the write-off of
deferred financing costs related to the previous loan facility. In
2004, a change in accounting practice resulted in unusual income of
$11 million, related to the inclusion of depreciation and depletion
in the valuation of product inventories on hand at the start of the
year. The loss on the reduction of the Trust's interest in Elk
Valley Coal that was recorded in the second quarter of 2004 was
offset by an estimate of cash to be received for the additional
distribution entitlements of 2% for the year ended March 31, 2005
and 1% for the year ended March 31, 2006. The estimate of cash to
be received for the additional distribution entitlement of 1% for
the twelve months ended March 31, 2006 was revised in the first
quarter of 2005 due to higher 2005 coal year prices, resulting in a
favourable $9.5 million adjustment to the reduction of interest in
Elk Valley Coal. Income Taxes ------------ Income tax expense
consists primarily of Canadian corporate income taxes, British
Columbia mineral taxes and Alberta Crown royalties assessed on the
cash flows of Elk Valley Coal and, to a lesser extent, foreign
income tax related to NYCO. Income tax expense has been recorded
without giving any effect to the outstanding advance tax ruling
regarding the proposed reorganization of the Trust. Income tax
expense increased significantly to $50 million during the second
quarter. Canadian corporate income taxes were $37 million, up $41
million, and mineral taxes were up $9 million to $13 million, which
is largely attributable to higher coal prices. Fording Inc.'s
corporate taxable income exceeded available tax deductions
including interest on its subordinated notes and losses carried
forward from prior years. Income for mineral tax purposes was also
up sharply, which also increased the average effective mineral tax
rate. Of the future corporate income tax provision, $13 million has
been reflected in the balance sheet as a current liability. This
amount reflects the estimated taxes attributable to the earnings in
the quarter that will be payable to taxation authorities for the
next fiscal year. This is a future tax liability because, for tax
purposes, Fording benefits from an eleven month deferral in
recognizing Elk Valley Coal's reported income as the partnership's
tax year-end is January 31st. Since the $13 million current portion
of future income taxes is expected to be payable to taxation
authorities, it has been deducted from cash available for
distribution. Three months ended Six months ended June 30 June 30
--------------------- --------------------- (millions of dollars)
2005 2004 2005 2004
-------------------------------------------------------------------------
Current income taxes: Canadian corporate income taxes $ 0.4 $ 1.8 $
0.8 $ 1.8 Provincial mineral taxes and Crown royalties 11.3 5.2
14.6 7.1 Foreign income taxes 0.1 1.2 0.2 2.1 ---------------------
--------------------- 11.8 8.2 15.6 11.0 Future income tax expense
Canadian corporate income taxes 36.4 (6.2) 39.5 (2.5) Provincial
mineral taxes and Crown royalties 2.0 (1.1) 3.5 (0.7)
--------------------- --------------------- 38.4 (7.3) 43.0 (3.2)
--------------------- --------------------- Total income tax
expense $ 50.2 $ 0.9 $ 58.6 $ 7.8 ---------------------
--------------------- --------------------- ---------------------
Liquidity and Capital Resources -------------------------------
Three months ended Six months ended June 30 June 30
--------------------- --------------------- (millions of dollars)
2005 2004 2005 2004
-------------------------------------------------------------------------
Summary of Cash Flows Operating activities $ 64.5 $ 39.0 $ 125.5 $
86.1 Investing activities (35.7) (10.9) (65.3) (14.7) Financing
activities, excluding distributions (14.1) 0.2 3.7 (0.2)
--------------------- --------------------- Increase in cash before
distributions 14.7 28.3 63.9 71.2 Distributions paid (63.7) (47.0)
(127.4) (93.9) --------------------- --------------------- Increase
(decrease) in cash (49.0) (18.7) (63.5) (22.7) Cash - beginning of
period 50.0 48.5 64.5 52.5 ---------------------
--------------------- Cash - end of period $ 1.0 $ 29.8 $ 1.0 $
29.8 --------------------- ---------------------
--------------------- --------------------- Cash flows from
operating activities are largely influenced by the results of Elk
Valley Coal. Cash flows from operating activities increased
substantially in the second quarter of 2005 as compared with 2004
due to the increase in income, driven primarily by higher coal
sales prices. Cash flows from operating activities include changes
in working capital that can fluctuate from period to period. In the
second quarter of 2005, cash and cash equivalents decreased
substantially to $1 million primarily as a result of increased
expenditures for capital assets, debt repayment and distributions
to unitholders. Accounts receivable increased due to the increase
in coal prices and timing issues. The payment to Canadian Pacific
Railway for accrued rail charges reduced accounts payable in the
second quarter of 2005. Inventories increased as a result of the
build-up of clean coal inventories. Investing activities during the
second quarter included capital expenditures of approximately $28
million related to the Cheviot pit at Cardinal River operations and
ongoing expansion at the Fording River and Elkview operations.
Spending for sustaining projects was approximately $15 million, an
increase of $7 million from the second quarter of 2004. In the
quarter, Fording Inc. repaid $18 million in Canadian dollar loans,
reducing long-term debt to $205 million (U.S.$167 million) at June
30, 2005. Elk Valley Coal had utilized $74 million of its facility
for the issuance of letters of credit and guarantee. The Trust's
share of unused bank facilities at June 30, 2005, was $241 million
of which Fording Inc. had unutilized lines of credit in the amount
of $195 million and Elk Valley Coal had $76 million (Trust share:
$46 million). Adequate credit facilities are available to fund
working capital, expected capital spending requirements for
expansion plans and other requirements. We anticipate that Elk
Valley Coal and NYCO have the ability to generate sufficient funds
from operating and financing activities to maintain their
productive capacity and to fund planned growth and development
activities. Outlook ------- The current tight supply situation for
metallurgical coal is expected to continue into 2006 despite recent
production cuts taken by steel companies to manage their inventory
levels. Elk Valley Coal is progressing with its plans to increase
annualized production capacity to 28 million tonnes by the end of
2005 and to 30 million tonnes by the end of 2007. The expansion
plans combined with the strong coal markets are expected to provide
strong returns in 2005. Elk Valley Coal expects results to continue
to improve in the second half of 2005 as sales volumes increase.
Elk Valley Coal is targeting coal sales volumes to be approximately
27 million tonnes in 2005, provided that the mine operations run as
expected, rail and port service providers meet Elk Valley Coal's
needs and customers meet contract commitments on a timely basis.
The Trust's share of this sales target is approximately 16 million
tonnes. Cash Available for Distribution Our financial results, and
therefore the amount of cash available for distribution to
unitholders, are highly dependent on key variables such as coal
prices, forward contracts, coal production and sales volumes, the
U.S./Canadian dollar exchange rate, production and transportation
costs, sustaining capital expenditures and other financial and
legal requirements. Changes in any of these factors could have a
material impact on our results and cash available for distribution
to unitholders. Coal Markets and Drivers Hard coking coal supply
continues to be tight as producers have not been able to bring new
metallurgical coal production quickly to the market. Demand for
seaborne hard coking coal is expected to grow at above historical
rates over the next several years, reflecting longer term growth in
steel production. Demand for steel is expected to remain strong on
a global basis for the balance of 2005, notwithstanding announced
reductions in steel production in response to higher than normal
customers' steel inventory levels. Some steelmakers have indicated
that they expect the market to work through existing steel
inventories by the end of the year. Global steel mill expansion
plans combined with the current low supply situation of
high-quality metallurgical coal implies that the fundamentals for
coal markets are still strong and will remain so at least until new
high-quality metallurgical coal supply comes into the market.
Higher coal prices are serving to attract some new supply to the
market from both Canada and Australia. However, significant
near-term growth in hard coking coal production has not yet
materialized, primarily due to a lack of sufficient infrastructure
capacity and difficulties in advancing mine development. The
infrastructure supporting transportation of metallurgical coal from
mines is at or near capacity in most parts of the world.
Australia's rail and port capacity is constrained, which is
illustrated by recent vessel congestion and long waits at the
Dalrymple Bay port facility that required the implementation of an
allocation system to ration throughput capacity. In the United
States and Canada, rail systems are near capacity and require
investment to increase capacity for all of their customers.
However, rail and port service providers are undertaking
infrastructure changes to meet future needs. The global increase in
mining activity has resulted in substantial lead times of up to 18
months for delivery of large mining equipment. The availability of
tires and other parts is also limited, which affects mine
production. In addition, the availability of skilled labour could
delay the pace at which mines can be developed or expanded. These
constraints make it unlikely that significant new supply will come
on stream before at least 2007. Should supply problems occur, it
may take longer for metallurgical coal markets to return to
balance. Elk Valley Coal has other properties that have the
potential to provide additional metallurgical coal volumes in the
future if market conditions warrant their development. Cost of
Product Sold Elk Valley Coal is focused on managing key operating
variables, such as mine and plant productivities, yields, strip
ratios and haul distances, which directly influence mining costs,
in order to maximize cash flows over the long- term. Rising mining
and processing input costs such as fuel, steel, tires, labour and
maintenance parts and supplies also have a significant impact to
the cost of producing metallurgical coal. Increases in prices for
petroleum products and for commodities in general have resulted in
continuing cost pressures that we expect to continue throughout
2005. In addition, the growth in global mining activities has
created a demand for equipment and parts that outpaces supply. The
risk of a shortage of tires continues. In order to mitigate any
potential negative impact, Elk Valley Coal is monitoring tire
availability and undertaking steps to extend existing tire life.
Future operations could be impacted if Elk Valley Coal experiences
difficulties obtaining equipment and supplies, particularly tires,
on a timely basis. These factors could affect production,
productivity and costs at Elk Valley Coal's operations, and have a
material adverse effect on cash available for distribution to
unitholders. Collective Agreements A new five-year collective
agreement at the Coal Mountain operations was reached in May.
Collective agreements at two of Elk Valley Coal's operations expire
in 2005. The collective agreement at the Line Creek operations
expired on May 31, 2005 and negotiations are ongoing. Elkview
operations' agreement expires at the end of October 2005. The
agreement at the Fording River operations expires in 2006 while the
Cardinal River operations' agreement expires in 2007. Should an
agreement not be reached at one or more of these operations, work
stoppages could occur that may have a material adverse effect on
cash available for distribution to unitholders. Cardinal River
Operations All licenses and approvals have been received for the
Cheviot pit and the haulroad at the Cardinal River operations. In
June, the Federal Court heard the applications from a number of
environmental organizations seeking a further environmental
assessment of the project and challenging certain federal
authorizations. Elk Valley Coal is awaiting a decision on these
matters. While unanticipated, negative decisions related to these
applications could impact future operations at the site. In
addition, the Alberta Environmental Assessment Board issued a
decision in April related to one appeal regarding certain approvals
in connection with the project. The decision upheld the approval
but did impose certain reporting conditions on Cardinal River
operations, which will not have a material impact on operations.
Transportation The rail systems servicing Elk Valley Coal's mines
are being pressed to meet the current capacity requirements of all
industries shipping westbound to Vancouver. In the early part of
the year, rail service was below Elk Valley Coal's needs and
negatively impacted sales volumes. Elk Valley Coal has been working
with the railways to resolve rail performance issues at both the
Elk Valley mines and at the Cardinal River operations. In the
latter part of the second quarter, Elk Valley Coal has seen
improvements in rail service. Taking into account the new rail
contract with Canadian Pacific Railway, service levels are expected
to be sufficient to move Elk Valley Coal's planned production
volumes. Elk Valley Coal has given notice to Westshore Terminals
that it is requesting a review of the loading rate for the Elkview
mine contract with a view to change the rate effective April 1,
2005. Under the terms of the contract, the loading rate is linked
to the Canadian dollar price received for coal and if changed,
would apply for the term of the contract to 2010. Discussions with
Westshore are ongoing but currently, a negotiation timeline has not
yet been established. Failing agreement on revised rates, Elk
Valley Coal may apply to have an arbitrator determine how the rates
should be revised to be consistent with the original intention of
the parties. Rail capacity issues, prolonged labour stoppages,
availability of trains, weather related issues or other factors
that prevent the railways or the ports from providing their
services could seriously impact Elk Valley Coal's sales volumes and
financial results. Foreign Exchange Hedging To help manage exposure
to currency fluctuations, foreign exchange forward contracts are
used to fix the rate at which certain future anticipated flows of
U.S. dollars are exchanged into Canadian dollars. Foreign exchange
hedging activities take into account the existing foreign exchange
forward contracts of Fording Inc. and Elk Valley Coal. Our hedging
policy has no minimum limits. In the second quarter of 2005, total
outstanding hedges decreased by $108 million. An additional $167
million of new foreign exchange forward contracts were entered into
at an average U.S./Canadian dollar exchange rate of U.S.$0.79. Our
outstanding foreign exchange forward contracts are disclosed in
note 9 to the Consolidated Financial Statements. Guidance The Trust
has increased its expectations for capital expenditures for the
2005 calendar year for the purchase of equipment that would
otherwise have been purchased in later years. Sustaining capital is
being increased to $45 million for the Trust for the purchase of
equipment at Greenhills operations to replace outdated trucks. The
Trust's share of expansion capital spending is being increased to
$72 million in order to purchase mine equipment required for
Elkview's expansion plans. These estimates are based on
management's judgement, which are subject to known and unknown
risks as well as uncertainties and other factors. Accordingly,
actual results may differ materially from the estimated amounts
disclosed in the table. Sensitivities The table that follows
outlines the approximate sensitivity in the last half of 2005 of
cash available for distribution per unit based on changes in
certain key variables throughout the balance of the year. These
sensitivities are calculated before any cash reserve and include
our distribution entitlement in Elk Valley Coal, take into account
our current foreign currency hedges, exclude any potential impact
from the proposed reorganization and are based on the weighted
average number of units expected to be outstanding throughout the
balance of the year prior to the proposed three-for-one unit split,
if approved (see below). Variable Change $ /unit -------- ------
------- Cost of coal product sold CDN$1.00/tonne $ 0.10 Price of
coal U.S.$1.00/tonne $ 0.12 Elk Valley Coal's sales 1 million
tonnes $ 0.56 U.S./Canadian dollar exchange rate U.S. 1 cent $ 0.05
Capital expenditures of the Trust CDN$1 million $ 0.02 Number of
Units Outstanding --------------------------- There were
approximately 49 million trust units outstanding on June 30 and
July 22, 2005. Approximately 34,295 options were outstanding under
the exchange option plan as of June 30, 2005 and 33,707 options as
of July 22, 2005. Unitholders approved a three-for-one split of the
Trust's units at the Annual and Special Meeting on May 4, 2005.
There is not a set date for the subdivision of units to occur at
this time. The subdivision will proceed either in association with
the reorganization or at such time that the Trustees exercise their
discretion to proceed. It is anticipated that the unit split will
result in a corresponding reduction in the market price per unit
making them more affordable for the average investor. Risk Factors
------------ Unitholders should refer to the 'Risk Factors' in the
Trust's 2004 annual report and in the management information
circular dated April 2, 2005 for other factors that could
potentially impact the Trust's financial performance and its
ability to meet its targets.
------------------------------------------ CONSOLIDATED STATEMENTS
OF INCOME (unaudited) Three months ended Six months ended June 30
June 30 (millions of Canadian dollars,---------------------
--------------------- except per unit amounts) 2005 2004 2005 2004
-------------------------------------------------------------------------
Revenues $ 468.9 $ 309.7 $ 763.8 $ 554.9 Expenses Cost of product
sold 124.1 112.4 228.3 224.2 Transportation 146.2 122.1 250.2 220.8
Selling, general and administration 7.8 6.2 14.0 15.7 Depreciation
and depletion 11.1 15.4 24.0 31.6 ---------------------
--------------------- 289.2 256.1 516.5 492.3 ---------------------
--------------------- Income from operations 179.7 53.6 247.3 62.6
Other income (expense) Interest expense (2.7) (2.4) (5.4) (7.5)
Other income (expense), net (note 3) (3.5) (0.2) (4.2) 13.5
Reduction of interest in EVCP (note 4) - (37.5) 9.5 (37.5)
--------------------- --------------------- Income before taxes
173.5 13.5 247.2 31.1 Income tax expense (note 5) 50.2 0.9 58.6 7.8
--------------------- --------------------- Net income $ 123.3 $
12.6 $ 188.6 $ 23.3 --------------------- ---------------------
--------------------- --------------------- Weighted average number
of units outstanding (millions) (note 10) 49.0 48.6 49.0 47.8 Basic
and diluted earnings per unit (note 10) $ 2.52 $ 0.26 $ 3.85 $ 0.49
CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS (unaudited) Three
months ended Six months ended June 30 June 30 ---------------------
--------------------- (millions of Canadian dollars) 2005 2004 2005
2004
-------------------------------------------------------------------------
Balance - beginning of period $ 405.9 $ 201.1 $ 340.6 $ 190.4 Net
income for the period 123.3 12.6 188.6 23.3 ---------------------
--------------------- Balance - end of period $ 529.2 $ 213.7 $
529.2 $ 213.7 --------------------- ---------------------
--------------------- --------------------- The accompanying notes
to the unaudited consolidated financial statements are an integral
part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) Three months ended Six months ended June 30 June 30
--------------------- --------------------- (millions of Canadian
dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Operating activities Net income $ 123.3 $ 12.6 $ 188.6 $ 23.3 Items
not using (providing) cash: Depreciation and depletion 11.1 15.4
24.0 31.6 Loss (gain) on reduction of interest in EVCP - 35.2 (9.5)
35.2 Provision for asset retirement obligations, net 0.6 0.9 1.6
1.8 Future income taxes 38.4 (7.3) 43.0 (3.2) Income from change in
inventory valuation - - - (10.8) Loss on disposal of assets 0.1 -
0.1 0.1 Other items, net 0.2 (0.6) 1.0 0.1 ---------------------
--------------------- 173.7 56.2 248.8 78.1 Decrease (increase) in
non-cash working capital (109.2) (17.2) (123.3) 8.0
--------------------- --------------------- Cash from operating
activities 64.5 39.0 125.5 86.1 ---------------------
--------------------- Investing activities Additions to capital
assets (36.9) (17.7) (66.0) (23.4) Proceeds on disposal of assets
0.6 0.2 0.7 0.5 Other investing activities, net 0.6 6.6 - 8.2
--------------------- --------------------- Cash used in investing
activities (35.7) (10.9) (65.3) (14.7) ---------------------
--------------------- Financing activities Increase (decrease) in
long-term debt (17.5) (99.0) 1.7 (99.0) Issuance of units, net -
99.1 0.1 99.4 Other financing activities, net 3.4 0.1 1.9 (0.6)
--------------------- --------------------- Financing activities,
before distributions (14.1) 0.2 3.7 (0.2) Distributions paid (63.7)
(47.0) (127.4) (93.9) --------------------- ---------------------
Cash used in financing activities (77.8) (46.8) (123.7) (94.1)
--------------------- --------------------- Decrease in cash and
equivalents (49.0) (18.7) (63.5) (22.7) Cash and cash equivalents -
beginning of period 50.0 48.5 64.5 52.5 ---------------------
--------------------- Cash and cash equivalents - end of period $
1.0 $ 29.8 $ 1.0 $ 29.8 --------------------- ---------------------
--------------------- --------------------- The accompanying notes
to the unaudited consolidated financial statements are an integral
part of these statements. CONSOLIDATED BALANCE SHEETS (unaudited)
June 30 December 31 (millions of Canadian dollars) 2005 2004
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 1.0 $ 64.5
Accounts receivable 163.5 86.8 Inventory 161.5 113.0 Prepaid
expenses 6.5 2.6 ----------------------------- 332.5 266.9 Capital
assets 678.0 635.8 Goodwill 44.4 44.4 Other assets 19.9 21.1
----------------------------- $ 1,074.8 $ 968.2
----------------------------- -----------------------------
Liabilities Current liabilities Accounts payable and accrued
liabilities $ 120.5 $ 132.6 Income taxes payable 20.5 10.7
Distribution payable 137.2 63.7 Current portion of long-term debt
(note 7) 1.6 1.7 Future income taxes (note 5) 12.6 -
----------------------------- 292.4 208.7 Long-term debt (note 7)
209.1 205.2 Other long-term liabilities (note 8) 91.0 91.9 Future
income taxes (note 5) 210.9 180.4 Commitments and contingencies
(note 9) ----------------------------- 803.4 686.2
----------------------------- Unitholders' equity (note 10) Trust
units 357.9 357.7 Accumulated earnings 529.2 340.6 Accumulated cash
distributions (624.6) (423.8) Foreign currency translation
adjustments 8.9 7.5 ----------------------------- 271.4 282.0
----------------------------- $ 1,074.8 $ 968.2
----------------------------- ----------------------------- The
accompanying notes to the unaudited consolidated financial
statements are an integral part of these statements. Notes to
Consolidated Financial Statements (unaudited) July 22, 2005
-------------------------------------------------------------------------
1. STRUCTURE OF FORDING CANADIAN COAL TRUST AND NATURE OF
OPERATIONS Fording Canadian Coal Trust (the Trust) is an open-ended
mutual fund trust existing under the laws of the Province of
Alberta. It was created pursuant to a Declaration of Trust in
connection with a plan of arrangement effective February 28, 2003
(the Arrangement). These consolidated financial statements reflect
the financial position, results of operations and cash flows as if
the Trust had always carried on the businesses formerly carried on
by its predecessor company, Fording Inc., being the public company
existing prior to the Arrangement (Old Fording). All assets and
liabilities are recorded at historical cost. The Trust holds all of
the shares and subordinated notes of its operating subsidiary
company, Fording Inc. Through Fording Inc., at June 30, 2005 the
Trust held a 61% interest in the metallurgical coal operations
owned by Elk Valley Coal Partnership (EVCP), and a 100% interest in
the industrial mineral operations owned by Nyco Minerals, Inc. and
Minera Nyco SA de CV (collectively NYCO). EVCP and NYCO are
separate reportable segments within the Trust. EVCP mines and
processes metallurgical coal from six mines located in British
Columbia and Alberta, Canada. NYCO mines and processes wollastonite
and other industrial minerals from two operations in the United
States and one operation in Mexico. Each segment is a distinct
strategic business unit that offers different products and services
and is managed separately due to different operational and
marketing strategies. At February 28, 2003, Fording Inc. held a 65%
interest in EVCP and the remaining 35% interest in EVCP was held by
Teck Cominco Limited and its affiliates. The agreement governing
EVCP provided for an increase in Teck Cominco's interest to a
maximum of 40% to the extent that synergies from the combination of
various metallurgical coal assets contributed to EVCP exceed
certain target levels. At April 1, 2005, the Trust's interest
decreased to 61% while Teck Cominco's interest increased to 39%, as
discussed in note 4. These consolidated financial statements should
be read in conjunction with the annual consolidated financial
statements and notes thereto included in the Trust's Annual Report
for 2004 and other public disclosure documents of the Trust and Old
Fording. The preparation of these consolidated financial statements
requires management to make certain estimates and assumptions that
affect amounts reported and disclosed in the consolidated financial
statements and related notes. Actual amounts could differ from
those estimates. A discussion of the accounting estimates that are
significant in determining the Trust's financial results is
contained in the Management's Discussion and Analysis in its 2004
Annual Report. 2. SIGNIFICANT ACCOUNTING POLICIES These
consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and follow
the same accounting principles and methods of application as
described in the Trust's annual financial statements for 2004.
Certain comparative figures have been reclassified to conform to
the presentation adopted in 2005. 3. OTHER INCOME (EXPENSE), NET
Three months ended Six months ended June 30 June 30
--------------------- --------------------- (millions of Canadian
dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Interest and investment income $ (0.1) $ 0.3 $ (0.3) $ 1.3 Change
in inventory valuation - - - 10.8 Foreign exchange on U.S. debt
(2.7) - (2.0) - Other (0.7) (0.5) (1.9) 1.4 ---------------------
--------------------- $ (3.5) $ (0.2) $ (4.2) $ 13.5
--------------------- --------------------- ---------------------
--------------------- 4. REDUCTION OF INTEREST IN EVCP EVCP was
initially owned 65% by the Trust and 35% by Teck Cominco, the
managing partner. The agreement governing EVCP provided for an
increase in Teck Cominco's interest to a maximum of 40% to the
extent that synergies from the combination of various metallurgical
coal assets contributed to EVCP exceed certain target levels. The
report of an independent expert engaged by the partners concluded
that sufficient synergies had been realized to increase Teck
Cominco's interest to 40%. The Trust and Teck Cominco agreed that
substantial synergies have been achieved. As a result, the partners
agreed that the Trust's distribution entitlement was reduced to 62%
effective April 1, 2004 and to 61% on April 1, 2005, and will be
reduced to 60% on April 1, 2006, as the benefits of synergies flow
through to unitholders. Teck Cominco's entitlements will increase
correspondingly over the same period. A $37.5 million non-cash
charge to earnings, reflecting the entire 5% reduction in the
Trust's interest in EVCP was recorded in the second quarter of
2004. This charge was reduced by an estimate of cash to be received
for the additional distribution entitlements of 2% for the year
ended March 31, 2005 and 1% for the year ended March 31, 2006.
During the first quarter of 2005, the estimate of cash to be
received for the additional distribution entitlement of 1% for the
twelve months ended March 31, 2006 was revised. This resulted in a
favourable $9.5 million pre-tax adjustment to the reduction of
interest in EVCP, which has been included in other income for the
first quarter of 2005. Results of operations commencing with the
second quarter of 2004 reflect the Trust's 60% interest in EVCP,
while results for the first quarter of 2004 include the Trust's 65%
interest. 5. INCOME TAXES Income tax expense is made up of the
following components: Three months ended Six months ended June 30
June 30 --------------------- --------------------- (millions of
dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Current income taxes: Canadian corporate income taxes $ 0.4 $ 1.8 $
0.8 $ 1.8 Provincial mineral taxes and Crown royalties 11.3 5.2
14.6 7.1 Foreign income taxes 0.1 1.2 0.2 2.1 ---------------------
--------------------- 11.8 8.2 15.6 11.0 Future income tax expense
Canadian corporate income taxes 36.4 (6.2) 39.5 (2.5) Provincial
mineral taxes and Crown royalties 2.0 (1.1) 3.5 (0.7)
--------------------- --------------------- 38.4 (7.3) 43.0 (3.2)
--------------------- --------------------- Total income tax
expense $ 50.2 $ 0.9 $ 58.6 $ 7.8 ---------------------
--------------------- --------------------- ---------------------
Future income taxes consist of the following: June 30 December 31
(millions of Canadian dollars) 2005 2004
-------------------------------------------------------------------------
Canadian corporate income taxes $ 164.3 $ 124.8 Provincial mineral
taxes and Crown royalties 48.3 44.8 Foreign corporate income taxes
and other 10.9 10.8 ---------------------------- 223.5 180.4 Less
current portion (12.6) - ---------------------------- $ 210.9 $
180.4 ---------------------------- ---------------------------- 6.
DISTRIBUTABLE CASH Distributable cash is a term defined in the
Declaration of Trust and generally refers to the net cash received
by the Trust that is available for payment to unitholders on a
quarterly basis. Available cash generated by Fording Inc. is the
principal contributor to distributable cash of the Trust. Fording
Inc. distributes its available cash to the Trust in a quarter,
which is derived from results for the quarter and takes into
account other considerations such as expected future performance,
variations in levels of quarterly operating and capital activities
and other financial or legal requirements. Future distributions of
available cash will take into account these factors and any amounts
paid in prior periods that were greater or less than the actual
distributable cash for those prior periods. Available cash
generated by Fording Inc. and paid to the Trust is the principal
source of distributable cash paid to unitholders. Distributions
declared and payable in 2004 included $18.5 million of cash
available for distribution carried over from 2003. Three months
ended Six months ended June 30 June 30 ---------------------
--------------------- (millions of Canadian dollars) 2005 2004 2005
2004
-------------------------------------------------------------------------
Cash Available for Distribution Cash flows from operating
activities $ 64.5 $ 39.0 $ 125.5 $ 86.1 Add (deduct): Increase
(decrease) in non-cash working capital 109.2 17.2 123.3 (8.0)
Sustaining capital expenditures (14.7) (7.6) (20.1) (10.3) Capital
lease payments $ (0.4) (0.2) $ (1.1) (0.6) Unrealized foreign
exchange loss (gain) on debt 2.7 - 2.0 - Current future income
taxes (note 5) (12.6) - (12.6) - Other 2.5 1.8 4.0 1.9 Cash reserve
- - - - --------------------- --------------------- Cash available
for distribution $ 151.2 $ 50.2 $ 221.0 $ 69.1
--------------------- --------------------- ---------------------
--------------------- Distributions declared $ 137.2 $ 49.0 $ 200.9
$ 96.0 --------------------- ---------------------
--------------------- --------------------- Distributable cash and
cash available for distribution have no standardized meaning and
are not defined by generally accepted accounting principles in
Canada. Accordingly, distributable cash and cash available for
distribution as it is presented above may not be comparable to
similarly named measures presented by other trusts. 7. LONG-TERM
DEBT, BANKING FACILITIES AND FINANCIAL INSTRUMENTS June 30 December
31 (millions of Canadian dollars) 2005 2004
-------------------------------------------------------------------------
Long-term debt Bank debt Extendable revolving variable rate term
loans: U.S.$167 million with interest at rates varying from 3.8% to
4.1% $ 204.7 $ - Term loan with interest at varying rates from 5.6%
to 6.3% - $ 201.0 ----------------------------- 204.7 201.0 Other
debt Equipment financing due 2009 bearing interest at 5.1% 4.7 5.2
Capital lease obligations expiring in 2009 with interest rates
varying from 5.0% to 7.1% 1.3 0.7 -----------------------------
210.7 206.9 Less current portion (1.6) (1.7)
----------------------------- $ 209.1 $ 205.2
----------------------------- ----------------------------- Fording
Inc.'s bank credit facilities provide for a floating rate,
five-year, annually extendable $400 million facility and are
supported by an unsecured guarantee by EVCP, limited in recourse to
any partner's interest in EVCP (other than Fording Inc.) and a
general security agreement over the assets of Fording Inc.
including its interest in EVCP. The EVCP facility provides for a
floating rate, five-year, annually extendable, $150 million
revolving facility, which is to be secured by a general security
interest over the assets of EVCP. Funds available under both
facilities may be drawn in either Canadian or U.S. currency subject
to the Canadian dollar limit of each facility. At June 30, 2005,
the Trust's share of other uses of bank facilities in the form of
issued and outstanding letters of credit and guarantee was $44.7
million. The Trust's share of unused bank facilities at June 30,
2005 was $240.6 million. 8. OTHER LONG-TERM LIABILITIES June 30
December 31 (millions of Canadian dollars) 2005 2004
-------------------------------------------------------------------------
Asset retirement obligations $ 68.2 $ 68.9 Pension and other
post-retirement benefits 21.2 21.4 Other, net 1.6 1.6
----------------------------- $ 91.0 $ 91.9
----------------------------- ----------------------------- Pension
and other post-retirement benefits Substantially all employees
participate in either a defined benefit or defined contribution
plan. The pension expense for the second quarter of 2005 was $2.7
million and $5.2 million for the year to date (2004 - $2.1 million
and $4.4 million, respectively). 9. COMMITMENTS AND CONTINGENCIES
Foreign exchange forward contracts To help manage exposure to
currency fluctuations, foreign exchange forward contracts are used
to fix the rate at which certain future anticipated flows of U.S.
dollars are exchanged into Canadian dollars. The foreign exchange
hedging activities of the Trust take into account the existing
foreign exchange forward contracts of EVCP and Fording Inc. The
following table summarizes the Trust's outstanding hedged positions
at June 30, 2005. Amount Hedged (millions of U.S.$)
----------------------------------- Average Exchange Rates Fording
EVCP Trust's (U.S.$1 (CDN$1 Year Inc. 60% Total equals CDN$) equals
U.S.$)
-------------------------------------------------------------------------
2005 $ 647 $ 105 $ 752 1.28 0.78 2006 380 57 437 1.29 0.78 2007 16
- 16 1.46 0.69 ----------------------------------- $ 1,043 $ 162 $
1,205 -----------------------------------
----------------------------------- At June 30, 2005, the Trust's
portion of unrealized gains on foreign exchange forward contracts
was $75.4 million based on the U.S./Canadian dollar exchange rate
of U.S.$0.82. The Trust's realized gain on foreign exchange forward
contracts included in revenues for the second quarter of 2005 was
$11.5 million and $27.4 million for the year to date (2004 - $10.4
million and $38.2 million, respectively). Neptune Terminals
guarantee EVCP's proportionate share of its guarantee of the
outstanding bank indebtedness of Neptune Terminals was $19.7
million at the end of the second quarter of 2005. The Trust's share
of this guarantee was $11.8 million. Other EVCP and Canadian
Pacific Railway reached an agreement with respect to westbound rail
rates in April 2005, which settled the dispute outstanding at
December 31, 2004. There are no material changes to other
commitments and contingencies from those reported in the annual
consolidated financial statements included in the Trust's Annual
Report for 2004. 10. UNITHOLDERS' EQUITY Authorized The Trust has
an unlimited number of units authorized for issuance pursuant to
the Declaration of Trust. The units represent a beneficial interest
in the Trust. All units share equally in all distributions from the
Trust and carry equal voting rights. No conversion, retraction or
pre-emptive rights are attached to the units. Trust units are
redeemable at the option of the unitholder at a price that is the
lesser of 90% of the average closing price of the units on the
principal trading market for the previous 10 trading days and the
closing market price on the date of tender for redemption, subject
to restrictions on the amount to be redeemed each quarter. Units
issued and outstanding Three months ended Six months ended June 30
June 30 (in millions of units and ---------------------
--------------------- Canadian dollars) Units Amount Units Amount
-------------------------------------------------------------------------
Balance, beginning of period 49.0 $ 357.8 49.0 $ 357.7 Issued on
exercise of options - 0.1 - 0.2 ---------------------
--------------------- Balance, end of period 49.0 $ 357.9 49.0 $
357.9 --------------------- ---------------------
--------------------- --------------------- Under the Arrangement,
all options to purchase common shares of Old Fording were exchanged
for options to purchase units of the Trust under the exchange
option plan. The Trust has not granted any options since its
formation. At June 30, 2005, there were approximately 34,000
options outstanding to purchase units, all of which are fully
vested and exercisable at any time. The options have a weighted
average exercise price of $15.16 per unit and the remaining
weighted average contractual life is 4.3 years. Certain exchange
options also have accompanying unit appreciation rights.
Accumulated Distributions to Unitholders Three months ended Six
months ended June 30 June 30 ---------------------
--------------------- (millions of Canadian dollars) 2005 2004 2005
2004
-------------------------------------------------------------------------
Opening accumulated cash distributions $ 487.4 $ 257.3 $ 423.8 $
210.3 Distributions declared and payable (note 6) 137.2 49.0 200.8
96.0 --------------------- --------------------- Closing
accumulated cash distributions $ 624.6 $ 306.3 $ 624.6 $ 306.3
--------------------- --------------------- ---------------------
--------------------- Earnings per unit For the periods presented,
in calculating diluted earnings per unit, net income remains
unchanged from the basic earnings per unit calculation and the
number of units outstanding is increased for the dilutive effect of
outstanding unit options. The treasury stock method is used to
determine the dilutive effect of unit options and other dilutive
instruments. The weighted average number of units outstanding for
purposes of calculating earnings per unit on both a basic and fully
diluted basis was 49 million units for the quarter ended June 30,
2005 and 49 million units for the quarter ended June 30, 2004. 11.
UNIT-BASED COMPENSATION Three months ended Six months ended June 30
June 30 --------------------- --------------------- (millions of
Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Employee unit purchase plan $ 0.1 $ 0.1 $ 0.2 $ 0.2 Unit equivalent
plan 0.4 0.4 1.1 0.8 --------------------- --------------------- $
0.5 $ 0.5 $ 1.3 $ 1.0 --------------------- ---------------------
--------------------- --------------------- The total number of
units purchased on behalf of the employees pursuant to the employee
unit purchase plan, including the employer's contributions, was
4,796 units for the second quarter of 2005 and 9,149 for the year
to date (2004 - 10,460 and 18,858, respectively). A unit equivalent
plan is in place for Trustees and Directors. Trustees and Directors
receive a portion of their compensation in unit equivalents. The
unit equivalents when granted are valued using the five-day
weighted average trading price of a unit immediately preceding the
award date and are subsequently revalued each quarter at fair
market value. The total charge to income for Unit Equivalent Plan
includes the cost of vested unit equivalents and any changes in the
fair value of the units during the year. 12. SEGMENT INFORMATION
Three months ended Six months ended June 30 June 30
--------------------- --------------------- (millions of Canadian
dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Elk Valley Coal Revenues $ 456.9 $ 295.9 $ 740.8 $ 527.9 Cost of
product sold (116.3) (105.8) (212.8) (210.6) Transportation (144.4)
(119.9) (246.6) (216.8) Selling, general and administration (3.9)
(2.7) (7.0) (10.3) Depreciation and depletion (9.9) (13.5) (21.4)
(27.7) --------------------- --------------------- Income from
operations 182.4 54.0 253.0 62.5 Interest expense (0.3) (0.5) (0.4)
(0.7) Other income (expense) (0.5) 0.7 (0.1) 11.1 Income tax
(expense) (50.2) 0.3 (58.4) (5.7) ---------------------
--------------------- Income 131.4 54.5 194.1 67.2
--------------------- --------------------- NYCO Revenues 12.0 13.8
23.0 27.0 Cost of product sold (7.8) (6.6) (15.5) (13.6)
Transportation (1.8) (2.2) (3.6) (4.0) Selling, general and
administration (1.1) (1.3) (2.1) (2.2) Depreciation and depletion
(1.1) (1.3) (2.2) (2.6) --------------------- ---------------------
Income (loss) from operations 0.2 2.4 (0.4) 4.6 Interest expense -
- - - Other income (expense) (0.1) - (0.1) 0.5 Income tax (expense)
- (1.2) (0.2) (2.1) --------------------- ---------------------
Income (loss) 0.1 1.2 (0.7) 3.0 ---------------------
--------------------- Corporate Selling, general and administration
(2.8) (2.2) (4.9) (3.2) Depreciation and depletion (0.1) (0.6)
(0.4) (1.3) --------------------- --------------------- Loss from
operations (2.9) (2.8) (5.3) (4.5) Interest expense (2.4) (1.9)
(5.0) (6.8) Other income (expense) (2.9) (0.9) (4.0) 1.9 Reduction
of interest in EVCP - (37.5) 9.5 (37.5) ---------------------
--------------------- Loss before discontinued operations (8.2)
(43.1) (4.8) (46.9) --------------------- ---------------------
Consolidated Revenues 468.9 309.7 763.8 554.9 Cost of product sold
(124.1) (112.4) (228.3) (224.2) Transportation (146.2) (122.1)
(250.2) (220.8) Selling, general and administration (7.8) (6.2)
(14.0) (15.7) Depreciation and depletion (11.1) (15.4) (24.0)
(31.6) --------------------- --------------------- Income from
operations 179.7 53.6 247.3 62.6 Interest expense (2.7) (2.4) (5.4)
(7.5) Other income (expense) (3.5) (0.2) (4.2) 13.5 Reduction of
interest in EVCP - (37.5) 9.5 (37.5) Net income tax expense (50.2)
(0.9) (58.6) (7.8) --------------------- --------------------- Net
income $ 123.3 12.6 $ 188.6 $ 23.3 ---------------------
--------------------- --------------------- ---------------------
DATASOURCE: Fording Canadian Coal Trust CONTACT: Susan J.
Soprovich, Director, Investor Relations, Ph: (403) 260-9834, E: ;
Catherine Hart, Investor Relations Analyst, (403) 260-9817, E: ;
Website: http://www.fording.ca/ x
Copyright