EXHIBIT 1.1
(LUSCAR ENERGY PARTNERSHIP LOGO)
(LUSCAR COAL LTD. LOGO)
REPORT FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2002
HIGHLIGHTS
o 2002 coal shipments were 36 million tonnes
o Luscar transfers metallurgical coal assets to Fording Coal Partnership
o Luscar to operate Fording thermal coal assets acquired by Sherritt and
Teachers'.
o Mine-mouth thermal coal operations continued strong stable results in
2002
o LEP cash balances increase to $74 million
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of financial results of LEP and LCL for
the quarter and year ended December 31, 2002 should be read in conjunction with
our consolidated financial statements and related notes contained in this
report, which have been prepared in accordance with Canadian generally accepted
accounting principles. The annual results in these financial statements have
been extracted from our audited financial statements, which will be filed on
Form 20-F with the United States Securities and Exchange Commission (SEC). The
quarterly information provided herein is unaudited. All amounts are in Canadian
dollars unless otherwise stated and sales volumes are in metric units.
LEP is a general partnership formed on February 20, 2001 between Sherritt
International Corporation ("Sherritt") and Ontario Teachers' Pension Plan Board
("Teachers'").
SALE OF METALLURGICAL COAL ASSETS
On February 19, 2003, Fording Inc. shareholders voted in favor of a plan of
arrangement under which Fording Inc. was converted into the Fording Canadian
Coal Trust ("Fording Trust"), which holds 65% of Fording Coal Partnership.
Effective February 28, 2003, LCL transferred its 50% interest in Line Creek mine
for 2.98 million Fording Trust units. At the same time, LEP made a distribution
to its partners of $22 million comprised of $15 million in cash and certain
metallurgical coal assets valued at $7 million, including all of LCL's interests
in the Luscar mine, the undeveloped Cheviot deposit and Neptune Bulk Terminals
(Canada) Ltd. Sherritt and Teachers' transferred these metallurgical coal assets
for 0.22 million Fording Trust units. LCL has retained certain reclamation and
pension obligations related to the metallurgical coal assets, which are subject
to determination by independent third parties. On an ongoing basis, Fording Coal
Partnership will own and operate the metallurgical coal assets previously held
by each of LCL, Consol Energy, Fording and Teck Cominco creating the world's
second largest exporter of high-quality metallurgical coal. Through our
ownership of Fording Trust units, we expect to benefit from the operational and
marketing synergy expected from the consolidation of these metallurgical coal
operations.
Concurrently, Sherritt and Teachers' acquired all of Fording's thermal coal
operations and assets, which include 50% of the Genesee mine, the Highvale
contract, certain royalty interests, and extensive holdings of undeveloped
thermal coal properties in western Canada. During 2002, the Genesee mine
supplied 3.6 million tonnes of thermal coal under its long-term contract with
the adjacent Genesee power station, where a third generating unit is currently
under construction. The Highvale contract, which Luscar and its predecessors
held from 1970 until 2002, has been expanded to include the nearby Whitewood
mine. During 2002, the combined operations at Highvale and Whitewood supplied
15.5 million tonnes of thermal coal to the Sundance, Keephills and Wabamun
generating stations. The acquired royalty interests relate primarily to mining
operations at Paintearth, Sheerness, Genesee, Highvale and Whitewood mines, all
of which are now operated by Luscar, along with royalty interests in certain
potash mining operations in Saskatchewan. Most of the thermal coal properties
are held in fee simple and include over 8 billion tonnes of coal reserves and
resources, most of which are located in Alberta, and lesser quantities of other
minerals and resources.
Currently, we operate and manage these thermal coal operations and assets on
behalf of Sherritt and Teachers', who acquired these assets from Fording.
Sherritt and Teachers' are currently considering whether these assets should be
held through LEP or Sherritt Coal Partnership II and will announce their
decision in the coming months.
As a result of the transfer of our metallurgical coal assets to Fording Coal
Partnership, substantially all of our continuing operations will consist of
thermal coal sales to domestic customers, principally to mine-mouth power
generators in western Canada. In 2002, 89% of our operating margin was derived
from our continuing operations. Accordingly, we will no longer provide separate
information on our export operations. Instead, we are providing separate
information for the metallurgical coal operations transferred to Fording Coal
Partnership and for our continuing thermal coal operations. This information,
which we are providing on a quarterly basis for both 2001 and 2002, will enable
readers to better understand our business going forward. Prior period
information has been restated to conform to this basis of presentation.
REVIEW OF LUSCAR ENERGY PARTNERSHIP RESULTS
LEP recorded net earnings of $21.6 million during the fourth quarter, including
a non-cash foreign currency translation gain of $2.4 million on LCL's US$275
million senior notes, which reflected a stronger Canadian dollar. LEP's net
earnings for the quarter were $38.1 million higher than the third quarter and
$18.1 million higher than the fourth quarter of last year. LEP's fourth quarter
results also reflected a $10.1 million legal settlement related to the coal
conveyor at Line Creek mine and reductions in provisions for future income
taxes.
LEP acquired control of Luscar Coal Income Fund (LCIF) and its subsidiary, LCL
on May 11, 2001. Since LEP had no operations prior to May 11, 2001, the
consolidated statements of earnings and cash flows for year ended December 31,
2002 include comparative figures only for the period from May 12 to December 31,
2001. To provide a meaningful review of this year's results, this interim report
includes financial information for LCL, which provides full comparative
information for 2001.
The following is a summary of LEP's operating margin and earnings before
interest, taxes, depreciation and amortization (EBITDA) on a quarterly basis
since LCL was acquired on May 11, 2001:
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
---------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2002 2002 2002 2002 2002
---------- ---------- ---------- ---------- ----------
(in thousands of Canadian dollars)
REVENUE ............................................... $ 151,713 $ 146,884 $ 159,804 $ 138,713 $ 597,114
Cost of sales ......................................... 112,451 118,484 129,104 108,977 469,016
---------- ---------- ---------- ---------- ----------
OPERATING MARGIN ...................................... 39,262 28,400 30,700 29,736 128,098
Selling, general and administrative expenses .......... 4,115 3,406 2,977 4,011 14,509
Other income .......................................... (2,239) (675) (436) (6,426) (9,776)
---------- ---------- ---------- ---------- ----------
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ........................................ $ 37,386 $ 25,669 $ 28,159 $ 32,151 $ 123,365
========== ========== ========== ========== ==========
NET EARNINGS (LOSS) ................................... $ 11,780 $ 15,466 $ (16,596) $ 21,550 $ 32,200
========== ========== ========== ========== ==========
</Table>
<Table>
<Caption>
PERIOD FROM FOR THE THREE MONTHS ENDED PERIOD FROM
MAY 11 TO ---------------------------- MAY 11 TO
JUN 30, SEP 30, DEC 31, DEC 31,
2001 2001 2001 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
REVENUE ............................................. $ 87,732 $ 160,623 $ 160,544 $ 408,899
Cost of sales ....................................... 67,630 121,985 117,823 307,438
------------ ------------ ------------ ------------
OPERATING MARGIN .................................... 20,102 38,638 42,721 101,461
Selling, general and administrative expenses ........ 2,394 3,886 1,997 8,277
Other income ........................................ (418) (1,232) (322) (1,972)
------------ ------------ ------------ ------------
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ...................................... $ 18,126 $ 35,984 $ 41,046 $ 95,156
============ ============ ============ ============
NET EARNINGS ........................................ $ 1,901 $ 16,866 $ 3,483 $ 22,250
============ ============ ============ ============
</Table>
REVIEW OF LUSCAR COAL LTD. RESULTS AND OPERATIONS
LCL recorded a net loss of $38.1 million during the fourth quarter, which
included a write-down of $42.8 million ($27.6 million after income taxes) of our
Coal Valley and Obed Mountain mines, where sales were affected by oversupply in
export thermal coal markets and lower demand from domestic customers supplied
from these mines. LEP's net earnings do not reflect this write-down because LEP
assigned lower values to these mines in the purchase price allocation when it
acquired LCL in May 2001. The difference in accounting between LCL and LEP
results because push-down accounting is not required under Canadian generally
accepted accounting principles.
The following is a summary of LCL's operating margin and EBITDA on a quarterly
basis for 2001 and 2002:
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
----------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2002 2002 2002 2002 2002
----------- ------------ ------------ ------------ -----------
(in thousands of Canadian dollars)
REVENUE ............................................. $ 151,361 $ 146,519 $ 159,438 $ 138,315 $ 595,633
Cost of sales ....................................... 112,451 118,484 129,104 108,977 469,016
----------- ------------ ------------ ------------ -----------
OPERATING MARGIN .................................... 38,910 28,035 30,334 29,338 126,617
Selling, general and administrative expenses ........ 3,977 2,973 2,887 3,782 13,619
Other income ........................................ (2,239) (675) (436) (720) (4,070)
----------- ------------ ------------ ------------ -----------
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ...................................... $ 37,172 $ 25,737 $ 27,883 $ 26,276 $ 117,068
=========== ============ ============ ============ ===========
NET (LOSS) EARNINGS ................................. $ (1,096) $ 4,267 $ (19,014) $ (38,067) $ (53,910)
=========== ============ ============ ============ ===========
</Table>
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
---------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2001 2001 2001 2001 2001
----------- ------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
REVENUE ............................................. $ 157,912 $ 159,914 $ 158,939 $ 158,769 $ 635,534
Cost of sales ....................................... 119,239 125,790 121,993 117,821 484,843
----------- ------------ ------------ ------------ ------------
OPERATING MARGIN .................................... 38,673 34,124 36,946 40,948 150,691
Selling, general and administrative expenses ........ 4,256 2,247 3,532 4,503 14,538
Take-over response costs ............................ -- 9,875 -- -- 9,875
Other (income) expense .............................. (827) 676 (1,192) (317) (1,660)
----------- ------------ ------------ ------------ ------------
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION ...................................... $ 35,244 $ 21,326 $ 34,606 $ 36,762 $ 127,938
=========== ============ ============ ============ ============
Net earnings (loss) ................................. $ 4,727 $ 2,502 $ (1,065) $ (17,036) $ (10,872)
=========== ============ ============ ============ ============
</Table>
LCL's EBITDA during the fourth quarter amounted to $26.3 million, compared with
$27.9 million for the third quarter and $36.8 million for the same quarter last
year. On an annual basis, EBITDA of $117.1 million was $10.8 million lower than
in 2001, primarily due to lower operating margins at export mines. Operating
margins at Obed Mountain and Coal Valley mines decreased due to lower prices and
intense competition for tonnage in oversupplied export thermal coal markets.
Lower metallurgical coal shipments and margins reflected winding down of
operations at Luscar mine, where reserves will be depleted around the end of
2003. Our operating margins for the fourth quarter were $29.3 million compared
with $30.3 million in the third quarter and $40.9 million in the fourth quarter
last year, which included a lump sum revenue adjustment of $7.3 from the
finalization of a coal supply agreement at Boundary Dam mine. Annually, our
operating margins decreased from $150.7 million to $126.6 million due to export
thermal market conditions and the scaling down of operations at Luscar mine. Our
strong operating results from mine-mouth operations were comparable to 2001
results.
By transferring our metallurgical coal operations to Fording Coal Partnership
and reducing production levels at our export thermal coal mines, a greater
proportion of our operating margins will come from long-term coal supply
agreements at our mine-mouth operations. Our mine-mouth operations contributed
over 90% of our operating earnings in the fourth quarter of 2002. These
operations have consistently maintained relatively stable operating results,
delivering coal from highly efficient dragline mining operations to generating
stations that comprise most of the base load for electricity generation in
Alberta and Saskatchewan. Strong economic growth in Alberta, driven by
development of the oil sands and other resources, in combination with rising
natural gas prices, is reflected in several proposals for expansion of
coal-fired power plants, including the third unit at Genesee, which is currently
under construction.
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
--------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2002 2002 2002 2002 2002
------------ ------------ ------------ ------------ ------------
COAL SHIPMENTS (in thousands of tonnes)
Mine mouth ............................ 4,323 3,635 3,997 4,128 16,083
Contract mine ......................... 3,160 3,352 3,039 3,153 12,704
Other thermal ......................... 1,114 1,136 1,247 1,270 4,767
------------ ------------ ------------ ------------ ------------
THERMAL ............................... 8,597 8,123 8,283 8,551 33,554
METALLURGICAL ......................... 592 651 697 470 2,410
------------ ------------ ------------ ------------ ------------
9,189 8,774 8,980 9,021 35,964
============ ============ ============ ============ ============
</Table>
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
--------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2001 2001 2001 2001 2001
------------ ------------ ------------ ------------ ------------
COAL SHIPMENTS (in thousands of tonnes)
Mine mouth ............................. 4,036 3,860 4,182 4,119 16,197
Contract mine .......................... 3,264 3,087 2,840 2,984 12,175
Other thermal .......................... 1,377 1,384 1,270 1,288 5,319
------------ ------------ ------------ ------------ ------------
THERMAL ................................ 8,677 8,331 8,292 8,391 33,691
METALLURGICAL .......................... 802 791 751 626 2,970
------------ ------------ ------------ ------------ ------------
9,479 9,122 9,043 9,017 36,661
============ ============ ============ ============ ============
</Table>
Mine-mouth coal shipments totaled 4.1 million tonnes in the fourth quarter, up
over 3% from the third quarter and unchanged from the same quarter last year. On
an annual basis, we shipped 16.1 million tonnes from our mine-mouth operations,
only 0.1 million tonnes below last year's levels. During 2002, our coal
shipments under the Highvale contract were 4% higher than last year. During the
fourth quarter, we shipped higher volumes from Highvale than last quarter and
the same quarter last year. Shipments from our other thermal coal operations
were 11% lower than last year due to weak export market conditions, although our
fourth quarter volumes were comparable to the prior quarter and the same quarter
last year. Our metallurgical coal shipments decreased by 17% during 2002 as we
reduced production volumes at Luscar mine where coal reserves are almost
depleted.
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
--------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2002 2002 2002 2002 2002
------------ ------------ ------------ ------------ ------------
(in Canadian dollars)
REALIZED PRICES
Metallurgical ......................... $ 65.59 $ 61.06 $ 65.19 $ 63.88 $ 63.92
Thermal .................................. $ 13.09 $ 13.14 $ 13.76 $ 12.66 $ 13.16
COST OF SALES
Metallurgical ......................... $ 56.49 $ 55.44 $ 60.78 $ 60.44 $ 58.22
Thermal ............................... $ 9.19 $ 10.14 $ 10.47 $ 9.42 $ 9.80
OPERATING MARGIN
Metallurgical ......................... $ 9.10 $ 5.62 $ 4.41 $ 3.44 $ 5.70
Thermal ............................... $ 3.90 $ 3.00 $ 3.29 $ 3.24 $ 3.36
CAPITAL EXPENDITURES
Metallurgical ......................... $ 56 $ 296 $ 1,084 $ 1,299 $ 2,735
Thermal ............................... $ 9,586 $ 10,621 $ 12,035 $ 16,058 $ 48,300
</Table>
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE
-------------------------------------------------------- YEAR ENDED
MAR 31, JUN 30, SEP 30, DEC 31, DEC 31,
2001 2001 2001 2001 2001
------------ ------------ ------------ ------------ ------------
(in Canadian dollars)
REALIZED PRICES
Metallurgical .................. $ 56.57 $ 60.32 $ 61.61 $ 65.75 $ 60.78
Thermal ........................ $ 12.97 $ 13.47 $ 13.59 $ 14.02 $ 13.51
COST OF SALES
Metallurgical .................. $ 50.81 $ 53.52 $ 56.69 $ 56.17 $ 53.56
Thermal ........................ $ 9.05 $ 10.02 $ 9.58 $ 9.85 $ 9.67
OPERATING MARGIN
Metallurgical .................. $ 5.76 $ 6.80 $ 4.92 $ 9.58 $ 7.22
Thermal ........................ $ 3.92 $ 3.45 $ 4.01 $ 4.17 $ 3.84
CAPITAL EXPENDITURES
Metallurgical .................. $ 1,430 $ 1,845 $ 1,243 $ 323 $ 4,841
Thermal ........................ $ 2,358 $ 8,702 $ 3,948 $ 8,089 $ 23,097
</Table>
During the fourth quarter, our average realized prices for thermal coal sales
were lower than the previous quarter and the same quarter last year. Our average
thermal coal prices were also lower on an annual basis. The primary reasons for
the decreases are changes in our sales mix (more contract mining shipments and
fewer export thermal shipments) and lower export thermal coal pricing. Most of
our mine-mouth operations, from which coal shipment volumes were relatively
stable, have escalating prices under long-term coal supply agreements which,
except for the one-time revenue adjustment from Boundary Dam mine in the last
quarter of 2001, have not varied significantly from period to period. Going
forward, these relatively stable mine mouth operations will comprise a much
larger portion of our business. Our average metallurgical coal price decreased
from the third quarter but was consistent with our average for the year and
higher than average prices for 2001 despite pricing discounts required to obtain
sales commitments for the remaining production from Luscar mine.
The average cost of sales at our thermal coal operations decreased during the
fourth quarter because of less export shipments in the sales mix. In response to
export market conditions, we initiated an intensive program of cost cutting and
efficiency measures at Coal Valley and Obed Mountain mines, which included
idling our higher cost truck and shovel mining equipment and maximizing
production from our more efficient dragline equipment. Our cost of sales for the
fourth quarter includes severance costs incurred at these mines for
approximately 100 employees impacted by the changes in these operations. Cost of
sales at our mine-mouth operations was comparable with prior periods. At our
metallurgical coal operations, cost of sales decreased compared with the third
quarter due to productivity improvement at Line Creek mine, where several
overburden removal and coal production records were set during the fourth
quarter. Our investment in removing the overburden, together with an intensive
efficiency initiative, has resulted in a significant turnaround at this mine.
Production costs at our Luscar mine were higher than during 2001 as we are now
producing from higher cost pits added to extend the life of the mine to the end
of 2003.
Our average thermal operating margins were slightly lower in the fourth quarter
due to our sales mix and the severance costs at our export operations. Compared
with 2001, our average thermal operating margins are lower for the fourth
quarter and year due to the one-time revenue adjustment at Boundary Dam mine in
2001 and lower operating margins from the export operations this year. Our
average metallurgical coal margins were lower compared with last year due to
lower coal shipments and margins at Luscar mine.
Looking forward into 2003, we expect that sales volumes from our mine-mouth
operations will be similar to 2002 levels, with slightly lower sales from
Boundary Dam mine where our customer will be investing in a major upgrade to one
of the primary generating units. As a result of drought conditions in 2002,
there is a risk that low cooling reservoir levels at Battle River generating
station may reduce coal deliveries from Paintearth mine this spring. We expect
that the coal-fired power stations we supply in Alberta and Saskatchewan will
continue to be an integral part of the base load in these provinces. Our sales
volumes from Obed Mountain and Coal Valley mines will be reduced by
approximately 1.0 million tonnes as a result of idling the truck and shovel
production equipment. Further production cutbacks may be necessary depending
upon export thermal coal market conditions. Bienfait mine recently entered into
a one-year contract to continue supplying most of the coal required by Ontario
Power Generation's power plants at Atikokan and Thunder Bay, at increased prices
compared with 2002. Shipments of metallurgical coal ceased on February 28, 2003
with the transfer of our metallurgical coal assets to Fording Coal
Partnership. We also expect sales of our char products to remain strong during
2003, having exceeded our annual production capacity during 2002.
On May 18, 2003 we are scheduled to receive a lump sum payment equal to the
difference between the principal amount of the $45 million promissory note and
the related sinking fund, which amounted to $22.9 million as at December 31,
2002. This amount, which will be accounted for as other income under the related
coal supply agreement, will be applied to make full repayment of the promissory
note. After this promissory note has been repaid, revenues under the Boundary
Dam coal supply agreement will decrease by approximately $5.7 million per annum,
offsetting the elimination of interest costs under the promissory note.
Our selling, general and administrative costs were $13.6 million during 2002,
compared with $14.5 million last year. On a quarterly basis, our selling,
general and administration costs were higher than during the third quarter due
to timing differences, but were 16% lower than during the same quarter last
year. Other income amounted to $4.1 million during the year, compared with $1.7
million last year, and includes the $10.1 million legal settlement for the coal
conveyer, partially offset by $8.1 million of defined benefit pension charges.
At the LEP level, these non-cash defined benefit pension charges were $2.4
million as different values were allocated to these pension assets when LCL was
acquired in May 2001.
We successfully negotiated five collective bargaining agreements during 2002.
During 2003, two collective bargaining agreements will expire, including the
Paintearth and Sheerness agreement on March 31 and the Boundary Dam and Bienfait
agreement on June 30.
REVIEW OF INTEREST EXPENSE AND OTHER FINANCING COSTS
During 2002, LEP reported interest expense of $52.7 million compared with $31.5
million for the period from May 11, 2001 until December 31, 2001. The increase
in interest costs during 2002 reflects that LEP owned LCL for a full calendar
year as well as the replacement of LCL's floating rate bank debt with fixed rate
senior notes in October 2001. On a quarterly basis, LEP's interest expense
decreased to $11.2 million from $15.3 million in the same quarter last year.
Interest costs for the fourth quarter of 2001 included a non-cash loss of $5.6
million related to our interest rate swap, which no longer qualified for hedge
accounting after we issued the fixed interest senior notes.
LCL incurred interest expense of $86.0 million during 2002 compared with $89.1
million during 2001. Interest expense for the fourth quarter was $21.2 million
versus $30.2 million last year. Interest costs for LCL and LEP are similar,
other than differences related to LCL's subordinated notes. Because these
subordinated notes are owned by LEP, the related interest costs are eliminated
upon consolidation. Interest on the subordinated notes is based on the amount of
LCL's free cash flow and reflects lower operating margins and higher capital
spending in 2002.
Foreign currency translation gains and losses are primarily non-cash and related
to our US$275 million senior notes, reflecting fluctuations in the Canadian
dollar. During the fourth quarter, we recognized a gain of $2.4 million compared
to a loss of $16.9 million in the third quarter and $9.1 million in the fourth
quarter last year. On an annual basis, we recognized a gain of $4.0 million
during 2002 compared with a loss of $8.4 million in 2001. As of December 31,
2002 we are no longer party to any foreign currency forward contracts.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, LEP held cash and cash equivalents, including short-term
deposits, of $73.7 million. LEP's operating activities generated net cash,
before changes in non-cash working capital, of $22.5 million during the three
months ended December 31, 2002. LEP used $1.2 million of cash for non-cash
working capital during the quarter, as inventories increased by $9.4 million due
to reduced export thermal coal shipments and export metallurgical coal shipments
delayed until January 2003, partially offset by a reduction in accounts
receivable and other items. We invested $17.4 million in capital asset purchases
during the fourth quarter, compared with $8.4 million in the same quarter last
year. On an annual basis, we invested $51.0 million in capital asset purchases
compared with $27.9 million last year, of which $16.6 million was incurred after
LEP acquired LCL on May 11, 2001. In addition to normal replacements of
equipment at existing mine sites, we invested approximately $12 million to a
dragline tub at Poplar River mine, $10 million to upgrade our land reclamation
equipment fleet at Boundary Dam mine and $7 million toward replacement of our
information systems, which will be completed in 2003. A significant portion of
the capital expenditures made during the fourth quarter related to these
projects. During 2003, we expect to spend approximately $26 million for
equipment replacement and completion of our information systems project.
CORPORATE OVERVIEW
Luscar is Canada's largest producer of thermal coal and operates 10 coal mines
in Alberta and Saskatchewan. On an annualized basis, the mines we operate
produce approximately 38 million tonnes of coal, including the operations
recently acquired by our owners. Most of the coal we produce is sold under
long-term coal supply agreements to adjacent electric power stations that
generate most of the electric power required in these two provinces. We ship a
lesser portion of our production to customers in Ontario and overseas and also
produce value-added products related to our coal mining operations, including
char sold to charcoal briquette manufacturers and humalite products sold to
agricultural, environmental and industrial users.
FORWARD-LOOKING INFORMATION
This interim report contains certain forward-looking statements such as
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (United States) relating to but not limited to the Company's expectations,
intentions, plans, and beliefs. Forward-looking statements generally can be
identified by the use of statements that include phrases such as "believe",
"expect", "anticipate", "intend", "plan", "likely", "will" or other similar
words or phrases. Similarly, statements that describe our expectations with
respect to coal markets, demand and pricing, revenues, margins, coal shipments,
capital spending, production levels, asset deployment, productivity levels at
Line Creek, and our objectives, plans or goals are or may be forward-looking
statements. Actual results may differ materially from results expressed or
implied by these forward looking statements because of various factors including
(i) the risk factors set forth in our annual report Form 20-F filed May 28, 2002
with the Securities and Exchange Commission, (ii) changes in the coal markets,
including with respect to price and demand, (iii) our current cost or
productivity estimates may change or prove incorrect, (iv) we may engage in
opportunity capital projects not included in our current plans, (v) changes in
the amount of cash available for capital asset purchases, and (vi) rating agency
decisions and other future financing developments. The forward-looking
statements included in this interim report are made only as of March 6, 2003.
(LUSCAR ENERGY PARTNERSHIP LOGO)
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS AT AS AT
DECEMBER 31 DECEMBER 31
2002 2001
------------ ------------
(in thousands of Canadian dollars)
ASSETS
CURRENT
Cash and cash equivalents ..................... $ 73,713 $ 60,331
Accounts receivable ........................... 61,992 92,384
Income taxes recoverable ...................... 1,755 6,484
Inventories ................................... 86,072 70,337
Overburden removal costs ...................... 29,404 28,225
Prepaid expenses .............................. 4,354 4,766
------------ ------------
257,290 262,527
Capital assets .................................... 1,282,717 1,319,971
Other assets ...................................... 25,897 30,033
------------ ------------
$ 1,565,904 $ 1,612,531
============ ============
LIABILITIES AND PARTNERS' EQUITY
CURRENT
Trade accounts payable and accrued charges .... $ 36,987 $ 40,596
Accrued interest payable ...................... 8,824 9,970
Accrued payroll and employee benefits ......... 8,879 12,671
Income taxes payable .......................... 1,421 1,105
Current portions of
Long-term debt [note 3] .................... 24,837 2,980
Financial instruments ...................... 2,941 4,324
Accrued reclamation costs .................. 17,392 21,002
Future income taxes ........................ 3,335 2,800
------------ ------------
104,616 95,448
Long-term debt [note 3] ........................... 484,780 517,632
Financial instruments ............................. -- 2,823
Accrued reclamation costs ......................... 28,052 30,843
Future income taxes ............................... 419,293 468,822
------------ ------------
1,036,741 1,115,568
------------ ------------
PARTNERS' EQUITY
Partners' equity .............................. 529,163 496,963
------------ ------------
$ 1,565,904 $ 1,612,531
============ ============
</Table>
See accompanying notes
(LUSCAR ENERGY PARTNERSHIP LOGO)
CONSOLIDATED STATEMENT OF EARNINGS AND PARTNERS' EQUITY
<Table>
<Caption>
THREE MONTHS YEAR PERIOD FROM
ENDED DECEMBER 31 ENDED MAY 11 TO
---------------------------- DEC 31, DEC 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
REVENUE [note 2] ....................................... $ 138,713 $ 160,544 $ 597,114 $ 408,899
EXPENSES AND OTHER INCOME
Cost of sales ....................................... 108,977 117,823 469,016 307,438
Selling, general and administrative expenses ........ 4,011 1,997 14,509 8,277
Depreciation and amortization ....................... 23,230 22,674 90,064 57,000
Foreign currency translation (gain) loss [note 4] ... (2,355) 9,038 (4,021) 8,415
Interest expense [note 5] ........................... 11,208 15,272 52,716 31,466
Other income [note 6] ............................... (6,426) (322) (9,776) (1,972)
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES .................... 68 (5,938) (15,394) (1,725)
Income tax recovery .................................... (21,482) (9,421) (47,594) (23,975)
------------ ------------ ------------ ------------
NET EARNINGS FOR THE PERIOD ............................ 21,550 3,483 32,200 22,250
Partners' equity, beginning of period .................. 507,613 493,480 496,963 474,713
------------ ------------ ------------ ------------
PARTNERS' EQUITY, END OF PERIOD ........................ $ 529,163 $ 496,963 $ 529,163 $ 496,963
============ ============ ============ ============
</Table>
See accompanying notes
(LUSCAR ENERGY PARTNERSHIP LOGO)
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS YEAR PERIOD FROM
ENDED DECEMBER 31 ENDED MAY 11 TO
---------------------------- DEC 31, DEC 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net earnings for the period ............................ $ 21,550 $ 3,483 $ 32,200 $ 22,250
Non-cash items:
Depreciation and amortization ....................... 23,230 22,674 90,064 57,000
Future income taxes ................................. (20,842) (10,064) (48,994) (25,772)
Pension expense in excess of funding ................ 4,439 -- 4,439 --
Accrued reclamation costs ........................... (1,637) (1,492) (6,401) (4,977)
Foreign currency translation (gain) loss [note 4] ... (1,520) 8,423 (3,453) 8,401
Interest income earned on sinking funds ............. (1,044) (2,281) (4,215) (3,862)
Financial instruments ............................... (1,027) 2,047 (4,206) 63
Gain on disposal of capital assets .................. (644) (1,714) (1,242) (1,714)
Other ............................................... 2 2,060 6 --
------------ ------------ ------------ ------------
Cash provided by operating activities before change
in non-cash working capital ......................... 22,507 23,136 58,198 51,389
Change in non-cash working capital ..................... (1,208) (6,233) 10,388 (20,383)
------------ ------------ ------------ ------------
21,299 16,903 68,586 31,006
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Capital asset purchases ................................ (17,357) (6,864) (51,035) (16,605)
Proceeds on disposal of capital assets ................. 448 5 1,894 32
Other investments ...................................... (1,824) (2,347) (1,096) (1,242)
Investment in LCIF ..................................... -- -- -- (351,193)
------------ ------------ ------------ ------------
(18,733) (9,206) (50,237) (369,008)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Operating line of credit ............................... -- (33,340) -- (29,825)
Deferred financing costs incurred ...................... 24 (16,957) (1,640) (16,957)
Long-term debt issued .................................. -- 429,660 -- 429,660
Capital contribution by partners ....................... -- -- -- 357,209
Repayments of long-term debt ........................... (763) (326,780) (3,095) (341,768)
------------ ------------ ------------ ------------
(739) 52,583 (4,735) 398,319
Change in cash position ................................ 1,827 60,280 13,614 60,317
Foreign currency translation (loss) gain [note 4] ...... (185) (8) (232) 14
Cash position, beginning of period ..................... 72,071 59 60,331 --
------------ ------------ ------------ ------------
Cash position, end of period ........................... $ 73,713 $ 60,331 $ 73,713 $ 60,331
============ ============ ============ ============
Interest paid .......................................... $ 31,246 $ 4,058 $ 62,663 $ 37,619
Income taxes paid ...................................... $ 177 $ 465 $ 2,159 $ 855
</Table>
See accompanying notes
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
1. BASIS OF PRESENTATION
The annual results in these financial statements have been extracted from our
audited financial statements, which will be filed on Form 20-F with the United
States Securities and Exchange Commission (SEC). The quarterly information
provided herein is unaudited. Since Luscar Energy Partnership (LEP) had no
operations prior to May 12, 2001, the consolidated statements of earnings and
cash flows for the year ended December 31, 2002 only include comparative figures
for the period from May 12 to December 31, 2001. All amounts are in thousands of
Canadian dollars unless otherwise stated.
2. SEGMENT INFORMATION
LEP owns and operates surface mines located in western Canada, producing coal
for consumption by domestic and foreign customers. LEP's mining operations that
have similar economic and operating characteristics, customers and operations
have been aggregated for the purpose of segment reporting. Metallurgical figures
include incidental thermal coal byproduct at Line Creek mine. Prior period
figures have been restated to conform to this presentation.
Disclosures with respect to geographic areas are as follows:
<Table>
<Caption>
PERIOD FROM
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
----------------------------------------------- DECEMBER 31 DECEMBER 31
2002 2001 2002 2001
---------------------- ---------------------- ----------------------- -----------------------
SALES SALES SALES SALES
REVENUE TONNES REVENUE TONNES REVENUE TONNES REVENUE TONNES
--------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands of Canadian
dollars except volumes which
are in thousands of tonnes)
GEOGRAPHIC AREAS
Japan ....................... $ 21,532 462 $ 16,250 312 $ 78,004 1,505 $ 55,326 981
Korea ....................... 7,693 212 20,809 490 38,204 956 43,009 1,022
United States ............... 9,875 119 14,893 176 36,769 435 27,249 306
South America ............... 5,183 65 4,559 63 28,391 455 22,380 422
Europe ...................... 3,427 72 3,811 58 22,682 360 10,774 168
Other ....................... 2,889 46 1,750 31 34,134 682 3,171 56
--------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Total export ................ 50,599 976 62,072 1,130 238,184 4,393 161,909 2,955
Canada ...................... 87,716 8,045 96,697 7,887 357,449 31,571 243,341 20,064
--------- ---------- --------- ---------- ---------- ---------- ---------- ----------
LCL ......................... 138,315 9,021 158,769 9,017 595,633 35,964 405,250 23,019
Foreign exchange contracts .. 398 -- 1,775 -- 1,481 -- 3,649 --
--------- ---------- --------- ---------- ---------- ---------- ---------- ----------
LEP ......................... $ 138,713 9,021 $ 160,544 9,017 $ 597,114 35,964 $ 408,899 23,019
========= ========== ========= ========== ========== ========== ========== ==========
</Table>
Export coal sales are generally denominated in United States dollars.
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
Revenues by type of operations are as follows:
<Table>
<Caption>
PERIOD FROM
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
------------------------------------------------- DECEMBER 31 DECEMBER 31
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
SALES SALES SALES SALES
REVENUE TONNES REVENUE TONNES REVENUE TONNES REVENUE TONNES
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands of Canadian dollars
except volumes which are in
thousands of tonnes)
Thermal ................ $ 108,688 8,551 $ 119,382 8,391 $ 443,066 33,554 $ 298,120 21,288
Metallurgical .......... 30,025 470 41,162 626 154,048 2,410 110,779 1,731
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 138,713 9,021 $ 160,544 9,017 $ 597,114 35,964 $ 408,899 23,019
========== ========== ========== ========== ========== ========== ========== ==========
</Table>
Revenues are derived from significant customers and in some cases substantially
all production from a particular mine is sold to one customer. The number of
customers, each accounting for more than 10% of revenue by type of operation, is
as follows:
<Table>
<Caption>
PERIOD FROM
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
----------------------------------------- DECEMBER 31 DECEMBER 31
2002 2001 2002 2001
------------------- ------------------- -------------------- --------------------
SALES NUMBER OF SALES NUMBER OF SALES NUMBER OF SALES NUMBER OF
REVENUE CUSTOMERS REVENUE CUSTOMERS REVENUE CUSTOMERS REVENUE CUSTOMERS
------- --------- ------- --------- -------- --------- -------- ---------
(in thousands of
Canadian dollars except
number of customers)
MAJOR CUSTOMERS
Metallurgical ................. $ 8,214 1 $31,805 3 $ 21,473 1 $ 67,563 3
Thermal ....................... $60,515 3 $66,828 3 $249,931 3 $163,131 3
</Table>
Credit risks are minimized to the extent that customers include major domestic
utilities and accounts receivable on export sales are generally insured under
government export development programs or secured by letters of credit.
3. LONG-TERM DEBT
<Table>
<Caption>
AS AT AS AT
DECEMBER 31 DECEMBER 31
2002 2001
------------ ------------
(in thousands of Canadian dollars)
Senior notes, at issue date ...................... $ 429,660 $ 429,660
Cumulative foreign currency translation loss ..... 4,730 8,415
------------ ------------
Senior notes, at balance sheet date .............. 434,390 438,075
------------ ------------
12.75% promissory note, due May 18, 2003 ......... 45,000 45,000
Less sinking fund ................................ (22,930) (21,214)
------------ ------------
22,070 23,786
------------ ------------
9.625% promissory note, due December 30, 2004 .... 89,300 89,300
Less sinking fund ................................ (41,999) (38,158)
------------ ------------
47,301 51,142
------------ ------------
Capital lease obligations ........................ 5,856 7,609
------------ ------------
Long-term debt ................................... 509,617 520,612
Current portion of long-term debt ................ (24,837) (2,980)
------------ ------------
$ 484,780 $ 517,632
============ ============
</Table>
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
LEP and LCL are party to a Senior Credit Agreement with a syndicate of Canadian
chartered banks consisting of a revolving 364 day operating credit facility that
permits maximum aggregate borrowings of $100,000, subject to a borrowing base,
which includes accounts receivable, coal inventory and a $25,000 charge on a
dragline. Up to $75,000 of the credit facility may be used to secure letters of
credit. Interest rates payable or advances under the facility are based on prime
lending rates plus interest rate margins ranging from 0.25% to 1.25% depending
on LEP's ratio of debt to operating earnings before interest, depreciation and
amortization (EBITDA). To date, there have been no cash advances made under this
facility and $62,499 of letters of credit, providing reclamation security, have
been issued. The lenders have the right to convert the facility to a demand
facility until LEP's fixed charge coverage ratio, calculated on a rolling
12-month basis, exceeds 2.50. In October 2002, the Senior Credit Agreement was
renewed until October 4, 2003 under the same terms and conditions.
On May 18, 2003 the promissory note for $45 million at 12.75% becomes due and
payable. Under the terms of a coal supply agreement, the projected $21,000
excess of the principal amounts over the sinking fund balance, is recoverable
from our customer and will be included in other income in 2003. At December 31,
2002, the $22,070 excess of the principal amount over the sinking fund balance
is included in the current portion of long-term debt.
4. FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses consist of the following:
<Table>
<Caption>
THREE MONTHS PERIOD FROM
ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
---------------------------- DEC 31 DEC 31
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
Foreign currency translation (gain) loss on
Senior notes .................................. $ (1,705) $ 8,415 $ (3,685) $ 8,415
US dollar cash balances ....................... 185 8 232 (14)
Working capital balances ...................... (835) 615 (568) 14
------------ ------------ ------------ ------------
$ (2,355) $ 9,038 $ (4,021) $ 8,415
============ ============ ============ ============
</Table>
In 2001, foreign currency translation gains and losses on US dollar cash
balances and other working capital balances were included in other income.
Foreign currency translation gains and losses and other income have been
restated to conform to the current disclosure.
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
5. INTEREST EXPENSE
Interest expense consists of the following:
<Table>
<Caption>
THREE MONTHS PERIOD FROM
ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
---------------------------- DEC 31 DEC 31
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
Senior notes ............................................... $ 10,257 $ 9,492 $ 42,092 $ 9,492
Promissory notes net of sinking fund interest income ....... 2,539 1,485 10,117 5,467
Financial instruments ...................................... 80 5,644 330 5,644
Capital leases ............................................. 62 80 252 189
Operating line of credit ................................... -- 358 365 1,038
Long-term bank debt ........................................ 669 2,018 3,004 13,562
Income tax reassessments ................................... (1,803) -- (1,799) (646)
Retroactive Boundary Dam contract settlement ............... -- (2,083) -- (2,083)
Investment income .......................................... (418) (1,743) (1,543) (1,743)
Other ...................................................... (178) 21 (102) 546
------------ ------------ ------------ ------------
$ 11,208 $ 15,272 $ 52,716 $ 31,466
============ ============ ============ ============
</Table>
6. OTHER INCOME
Other income consists of the following:
<Table>
<Caption>
THREE MONTHS PERIOD FROM
ENDED DECEMBER 31 YEAR ENDED MAY 11 TO
---------------------------- DEC 31 DEC 31
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
Settlement for coal conveyor ......... $ (10,100) $ -- $ (10,100) $ --
Net pension plan expense ............. 3,174 1,389 2,361 947
Other expense (income) ............... 500 (1,711) (2,037) (2,919)
------------ ------------ ------------ ------------
$ (6,426) $ (322) $ (9,776) $ (1,972)
============ ============ ============ ============
</Table>
On December 31, 2002, LCL settled a legal dispute relating to the engineering,
design, manufacture and commissioning of a coal conveyor system at Line Creek
mine. $5,100 of the $10,100 settlement is included in accounts receivable at
December 31, 2002 and was received subsequent to year end.
Net pension plan expense excludes certain current service and other costs, which
are included in cost of sales.
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
7. CONDENSED CONSOLIDATING INFORMATION
The following condensed consolidated information is provided for the
period ending December 31, 2002.
(a) CONDENSED CONSOLIDATING BALANCE SHEET
<Table>
<Caption>
AS AT DECEMBER 31, 2002
----------------------------------------------------------------------------
LUSCAR LUSCAR COAL LUSCAR ENERGY CONSOLIDATING CONSOLIDATED
COAL LTD. INCOME FUND PARTNERSHIP ENTRIES LEP
------------ ------------ ------------- ------------ ------------
(in thousands of Canadian dollars)
ASSETS
CURRENT
Cash and cash equivalents ..................... $ 6,894 $ 121 $ 66,698 $ -- $ 73,713
Accounts receivable ........................... 61,992 -- -- -- 61,992
Income taxes recoverable ...................... 1,464 -- 291 -- 1,755
Inventories ................................... 86,072 -- -- -- 86,072
Overburden removal costs ...................... 29,404 -- -- -- 29,404
Prepaid expenses .............................. 4,366 (58) 48 (2) 4,354
Due from related parties ...................... 5,040 -- (5,040) -- --
------------ ------------ ------------ ------------ ------------
195,232 63 61,997 (2) 257,290
Investments in related parties ................ -- 502,075 384,091 (886,166) --
Capital assets ................................ 1,321,906 -- -- (39,189) 1,282,717
Other assets .................................. 23,093 1,559 9,000 (7,755) 25,897
------------ ------------ ------------ ------------ ------------
$ 1,540,231 $ 503,697 $ 455,088 $ (933,112) $ 1,565,904
============ ============ ============ ============ ============
LIABILITIES AND PARTNERS' EQUITY
CURRENT
Trade accounts payable and accrued charges .... $ 36,462 $ 55 $ 482 $ (12) $ 36,987
Accrued interest payable ...................... 8,824 -- -- -- 8,824
Accrued payroll and employee benefits ......... 8,879 -- -- -- 8,879
Income taxes payable .......................... 1,421 -- -- -- 1,421
Current portions of
Long-term debt ......................... 24,837 -- -- -- 24,837
Financial instruments .................. 2,941 -- -- -- 2,941
Accrued reclamation costs .............. 17,392 -- -- -- 17,392
Future income taxes .................... 3,335 -- -- -- 3,335
Due to related parties ........................ 245 3,947 (3,947) (245) --
------------ ------------ ------------ ------------ ------------
104,336 4,002 (3,465) (257) 104,616
Accrued pension benefit obligation ............ 5,627 -- -- (5,627) --
Long-term debt ................................ 484,780 -- -- -- 484,780
Convertible debentures ........................ -- 96,053 -- (96,053) --
Subordinated notes due to LCIF ................ 642,969 -- -- (642,969) --
Accrued reclamation costs ..................... 28,052 -- -- -- 28,052
Future income taxes ........................... 419,293 -- -- -- 419,293
------------ ------------ ------------ ------------ ------------
1,685,057 100,055 (3,465) (744,906) 1,036,741
PARTNERS' EQUITY .............................. (144,826) 403,642 458,553 (188,206) 529,163
------------ ------------ ------------ ------------ ------------
$ 1,540,231 $ 503,697 $ 455,088 $ (933,112) $ 1,565,904
============ ============ ============ ============ ============
</Table>
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
7. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
(b) CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------
LUSCAR LUSCAR COAL LUSCAR ENERGY CONSOLIDATING CONSOLIDATED
COAL LTD. INCOME FUND PARTNERSHIP ENTRIES LEP
------------ ------------ ------------- ------------- ------------
(in thousands of Canadian dollars)
REVENUE ............................................ $ 138,315 $ -- $ -- $ 398 $ 138,713
EXPENSES AND OTHER INCOME
Cost of sales .................................. 108,977 -- -- -- 108,977
Selling, general and administrative expenses ... 3,782 23 206 -- 4,011
Equity pickup .................................. -- 38,067 30,618 (68,685) --
Depreciation and amortization .................. 24,156 153 -- (1,079) 23,230
Write-down of capital assets ................... 42,791 -- -- (42,791) --
Foreign currency translation gain .............. (2,355) -- -- -- (2,355)
Intercompany interest expense (income) ........ 9,607 (7,625) (1,973) (9) --
Interest expense (income) ...................... 11,626 -- (418) -- 11,208
Other (income) expense ......................... (720) -- 16 (5,722) (6,426)
------------ ------------ ------------ ------------ ------------
(LOSS) EARNINGS BEFORE INCOME TAXES ............... (59,549) (30,618) (28,449) 118,684 68
Income tax recovery ................................ (21,482) -- -- -- (21,482)
------------ ------------ ------------ ------------ ------------
NET (LOSS) EARNINGS ............................... $ (38,067) $ (30,618) $ (28,449) $ 118,684 $ 21,550
============ ============ ============ ============ ============
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------
LUSCAR LUSCAR COAL LUSCAR ENERGY CONSOLIDATING CONSOLIDATED
COAL LTD. INCOME FUND PARTNERSHIP ENTRIES LEP
------------ ------------ ------------- ------------ ------------
(in thousands of Canadian dollars)
REVENUE ........................................... $ 595,633 $ -- $ -- $ 1,481 $ 597,114
EXPENSES AND OTHER INCOME
Cost of sales ................................. 469,016 -- -- -- 469,016
Selling, general and administrative expenses .. 13,619 58 832 -- 14,509
Equity pickup ................................. -- 53,910 31,985 (85,895) --
Depreciation and amortization ................. 93,774 613 -- (4,323) 90,064
Write-down of capital assets .................. 42,791 -- -- (42,791) --
Foreign currency translation gain ............. (4,021) -- -- -- (4,021)
Intercompany interest expense (income) ........ 31,769 (22,596) (9,666) 493 --
Interest expense (income) ..................... 54,259 -- (1,543) -- 52,716
------------
Other (income) expense ........................ (4,070) -- 34 (5,740) (9,776)
------------ ------------ ------------ ------------ ------------
(LOSS) EARNINGS BEFORE INCOME TAXES ............... (101,504) (31,985) (21,642) 139,737 (15,394)
Income tax recovery ............................... (47,594) -- -- -- (47,594)
------------ ------------ ------------ ------------ ------------
NET (LOSS) EARNINGS ............................... $ (53,910) $ (31,985) $ (21,642) $ 139,737 $ 32,200
============ ============ ============ ============ ============
</Table>
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
7. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
(c) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------
LUSCAR LUSCAR COAL LUSCAR ENERGY CONSOLIDATING CONSOLIDATED
COAL LTD. INCOME FUND PARTNERSHIP ENTRIES LEP
------------ ------------ ------------- ------------ ------------
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net (loss) earnings for the period ........... $ (38,067) $ (30,618) $ (28,449) $ 118,684 $ 21,550
Non-cash items:
Depreciation and amortization ............ 24,156 153 -- (1,079) 23,230
Write-down of capital assets ............. 42,791 -- -- (42,791) --
Future income taxes ...................... (20,842) -- -- -- (20,842)
Pension expense in excess of funding ..... 10,158 -- -- (5,719) 4,439
Accrued reclamation costs ................ (1,637) -- -- -- (1,637)
Foreign currency translation gain ........ (1,520) -- -- -- (1,520)
Interest income earned on sinking funds .. (1,044) -- -- --
(1,044)
Financial instruments .................... (612) -- -- (415) (1,027)
Equity pickup ............................ -- 38,067 30,618 (68,685) --
Gain on disposals of capital assets ...... (644) -- -- -- (644)
Other .................................... 2 -- -- -- 2
------------ ------------ ------------ ------------ ------------
Cash provided by operating activities before
change in non-cash working capital ....... 12,741 7,602 2,169 (5) 22,507
Change in non-cash working capital ........... 3,595 (356) (4,434) (13) (1,208)
------------ ------------ ------------ ------------ ------------
16,336 7,246 (2,265) (18) 21,299
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Capital asset purchases ...................... (17,357) -- -- -- (17,357)
Proceeds on disposal of capital assets ....... 448 -- -- -- 448
Other investments ............................ (1,824) -- -- -- (1,824)
------------ ------------ ------------ ------------ ------------
(18,733) -- -- -- (18,733)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Deferred financing costs incurred ............ 6 -- -- 18 24
Due (from) to related parties ................ (4,822) (2,390) 7,212 -- --
Repayments of long-term debt ................. (763) -- -- -- (763)
Distribution to LEP .......................... -- (4,803) 4,803 -- --
------------ ------------ ------------ ------------ ------------
(5,579) (7,193) 12,015 18 (739)
------------ ------------ ------------ ------------ ------------
Change in cash position ...................... (7,976) 53 9,750 -- 1,827
Foreign currency translation loss ............ (185) -- -- -- (185)
Cash position, beginning of period ........... 15,055 68 56,948 -- 72,071
------------ ------------ ------------ ------------ ------------
Cash position, end of year ................... $ 6,894 $ 121 $ 66,698 $ -- $ 73,713
============ ============ ============ ============ ============
</Table>
(LUSCAR ENERGY PARTNERSHIP LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
7. CONDENSED CONSOLIDATING INFORMATION (CONTINUED)
(c) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2002
----------------------------------------------------------------------------
LUSCAR LUSCAR COAL LUSCAR ENERGY CONSOLIDATING CONSOLIDATED
COAL LTD. INCOME FUND PARTNERSHIP ENTRIES LEP
------------ ------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net (loss) earnings for the year .............. $ (53,910) $ (31,985) $ (21,642) $ 139,737 $ 32,200
Non-cash items:
Depreciation and amortization ............. 93,774 613 -- (4,323) 90,064
Write-down of capital assets .............. 42,791 -- -- (42,791) --
Future income taxes ....................... (48,994) -- -- -- (48,994)
Pension expense in excess of funding ...... 10,158 -- -- (5,719) 4,439
Accrued reclamation costs ................. (6,401) -- -- -- (6,401)
Foreign currency translation gain ......... (3,453) -- -- -- (3,453)
Interest income earned on sinking funds ... (4,215) -- -- -- (4,215)
Financial instruments ..................... (2,704) -- -- (1,502) (4,206)
Equity pickup ............................. -- 53,910 31,985 (85,895) --
Gain on disposals of capital assets ....... (1,242) -- -- -- (1,242)
Other ..................................... 1 -- -- 5 6
------------ ------------ ------------ ------------ ------------
Cash provided by operating activities before
change in non-cash working capital ........ 25,805 22,538 10,343 (488) 58,198
Change in non-cash working capital ............ 10,990 (318) (772) 488 10,388
------------ ------------ ------------ ------------ ------------
36,795 22,220 9,571 -- 68,586
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Capital asset purchases ....................... (51,035) -- -- -- (51,035)
Proceeds on disposal of capital assets ........ 1,894 -- -- -- 1,894
Other investments ............................. (1,096) -- -- -- (1,096)
------------ ------------ ------------ ------------ ------------
(50,237) -- -- -- (50,237)
------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Deferred financing costs incurred ............. (1,640) -- -- -- (1,640)
Due to (from) related parties ................. 27,204 3,947 (31,151) -- --
Convertible debenture ......................... -- (3,947) 3,947 -- --
Repayments of long-term debt .................. (3,095) -- -- -- (3,095)
Distribution to LEP ........................... -- (22,162) 22,162 -- --
------------ ------------ ------------ ------------ ------------
22,469 (22,162) (5,042) -- (4,735)
------------ ------------ ------------ ------------ ------------
Change in cash position ....................... 9,027 58 4,529 -- 13,614
Foreign currency translation loss ............. (232) -- -- -- (232)
Cash position, beginning of year .............. (1,901) 63 62,169 -- 60,331
------------ ------------ ------------ ------------ ------------
Cash position, end of year .................... $ 6,894 $ 121 $ 66,698 $ -- $ 73,713
============ ============ ============ ============ ============
</Table>
(LUSCAR COAL LTD. LOGO)
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS AT AS AT
DECEMBER 31 DECEMBER 31
2002 2001
------------ ------------
(in thousands of Canadian dollars)
ASSETS
CURRENT
Cash and cash equivalents ................... $ 6,894 $ 10
Accounts receivable ......................... 61,992 92,384
Income taxes recoverable .................... 1,464 6,300
Inventories ................................. 86,072 70,337
Overburden removal costs .................... 29,404 28,225
Prepaid expenses ............................ 4,366 4,786
Due from related parties .................... 5,040 32,244
------------ ------------
195,232 234,286
Capital assets .................................. 1,321,906 1,406,274
Other assets .................................... 23,093 26,703
------------ ------------
$ 1,540,231 $ 1,667,263
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT
Bank indebtedness ........................... $ -- $ 1,911
Trade accounts payable and accrued charges .. 36,462 39,584
Accrued interest payable .................... 8,824 9,970
Accrued payroll and employee benefits ....... 8,879 12,671
Income taxes payable ........................ 1,421 1,105
Current portions of
Long-term debt [note 3] ................. 24,837 2,980
Financial instruments ................... 2,941 2,822
Accrued reclamation costs ............... 17,392 21,002
Future income taxes ..................... 3,335 2,800
Due to related party ........................ 245 245
------------ ------------
104,336 95,090
Accrued pension benefit obligation .............. 5,627 --
Long-term debt [note 3] ......................... 484,780 517,632
Subordinated notes due to LCIF .................. 642,969 642,969
Financial instruments ........................... -- 2,823
Accrued reclamation costs ....................... 28,052 30,843
Future income taxes ............................. 419,293 468,822
------------ ------------
1,685,057 1,758,179
------------ ------------
SHAREHOLDERS' DEFICIT
Share capital ............................... 14,191 14,191
Deficit ..................................... (159,017) (105,107)
------------ ------------
(144,826) (90,916)
------------ ------------
$ 1,540,231 $ 1,667,263
============ ============
</Table>
See accompanying notes
(LUSCAR COAL LTD. LOGO)
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
<Table>
<Caption>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
REVENUE [note 2] ...................................... 138,315 $ 158,769 $ 595,633 $ 635,534
EXPENSES AND OTHER INCOME
Cost of sales ...................................... 108,977 117,821 469,016 484,843
Selling, general and administrative expenses ....... 3,782 4,503 13,619 14,538
Take-over response costs ........................... -- -- -- 9,875
Depreciation and amortization ...................... 24,156 24,195 93,774 100,023
Write-down of capital assets ....................... 42,791 -- 42,791 --
Foreign currency translation (gain) loss [note 4] .. (2,355) 9,119 (4,021) 8,415
Interest expense [note 5] .......................... 21,233 30,174 86,028 89,148
Other income [note 6] .............................. (720) (317) (4,070) (1,660)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES .............................. (59,549) (26,726) (101,504) (69,648)
Income tax recovery ................................... (21,482) (9,690) (47,594) (58,776)
------------ ------------ ------------ ------------
NET LOSS .............................................. (38,067) (17,036) (53,910) (10,872)
Deficit, beginning of period .......................... (120,950) (88,071) (105,107) (94,235)
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD ................................ $ (159,017) $ (105,107) $ (159,017) $ (105,107)
============ ============ ============ ============
</Table>
See accompanying notes
(LUSCAR COAL LTD. LOGO)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net loss for the period ............................. $ (38,067) $ (17,036) $ (53,910) $ (10,872)
Non-cash items:
Depreciation and amortization ........................ 24,156 24,195 93,774 100,023
Write-down of capital assets ......................... 42,791 -- 42,791 --
Future income taxes .................................. (20,842) (10,395) (48,994) (59,151)
Pension expense in excess of funding ................. 10,158 -- 10,158 --
Accrued reclamation costs ............................ (1,637) (46) (6,401) (4,400)
Foreign currency translation (gain) loss [note 4] .... (1,520) 8,423 (3,453) 8,272
Interest income earned on sinking funds .............. (1,044) (2,098) (4,215) (5,009)
Financial instruments ................................ (612) 5,644 (2,704) 5,644
(Gain) loss on disposal of capital assets ........... (644) 168 (1,242) 168
Other ................................................ 2 955 1 --
------------ ------------ ------------ ------------
Cash provided by operating activities before change
in non-cash working capital .......................... 12,741 9,810 25,805 34,675
Change in non-cash working capital ................... 3,595 (25,013) 10,990 3,348
------------ ------------ ------------ ------------
16,336 (15,203) 36,795 38,023
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Capital asset purchases .............................. (17,357) (8,412) (51,035) (27,938)
Proceeds on disposal of capital assets ............... 448 129 1,894 508
Other investments .................................... (1,824) 1,546 (1,096) 1,602
------------ ------------ ------------ ------------
(18,733) (6,737) (50,237) (25,828)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Operating line of credit ............................. -- (33,236) -- (45,434)
Deferred financing costs incurred .................... 6 (16,959) (1,640) (16,959)
Long-term debt issued ................................ -- 429,660 -- 429,660
Due (from) to related party .......................... (4,822) (349,271) 27,204 (349,271)
Repayments of long-term debt ......................... (763) (10,151) (3,095) (32,244)
------------ ------------ ------------ ------------
(5,579) 20,043 22,469 (14,248)
------------ ------------ ------------ ------------
Change in cash position .............................. (7,976) (1,897) 9,027 (2,053)
Foreign currency translation (loss) gain [note 4] .... (185) (8) (232) 143
Cash position, beginning of period ................... 15,055 4 (1,901) 9
------------ ------------ ------------ ------------
Cash position, end of period ......................... $ 6,894 $ (1,901) $ 6,894 $ (1,901)
============ ============ ============ ============
Interest paid ........................................ $ 40,853 $ 34,482 $ 94,432 $ 100,404
Income taxes paid (recovered) ........................ $ 177 $ 465 $ 2,159 $ (2,030)
</Table>
See accompanying notes
(LUSCAR COAL LTD. LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
1. BASIS OF PRESENTATION
The annual results in these financial statements have been extracted from our
audited financial statements, which will be filed on Form 20-F with the United
States Securities and Exchange Commission (SEC). The quarterly information
provided herein is unaudited. All amounts are in thousands of Canadian dollars
unless otherwise stated.
2. SEGMENT INFORMATION
LCL owns and operates surface mines located in western Canada, producing coal
for consumption by domestic and foreign customers. LCL's mining operations that
have similar economic and operating characteristics, customers and products have
been aggregated for the purpose of segment reporting. Metallurgical figures
include incidental thermal coal byproduct at Line Creek mine. Prior period
figures have been restated to conform to this presentation.
Disclosures with respect to geographic areas are as follows:
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------------------- -------------------------------------------------
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
SALES SALES SALES SALES
REVENUE TONNES REVENUE TONNES REVENUE TONNES REVENUE TONNES
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands of Canadian dollars
except volumes, which are in
thousands of tonnes)
GEOGRAPHIC AREAS
Japan ............. $ 21,532 462 $ 16,250 312 $ 78,004 1,505 $ 85,768 1,572
Korea ............. 7,693 212 20,809 490 38,204 956 80,870 1,799
United States ..... 9,875 119 14,893 176 36,769 435 35,656 376
South America ..... 5,183 65 4,559 63 28,391 455 33,622 704
Europe ............ 3,427 72 3,811 58 22,682 360 20,615 349
Other ............. 2,889 46 1,750 31 34,134 682 13,268 241
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total export ...... 50,599 976 62,072 1,130 238,184 4,393 269,799 5,041
Canada ............ 87,716 8,045 96,697 7,887 357,449 31,571 365,735 31,620
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 138,315 9,021 $ 158,769 9,017 $ 595,633 35,964 $ 635,534 36,661
========== ========== ========== ========== ========== ========== ========== ==========
</Table>
Export coal sales are generally denominated in United States dollars.
Revenues by type of operations are as follows:
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------------------- -------------------------------------------------
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
SALES SALES SALES SALES
REVENUE TONNES REVENUE TONNES REVENUE TONNES REVENUE TONNES
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands of Canadian dollars except
volumes which are in thousands of tonnes)
Thermal ............ $ 108,290 8,551 $ 117,607 8,391 $ 441,585 33,554 $ 455,016 33,691
Metallurgical ...... 30,025 470 41,162 626 154,048 2,410 180,518 2,970
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 138,315 9,021 $ 158,769 9,017 $ 595,633 35,964 $ 635,534 36,661
========== ========== ========== ========== ========== ========== ========== ==========
</Table>
(LUSCAR COAL LTD. LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
Revenues are derived from significant customers and in some cases substantially
all production from a particular mine is sold to one customer. The number of
customers, each accounting for more than 10% of revenue by type of operation, is
as follows:
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------------------------- -------------------------------------------------
2002 2001 2002 2001
----------------------- ----------------------- ----------------------- -----------------------
SALES NUMBER OF SALES NUMBER OF SALES NUMBER OF SALES NUMBER OF
REVENUE CUSTOMERS REVENUE CUSTOMERS REVENUE CUSTOMERS REVENUE CUSTOMERS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands of Canadian dollars except
number of customers)
MAJOR CUSTOMERS
Metallurgical .... $ 8,214 1 $ 31,805 3 $ 21,473 1 $ 105,387 3
Thermal .......... $ 60,515 3 $ 66,828 3 $ 249,931 3 $ 254,457 3
</Table>
Credit risks are minimized to the extent that customers include major domestic
utilities and accounts receivable on export sales are generally insured under
government export development programs or secured by letters of credit.
3. LONG-TERM DEBT
<Table>
<Caption>
AS AT AS AT
DECEMBER 31 DECEMBER 31
2002 2001
------------ ------------
(in thousands of Canadian dollars)
Senior notes, at issue date ...................... $ 429,660 $ 429,660
Cumulative foreign currency translation loss ..... 4,730 8,415
------------ ------------
Senior notes, at balance sheet date .............. 434,390 438,075
------------ ------------
12.75% promissory note, due May 18, 2003 ......... 45,000 45,000
Less sinking fund ................................ (22,930) (21,214)
------------ ------------
22,070 23,786
------------ ------------
9.625% promissory note, due December 30, 2004 .... 89,300 89,300
Less sinking fund ................................ (41,999) (38,158)
------------ ------------
47,301 51,142
------------ ------------
Capital lease obligations ........................ 5,856 7,609
------------ ------------
Long-term debt ................................... 509,617 520,612
Current portion of long-term debt ................ (24,837) (2,980)
------------ ------------
$ 484,780 $ 517,632
============ ============
</Table>
LEP and LCL are party to a Senior Credit Agreement with a syndicate of Canadian
chartered banks consisting of a revolving 364 day operating credit facility that
permits maximum aggregate borrowings of $100,000, subject to a borrowing base,
which includes accounts receivable, coal inventory and a $25,000 charge on a
dragline. Up to $75,000 of the credit facility may be used to secure letters of
credit. Interest rates payable or advances under the facility are based on prime
lending rates plus interest rate margins ranging from 0.25% to 1.25% depending
on LEP's ratio of debt to operating earnings before interest, depreciation and
amortization (EBITDA). To date, there have been no advances made under this
facility and $62,499 of letters of credit, providing reclamation security, have
been issued. The lenders have the right to convert the facility to a demand
facility until LEP's fixed charge coverage ratio, calculated on a rolling
12-month basis, exceeds 2.50. In October 2002, the Senior Credit Agreement was
renewed until October 4, 2003 under the same terms and conditions.
On May 18, 2003 the promissory note for $45 million at 12.75% becomes due and
payable. Under the terms of a coal supply agreement, the projected $21,000
excess of the principal amounts over the sinking fund balance, is recoverable
from our customer and will be included in other income in 2003. At December 31,
2002, the $22,070 excess of the principal amount over the sinking fund balance
is included in the current portion of long-term debt.
(LUSCAR COAL LTD. LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
4. FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses consist of the following:
<Table>
<Caption>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
Foreign currency translation (gain) loss on
Senior notes ................................... $ (1,705) $ 8,415 $ (3,685) $ 8,415
US dollar cash balances ........................ 185 8 232 (143)
Working capital balances ....................... (835) 696 (568) 143
------------ ------------ ------------ ------------
$ (2,355) $ 9,119 $ (4,021) $ 8,415
============ ============ ============ ============
</Table>
In 2001, foreign currency translation gains and losses on US dollar cash
balances and other working capital balances were included in other income.
Foreign currency translation gains and losses and other income have been
restated to conform to the current disclosure.
5. INTEREST EXPENSE
Interest expense consists of the following:
<Table>
<Caption>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
(in thousands of Canadian dollars)
Senior notes ........................................... $ 10,257 $ 9,492 $ 42,092 $ 9,492
Promissory notes net of sinking fund interest income ... 2,539 1,485 10,117 9,323
Financial instruments .................................. 80 5,644 330 5,644
Capital leases ......................................... 62 80 252 292
Operating line of credit ............................... -- 358 365 1,895
Long-term bank debt .................................... 669 2,018 3,004 25,432
Income tax reassessments ............................... (1,803) -- (1,799) (3,124)
Retroactive Boundary Dam contract settlement ........... -- (2,083) -- (2,083)
Other .................................................. (178) (72) (102) (98)
---------- ---------- ---------- ----------
Other interest ......................................... 11,626 16,922 54,259 46,773
Subordinated notes ..................................... 9,607 13,252 31,769 42,375
---------- ---------- ---------- ----------
$ 21,233 $ 30,174 $ 86,028 $ 89,148
========== ========== ========== ==========
</Table>
(LUSCAR COAL LTD. LOGO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002
6. OTHER INCOME
Other income consists of the following:
<Table>
<Caption>
THREE MONTHS YEAR
ENDED DECEMBER 31 ENDED DECEMBER 31
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(in thousands of Canadian dollars)
Settlement for coal conveyor ......... $ (10,100) $ -- $ (10,100) $ --
Net pension plan expense ............. 8,896 1,425 8,101 536
Other expense (income) ............... 484 (1,742) (2,071) (2,196)
------------ ------------ ------------ ------------
$ (720) $ (317) $ (4,070) $ (1,660)
============ ============ ============ ============
</Table>
On December 31, 2002, LCL settled a legal dispute relating to the engineering,
design, manufacture and commissioning of a coal conveyor system at Line Creek
mine. $5,100 of the $10,100 settlement is included in accounts receivable at
December 31, 2002 and was received subsequent to year end.
Net pension plan expense excludes certain current service and other costs, which
are included in cost of sales.