ridley terminals inc. 2013 annual report

R I D L E Y T E R M I N A L S I N C . 2 0 1 3 A N N U A L R E P O R T

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TABLE OF CONTENTS

01Message from the Chairman 02 President’s Letter 04Management’s Discussion and Analysis 09 Governance 10 Glossary of Terms 11 Statement of Management Responsibility 12 Independent Auditor’s Report 14 Statement of Financial Position 15 Statement of Comprehensive Income16 Statement of Changes in Equity 17 Statement of Cash Flows 18 Notes to the Financial Statements 32 Directory

Prince Rupert 44823685

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Låzaro Cårdenas 6925

Shanghai

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Ridley Terminals Inc. (RTI) is uniquely positioned to play an important role in supporting exports from North America to meet a growing global demand. RTI offers a high level of quality, reliableand uninterrupted services.

Located on Ridley Island in Prince Rupert, British Columbia, RTI can offercustomers reduced sailing time to Asia by more than one day compared to Vancouver, and nearly three days vis-à-vis Long Beach, California.Established in 1983, the Terminal has been operating for 30 years.

In 2011 the Terminal commenced a four year site expansion andinfrastructure upgrade program, with a current estimated outlay of $255 million. RTI is a Canadian Crown corporation that was originallydesigned to handle throughput of up to 12 million tonnes per annum.

During 2012, with the completion of certain upgrades, Terminal capacity was increased marginally through improved equipmentperformance. By the end of the expansion and upgrade project, terminal capacity will reach 25 million tonnes. The additionalcapacity is necessary to meet the increase in export volumes from our current contracted customers and to facilitate additionalthroughput from planned mine developments in both British Columbia and Alberta.

RTI historically serviced coal mines and refineries in northern British Columbia, Alberta and Saskatchewan. Commencing in 2010the Terminal received product from the Southeast region of British Columbia and in 2011 received coal from the United States, both under long term terminal service agreements. RTI’s customers produce high quality metallurgical coals used in steelmaking, as well as coal used for power generation, while the refineries produce petroleum coke as a byproduct. Coal accounts for 88% of RTI’s handling volume, with the remaining volume coming from Petroleum Coke shipments. The majority of product shippedthrough RTI is destined for Asia, with product also being shipped to South America and Europe.

RTI’s vision is to provide value to the Crown while expanding on its role as a leading trade gateway between North American andworld markets. RTI’s mission is to provide its customers with premium, on-time services, while maintaining a safe and rewardingwork environment.

In 2009 RTI and the Prince Rupert Port Authority came to terms on a 30 year land lease arrangement, with the option for a further20 year renewal term. The 50 year term provides a working footprint for RTI and provides both parties with the peace of mind and security of a long term working relationship. RTI also holds the rights to an adjacent area for a further 102 acres of additionalstockyard capacity.

Newcastle 4148

NAUTICAL MILES BETWEEN PORTS

RTI 2013 ANNUAL REPORT | 01

RIDLEY TERMINALS INC.

MESSAGE FROM THE CHAIRMANMarch 13, 2014

Honourable Lisa RaittMinister of TransportPlace de Ville, Tower C, 29th Floor,330 Sparks Street,Ottawa, ON, K1A 0N5

Minister,

On behalf of the Board of Directors, management and staff of Ridley Terminals Inc., I am pleased to provide to you our 2013Annual Report. It is our responsibility as the Board of Directors to present this report. It is our hope that you find it in order.

2013 has been an important year for RTI. The board, management and staff have remained consistent in our efforts to operate RTI in a commercial manner as mandated by the Government of Canada, achieving record volumes andcontinuing to engage in a major expansion.2013 marks a particular milestone in RTI’s history as the facility achieved anotherrecord by shipping 11.8 MM tonnes this year. This is the fourth straight year inwhich such a record has been achieved.

This is a strong reflection of the commitment and ability of RTI President & COO, Mr. George Dorsey, his management team and our dedicated staff. All are to be congratulated.

More impressively these volumes were achieved in the midst of a major expansion, as approved in the RTI Annual Plan(s),including installation of a 3rd stacker-reclaimer and other considerable improvements. When the planned expansion is complete,RTI will have a capacity of 25 MM tonnes ensuring our ongoing goal of enabling increased coal exports by our customers.

Safety at RTI remains a primary focus. Continual efforts at improvement have helped diminish occurrences requiring medicalattention to one for 2013. This is also particularly notable given this was a period of both record throughput and a majorexpansion. RTI believes zero lost time is the only acceptable objective and the Board, management and staff will continue to work to that goal.

Financially, RTI remains on a strong footing. Net Profit before OCI in 2013 was $ 68.5 MM, while Cash & Cash Equivalents were$113.5 MM at December 31, 2013. Our mandate to operate commercially continues to be central to RTI’s approach, although thiscan be sometimes challenging in the regulatory and decision-making environment in which Crown Corporations often operate.

Finally is it important to note that in December of 2012 the Government of Canada announced the beginning of a process toexamine the possible disposition of RTI. The Board of Directors supports this decision and seeks to assure you that during thisoutgoing process that RTI will continue to operate in a consistent, commercial, safe and responsible manner on behalf of thepeople of Canada.

On the behalf of the Board of Directors I would like to extend our continued thanks and appreciation to RTI’s management and staff for this most impressive year.

Yours sincerely,

Byng GiraudChair (Interim), Ridley Terminals Inc.

PRESIDENT’S LETTER

March 13, 2014

The calendar year 2013 marked a major milestone for Ridley Terminals Inc. (RTI) – it marks the thirty-year anniversary of the Terminal. Thirty years ago in November1983 the first railcars arrived from the coal seams of North Eastern BritishColumbia. The first vessel was loaded and sailed for Japan in January 1984. Today product arrives from various regions of Western Canada and NorthwesternUnited States.

The ports of call have expanded well beyond Japan to include China, South Korea, Taiwan, South America and Europe. This milestone would not be possible without the outstanding effort of our employees and we are proud to have severalemployees who were here when those first railcars arrived and the first vessel departed. Thirty years of continuous employment is quite an achievement, and RTI is grateful for their years of dedicated service.

The Terminal continues to handle record volumes, while upgrading and expanding the site to handle growth. Over the past twoyears, over $150 million has been expended on capital initiatives with tens of millions more committed to complete the currentbuild-out and upgrade. At the forefront of the Terminal’s day to day operations is our safety program, which has created a strongsafety awareness culture. The Company supports and thanks our safety committee, employees and contractors who demonstratesafety first in their actions and attitudes. We continue to strive towards our goal of no injuries and accidents.

The success of the Terminal has been reflected in the financial condition of it as well. Less than a decade ago, the Terminalreported an accumulated deficit of $188 million and relied on occasional appropriations to keep the facility operational. At theend of 2013, RTI now has accumulated retained earnings of $60 million – a turnaround of $248 million – and $114 million in cash and cash equivalents. The capital project mentioned earlier is funded by the Terminal without Federal assistance. Terminalservice contracts are in place for future shipments, providing assurance of growth and stability for the Terminal for the nextdecade. Through the efforts of our Shareholder, Board of Directors, management team and employees the Terminal has beentransformed into a viable and sustainable business. The current goal is to expand on that viability and continue to develop thenext phase of RTI’s growth.

Through 30 years of operations, the Terminal has been provided with strong support from our external stakeholders. This continues to be evident today, exemplified by our constructive relationships with the surrounding communities, our first classcustomers, our partners in the logistics chain particularly the CN Railway, the Port Authority of Prince Rupert and our suppliers. On the horizon for our hometown are new ventures and substantial projects that seek to call this corridor home. These projectspresent both opportunities and challenges for the town and its constituents. RTI is embracing this opportunity and hasspearheaded the establishment of two trades training programs based out of Prince Rupert, whose goal is to train local residentsand allow them to qualify for attractive positions generated by these projects. The highest mark goes to our local College forfinding a home and administrating the programs, but it would not have been possible without support from other localcompanies and new ventures who seek to put down roots.

I wish to thank all stakeholders of the Terminal for your past support and look forward to working with you on current and new endeavors.

George DorseyPresident & Chief Operating Officer


02 | RTI 2013 ANNUAL REPORT

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The Terminalcontinues tohandle recordvolumes, whileupgrading andexpanding thesite to handlegrowth.


MANAGEMENT’S DISCUSSION & ANALYSIS


OPERATIONAL PERFORMANCE

OverviewThe following table depicts select measures of comparativeperformance for 2013:

For the year ended December 31 2013 2012 Var ($) Var (%)

Revenue (In thousands of $ CDN) 131,052 104,451 26,601 25.47%

Net operating profit (In thousands of $ CDN) 65,043 46,711 18,332 39.25%

Cash flow from operations (In thousands of $ CDN) 64,896 83,160 (18,264) -21.96%

Vessel throughput (In thousands of tonnes) 11,789 11,705 84 0.72%

Revenues(In thousands of Canadian dollars) 2013 2012 Var ($) Var (%)

Throughput revenue 105,378 100,218 5,160 5.15%

Relinquished customer deposits and options 22,000 0 22,000 100.00%

Berthage, lines and despatch 2,378 2,325 53 2.28%

Other revenue 1,296 1,908 -612 -32.08%

Total revenues 131,052 104,451 26,601 25.47%

Forward-looking StatementsCertain statements in this report are forward-lookingstatements and are not historical facts. Inherent in theseforward-looking statements are risks and uncertaintiesbeyond the control or the ability of the Company to predict.Readers are cautioned that future results may vary materiallyfrom any results stated or inferred by forward-lookingstatements contained herein.

SUMMARYIn 2013, strong performance was maintained at RidleyTerminals Inc., despite declining coal markets. Terminal railunloading volumes decreased by 2.27% or 272,000 tonnesduring the 2013 for a total of 11,697,000 tonnes (2012:11,969,000 tonnes). Ship-loading volumes increased by0.72% or 84,000 tonnes during 2013 for a total of 11,789,000tonnes (2012: 11,705,000 tonnes). Net operating profit forthe terminal in 2013 rose to $65,043,000 (2012: $46,711,000)for an increase of $18,332,000 or 39.25% over the previousyear. This increase was driven by $22,000,000 (2012: $0) in recognized deferred revenue due to the relinquishedcustomer deposits and options. For the period ending 2013RTI reports accumulated retained earnings of $60 Million,compared to an accumulated deficit approaching $188Million nearly a decade ago.

During the year, the terminal’s Capacity Realization Projectsaw the commissioning of a third Stacker-Reclaimer andrelated conveyance, saw continued civil work on the 35 acrestockyard expansion, moved through the engineering stageof the second tandem rotary dumper, and saw the staging of equipment for the first of two Stacker-Reclaimer retrofitsslated for completion in 2014. In 2013, RTI exercised its rightsto an adjacent area for a further 102 acres of additionalstockyard capacity.

Coal volumes accounted for 87.44% of total terminalshipments in 2013, with petroleum coke covering the balanceat 12.56%. A total of 119 vessels loaded product at RTI during2013, compared to 114 vessels in 2012. Average vessel cargovolumes fell to 99,000 tonnes from 103,000 for a decrease of4,000 tonnes over 2012.

Operating Expenses(In thousands of Canadian dollars) 2013 2012 Var ($) Var (%)

Salaries, wages and benefits 24,884 23,057 1,827 7.92%

Depreciation 9,895 9,442 453 4.80%

Lease rental 7,843 7,495 348 4.64%

Contract and professional services 7,464 4,675 2,789 59.66%

Equipment, operations and maintenance 6,519 4,850 1,669 34.41%

Management services 2,567 2,401 166 6.91%

Site utilities 1,910 1,758 152 8.65%

Demurrage 1,878 1,376 502 36.48%

Other expenses 3,049 2,686 363 13.51%

Total operating expenses66,009 57,740 8,269 14.32%


Revenues earned in 2013 reached $131,052,000 (2012:$104,451,000) for an increase of $26,601,000 or 25.47%.

Throughput revenue in 2013 was $105,378,000 (2012:$100,218,000), increasing by $5,160,000 or 5.15% whencompared to 2012. In 2013, the average throughput revenueper tonne of shipments increased by $0.38 to $8.94, asopposed to $8.56 by the end of 2012. Slightly lower overallvolumes handled attributed to a decrease in throughputrevenue of $796,000, with an increase of $5,956,000attributable to a rise in average rates charged per tonne ofthroughput handled. The overall increase in throughputrevenue for the year is largely due to progressive increases in terminal throughput rates.

Berthage, lines and despatch revenue rose to $2,378,000 for an increase of $53,000 or 2.28% while other revenue fell to $1,296,000 resulting in a decrease of $612,000 or32.08% over the same period in 2012. This is mainly due to a reduction in shortfall penalties charged to customers andrecognized in other revenue in 2013 that were not able tomeet minimum throughput guarantees with the terminal.

In 2013, deposits and options relinquished by customersallowed RTI to recognize $22,000,000 (2012: $0) of deferredrevenue into comprehensive income.

Coal volumes accounted for87.44% of total terminal shipmentsin 2013, with petroleum cokecovering the balance at 12.56%.



Equipment, operations and maintenanceIn 2013, equipment, operations and maintenance expensesrose to $6,519,000 from $4,850,000, for an increase of$1,669,000 or 34.41%. These expenses have increasedsignificantly since 2012 as a result of regular plannedmaintenance on aging site facility assets coupled withprogressive increases in overall terminal throughput. In 2013, equipment, operations and maintenance expensescomprised 9.88% of total operating expenses.

Management servicesManagement service expenses rose to $2,567,000 from$2,401,000 for an increase of $166,000 or 6.91% in 2013. The increase in management service expense during the yearresulted from the Board of Directors’ approval of an amendedmanagement contract with Edgewood Holdings. In 2013,management expenses comprised 3.89% of total operatingexpenses.

Site utilitiesSite utilities expenses rose to $1,910,000 from $1,758,000 for an increase of $152,000 or 8.65% in 2013. The increase inutilities during the year resulted from progressively increasingutility rates and a higher load rate at the terminal. In 2013,site utilities expenses comprised 2.89% of total operatingexpenses.

DemurrageIn 2013, demurrage expenses rose to $1,878,000 from$1,376,000 for an increase of $502,000 or 36.48%. Increasesin demurrage have resulted from increased vessel traffic andmaintenance outages during the year. In 2013, demurrageexpenses comprised 2.85% of total operating expenses.

Other expensesOther expenses rose to $3,049,000 from $2,686,000 for anincrease of $363,000 or 13.51% in 2013. Increases in otherexpenses have resulted in part from increased property taxeswith the addition of newly assessed items to RTI’s footprintduring the year. In 2013, other expenses comprised 4.62% of total operating expenses.

Cash Flows2013 cash flows from operating activities fell to $64,896,000(2012: $83,160,000) for a decrease of $18,264,000 or 21.96%over 2012. This decrease is driven by timing differences incash receipts from customers coupled with increasedoperating expenditures and a large downward swing incomparative accounts payable balances from the prior year.

2013 cash flows used in investing activities decreased overthe prior year, falling to $74,882,000 (2012: $82,472,000) for an decrease of $7,590,000 or 9.20% over 2012. Loweroutflows were largely due to the plateauing of purchases and construction of property, plant and equipment driven by the Capacity Realization Project as the project completedthe significant contracts active in 2012.

2013 cash flows used in financing activities remained thesame when compared to 2012 at $2,400,000 (2012:$2,400,000) as no additional financing was drawn whilerepayments of long-term debt and financing costs paidremained consistent with 2012.

Operating expenses during 2013 totaled $66,009,000 (2012:$57,740,000) for an increase of $8,269,000 or 14.32% over2012. The following chart depicts the proportion by nature of 2013 operating expenses:

■ 37.70% Salaries, wages and benefits■ 14.99% Depreciation ■ 11.88% Lease rental ■ 11.31% Contract and professional services ■ 9.88% Equipment, operations and maintenance ■ 3.98% Management services ■ 2.89% Site utilities■ 2.85% Demurrage■ 4.62% Other expenses

Salaries, wages and benefitsSalaries, wages and benefits rose in 2013 to $24,884,000from $23,057,000 in the prior year, for an increase of$1,827,000 or 7.92%. This is due to continued andprogressive increases in operations and support staff tocounteract increased capacity demands and increasingattrition rates. In 2013, salaries, wages and benefitscomprised 37.70% of total operating expenses.

DepreciationDepreciation rose to $9,895,000 from $9,442,000 in 2012 foran increase of $453,000 or 4.80% in 2013. This is primarilydue to the commissioning of major components of theterminal under the Capacity Realization Project. In 2013,depreciation expense comprised 14.99% of total operatingexpenses.

Lease rentalIn 2013, lease rental expense rose to $7,843,000 from$7,495,000, for an increase of $348,000 or 4.64%. As RTI’slease agreement with the Prince Rupert Port Authority islinked to throughput volumes at the terminal, this is due toincreased terminal throughput as well as CPI rate increasestriggered in 2013. In 2013, lease rental expenses comprised11.88% of total operating expenses.

Contract and professional servicesContract and professional service expenses during the yearrose to $7,464,000 from $4,675,000 in 2012, for an increaseof $2,789,000 or 59.66%. This increase is attributable to many factors and is consistent with systems, procedural, anddivesture initiatives taking place at the terminal during theyear requiring specialist input. In 2013, contract andprofessional service expenses comprised 11.31% of totaloperating expenses.


The cost of logistics for access to global markets has becomea significant burden on profitable deals made overseas.Progress delays on proposed terminals on the West Coast of North America have further constrained supply of NorthAmerican products overseas.

Nonetheless, RTI has seen stable performance in comparisonto the prior year with volumes shipped totaling 11,789,000tonnes (2012: 11,705,000 tonnes). When contrasted withperformance of many producers this year, the Terminal hasdone a remarkable job continuing a trend of record volumesshipped.

Demand for North American products is expected to remainstrong, even in a period of significant price competition dueprimarily to energy security requirements of Asian buyers of these products. Despite difficulties competing withIndonesian and Australian producers at this time, the addedbenefit to Asian buyers is a strong, constant supply chain ofthe products from a diversified reliable supply chain. Thus, an increase in North America’s coal product to this supplychain allows for mitigation of supply interruptions due toextraordinary events in Oceana.

PEOPLERTI operates under a collective agreement with theInternational Longshore and Warehouse Union (ILWU) local523; the current agreement is for a term of seven-years,expiring mid-2015. Both parties have a well establishedworking environment where non-managers collaborate withmanagers to continuously improve terminal performance and to deal with the issues of the day. Manning levels to end 2013, for both union and non-union, reached 139, anincrease of 59 employees over a six year span. The safetyrecord at RTI is commendable and this is achieved by adedicated workforce whom takes great pride in maintaining a strong safety culture. The employees of RTI are applaudedfor their ability to maintain and operate a Terminal in its 30th year of operations, with very few interruptions in service levels.

COMMUNITYAs an industry leader, RTI recognizes that it not only has aresponsibility to its customers, but also to its community. Inthe thirty years of operation, the Terminal continues to enjoya strong relationship with Prince Rupert and the surroundingcommunities.

RTI is situated within Tsimshian territory and continues towork cooperatively with the Coast Tsimshian First Nations ofLax Kw’alaams and Metlakatla to develop and foster a strongworking relationship, and a commitment to work togethertoward common goals.

RTI takes pride in its ability to give back to Prince Rupert and the surrounding communities through corporate socialresponsibility. The Company offers a substantial amount offunding in the areas of education, fine arts, team and eventsponsorships, and donations to many organizations in Prince

CUSTOMERSDuring 2013, under recent agreements, scaled rates weretriggered as volumes reached new levels. In 2013, twoentities relinquished their rights to future capacity reservationat the terminal. As a result, a relinquishment of $20,000,000in customer deposits (2012: $0) occurred during the year.Deposits related to capacity reservations now total$60,900,000 (2012: $80,900,000). These deposits will becredited back and recognized as revenue as services areprovided. RTI has continued to successfully fund its majorbuild-out and upgrade of the Terminal without Federalfinancial assistance as a result of these non-refundabledeposits for site capacity as well as cash from operatingactivities. The continued build-out of the terminal to acapacity of 25 million tonnes per annum, more than doublingpre build-out capacity, will enable RTI to meet future servicerequirements and acquire new customer arrangements.

Product received by the Terminal comes from origins inNortheast and Southeast British Columbia, Alberta,Saskatchewan and from the Powder River Basin region of the United States. The rail corridor servicing the Terminal is of high quality and has the ability to meet the Terminal’s andits Customers’ continued demands for bulk rail services.

MARKETSIn 2013, new challenges were seen for North Americanproducers of coal and petroleum coke. Both metallurgicalcoal and thermal coal markets reached significantly lowerprices due to a myriad of compounding factors on themarketplace.

Metallurgical coal markets saw a lower demand as manycoking operations overseas reinvested in more efficient andcost effective infrastructure as a result of lessening demandfor steel. However, these markets have since made a recoveryin pricing, with hard coking coal once again demanding over$150/tonne by December of 2013. Forecasts for steadygrowth of these market prices into the future are now widelyagreed upon by market analysts.

Thermal coal markets saw significant price competition as the shale gas boom in the Central Appalachian region of theUnited States forced many domestic producers to offloadexcess supply in export markets due to conversion of agingplants to natural gas in the United States. When coupled withthe strengthening of Chinese domestic supply chaininfrastructure and new regulations on thermal productsconsumed in the country, prices were bid down significantlyacross the year.

The overall drop in prices of these commodities hasconsequently forced many producers to carefully considertheir cost structure under tighter margins. In addition, USproducers have been faced with tighter domestic regulationon production and consumption of thermal coal as well asunfavorable shifts in exchange rates, making their productsless attractive in competition for global market share.



OUTLOOKRTI’s outlook for 2014 and beyond remains confident in long term growth potential, in light of recent volatility in themarkets. Future terminal service contracts are in place andmine developments in Western Canada are progressing.United States coal producers continue to look to West Coastports for an export corridor. Canada’s Pacific Coast bulk coalterminals are experiencing year over year increases inhandling volumes. Global demand for coal and petroleumcoke used in the production of steel or used to produceelectricity is still experiencing modest growth. Asian marketslooking to diversify their sources of product look to NorthAmerica as a viable destination.

RTI is well positioned, due to its proximity to Asian markets;an uncongested rail line that services the corridor and aTerminal that is located in a deep-sea port that is open year-round, with the ability to handle large capsize vessels.The ongoing expansion and upgrade initiatives at RTI iscreating capacity and renewing the facility in order toimprove our handling effectiveness, thus cultivating quickturnaround times for rail and vessel services. Of notableimportance, RTI exercised its right to an adjacent 102 acreproperty in 2013, which will further support long term growth requirements beyond our current targets.

The current target of 25 million tonnes of throughput capacityis becoming attainable due to the tremendous efforts of allparties involved in the operation of RTI, transforming RTIfrom a once struggling Crown asset in need of governmentfunding to a self-sufficient, profitable enterprise.

As always, management continues to strive for greaterefficiency, growth, and productivity as we celebrate thecompletion of another record setting year. It is with greatpleasure that we approve RTI’s 2013 Annual Report.

Rupert. Due to the growth and development within ourcompany, our level of community involvement has been ableto grow as well, which has resulted in RTI being recognizedand nominated for the Business of the Year award, as well asthe Community Involvement award by the Prince Rupert andDistrict Chamber of Commerce for 2013.

RESOURCESIn early 2013, RTI erected and commissioned a significantnew piece of equipment, a third Stacker-Reclaimer and itsrelated conveyance, a major milestone of a multi-yearinitiative. Once all initiatives are complete the Terminal willhave more than doubled its handling capacity, providing theTerminal with an annual throughput of 25 million tonnes. This comprehensive upgrade and expansion of the facility to date has included the aforementioned third Stacker-Reclaimer, a major upgrade to the Terminal’s existing railunloading facility, and 14 kilometers of new and refurbishedrail infrastructure. The current period also saw thecontinuation of civil works to extend the Terminal’s stockyardwith the addition of 35 acres of graded land. Delivery ofcomponents and supplies to retrofit our previous two Stacker-Reclaimers was achieved in late 2013, with workcommencing during the first quarter of 2014. This retrofit issplit in two phases, so to mitigate the impact on operations.The completion date is scheduled for the last quarter of2014. Once complete, both the upgraded Stacker-Reclaimersand the now commissioned third Stacker-Reclaimer willsubstantially improve the overall handling volumes andservice levels of the Terminal.

The expansion project is underway to meet throughputdemands of both current and new contracted customers. The Terminal is 30 years old and a number of its assetsrequire replacement, modification or major repairs in order to maintain a high level of reliability. Total capital cash outlaysfor the period were $74.9 million compared to $82.5 millionin 2012. All the financial resources necessary are in place tosee the project through to its completion.

ENVIRONMENTAL, HEALTH AND SAFETYIn order to ensure environmental compliance, RTI is certifiedto the ISO 14001 standard. RTI’s Health and Safety system is certified to the OHSAS 18001 standard. The Terminal putsat the forefront of its operations and planning initiatives,compliance to strong environmental stewardship, as well asthe resources necessary to support the Health and Safetyprograms.


GOVERNANCE

The Articles of Incorporation state that RTI’s activities must be in compliance with the requirements of Part X of the FinancialAdministration Act (R.S.C. c. F-11). The by-laws provide for a Board of Directors consisting of from 3 to 7 members; and aminimum of 4 meetings of the Board of Directors each year. Byng Giraud was appointed as Chairman of Ridley Terminals Inc.Board of Directors on October 4th, 2012. The Board has maintained the appointment of an Audit Committee and has alsocreated several 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 thetask of increasing the value of Canada’s investment in the Terminal, to support the local community, uphold a high standard ofethical behavior and provide a quality 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 hasbeen expanded, and the Ridley community has shown increased support for the Crown’s financial self-sufficiency.

When contrasted with performance of many producersthis year, the Terminal has done a remarkable jobcontinuing a trend of record volumes shipped.


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 thecargo, or to sail. The extra time beyond the calculated laydays (being the days allowed to load and unload the cargo)are called the days of demurrage. The term is likewiseapplied to the payment for such delay.

Despatch: Is revenue earned when a vessel is loaded and ordischarged more rapidly than the allowed laytime. Despatchis the opposite of demurrage and generally amounts to halfof the demurrage rate.

ISO: The International Organization for Standardization: Aglobal federation of over a hundred national standardsbodies with central secretariat in Geneva, Switzerland. An ISOstandard is an international standard published by the ISO.For example: The ISO 14000 environmental managementstandards exist to ensure products and services have thelowest possible environmental impact.

Laytime: The time allowed for cargo loading and/ordischarging operations; laytime may be expressed as acertain number of days or number of tonnes of cargoloaded/unloaded per day.

Metallurgical Coal: Bituminous coal from which the volatileconstituents are driven off by baking in an oven attemperatures as high as 2,000 degrees Fahrenheit so that thefixed carbon and residual ash are fused together forming


coke, which along with pulverized coal is consumed inmaking steel.

Petroleum coke: Petroleum coke is a carbonaceous solidderived from oil refinery cracking processes. Crude oil mustbe refined to produce gasoline and other products. A residueis left over from this process that can be further refined bycoking it at high temperatures and under great pressure. Theresulting product is pet coke, a hard substance that is similarto thermal coal.

Powder River Basin: The Powder River Basin is a geologicregion in southeast Montana and northeast Wyoming, knownfor its coal deposits. The region represents about 40 percentof all coal mined in the United States.

Stacker-Reclaimer: A large machine that has the capability ofboth stacking bulk materials into storage piles and recovering(reclaiming) the material, using a bucket wheel, from thestorage piles. Stacker-Reclaimers are rated in tonnes per hourfor capacity and travel on a rail between stockpiles in thestockyard. It can typically move in three directions -horizontally along the rail - vertically by luffing its boom androtationally by slewing its boom.

Thermal Coal: Coal used for steam/power generation or forspace heating purposes, including all anthracite coals andbituminous coals not included under coking coal.



STATEMENT OF MANAGEMENT RESPONSIBILITY

The accompanying financial statements of Ridley Terminals Inc., and all information in the annual report pertaining to theCompany, are the responsibility of management, and have been approved by the Board of Directors.

These financial statements have been prepared by management in accordance with International Financial Reporting Standards(IFRS). Financial statements are not precise, because they include some amounts that are based on estimates and judgments.Management has determined such amounts on a reasonable basis. Financial information used in the annual report is consistentwith that in the financial statements.

Management maintains a system of internal accounting and administrative controls designed to provide reasonable assurance asto the reliability of financial information and the safeguarding of assets.

The Board of Directors of the Company is responsible for ensuring that management fulfills its responsibilities for financialreporting and internal controls. The Board exercises this responsibility through an Audit Committee consisting of three non-management members. The Audit Committee meets regularly with management and with the external and internal auditors toreview the scope and result of the annual audit, and to review the financial statements and related financial reporting matters priorto submitting the financial statements to the Board of Directors for approval.

These financial statements have been independently audited in accordance with Canadian generally accepted auditing standardsby the Company's external auditor, the Auditor General of Canada, and his report is included with these financial statements.

G. Dorsey C. DixonPresident Controller

March 13, 2014

The current target of25 million tonnes ofthroughput capacity isbecoming attainabledue to the tremendousefforts of all partiesinvolved in theoperation of RTI.



Ridley_2013_EN_inside06_ridley terminals 14-04-29 9:24 AM

STATEMENT OF FINANCIAL POSITIONAs at December 31 (in thousands of Canadian dollars)

2013 2012

$ $

ASSETS Current assets Cash and cash equivalents (Note 5) 113,509 125,723 Accounts receivable (Note 6) 9,767 16,042 Inventory (Note 7) 6,083 2,871 Prepaid expenses (Note 9) 423 652

129,782 145,288

Non-current assetsPension benefit asset (Note 11) 3,968 - Property, plant and equipment (Note 10) 255,701 203,174

259,669 203,174

389,451 348,462

LIABILITIES Current liabilities Accounts payable and other liabilities (Note 12) 15,464 25,901 Current portion of long-term debt (Note 13) 1,292 1,254

16,756 27,155

Non-current liabilitiesOther liabilities 605 219 Asset retirement obligation (Note 14) 6,588 6,940 Long-term debt (Note 13) 36,233 37,525 Deferred revenue (Note 15) 68,943 88,209 Pension benefit liability (Note 11) - 4,207

112,369 137,100

129,125 164,255

SHAREHOLDER'S EQUITYCapital stock (Note 16) 136,042 136,042 Contributed surplus (Note 16) 64,000 64,000 Accumulated retained earnings (deficit) 60,284 (15,835)

260,326 184,207

389,451 348,462

Commitments (Note 17) and Provisions and Contingencies (Note 20)The accompanying notes are an integral part of these financial statements.

14 | RTI 2013 ANNUAL REPORT14 RTI 2013 Annual Report


STATEMENT OF COMPREHENSIVE INCOMEFor the year ended December 31 (in thousands of Canadian dollars)

2013 2012Restated (Note 4)

$ $

REVENUESThroughput revenue 105,378 100,218 Relinquished customer deposits and options (Note 15) 22,000 - Berthage, lines and despatch 2,378 2,325 Other revenue 1,296 1,908

131,052 104,451

EXPENSESSalaries, wages and benefits 24,884 23,057 Depreciation 9,895 9,442 Lease rental (Note 17) 7,843 7,495 Contract and professional services 7,464 4,675 Equipment, operations and maintenance 6,519 4,850 Management services (Note 18) 2,567 2,401 Site utilities 1,910 1,758 Demurrage 1,878 1,376 Other expenses 3,049 2,686

66,009 57,740

NET OPERATING PROFIT 65,043 46,711 Net gain (loss) on recycled site material (Note 8) 2,621 (1,363)Loss on asset disposal (79) (700)Impairment of assets (272) (240)Net foreign exchange loss (44) (28)Interest income 1,196 1,144

NET PROFIT BEFORE OTHER COMPREHENSIVE INCOME 68,465 45,524

OTHER COMPREHENSIVE INCOME (Not to be reclassfied to comprehensive income in subsequent periods)Defined benefit plan actuarial gains (losses) (Note 11) 7,654 (5,642)

TOTAL COMPREHENSIVE INCOME 76,119 39,882

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



STATEMENT OF CHANGES IN EQUITYFor the year ended December 31 (in thousands of Canadian dollars)

AccumulatedRetained

Capital Contributed EarningsStock Surplus (Deficit) Total

$ $ $ $

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

Total comprehensive income for the yearProfit for the year - - 45,524 45,524 Defined benefit plan actuarial losses - - (5,642) (5,642)

Total comprehensive income for the year - - 39,882 39,882

Balance at December 31, 2012 136,042 64,000 (15,835) 184,207

Total comprehensive income for the yearProfit for the year - - 68,465 68,465 Defined benefit plan actuarial gains - - 7,654 7,654

Total comprehensive income for the year - - 76,119 76,119

Balance at December 31, 2013 136,042 64,000 60,284 260,326






STATEMENT OF CASH FLOWSFor the year ended December 31 (in thousands of Canadian dollars)

2013 2012

$ $

OPERATING ACTIVITIES Cash receipts from customers 122,882 128,478 Interest received 1,196 1,144 Cash paid for salaries, wages and benefits (21,389) (19,696)Defined benefit and defined contribution plan (Note 11) (3,142) (2,658)Cash paid to suppliers (26,846) (16,881)Cash paid for lease rental (7,805) (7,227)

Cash flows from operating activities 64,896 83,160

INVESTING ACTIVITIESCash paid to purchase property, plant and equipment (74,882) (82,472)

Cash flows used in investing activities (74,882) (82,472)

FINANCING ACTIVITIESRepayment of long-term debt (1,254) (1,210)Financing costs paid (1,146) (1,190)

Cash flows used in financing activities (2,400) (2,400)

Net decrease in cash and cash equivalents (12,386) (1,712)

Cash and cash equivalents, beginning of the year 125,723 127,587 Effect of exchange rate fluctuations on cash held 172 (152)

Cash and cash equivalents, end of the year (Note 5) 113,509 125,723



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


1. GOVERNING STATUTES AND NATURE OF OPERATIONSRidley Terminals Inc. (the Company), incorporated under the Canada Business Corporations Act on December 18, 1981, operates a 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 Actreceived Royal Assent. This Act came into force on November 1, 2000, at which time the Canada Ports Corporation Act wasrepealed 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 corporationexempt 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. GOING CONCERNIn December 2012, the Company’s shareholder announced its intention to sell the business. These financial statements have been prepared without making any assumptions as to the outcomes of the potential sale, and, as such, they do not contemplateany significant changes to the Company’s existing activities.

3. BASIS OF PRESENTATION

Statement of ComplianceThe annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements were authorized for issue by the Board of Directors on March 13, 2014.

Functional CurrencyThe financial statements are presented in Canadian dollars, which is the Company’s functional currency. All tabular financialinformation presented in Canadian dollars has been rounded to the nearest thousand.

Use of Estimates and JudgmentsThe preparation of the annual financial statements in conformity with IFRS requires management to make judgments, estimatesand assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income andexpenses. 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 year in which the estimates are revised and in any future years affected.Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:Note 11 – Pension benefitsNote 14 – Asset retirement obligationNote 20 – Provisions and contingencies

4. SIGNIFICANT ACCOUNTING POLICIESThe accounting policies set out below have been applied consistently to all years presented in these financial statements.

Foreign CurrencyTransactions in foreign currencies are translated to the functional currency of the Company at exchange rates on the dates of thetransactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functionalcurrency at the exchange rate at that date. Foreign currency differences arising on translation are recognized in profit or loss.

Cash and Cash EquivalentsCash and cash equivalents comprise cash balances and short-term investments having a term to maturity of three months or less when acquired.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell theasset or transfer the liability takes place either:


RIDLEY TERMINALS INC.NOTES TO THE FINANCIAL STATEMENTS(amounts in tables are in thousands of canadian dollars)

• In the principal market for the asset or liability, or• In the absence of a principal market, in the most advantageous market for the asset or liabilityThe principal or the most advantageous market must be accessible to the Company.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the assetor liability, assuming that market participants act in their economic best interest.The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available tomeasure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair valuehierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservableFor the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature,characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

Financial InstrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assetsInitial recognition and measurementThe Company’s financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss or loans andreceivables. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair valuethrough profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

Subsequent measurementa. Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss include financial assets held for trading and financial assets designated uponinitial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for thepurpose of selling or repurchasing in the near term. The Company has not designated any financial assets at fair value throughprofit or loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as a loss or a gain in net operating profit in the statement of comprehensive income.The Company’s cash and cash equivalents are classified as held for trading.b.Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interestrate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in interest income in the statement ofcomprehensive income. The losses arising from impairment are recognized in net operating profit in the statement ofcomprehensive income.The Company’s accounts receivable are classified as loans and receivables.

DerecognitionA financial asset is primarily derecognized when the rights to receive cash flows from the asset have expired, or the Company hastransferred its rights to receive cash flows from the asset and has transferred substantially all the risks and rewards of the asset.

Impairment of Financial AssetsThe Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financialassets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset, has animpact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financialreorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such aschanges in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized costFor financial assets carried at amortized cost, the Company first assesses whether impairment exists individually for financial assetsthat are individually significant, or collectively for financial assets that are not individually significant. If the Company determinesthat no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes



the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assetsthat are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the presentvalue of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value ofthe estimated future cash flows is discounted at the financial asset’s original effective interest rate.The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in net operatingprofit in the statement of comprehensive income.

Financial LiabilitiesInitial recognition and measurementFinancial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directlyattributable transaction costs.The Company’s financial liabilities include accounts payable and other liabilities, long-term debt and other liabilities.

Subsequent measurementAfter initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in comprehensive income when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees orcosts that are an integral part of the EIR. The EIR amortization is included as finance costs in other expenses in the statement ofcomprehensive income.

DerecognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is acurrently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize theassets and settle the liabilities simultaneously.

Share capitalCommon shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity.Preference share capital is classified as equity as it is non-redeemable, or redeemable only at the Company’s option, and anydividends are discretionary. Dividends thereon are recognized as distributions within equity.

Property, Plant and EquipmentRecognition and measurementItems of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includesthe cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for theirintended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowingcosts on qualifying assets for which the commencement date for capitalization is on or after January 1, 2010.When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items ofproperty, plant and equipment.Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds fromdisposal with the carrying amount of property, plant and equipment, and are recognized net within gain or loss on asset disposalon the statement of comprehensive income.

Subsequent costsThe cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it isprobable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measuredreliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant andequipment are recognized in profit or loss as incurred.

DepreciationDepreciation is calculated on the depreciable amount, which is the cost of an asset less its residual value. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property,plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefitsembodied in the asset. Assets recognized under finance leases are depreciated over the shorter of the lease term and their usefullives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term, in which case they are



depreciated over the useful lives of the assets. The original terminal facility assets, inclusive of the wood pellet terminal assets, are depreciated on a straight-line basis to 2024.Terminal facility assets that will be replaced as part of the Company’s expansion project are depreciated on a straight-line basis tobetween 2014 and 2016. Additions to the terminal facility assets as a result of the expansion project are depreciated on a straight-line basis up to 2039.The sulphur terminal was written down to its salvage value in 2009. Construction of the terminal was never completed andtherefore amortization was never recorded against the asset.The estimated useful lives for all other asset classes are as follows:• Vehicles, Furniture and Fixtures 5 years• Portable tools, Boats, Mobile, Shop, and Communications equipment 10 years• EDP Hardware and Software 3 yearsDepreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

InventoryWarehouse inventory consists of supplies, consumables and repair parts. Inventory is initially recognized at the cost incurred to acquire it, and is subsequently measured at the lower of weighted average cost and net realizable value.

ImpairmentThe carrying amounts of the Company’s non-financial assets, other than inventories, are reviewed at each reporting date todetermine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount isestimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. Inassessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairmenttesting, assets that cannot be tested individually are grouped together into Cash Generating Units (CGUs), the smallest group ofassets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated to reduce thecarrying amounts of the other assets in the unit on a pro rata basis. Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverableamount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amountthat would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Employee BenefitsThe Company operates a defined benefit pension plan, which requires contributions to be made to a separately administered fund.The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return onplan assets (excluding net interest) are recognized immediately in the statement of financial position with a corresponding debit orcredit to accumulated retained earnings through other comprehensive income in the period in which they occur. Re-measurementsare not reclassified to comprehensive income in subsequent periods.Net interest is calculated by applying the discount rate used to discount the defined benefit obligation to the net defined benefitliability or asset. The Company recognizes the following changes in the net defined benefit obligation under salaries, wages andbenefits in the statement of comprehensive income:• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements• Net interest expense or income• Administrative costs paid from plan assets

Defined contribution planA defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entityand will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contributionpension plans are recognized as an employee benefit expense in profit or loss in the years during which services are rendered byemployees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments isavailable. Contributions to a defined contribution plan that are due more than 12 months after the end of the year in which theemployees render the service are discounted to their present value.



Revenue and Deferred RevenueThroughput revenueThroughput revenue is earned for unloading customers’ bulk materials from rail cars and then loading those materials on ships.Throughput revenue is determined by multiplying a customer’s contracted throughput rate by the number of tonnes handled. Fifty percent of throughput revenue is recognized when bulk materials are unloaded from rail cars, and the remaining fifty percent is recognized when the materials are loaded on a ship.

Berthage, lines, and despatchLines revenue is a recovery of labour and other costs incurred in securing ships to the Company’s berth during vessel loading.Berthage is a recovery of costs incurred to dock and undock ships at the Company’s berth and despatch revenue is an incentivepayment earned by loading ships faster than the stipulated standard timeframe. Lines, berthage and despatch revenue for eachship is recognized when the ship leaves the Company’s berth.

OtherOther revenue includes revenue related to shortfall penalties, storage fees and other miscellaneous revenue earned by theCompany. This revenue is recognized when related services are performed.

DepositsCustomer deposits are payments made by customers in consideration for a contractual obligation for the Company to supplythroughput capacity in future periods. These payments are classified as deferred revenue and recognized as revenue when thecustomer is provided with the capacity it has reserved.

OptionsCustomer options are payments made by customers in consideration for the right to make a deposit and reserve throughputcapacity in future periods. These payments are classified as deferred revenue. If an option lapses, it is recognized as revenue. If an option is exercised, the option payment is deemed to be part of the total consideration received for the reserved throughputcapacity, and the option payment is recognized as revenue when the customer is provided with the capacity it has reserved.

Shortfall penaltiesCertain contracts require customers to process a minimum volume of bulk materials each year and incur a shortfall penalty shouldthis minimum not be attained. If a contract allows a customer to apply the penalty to throughput charges in future years where the minimum volume requirement is exceeded, the penalty payment received by the Company is included in deferred revenue.Deferred penalty payments are recognized as revenue when they are applied to reduce throughput charges or when they cease to be recoverable by the customer. Where a contract does not allow a customer to apply the penalty in future years, penaltypayments are recognized in revenue in the year they are incurred.

Net Gain on Recycled Site MaterialRecycled site material is excess bulk material made available in site cleanup and stockyard management activities. The materialconsists of a mixture of different types of coal, gravel, wood pellets and other detritus. Judgment was applied in determining the accounting policy for recognizing, measuring, presenting and disclosing net gains on recycled site material. The Companyrecognizes an asset and a gain related to the recycled site material when it is probable an economic benefit will flow to theCompany from it, and when its value can be measured reliably. The asset is measured at net recoverable value with unrealizedremeasurement gains or losses recognized in net gain or loss on recycled site material on the statement of comprehensive income.Gross proceeds from the ultimate sale of recycled site material are netted with directly attributable costs, including the cost fromderecognizing any related recycled site material asset already recorded as well as the cost from derecognizing any related prepaidfreight and other selling expenses recorded as assets. The resulting net gain or loss on the ultimate sale of the recycled site material is recognized in the net gain or loss on recycled site material line on the statement of comprehensive income.

Asset Retirement ObligationThe liability for an asset retirement obligation is recognized in the year incurred, for example, upon acquisition of an asset for whichthere is a related asset retirement obligation. This value is subsequently adjusted for any changes resulting from age, changes inregulatory requirements and any changes to the timing or the amount of the original estimate of undiscounted cash flows. Theassociated retirement costs are capitalized as part of the carrying amount of the capital asset and amortized over the life of theasset. The liability is increased over time through periodic charges to income and it is reduced by actual costs of decommissioningand reclamation.

Government AssistanceAs the Government of Canada is the sole shareholder of the Company, government assistance received for the repayment of debt is recorded as contributed surplus. Government assistance for the Company's capital assets is deferred and amortized toincome on the same basis as the related capital asset.



Lease PaymentsPayments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received, if any, are recognized as an integral part of the total lease expense over the term of the lease.

Changes in Accounting Policies and DisclosuresIFRS 13: Fair value measurementIFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value.The Company applied IFRS 13 prospectively in the current period in accordance with the transitional provisions set out in thestandard. Application of IFRS 13 has not impacted the Company’s fair value measurements. Additional disclosures, where required,are provided in the individual notes relating to the assets and liabilities whose fair values were determined.

IAS 1: Presentation of items of other comprehensive income – amendments to IAS 1The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income. Items that will be reclassifiedto comprehensive income at a future point in time have to be presented separately from items that will not be reclassified. The Company adopted these amendments in the current period, and they affect presentation only and have no impact on theCompany’s financial position or performance.

IAS 19: Employee benefits (revised 2011)The Company applied IAS 19 (revised 2011) retrospectively in the current period in accordance with the transitional provisions set out in the revised standard. The comparative figures have been accordingly restated.IAS 19 (revised 2011) changes, amongst other things, the accounting for defined benefit plans. The key changes that impacted the Company is the interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount under IAS 19 (revised 2011), which is calculated by applying the discount rate used to discount the definedbenefit obligation to the net defined benefit liability or asset at the start of each annual reporting period. As a result of this change,salaries, wages and benefits increased by $291,000 and defined benefit actuarial losses decreased by $291,000 in the Company’sstatement of comprehensive income for the year ended December 31, 2012. There was no impact on the Company’s statement of financial position.IAS 19 (revised 2011) also requires more extensive disclosures. These have been provided in Note 11.

Accounting Standards Issued But Not Yet EffectiveIFRS 9: Financial instrumentsIFRS 9 issued in November 2009, reissued in October 2010, and then amended in November 2013 will eventually form a completereplacement for IAS 39 Financial Instruments: Recognition and Measurement. The IASB has deferred the mandatory effective dateand will decide upon a new date closer to the completion of the entire IFRS 9 project; however, early adoption is permitted. IFRS 9uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, based on how an entitymanages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financialassets. The Company is currently assessing the impact that this standard will have on the financial statements.

5. CASH AND CASH EQUIVALENTS2013 2012

(In thousands of Canadian dollars) $ $

Cash 111,009 123,223 Term deposits 2,500 2,500

113,509 125,723

The Company’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 19.

6. ACCOUNTS RECEIVABLE2013 2012


Trade 9,184 12,593 Other 583 3,449

9,767 16,042

Other accounts receivable consists of net recoverable GST and miscellaneous receivables.



7. INVENTORYThe amount expensed as a result of write-downs of inventory to net realizable value during 2013 was $29,000 (2012: $ 47,000). The amount of inventory expensed during the period to meet operational requirements was $2,477,000 (2012: $ 2,463,000). The Company has pledged its inventory as security for its long-term debt (Note 13).

8. RECYCLED SITE MATERIALSGross proceeds from the ultimate sale of recycled site material for the year were $6,822,000 (2012: $7,248,000). For the year, $0 (2012: $5,003,000) of previously estimated recycled site material assets were recognized in comprehensive income, and$4,201,000 (2012: $3,608,000) in related actual costs were incurred, including $270,000 (2012: $290,000) in commission fees (Note 18). This resulted in a net gain in 2013 from the actual completed sales of recycled site material of $2,621,000 (2012: net lossof $1,363,000).

9. PREPAID EXPENSES2013 2012


Insurance 344 199 Other 79 453

423 652

10. PROPERTY, PLANT AND EQUIPMENTWood Machinery Office

Terminal Sulphur Pellet and Furniture andFacility Terminal Terminal Equipment Equipment Total

(In thousands of Canadian dollars) $ $ $ $ $ $

CostBalance at December 31, 2012 367,170 4,318 1,181 9,522 2,030 384,221 Additions 62,925 129 - 17 504 63,575 Disposals (1,676) (20) (11) (45) - (1,752)Balance at December 31, 2013 428,419 4,427 1,170 9,494 2,534 446,044

Depreciation and Impairment LossesBalance at December 31, 2012 172,644 3,575 166 2,855 1,807 181,047 Depreciation for the year 8,885 - 82 701 227 9,895 Impairment loss - 272 - - - 272 Disposals (839) - - (32) - (871)Balance at December 31, 2013 180,690 3,847 248 3,524 2,034 190,343

Carrying AmountsAt December 31, 2012 194,526 743 1,015 6,667 223 203,174 At December 31, 2013 247,729 580 922 5,970 500 255,701

Property, Plant and Equipment under ConstructionAs of the year ended December 31, 2013, the Company completed the third year of its four year site expansion to increase annualthroughput capacity from 12 million tonnes to 25 million tonnes by the end of 2014. During the year, the Company recognized$59,980,000 (2012: $93,480,000) of expenditures in the carrying amount of items of property, plant and equipment in the course of construction. These expenditures included $868,000 (2012: $1,190,000) in capitalized borrowing costs.

11. PENSION BENEFITSThe Company sponsors a registered pension plan for all employees; the registered pension plan has both a defined benefitcomponent and a defined contribution component. The Company initiated the defined contribution component of the registeredpension 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 component of the registered pension plan. The defined benefit component of the registeredpension plan is funded by contributions from the Company and from plan members. Pension benefits are based on the member’slength of service and final average earnings and are indexed at 3.00% per year after retirement.The defined contribution plan expenses for the year ended December 31, 2013 were $786,000 (2012: $728,000).



Defined Benefit Pension Plan(in thousands of Canadian dollars)The table below outlines the figures included in the financial statements:

2013 2012

Pension benefit (asset) liability (3,968) 4,207 Expense included in net operating profit in comprehensive income 2,248 1,495 Remeasurement (gains) losses included in other comprehensive income (7,654) 5,642

The movement in the defined benefit obligation over the year is as follows: 2013 2012

Defined benefit obligation, beginning of year 46,450 36,332 Current service cost 1,815 1,337 Interest expense 2,051 1,926 Benefits paid by the plan (1,077) (953)Contributions by plan participants 394 320 Remeasurements - Effect of changes in demographic assumptions 2,111 - - Effect of changes in financial assumptions (4,792) 7,236 - Effect of experience adjustments 571 252

Defined benefit obligation, end of year 47,523 46,450

The movement in the fair value of plan assets over the year is as follows:2013 2012

Fair value of plan assets, beginning of year 42,243 36,886 Interest income 1,911 2,024 Contributions by the Company 2,769 2,376 Contributions by plan participants 394 320 Benefits paid by the plan (1,077) (953)Administrative expenses paid from plan assets (293) (256)Return on plan assets (excluding interest income) 5,544 1,846

Fair value of plan assets, end of year 51,491 42,243

The liability in the statement of financial position is summarized below:2013 2012

Defined benefit obligation 47,523 46,450 Fair value of plan assets (51,491) (42,243)

Net (asset) liability (3,968) 4,207

The components of the defined benefit cost included in net operating profit (NP) and other comprehensive income (OCI) aresummarized below:

2013 2012

Current service cost 1,815 1,337 Net interest expense (income) 140 (98)Administrative expenses paid from plan assets 293 256

Defined benefit cost included in NP 2,248 1,495 Remeasurements- Effect of changes in demographic assumptions 2,111 - - Effect of changes in financial assumptions (4,792) 7,236 - Effect of experience adjustments 571 252 - Return on plan assets (excluding interest income) (5,544) (1,846)

Remeasurement (gains) losses in OCI (7,654) 5,642



The net (asset) liability is reconciled as follows:2013 2012

Net liability (asset), beginning of year 4,207 (554)Defined benefit cost included in NP 2,248 1,495 Remeasurement (gains) losses included in OCI (7,654) 5,642 Contributions by the Company (2,769) (2,376)

Net (asset) liability, end of year (3,968) 4,207

The significant actuarial assumptions are as follows:2013 2012

Discount rate, beginning of year 4.45% 5.35%Discount rate, end of period 5.00% 4.45%Future salary increases 3.00% 3.00%Overtime as a percentage of base salary 15.00% 15.00%

Assumed mortality rates are in accordance with the private Canadian pensioners’ mortality table issued by the Canadian Institute of Actuaries with mortality improvements under scale CPM-A. In 2012, assumed mortality rates were in accordance with UP94generational with mortality improvements under scale AA.

Sensitivity Analysis:The sensitivity of the defined benefit obligation to changes in significant assumptions is set out below. The sensitivity analysis hasbeen determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonablechanges in significant assumptions occurring at the end of the reporting period.The table below summarizes the impact on the defined benefit obligation for the plan as a result of a change in the significantactuarial assumptions. For example, the impact of increasing the discount rate by 0.5% would be a reduction of 8.1% in the defined benefit obligation or $3,849,000.

Significant Assumption Change Impact

Discount rate +0.5% -8.1%-0.5% +9.1%

Future salary increases +0.5% +1.8%-0.5% -2.0%

Overtime as a percentage of base salary +5% +1.9%-5% -2.2%

Mortality rates + 1 year +2.8%- 1 year -2.8%

Asset mix:2013 2012

$ Amount % $ Amount %

Cash & Equivalents 2,419 4.7% 733 1.8%Canadian Equity 16,099 31.3% 12,459 29.5%U.S. Equity 8,457 16.4% 3,689 8.7%International Equity 8,118 15.8% 10,565 25.0%Fixed Income 16,398 31.8% 14,797 35.0%

Fair Value of Plan Assets 51,491 100.0% 42,243 100.0%

All plan assets have a quoted market price in an active market.

Future cash flow:The expected contributions to the plan for 2014 are $2,773,000. The weighted average duration of the defined benefit obligationis 17.4 years for 2013.

Risk analysis:Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility:The defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields; if plan assetsunderperform this yield, this will create a deficit. Plan assets include a significant proportion of equities, which are expected tooutperform corporate bonds in the long-term while contributing to volatility and risk in the short-term.



As the plan assets mature, the Company intends to reduce the level of risk by investing more in assets that better match theliabilities. The first stage of this process was completed in 2013 with the sale of a number of equity holdings and the purchase of a mixture of government and corporate bonds. The government bonds represent investments in Canadian and United Statesgovernment securities only. The corporate bonds are global securities with an emphasis on Canada and the United States.However, the Company believes that due to the long-term nature of the defined benefit obligation and the strength of thesupporting Company, a level of continuing equity investment is an appropriate element of the Company’s long-term strategy to manage the plan efficiently. See below for more details on the Company’s asset-liability matching strategy.

Change in bond yields:A decrease in corporate bond yields will increase the defined benefit obligation, although this will be partially offset by an increase in the value of the plan assets.

Inflation risk:The majority of the pension plan’s defined benefit obligation is linked to inflation, and higher inflation will lead to a higherobligation (although, in most cases, caps on the level of inflationary increases are in place to protect the pension plan againstextreme inflation). The majority of plan assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities)inflation, meaning that an increase in inflation will also increase the deficit.

Life expectancy:The pension plan provides benefits for the life of each member, so increases in life expectancy will result in an increase in thedefined benefit obligation. This is particularly significant when inflation increases because inflationary increases result in highersensitivity to changes in life expectancy.

12. ACCOUNTS PAYABLE AND OTHER LIABILITIES2013 2012


Trade 5,987 13,548 Accrued 2,957 5,527 Provisions (Note 20) 2,990 468 Payroll 2,526 2,429 Holdbacks 1,004 3,929

15,464 25,901

13. LONG-TERM DEBTOn 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. At December 31, 2013, the Company has not fixed the term of any outstanding advance beyond August 15, 2014. Underthe terms of the arrangement, the Company is required to make monthly payments at least equal to interest accrued on theoutstanding balance at a variable rate of interest. At December 31, 2013, the current variable rate was 3%.The Company is making monthly blended payments of principal and interest on all amounts borrowed, and the Company expectsto fix the term of all outstanding advances before August 15, 2014 to a term beyond 2014. As at December 31, 2013, estimatedprincipal repayments on outstanding long-term debt are as follows:

(In thousands of Canadian dollars) $

2014 1,292 2015 1,331 2016 1,369 2017 1,414 2018 1,456 Subsequent years 30,663

Total 37,525

At December 31, 2013, cash and cash equivalents (Note 5), accounts receivable (Note 6), inventory (Note 7), and property, plantand equipment with a cost of $166,558,000 (2012: $122,181,000) are pledged as security under the credit facility arrangementrelated to the Company’s long-term debt. If a default event occurs, the lender may declare all outstanding advances to be due andpayable immediately and may take action to enforce its rights to the pledged assets to support repayment of the long-term debt.



14. ASSET RETIREMENT OBLIGATION2013 2012


Balance, beginning of year 6,940 6,738 Reduction (560) - Accretion expense 208 202

Balance, end of year 6,588 6,940

Under the terms of the Company’s land lease with the Prince Rupert Port Authority (Note 17), the Company is required to returnthe land to the condition the land was in at the commencement of the lease. This obligation includes alleviating any environmentaldamage to the land and the cost of removing certain aspects of the Company’s terminal assets from the land.At the end of 2013, with the assistance of a consultant, management conducted a review of the cost to remove the applicable siteinfrastructure. Management estimates it would cost $8,490,000 (2012: $9,032,000) to restore the site in accordance with the landlease at December 31, 2013. These estimated costs were inflated to the end of the base lease term in 2039 using an estimatedinflation rate of 2% (2012: 2%). The inflated cost amount was then discounted back to December 31, 2013 using a credit-adjustedrisk-free rate of 3% (2012: 3%), resulting in a decrease in the asset retirement obligation of $560,000 (2012: $0), plus $208,000(2012: $202,000) in accretion expense. The ultimate amount of future site restoration and removal costs to be incurred is uncertain.

15. DEFERRED REVENUE2012 2013 2013 2013

Opening Additions Reductions Ending

(In thousands of Canadian dollars) $ $ $ $

Deposits 80,900 - (20,000) 60,900 Options 4,500 150 (2,000) 2,650 Shortfall 2,809 2,584 - 5,393

88,209 2,734 (22,000) 68,943

16. CAPITAL STOCK AND CONTRIBUTED SURPLUS

Authorized:2,000,000 common shares without par value1,960,000 class “A”, 18% non-cumulative redeemable preference shares, with a stated value of $25.55 per share217,052 class “B”, 20% non-cumulative redeemable preference shares, with a stated value of $230.00 per share

Capital Stock: 2013 2012


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 providedthe funds necessary to pay out the Company’s debt obligation of $ 64,000,000. These funds have been recorded as contributedsurplus in the shareholder’s equity section of the statement of financial position.



17. COMMITMENTS

Lease RentalThe Company leases land from the Prince Rupert Port Authority (PRPA) for its terminal facility. The original twenty-five year leaseexpired on March 31, 2009. The Company and the PRPA entered into a further thirty year term effective April 1, 2009 with anoption to renew the lease for an additional twenty years to 2059. The Company exercised additional expansion options on April 1, 2011 and again on June 11, 2013 that provide additional land for the terminal to increase its operating capacity.Under the lease agreement with the PRPA, the Company is required to make minimum annual rent payments of $6,844,000 basedon a stated minimum 10,408,000 tonnes of material processed at an inflation adjusted rate of 65 cents per tonne. In the event thattonnes processed by the Company in a year are less than the stated minimum, the excess portion of the minimum rent may becarried forward for not more than six years. The stated minimum tonnes processed will increase as follows:(In tonnes)

2014 11,803,000 2015 15,750,000 2016 17,750,000 2017 18,750,000 2018 19,750,000 2019 20,750,000 2020 21,750,000 Subsequent years 22,000,000

The future increases in stated minimum tonnes processed will result in an increase in the minimum annual rent as detailed in the table below.For the year ended December 31, 2013, the Company made $7,843,000 (2012: $7,495,000) in lease payments to PRPA, including $6,844,000 in minimum rent (2012: $5,200,000) and $999,000 (2012: $2,295,000) in contingent rent.The Company agrees to pay a minimum rent fee as follows:

(In thousands of Canadian dollars) $

2014 7,916 2015 10,774 2016 12,386 2017 13,345 2018 14,338 Subsequent years 400,758

Total 459,517

Property, Plant and EquipmentAt December 31, 2013, the Company had outstanding obligations to complete committed contracts to acquire and developproperty, plant and equipment in the amount of $28,999,000 (2012: $33,876,000).

18. RELATED PARTIES

Government of CanadaThe Company is related to all Government of Canada departments, agencies and Crown corporations. The lease agreement with the PRPA (Note 17) is a related party transaction.

Management Consultant Services Agreement Edgewood Holdings LLC (“Edgewood”) provides the Company with management consulting services. As managementconsultants, Edgewood provides managerial oversight with the goals of increasing efficiencies and profitability, attracting newcustomers, and improving agreements with existing customers.The current agreement with Edgewood, effective July 1, 2010 and amended during 2013, is for an initial term of five years and six months and shall be renewable thereafter at intervals of one year by written mutual agreement of both parties. The agreementmay be cancelled by either party with not less than sixty days written notice.



• Edgewood’s annual ‘base compensation’ is $1,200,000 (2012: $1,200,000), plus ‘additional base compensation’ of $840,000 (2012: $0) and reimbursement for travel and hospitality expenses reasonably and sufficiently related to the performance of its services. Each year, the Company is reimbursed by its shareholder for $200,000 of the additional base compensation.

• An annual ‘performance bonus’ is available to Edgewood, determined solely by the Company’s Board of Directors within the range of 20% to 30% of the annual base compensation.

• In the event that the Company is sold in accordance with its shareholder’s announced intention (Note 2), Edgewood will be entitled to a ‘retention payment’ of $1,100,000 (2012: $1,100,000) and an ‘additional retention bonus’ of $1,000,000 (2012: $0). The Company will be reimbursed by its shareholder for the entire additional retention bonus.

For the year ended December 31, 2013, Edgewood earned total base compensation of $2,040,000 (2012: $1,200,000) andbonuses totaling $360,000 (2012: $ 990,000). At December 31, 2013, $431,000 (2012: $23,000) of Edgewood’s compensation and bonuses was included in accounts payable and other liabilities in the statement of financial position. The Company wasreimbursed by its shareholder for $200,000 (2012: $0) of total base compensation. The reimbursement is included in other revenue in the statement of comprehensive income.

DirectorsEach 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 year ended December 31, 2013 was $86,000 (2012: $84,000).

Agent FeesTraxys LLC, a related party to Edgewood Holdings LLC by virtue of a common directorship, was involved in the sales of recycledsite material (Note 8). For the year ended December 31, 2013, the Company paid Traxys LLC $270,000 (2012: $290,000) (Note 8)for commissions related to the sale of recycled site material.

19. FINANCIAL INSTRUMENT RISK AND FAIR VALUE DISCLOSURESAt December 31, 2013, the Company is exposed to various risks associated with its financial instruments, which include market risk, liquidity risk and credit risk.

Market RiskThe 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 sensitivityanalysis for this variable is not possible due to the complexity of the correlation between commodity prices and customeroperations.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 bymanagement via Bank of Canada rate publications and forecasts. Risk mitigation tactics include treasury management practices toensure buffers for planned payments to suppliers allow for foreign exchange rate fluctuations. At year end, foreign denominatedcash, accounts receivable and accounts payable in Canadian dollars totaled $0 (2012: $3,719,000), $94,000 (2012: $202,000) and$1,712,000 (2012: $21,000) respectively. If the Canadian dollar was stronger or weaker compared to the United States dollar by10% at quarter end, comprehensive income would increase or decrease by $162,000 (2012: decrease or increase by $390,000).Interest rate risk has a significant impact on the Company as a result of long-term debt with a variable interest rate (Note 13) and increases in cash and cash equivalents (Note 5). The fluctuation of interest rates affects the Company’s interest expense andincome. As a result, fluctuations in interest rates are regularly monitored by management via Bank of Canada rate publications andforecasts. Risk mitigation tactics include the regular monitoring of alternative investment and debt instruments in the event that achange in the market interest rate provides more attractive alternatives. All other variables remaining constant, if interest ratesduring the year were higher or lower by 0.25%, comprehensive income would increase or decrease by $273,000 (2012: $25,000).

Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. Management continually monitorsits financial position to ensure that it has sufficient liquidity to discharge its obligations when due. At year end, cash and cashequivalents balances of $113,509,000 (2012: $125,723,000) are available to discharge current liabilities of $16,756,000 (2012:$27,155,000) and non-current liabilities, excluding deferred revenue, of $43,426,000 (2012: $48,891,000). Due to the amount of



the Company’s cash and cash equivalents 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 RiskCredit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet itsobligations. The Company is exposed to credit risk through its accounts receivable.The carrying amount of accounts receivable of $9,767,000 represents the maximum credit risk exposure as at December 31, 2013(2012: $16,042,000).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 and regularly reviews its accounts receivable forimpairment. The Company considers the credit quality of its accounts receivable to be high. As at December 31, 2013, there is a $0 reserve in respect of doubtful accounts (2012: $25,000).

Fair Value DisclosuresThe fair values of cash and cash equivalents, accounts receivable, and accounts payable and other liabilities approximate theircarrying values because of the short maturity of these financial instruments.The fair value of long-term debt approximates its carrying value in 2013 and 2012. This fair value disclosure is categorized withinLevel 2 of the fair value hierarchy (Note 4), and the fair value of long-term debt has been determined by discounting expectedfuture repayments and using an option pricing model. Key inputs used to determine the fair value include current market yields and interest rate volatilities.

20. PROVISIONS AND CONTINGENCIES

ProvisionsThe Company’s unionized workforce filed a grievance on March 22, 2011 regarding the establishment of a defined contributionpension plan effective February 1, 2011 for all new employees. An arbitrator was appointed, and a hearing occurred in April 2012.On July 25, 2012, the Arbitrator confirmed the Company has the authority to introduce a defined contribution pension plan anddetermined a process to set the Company’s contribution rate. Based on the results of the hearing, the Company and the Union are currently working on a mutual agreement to present to union employees.On July 19, 2012, a contracted customer gave Notice to Arbitrate under its commercial contract. In 2013, an arbitration paneldetermined the Company erred in its interpretation of the related contract, establishing the potential for an award of damages. This claim is expected to be resolved in 2014, and the amount of damages that will be awarded is uncertain.At year-end, the Company has established provisions in the amount of $2,990,000 in total (2012: $468,000) (Note 12), which represents management’s best estimate of the amounts that will be paid to settle these two disputes.

ContingenciesOn December 1, 2011, a Notice of Civil Claim was filed in the Supreme Court of British Columbia against the Company. The Claim asks for a declaration that an unsigned November 2006 document is a valid and enforceable agreement, requestingspecific performance and damages. On November 22, 2013, the Company received notification that the claim was revised to seek damages only and to no longer request specific performance as part of the remedy to the claim. Management is unable todetermine what, if any, financial impact this claim will have on the Company at the date of issue of these financial statements.On February 22, 2013, the Company received a claim from the Prince Rupert Port Authority regarding civil work on a propertyadjacent to the terminal. Management is unable to determine what, if any, financial impact this claim will have on the Company.In addition to the items listed above, 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 indicatesthat, individually and in the aggregate, the probable ultimate resolution of such matters will not have a material impact on theCompany’s financial position, results of operations or liquidity.

21. CAPITAL MANAGEMENTThe Company's capital is its equity, which comprises capital stock, contributed surplus and accumulated deficit (Note 16).The Company is subject to financial management and accountability provisions of the Financial Administration Act which imposesrestrictions in relation to borrowings and acquisition of investments. During the year ended December 31, 2013, 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.The Company’s Capital Oversight Committee monitors externally imposed capital requirements to adhere to budgetary constraintsas outlined in the Company’s five year operating and capital plans. Submitted budgets have been approved by the Minister ofTransport and are monitored regularly.

Directors

David E. G. BromleyProfessional Engineer.West Vancouver, BC

Byng GiraudBusinessmanDelta, BC

David Kirsop *Pender Island, BC

Dave Parker *BusinessmanTerrace, BC

Scott Shepherd *BusinessmanVancouver, BC

* Member of the Audit Committee

Corporate Secretary

Robert Standerwick Q.C.Vancouver, BC

Officers

Byng GiraudChairman

George W. DorseyPresident & COO

Chris BergCFO

Senior Management

Dennis E. BlakeSenior Manager

Cordell W. Dixon CPA, CMA

Controller

Corporate Affairs

Michelle BryantCorporate Affairs Manager

Legal CounselBorden Ladner Gervais Vancouver, BC

External AuditorsThe Office of the Auditor General of CanadaVancouver, BC

Internal AuditorsKPMG LLPVancouver, BC

For further information please contact:

Cordell DixonControllerTelephone 250 624-9511 x123Facsimile 250 624-2389E-mail [email protected]

www.rti.ca

Or write to:Ridley Terminals Inc.P.O. Bag 8000Prince Rupert, BC V8J 4H3

DIRECTORY



ridley terminals inc. 2013 annual report

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