CALGARY, Oct. 23 /PRNewswire-FirstCall/ -- Fording Canadian Coal
Trust (TSX: FDG.UN, NYSE: FDG) today announced its third quarter
2006 results. Cash available for distribution for the quarter was
$123 million ($0.83 per unit) compared with $253 million ($1.72 per
unit) for the third quarter of 2005. On a year-to-date basis, cash
available for distribution was $471 million ($3.21 per unit), a
slight decrease from $474 million ($3.23 per unit) for the same
period of 2005. Net income was $124 million in the third quarter,
which was down from $427 million during the same quarter in 2005.
There were significant, unusual gains in 2005, including a $160
million future income tax reversal with the reorganization of the
Trust and a non-cash gain of $29 million on the issuance of a
partnership interest. Income before unusual items and future income
taxes was $121 million in the third quarter compared with $239
million in the same quarter of 2005, which largely reflects lower
US dollar coal prices and a stronger Canadian dollar in 2006. On a
year-to-date basis, net income was $429 million versus $616 million
in 2005. Income before unusual items and future income taxes for
the year to date was $468 million compared with $461 million in the
prior year. "Although the Trust continues to generate significant
cash flows, there are a number of challenges in the hard coking
coal markets," said Jim Popowich, President of Fording Canadian
Coal Trust. "These challenges include the increased use by
integrated steel mills of low-quality coals and new coal supply
availability. To respond to these challenges, Elk Valley Coal's
current focus is on ensuring that its value proposition to its
customers makes Elk Valley Coal their supplier of choice for their
high quality hard coking coal needs." Highlights: - Cash available
for distribution was $123 million for the quarter, or $0.83 per
unit, down from $253 million for 2005. Cash available for
distribution for the year-to-date was $471 million, down slightly
from $474 million for 2005. Distributions to unitholders for the
quarter were $0.80 per unit and were $3.20 per unit for the
year-to- date compared with $1.80 per unit and $3.16 per unit,
respectively, for 2005. - The average coal price in the third
quarter of 2006 was $124 per tonne (US$109), which was down from
$147 per tonne (US$118) in the same quarter of 2005. On a
year-to-date basis, coal prices were $136 per tonne (US$115) in
2006, up from $117 per tonne (US$92) for the previous year. - Coal
sales volumes of 3.5 million tonnes and 10.1 million tonnes for the
third quarter and the year-to-date, respectively, were 8% lower
than 2005 levels due to some customers reducing their requirements
for hard coking coal primarily as a result of the substitution of
lower quality coals. - Elk Valley Coal's unit cost of product sold
increased 17% to $42.60 per tonne compared with the third quarter
of 2005 primarily due to higher costs for mining inputs and lower
production. As expected, costs were up from the second quarter of
2006 as a result of scheduled plant shutdowns and lower production.
The cost of product sold increased to $40.20 per tonne, or 26%, for
the year-to-date. - Elk Valley Coal's unit transportation costs for
the third quarter decreased $0.80 per tonne to $35.60 compared with
the same quarter of 2005. For the 2006 year-to-date, unit
transportation costs were $36.90 per tonne, up $2.00 per tonne from
2005, due to higher rail and port rates that took effect during the
second quarter of 2005. - Mr. Boyd Payne joined Elk Valley Coal as
President and Chief Executive Officer in the third quarter. Mr.
Payne was most recently the Vice President, Marketing for BHP
Billiton in Singapore. It is anticipated that Mr. Payne will assume
the responsibilities of president of the Trust from Mr. Jim
Popowich by year end. Mr. Popowich will retire after 37 years of
service with Fording Canadian Coal Trust and Elk Valley Coal and
their predecessor companies following a transition period.
--------------------------------------- Conference Call and Webcast
A conference call to discuss these results will be held Tuesday,
October 24 at 8:00 a.m. Mountain time, 10:00 a.m. Eastern time. To
participate in the conference call, please dial 1-800-814-3911 or
416-644-3414 approximately 10 minutes prior to the call. A live and
archived audio webcast and podcast of the conference call will also
be available on the Trust's website http://www.fording.ca/. About
Fording Canadian Coal Trust 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 subsidiaries, holds a 60% interest in the
Elk Valley Coal Partnership and is a leading 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, supplying
high-quality coal products to the international steel industry. 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 This management's
discussion and analysis, dated October 23, 2006, should be read in
conjunction with Fording Canadian Coal Trust's unaudited
consolidated financial statements and the notes thereto for the
quarter ended September 30, 2006, management's discussion and
analysis and consolidated financial statements for the year ended
December 31, 2005, and other public disclosure documents of the
Fording Canadian Coal Trust and its predecessors. The Trust reports
its financial information in Canadian dollars and all monetary
amounts set forth herein are expressed in Canadian dollars unless
otherwise stated. Fording Canadian Coal Trust
--------------------------- Fording Canadian Coal Trust (the 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. The Trust directly and
indirectly owns all of the interests of NYCO and Fording LP, which
holds a 60% interest in Elk Valley Coal. 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 its subsidiaries.
References to Elk Valley Coal are either to Elk Valley Coal
Partnership or to the Trust's Elk Valley Coal segment as the
context requires. Our Elk Valley Coal segment includes our interest
in the Elk Valley Coal Partnership and certain financial
transactions of our subsidiaries that relate to the segment, such
as foreign currency hedging activity and mineral taxes. Elk Valley
Coal --------------- Elk Valley Coal is a general partnership
between Fording LP and Teck Cominco. Teck Cominco is the managing
partner of Elk Valley Coal and is responsible for managing its
business and affairs, subject to certain matters that require the
agreement of all partners. Our consolidated financial statements
reflect our proportionate interest in Elk Valley Coal. Elk Valley
Coal is the second largest supplier of seaborne hard coking coal in
the world. Hard coking coal is a type of metallurgical coal that is
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 an interest in six mining
operations. The Fording River, Coal Mountain, Line Creek and
Cardinal River operations are wholly owned. The Greenhills
operation is a joint venture in which Elk Valley Coal has an 80%
interest and is accounted for on a proportionate basis. Effective
August 1, 2005, the Elkview operation was contributed to the
Elkview Mine Limited Partnership in which Elk Valley Coal owns,
directly and indirectly, a 95% general partnership interest, which
is consolidated into the accounts of Elk Valley Coal and the Trust.
NYCO ---- NYCO consists of subsidiaries of the Trust that operate
wollastonite mining operations in New York State and Mexico, and a
tripoli mining operation based in Missouri. NYCO is a 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. Non-GAAP Financial Measures
--------------------------- This management's discussion and
analysis refers to certain financial measures, such as
distributable cash, cash available for distribution, sustaining
capital expenditures, and income before unusual items and future
income taxes, that are not measures recognized under generally
accepted accounting principles (GAAP) in Canada or the United
States, and do not have standardized meanings prescribed by GAAP.
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. We discuss these measures, which have
been derived from our financial statements and applied on a
consistent basis, because we believe that they are of assistance in
the understanding of the results of our operations and financial
position and are meant to provide further information about the
ability of the Trust to earn and distribute cash to unitholders.
Cash available for distribution is the term used by us to describe
the cash that is available for distribution to unitholders. Actual
distributions of cash to unitholders are made after being declared
by the Trustees in accordance with our distribution policy.
Sustaining capital expenditures refers to expenditures in respect
of capital asset additions, replacements or improvements required
to maintain business operations. The determination of what
constitutes sustaining capital expenditures requires the judgment
of management. Income before unusual items and future income taxes
is a non-GAAP measure of earnings. It adds back to net income in
accordance with GAAP the impact of future taxes, which are
non-cash, and unusual items that are significant and not expected
to be recurring. Caution on Forward-looking Information
-------------------------------------- This management's discussion
and analysis contains forward-looking information within the
meaning of the United States Private Securities Litigation Reform
Act of 1995 relating, but not limited to, the Trust's expectations,
intentions, plans and beliefs. Forward-looking information can
often be identified by forward-looking words such as "anticipate",
"believe", "expect", "goal", "plan", "intend", "estimate", "may",
and "will" or similar words suggesting future outcomes, or other
expectations, beliefs, plans, objectives, assumptions, intentions
or statements about future events or performance. This management's
discussion and analysis contains forward- looking information,
included in, but not limited to, the sections titled 'Overview',
'Results of Operations', 'Liquidity and Capital Resources',
'Outlook', and 'Changes in Accounting Policies'. Unitholders and
prospective investors are cautioned not to place undue reliance on
forward-looking information. By its nature, forward-looking
information involves numerous assumptions, known and unknown risks
and uncertainties, of both a general and specific nature, that
could cause actual results to differ materially from those
suggested by the forward-looking information or contribute to the
possibility that predictions, forecasts or projections will prove
to be materially inaccurate. For a further discussion of the
assumptions, risks and uncertainties relating to the
forward-looking statements contained in this management's
discussion and analysis, please refer to the sections entitled
Caution Regarding Forward-Looking Statements. Overview -------- The
table below summarizes our financial results and some of our key
operating statistics on a consolidated basis. Three months ended
Nine months ended September 30 September 30 (millions of Canadian
---------------------- ---------------------- dollars, except as
noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue $ 451.8 $ 570.8 $ 1,409.5 $ 1,334.6 Income from operations
143.8 263.6 534.5 510.9 Net income 123.8 427.3 429.3 615.9 Add
(deduct): Change in accounting policy for raw coal(x) - - 31.7 -
Reduction of interest in Elk Valley Coal - - - (9.5) Future income
tax expense (reversal) (3.3) (159.8) 7.3 (116.8) Gain on issuance
of partnership interest - (28.6) - (28.6) ---------- ----------
--------- ---------- Income before unusual items and future income
taxes $ 120.5 $ 238.9 $ 468.3 $ 461.0 Basic and diluted earnings
per unit(x)(x): $ 0.84 $ 2.91 $ 2.92 $ 4.19 Earnings per unit
before unusual items and future income taxes $ 0.82 $ 1.63 $ 3.19 $
3.14 Elk Valley Coal Statistics (Trust's share): Coal production
(million tonnes) 3.0 3.6 9.8 11.7 Coal sales (million tonnes) 3.5
3.8 10.1 11.0 Average sales price (US$ per tonne) $ 108.80 $ 118.30
$ 115.40 $ 92.30 Operating expenses (per tonne) Cost of product
sold $ 42.60 $ 36.50 $ 40.20 $ 31.90 Transportation $ 35.60 $ 36.40
$ 36.90 $ 34.90 NYCO Statistics (Wollastonite only): Sales
(thousands of tonnes) 24 22 78 67 Average sales price (US$ per
tonne) $ 393 $ 382 $ 388 $ 387 (x) See page 13 for a discussion of
this change. (x)(x) All per unit amounts and outstanding units have
been restated to reflect the three-for-one unit split that occurred
in the third quarter of 2005. Third Quarter Our third quarter net
income decreased $304 million to $124 million in 2006 largely due
to a large future income tax recovery and an unusual, non- cash
gain totaling $188 million in the prior year. We reorganized the
Trust during the third quarter of 2005 (the 2005 Arrangement) and
created a flow- through structure for Canadian corporate income tax
purposes, thereby maintaining one of the original objectives of the
Trust. Income from operations of $144 million decreased $120
million from 2005 due to lower coal revenue and higher unit cost of
product sold. Revenue decreased $119 million as a result of lower
US dollar coal prices, lower coal sales volumes and a stronger
Canadian dollar. The unit cost of product sold for coal sales
increased 17% due to higher costs for mining inputs and lower
production. Income before unusual items and future income taxes
decreased by $118 million to $121 million and reflects lower
operating earnings and higher current provincial mineral taxes and
Crown royalties. Year to Date Year-to-date net income decreased
$187 million to $429 million. This year-over-year result largely
reflects that, while income from operations is similar for the two
years, there was a significant income tax recovery and an unusual,
non-cash gain in 2005. Income from operations increased 5% from
2005 to $535 million due to higher coal sales prices. Revenue
increased 6% to $1.4 billion as average US dollar coal prices were
up 25%, offset to some degree by lower sales volumes and a stronger
Canadian dollar. Increased coal prices in 2006 reflect higher
2005/2006 coal year prices realized in the year to date in contrast
to lower 2004/2005 coal year prices in the comparative period. The
unit cost of product sold for coal sales increased 26% with higher
mining costs and lower production, and transportation costs were up
6% due to increased rail and port rates. Income before unusual
items and future income taxes increased $7 million in 2006 to $468
million on mixed operating results and includes a $32 million
pre-tax charge to earnings to reflect the impact of new accounting
rules relating to raw coal inventory. Additional details on the new
accounting rules are provided in note 3 to the Consolidated
Financial Statements. Cash Available for Distribution The cash
available for distribution from our investments in the quarter was
$123 million ($0.83 per unit) compared with $253 million ($1.72 per
unit) in 2005. Year to date cash available for distribution in 2006
was $471 million ($3.21 per unit) compared with $474 million ($3.23
per unit). The distributions made by the Trust were $0.80 per unit
for the third quarter compared with $1.80 per unit in 2005.
Distributions during the year to date were $3.20 per unit in 2006
compared with $3.16 per unit in 2005. Financial Position Our
working capital position increased $68 million to $124 million
since December 2005, including an increase of cash as current
liabilities declined further than current assets. Current
liabilities decreased largely as a result of lower distributions
payable to unitholders. Accounts receivable decreased primarily due
to lower coal sales volumes and prices. Inventory decreased due to
the write off of raw coal on the adoption of new accounting rules
and lower clean coal inventories, which reflects sales exceeding
coal production. We improved our short-term liquidity position
during the first quarter by refinancing with long-term debt
expansion capital expenditures that had previously been funded by
working capital. Trust Reorganization At the 2005 Annual and
Special Meeting, unitholders approved a two-step reorganization of
the Trust and its subsidiaries pursuant to a plan of arrangement
under section 192 of the Canada Business Corporations Act. The
first step was the 2005 Arrangement, which was completed on August
24, 2005 and effectively resulted in distributions received from
Elk Valley Coal being taxed at the unitholder level. The second
step to reorganize into a royalty trust was not completed and
unitholders have since approved a modified royalty reorganization
structure at the Annual and Special Meeting on May 2, 2006 (the
2006 Arrangement). The 2006 Arrangement, subject to the receipt of
a favourable advance tax ruling from the Canada Revenue Agency,
will result in the reorganization of the assets and liabilities of
the Trust under a new trust that is a royalty trust. This new
royalty trust will be a successor trust and qualify for an
exemption from a provision in Canadian income tax laws that limit
the level of foreign ownership of units of income trusts. It will
not change the distribution policy of the Trust or, in itself,
affect the amount of cash available for distribution to
unitholders. It will not require any further action on the part of
unitholders. Unitholders will receive one unit of the new royalty
trust for each unit that they presently own of the Trust. This
holds true for unitholders who hold unit certificates (as opposed
to holding units through a brokerage account), as there will be no
requirement to obtain new certificates. The Trust unit certificates
presently held will represent the same number of units of the new
royalty trust that the certificates currently represent in the
Trust. Results of Operations --------------------- Elk Valley Coal
Three months ended Nine months ended September 30 September 30
(millions of Canadian ---------------------- ----------------------
dollars, except as noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Statistics Coal production (millions of tonnes) 3.0 3.6 9.8 11.7
Coal sales (millions of tonnes) 3.5 3.8 10.1 11.0 Average sales
price (per tonne)(1) $ 124.40 $ 146.70 $ 135.90 $ 116.60 US$ per
tonne $ 108.80 $ 118.30 $ 115.40 $ 92.30 Operating expenses (per
tonne) Cost of product sold $ 42.60 $ 36.50 $ 40.20 $ 31.90
Transportation $ 35.60 $ 36.40 $ 36.90 $ 34.90 Income from
operations Revenue $ 440.3 $ 559.9 $ 1,373.3 $ 1,300.7 Cost of
product sold 150.8 138.3 406.1 351.1 Transportation 125.8 138.0
372.9 384.6 Selling, general and administration 4.6 4.4 17.9 11.4
Depreciation and depletion 13.0 13.7 36.4 35.1
---------------------- ----------------------- Income from
operations $ 146.1 $ 265.5 $ 540.0 $ 518.5 ----------------------
---------------------- ----------------------
---------------------- (1) Includes the effects of our foreign
currency hedges Coal sales volumes for the third quarter and
year-to-date 2006 were down approximately 8% from the same periods
in 2005, reflecting some customers reducing their requirements for
hard coking coal due to the substitution of lower quality coals.
These elements were considered in our sales guidance of 22 million
to 23 million tonnes of sales by Elk Valley Coal during the 2006
calendar year. Average US dollar coal prices in the quarter
decreased 8% to $109 per tonne and reflect lower 2006 coal year
prices. Year-to-date average US dollar coal prices increased 25% in
2006 because of sharply lower 2004 coal year prices that were
realized in the first quarter and into the second quarter of 2005.
Average Canadian dollar prices in 2006 decreased 15% for the third
quarter and increased 17% year to date, and reflect a stronger
Canadian dollar during the current year. Third quarter average US
dollar prices declined from $116 per tonne in the second quarter as
lower 2006 coal year prices took full effect, offset slightly by
the carry over of some sales from the previous coal year. The unit
cost of product sold increased 17% to $42.60 per tonne for the
quarter and 26% to $40.20 per tonne for the year-to-date. This
reflects the continuation of the high cost of mining inputs, such
as energy and other consumables, as well as lower production
volumes, higher strip ratios and longer haul distances. The unit
cost of product sold increased to $42.60 per tonne as expected from
$39.20 in the second quarter largely due to the impact of scheduled
plant shutdowns and lower production. Unit transportation costs in
the third quarter decreased marginally to $35.60 per tonne from
$36.40 in the prior year largely as a result of slightly lower port
and average rail rates. On a year-to-date basis, unit
transportation costs increased 6% to $36.90 per tonne compared with
2005 reflecting lower rail and port rates during the first quarter
of 2005. NYCO Three months ended Nine months ended September 30
September 30 (millions of Canadian ----------------------
---------------------- dollars, except as noted) 2006 2005 2006
2005
-------------------------------------------------------------------------
Statistics - Wollastonite Sales (thousands of tonnes) 24 22 78 68
Average sales price ($ per tonne) $ 440 $ 459 $ 439 $ 475 Average
sales price (US$ per tonne) $ 393 $ 382 $ 388 $ 387 Income (loss)
from operations Revenue $ 11.5 $ 10.9 $ 36.2 $ 33.9 Cost of product
sold 7.3 6.7 22.2 22.2 Transportation 2.2 1.8 6.6 5.4 Selling,
general and administration 1.0 1.1 3.2 3.2 Depreciation and
depletion 0.9 1.0 2.8 3.2 ----------------------
---------------------- Income (loss) from operations $ 0.1 $ 0.3 $
1.4 $ (0.1) ---------------------- ----------------------
---------------------- ---------------------- Income from the NYCO
operations in 2006 was down slightly in the quarter and increased
over $1 million year-to-date primarily due to higher sales volumes.
Average Canadian dollar prices were lower in 2006 due to a stronger
Canadian dollar. We are continuing to assess a range of strategic
alternatives for NYCO to identify opportunities to maximize the
value of this investment. Other Income (Expense) Interest expense
increased for the third quarter and year-to-date of 2006 as a
result of rising short-term interest rates and higher debt levels.
Other income and expense items for the third quarter and
year-to-date of 2006 include the non-controlling interest of the
limited partners in the earnings of the Elkview mine. It also
includes net foreign exchange gains on US dollar denominated debt
and unhedged accounts receivable. Also, effective January 1, 2006,
the Trust adopted a new accounting rule that changed its practice
of recognizing raw coal exposed in the mining bench and stockpiled
in the pit as in-process inventory. Under the new rule, this raw
coal is not considered to be inventory as it has not been extracted
from the mine. The value of the in-pit raw coal inventories at
January 1, 2006 was adjusted, which resulted in a pre-tax charge to
income of $32 million and reduced inventory by the same amount.
Income Taxes Income tax expense consists primarily of 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. Prior to the 2005 Arrangement, income
tax expense also included Canadian corporate income taxes The 2005
Arrangement resulted in distributions received from Elk Valley Coal
being taxed primarily at the unitholder level. Mineral taxes and
Crown royalties were $17 million during the third quarter compared
with $30 million in 2005 because of the decrease in taxable cash
flows generated by Elk Valley Coal. In addition, we recognized an
additional future tax asset of $13 million during the third
quarter, of which $4 million was credited to future mineral tax
expense and $9 million was taken as a reduction in goodwill to
reflect certain future tax assets not recognized on formation of
the Trust. Canadian corporate income taxes were negligible in 2006
compared with a large recovery in 2005. The future income tax
reversal in 2005 largely reflects the reversal of a $164 million
provision for future Canadian corporate income taxes following the
2005 Arrangement. Cash Available for Distribution
------------------------------- Cash available for distribution is
the term used by us to describe the cash that is available for
distribution to unitholders. Cash available for distribution is not
a term recognized by GAAP in Canada and it is not a term that has a
standardized meaning. Accordingly, cash available for distribution
when used in this document and our other disclosures may not be
comparable to similarly named measures presented by other trusts.
Actual distributions of cash to unitholders are made after being
declared by the Trustees in accordance with the distribution policy
of the Trust. Generally, cash available for distribution refers to
all of the cash received by the Trust from its direct and indirect
investments in Elk Valley Coal and NYCO, less specified costs and
unit redemptions. Cash available for distribution is derived from
cash flows from the operations of the Trust?s subsidiaries,
including its proportionate interest in Elk Valley Coal, before
changes in non-cash working capital, less sustaining capital
expenditures to the extent not funded by debt or equity, principal
repayments on debt obligations and any amount allocated to
reserves. Sustaining capital expenditures refers to expenditures in
respect of capital asset additions, replacements or improvements
required to maintain business operations. The determination of what
constitutes sustaining capital expenditures requires the judgment
of management. Reserves, which are a discretionary decision of the
Trust and its subsidiaries, and of Elk Valley Coal, may be
established that would reduce cash available for distribution, in
order to meet any short-term or long-term need for cash. Such
reserves established at the Elk Valley Coal level have the effect
of reducing amounts distributed by Elk Valley Coal to its partners;
however, such allocations must be authorized by special resolution
of the partners and Elk Valley Coal is required to make reasonable
use of its operating lines for working capital purposes. The cash
available for distribution from the Trust?s investments and the
distributions made by the Trust is set forth in the table below.
Three months ended Nine months ended September 30 September 30
(millions of Canadian ---------------------- ----------------------
dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Cash from operating activities $ 161.2 $ 271.4 $ 541.4 $ 398.9 Add
(deduct): (Decrease) increase in non-cash working capital (25.4)
(26.5) (45.3) 96.8 Sustaining capital expenditures (10.7) (8.3)
(20.7) (28.4) Capital lease payments $ (0.5) (0.5) $ (1.3) (1.6)
Other (2.1) 17.1 (2.8) 8.5 Cash reserve - - - -
---------------------- ---------------------- Cash available for
distribution and distributable cash $ 122.5 $ 253.2 $ 471.3 $ 474.2
---------------------- ----------------------
---------------------- ---------------------- Distributions
declared $ 117.6 $ 264.6 $ 470.4 $ 465.4 ----------------------
---------------------- ----------------------
---------------------- Average number of units outstanding
(millions) 147.0 147.0 147.0 147.0 Per unit amounts: Cash available
for distribution $ 0.83 $ 1.72 $ 3.21 $ 3.23 Distributions declared
$ 0.80 $ 1.80 $ 3.20 $ 3.16 Since the formation of the Trust, cash
available for distribution on a cumulative basis has exceeded
distributions to unitholders by $9 million, or approximately $0.06
per unit. Liquidity and Capital Resources
------------------------------- Cash and cash equivalents decreased
to $128 million in the third quarter of 2006 from $137 million
during the same period in 2005. Cash flows from operating
activities are largely influenced by the results of Elk Valley
Coal, which are lower in 2006 compared with the same period in 2005
due primarily to lower sales prices and volumes and higher costs.
Cash flows from operating activities include changes in working
capital that can fluctuate from period to period. Year-to-date
changes in non-cash working capital were $45 million in 2006, on
lower accounts receivable and coal inventories, compared with
negative $97 million in 2005, which reflects increases in accounts
receivable and coal inventories. Capital spending decreased to $11
million and $24 million for the third quarter and year-to-date of
2006, respectively, largely due to the completion of expansion
capital projects. Sustaining capital expenditures are lower than
expected in 2006 because of the change of timing of certain
projects. Capital expenditures Three months ended Nine months ended
September 30 September 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Sustaining capital $ 10.7 $ 8.3 $ 20.7 $ 28.4 Expansion capital -
18.2 3.2 64.1 ---------------------- ---------------------- $ 10.7
$ 26.5 $ 23.9 $ 92.5 ---------------------- ----------------------
---------------------- ---------------------- During the first
quarter of 2006, the bank credit facilities of the Trust and Elk
Valley Coal were increased to $600 million in total from $550
million by increasing the amount committed to Elk Valley Coal to
$200 million. Long- term debt has increased by $100 million from
the end of 2005. This additional long-term debt largely refinances
the capital expansions undertaken during 2004 and 2005, which were
initially funded in part by working capital. Other uses of bank
facilities include letters of credit or guarantee of which our
share was $51 million, leaving our share of unused bank facilities
of $166 million at September 30, 2006. There have been no
significant changes since December 31, 2005 with regards to our
purchase commitments and obligations. There are no capital projects
or major purchase commitments expected for the remainder of the
year that will significantly affect our available capital
resources. 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. To help manage
exposure to currency fluctuations and protect unitholder
distributions, foreign exchange forward contracts are sometimes
used to fix the rate at which certain future anticipated flows of
US dollars are exchanged into Canadian dollars. Our currency
hedging policy has maximum but no minimum limits. No contracts were
entered into by Fording LP or Elk Valley Coal during the quarter. A
summary of the Trust's aggregate hedge position is provided in note
9 to the Consolidated Financial Statements. Summary of Quarterly
Results ---------------------------- Our quarterly results over the
past two years reflect the variability of Elk Valley Coal's and, to
a lesser extent, NYCO's businesses. Net income also includes the
significant impact of a number of unusual transactions and events.
Income before unusual items and future income taxes is influenced
largely by coal prices, the US/Canadian dollar exchange rate, coal
sales volumes and cost of coal product sold and coal transportation
costs. 2006 (millions of Canadian dollars,
------------------------------- except per tonne amounts) Q3 Q2 Q1
-------------------------------------------------------------------------
Coal Sales (million tonnes) 3.5 3.5 3.1 Average coal sales
price/tonne $ 124.40 $ 133.00 $ 152.30 Cost of coal product
sold/tonne 42.60 39.20 38.60 Transportation/tonne 35.60 37.40 37.80
Revenue $ 451.8 $ 472.5 $ 485.2 Income from operations 143.8 173.4
217.3 Net income 123.8 140.2 165.3 Income before unusual items and
future income taxes 120.5 151.2 196.6 Cash available for
distribution 122.5 147.3 201.5 Distributions declared 117.6 147.0
205.8 (millions of Canadian 2005 2004 dollars, except per
-------------------------------------------------- tonne amounts)
Q4 Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Coal Sales (million tonnes) 3.4 3.8 3.8 3.4 4.0 Average coal sales
price/tonne $ 153.50 $ 146.70 $ 119.40 $ 83.30 $ 79.30 Cost of coal
product sold/tonne 34.20 36.50 30.40 28.30 27.30
Transportation/tonne 36.40 36.40 37.70 30.00 31.70 Revenue $ 540.2
$ 570.8 $ 468.9 $ 294.9 $ 324.9 Income from operations 266.0 263.6
179.7 67.6 57.1 Net income 218.3 427.3 123.3 65.3 85.4 Income
before unusual items and future income taxes 243.3 238.9 161.7 60.4
57.0 Cash available for distribution 247.4 253.2 151.2 71.5 60.8
Distributions declared 235.2 264.6 137.2 63.7 63.7 Demand for coal
is dependent on the requirements of integrated steel mill
customers. These customers largely determine the shipping schedule
and, therefore, the timing of coal sales. Coal prices are typically
negotiated for each coal year commencing April 1. Realized prices
depend on US dollar price settlements, whether coal sales volumes
from one coal year are carried over into the following year, the
US/Canadian dollar exchange rate and the currency hedging
activities of the Trust. The cost of coal product sold has been
trending up over the past number of quarters largely because of the
rising cost of mining inputs. The cost of coal product sold in the
third quarters tends to be higher than other quarters due to the
timing of plant shutdowns that affect costs and production volumes.
Transportation costs are mostly rail haulage charges and port
loading fees, which are, in part, dependant on coal prices. Outlook
------- Our financial results, and therefore the amount of cash
available for distribution, continue to be highly dependent on key
variables such as coal prices, coal production and sales volumes,
commitments under foreign exchange forward contracts, the
US/Canadian dollar exchange rate, production and transportation
costs, sustaining capital expenditures and other financial and
legal requirements. Coking Coal Markets Elk Valley Coal?s average
2006 coal year prices for the period April 1, 2006 to March 31,
2007 across all coal products is expected to be approximately
US$107 per tonne compared with US$122 per tonne for the 2005 coal
year. On a calendar-year basis, and taking into account the carry
over of 2005 coal year sales, the average calendar-year price is
expected to be approximately US$112 per tonne, up from the average
2005 calendar-year price of US$99 per tonne. Elk Valley Coal?s
sales volumes are expected to be between 22 and 23 million for the
2006 calendar year. Elk Valley coal has entered into the early
stage of volume and price negotiations for the coal year commencing
April 1, 2007. High prices for hard coking coal have resulted in
integrated steel mills using less hard coking coal to the extent
their processes permit. While global steel production is at high
levels, demand for hard coking coal is being adversely affected by
the historically wide premium that is being charged for hard coking
coals over prices for coals of lesser quality. This premium is
encouraging the substitution by some integrated steel mills of
lower quality coals at the expense of hard coking coals. New
sources of hard coking coal from competitors in Australia and
Canada are coming on line and will continue to do so over the next
two or three years. While the projects are not large individually,
they will add a significant amount of supply on a cumulative basis.
Infrastructure constraints in Australia are being mitigated and
additional capacity is being added to port and rail facilities.
Coal Production and Costs The pressures that led to rapidly
increasing cost of mining inputs during the second half of 2005 and
into 2006 have eased. The unit cost of product sold for the 2006
year is expected to be between $38 and $39 per tonne provided that
the cost of key inputs, such as fuel and consumables, remain at
current levels and that rail transportation and production plans
remain unchanged. We anticipate the unit cost of product sold to be
lower during the fourth quarter than in the third quarter due to
generally better equipment costs and availability following a
shutdown period for maintenance. Transportation Costs Average rail
rates for the 2006 coal year for transportation of coal to
west-coast ports will decline compared with the 2005 rate, while
the average rail rate will increase on a calendar-year basis.
Transportation costs are expected to be $37 to $38 per tonne for
calendar 2006. A significant portion of port rates at Westshore
Terminals vary with the Canadian dollar price of coal. Loading
costs for the handling of coal at Neptune Terminals are based on
the actual costs incurred. Capital Expenditures Our share of
capital expenditures for 2006 is expected to be approximately $40
million, substantially all of which will be for sustaining
operations. Capital spending in the second half of 2006 will be
higher than in the first half of the year due to the timing of the
planned projects. Mineral Taxes and Crown Royalties The weighted
average current tax rate for British Columbia mineral taxes and
Alberta Crown royalties over the next several years is expected to
approximate the maximum rate of 13%. The Line Creek operation is
anticipated to continue to incur the low, 2% rate of tax for
current British Columbia mineral taxes payable over the next few
years, even if coal prices remain strong. Sensitivities The table
that follows outlines the approximate sensitivity of cash available
for distribution per unit for the remainder of 2006 based on
changes in certain key variables. 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 and are based on the weighted average
number of units expected to be outstanding throughout the balance
of the year. Variable Change $/unit -------- ------ ------ Cost of
coal product sold CDN$1.00/tonne $ 0.02 Price of coal US$1.00/tonne
$ 0.03 Elk Valley Coal's sales 1,000,000 tonnes $ 0.14 US/Canadian
dollar exchange rate US 1 cent $ 0.01 Capital expenditures of the
Trust CDN$1 million $ 0.01 Executive Changes ----------------- Mr.
Boyd Payne joined Elk Valley Coal as President and Chief Executive
Officer in the third quarter. Mr. Payne was most recently the Vice
President, Marketing for BHP Billiton in Singapore. It is
anticipated that Mr. Payne will assume the responsibilities of
president of the Trust from Mr. Popowich by year end. Mr. Jim
Popowich will retire after 37 years of service with Fording
Canadian Coal Trust and Elk Valley Coal and their predecessor
companies following a transition period. Number of Units
Outstanding --------------------------- There were approximately
147 million trust units outstanding on September 30 and October 18,
2006. Approximately 42,200 options were outstanding under the
exchange option plan on the same dates. Change in Accounting
Policies ----------------------------- Stripping Costs Incurred in
the Production Phase of a Mining Operation The CICA Emerging Issues
Committee has issued EIC-160, "Stripping Costs Incurred in the
Production Phase of a Mining Operation", effective for years
commencing on or after July 1, 2006. The Trust has adopted the
guidance of this Abstract effective January 1, 2006 on a
prospective basis. The Abstract requires the cost of stripping
activities during the production phase of the mine be accounted for
according to the benefit received by the Trust. Generally, such
costs would be expensed as variable production costs; however, the
costs would be capitalized if they can be shown to represent a
betterment to the mineral property. A betterment occurs when the
stripping activity provides access to sources of reserves that will
be produced in future periods that would not have otherwise been
accessible in absence of the stripping activity. The Trust's
accounting policies with respect to these stripping costs has been
consistent with the guidance provided in the Abstract. Any
capitalized stripping costs will be described as investing
activities in the cash flow statement, and will be depleted on a
unit-of-production basis over the life of the reserves that
directly benefit from the specific stripping activity. This
Abstract also clarifies that minerals or coal must be produced, or
extracted from the mine, to be considered inventory, which requires
the Trust to change its accounting policy with respect to mineral
and raw coal inventory. The Trust previously considered minerals
and raw coal exposed in the mining bench and stockpiled in the pit
to be in-process inventory. The adoption of the guidance in the
Abstract resulted in a $32 million reduction of inventory and an
equivalent charge to income as of January 1, 2006. Financial
Instruments Hedges and Comprehensive CICA Handbook section 3855,
"Financial Instruments - Recognition and Measurement", section
3865, "Hedges", and section 1530, "Comprehensive Income", will be
applicable to the Trust commencing with its 2007 fiscal year. Risk
Factors ------------ Unitholders should refer to the 'Risk Factors'
in the Trust's 2005 Management's Discussion and Analysis, and
Annual Information Form for other factors that could potentially
impact the Trust's financial performance and its ability to meet
its targets. Caution Regarding Forward-Looking Statements
-------------------------------------------- This management's
discussion and analysis contains forward-looking information within
the meaning of the United States Private Securities Litigation
Reform Act of 1995 relating, but not limited to, the Trust's
expectations, intentions, plans and beliefs. Forward-looking
information can often be identified by forward-looking words such
as "anticipate", "believe", "expect", "goal", "plan", "intend",
"estimate", "may", and "will" or similar words suggesting future
outcomes, or other expectations, beliefs, plans, objectives,
assumptions, intentions or statements about future events or
performance. This management's discussion and analysis contains
forward- looking information, included in, but not limited to, the
sections titled 'Overview', 'Results of Operations', 'Liquidity and
Capital Resources', 'Outlook', and 'Changes in Accounting
Policies'. Unitholders and prospective investors are cautioned not
to place undue reliance on forward-looking information. By its
nature, forward-looking information involves numerous assumptions,
known and unknown risks and uncertainties, of both a general and
specific nature, that could cause actual results to differ
materially from those suggested by the forward-looking information
or contribute to the possibility that predictions, forecasts, or
projections will prove to be materially inaccurate. These factors
include, but are not limited to: the dependency of the Trust on
cash distributions from Elk Valley Coal; interest rate fluctuations
and other factors affecting yield; the potential liability of the
Trust for income tax; potential changes in the taxation of income
trusts; the nature of the Trust's units, particularly that
distributions on the Trust's units are not fixed; changing levels
of non- resident ownership and the effectiveness of measures
required to limit non- resident ownership; dilution resulting from
the issuance of additional units; the magnitude of capital
expenditures incurred by Elk Valley Coal or the Trust; the negative
impact of paying for unfunded liabilities such as pension,
post-retirement benefits or asset retirement obligations;
restrictions on potential growth resulting from the payout of
available cash to unitholders; the availability of credit
facilities for capital expenditure requirements, limitations
imposed by credit facilities restricting the ability of the Trust
or Elk Valley Coal to incur debt, dispose of assets or pay
distributions; conflicts of interest between the Trust, Elk Valley
Coal and the managing partner of Elk Valley Coal; operational risks
affecting funds available to the Trust for distribution to
unitholders; operational issues at minesites; disruption or delays
in construction at minesites; shortage and quality of mining
equipment and related operating supplies, including haul truck
tires; cost increases for mining equipment and services; increasing
mining and energy costs; foreign currency exchange rate
fluctuations; risks inherent in the use of derivative instruments;
dependency on major customers; the ability of Elk Valley Coal to
attract and retain skilled personnel; the lack of new applications
for wollastonite and other industrial minerals; health issues
associated with tremolite and tripoli; changes in environmental
laws which could have a negative impact on Elk Valley Coal's
operations and profitability; uncertainties surrounding
applications for permits and permitting processes; accuracy of
liability accruals; assertion of aboriginal rights claims; changes
in commodity prices; changes in steel-making methods and other
technological changes; the strength of the various economies that
purchase significant amounts of coking coal or steel products;
difficulties and uncertainties inherent in operating and selling
products in foreign countries; changes in regulations relating to
the use of metallurgical coal and industrial minerals; the
magnitude of the Trust's interest in Elk Valley Coal; the
effectiveness of the managing partner of Elk Valley Coal in
managing the partnership's affairs; the effects of competition and
pricing pressures in the metallurgical coal and industrial minerals
markets; risks inherent in the mining industry and the inability of
Elk Valley Coal or the Trust to insure against certain of these
risks; the oversupply of, or lack of demand for, metallurgical coal
and/or industrial minerals; events which could disrupt operations
and/or the transportation of products, including labour stoppages
related to industrial accidents, work stoppages, renegotiation of
collective agreements and/or severe or abnormal weather conditions
or natural disasters; demand for, availability and pricing of rail,
port and other transportation services; management's ability to
anticipate and manage the risks to which Elk Valley Coal and/or the
Trust are exposed; uncertainty involving the geology of mineral
deposits; uncertainty of estimates of the size or composition of
mineral deposits; uncertainty of estimates of reserves and
resources; uncertainty of projections relating to costs of
production and transportation or estimates of market prices for the
mineral; the possibility of delays in mining activities; changes in
plans with respect to exploration, development projects or capital
expenditures; risks relating to health, safety and environmental
matters; and general economic, business and market conditions. The
forward-looking statements contained in this management's
discussion and analysis are based, in part, upon certain
assumptions made by the Trust, including, but not limited to, the
following: no material disruption in production; no material
variation in anticipated coal sales volumes, coal prices or cost of
product sold; no material variation in the forecasted yields, strip
ratios, haul distances and productivity for each mine in which the
Trust has an interest; no material increases in the global supply
of hard coking coal other than what is currently projected by
management; significant quantities of weaker coking coals will not
be substituted for hard coking coal beyond current levels of
substitution; continued strength in global steel markets; no
material disruption in construction or operations at minesites; no
variation in availability or allocation of haul truck tires to Elk
Valley Coal until late 2007 or 2008; an absence of labour disputes
in the forecast period; no material increase in the cost of labour;
no material variations in markets and pricing of metallurgical coal
other than anticipated variations; no material variation in
anticipated mining, energy or transportation costs; continued
availability of and no material disruption in rail service and port
facilities; no material delays in the current timing for completion
of ongoing projects; financing will be available on terms
favourable to the Trust and Elk Valley Coal; no material variation
in the operations of Elk Valley Coal customers which could impact
coal purchases; no material variation in historical coal purchasing
practices of customers; coal sales contracts will be entered into
with new customers; delayed coal shipments in 2005 will not
materially impact customer demand in 2006; existing inventories
will not result in decreased sales volumes; no further moratoriums
on advance tax rulings for the Canada Revenue Agency; parties
execute and deliver contracts currently under negotiation; and no
material variations in the current tax regulatory environment. The
Trust cautions that the list of factors and assumptions set forth
above is not exhaustive. Some of the risks, uncertainties and other
factors which negatively affect the reliability of forward-looking
information are discussed in the Trust's public filings with the
Canadian and United States securities regulatory authorities,
including its most recent consolidated financial statements,
management's discussion and analysis, management information
circular, annual information form, quarterly reports, material
change reports and news releases. Copies of the Trust's Canadian
public filings are available on SEDAR at http://www.sedar.com/. The
Trust's US public filings, including the Trust's most recent annual
report of form 40-F as supplemented by its filings on form 6-K, are
available at http://www.sec.gov/. The Trust further cautions that
information contained on, or accessible through, these websites is
current only as of the date of such information and may be
superseded by subsequent events or filings. The Trust undertakes no
obligation to update publicly or otherwise revise any information,
including any forward- looking information, whether as a result of
new information, future events or other such factors that affect
this information except as required by law.
--------------------------------------- CONSOLIDATED STATEMENTS OF
INCOME (unaudited) Three months ended Nine months ended (millions
of Canadian September 30 September 30 dollars, except per
---------------------- ---------------------- unit amounts) 2006
2005 2006 2005
-------------------------------------------------------------------------
Revenues $ 451.8 $ 570.8 $ 1,409.5 $ 1,334.6 Expenses Cost of
product sold 158.1 145.0 428.3 373.3 Transportation 128.0 139.8
379.5 390.0 Selling, general and administration 8.0 7.6 27.8 21.6
Depreciation and depletion 13.9 14.8 39.4 38.8
---------------------- ---------------------- 308.0 307.2 875.0
823.7 ---------------------- ---------------------- Income from
operations 143.8 263.6 534.5 510.9 Other income (expense) Interest
expense (5.2) (3.0) (13.7) (8.4) Gain on corporate reorganization -
- - 9.5 Gain on issuance of partnership interest (note 7) - 28.6 -
28.6 Other items, net (note 4) 1.2 3.3 (25.4) (0.9)
---------------------- ---------------------- Income before taxes
139.8 292.5 495.4 539.7 Income tax expense (note 5) 16.0 (134.8)
66.1 (76.2) ---------------------- ---------------------- Net
income $ 123.8 $ 427.3 $ 429.3 $ 615.9 ----------------------
---------------------- ----------------------
---------------------- Average number of units outstanding
(millions) (note 9) 147.0 147.0 147.0 147.0 Basic and diluted
earnings per unit (note 9) $ 0.84 $ 2.91 $ 2.92 $ 4.19 CONSOLIDATED
STATEMENTS OF ACCUMULATED EARNINGS (unaudited) Three months ended
Nine months ended September 30 September 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Balance - beginning of period $ 1,480.3 $ 529.2 $ 1,174.8 $ 340.6
Net income 123.8 427.3 429.3 615.9 ----------------------
---------------------- Balance - end of period $ 1,604.1 $ 956.5 $
1,604.1 $ 956.5 ---------------------- ----------------------
---------------------- ---------------------- 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 Nine months ended September 30
September 30 (millions of Canadian ----------------------
---------------------- dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities Net income $ 123.8 $ 427.3 $ 429.3 $ 615.9
Items not using (providing) cash: Depreciation and depletion 13.9
14.8 39.4 38.8 Change in accounting policy - - 31.7 - Provision for
asset retirement obligations, net 0.5 0.5 2.1 2.1 Future income
taxes (reversal) (3.3) (159.8) 7.3 (116.8) Unrealized foreign
exchange (gain)/loss on long-term debt 0.1 (10.8) (8.5) (8.8)
Loss/(gain) on disposal of assets - 0.1 (0.7) 0.2 Gain on issuance
of partnership interest (note 7) - (28.6) - (28.6) Non-controlling
interest 1.4 - 5.0 1.4 Other items, net (0.6) 1.4 (9.5) 1.0
Reduction of interest in EVCP - - - (9.5) ----------------------
---------------------- 135.8 244.9 496.1 495.7 Decrease (increase)
in non-cash working capital 25.4 26.5 45.3 (96.8)
---------------------- ---------------------- Cash from operating
activities 161.2 271.4 541.4 398.9 ----------------------
---------------------- Investing activities Additions to capital
assets (10.7) (26.5) (23.9) (92.5) Proceeds on disposal of capital
assets - 0.2 1.3 0.9 Other investing activities, net 0.2 (9.2) 0.5
(9.2) ---------------------- ---------------------- Cash used in
investing activities (10.5) (35.5) (22.1) (100.8)
---------------------- ---------------------- Financing activities
Distributions paid (147.0) (137.1) (588.0) (264.4) (Decrease)
increase in long-term debt (33.4) 10.8 100.9 10.5 Issuance of
units, net - 1.7 0.3 1.8 Proceeds from issuance of partnership
interest (note 7) - 36.4 - 36.4 Other financing activities, net
(2.5) (11.7) (4.9) (9.9) ----------------------
---------------------- Cash used in financing activities (182.9)
(99.9) (491.7) (225.6) ----------------------
---------------------- Increase (decrease) in cash and equivalents
(32.2) 136.0 27.6 72.5 Cash and cash equivalents - beginning of
period 159.9 1.0 100.1 64.5 ----------------------
---------------------- Cash and cash equivalents - end of period $
127.7 $ 137.0 $ 127.7 $ 137.0 ----------------------
---------------------- ----------------------
---------------------- The accompanying notes to the unaudited
consolidated financial statements are an integral part of these
statements. CONSOLIDATED BALANCE SHEETS (unaudited) September 30
December 31 (millions of Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 127.7 $ 100.1
Accounts receivable 119.8 153.3 Inventory 139.1 188.0 Prepaid
expenses 8.2 3.5 --------------------------- 394.8 444.9 Capital
assets 670.3 695.2 Goodwill 12.9 21.6 Other assets 26.7 20.9
--------------------------- $ 1,104.7 $ 1,182.6
--------------------------- --------------------------- Liabilities
Current liabilities Accounts payable and accrued liabilities $
115.7 $ 116.2 Income taxes payable 35.9 36.2 Distributions payable
117.6 235.2 Current portion of long-term debt 1.6 1.8
--------------------------- 270.8 389.4 Long-term debt (note 6)
306.4 215.2 Other long-term liabilities (note 7) 98.4 103.1 Future
income taxes (note 5) 58.5 60.2 Commitments and contingencies (note
8) - - --------------------------- 734.1 767.9
--------------------------- Unitholders' equity (note 9) Trust
units 359.7 359.4 Accumulated earnings 1,604.1 1,174.8 Accumulated
cash distributions (1,594.8) (1,124.4) Foreign currency translation
adjustments 1.6 4.9 --------------------------- 370.6 414.7
--------------------------- $ 1,104.7 $ 1,182.6
--------------------------- --------------------------- The
accompanying notes to the unaudited consolidated financial
statements are an integral part of these statements. Notes to
Consolidated Financial Statements (unaudited) October 23, 2006
-------------------------------------------------------------------------
1. STRUCTURE OF FORDING CANADIAN COAL TRUST AND NATURE OF
OPERATIONS Fording Canadian Coal Trust (the 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. The Trust directly and indirectly owns all of the
interests of NYCO and Fording LP, which holds a 60% interest in Elk
Valley Coal. Elk Valley Coal owns and operates six metallurgical
coal mines in British Columbia and Alberta. NYCO mines and
processes wollastonite and other industrial minerals at two
operations in the United States and Mexico. The Trust uses the cash
it receives from its investments to make quarterly distributions to
its unitholders. Elk Valley Coal is a general partnership between
Fording LP and Teck Cominco. Teck Cominco is the managing partner
of Elk Valley Coal and is responsible for managing its business and
affairs, subject to certain matters that require the agreement of
all partners. The consolidated financial statements of the Trust
reflect its proportionate interest in Elk Valley Coal. These
consolidated financial statements should be read in conjunction
with the Trust's 2005 annual consolidated financial statements and
notes thereto and other public disclosure documents of the Trust.
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 for 2005. 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 2005 except for the change in
accounting policy discussed below. Certain comparative figures have
been reclassified to conform to the presentation adopted in 2006.
3. CHANGE IN ACCOUNTING POLICIES Stripping costs incurred in the
production phase of a mining operation The CICA Emerging Issues
Committee has issued EIC-160, "Stripping Costs Incurred in the
Production Phase of a Mining Operation", effective for years
commencing on or after July 1, 2006. The Trust has adopted the
guidance of this Abstract effective January 1, 2006 on a
prospective basis. The Abstract requires the cost of stripping
activities during the production phase of the mine be accounted for
according to the benefit received by the Trust. Generally, such
costs would be expensed as variable production costs; however, the
costs would be capitalized if they can be shown to represent a
betterment to the mineral property. A betterment occurs when the
stripping activity provides access to sources of reserves that will
be produced in future periods that would not have otherwise been
accessible in absence of the stripping activity. The Trust's
accounting policies with respect to these stripping costs has been
consistent with the guidance provided in the Abstract. Any
capitalized stripping costs will be described as investing
activities in the cash flow statement, and will be depleted on a
unit-of-production basis over the life of the reserves that
directly benefit from the specific stripping activity. This
Abstract also clarifies that minerals or coal must be produced, or
extracted from the mine, to be considered inventory, which requires
the Trust to change its accounting policy with respect to mineral
and raw coal inventory. The Trust previously considered minerals
and raw coal exposed in the mining bench and stockpiled in the pit
to be in-process inventory. The adoption of the guidance in the
Abstract resulted in a $31.7 million reduction of inventory and an
equivalent charge to income as of January 1, 2006. Financial
instruments, hedges and comprehensive income CICA Handbook section
3855, "Financial Instruments - Recognition and Measurement",
section 3865, "Hedges", and section 1530, "Comprehensive Income",
will be applicable to the Trust commencing with its 2007 fiscal
year. 4. OTHER ITEMS, NET Three months ended Nine months ended
September 30 September 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Interest and investment income $ 1.3 $ 0.7 $ 1.0 $ 1.2 Foreign
exchange gains (losses) 2.5 5.3 11.3 4.0 Non-controlling interest
(1.4) (1.4) (5.0) (1.4) Change in accounting policy (note 3) - -
(31.7) - Other (1.2) (1.3) (1.0) (4.7) ----------------------
---------------------- $ 1.2 $ 3.3 $ (25.4) $ (0.9)
---------------------- ----------------------
---------------------- ---------------------- 5. INCOME TAXES
Income tax expense is made up of the following components: Three
months ended Nine months ended September 30 September 30 (millions
of Canadian ---------------------- ---------------------- dollars)
2006 2005 2006 2005
-------------------------------------------------------------------------
Current income tax expense (reversal): Provincial mineral taxes and
Crown royalties $ 19.9 $ 22.0 $ 58.4 $ 36.6 Foreign income taxes
(0.3) (0.2) 0.7 - Canadian corporate income taxes (0.3) 3.2 (0.3)
4.0 ---------------------- ---------------------- 19.3 25.0 58.8
40.6 Future income tax expense (reversal): Provincial mineral taxes
and Crown royalties (3.1) 8.0 7.6 11.5 Foreign income tax (0.2)
(3.5) (0.3) - Canadian corporate income taxes - (164.3) - (128.3)
---------------------- ---------------------- (3.3) (159.8) 7.3
(116.8) ---------------------- ---------------------- Total income
tax expense (reversal) $ 16.0 $ (134.8) $ 66.1 $ (76.2)
---------------------- ----------------------
---------------------- ---------------------- Future income taxes
consist of the following: September 30 December 31 (millions of
Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Provincial mineral taxes and Crown royalties $ 52.2 $ 53.3 Foreign
income taxes and other 6.3 6.9 --------------------------- $ 58.5 $
60.2 --------------------------- --------------------------- 6.
LONG-TERM DEBT, BANKING FACILITIES AND FINANCIAL INSTRUMENTS
September 30 December 31 (millions of Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Long-term debt Five-year bank credit facilities: US$250.0 million
(2005 - $167.0 million) in LIBOR rate loans with interest rates
varying from 6.0% to 6.1% $ 278.8 $ 194.7 Banker's Acceptances with
interest rates varying from 4.9% to 5.0% 24.0 - Prime rate loan -
15.6 Other debt Equipment financing due 2009 bearing interest at
5.1% 3.0 3.9 Capital lease obligations expiring in 2010 with
interest rate of 5.3% 2.2 2.8 --------------------------- 308.0
217.0 Less current portion (1.6) (1.8) ---------------------------
$ 306.4 $ 215.2 ---------------------------
--------------------------- The Trust and Elk Valley Coal together
have a Canadian $600.0 million five-year revolving bank credit
facility with a syndicate of banks. The banks have committed $400.0
million to the Trust and $200.0 million to Elk Valley Coal. At
September 30, 2006, the Trust's share of other uses of bank
facilities in the form of issued and outstanding letters of credit
and guarantee was $51.4 million. The Trust's share of unused bank
facilities at September 30, 2006 was $165.8 million. 7. OTHER
LONG-TERM LIABILITIES September 30 December 31 (millions of
Canadian dollars) 2006 2005
-------------------------------------------------------------------------
Asset retirement obligations $ 67.3 $ 70.6 Pension and other
post-retirement benefits 23.8 23.1 Non-controlling interest 7.3 7.8
Other, net - 1.6 --------------------------- $ 98.4 $ 103.1
--------------------------- --------------------------- Pension and
other post-retirement benefits Substantially all employees
participate in either a defined benefit or defined contribution
plan. The pension expense for the third quarter of 2006 was $4.3
million and $11.1 million year to date (2005 - $2.7 million and
$7.9 million respectively). Non-controlling interest In 2005, two
steel companies each acquired a 2.5% equity interest in the Elkview
operation. The combined 5% equity interest is reflected in the
consolidated financial statements as a non-controlling interest.
The Trust's share of the proceeds on the issuance of the
partnership was $36.4 million. The transaction resulted in a
pre-tax gain to the Trust of $28.6 million. 8. COMMITMENTS AND
CONTINGENCIES Foreign exchange forward contracts To help manage
exposure to currency fluctuations, foreign exchange forward
contracts are used to fix the rate at which certain future
anticipated flows of US dollars are exchanged into Canadian
dollars. The foreign exchange hedging activities of the Trust take
into account the existing foreign exchange forward contracts of
Fording LP and Elk Valley Coal. The following table summarizes the
Trust's outstanding hedged positions at September 30, 2006. Amount
Hedged (millions of US$) --------------------------------- Average
Exchange Rates Elk Valley (US$1 (CDN$1 Fording Coal Trust's equals
equals Year LP 60% Total CDN$) US$)
-------------------------------------------------------------------------
2006 $ 270.0 $ 7.0 $ 277.0 1.14 0.88 2007 236.0 - 236.0 1.15 0.87
---------------------------------- $ 506.0 $ 7.0 $ 513.0
----------------------------------
---------------------------------- At September 30, 2006, the
Trust's portion of unrealized gains on foreign exchange forward
contracts was $16.7 million based on the US/Canadian dollar
exchange rate of US$0.90. The Trust's realized gain on foreign
exchange forward contracts included in revenues for the third
quarter of 2006 was $8.5 million and $58.9 year-to-date (2005 -
$26.8 million and $65.0 million respectively). Neptune Terminals
Elk Valley Coal is party to agreements respecting Neptune Terminals
that may, under certain circumstances, require Elk Valley Coal to
fund its proportionate share of the bank indebtedness and asset
retirement obligations of Neptune Terminals. The Trust's share of
these potential commitments was $14.6 million at the end of the
third quarter of 2006. 9. UNITHOLDERS' EQUITY Units issued and
outstanding Three months ended Nine months ended September 30, 2006
September 30, 2006 (in millions of units and ----------------------
---------------------- Canadian dollars) Units Amount Units Amount
-------------------------------------------------------------------------
Balance, beginning of period 147.0 $ 359.7 147.0 $ 359.4 Issued on
exercise of options - - - 0.3 ----------------------
---------------------- Balance, end of period 147.0 $ 359.7 147.0 $
359.7 ---------------------- ----------------------
---------------------- ---------------------- Market value of
units, September 30, 2006 $ 4,345.3 ---------- ---------- At
September 30, 2006, there were approximately 42,200 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 $3.87 per unit and the remaining weighted average
contractual life is 2.4 years. Accumulated distributions to
unitholders Three months ended Nine months ended September 30
September 30 (millions of Canadian ----------------------
---------------------- dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Opening accumulated cash distributions $ 1,477.2 $ 624.6 $ 1,124.4
$ 423.8 Distributions declared and payable 117.6 264.6 470.4 465.4
---------------------- ---------------------- Closing accumulated
cash distributions $ 1,594.8 $ 889.2 $ 1,594.8 $ 889.2
---------------------- ----------------------
---------------------- ---------------------- 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 average number of units outstanding
for purposes of calculating earnings per unit is outlined in the
following table: Three months ended Nine months ended September 30
September 30 ---------------------- ----------------------
(millions of units) 2006 2005 2006 2005
-------------------------------------------------------------------------
Weighted average number of units outstanding, basic 147.0 147.0
147.0 147.0 Effect of dilutive securities, unit options 0.1 - 0.1 -
---------------------- ---------------------- 147.1 147.0 147.1
147.0 ---------------------- ----------------------
---------------------- ---------------------- 10. SEGMENT
INFORMATION Three months ended Nine months ended September 30
September 30 (millions of Canadian ----------------------
---------------------- dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Elk Valley Coal Revenues $ 440.3 $ 559.9 $ 1,373.3 $ 1,300.7 Cost
of product sold (150.8) (138.3) (406.1) (351.1) Transportation
(125.8) (138.0) (372.9) (384.6) Selling, general and administration
(4.6) (4.4) (17.9) (11.4) Depreciation and depletion (13.0) (13.7)
(36.4) (35.1) ---------------------- ---------------------- Income
from operations 146.1 265.5 540.0 518.5 Interest expense (0.6)
(0.3) (2.0) (0.7) Other income (0.9) (5.8) (38.7) (5.9) Gain on
sale of partnership interest - 28.6 - 28.6 Income tax (expense)
reversal (16.5) 134.6 (65.7) 76.2 ----------------------
---------------------- Income 128.1 422.6 433.6 616.7
---------------------- ---------------------- NYCO Revenues 11.5
10.9 36.2 33.9 Cost of product sold (7.3) (6.7) (22.2) (22.2)
Transportation (2.2) (1.8) (6.6) (5.4) Selling, general and
administration (1.0) (1.1) (3.2) (3.2) Depreciation and depletion
(0.9) (1.0) (2.8) (3.2) ----------------------
---------------------- Income (loss) from operations 0.1 0.3 1.4
(0.1) Other (expense) income (0.1) (0.1) - (0.2) Income tax
reversal (expense) 0.5 0.2 (0.4) - ----------------------
---------------------- Income (loss) 0.5 0.4 1.0 (0.3)
---------------------- ---------------------- Corporate Selling,
general and administration (2.4) (2.1) (6.7) (7.0) Depreciation and
depletion 0.0 (0.1) (0.2) (0.5) ----------------------
---------------------- Loss from operations (2.4) (2.2) (6.9) (7.5)
Interest expense (4.6) (2.7) (11.7) (7.7) Other income (expense)
2.1 9.2 13.3 5.2 Reduction of interest in EVCP - - - 9.5 Income
taxes - - - - ---------------------- ---------------------- (Loss)
income (4.9) 4.3 (5.3) (0.5) ----------------------
---------------------- Consolidated Revenues 451.8 570.8 1,409.5
1,334.6 Cost of product sold (158.1) (145.0) (428.3) (373.3)
Transportation (128.0) (139.8) (379.5) (390.0) Selling, general and
administration (8.0) (7.6) (27.8) (21.6) Depreciation and depletion
(13.9) (14.8) (39.4) (38.8) ----------------------
---------------------- Income from operations 143.8 263.6 534.5
510.9 Interest expense (5.2) (3.0) (13.7) (8.4) Other income 1.2
3.3 (25.4) (0.9) Reduction of interest in EVCP - - - 9.5 Gain on
sale of partnership interest - 28.6 - 28.6 Net income tax reversal
(expense) (16.0) 134.8 (66.1) 76.2 ----------------------
---------------------- Net income $ 123.8 $ 427.3 $ 429.3 $ 615.9
---------------------- ----------------------
---------------------- ---------------------- DATASOURCE: Fording
Canadian Coal Trust CONTACT: Paul Armstrong, Director, Investor
Relations, Ph: (403) 260-5215; Catherine Hart, Investor Relations
Analyst, Ph: (403) 260-9817; Email: , Website:
http://www.fording.ca/
Copyright