2012 First Quarter Report - Prince Rupert, BC, Canada · 2012 First Quarter Report (Unaudited) ......

MARCH 31, 2012

UNAUDITED

RIDLEY

TERMINALS

INC. 2012 FIRST QUARTER REPORT

RIDLEY TERMINALS INC. 2012 First Quarter Report (Unaudited) For the three months ended March 31, 2012

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Table of Contents NARRATIVE DISCUSSION ....................................................................................................... 2

Company Profile ..................................................................................................................... 2

Overview ................................................................................................................................ 3

Risks to Operations ................................................................................................................ 4

Update on Terminal Expansion ............................................................................................... 4

Outlook ................................................................................................................................... 4

GOVERNANCE ......................................................................................................................... 5

GLOSSARY OF TERMS ............................................................................................................ 6

FINANCIAL STATEMENTS ....................................................................................................... 7

Statement of Management Responsibility ............................................................................... 7

Statement of Financial Position .............................................................................................. 8

Statement of Comprehensive Income ..................................................................................... 9

Statement of Changes in Equity ............................................................................................10

Statement of Cash Flows .......................................................................................................11

NOTES TO THE FINANCIAL STATEMENTS ...........................................................................12

1 – Governing Statutes and Nature of Operations .................................................................12

2 – Basis of Presentation .......................................................................................................12

3 – Significant Accounting Policies ........................................................................................13

4 – Cash and Cash Equivalents .............................................................................................13

5 – Accounts Receivable .......................................................................................................14

6 – Inventory ..........................................................................................................................14

7 – Prepaid Expenses ...........................................................................................................14

8 – Property, Plant and Equipment ........................................................................................15

9 – Pension Benefits ..............................................................................................................16

10 – Long Term Debt .............................................................................................................16

11 – Asset Retirement Obligation ..........................................................................................17

12 – Capital Stock & Contributions ........................................................................................17

13 – Commitments ................................................................................................................18

14 – Related Parties ..............................................................................................................19

15 – Financial Instrument Risk and Fair Value Disclosures ...................................................20

16 – Contingencies ................................................................................................................21

17 – Capital Management ......................................................................................................22

Forwarding Looking Statements ................................................................................................23


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For the purposes of this report, RTI and the Company refer to Ridley Terminals Inc. Quarter refers to the three months ended March 31, 2012.

NARRATIVE DISCUSSION The following is Management’s discussion of the unaudited financial and operating results for the three months ending March 31, 2012. Comparative analysis and discussion is also provided for the quarter. This section should be read in conjunction with the unaudited financial statements and the accompanying note disclosure, provided within this report. For further information and details on Ridley Terminals Inc., please refer to the Company’s webpage (www.rti.ca).

Company Profile RTI is a Federal Crown Corporation established in 1983 and is named in Schedule III (Part 1) of the Financial Administration Act. The Minister responsible for RTI is the Minister of Transport, Infrastructures and Communities. The Terminal itself is located in Prince Rupert, British Columbia. RTI historically serviced coal mines and refineries in northern British Columbia, Alberta and Saskatchewan. In 2010, the Company entered into a service agreement to receive product from the Southeast region of British Columbia and in early 2011 further agreements were executed to receive coal from the United States. RTI’s customers produce high quality coals used in steelmaking, coal used for power generation and petroleum coke, a byproduct produced in the refining process of crude oil. The Terminal operates on lands leased from the Prince Rupert Port Authority with the current lease term expiring on March 31, 2039. RTI holds a renewal option for a further 20 year period. RTI’s vision is to provide value to the Crown while expanding on its role as a leading trade gateway between North American and world markets. Its mission is to provide customers with premium, on-time services, while maintaining a safe and rewarding work environment.


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Overview Further detail can be found in the unaudited financial statements and related note disclosures.

For the three months ended: March 31 March 31

2012 2011

(in thousands CDN $) $ $

Total revenue 19,740 17,265

Total operating expenses 11,760 9,530

*Net operating income 7,980 7,735

*Excludes non-operating items

FIGURE 1: RTI's unaudited financial performance

Total revenue rose to $ 19,740,000 for the first quarter of 2012 for an increase of $ 2,475,000 or 14.3% when compared to the first quarter of 2011. Total revenue is comprised of throughput revenue, berthage & lines, storage fees and despatch revenue. The primary component is throughput revenue and is based on a per tonne service fee related to the unloading of rail cars and the loading of vessels. The tertiary components of berthage & lines and despatch revenue are comprised of fees earned for the handling of ships at RTI’s berth. Throughput volumes (rail & vessel) increased by 6.4% during quarter one 2012 versus quarter one 2011. Separately, 2012 quarter one tonnage received by rail was 2,765,000 tonnes for an increase of 599,000 tonnes from quarter one 2011, while vessel handling volumes reached 1,946,000 tonnes during quarter one 2012 for a decrease of 316,000 tonnes from the same period in 2011. To end 2011, RTI modified its railing unloading facility by replacing both rotary barrels in order to improve rail car unloading efficiency and capacity. The downtime incurred to make this improvement prevented RTI from unloading rail cars. During this period, RTI kept loading vessels and thus inventory of customer products was significantly depleted, which impacted quarter one 2012 vessel shipments. Operating expenses amounted to $ 11,760,000 in 2012 for an increase of $ 2,230,000 or 23.4% when compared to the first quarter of 2011. The main contributing factor for the increase in operating expenses is related to the rapid increase in manpower at the Terminal of 26% or 27 additional positions filled for the period ending March 31st, 2012, compared to the period ending March 31st, 2011. The increase in headcount is primarily in preparation to serve significantly higher volumes RTI is contracted to handle in 2013 and beyond. Total headcount at RTI reached 130 at the end of quarter one 2012. Also of note for the period was a major equipment repair to one of the two quadrant slewing ship loaders at RTI’s berth. Net operating income in the first quarter of 2012 totaled $ 7,980,000 for an increase of $ 245,000 or 3.2% over the first quarter of 2011.


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Risks to Operations Mitigating the external and internal risks of operating a marine bulk terminal is a top priority of RTI. The external and internal factors are mitigated through strong stewardship and governance of the organization, which includes execution of viable commercial agreements, open lines of communications with customers and service providers, maintaining and upgrading terminal assets, providing a positive and safe working environment for our employees and continued support for the surrounding communities. There are no material risks or issues to report.

Update on Terminal Expansion RTI’s major expansion and upgrade to its terminal facility has entered year two of a four year $200 million plan to more than double its effective capacity. By the end of 2014 RTI’s terminal throughput capacity will reach 25 Million tonnes per annum, with incremental growth in capacity as specific milestones are obtained. In the first quarter of 2012, RTI realized its first increase in terminal capacity under the expansion and upgrade project with the completion of the modification to the terminal’s railcar unloading facility. Significant efficiencies were realized processing railcars, thus improving overall terminal capacity. During 2012 civil work will continue on the stockyard, which will provide for an additional 35 acres of functional stockyard capacity. Work related to the placement of a third Stacker / Reclaimer will continue during 2012 with commissioning planned for early 2013. In addition to a third Stacker / Reclaimer, an extensive redesign and retrofit of the terminal’s two existing Stacker / Reclaimers will commence in 2013 and will drastically increase the rate at which product can move through RTI’s facility. When combined with the addition of 35 acres to RTI’s stockyard in 2013 and the construction of a second railcar unloading facility in 2014, RTI’s customers will enjoy a world class level of efficiency and reliability in the supply of bulk materials handling.

Outlook Entering its 29th year of operations, the terminal has seen a tremendous surge in demand for services. With the execution of sound commercial contracts for current and future service in the recent past, the Company’s business outlook has never been as strong as it is today. As it currently stands, the terminal is nearing 100% commitment for all of its 2015 handling capacity, and thus RTI is executing additional expansion opportunities that will increase its capacity beyond 25 million tonnes per annum.


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GOVERNANCE The Articles of Incorporation state that RTI’s activities must be in compliance with the requirements of Part X of the Financial Administration Act (R.S.C. c. F-11). The by-laws provide for a Board of Directors consisting of from 3 to 7 members; and a minimum of 4 meetings of the Board of Directors each year. Stuart Douglas Boland (Bud) Smith was appointed as Chairman of Ridley Terminals Inc. Board of Directors in June 2009. The Board has maintained the appointment of an Audit Committee and has also created several new vehicles to strengthen overall governance and to ensure more effective oversight and accountability. These include Executive, Compensation, Capital Oversight and Pension committees of the Board. In 2008, RTI entered into a management services agreement with Edgewood Holdings, whose Managing Director is George W. Dorsey. Under the terms of the agreement, Edgewood will support the board in its management of the Company, providing services that include the customary functions of President, Chief Operations Officer, Business Development Officer, Risk Management Officer, and Chief Financial Officer. The choice of Edgewood team members and allocation of roles to provide these services is at the discretion of Edgewood. George Dorsey is a seasoned professional who has served in varied senior management roles. Mr. Dorsey has been handed the task of increasing the value of Canada’s investment in the Terminal, to support the local community, uphold a high standard of ethical behavior and provide a high quality of service. The Management team is responsible for the day to day activities at RTI, while working under the stewardship of the Board of RTI. Emphasis has continued to be placed on avoidance of all unsafe practices, support of various community events and charities has been expanded, and the Prince Rupert community has shown strong support for RTI’s growth and expansion.


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GLOSSARY OF TERMS Demurrage: The charterer of a ship is bound not to detain it, beyond the stipulated or usual time, to load or deliver cargo, or to sail. The extra time beyond the calculated lay days (being the days allowed to load and unload the cargo) are called the days of demurrage. The term is likewise applied to the payment for such delay. Despatch: Revenue earned when a vessel is loaded and/or discharged more rapidly than the allowed laytime. Despatch is the opposite of demurrage and generally amounts to half of the demurrage rate. Laytime: The time allowed for cargo unloading and/or discharging operations; laytime may be expressed as a certain number of days or number of tonnes of cargo loaded/unloaded per day. Metallurgical Coal: Bituminous coal from which the volatile constituents are driven off by baking in an oven at temperatures as high as 2,000 degrees Fahrenheit so that the fixed carbon and residual ash are fused together forming coke, which along with pulverized coal is consumed in making steel. Petroleum Coke: A carbonaceous solid derived from oil refinery cracking processes. Crude oil must be refined to produce gasoline and other products. A residue is left over from this process that can be further refined by coking it at high temperatures and under great pressure. The resulting product is pet coke, a hard substance that is similar to thermal coal. Stacker-Reclaimer: A large machine that has the capability of both stacking bulk materials into storage piles and recovering (reclaiming) the material, using a bucket wheel, from the storage piles. Stacker-Reclaimers are rated in tonnes per hour for capacity and travel on a rail between stockpiles in the stockyard. It can typically move in three directions – horizontally along the rail – vertically by luffing its boom and rotationally by slewing its boom. Thermal Coal: Coal used for steam/power generation or for space heating purposes, including all anthracite coals and bituminous coals not included under coking coal.


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Statement of Financial Position As At (In thousands of Canadian dollars)

March 31 December 31

2012 2011

$ $

ASSETS

Current assets

Cash and cash equivalents (Note 4) 121,846 127,587

Accounts receivable (Note 5) 8,047 6,088

Inventory (Note 6) 3,088 3,130

Recycled site materials 4,811 5,003

Prepaid expenses (Note 7) 4,231 3,506

142,023 145,314

Non-current assets

Property, plant and equipment (Note 8) 133,332 116,955

Pension benefit asset (Note 9) 664 554

133,996 117,509

276,019 262,823

LIABILITIES

Current liabilities

Accounts payable and other liabilities 7,922 11,671

Current portion of long-term debt (Note 10) 1,226 1,220

9,148 12,891

Non-current liabilities

Asset retirement obligation (Note 11) 6,789 6,738

Long-term debt (Note 10) 38,462 38,769

Deferred revenue (Note 13) 69,100 60,100

114,351 105,607

123,499 118,498

SHAREHOLDER'S EQUITY

Capital stock (Note 12) 136,042 136,042

Contributed surplus (Note 12) 64,000 64,000

Accumulated deficit (47,522) (55,717)

152,520 144,325

276,019 262,823

Commitments and Contingencies (Notes 13 and 16) The accompanying notes are an integral part of these financial statements.


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Statement of Comprehensive Income For the three months ended (In thousands of Canadian dollars)

March 31 March 31

2012 2011

$ $

REVENUES

Throughput revenue 19,268 16,729

Berthage, lines & despatch 466 535

Other revenue 6 1

19,740 17,265

EXPENSES

Salaries, wages and benefits 5,056 4,121

Amortization and restoration costs 1,526 121

Equipment operations and maintenance 1,357 750

Lease rental (Note 13) 1,265 1,736

Contract and professional services 1,039 1,239

Site utilities 523 719

Management services (Note 14) 331 220

Other expenses 663 624

11,760 9,530

NET OPERATING PROFIT 7,980 7,735

Non-operating items 215 144

NET PROFIT BEFORE OTHER COMPREHENSIVE INCOME 8,195 7,879

OTHER COMPREHENSIVE INCOME

Defined benefit plan actuarial losses (Note 9) - -

TOTAL COMPREHENSIVE INCOME 8,195 7,879

The accompanying notes are an integral part of these financial statements.


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Share Contributed

Capital Surplus Deficit Total

$ $ $ $

Balance at January 1, 2012 136,042 64,000 (55,717) 144,325

Total comprehensive income for the quarter

Profit for the quarter - - 8,195 8,195

Defined benefit plan actuarial losses - - - -

Total comprehensive income for the quarter - - 8,195 8,195

Balance at March 31, 2012 136,042 64,000 (47,522) 152,520

Share Contributed

Capital Surplus Deficit Total

$ $ $ $

Balance at January 1, 2011 136,042 64,000 (154,908) 45,134

Total comprehensive income for the quarter

Profit for the quarter - - 7,879 7,879

Defined benefit plan actuarial losses - - - -

Total comprehensive income for the quarter - - 7,879 7,879

Balance at March 31, 2011 136,042 64,000 (147,029) 53,013

Statement of Changes in Equity (In thousands of Canadian dollars) For the three months ended March 31, 2012 For the three months ended March 31, 2011 The accompanying notes are an integral part of these financial statements.


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Statement of Cash Flows For the three months ended (In thousands of Canadian dollars)

March 31 March 31

2012 2011

$ $

OPERATING ACTIVITIES

Cash receipts from customers (Note 13) 26,973 27,651

Interest received 288 39

Cash paid for salaries, wages and benefits (4,585) (4,377)

Pension contributions (Note 9) (411) (790)

Cash paid to suppliers (6,123) (4,638)

Cash paid for lease rental (923) (1,641)

Cash flows from operating activities 15,219 16,244

INVESTING ACTIVITIES

Cash paid to purchase property, plant and equipment (20,386) (1,207)

Cash flows used in investing activities (20,386) (1,207)

FINANCING ACTIVITIES

Isssuance of long-term debt, net of repayments (302) -

Financing costs paid (298) -

Cash flows from financing activities (600) -

Net increase (decrease) in cash and cash equivalents (5,767) 15,037

Cash and cash equivalents, beginning of the quarter 127,587 16,900

Effect of exchange rate fluctuations on cash held 26 -

Cash and cash equivalents, end of the quarter (Note 4) 121,846 31,937

The accompanying notes are an integral part of these financial statements.


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NOTES TO THE FINANCIAL STATEMENTS (amounts in tables are in thousands of Canadian dollars)

1 – Governing Statutes and Nature of Operations Ridley Terminals Inc. (the Company), incorporated under the Canada Business Corporations Act on December 18, 1981, operates at bulk commodity facility on Ridley Island in Prince Rupert, British Columbia. The facility provides bulk commodity rail unloading, storage, and vessel loading services to a variety of North American coal producers. On June 11, 1998, the Canada Marine Act received Royal Assent. This Act came into force on November 1, 2000, at which time the Canada Ports Corporation Act was repealed and the Canada Ports Corporation was dissolved. Under the Canada Marine Act, the Company became a parent Crown corporation named in Part I of Schedule III of the Financial Administration Act. The Company is a federal Crown corporation exempt from income tax. The Company is domiciled in Canada. The address of the Company’s principal place of business is 2110 Ridley Road, Prince Rupert, British Columbia V8J 4H3.

2 – Basis of Presentation Statement of Compliance The quarterly financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), with reference to IAS 34: Interim Financial Reporting. The quarterly financial statements do not include all of the information required for full annual financial statements. The financial statements were authorized for issue by the Board of Directors on April 26, 2012. Basis of Measurement The quarterly financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

Cash and cash equivalents are measured at fair value through profit or loss

The pension benefit asset is measured as the net total of the plan assets, plus unrecognized past service cost and unrecognized actuarial losses, less unrecognized actuarial gains to the present value of the defined benefit obligation

Recycled site material assets are measured at net recoverable value with unrealized remeasurement gains or losses recognized in net gain on recycled site material.

Basis of Measurement These financial statements are presented in Canadian dollars, which is the Company’s functional currency. All tabular financial information presented in Canadian dollars has been rounded to the nearest thousand.


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Use of Estimates and Judgments The preparation of the quarterly financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the quarter in which the estimates are revised and in any future quarters affected. Information about assumptions and estimation uncertainties that have a significant risk of resulting in material adjustment within the next financial year are included in the following notes: Note 8 – Property, Plant and Equipment Note 9 – Pension Benefits Information about critical judgments in applying accounting policies that have a significant effect on the amounts recognized in the financial statements is included in the following notes: Note 8 – Property, Plant and Equipment

3 – Significant Accounting Policies The accounting policies applied to this quarterly report are detailed in the most recent annual report and have been applied consistently to all periods presented in these financial statements.

4 – Cash and Cash Equivalents Cash and cash equivalents as at:


2012 2011

(in thousands $) $ $

Cash 119,346 125,087

Investments 2,500 2,500

121,846 127,587


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5 – Accounts Receivable Accounts receivable as at:


2012 2011


Trade 7,485 4,368

Other 562 1,720

8,047 6,088

6 – Inventory The amount expensed as a result of write-downs of inventory to net realizable value during the quarter was $ 44,000 (2011: $ - ). The amount of inventory expensed during the quarter to meet operational requirements was $ 558,000 (2011: $ 339,000 ). The Company has not pledged any inventory as security for liabilities.

7 – Prepaid Expenses Prepaid expenses as at:


2012 2011


Freight 2,735 2,913

Insurance 156 132

Other 1,340 461

4,231 3,506


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8 – Property, Plant and Equipment

Wood Machinery Office

Terminal Sulphur Pellet and Furniture and

Facility Terminal Terminal Equipment Equipment Total

(in thousands $) $ $ $ $ $ $

Cost

Balance at December 31, 2011 280,559 4,155 1,388 6,708 1,916 294,726

Additions 16,326 - - 1,556 21 17,903

Disposals - - - - - -

Balance at March 31, 2012 296,885 4,155 1,388 8,264 1,937 312,629

Depreciation and Impairment Losses

Balance at December 31, 2011 169,994 3,575 286 2,229 1,687 177,771

Depreciation for the quarter 1,350 - 19 131 26 1,526

Impairment loss - - - - - -

Reversal of impairment loss - - - - - -

Disposals - - - - - -

Balance at March 31, 2012 171,344 3,575 305 2,360 1,713 179,297

Carrying Amounts

At December 31, 2011 110,565 580 1,102 4,479 229 116,955

At March 31, 2012 125,541 580 1,083 5,904 224 133,332

Security At March 31, 2012, properties with a carrying amount of $ 44,326,000 (2011: $ - ) are pledged as security under the credit facility arrangement related to the Company’s long-term debt (Note 10). Property, Plant and Equipment under Construction During the quarter ended March 31, 2012, the Company recognized $ 2,608,382 (2011: $ 138,000 ) of expenditures in the carrying amount of items of property, plant and equipment in the course of construction. Estimates Estimates of the useful lives and salvage values of the Company’s terminal facility assets are subject to uncertainty at the end of the reporting period as a result of the land lease extension to 2039 (Note 13), significant additions to property, plant and equipment designed to upgrade and expand the terminal facility, and the removal and write-down of a terminal facility asset to salvage value below its previously estimated salvage value. If the useful life of all terminal facility assets was extended to 2039 and their salvage values were assumed to be zero, amortization expense for the quarter would have decreased from $ 1,450,000 to $ 875,000 , and


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property, plant and equipment would have increased by $ 710,000 at March 31, 2012. As upgrades of terminal facility assets are completed, and as items under construction are put into use, the Company will estimate their useful lives and salvage values and amortize them in accordance with the policies outlined in Note 3 of the most recent annual financial statements. Due to the uncertainty surrounding the amount of additions and the time when upgrades will be completed and constructed assets will be put into use, it is not possible to quantify the impact that resolving the uncertainty related to the useful lives and salvage values will have on property, plant and equipment net book value at March 31, 2012. Judgments Judgment has been applied in determining the value in use of the terminal facility, machinery and equipment, and office furniture and equipment for the purpose of calculating the reversal of impairment losses in the quarter. The Company has concluded its property, plant and equipment is grouped into three cash-generating units (CGUs). Those CGUs are: the sulphur terminal; the wood pellet terminal; and the terminal facility, machinery and equipment, and office furniture and equipment. Substantially all of the Company’s projected future cash flows were attributed to the terminal facility, machinery and equipment, and office furniture and equipment for the purposes of determining their value in use.

9 – Pension Benefits The Company sponsors a registered pension plan for all employees; the registered pension plan has both a defined benefit component and a defined contribution component. The Company initiated the defined contribution pension plan in 2011 for new hires with a start date of employment after January 31, 2011. Employees hired prior to January 31, 2011 remain in the defined benefit pension plan. The defined benefit pension plan is funded by contributions from the Company and from plan members. Pension benefits are based on the length of service and final average earnings and are indexed at 3% per year after retirement.

10 – Long Term Debt On August 15, 2011, the Company entered into a $40,000,000 three year revolving credit facility arrangement and withdrew $7,000,000 on September 29, 2011, and $33,000,000 on December 22, 2011. These advances must be paid in full by August 15, 2014; however, prior to that date, the Company may fix the term of any outstanding advance to a term not exceeding August 15, 2021. The required monthly payments on revolving term advances are flexible, and the Company is making monthly blended payments of principal and interest on all amounts borrowed. As at March 31, 2012, estimated principal repayments on advances under the credit facility arrangement are as follows:


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(in thousands $) $

912

1,254

1,292

1,331

1,369

Subsequent years 33,530

Total 39,688

2013

2012

2014

2015

2016

11 – Asset Retirement Obligation Movements in the asset retirement obligation balance during the quarter were as follows:


2012 2011


Balance, beginning of Opening Deficit: 6,738 2,573

Additions 0 4,088

Accretion expense 51 77

Balance, end of Opening Deficit: 6,789 6,738

Under the terms of the Company’s land lease with the Prince Rupert Port Authority (Note 13), the Company is required to return the land to the condition the land was in at the commencement of the lease. This obligation includes alleviating any environmental damage to the land and the cost of removing certain of the Company’s terminal assets from the land. 12 – Capital Stock & Contributions Authorized: 2,000,000 common shares without par value 1,960,000 class “A”, 18% non-cumulative redeemable preference shares, with a stated value of $25.55 per share 217,052 class “B”, 20% non-cumulative redeemable preference shares, with a stated value of $230.00 per share


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Capital stock as at:


2012 2011


Issued and fully paid

2,000 common shares 90,001 90,001

900,997 class 'A' shares 23,021 23,021

100,089 class 'B' shares 23,020 23,020

136,042 136,042

In February 2004, the Company entered into a contribution agreement with the Government of Canada. This agreement provided the funds necessary to pay out the Company’s debt obligation of $64 million. These funds have been recorded as contributed surplus in the shareholder’s equity section of the statement of financial position.

13 – Commitments The Company leases land from the Prince Rupert Port Authority (PRPA) for its terminal facility. The original twenty-five year lease expired on March 31, 2009. The Company and the PRPA entered into a further thirty year term effective April 1, 2009 with an option to renew the lease for an additional twenty years to 2059. On April 1, 2011, the Company exercised the expansion option contained within the lease agreement that provides additional land for the terminal to expand its operating capacity. Under the lease agreement with the PRPA, effective April 1, 2011, the Company is required to make minimum annual rent payments of $5,200,000 based on a stated minimum 8,000,000 tonnes of material processed at a rate of 65 cents per tonne. On January 1, 2014, the stated minimum tonnes processed will increase to 12,000,000, with previous per tonne rate minimums remaining in effect, resulting in an increase in minimum annual rent to $9,200,000. In the event that tonnes processed by the Company in a year are less than the stated minimum, the excess portion of the minimum rent may be carried forward for not more than four years. The Company agrees to pay a minimum rent fee as follows:

(in thousands $) $

3,900

5,200

5,200

9,200

9,200

Subsequent years 211,600

Total 244,300

2016

2012

2013

2014

2015


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Property, Plant & Equipment At March 31, 2012, the Company had entered into agreements to acquire and develop property, plant & equipment in the total amount of $ 25,607,272 (2011: $ - ). Future Site Capacity Reservations The Company has signed contracts with various customers and has received a total of $ 69,100,000 (December 31, 2011: $ 60,100,000 ) in deposits which obligate the Company to develop and reserve future site capacity for the processing and loading of material on behalf of those customers.

14 – Related Parties Government of Canada The Company is related to all Government of Canada departments, agencies and Crown corporations. The lease agreement with the Prince Rupert Port Authority (Note 13) is a related party transaction. Management Consultant Services Agreement Edgewood Holdings LLC provides Ridley Terminals Inc. with management consultant services. As management consultants Edgewood has been tasked with providing managerial oversight with the goals of increasing efficiencies and profitability, attracting new customers, and improving agreements with existing customers. For the quarter ended March 31, 2012, Edgewood Holdings LLC earned a management consulting fee of $ 200,000 (2011: $ 200,000 ) and bonuses totaling $ 100,000 (2011: $ - ). Directors Each of the Company’s directors is appointed to office by the Governor in Council. Each appointment contains an Order in Council for authority to pay, which establishes an annual retainer and per diem rate. Total compensation received by the Company’s directors for the quarter ended March 31, 2012 was $ 28,000 (2011: $ 23,000 ). Legal Fees The Company engaged the legal services of McMillan LLP during the quarter ended March 31, 2012. A partner of McMillan LLP is the Corporate Secretary for the Company. For the quarter ended March 31, 2012, the Company paid McMillan LLP $ 98,000 (2011: $ 188,000 ) for legal and corporate secretary services. Agent Fees Traxys LLC, a related party to Edgewood Holdings LLC by virtue of a common directorship, was involved in the sales of recycled site material. For the quarter ended March 31, 2012, the Company paid Traxys LLC $ - (2011: $ 67,000 ) for commissions related to the sale of recycled


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site material.

15 – Financial Instrument Risk and Fair Value Disclosures At March 31, 2012, the Company is exposed to various risks associated with its financial instruments, which include market risk, liquidity risk and credit risk. Market Risk The Company is exposed to market risks resulting from fluctuations in commodity prices, foreign exchange rates and interest rates in the normal course of its business operations. The Company’s objectives, policies, and processes for managing and measuring market risk are as follows: The market price of customer commodities has an indirect impact on the timing and quantity of terminal throughput. As a result, fluctuations in commodity prices are regularly monitored by management using forecast models that estimate future movements in commodity prices. Where practicable, the revision of short and long-term operational strategies can occur to mitigate this risk. Risk mitigation tactics include the signing of long-term customer contracts that contain minimum throughput volume guarantees to insulate the Company from declines in throughput volumes that may result if commodity prices fall unexpectedly. A sensitivity analysis for this variable is not possible due to the complexity of the correlation between commodity prices and customer operations. Foreign exchange rates have a direct impact on the value of payments received that are denominated in a foreign currency as well as the cost of payments to foreign suppliers. As a result, fluctuations in foreign exchange rates are regularly monitored by management via Bank of Canada rate publications and forecasts. Risk mitigation tactics include treasury management practices to ensure buffers for planned payments to suppliers allow for foreign exchange rate fluctuations. At quarter end, foreign cash, accounts receivable and accounts payable totaled $ 3,562,000 USD (December 31, 2011: $ 3,661,000 USD), $ 13,000 USD (December 31, 2011: $ 32,000 USD) and $ - USD (December 31, 2011: $ 5,101,000 USD) respectively. If the Canadian dollar was stronger or weaker compared to the United States dollar by 10% at quarter-end, comprehensive income would increase or decrease by $ 358,000 USD (December 31, 2011: $ 141,000 USD). Interest rate risk has a significant impact on the Company as a result of long-term debt with a variable interest rate (Note 10) and increases in cash and cash equivalents (Note 4). The fluctuation of interest rates affects the Company’s interest expense and income. As a result, fluctuations in interest rates are regularly monitored by management via Bank of Canada rate publications and forecasts. Risk mitigation tactics include the regular monitoring of alternative investment and debt instruments in the event that a change in the market interest rate provides more attractive alternatives. All other variables remaining constant, if interest rates at year-end were higher or lower by 0.25%, comprehensive income would increase or decrease by $ 93,000 (December 31, 2011: $ 94,000 ).


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Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. Management continually monitors its financial position to ensure that it has sufficient liquidity to discharge its obligations when due. At quarter-end, cash balances of $ 121,846,000 (December 31, 2011: $ 127,586,000 ) are available to discharge current liabilities of $ 9,149,000 (December 31, 2011: $ 12,891,000 ) and non-current liabilities of $ 114,351,000 (December 31, 2011: $ 105,607,000 ). Due to the amount of the Company’s cash balances relative to its current and long-term liabilities, liquidity risk was not a significant concern at any of the dates presented on the statement of financial position. Credit Risk Credit Risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. The Company is exposed to credit risk through its accounts receivable. The carrying amount of accounts receivable of $ 8,047,000 represents the maximum credit risk exposure as at March 31, 2012 (December 31, 2011: $ 6,088,000 ). The Company's exposure to credit risk is influenced by the profitability of coal mining companies, which is heavily impacted by the price of the coal. The Company monitors the financial health of its customers, regularly reviews its accounts receivable for impairment, considers the credit quality of its accounts receivable to be high, and does not have any collateral or security over receivables. As at March 31, 2012, there is no reserve in respect of doubtful accounts (December 31, 2011: $ - ). Fair Value Disclosures The fair values of cash and cash equivalents, accounts receivable, and accounts payable and other liabilities approximate their carrying values because of the short maturity of these financial instruments. The fair value of long-term debt is determined using a discounted cash flow analysis based on observable market based inputs for long-term debt with similar characteristics and risk profiles. The fair value of long-term debt at March 31, 2012 was $ 39,688,000 (December 31, 2011: $ 39,990,000 ).

16 – Contingencies The Company is subject to claims and lawsuits arising in the ordinary course of operations. While the outcome of these matters is subject to future resolution, management’s evaluation and analysis of such matters indicates that, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material impact on the Company’s financial position, results of operations or liquidity.


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17 – Capital Management The Company's capital is its equity, which comprises capital stock, contributed surplus and accumulated deficit (Note 12). The Company is subject to financial management and accountability provisions of the Financial Administration Act which imposes restrictions in relation to borrowings and acquisition of investments. During the quarters ended March 31, 2012 and 2011, the Company has complied with these restrictions. The Company manages its equity as a by-product of managing revenues, expenses, assets, and liabilities as required. In 2011, the Company has established a committee comprised of several of its Directors that is charged with the oversight of capital management. The Capital Oversight Committee monitors externally imposed capital requirements to adhere to budgetary constraints as outlined in the Company’s five year operating and capital plans. Submitted budgets have been approved by the Minister of Transportation and are monitored regularly.


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Forwarding Looking Statements Certain statements in this quarterly report are forward-looking statements and are not historical facts. Inherent in these forward-looking statements are risks and uncertainties beyond the control or the ability of the Company to predict. Readers are cautioned that future results may vary materially from any results stated or inferred by forward-looking statements contained herein.

2012 First Quarter Report - Prince Rupert, BC, Canada · 2012 First Quarter Report (Unaudited) ......

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