CALGARY, July 18 /PRNewswire-FirstCall/ -- Fording Canadian Coal
Trust (TSX: FDG.UN, NYSE: FDG) today announced its second quarter
2006 results. Cash available for distribution for the quarter was
$147 million ($1.00 per unit) compared with $151 million ($1.03 per
unit) for the second quarter of 2005. Cash available for
distribution for the first half of 2006 increased to $349 million,
an increase of $128 million over the same period of 2005. Net
income was $140 million in the second quarter, up from $123 million
during the same quarter in 2005. On a year-to-date basis, net
income was $306 million versus $189 million for the first six
months of 2005. Income before unusual items and future income taxes
in the second quarter and year-to-date in 2006 was $151 million and
$348 million, respectively, compared with $162 million and $222
million for the same periods of 2005. "We are pleased with our
second quarter results," said Jim Popowich, President of Fording
Canadian Coal Trust. "Cash returns to unitholders continued to be
substantial, although we are seeing the impact of the lower 2006
coal year pricing, which came into effect during the quarter. Elk
Valley Coal's sales volumes were up from the first quarter, and
there are some encouraging signals in the steel market that should
result in better second- half coal sales." Mr. Popowich continued:
"The settlement of labour contracts at our Fording River and
Elkview mines was an important accomplishment in the quarter. We
now have multi-year agreements in place at all the unionized
operations in the Elk Valley." Highlights: - Cash available for
distribution was $147 million for the quarter, or $1.00 per unit,
down slightly from $151 million for 2005. Cash available for
distribution for the year-to-date was $349 million, up from $221
million for 2005. Distributions to unitholders for the quarter were
$1.00 per unit and were $2.40 per unit for the first six months
compared with $0.93 per unit and $1.37 per unit, respectively, for
2005. - The average coal price in the second quarter of 2006 was
US$116 per tonne, which was up 23% from the same quarter of 2005.
On a year-to-date basis, coal prices were $119 per tonne in 2006,
up 51% from $79 per tonne for the previous year. Average prices in
Canadian dollar terms for the second quarter of 2006 increased 11%
to $133 per tonne, and year-to-date coal prices increased 39% to
$142 per tonne. The smaller increases in the Canadian dollar price
increases reflect a stronger Canadian dollar. - Coal sales volumes
of 3.5 million tonnes and 6.6 million tonnes for the second quarter
and the year-to-date respectively, were 8% lower than 2005 levels
due to the termination of contracts with the majority of customers
in China and some other customers not taking deliveries of coal
shipments as anticipated. - Elk Valley Coal's unit cost of product
sold increased 29% to $39.20 per tonne compared with the second
quarter of 2005 primarily due to higher mining costs. The unit cost
of product sold increased $0.60 per tonne compared with the first
quarter because of one-time costs associated with long-term labour
settlements during the quarter. The cost of product sold increased
to $38.90 per tonne, or 32%, for year-to-date. - Unit
transportation costs in Elk Valley Coal for the second quarter
decreased $0.30 per tonne to $37.40 compared with the same quarter
of 2005. For the 2006 year-to-date, unit transportation costs were
$37.60 per tonne, up $3.50 per tonne, from the first half of 2005
due to higher rail and port rates that took effect during the
second quarter of 2005. - Mr. Boyd Payne will join Elk Valley Coal
as President and Chief Executive Officer in the third quarter. Mr.
Payne was most recently the Vice President, Marketing for the BHP
Billiton Mitsubishi Alliance. 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.
--------------------------------------- Conference Call and Webcast
A conference call to discuss these results will be held Tuesday,
July 19 at 8:00 a.m. Mountain time, 10:00 a.m. Eastern time. To
participate in the conference call, please dial 1-800-796-7558 or
416-644-3414 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 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 July 18, 2006, should be read in
conjunction with Fording Canadian Coal Trust's unaudited
consolidated financial statements and the notes thereto for the
quarter ended June 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 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 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 relevant measures of
the ability of the Trust to earn and distribute cash to
unitholders. 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", "m ay",
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
Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars, except as
noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue $ 472.5 $ 468.9 $ 957.8 $ 763.8 Income from operations $
173.4 $ 179.7 $ 390.8 $ 247.3 Net income $ 140.2 $ 123.3 $ 305.5 $
188.6 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) 11.0 38.4 10.6 43.0 ----------
---------- --------- ---------- Income before unusual items and
future income taxes $ 151.2 $ 161.7 $ 347.8 $ 222.1 Basic and
diluted earnings per unit(xx): Net income $ 0.95 $ 0.84 $ 2.08 $
1.28 Income before unusual items and future income taxes $ 1.03 $
1.10 $ 2.37 $ 1.51 Elk Valley Coal Statistics: Coal production
(million tonnes) 3.3 4.1 6.8 8.1 Coal sales (million tonnes) 3.5
3.8 6.6 7.2 Average sales price US$/tonne $ 116.10 $ 94.00 $ 119.00
$ 78.60 CDN$/tonne $ 133.00 $ 119.40 $ 142.10 $ 102.40 Operating
expenses Cost of product sold (CDN$/tonne) $ 39.20 $ 30.40 $ 38.90
$ 29.40 Transportation (CDN$/tonne) $ 37.40 $ 37.70 $ 37.60 $ 34.10
NYCO Statistics (Wollastonite only): Sales (thousands of tonnes) 29
24 53 45 Average sales price (US$/tonne) $ 346 $ 384 $ 354 $ 389
(x) See page 9. (xx) 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. Second Quarter Our second
quarter net income improved $17 million to $140 million largely due
to lower income tax expense in 2006. In the comparative period of
2005, we were potentially subject to Canadian corporate income
taxes due to high earnings. 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 decreased slightly from 2005 due to lower
coal sales volumes and higher unit cost of product sold. Revenue
increased slightly as higher US dollar coal prices were largely
offset by lower sales volumes and a stronger Canadian dollar. The
unit cost of product sold for coal sales increased 29% due to
higher mining costs. Income before unusual items and future income
taxes is a non-GAAP measure of earnings. It adds back to GAAP net
income the impact of future taxes, which are non-cash, and unusual
items that are significant and not expected to be recurring, and is
meant to provide further indication of our ability to earn and
distribute cash to unitholders on an ongoing basis. Net income
before unusual items and future income taxes decreased slightly to
$151 million and reflects higher current provincial mineral taxes
and Crown royalties and slightly lower operating earnings. Year to
Date Year-to-date net income increased $117 million to $306 million
largely due to higher coal prices, offset to some extent by lower
coal sales volumes and higher operating costs in Elk Valley Coal,
and lower Canadian corporate income tax expense as a result of the
2005 Arrangement. Income from operations increased 58% from 2005 to
$391 million mainly due to higher coal sales prices. Revenue
increased 25% to $958 million on higher US dollar coal prices,
which were up 51%, offset to some degree by lower sales volumes and
a stronger Canadian dollar. The unit cost of product sold for coal
sales increased 32% with higher mining costs, and transportation
costs were up 10% due to increased rail and port rates. Income
before unusual items and future income taxes increased $126 million
on strong operating results and includes an add back of 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
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.
Although we use the term cash available for distribution (referred
to as "Distributable Cash" in the Declaration of Trust), it is not
a term recognized by GAAP in Canada and it is not a term that has a
standardized meaning. Accordingly, our determination and use of the
term cash available for distribution may not be comparable with
similarly named measures presented by other trusts. The cash
available for distribution from our investments and the
distributions made by the Trust are set forth in the table below.
Three months ended Six months ended June 30 June 30 (millions of
Canadian ---------------------- ---------------------- dollars,
except as noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Cash available for distribution $ 147.3 $ 151.2 $ 348.8 $ 221.0
Distributions declared $ 147.0 $ 137.2 $ 352.8 $ 200.9 Average
number of units outstanding (in millions) 147.0 147.0 147.0 147.0
Per unit amounts: Cash available for distribution $ 1.00 $ 1.03 $
2.37 $ 1.50 Distributions declared $ 1.00 $ 0.93 $ 2.40 $ 1.37
Since the formation of the Trust, cash available for distribution
on a cumulative basis has exceeded distributions to unitholders by
$4 million, or approximately $0.03 per unit. Financial Position Our
working capital position increased approximately $97 million to
$152 million since December 2005, including an increase of cash.
Accounts receivable decreased mostly due to the timing of
collections. Inventory decreased due to the write off of raw coal
on the adoption of new accounting rules offset somewhat by higher
clean coal inventories, which reflects coal production exceeding
sales volumes. Current liabilities decreased largely as a result of
lower distributions payable to unitholders. 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 and NYCO 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 limits 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. For unitholders who hold unit certificates (as
opposed to owning units through a brokerage account), there is no
requirement to obtain new certificates. The Trust unit certificates
that they presently have will represent the same number of units of
the new royalty trust after the reorganization that the
certificates currently represent in the Trust units. Results of
Operations --------------------- Elk Valley Coal Three months ended
Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars, except as
noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Statistics Coal production (millions of tonnes) 3.3 4.1 6.8 8.1
Coal sales (millions of tonnes) 3.5 3.8 6.6 7.2 Average sales price
(per tonne) US$ $ 116.00 $ 94.00 $ 119.00 $ 78.60 CDN$(1) $ 133.00
$ 119.40 $ 142.10 $ 102.40 Operating expenses (per tonne) Cost of
product sold $ 39.20 $ 30.40 $ 38.90 $ 29.40 Transportation $ 37.40
$ 37.70 $ 37.60 $ 34.10 Income from operations Revenue $ 459.8 $
456.9 $ 933.2 $ 740.8 Cost of product sold 135.4 116.3 255.3 212.8
Transportation 129.5 144.4 247.0 246.6 Selling, general and
administration 8.0 3.9 13.4 7.0 Depreciation and depletion 12.4 9.9
23.5 21.4 ---------------------- ---------------------- Income from
operations $ 174.5 $ 182.4 $ 394.0 $ 253.0 ----------------------
---------------------- ----------------------
---------------------- (1) Includes the effects of our foreign
currency hedges Coal sales volumes for the second quarter and
year-to-date of 2006 were down approximately 8% from the same
periods in 2005, reflecting the termination of 2005 coal year
contracts with the majority of customers in China and some other
customers not taking deliveries of coal shipments as anticipated.
These elements were considered in our sales guidance of 22 million
to 25 million tonnes of sales by Elk Valley Coal during calendar
2006. Average US dollar coal prices increased 23% to $116 per tonne
as a result of the carry over of higher 2005 coal year prices into
the second quarter of 2006 compared with the carry over of very low
2004 coal year prices into the same quarter last year. Average US
dollar coal prices increased 51% for the year to date for 2006
because of sharply higher 2005 coal year prices. Average Canadian
dollar prices rose 11% and 39% for the second quarter and year to
date of 2006, respectively, which is less than the US dollar
increases due to a stronger Canadian dollar. Second quarter average
US dollar prices declined from the $122 per tonne in the first
quarter as lower 2006 coal year prices took effect, offset by the
carry over of sales from the previous coal year. As there is little
remaining carry over of 2005 sales, US dollar prices are expected
to decline further in the third quarter and for the next three
quarters are expected to approximate 2006 coal year prices of
US$107 per tonne. The unit cost of product sold increased 29% to
$39.20 per tonne for the quarter and 32% to 38.90 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 ratio during plant shutdowns
and longer haul distances. The unit cost of product sold increased
marginally from the first quarter. The unit cost of product sold in
the second quarter of 2006 also reflects the one-time costs and
signing bonuses associated with new 5-year labour agreements with
the unions at the Fording River and Elkview mines, which were
settled during the quarter. All four of the unionized operations in
the Elk Valley now have long-term collective agreements with
expiries ranging from May 2009 through April 2011, providing for
labour stability for much of Elk Valley Coal's production capacity.
The collective agreement at the Cardinal River operation expires in
June 2007. Unit transportation costs in the second quarter of 2006
decreased marginally to $37.40 per tonne. On a year-to-date basis,
unit transportation costs increased 10% to $37.60 per tonne
compared with the first half of 2005 as a result of higher rail and
port rates that took effect in the second quarter of 2005. Elk
Valley Coal received notice that it was unsuccessful in its
arbitration with Westshore Terminals regarding the loading rate to
be charged for the Elkview operation effective April 1, 2005. The
decision has no impact on the rates that Elk Valley Coal has been
paying. Selling, general and administration expenses increased from
2005 due to the costs associated with the impending retirement of
the President of the Trust, which were disclosed as a contingent
item in our audited financial statements for 2005. NYCO Three
months ended Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars, except as
noted) 2006 2005 2006 2005
-------------------------------------------------------------------------
Statistics - Wollastonite Sales (thousands of tonnes) 29 24 53 45
Average sales price (US$ per tonne) $ 373 $ 384 $ 386 $ 389 Average
sales price (CDN$ per tonne) $ 418 $ 478 $ 439 $ 456 Income from
operations Revenue 12.7 $ 12.0 24.6 $ 23.0 Cost of product sold 7.3
7.8 14.9 15.5 Transportation 2.3 1.8 4.5 3.6 Selling, general and
administration 1.1 1.1 2.1 2.1 Depreciation and depletion 0.9 1.1
1.8 2.2 ---------------------- ---------------------- Income (loss)
from operations $ 1.1 $ 0.2 $ 1.3 $ (0.4) ----------------------
---------------------- ----------------------
---------------------- Income from the NYCO operations increased $1
million in the quarter and $2 million year-to-date primarily due to
higher sales volumes. Average Canadian dollar prices were lower in
2006 due to product mix and a stronger Canadian dollar. NYCO's
focus is on increased sales volumes as a result of the introduction
of new products and applications. Actual results will depend to a
large degree on economic activity in NYCO's markets and its success
with new targeted sales applications. 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 second quarter and year-to-date
of 2006 as a result of higher debt levels and rising short-term
interest rates. Other income and expense items for the second
quarter and year-to-date of 2006 include the non-controlling
interest in the earnings of the Elkview mine. It also includes net
foreign exchange gains on US dollar denominated debt and unhedged
accounts receivable compared with net losses in 2005. 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 In prior years, 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. The Trust's 2005
Arrangement resulted in distributions received from Elk Valley Coal
being taxed primarily at the unitholder level. Income taxes for the
second quarter were $32 million compared with $50 million in 2005.
For the 2006 year-to-date, income taxes decreased to $50 million
from $59 million. No Canadian corporate income taxes were
recognized in 2006 as a result of the 2005 Arrangement. Mineral
taxes and Crown royalties were higher compared with 2005 because of
an increase in taxable cash flows generated by Elk Valley Coal and
an assessment of returns filed in prior years. Liquidity and
Capital Resources ------------------------------- Cash and cash
equivalents increased to $160 million in the second quarter of 2006
from $1 million during the same period in 2005 mainly as a result
of the draw down of additional long-term debt. Cash flows from
operating activities are largely influenced by the results of Elk
Valley Coal, which improved substantially in 2006 compared with the
same period in 2005 due primarily to higher coal sales prices. Cash
flows from operating activities include changes in working capital
that can fluctuate from period to period. Cash flows from operating
activities, before changes in non-cash working capital, less
sustaining capital expenditures is the primary contributor to cash
available for distribution. Deducting sustaining capital
expenditures to arrive at cash available for distribution ensures
that cash is first used to sustain the productive capacity of our
investments to generate future income. Changes in non-cash working
capital are financed by the Trust's and Elk Valley Coal's available
lines of credit. Capital spending decreased to $7 million and $13
million for the second quarter and year-to-date of 2006,
respectively, due to the substantial completion of expansion
projects at the Fording River, Elkview and Cardinal River mines by
the end of 2005. Capital expenditures Three months ended Six months
ended June 30 June 30 (millions of Canadian ----------------------
---------------------- dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Sustaining capital $ 5.8 $ 14.7 $ 10.0 $ 20.1 Expansion capital 1.0
22.2 3.2 45.9 ---------------------- ---------------------- $ 6.8 $
36.9 $ 13.2 $ 66.0 ---------------------- ----------------------
---------------------- ---------------------- 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 $125 million from
the end of 2005. This additional long-term debt largely refinances
the capital expansions undertaken during 2004 and 2005, which were
funded in part by working capital. By improving our short term
liquidity position we have enhanced flexibility to manage our cash
flows. Other uses of bank facilities include letters of credit or
guarantee of which our share was $50 million, leaving our share of
unused bank facilities of $134 million at June 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. The amount fixed
takes into account the existing foreign exchange forward contracts
of Fording LP and Elk Valley Coal. Our policy has maximum but no
minimum limits. During the second quarter, Fording LP entered into
US$571 million of foreign exchange forward contracts for the April
1, 2006 to March 31, 2007 time period. No contracts were entered
into by Elk Valley Coal. A summary of the Trust's aggregate hedge
position is provided in note 9 to the Consolidated Financial
Statements. Outlook ------- Our financial results, and therefore
the amount of cash available for distribution, are 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. Average coal prices
decreased during the second quarter as lower 2006 coal year prices
took effect, offset to some extent by the carry over of sales from
the prior coal year. Coal prices will decrease further during the
third quarter so that for the next three quarters they will
approximate 2006 coal year prices. In late 2004 and early 2005,
some integrated steel mills overbought coal to protect against
supply interruptions that did not occur and, in addition, some
steel mills reduced production during 2005 in response to a
developing oversupply of steel. Both of these factors contributed
to higher-than-normal coal inventories at the steel mills and
reduced requirements for hard coking coal during late 2005 and
early 2006. There are some encouraging signs that the coal
purchases may improve over the coming quarters. Steel mills reacted
very quickly to the developing oversupply issue in 2005 and steel
prices in most regions are now rising. This can be a positive
leading indicator of production increases, resulting in higher
metallurgical coal demand. Also, some of the benefits of the long-
term sales initiatives of Elk Valley Coal should provide for
increased sales during the 2006 and 2007 coal years. Demand for Elk
Valley Coal's hard coking coal products may be tempered by the fact
that the current price differentials between higher-quality hard
coking coal and lower-quality metallurgical coals are very wide by
historical standards. Other factors may also influence the seaborne
hard coking coal markets over the coming quarters. Over time, it is
expected that continued economic expansion in China and India will
require these nations to consume additional hard coking coal, which
may benefit the seaborne market. Production or shipment
interruptions are a normal part of the business, which can impact
sales and shipments of coal generally over the short term. Also,
while the supply of hard coking coal increased over the last year,
material quantities of new hard coking coal supply are not expected
in the near term due to the lead time to develop mines, and
infrastructure constraints in primary producing regions. These
market conditions, taken together with normal variations in sales
and operations, allow for a great deal of variability in Elk Valley
Coal's sales volumes for calendar year 2006, which are still
expected to be within the range of 22 to 25 million tonnes.
However, an oversupply of steel from a weakening of global
economies or significant exports from China, for example, could
result in reduced coal shipments that could cause sales to be
toward the lower end of the range. On the other hand, rising steel
production, combined with coal production or shipment interruptions
of other suppliers, could result in sales toward the higher end of
that range, though sales at this level will be more difficult to
achieve. It is of note that there is a global shortage of haul
truck tires that may continue until the end of 2007 or into 2008.
Elk Valley Coal estimates that its sales are not expected to be
impacted unless sales and inventory levels are such that production
must exceed a rate of 24 million to 25 million tonnes per annum for
a sustained period. Coal Production and Costs The pressures that
led to rapidly increasing cost of product sold during the second
half of 2005 and into 2006 have eased somewhat. The unit cost of
product sold for the 2006 year are expected to be in the range of
costs experienced during the first quarter of 2006 provided the
cost of key inputs, such as fuel and consumables, remain at current
levels. Maintenance and vacation shut downs are planned for the
third quarter, during which mine operations will continue in some
capacity. Traditionally this has resulted in higher unit costs of
product sold for the quarter. We anticipate the unit cost of
product sold to be lower during the fourth quarter due to generally
good equipment availability following a shutdown period for
maintenance. Further, production from the mines will be dependent
on sales due to the current high inventory levels of Elk Valley
Coal. Should sales volumes be at the low end of the range, Elk
Valley Coal would have to take steps to reduce coal production,
such as focusing on advancing stripping activities, which would
tend to increase the unit cost of product sold during this period.
While strip ratios are expected to remain relatively constant over
the next few years, haul distances will increase as overburden from
new pits is placed on existing spoils, or on new spoils that are
constructed in conjunction with the new pits. Also, coal yields can
vary as the characteristics of the coal seams change.
Transportation Costs Elk Valley Coal expects rail service levels to
be sufficient to move its planned production volumes in 2006.
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 $39 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 $50
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 $ 0.04 Price of coal
US$1.00/tonne $ 0.05 Elk Valley Coal's sales 1,000,000 tonnes $
0.19 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 will join Elk Valley Coal as
President and Chief Executive Officer in the third quarter. Mr.
Payne was most recently the Vice President, Marketing for the BHP
Billiton Mitsubishi Alliance. 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 June 30 and
July 18, 2006. Approximately 55,500 options were outstanding under
the exchange option plan on the same dates. Change in Accounting
Policy --------------------------- 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. 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", "m ay", 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 NYCO; 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 and NYCO 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; 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; settlement of current
collective bargaining disputes on terms acceptable to management
and 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 Six months ended (millions of
Canadian June 30 June 30 dollars, except per ----------------------
---------------------- unit amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
Revenues $ 472.5 $ 468.9 $ 957.8 $ 763.8 Expenses Cost of product
sold 142.7 124.1 270.2 228.3 Transportation 131.8 146.2 251.5 250.2
Selling, general and administration 11.2 7.8 19.8 14.0 Depreciation
and depletion 13.4 11.1 25.5 24.0 ----------------------
---------------------- 299.1 289.2 567.0 516.5
---------------------- ---------------------- Income from
operations 173.4 179.7 390.8 247.3 Other income (expense) Interest
expense (4.7) (2.7) (8.5) (5.4) Gain on corporate reorganization -
- - 9.5 Other items, net (note 4) 3.4 (3.5) (26.7) (4.2)
---------------------- ---------------------- Income before taxes
172.1 173.5 355.6 247.2 Income tax expense (note 5) 31.9 50.2 50.1
58.6 ---------------------- ---------------------- Net income $
140.2 $ 123.3 $ 305.5 $ 188.6 ----------------------
---------------------- ----------------------
---------------------- Average number of units outstanding
(millions) (note 10) 147.0 147.0 147.0 147.0 Basic and diluted
earnings per unit (note 10) $ 0.95 $ 0.84 $ 2.08 $ 1.28
CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS (unaudited) Three
months ended Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Balance - beginning of period $ 1,340.1 $ 405.9 $ 1,174.8 $ 340.6
Net income 140.2 123.3 305.5 188.6 ----------------------
---------------------- Balance - end of period $ 1,480.3 $ 529.2 $
1,480.3 $ 529.2 ---------------------- ----------------------
---------------------- ---------------------- The accompanying
notes to the unaudited consolidated financial statements are an
integral part of these statements. CONSOLIDATED STATEMENTS OF CASH
FLOWS (unaudited) Three months ended Six months ended June 30 June
30 (millions of Canadian ----------------------
---------------------- dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities Net income $ 140.2 $ 123.3 $ 305.5 $ 188.6
Items not using (providing) cash: Depreciation and depletion 13.4
11.1 25.5 24.0 Change in accounting policy - - 31.7 - Reduction of
interest in EVCP - - (9.5) Provision for asset retirement
obligations, net 0.8 0.6 1.6 1.6 Future income taxes 10.9 38.4 10.6
43.0 Unrealized foreign exchange (gain)/loss on long-term debt
(8.9) 2.7 (8.6) 2.0 (Gain)/loss on disposal of assets (0.4) 0.1
(0.8) 0.1 Non-controlling interest 1.6 - 3.6 - Other items, net
(2.1) 0.2 (8.7) 1.0 ---------------------- ----------------------
155.5 176.4 360.4 250.8 Increase (decrease) in non-cash working
capital 30.4 (109.2) 19.9 (123.3) ----------------------
---------------------- Cash from operating activities 185.9 67.2
380.3 127.5 ---------------------- ---------------------- Investing
activities Additions to capital assets (6.8) (36.9) (13.2) (66.0)
Proceeds on disposal of capital assets 1.0 0.6 1.2 0.7 Other
investing activities, net (1.6) 0.6 0.3 - ----------------------
---------------------- Cash used in investing activities (7.4)
(35.7) (11.7) (65.3) ---------------------- ----------------------
Financing activities Distributions paid (205.8) (63.7) (441.0)
(127.4) Increase (decrease) in long-term debt 7.1 (20.2) 134.3
(0.3) Issuance of units, net - - 0.3 0.1 Other financing
activities, net (0.3) 3.4 (2.4) 1.9 ----------------------
---------------------- Cash used in financing activities (199.0)
(80.5) (308.8) (125.7) ----------------------
---------------------- Increase (decrease) in cash and equivalents
(20.5) (49.0) 59.8 (63.5) Cash and cash equivalents - beginning of
period 180.4 50.0 100.1 64.5 ----------------------
---------------------- Cash and cash equivalents - end of period $
159.9 1.0 $ 159.9 $ 1.0 ----------------------
---------------------- ----------------------
---------------------- The accompanying notes to the unaudited
consolidated financial statements are an integral part of these
statements. CONSOLIDATED BALANCE SHEETS (unaudited) June 30
December (millions of Canadian dollars) 2006 31 2005
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 159.9 $ 100.1
Accounts receivable 109.8 153.3 Inventory 170.9 188.0 Prepaid
expenses 8.0 3.5 ---------------------- 448.6 444.9 Capital assets
672.4 695.2 Goodwill 21.6 21.6 Other assets 27.1 20.9
---------------------- $ 1,169.7 $ 1,182.6 ----------------------
---------------------- Liabilities Current liabilities Accounts
payable and accrued liabilities $ 111.4 $ 116.2 Income taxes
payable 36.8 36.2 Distributions payable 147.0 235.2 Current portion
of long-term debt 1.7 1.8 ---------------------- 296.9 389.4
Long-term debt (note 7) 340.1 215.2 Other long-term liabilities
(note 8) 97.8 103.1 Future income taxes (note 5) 70.5 60.2
Commitments and contingencies (note 9) - - ----------------------
805.3 767.9 ---------------------- Unitholders' equity (note 10)
Trust units 359.7 359.4 Accumulated earnings 1,480.3 1,174.8
Accumulated cash distributions (1,477.2) (1,124.4) Foreign currency
translation adjustments 1.6 4.9 ---------------------- 364.4 414.7
---------------------- $ 1,169.7 $ 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)
July 18, 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 POLICY 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. 4. OTHER ITEMS, NET Three months ended Six
months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Interest and investment income $ 0.4 $ (0.2) $ 0.8 $ (0.5) Foreign
exchange gains (losses) 4.4 (2.7) 8.7 (1.3) Non-controlling
interest (1.6) - (3.6) - Change in accounting policy (note 3) - -
(31.7) - Other 0.2 (0.6) (0.9) (2.4) ----------------------
---------------------- $ 3.4 $ (3.5) $ (26.7) $ (4.2)
---------------------- ----------------------
---------------------- ---------------------- 5. INCOME TAXES
Income tax expense is made up of the following components: Three
months ended Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Current income tax expense: Canadian corporate income taxes $ - $
0.4 $ - $ 0.8 Provincial mineral taxes and Crown royalties 20.0
11.3 38.5 14.6 Foreign income taxes 0.9 0.1 1.0 0.2
---------------------- ---------------------- 20.9 11.8 39.5 15.6
Future income tax expense (reversal): Provincial mineral taxes and
Crown royalties 11.2 2.0 10.8 3.5 Canadian corporate income taxes -
36.4 - 39.5 Foreign income tax (0.2) - (0.2) -
---------------------- ---------------------- 11.0 38.4 10.6 43.0
---------------------- ---------------------- Total income tax
expense $ 31.9 $ 50.2 $ 50.1 $ 58.6 ----------------------
---------------------- ----------------------
---------------------- Future income taxes consist of the
following: June 30 December (millions of Canadian dollars) 2006 31
2005
-------------------------------------------------------------------------
Provincial mineral taxes and Crown royalties $ 64.1 $ 53.3 Foreign
income taxes and other 6.4 6.9 ---------------------- $ 70.5 $ 60.2
---------------------- ---------------------- 6. CASH AVAILABLE FOR
DISTRIBUTION Cash available for distribution is the term used by
the Trust 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 the
distribution policy of the Trust. Although the Trust uses cash
available for distribution (referred to as "Distributable Cash" in
the Declaration of Trust) it is not a term recognized by generally
accepted accounting principles in Canada and it is not a term that
has a standardized meaning. Accordingly, cash available for
distribution when used in this document and other Trust
disclosures, may not be comparable to similarly named measures
presented by other trusts. 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 of the Trust. 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, 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 Six months ended June 30 June 30 (millions of
Canadian ---------------------- ---------------------- dollars)
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash from operating activities $ 185.9 $ 67.2 $ 380.3 $ 127.5 Add
(deduct): Increase in non-cash working capital (30.4) 109.2 (19.9)
123.3 Sustaining capital expenditures (5.8) (14.7) (10.0) (20.1)
Capital lease payments $ (0.4) (0.4) $ (0.8) (1.1) Other (2.0)
(10.1) (0.8) (8.6) Cash reserve - - - - ----------------------
---------------------- Cash available for distribution and
distributable cash $ 147.3 $ 151.2 $ 348.8 $ 221.0
---------------------- ----------------------
---------------------- ---------------------- Distributions
declared $ 147.0 $ 137.2 $ 352.8 $ 200.9 ----------------------
---------------------- ----------------------
---------------------- 7. LONG-TERM DEBT, BANKING FACILITIES AND
FINANCIAL INSTRUMENTS June 30 December (millions of Canadian
dollars) 2006 31 2005
-------------------------------------------------------------------------
Long-term debt Five-year bank credit facilities: US$260.0 million
in LIBOR rate loans with interest rates varying from 5.7% to 5.9% $
289.9 $ 194.7 Banker's Acceptances with interest rates varying from
5.0% to 5.1% 30.0 - Prime rate loan bearing interest at 6.0% 16.2
15.6 Other debt Equipment financing due 2009 bearing interest at
5.1% 3.2 3.9 Capital lease obligations expiring in 2010 with
interest rates varying from 5.3% to 5.5% 2.5 2.8
---------------------- 341.8 217.0 Less current portion (1.7) (1.8)
---------------------- $ 340.1 $ 215.2 ----------------------
---------------------- The Trust and Elk Valley Coal together have
a Canadian $600 million five-year revolving bank credit facility
with a syndicate of banks. The banks have committed $400 million to
the Trust and $200 million to Elk Valley Coal. At June 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 $50.3
million. The Trust's share of unused bank facilities at June 30,
2006 was $133.6 million. 8. OTHER LONG-TERM LIABILITIES June 30
December (millions of Canadian dollars) 2006 31 2005
-------------------------------------------------------------------------
Asset retirement obligations $ 66.4 $ 70.6 Pension and other
post-retirement benefits 23.5 23.1 Non-controlling interest 7.9 7.8
Other, net - 1.6 ---------------------- $ 97.8 $ 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 second quarter of 2006 was $4.1 million and $6.8
million year-to-date (2005 - $2.7 million and $5.2 million
respectively). Non-controlling interest In 2005, two steel
companies each acquired a 2.5% equity interest in the Elkview
operation. The combined 5% equity interest is reflected in the
consolidated financial statements as a non-controlling interest. 9.
COMMITMENTS AND CONTINGENCIES Foreign exchange forward contracts To
help manage exposure to currency fluctuations, foreign exchange
forward contracts are used to fix the rate at which certain future
anticipated flows of US dollars are exchanged into Canadian
dollars. The foreign exchange hedging activities of the Trust take
into account the existing foreign exchange forward contracts of
Fording LP and Elk Valley Coal. The following table summarizes the
Trust's outstanding hedged positions at June 30, 2006. Amount
Hedged (millions of US$) ---------------------------------- Average
Exchange Rates (US$1 (CDN$1 Elk Valley (equal (equal Fording Coal
Trust's sign) sign) Year LP 60% Total CDN$) U.S.$)
-------------------------------------------------------------------------
2006 594 23 617 1.14 0.87 2007 236 - 236 1.15 0.87
---------------------------------- $ 830 $ 23 $ 853
----------------------------------
---------------------------------- At June 30, 2006, the Trust's
portion of unrealized gains on foreign exchange forward contracts
was $30.5 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 second quarter of 2006 was
$11.2 million and $50.4 year-to-date (2005 - $9.8 million and $38.2
million respectively). Neptune Terminals guarantee By virtue of its
ownership interest in Neptune Terminals, Elk Valley Coal is
obligated to Neptune for a proportionate share of its bank
indebtedness and asset retirement obligations of the terminal. The
Trust's share of these obligations was $14.1 million at the end of
the second quarter of 2006. 10. UNITHOLDERS' EQUITY Units issued
and outstanding Three months ended Six months ended June 30,2006
June 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, June 30, 2006 $ 5,182.7 ---------- ---------- At June 30,
2006, there were approximately 55,500 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
$3.75 per unit and the remaining weighted average contractual life
is 2.6 years. Accumulated distributions to unitholders Three months
ended Six months ended June 30 June 30 (millions of Canadian
---------------------- ---------------------- dollars) 2006 2005
2006 2005
-------------------------------------------------------------------------
Opening accumulated cash distributions $ 1,330.2 $ 487.4 $ 1,124.4
$ 423.8 Distributions declared and payable (note 6) 147.0 137.2
352.8 200.8 ---------------------- ---------------------- Closing
accumulated cash distributions $ 1,477.2 $ 624.6 $ 1,477.2 $ 624.6
---------------------- ----------------------
---------------------- ---------------------- 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 Six months ended June 30 June
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 ---------------------- ----------------------
---------------------- ---------------------- 12. SEGMENT
INFORMATION Three months ended Six months ended June 30 June 30
(millions of Canadian ---------------------- ----------------------
dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
Elk Valley Coal Revenues $ 459.8 $ 456.9 $ 933.2 $ 740.8 Cost of
product sold (135.4) (116.3) (255.3) (212.8) Transportation (129.5)
(144.4) (247.0) (246.6) Selling, general and administration (8.0)
(3.9) (13.4) (7.0) Depreciation and depletion (12.4) (9.9) (23.5)
(21.4) ---------------------- ---------------------- Income from
operations 174.5 182.4 394.0 253.0 Interest expense (0.8) (0.3)
(1.4) (0.4) Other income (5.2) (0.5) (37.7) (0.1) Income tax
reversal (expense) (31.2) (50.2) (49.3) (58.4)
---------------------- ---------------------- Income 137.3 131.4
305.6 194.1 ---------------------- ---------------------- NYCO
Revenues 12.7 12.0 24.6 23.0 Cost of product sold (7.3) (7.8)
(14.9) (15.5) Transportation (2.3) (1.8) (4.5) (3.6) Selling,
general and administration (1.1) (1.1) (2.1) (2.1) Depreciation and
depletion (0.9) (1.1) (1.8) (2.2) ----------------------
---------------------- Income (loss) from operations 1.1 0.2 1.3
(0.4) Other income (expense) - (0.1) - (0.1) Income tax reversal
(expense) (0.7) - (0.8) (0.2) ----------------------
---------------------- Income (loss) 0.4 0.1 0.5 (0.7)
---------------------- ---------------------- Corporate Selling,
general and administration (2.1) (2.8) (4.3) (4.9) Depreciation and
depletion (0.1) (0.1) (0.2) (0.4) ----------------------
---------------------- Loss from operations (2.2) (2.9) (4.5) (5.3)
Interest expense (3.9) (2.4) (7.1) (5.0) Other income (expense) 8.6
(2.9) 11.0 (4.0) Reduction of interest in EVCP - - - 9.5
---------------------- ---------------------- Income (loss) 2.5
(8.2) (0.6) (4.8) ---------------------- ----------------------
Consolidated Revenues 472.5 468.9 957.8 763.8 Cost of product sold
(142.7) (124.1) (270.2) (228.3) Transportation (131.8) (146.2)
(251.5) (250.2) Selling, general and administration (11.2) (7.8)
(19.8) (14.0) Depreciation and depletion (13.4) (11.1) (25.5)
(24.0) ---------------------- ---------------------- Income from
operations 173.4 179.7 390.8 247.3 Interest expense (4.7) (2.7)
(8.5) (5.4) Other income 3.4 (3.5) (26.7) (4.2) Reduction of
interest in EVCP - - - 9.5 Net income tax reversal (expense) (31.9)
(50.2) (50.1) (58.6) ---------------------- ----------------------
Net income $ 140.2 $ 123.3 $ 305.5 $ 188.6 ----------------------
---------------------- ----------------------
---------------------- 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