Record Income and Distributions CALGARY, Oct. 24
/PRNewswire-FirstCall/ -- Fording Canadian Coal Trust (TSX: FDG.UN,
NYSE: FDG) today announced strong third quarter results. Cash
available for distribution for the third quarter of 2005 was $253
million ($1.72 per unit) compared with $52 million ($0.36 per unit)
in 2004. On a year- to-date basis, cash available for distribution
was $474 million ($3.23 per unit) in 2005 compared with $121
million ($0.84 per unit) in 2004. Per unit amounts for prior
periods have been restated to reflect the three-for-one unit split
that occurred in the third quarter of this year. Net income was
$427 million in the third quarter, up from $41 million in 2004,
largely due to higher metallurgical coal sales prices as well as
the reversal of a provision for future income taxes and the gain on
the completion of the Elkview transaction. Net income before
unusual items and future income taxes was $239 million in the third
quarter of 2005 compared with $42 million in 2004. On a
year-to-date basis, net income increased to $616 million from $65
million in 2004. Year-to-date net income before unusual items and
future income taxes was $461 million in 2005 compared with $89
million in 2004. ?The third quarter of 2005 provided some
significant accomplishments for both the Trust and Elk Valley
Coal,? said Jim Popowich, President of Fording Canadian Coal Trust.
?We benefited from a full quarter of the new higher coal year
prices, which doubled our distribution to unitholders over that of
the second quarter. We completed our reorganization as well as our
three-for-one unit split.? Jim Popowich continued: ?In addition,
Elk Valley Coal finalized two 10-year coal sales agreements and
entered into a letter of intent for a third agreement during the
quarter. Mining costs continue to be a significant focus for Elk
Valley Coal. We?re going through a period of higher energy and
mining costs, and we expect to see this continue for the near
term.? Highlights for the Third Quarter: - The reorganization of
the Trust's subsidiaries to maintain a flow-through structure was
completed. - Cash available for distribution increased to $253
million from $52 million. - Production and sales volumes both
increased 6% over 2004 levels as Elk Valley Coal?s expansions
started to result in additional volumes. - Revenues were $571
million, double that of 2004 on the strength of higher coal sales
prices, partially offset by a higher Canadian dollar. - Cost of
product sold increased 27% to $145 million primarily due to
increased mining activity and a higher cost environment. -
Transportation costs increased 38% to $140 million, reflecting
higher rail rates from the new contract with Canadian Pacific
Railway as well as higher port rates due to increased coal prices.
- Agreements were finalized with POSCO and Nippon Steel Corporation
that provide for 10-year sales contracts with Elk Valley Coal and a
2.5% equity investment by each company in an entity that will own
and operate the Elkview operations. - In October, Elk Valley Coal
announced that it entered into a letter of intent with JFE Steel
Corporation wherein the two entities will enter into a 10-year
sales contract for 2.5 million tonnes per annum of metallurgical
coal, representing a 39% annual increase over the 2005 coal year
sales contract volumes. - The Trust further revised downward its
expectations for coal sales volumes for the 2005 calendar year. Elk
Valley Coal is currently estimating sales volumes for 2005 of
approximately 25 million tonnes of which the Trust?s share is 60%.
- The three-for-one unit split was completed.
------------------------------ Conference Call and Webcast A
conference call to discuss these results will be held Tuesday,
October 25 at 8:00 a.m. Mountain time, 10:00 a.m. Eastern time. To
participate in the conference call, please dial 1-800-814-4890 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 subsidiaries, 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, 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 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, 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 its predecessors. 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 completed a
reorganization of its investments during the third quarter of 2005.
Following the reorganization, the Trust holds its investment in Elk
Valley Coal Partnership (Elk Valley Coal) through its direct and
indirect investment in Fording Limited Partnership (Fording LP),
and its investment in NYCO directly. Prior to the reorganization,
the Trust?s investments in Elk Valley Coal and NYCO were held by
Fording Inc. 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, 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 an interest in six
mining operations. The Fording River, Coal Mountain, Line Creek and
Cardinal River operations are wholly owned by Elk Valley Coal and
are accounted for as such. The Greenhills operations is a joint
venture in which Elk Valley Coal has an 80% interest that is
accounted for on a net basis for financial reporting purposes. As
of August 1, 2005, the Elkview operations is owned by a limited
partnership in which Elk Valley Coal owns a 95% interest. The
Elkview operations is accounted for at 100% with the 5%
non-controlling minority interest being reflected as a component of
other long-term liabilities. The Fording River, Coal Mountain, Line
Creek, Elkview and Greenhills operations are located in the Elk
Valley region of southeast British Columbia. The Cardinal River
operations is located in west central Alberta. Elk Valley Coal also
owns numerous other properties, including the coal preparation
plant and coal resources at the former Quintette operations and
other coal resources in British Columbia as well as a 46% interest
in Neptune Bulk Terminals (Canada) Ltd., located in Vancouver,
British Columbia. The Trust's results pertaining to its Elk Valley
Coal segment consist of our proportionate interest in the
operations of Elk Valley Coal and include hedging gains and losses,
mineral taxes and other items recorded in Fording LP but
attributable to Elk Valley Coal's operations. NYCO ---- NYCO
consists of subsidiaries of the Trust 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 Elk Valley Coal 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 Limited
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, as
well as an estimate of additional entitlements to be received until
March 31, 2006. 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.
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. In addition, all per unit amounts and
outstanding units disclosed herein have been restated to reflect
the three-for-one unit split that occurred in the third quarter of
2005. 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 October 24, 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 Nine months ended (millions
of Canadian September 30 September 30 dollars, except as
---------------------- ---------------------- noted) 2005 2004 2005
2004
-------------------------------------------------------------------------
Revenue $ 570.8 $ 287.8 $ 1,334.6 $ 842.3 Income from operations $
263.6 $ 50.8 $ 510.9 $ 113.0 Net income $ 427.3 $ 41.4 $ 615.9 $
64.7 Net income before unusual items and future income taxes $
238.9 $ 41.7 $ 461.0 $ 88.5 Basic and diluted earnings per unit(x):
Net income $ 2.91 $ 0.28 $ 4.19 $ 0.45 Net income before unusual
items and future income taxes $ 1.63 $ 0.28 $ 3.14 $ 0.61
Metallurgical Coal Statistics: Coal production (million tonnes) 3.6
3.4 11.7 11.3 Coal sales (million tonnes) 3.8 3.6 11.0 11.3 Average
sales price U.S.$/tonne $ 118.30 $ 54.80 $ 92.30 $ 50.40 CDN$/tonne
$ 146.70 $ 75.00 $ 116.60 $ 70.40 Operating expenses Cost of
product sold (CDN$/tonne) $ 36.50 $ 30.30 $ 31.90 $ 28.20
Transportation (CDN$/tonne) $ 36.40 $ 27.80 $ 34.90 $ 28.00
Industrial Minerals Statistics (Wollastonite): Sales (thousands of
tonnes) 22 18 67 61 Average sales price (U.S.$/tonne) $ 382 $ 364 $
387 $ 369 (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. Trust Reorganization In August, the
Trust completed its reorganization to ensure a flow- through
structure. The reorganization did not have a material impact on the
manner in which the Trust?s distributable cash is calculated and
distributed to unitholders. Unitholders approved a second phase of
the reorganization in May, which would allow the Trust to be
reorganized into a royalty trust that may enable the Trust to take
advantage of an exemption from the non-resident ownership
restriction in the Tax Act available to royalty trusts. The
reorganization would require an advance tax ruling by the Canada
Revenue Agency, which is impacted by the recent announcement from
the Federal Government that puts a moratorium on advance tax
rulings for trusts while it undergoes a consultation process. As a
result, the Trustees are reconsidering the reorganization into a
royalty trust and will monitor any developments with respect to
this issue. Cash Available for Distribution The increase in cash
available for distribution in the third quarter of 2005 reflects
higher sales prices and earnings from Elk Valley Coal?s
metallurgical coal operations. The quarterly distribution declared
and paid for the third quarter was $1.80 per unit. The calculation
of cash available for distribution is shown in Note 7 of the
Trust?s Consolidated Financial Statements. Three months ended Nine
months ended (millions of Canadian June 30 June 30 dollars, except
as ---------------------- ---------------------- noted) 2005 2004
2005 2004 -------------------------------------------------
---------------------- Cash available for distribution $ 253.2 $
52.3 $ 474.2 $ 121.4 Distributions declared $ 264.6 $ 53.9 $ 465.4
$ 149.9 Weighted average number of units outstanding (in millions)
147.0 147.0 147.0 144.9 Per unit amounts: Cash available for
distribution $ 1.72 $ 0.36 $ 3.23 $ 0.84 Distributions declared $
1.80 $ 0.37 $ 3.16 $ 1.03 Distributions are declared by the
Trustees and may not equal cash available for distribution. The
reorganization did result in a small tax liability for non-resident
holders, which the Trust funded on their behalf to the Canada
Revenue Agency and was treated as a dividend for U.S. tax purposes.
At the same time, an equivalent distribution was paid to Canadian
residents on September 15, 2005, as a return of capital. The total
amount paid out to the Trust was $86,000 in aggregate or less than
one cent per unit. 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
Nine months ended September 30 September 30 (millions of Canadian
---------------------- ---------------------- dollars) 2005 2004
2005 2004
-------------------------------------------------------------------------
Net income per financial statements $ 427.3 $ 41.4 $ 615.9 $ 64.7
Add (deduct): Reduction of interest in Elk Valley Coal - - (9.5)
37.5 Income from change in inventory valuation - - - (10.8) Future
income tax expense (reversal) (159.8) 0.3 (116.8) (2.9) Gain on
issuance of partnership interest (28.6) - (28.6) -
---------------------- ----------------------- Net income before
unusual items and future income taxes $ 238.9 $ 41.7 $ 461.0 $ 88.5
---------------------- -----------------------
---------------------- ----------------------- Income from
Operations ---------------------- Elk Valley Coal(1) Three months
ended Nine months ended (millions of Canadian September 30
September 30 dollars, except as ----------------------
---------------------- noted) 2005 2004 2005 2004
-------------------------------------------------------------------------
Statistics Coal production (millions of tonnes) 3.6 3.4 11.7 11.3
Coal sales (millions of tonnes) 3.8 3.6 11.0 11.3 Average sales
price (per tonne) U.S.$ $ 118.30 $ 54.80 $ 92.30 $ 50.40 CDN$ $
146.70 $ 75.00 $ 116.60 $ 70.40 Operating expenses (per tonne) Cost
of product sold $ 36.50 $ 30.30 $ 31.90 $ 28.20 Transportation $
36.40 $ 27.80 $ 34.90 $ 28.00 Income from operations Revenue $
559.9 $ 276.4 $ 1,300.7 $ 803.9 Cost of product sold 138.3 108.7
351.1 319.3 Transportation 138.0 99.7 384.6 316.5 Selling, general
and administration 4.4 3.4 11.4 13.7 Depreciation and depletion
13.7 12.9 35.1 40.6 ---------------------- ----------------------
Income from operations $ 265.5 $ 51.7 $ 518.5 $ 113.8
---------------------- ----------------------
---------------------- ---------------------- (1) Amounts reflect
the Trust's 60% interest in Elk Valley Coal plus certain items of
the Trust that relate to Elk Valley Coal operations. Production and
sales volumes were higher in the third quarter of 2005 compared
with 2004 as Elk Valley Coal?s expansions started to result in
additional volumes. Despite this increase, production volumes were
lower than anticipated due to delays in the arrival of new
equipment, weather conditions and lower yields at some operations
in the quarter. Requests for shipment delays from the majority of
Chinese coal customers have resulted in higher than anticipated
inventories at the ports at the end of the quarter. Year-to- date
coal sales volumes have been negatively impacted from rail capacity
constraints in the first half of the year and delays in the arrival
of new equipment, which substantially delayed Cardinal River
operations? production volumes and ability to reach capacity. In
addition, the 5% reduction in the Trust?s interest in Elk Valley
Coal, which was effective the second quarter of 2004, affects the
year over year comparability of the Trust?s share of Elk Valley
Coal?s sales volumes. Third quarter revenues benefited from the
higher 2005 coal year price and higher sales volumes, slightly
offset by a lower effective U.S./Canadian dollar exchange rate.
Cost of product sold increased 27% for the third quarter and 10%
year-to- date compared with the same periods in 2004 as a result of
increased mining activity and a higher cost environment. Unit cost
of product sold increased 20% in the third quarter and 13% for the
year-to-date from 2004 levels. Unit costs in 2005 reflect
continuing high diesel costs, higher mine strip ratios combined
with slightly lower yields, and poor weather which affected
operating conditions. Continuing higher than anticipated mining
costs at Cardinal River operations contributed substantially to
increased costs quarter-over-quarter Transportation costs were up
39% to $138 million in the third quarter and 22% to $385 million
year-to-date compared with the same periods in 2004. This was
anticipated, and largely due to increased rail rates in the new
rail contract and increased port rates resulting from higher coal
prices. Selling, general and administration costs increased 29% in
the third quarter over 2004 due to higher corporate overhead costs.
Year-to-date, selling, general and administration costs decreased
17% over 2004 largely due to costs incurred in 2004 pursuant to
change in control agreements with certain former senior executives.
Elk Valley Coal executed an agreement with POSCO and Nippon Steel
Corporation in the third quarter 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 operations. The
completion of this transaction resulted in a pre-tax non-cash gain
for the Trust of approximately $29 million. Proceeds of the equity
investment will be used to fund expansion plans at the operations.
In October, Elk Valley Coal announced that it signed a letter of
intent with JFE Steel Corporation that calls for a 10-year sales
contract for the sale and purchase of 2.5 million tonnes per annum
of metallurgical coal for the 2006 to 2015 coal years. This
represents a 39% annual increase of coal deliveries over the 2005
coal year sales contract. These agreements are subject to
finalization of a detailed sales contract and a letter of intent
concerning future cooperation, which is expected to be completed by
December 2005. Expansion Projects Expansion work at the Elkview,
Fording River and Cardinal River operations continued in the third
quarter. Equipment delays, mechanical breakdowns and poor weather
at the Cardinal River operations continued to impact coal release
over the third quarter. Elk Valley Coal anticipates that the
Cardinal River operations will reach a capacity to produce at a
rate of 2.8 million tonnes per year by the end of 2005. Capacity
expansion of the Fording River operations was completed as planned
in the third quarter of 2005. At the Elkview operations, expansion
work consisting of equipment additions and additional stripping
activities is progressing on schedule to increase mine capacity by
1 million tonnes to an annual rate of 7 million tonnes by the end
of 2007. NYCO Three months ended Nine months ended (millions of
Canadian September 30 September 30 dollars, except as
---------------------- ---------------------- noted) 2005 2004 2005
2004
-------------------------------------------------------------------------
Statistics - Wollastonite Sales (thousands of tonnes) 22 18 68 61
Average sales price (U.S.$ per tonne) $ 382 $ 364 $ 387 $ 369
Average sales price (CDN.$ per tonne) 459 492 475 490 Income from
operations Revenue $ 10.9 $ 11.4 $ 33.9 $ 38.4 Cost of product sold
6.7 5.9 22.2 19.5 Transportation 1.8 1.5 5.4 5.5 Selling, general
and administration 1.1 1.4 3.2 3.6 Depreciation and depletion 1.0
1.4 3.2 4.0 ---------------------- ---------------------- Income
(loss) from operations $ 0.3 $ 1.2 $ (0.1) $ 5.8 Income from NYCO?s
operations was down $1 million in the third quarter and down almost
$6 million year-to date compared with 2004, primarily due to the
impact of a higher Canadian dollar and to the higher cost of
product sold. Cost of product sold increased as a result of higher
mining costs from additional labour and equipment, higher fuel
costs and reduced yields. The Trust is assessing a range of
strategic alternatives for NYCO to identify opportunities to
maximize the value of this investment. This process is scheduled to
be completed in 2006. Corporate Three months ended Nine months
ended September 30 September 30 ----------------------
---------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Selling, general and administration $ 2.1 $ 1.4 $ 7.0 $ 4.6
Depreciation, depletion 0.1 0.7 0.5 2.0 ----------------------
---------------------- Loss from operations $ 2.2 $ 2.1 $ 7.5 $ 6.6
---------------------- ----------------------
---------------------- ---------------------- Corporate costs
include general and administration expenses of the Trust and its
non-operating subsidiaries, and depreciation and depletion on
corporate assets. Included in selling, general and administration
costs for the nine months ended September 30, 2005 were costs
associated with the reorganization. Other Income and Expenses
------------------------- Three months ended Nine months ended
September 30 September 30 ----------------------
---------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Interest expense $ (3.0) $ (2.9) $ (8.4) $ (10.4) Other income
(expense), net 3.3 0.1 (0.9) 14.0 Gain on issuance of partnership
interest 28.6 - 28.6 - Reduction of interest in Elk Valley Coal - -
9.5 (37.5) ---------------------- ---------------------- $ 28.9 $
(2.8) $ 28.8 $ (33.9) ---------------------- ----------------------
---------------------- ---------------------- The decrease in
interest expense for the nine months ended September 30, 2005 is
due to lower debt levels and 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 and miscellaneous items. The increase in other
income in the third quarter of 2005 is largely due to the $29
million non-cash gain on issuance of partnership interest in the
Elkview operations, as well as changes in the U.S./ Canadian dollar
rate. 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 partially 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 Income tax expense has consisted 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. Effective
August 24, 2005, the Trust effected a reorganization of its
subsidiary companies that resulted in distributions being taxed
primarily at the unitholder level. Income tax expense for the third
quarter and year-to-date reflects a net reversal of $135 million
and $76 million, respectively. This largely reflects the reversal
of a provision for future income taxes of $164 million, which is a
non-cash amount and has no net impact on distributable cash for the
year. During the quarter, mineral taxes were up $26 million to $30
million. This increase is a reflection of both high cumulative cash
flows generated by Elk Valley Coal operations and a higher
effective mineral tax rate. Three months ended Nine months ended
September 30 September 30 ----------------------
---------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Current income tax expense (reversal): Canadian corporate income
taxes $ 3.2 $ 0.6 $ 4.0 $ 2.4 Provincial mineral taxes and Crown
royalties 22.0 4.4 36.6 11.5 Foreign income taxes (0.2) 1.3 - 3.4
---------------------- ---------------------- 25.0 6.3 40.6 17.3
Future income tax expense (reversal): Canadian corporate income
taxes (164.3) - (128.3) (2.5) Provincial mineral taxes and Crown
royalties 8.0 - 11.5 (0.7) Foreign income taxes and other (3.5) 0.3
- 0.3 ---------------------- ---------------------- (159.8) 0.3
(116.8) (2.9) ---------------------- ---------------------- Total
income tax expense (reversal) $ (134.8) $ 6.6 $ (76.2) $ 14.4
---------------------- ----------------------
---------------------- ---------------------- Liquidity and Capital
Resources ------------------------------- Three months ended Nine
months ended September 30 September 30 ----------------------
---------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------------------------------
Summary of Cash Flows Operating activities $ 282.2 $ 82.4 $ 407.7 $
168.5 Investing activities (35.5) (21.9) (100.8) (36.6) Financing
activities, excluding distributions 26.4 (1.1) 30.0 (1.3)
---------------------- ---------------------- Increase in cash
before distributions 273.1 59.4 336.9 130.6 Distributions paid
(137.1) (49.0) (264.4) (142.9) ----------------------
---------------------- Increase (decrease) in cash 136.0 10.4 72.5
(12.3) Cash - beginning of period 1.0 29.8 64.5 52.5
---------------------- ---------------------- Cash - end of period
$ 137.0 $ 40.2 $ 137.0 $ 40.2 ----------------------
---------------------- ----------------------
---------------------- Cash and cash equivalents increased to $137
million in the third quarter of 2005. Cash flows from operating
activities are largely influenced by the results of Elk Valley
Coal. Cash flows from operating activities increased substantially
in the third quarter of 2005 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. Accounts receivable increased
due to the increase in coal prices and timing of shipments.
Inventories increased as a result of the build-up of clean coal
inventories. Investing activities during the third quarter included
capital expenditures of approximately $14 million related to the
expansion projects at Fording River and Elkview operations and
development of the Cardinal River operations. Third quarter
spending for sustaining projects amounted to approximately $10
million, an increase of $4 million from the third quarter of 2004,
the majority of which was for the Elkview operations. The increase
in cash from financing activities included $36 million in proceeds
from the issuance of the 5% interest in the Elkview operations to
Nippon Steel Corporation and POSCO. In the quarter, Canadian dollar
debt decreased by $11 million, reflecting a strengthening of the
Canadian dollar, while long-term borrowing remained constant at
U.S.$167 million. Elk Valley Coal had utilized $81 million of its
facility for the issuance of letters of credit and guarantees. The
Trust's share of unused bank facilities at September 30, 2005, was
$247 million, comprised of $206 million from the Trust's facility
and the Trust's share ($41 million) of the $69 million Elk Valley
Coal facility. 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 ------- Our financial results, and therefore
the amount of cash available for distribution to unitholders, are
highly dependent on key variables such as coal prices, coal
production and sales volumes, forward contracts, 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. The fundamentals for the hard coking coal market are
still strong and are expected to remain so at least until new
supplies of hard coking coal come into the market or unless demand
for integrated steel products declines. 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 Trust expects strong results to
continue in the fourth quarter of 2005 as Elk Valley Coal benefits
from higher coal prices. Elk Valley Coal is targeting coal sales
volumes to be approximately 25 million tonnes in 2005. There are a
number of risks to meeting this guidance, including but not limited
to: customers meeting contract commitments on a timely basis, the
mine operations running as expected (such as the potential impact
of weather, labour negotiations and ability to obtain equipment,
tire and other supplies) and rail and port service providers
ability to meet Elk Valley Coal?s needs. The Trust?s share of this
sales target is approximately 15 million tonnes. Elk Valley Coal
will adjust production to meet sales volumes and desired inventory
levels . Coal Markets and Drivers In the latter half of 2005, Elk
Valley Coal has experienced some delays in shipments as a number of
its customers overbought metallurgical coal earlier in the year to
protect against the potential for underperformance by coal
suppliers in tight market conditions, which has not occurred.
Shipment schedules are expected to normalize once the excess
purchases have been consumed; however it may result in shipments
being delayed into the 2006 calendar year. In China, there is
evidence of domestic over-supply of both coke and low- grade steel
production in the near term. While customer requests for shipment
delays are a normal course for the seaborne hard coking coal
business, the consistency with respect to delays in Chinese
contractual shipments poses risk for sales into that market in the
short term. Sales to China represent a minor part of Elk Valley
Coal?s total sales portfolio. The uncertainty of the timing of
these shipments is reflected in the revised guidance on projected
2005 calendar year sales volumes and may continue into early 2006.
Looking to 2006 and beyond, the fundamentals for hard coking coal
remain strong as the demand for steel is expected to grow. At the
present time there is a limited quantity of hard coking coal
available in the spot global market, reflecting fundamentals of
strong demand and the relative lack of new supply of hard coking
coal. Demand for seaborne hard coking coal is expected to continue
to grow at above historical rates over the next several years. In
response to uncertainties in obtaining reliable supplies of coke,
several of Elk Valley Coal?s traditional steel mill customers have
proceeded to move ahead with plans to construct coke ovens to
increase self-sufficiency in coke. Most of these facilities are
expected to be completed in the 2007 to 2008 time period, providing
a further increase in demand for hard coking coal. Elk Valley Coal
is positioning itself to participate in this growth. Given the
strong market for hard coking coal in the longer term, combined
with requests from the existing customer base for additional future
coal supply such as the recently announced 10-year increased sales
contract with JFE Steel, Elk Valley Coal continues to view
positively long-term global sales opportunities. While there will
always be fluctuations in global demand, Elk Valley Coal will
continue to manage its sales risk in all its markets by adopting a
portfolio approach to balance its exposure to any one region. Cost
of Product Sold Elk Valley Coal is focused on managing key
operating variables that directly influence mining costs, such as
mine and plant productivities, yields, strip ratios and haul
distances in order to maximize cash flows over the long-term.
Rising mining and processing input costs such as fuel, steel,
tires, labour, contractor and maintenance parts and supplies also
have a significant impact on the cost of producing metallurgical
coal. Recently, a number of factors have increased cost of product
sold, which are expected to continue for the foreseeable future.
Sustained high prices for petroleum products and for commodities
are increasing costs. In addition, the growth in global mining
activities has created a demand for certain equipment and parts
that outpaces supply. For example, the risk of a shortage of tires
remains and Elk Valley Coal continues to monitor tire availability
and undertake steps to extend existing tire life. Future operations
could be impacted if Elk Valley Coal experiences difficulties
obtaining equipment and supplies on a timely basis. Also, Elk
Valley Coal operates in a competitive environment for attracting
labour to fill new mining jobs and the jobs of retiring employees.
It takes time for these new employees to gain the experience
necessary to achieve higher rates of productivity. Elk Valley Coal
has announced its intention to increase its annual capacity to
produce saleable coal to 28 million tonnes by the end of the
current year with further increases to 30 million tonnes by the end
of 2007. These additions to capacity are expected to result in
higher cost of product sold through this period as the operating
variables of the mines change. Strip ratios are expected to
increase as new mining areas are set up for long-term production.
Haul distance will increase as overburden from new pits is placed
on existing spoils or new spoils that are out of the way of future
mining. Also, coal yields can vary as the characteristics of the
coal seams change. These are some of the factors that could affect
production, productivity and costs at Elk Valley Coal?s operations,
and could have a material adverse effect on cash available for
distribution to unitholders. Collective Agreements 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 In August,
the Federal Court of Canada dismissed two applications brought
forward by environmental groups for judicial review of the
Department of Fisheries and Oceans (DFO) approvals related to the
Cheviot project at the Cardinal River operations. The Federal Court
determined that DFO properly applied regulatory process to the
project according to law and that Elk Valley Coal secured all
necessary provincial mining and environmental approvals and
complied with all regulatory requirements in the development of the
project. Transportation Rail service providers servicing Elk Valley
Coal?s operations are working on total system capacity initiatives
to meet the current capacity requirements of all industries. In the
early part of the year, rail service was below Elk Valley Coal?s
needs and negatively impacted sales volumes. Maintenance and
expansion work during the third quarter further impacted shipments
from the Elk Valley. Looking forward, rail service levels are
expected to be sufficient to move Elk Valley Coal?s planned
production volumes in the fourth quarter. Elk Valley Coal has given
notice to Westshore Terminals that it is requesting a review of the
loading rate for the Elkview operations contract effective April 1,
2005. Under the terms of the contract, the loading rate is linked
to the Canadian dollar price received for coal. The parties have
agreed to mediation to determine whether the rates should be
revised to be consistent with the original intention of the
parties. Mediation is expected to commence in late October. 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 Forward Contracts 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 U.S. dollars are
exchanged into Canadian dollars. The amount fixed takes into
account the existing foreign exchange forward contracts of Fording
LP and Elk Valley Coal. Our policy has no minimum limits. Our
outstanding foreign exchange forward contracts are disclosed in
Note 10 to the Consolidated Financial Statements. Guidance The
Trust decreased its expectations for Elk Valley Coal's sales
volumes for the 2005 calendar year to between 25.5 to 26.5 million
tonnes in September primarily due to lower than anticipated
production volumes at its Cardinal River operations. There was also
a possibility that some sales could slip into the 2006 calendar
year and uncertainty as to shipments to some steelmakers in China.
Elk Valley Coal?s sales volumes expectations have been further
decreased to approximately 25 million tonnes. This largely reflects
the reduced expectations for shipments to Chinese customers. In
addition, over the past month Elk Valley Coal has determined that
many customers have purchased metallurgical coal beyond their
immediate needs for the 2005 calendar year, which provides
additional uncertainty as to the timing of delivery of shipments.
The Trust?s share of the revised sales volume is approximately 15
million tonnes. The achievement of this sales volume is dependant
upon customers meeting contract commitments on a timely basis, the
mine operations running as expected, and rail and port service
providers meeting Elk Valley Coal?s needs. The Trust is making a
minor change to its overall cost guidance. Cost of product sold is
expected to increase by approximately $2 per tonne to $32 per tonne
largely due to higher fuel costs, which will be offset to some
degree by a $1 per tonne decrease in coal transportation costs to
between $36 and $37 per tonne. Factors that could affect Fording?s
ability to meet these targets are previously discussed in the Cost
of Product Sold and Transportation sections. Capital expenditure
guidance for the 2005 calendar year is being revised downward from
$117 million to approximately $112 million for the Trust, comprised
of $37 million for sustaining capital expenditures and $75 million
for expansion purposes. This is a result of some expenditures
costing less than anticipated and the deferral of some minor
projects to the future. These estimates are based on management?s
judgement, which are subject to known and unknown risks as well as
uncertainties and other 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 ability to meet
its targets. 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
quarter 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 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 $ 0.03
Price of coal U.S.$1.00/tonne $ 0.03 Elk Valley Coal's sales
100,000 tonnes $ 0.03 U.S./Canadian dollar exchange rate U.S. 1
cent $ 0.01 Capital expenditures of the Trust CDN$1 million $ 0.01
Number of Units Outstanding --------------------------- In
association with the reorganization that occurred on August 24,
2005, the Trust proceeded with the three-for-one split of the
Trust's units. The subdivision of units applied to record holders
at the close of business on September 2, 2005. The units commenced
trading on a split basis on August 31, 2005, on the TSX and
September 13, 2005 on the NYSE. There were approximately 147
million trust units outstanding on September 30 and October 24,
2005. Approximately 94,000 options were outstanding under the
exchange option plan as of September 30, 2005 and 93,000 options as
of October 24, 2005. 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 Nine months ended (millions
of Canadian September 30 September 30 dollars, except per unit
---------------------- ---------------------- amounts) 2005 2004
2005 2004 -------------------------------------------------
---------------------- Revenues $ 570.8 $ 287.8 $ 1,334.6 $ 842.3
Expenses Cost of product sold 145.0 114.6 373.3 338.8
Transportation 139.8 101.2 390.0 322.0 Selling, general and
administration 7.6 6.2 21.6 21.9 Depreciation and depletion 14.8
15.0 38.8 46.6 ---------------------- ---------------------- 307.2
237.0 823.7 729.3 ---------------------- ----------------------
Income from operations 263.6 50.8 510.9 113.0 Other income
(expense) Interest expense (3.0) (2.9) (8.4) (10.4) Other income
(expense), net (note 3) 3.3 0.1 (0.9) 14.0 Gain on issuance of
partnership interest (note 4) 28.6 - 28.6 - Reduction of interest
in EVCP (note 5) - - 9.5 (37.5) ----------------------
---------------------- Income before taxes 292.5 48.0 539.7 79.1
Income tax (reversal) expense (note 6) (134.8) 6.6 (76.2) 14.4
---------------------- ---------------------- Net income $ 427.3 $
41.4 $ 615.9 $ 64.7 ---------------------- ----------------------
---------------------- ---------------------- Weighted average
number of units outstanding (millions) (note 11) 147.0 147.0 147.0
144.9 Basic and diluted earnings per unit (note 11) $ 2.91 $ 0.28 $
4.19 $ 0.45 CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS
(unaudited) Three months ended Nine months ended September 30
September 30 (millions of Canadian ----------------------
---------------------- dollars) 2005 2004 2005 2004
-------------------------------------------------
---------------------- Balance - beginning of period $ 529.2 $
213.7 $ 340.6 $ 190.4 Net income for the period 427.3 41.4 615.9
64.7 ---------------------- ---------------------- Balance - end of
period $ 956.5 $ 255.1 $ 956.5 $ 255.1 ----------------------
---------------------- ----------------------
---------------------- 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)
2005 2004 2005 2004
-------------------------------------------------
---------------------- Operating activities Net income $ 427.3 $
41.4 $ 615.9 $ 64.7 Items not using (providing) cash: Depreciation
and depletion 14.8 15.0 38.8 46.6 Loss (gain) on reduction of
interest in EVCP - - (9.5) 35.2 Provision for asset retirement
obligations, net 0.5 0.8 2.1 2.6 Future income taxes (159.8) 0.3
(116.8) (2.9) Income from change in inventory valuation - - -
(10.8) Loss on disposal of assets 0.1 - 0.2 0.1 Gain on issuance of
partnership interest (note 4) (28.6) - (28.6) - Non-controlling
interest 1.4 - 1.4 - Other items, net - (0.9) 1.0 (0.8)
---------------------- ---------------------- 255.7 56.6 504.5
134.7 Increase (decrease) in non-cash working capital 26.5 25.8
(96.8) 33.8 ---------------------- ---------------------- Cash from
operating activities 282.2 82.4 407.7 168.5 ----------------------
---------------------- Investing activities Additions to capital
assets (26.5) (22.7) (92.5) (46.1) Proceeds on disposal of assets
0.2 0.1 0.9 0.6 Other investing activities, net (9.2) 0.7 (9.2) 8.9
---------------------- ---------------------- Cash used in
investing activities (35.5) (21.9) (100.8) (36.6)
---------------------- ---------------------- Financing activities
Increase (decrease) in long-term debt - - 1.7 (99.0) Issuance of
units, net 1.7 0.1 1.8 99.5 Proceeds from issuance of partnership
interest (note 4) 36.4 - 36.4 - Other financing activities, net
(11.7) (1.2) (9.9) (1.8) ----------------------
---------------------- Financing activities, before distributions
26.4 (1.1) 30.0 (1.3) Distributions declared (264.6) (53.9) (465.4)
(149.9) Increase in distributions payable 127.5 4.9 201.0 7.0
---------------------- ---------------------- Distributions paid
(137.1) (49.0) (264.4) (142.9) ----------------------
---------------------- Cash used in financing activities (110.7)
(50.1) (234.4) (144.2) ----------------------
---------------------- Increase (decrease) in cash and equivalents
136.0 10.4 72.5 (12.3) Cash and cash equivalents - beginning of
period 1.0 29.8 64.5 52.5 ----------------------
---------------------- Cash and cash equivalents - end of period $
137.0 $ 40.2 $ 137.0 $ 40.2 ----------------------
---------------------- ----------------------
---------------------- 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) 2005 2004
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 137.0 $ 64.5
Accounts receivable 138.9 86.8 Inventory 157.9 113.0 Prepaid
expenses 6.8 2.6 --------------------------- 440.6 266.9 Capital
assets 683.5 635.8 Goodwill 44.4 44.4 Other assets 27.2 21.1
--------------------------- $ 1,195.7 $ 968.2
--------------------------- --------------------------- Liabilities
Current liabilities Accounts payable and accrued liabilities $
111.4 $ 132.6 Income taxes payable 25.6 10.7 Distribution payable
264.6 63.7 Current portion of long-term debt (note 8) 1.5 1.7
--------------------------- 403.1 208.7 Long-term debt (note 8)
197.7 205.2 Other long-term liabilities (note 9) 100.2 91.9 Future
income taxes (note 6) 63.4 180.4 Commitments and contingencies
(note 10) --------------------------- 764.4 686.2
--------------------------- Unitholders' equity (note 11) Trust
units 359.4 357.7 Accumulated earnings 956.5 340.6 Accumulated cash
distributions (889.2) (423.8) Foreign currency translation
adjustments 4.6 7.5 --------------------------- 431.3 282.0
--------------------------- $ 1,195.7 $ 968.2
--------------------------- --------------------------- The
accompanying notes to the unaudited consolidated financial
statements are an integral part of these statements. Notes to
Consolidated Financial Statements (unaudited) October 24, 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. Effective August 24,
2005, the Trust reorganized its investments. The operating assets
formerly owned by Fording Inc. are now owned by a new entity,
Fording Limited Partnership (Fording LP), and the Trust. The Trust
directly and indirectly holds 100% of its operating subsidiary,
Fording LP. Through Fording LP, the Trust holds a 61% interest in
the metallurgical coal operations owned by Elk Valley Coal
Partnership (EVCP). The Trust also directly and indirectly holds a
100% interest in the industrial mineral operations owned by Nyco
Minerals, Inc. and Minera Nyco SA de CV (collectively NYCO). Elk
Valley Coal and NYCO are separate reportable segments within the
Trust. Elk Valley Coal 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 Nine months
ended September 30 September 30 (millions of ----------------------
---------------------- Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------
---------------------- Interest and investment income $ 0.6 $ 0.1 $
0.9 $ 1.4 Foreign exchange gains 5.5 (0.1) 4.0 0.3 Non-controlling
interest (1.4) - (1.4) - Change in inventory valuation - - - 10.8
Other (1.4) 0.1 (4.4) 1.5 ----------------------
---------------------- $ 3.3 $ 0.1 $ (0.9) $ 14.0
---------------------- ---------------------- 4. GAIN ON ISSUANCE
OF PARTNERSHIP INTEREST Effective August 1, 2005, EVCP finalized an
agreement with two steel companies under which each company
acquired a 2.5% equity investment in the Elkview operations. 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 5. 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. 6. INCOME TAXES Income tax expense is made up of the
following components: Three months ended Nine months ended
September 30 September 30 ----------------------
---------------------- (millions of dollars) 2005 2004 2005 2004
-------------------------------------------------
---------------------- Current income tax expense (reversal):
Canadian corporate income taxes $ 3.2 $ 0.6 $ 4.0 $ 2.4 Provincial
mineral taxes and Crown royalties 22.0 4.4 36.6 11.5 Foreign income
taxes (0.2) 1.3 - 3.4 ---------------------- ----------------------
25.0 6.3 40.6 17.3 Future income tax expense (reversal): Canadian
corporate income taxes (164.3) - (128.3) (2.5) Provincial mineral
taxes and Crown royalties 8.0 - 11.5 (0.7) Foreign income taxes and
other (3.5) 0.3 - 0.3 ---------------------- ----------------------
(159.8) 0.3 (116.8) (2.9) ----------------------
---------------------- Total income tax expense (reversal) $
(134.8) $ 6.6 $ (76.2) $ 14.4 ----------------------
---------------------- Future income taxes consist of the
following: September 30 December 31 (millions of Canadian dollars)
2005 2004 --------------------------------------------
--------------------------- Canadian corporate income taxes $ - $
124.8 Provincial mineral taxes and Crown royalties 56.4 44.8
Foreign income taxes and other 7.0 10.8 ---------------------------
$ 63.4 $ 180.4 ---------------------------- In August, the Trust
reorganized its investments, which resulted in an income tax
reversal on Canadian corporate income taxes of $164.3 million. 7.
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 LP is the
principal contributor to distributable cash of the Trust. Fording
LP 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 LP 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 Nine months ended September 30 September 30 (millions of
---------------------- ---------------------- Canadian dollars)
2005 2004 2005 2004
-------------------------------------------------
---------------------- Cash Available for Distribution Cash flows
from operating activities $ 282.2 $ 82.4 $ 407.7 $ 168.5 Add
(deduct): Increase (decrease) in non-cash working capital (26.5)
(25.8) 96.8 (33.8) Sustaining capital expenditures (8.3) (4.9)
(28.4) (15.2) Capital lease payments $ (0.5) (0.1) $ (1.6) (0.7)
Unrealized foreign exchange (gain) loss on debt (10.8) - (8.8) -
Current future income taxes 12.6 - - - Other 4.5 0.7 8.5 2.6 Cash
reserve - - - - ---------------------- ---------------------- Cash
available for distribution $ 253.2 $ 52.3 $ 474.2 $ 121.4
---------------------- ---------------------- Distributions
declared $ 264.6 $ 53.9 $ 465.4 $ 149.9 ----------------------
---------------------- In the second quarter, a current provision
for future corporate income taxes was recorded for $12.6 million,
which was deducted from cash available for distribution. The
reversal of the provision for future corporate income taxes in the
third quarter was inclusive of the current provision and,
therefore, the $12.6 million was included in cash available for
distribution for the quarter. 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. 8. LONG-TERM DEBT, BANKING FACILITIES
AND FINANCIAL INSTRUMENTS September 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
4.5% $ 193.9 $ - Term loan with interest at varying rates from 5.6%
to 6.3% - $ 201.0 --------------------------- 193.9 201.0 Other
debt Equipment financing due 2009 bearing interest at 5.1% 4.2 5.2
Capital lease obligations expiring in 2009 with interest rates
varying from 5.0% to 7.1% 1.1 0.7 --------------------------- 199.2
206.9 Less current portion (1.5) (1.7) ---------------------------
$ 197.7 $ 205.2 ---------------------------
--------------------------- The Trust's bank credit facility
provides for a floating rate, five-year annually extendable $400
million revolving facility supported by an unsecured guarantee of
EVCP (such guarantee, in respect of each partner in EVCP other than
Fording LP, is limited in recourse to such partner's interest in
EVCP) and a security agreement over the interest of Fording LP in
EVCP. The EVCP facility provides for a floating rate, five-year,
annually extendable, $150 million revolving facility which is
supported by an unsecured guarantee of the Trust. At September 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
$48.8 million. The Trust's share of unused bank facilities at
September 30, 2005 was $247.3 million. 9. OTHER LONG-TERM
LIABILITIES September 30 December 31 (millions of Canadian dollars)
2005 2004
-------------------------------------------------------------------------
Asset retirement obligations $ 69.1 $ 68.9 Pension and other
post-retirement benefits 21.4 21.4 Non-controlling interest 8.1 -
Other, net 1.6 1.6 --------------------------- $ 100.2 $ 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 third quarter of 2005 was $2.7 million and $7.9 million for
the year to date (2004 - $2.7 million and $7.3 million,
respectively). Non-controlling interest Effective August 1, 2005,
two steel companies each acquired a 2.5% equity interest in the
Elkview operations. 10. COMMITMENTS AND CONTINGENCIES Foreign
exchange forward contracts To help manage exposure to currency
fluctuations, foreign exchange forward contracts are used to fix
the rate at which certain future anticipated flows of U.S. dollars
are exchanged into Canadian dollars. The foreign exchange hedging
activities of the Trust take into account the existing foreign
exchange forward contracts of EVCP and Fording LP. The following
table summarizes the Trust's outstanding hedged positions at
September 30, 2005. Amount Hedged (millions of U.S.$)
----------------------------------- Average Exchange Rates Fording
EVCP Trust's (U.S.$1 (CDN$1 Year LP 60% Total equals CDN$) equals
U.S.$)
-------------------------------------------------------------------------
2005 $ 339 $ 51 $ 390 1.28 0.78 2006 380 57 437 1.29 0.78 2007 16 -
16 1.46 0.69 ----------------------------------- $ 735 $ 108 $ 843
-----------------------------------
----------------------------------- At September 30, 2005, the
Trust?s portion of unrealized gains on foreign exchange forward
contracts was $109.0 million based on the U.S./Canadian dollar
exchange rate of U.S.$0.86. The Trust?s realized gain on foreign
exchange forward contracts included in revenues for the third
quarter of 2005 was $26.8 million and $65.0 million for the year to
date (2004 ? $22.8 million and $50.2 million, respectively).
Neptune Terminals guarantee EVCP's proportionate share of its
guarantee of the outstanding bank indebtedness of Neptune Terminals
was $18.2 million at the end of the third quarter of 2005. The
Trust's share of this guarantee was $10.9 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. 11. 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. During the third quarter, the Trust completed a
three-for-one subdivision of its units. Each unitholder holding
units on the record date received two additional units for each
unit held on that date. Units issued and outstanding Three months
ended Nine months ended September 30 September 30 (in millions of
units ---------------------- ---------------------- and Canadian
dollars) Units Amount Units Amount
-------------------------------------------------
---------------------- Balance, beginning of period 147.0 $ 357.9
147.0 $ 357.7 Issued on exercise of options - - - 0.2 Other - 1.5 -
1.5 ---------------------- ---------------------- Balance, end of
period 147.0 $ 359.4 147.0 $ 359.4 ----------------------
---------------------- ----------------------
---------------------- Market value of units, September 30, 2005 $
7,287.0 $ 7,287.0 --------- --------- 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
September 30, 2005, there were approximately 94,000 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 $5.18 per unit and the remaining weighted average
contractual life is 4.2 years. Accumulated distributions to
unitholders Three months ended Nine months ended September 30
September 30 (millions of ----------------------
---------------------- Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------
---------------------- Opening accumulated cash distributions $
624.6 $ 306.3 $ 423.8 $ 210.3 Distributions declared and payable
(note 6) 264.6 53.9 465.4 149.9 ----------------------
---------------------- Closing accumulated cash distributions $
889.2 $ 360.2 $ 889.2 $ 360.2 ----------------------
---------------------- ----------------------
---------------------- 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 weighted average number of units outstanding for
purposes of calculating earnings per unit on both a basic and fully
diluted basis was 147.0 million units for the quarter ended
September 30, 2005 and 147.0 million units for the quarter ended
September 30, 2004. 12. UNIT-BASED COMPENSATION Three months ended
Nine months ended September 30 September 30 (millions of
---------------------- ---------------------- Canadian dollars)
2005 2004 2005 2004
-------------------------------------------------
---------------------- Employee unit purchase plan $ 0.1 $ 0.1 $
0.3 $ 0.3 Unit equivalent plan 1.4 0.4 2.5 1.2
---------------------- ---------------------- $ 1.5 $ 0.5 $ 2.8 $
1.5 ---------------------- ---------------------- The total number
of units purchased on behalf of the employees pursuant to the
employee unit purchase plan, including the employer's
contributions, was 12,498 units for the third quarter of 2005 and
39,945 for the year to date (2004 - 21,112 and 77,686,
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. 13. SEGMENT INFORMATION Three months ended Nine months
ended September 30 September 30 (millions of ----------------------
---------------------- Canadian dollars) 2005 2004 2005 2004
-------------------------------------------------
---------------------- Elk Valley Coal Revenues $ 559.9 $ 276.4 $
1,300.7 $ 803.9 Cost of product sold (138.3) (108.7) (351.1)
(319.3) Transportation (138.0) (99.7) (384.6) (316.5) Selling,
general and administration (4.4) (3.4) (11.4) (13.7) Depreciation
and depletion (13.7) (12.9) (35.1) (40.6) ----------------------
---------------------- Income from operations 265.5 51.7 518.5
113.8 Interest expense (0.3) (0.1) (0.7) (0.8) Other income (5.8) -
(5.9) 11.5 Gain on sale of partnership interest 28.6 - 28.6 -
Income tax reversal (expense) 134.6 (4.9) 76.2 (10.6)
---------------------- ---------------------- Income 422.6 46.7
616.7 113.9 ---------------------- ---------------------- NYCO
Revenues 10.9 11.4 33.9 38.4 Cost of product sold (6.7) (5.9)
(22.2) (19.5) Transportation (1.8) (1.5) (5.4) (5.5) Selling,
general and administration (1.1) (1.4) (3.2) (3.6) Depreciation and
depletion (1.0) (1.4) (3.2) (4.0) ----------------------
---------------------- Income (loss) from operations 0.3 1.2 (0.1)
5.8 Interest expense - (0.1) - (0.1) Other income (expense) (0.1) -
(0.2) 0.5 Income tax reversal (expense) 0.2 (1.7) 0.0 (3.8)
---------------------- ---------------------- Income (loss) 0.4
(0.6) (0.3) 2.4 ---------------------- ----------------------
Corporate Selling, general and administration (2.1) (1.4) (7.0)
(4.6) Depreciation and depletion (0.1) (0.7) (0.5) (2.0)
---------------------- ---------------------- Loss from operations
(2.2) (2.1) (7.5) (6.6) Interest expense (2.7) (2.7) (7.7) (9.5)
Other income 9.2 0.1 5.2 2.0 Reduction of interest in EVCP - - 9.5
(37.5) ---------------------- ---------------------- Income (loss)
4.3 (4.7) (0.5) (51.6) ----------------------
---------------------- Consolidated Revenues 570.8 287.8 1,334.6
842.3 Cost of product sold (145.0) (114.6) (373.3) (338.8)
Transportation (139.8) (101.2) (390.0) (322.0) Selling, general and
administration (7.6) (6.2) (21.6) (21.9) Depreciation and depletion
(14.8) (15.0) (38.8) (46.6) ----------------------
---------------------- Income from operations 263.6 50.8 510.9
113.0 Interest expense (3.0) (2.9) (8.4) (10.4) Other income 3.3
0.1 (0.9) 14.0 Reduction of interest in EVCP - - 9.5 (37.5) Gain on
sale of partnership interest 28.6 - 28.6 - Net income tax reversal
(expense) 134.8 (6.6) 76.2 (14.4) ----------------------
---------------------- Net income $ 427.3 41.4 $ 615.9 $ 64.7
---------------------- ----------------------
---------------------- ---------------------- 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/
Copyright