Fording Canadian Coal Trust
TSX : FDG.UN
NYSE : FDG

Fording Canadian Coal Trust

April 21, 2008 22:06 ET

Fording Canadian Coal Trust 2008 First Quarter Earnings Results

CALGARY, ALBERTA--(Marketwire - April 21, 2008) - Fording Canadian Coal Trust (the Trust) (TSX:FDG.UN) (NYSE:FDG) today announced its first quarter 2008 results. Cash available for distribution generated in the quarter was $56 million ($0.38 per unit) compared with $77 million ($0.53 per unit) in 2007. Distributions to unitholders were $0.50 per unit compared with $0.65 per unit in 2007. Distributions declared for the first quarter of 2008 reflect expectations for higher coal prices during the remainder of 2008.

Operating income was $20 million for the quarter compared with $95 million in the first quarter of 2007, which reflects lower U.S. dollar coal prices for the 2007 coal year that commenced April 1, 2007 and a stronger Canadian dollar relative to the U.S. dollar, partially offset by higher sales volumes. Net income from continuing operations was essentially breakeven for the quarter compared with $77 million in the first quarter of 2007 and includes foreign exchange losses resulting from the weakening of the Canadian dollar since December 31, 2007. Net income from continuing operations before unusual items, future income taxes and unrealized gains or losses on foreign exchange forward contracts was $39 million compared with $71 million in the first quarter of 2007 and reflects the realized effects of the foreign exchange forward contracts that matured during the quarter.

"We are generally pleased with our first quarter results, with the exception of the amount of coal we were able to move to port," said Boyd Payne, President of the Trust. "The number of trains we receive directly impacts our results and year-to-date rail shipments are falling short of our requirements. Looking ahead to the 2008 coal year, the acute shortage of supply has enabled us to settle a majority of our contracts for all grades of our coal at pricing in line with our major Australian competitors."

Update on 2008 coal year price negotiations:

Elk Valley Coal has completed negotiations for more than two-thirds of its anticipated coal sales for the 2008 coal year commencing April 1, 2008 with its highest quality coal products being priced at or above US$300 per tonne. If the remainder of the contracts are settled on similar terms, taking into account all ranges of coal products, including thermal and PCI coals, and including the impact of carryover tonnage from the 2007 coal year, the average coal price for the 2008 calendar year is forecast to be in the range of US$195 to US$205 per tonne. Based on these prices, transportation costs for the 2008 calendar year are expected to be in the range of $42 to $44 per tonne. The substantial increase in coal prices over the 2007 coal year reflects the extreme tightness in the metallurgical coal market. Changes in economic conditions, especially in the U.S., China or India, or in the global supply of metallurgical coal could cause a decrease in prices for the 2009 coal year.

Highlights for the first quarter:

- The Trust's share of coal sales volume was 3.5 million tonnes, which was 22% higher than the first quarter of 2007. Sales volumes in the first quarter of 2007 were unusually low due to weather-related rail transportation problems.

- Elk Valley Coal's unit cost of product sold was $46.20 per tonne compared with $45.80 per tonne in the first quarter of 2007.

- Elk Valley Coal's unit transportation costs decreased slightly to $37.20 per tonne compared with $37.80 per tonne in the first quarter of 2007.

Conference Call and Webcast

A conference call to discuss these results will be held Tuesday, April 22nd at 7:30 a.m. Mountain time, 9:30 a.m. Eastern time. To participate in the conference call, please dial 1-866-898-9626 or 416-340-2216 approximately 10 minutes prior to the call. A live and archived audio webcast and podcast of the conference call will also be available on the Trust's website www.fording.ca.

About Fording Canadian Coal Trust

Fording Canadian Coal Trust is an open-ended mutual fund trust and one of the largest royalty trusts in Canada. The Trust makes quarterly distributions to unitholders using royalties received from its 60% interest in the metallurgical coal operations of the Elk Valley Coal Partnership. Elk Valley Coal Partnership is the world's second largest exporter of metallurgical coal, supplying high-quality coal products to the international steel industry. The Trust's shares are traded on the Toronto Stock Exchange under the symbol FDG.UN and on the New York Stock Exchange under the symbol FDG.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis, dated April 21, 2008, should be read in conjunction with Fording Canadian Coal Trust's (the Trust's) unaudited consolidated financial statements and the notes thereto for the quarter ended March 31, 2008, its management's discussion and analysis and consolidated financial statements for the year ended December 31, 2007, and other public disclosure documents of the Trust.

The Trust reports its financial information in Canadian dollars and all monetary amounts set forth herein are expressed in Canadian dollars unless otherwise stated.

Fording Canadian Coal Trust

The Trust is an open-ended mutual fund trust existing under the laws of Alberta and governed by its Declaration of Trust. The Trust does not carry on any active business. The Trust directly and indirectly owns all of the interests of Fording LP, which holds a 60% interest in Elk Valley Coal Partnership. Until June 2007, the Trust owned all of the interests of NYCO, which is disclosed as a discontinued operation. The Trust uses the cash it receives from its investments to make quarterly distributions to its unitholders.

References to "we" and "our" in this management's discussion and analysis are to the Trust and its subsidiaries.

Elk Valley Coal

Elk Valley Coal is a general partnership between Fording LP and affiliates of Teck Cominco Limited (Teck Cominco). Teck Cominco is the managing partner of Elk Valley Coal and is responsible for managing its business and affairs, subject to certain matters that require the agreement of the Trust and Teck Cominco. Our consolidated financial statements reflect our proportionate interest in Elk Valley Coal.

Elk Valley Coal is the second largest supplier of seaborne hard coking coal in the world. Hard coking coal is a type of metallurgical coal that is used primarily for making coke by integrated steel mills, which account for substantially all global production of primary (i.e. unrecycled) steel. The seaborne hard coking coal market is characterized by the global nature of international steel making, the relative concentration of quality metallurgical coal deposits in Australia, Canada and the United States and the comparatively low cost of seaborne transportation.

Elk Valley Coal has an interest in six active mining operations. The Fording River, Coal Mountain, Line Creek and Cardinal River operations are wholly owned. The Greenhills operation is a joint venture in which Elk Valley Coal has an 80% interest and is accounted for on a proportionate basis. The Elkview operation is a limited partnership in which Elk Valley Coal owns, directly and indirectly, a 95% general partnership interest. The Elkview operation is consolidated into the accounts of Elk Valley Coal.

Non-GAAP Financial Measures

This management's discussion and analysis refers to certain financial measures, such as distributable cash, cash available for distribution, sustaining capital expenditures, and net income from continuing operations before unusual items, future income taxes and unrealized gains or losses on foreign exchange forward contracts, that are not measures recognized under generally accepted accounting principles (GAAP) in Canada or the United States, and do not have standardized meanings prescribed by GAAP. These measures may differ from those made by other trusts or corporations. We discuss these measures, which have been derived from our financial statements and applied on a consistent basis, because we believe that they are of assistance in the understanding of the results of our operations and financial position and are meant to provide further information about the ability of the Trust to earn and distribute cash to unitholders.

Cash available for distribution is the term used by us to describe the cash generated from our investments during a fiscal period that is available for distribution to unitholders. Actual distributions of cash to unitholders are made in accordance with our distribution policy.

Sustaining capital expenditures refers to expenditures in respect of capital asset additions, replacements or improvements required to maintain business operations at current production levels. The determination of what constitutes sustaining capital expenditures requires the judgment of management.

Net income from continuing operations before unusual items, future income taxes and unrealized gains or losses on foreign exchange forward contracts (in total and on a per unit basis) is a non-GAAP measure of earnings. It adds back to net income from continuing operations in accordance with GAAP the impact of non-cash future taxes and unrealized gains or losses on foreign exchange forward contracts, which are non-cash and subject to significant change until realized, as well as unusual items that are significant and not expected to be recurring.

Controls and Procedures

Management is responsible for establishing and maintaining adequate disclosure controls and procedures as well as adequate internal control over financial reporting. Disclosure controls and procedures are designed to ensure that information required to be disclosed in public filings is recorded, processed, summarized and reported within appropriate time periods. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. Internal control over financial reporting may not prevent or detect fraud or misstatements because of limitations inherent in any system of internal control. There were no significant changes in the design or effectiveness of the Trust's disclosure controls or internal controls over financial reporting in the first quarter of 2008.

Committees Formed to Explore Strategic Alternatives

In December 2007, the Trust announced that independent committees had been formed to explore and make recommendations regarding strategic alternatives available to the Trust to maximize value for its unitholders. The independent committees are continuing their work and the Trust anticipates it will make no further announcements regarding the strategic review unless and until the Trustees determine that disclosure of a material change is required.

Overview

The table below summarizes our financial results from continuing operations:



Three months ended
March 31
(millions of Canadian dollars, ------------------------
except as noted) 2008 2007
----------------------------------------------------------------------------
Revenue $ 332.0 $ 350.5
Income from operations $ 19.5 $ 95.3
Net income from continuing operations $ 0.5 $ 76.8
Adjustments:
Decrease (increase) in unrealized gains on
foreign exchange forward contracts 39.5 (7.1)
Future income tax expense (reversal) (1.0) 0.9
------------------------

Net income from continuing operations before
unusual items, future income taxes and
unrealized gains or losses on foreign
exchange forward contracts $ 39.0 $ 70.6

Per unit amounts:
Net income from continuing operations $ - $ 0.52
Net income from continuing operations before
unusual items, future income taxes and
unrealized gains or losses on foreign
exchange forward contracts $ 0.26 $ 0.48


The decreases in revenue and income from operations primarily reflect lower U.S. dollar coal prices for the 2007 coal year that commenced April 1, 2007 and the stronger Canadian dollar relative to the U.S. dollar, partially offset by higher sales volumes. Unit cost of product sold and unit transportation costs were similar quarter over quarter. The $27.40 per tonne decrease in the average realized Canadian dollar selling price had a negative impact on income from operations of approximately $96 million based on the Trust's share of sales volume of 3.5 million tonnes for the first quarter of 2008. The effect of lower realized selling prices was partially offset by the gross margin generated on the additional 700,000 tonnes (Trust's share) sold in the first quarter of 2008 compared with the same quarter in 2007.

Net income from continuing operations was essentially breakeven for the quarter compared with $77 million in the first quarter of 2007 and included foreign exchange losses resulting from the weakening of the Canadian dollar since December 31, 2007.

Net income from continuing operations before unusual items, future income taxes and unrealized gains or losses on foreign exchange forward contracts was $39 million compared with $71 million in the first quarter of 2007 and reflects the realized effects of the foreign exchange forward contracts that matured during the quarter, which matches the cash flow effects of the contracts.

Cash Available for Distribution

The cash available for distribution generated in the quarter was $56 million ($0.38 per unit) compared with $77 million ($0.53 per unit) in 2007. The distributions declared by the Trust were $0.50 per unit compared with $0.65 per unit in the first quarter of 2007. Distributions declared for the first quarter of 2008 exceeded the cash available for distribution generated in the quarter and reflect expectations for higher coal prices during the remainder of 2008. After taking into account the $0.04 per unit under-distributed balance carried forward from 2007, the Trust is over-distributed by $0.08 per unit on a cumulative basis as of March 31, 2008. It is anticipated that the Trustees will consider this cumulative over-distributed balance when declaring distributions during the remainder of 2008.

Financial Position

Our net working capital position decreased by $62 million from $192 million at December 31, 2007 to $130 million at March 31, 2008 due largely to a $49 million decrease in cash and cash equivalents. Cash and cash equivalents decreased primarily because the sustaining capital expenditures and the cash distributions paid during the quarter, which were declared for the fourth quarter of 2007, exceeded the cash flows generated from operations plus the proceeds raised from the distribution reinvestment plan. There were no significant changes in long-term debt.



Results of Operations

March 31
(millions of Canadian dollars, -----------------
except as noted) 2008 2007
----------------------------------------------------------------------------

Statistics
Trust's share of coal production (millions of tonnes) 3.5 3.1
Trust's share of coal sales (millions of tonnes) 3.5 2.8
Average sales price (US$ per tonne) $ 95.70 $ 105.40

Operations (per tonne)
Average sales price $ 96.10 $ 123.50
Cost of product sold $ 46.20 $ 45.80
Transportation $ 37.20 $ 37.80

Income from operations
Revenue $ 332.0 $ 350.5
Cost of product sold 159.7 130.0
Transportation 128.6 107.4
Selling, general and administration 9.6 5.7
Depreciation and depletion 14.6 12.1
------------------

Income from operations $ 19.5 $ 95.3
------------------
------------------


Coal sales volumes were 22% higher than in the first quarter of 2007. Sales volumes in the first quarter of 2007 were unusually low due to weather-related rail transportation problems. The number of trains fell short of Elk Valley Coal's requirements in the first quarter of 2008, despite few weather-related transportation problems, and coal inventories at the ports remain low as at March 31, 2008.

Average U.S. dollar coal prices decreased by 9% to $95.70 per tonne as a result of lower prices for the 2007 coal year, which commenced April 1, 2007. Lower 2007 coal year prices were partially offset by higher sales made by Elk Valley Coal inclusive of ocean freight. The 22% decrease in the average Canadian dollar price was greater than the percentage decrease in the average U.S. dollar price and demonstrates the impact of a stronger Canadian dollar relative to the U.S. dollar.

The quarter over quarter revenue variance is summarized in the following table:



(millions of Canadian dollars)
----------------------------------------------------------------------------

Revenue for the quarter ended March 31, 2007 $ 351
Variance attributed to higher coal sales volumes 76
Variance attributed to lower U.S. dollar coal prices (34)
Variance attributed to the change in the U.S./Canadian
dollar exchange rate (61)
------

Revenue for the quarter ended March 31, 2008 $ 332
------
------


The unit cost of product sold increased slightly to $46.20 per tonne compared with $45.80 for the first quarter of 2007. Significant inflation in mining input costs, including a dramatic increase in the price of diesel fuel, has increased unit cost of product sold to a level that is comparable to the unit costs experienced in the first quarter of 2007, which were unusually high due to unplanned shutdowns and reduced production caused by rail transportation problems.

Unit transportation costs of $37.20 per tonne were 2% lower than the first quarter of 2007. Contractual rail rates were lower in the first quarter of 2008 due to lower U.S. dollar selling prices for the 2007 coal year that commenced April 1, 2007 and contractual port rates decreased due to lower Canadian dollar selling prices. The effects of lower rail and port rates were partially offset by higher ocean freight costs for those sales where Elk Valley Coal pays the ocean freight.



Other Income and Expenses

Three months ended
March 31
----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Interest expense $ (4.4) $ (5.0)
Net foreign exchange gains (losses) $ (7.7) $ 2.1
Realized gain (loss) on foreign exchange forward
contracts 34.8 (9.7)
Increase (decrease) in unrealized gains on foreign
exchange forward contracts (39.5) 7.1
Other 0.8 (0.3)
----------------------
$ (11.6) $ (0.8)
----------------------
----------------------


The net foreign exchange losses of $7.7 million for the quarter reflect unrealized losses on the U.S. dollar-denominated long-term debt caused by the weakening of the Canadian dollar relative to the U.S. dollar since December 31, 2007. These foreign currency losses on the long-term debt were partially offset by gains on U.S. dollar-denominated accounts receivable.

All of the foreign exchange forward contracts that were outstanding at December 31, 2007 matured during the quarter and gains of $34.8 million were realized on the contracts, which was slightly less than the unrealized value of the contracts as at December 31, 2007 of $38.7 million due to the weakening of the Canadian dollar since year end. The decrease in the unrealized gains on foreign exchange forward contracts of $39.5 million reflects the maturity of the contracts outstanding at the beginning of the quarter plus an unrealized loss of $0.8 million recognized on new foreign exchange forward contracts entered into during the quarter.

Income Taxes

Income tax expense for the quarter was $3 million compared with $13 million in the first quarter of 2007. Income tax expense consists primarily of British Columbia mineral taxes and Alberta Crown royalties assessed on the cash flows of Elk Valley Coal. The decrease in income tax expense corresponds to the reduction in the taxable cash flows of Elk Valley Coal.

Cash Available for Distribution

Cash available for distribution is the term used by us to describe the cash generated from our investments during a fiscal period that is available for distribution to unitholders. Cash available for distribution is not a term recognized by GAAP in Canada and it is not a term that has a standardized meaning. Accordingly, cash available for distribution, when used in this document and our other disclosures, may not be comparable to similarly named measures presented by other trusts.

Cash available for distribution is derived from cash flows from the operations of the Trust's subsidiaries, including our proportionate interest in Elk Valley Coal, before changes in non-cash working capital, less sustaining capital expenditures to the extent not funded by debt or equity, principal repayments on debt obligations and any amount allocated to reserves. Sustaining capital expenditures refers to our share of Elk Valley Coal's expenditures in respect of capital asset additions, replacements or improvements required to maintain business operations at current production levels. The determination of what constitutes sustaining capital expenditures requires the judgment of Elk Valley Coal's management. Reserves, which are a discretionary decision of the Trust and its subsidiaries, and of Elk Valley Coal, may be established that would reduce cash available for distribution in order to meet any short-term or long-term need for cash. Such reserves established at the Elk Valley Coal level have the effect of reducing amounts distributed by Elk Valley Coal to its partners; however, such reserves must be authorized by special resolution of the partners and Elk Valley Coal is required to make reasonable use of its operating lines for working capital purposes.

The partnership agreement governing Elk Valley Coal requires the partners to fund their proportionate share of Elk Valley Coal's sustaining capital expenditures to the extent that the actual expenditures exceed the depreciation deductions that are available to the partners for tax purposes (referred to under Canadian tax laws as "capital cost allowance") plus certain other tax deductions. Elk Valley Coal's sustaining capital expenditures are planned to be approximately $200 million in 2008, which is more than double the tax deductions that are expected to be available in the year.

The Trust's share of Elk Valley Coal's sustaining capital expenditures was $26 million for the quarter compared with $4 million in the first quarter of 2007. Sustaining capital expenditures for the first quarter of 2008 were partially funded by the utilization of $16 million of accumulated proceeds from the distribution reinvestment plan.

The cash available for distribution from our investments and the distributions made by the Trust are set forth in the table below.



Three months ended
March 31
------------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Cash from operating activities $ 43.1 $ 73.2
Add (deduct):
Increase in non-cash working capital 23.8 8.0
Sustaining capital expenditures, net of distribution
reinvestment plan proceeds utilized (10.3) (3.7)
Capital lease payments $ (0.4) (0.4)
Other - 0.3
------------------------
Cash available for distribution generated in the
period 56.2 77.4
Distributable cash carried forward from prior
periods 5.8 15.7
------------------------
Distributable cash, including amounts carried
forward 62.0 93.1
Distributions declared during the period 74.3 95.6
------------------------
Over-distributed balance carried forward to future
periods $ (12.3) $ (2.5)

Per unit amounts:
Cash available for distribution generated in the
period $ 0.38 $ 0.53
Distributions declared $ 0.50 $ 0.65


It is anticipated that the Trustees will consider the $12.3 million cumulative over-distributed balance as at March 31, 2008 when declaring distributions during the remainder of 2008.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $103 million at March 31, 2008, from $152 million at December 31, 2007. Cash and cash equivalents decreased primarily because the sustaining capital expenditures and the cash distributions paid during the quarter, which were declared for the fourth quarter of 2007, exceeded the cash flows generated from operations plus the proceeds raised from the distribution reinvestment plan.

Cash flows from operating activities largely reflect the results of Elk Valley Coal, which were lower in the first quarter of 2008 compared with the same period in 2007 due primarily to lower realized selling prices. Cash flows from operating activities include changes in working capital that can fluctuate from period to period.

Elk Valley Coal's capital expenditures are planned to be significantly higher in 2008 than in 2007. The planned capital expenditures are sustaining in nature and the increase reflects normal variability in capital requirements associated with the aging of mining fleets and increased equipment requirements resulting from changes in mining conditions.

Long-term debt under the bank credit facility, which is denominated in U.S. dollars, increased by $11 million to $291 million at March 31, 2008 from $280 million at December 31, 2007 due to the weakening of the Canadian dollar relative to the U.S. dollar since year end. Other uses of bank facilities include letters of credit or guarantees, of which our share was $35 million, leaving our share of unused bank facilities at $194 million as of March 31, 2008.

In addition to the bank credit facility, Elk Valley Coal has a separate unsecured credit line for the purpose of issuing letters of credit. At March 31, 2008, the Trust's share of letters of credit issued and outstanding under this credit line was $11 million.

During 2007, we implemented a distribution reinvestment plan. The plan allows eligible unitholders of the Trust to reinvest their distributions in additional units. For the first quarter 2008 distribution paid in April 2008, unitholders representing approximately 19% of our outstanding units elected to participate in the plan. Approximately 0.2 million Trust units were issued in April 2008 in lieu of cash distributions of approximately $14 million. Through April 21, 2008, on a cumulative basis since the inception of the distribution reinvestment plan, approximately 1.9 million units have been issued in lieu of cash distributions of $67 million.

During the first quarter of 2008, the Trust utilized $16 million of the accumulated proceeds from the distribution reinvestment plan to finance its capital contribution to Elk Valley Coal, which was made for the purpose of funding a portion of Elk Valley Coal's sustaining capital expenditures. The Trust expects to make additional capital contributions to Elk Valley Coal during the remainder of 2008 based on planned sustaining capital expenditures by Elk Valley Coal of $200 million. Accordingly, the Trust may utilize additional proceeds from the distribution reinvestment plan for the purpose of financing these capital contributions.

To help manage exposure to currency fluctuations and their effect on unitholder distributions, foreign exchange forward contracts are used to fix the rate at which certain future anticipated flows of U.S. dollars are exchanged into Canadian dollars. The Trust executed US$195 million of foreign exchange forward contracts during the first quarter. An additional US$601 million in contracts were entered into subsequent to the end of the quarter. The average contracted exchange rate on forward contracts entered to date is US$0.98. All of these contracts will mature prior to March 31, 2009.



Summary of Quarterly Results

Our quarterly results over the past two years reflect the variability of Elk
Valley Coal's business. Income levels are influenced largely by coal prices,
the U.S./Canadian dollar exchange rate, coal sales volumes and unit cost of
product sold and coal transportation costs.

2008 2007 2006
-------- ---------------------------- -----------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
-------- ---------------------------- -----------------------
Coal
statistics
(Trust's 60%
share)
---------------
Sales
(millions of
tonnes) 3.5 3.6 3.4 3.8 2.8 3.5 3.5 3.5
Average CDN$
prices (per
tonne) $96.10 $91.50 $97.30 $110.90 $123.50 $122.60 $124.40 $133.00
Cost of
product sold
(per tonne) 46.20 40.00 41.00 39.50 45.80 36.40 42.60 39.20
Transportation
(per tonne) 37.20 33.00 35.80 34.50 37.80 36.80 35.60 37.40

(millions of
Canadian
dollars,
except
per unit
amounts)
---------------
Revenue $332.0 $327.5 $331.0 $418.3 $350.5 $424.9 $440.3 $459.8
Income from
operations 19.5 42.8 53.4 116.8 95.3 149.8 143.7 172.3
Net income
from
continuing
operations 0.5 48.8 90.5 106.4 76.8 114.6 123.3 139.8
Net income 0.5 48.8 90.5 117.0 77.0 68.6 123.8 140.2
Net income
from
continuing
operations
before unusual
items,
future income
taxes and
unrealized
gains or
losses on
foreign
exchange
forward
contracts 39.0 74.9 82.9 128.4 70.6 116.3 120.0 150.8
Cash available
for
distribution
generated in
the period 56.2 74.8 61.4 135.2 77.4 146.5 122.5 147.3
Distributions
declared 74.3 78.6 88.7 95.9 95.6 139.7 117.6 147.0
Distributions
declared per
unit 0.50 0.53 0.60 0.65 0.65 0.95 0.80 1.00

----------------------------------------------------------------------------


Demand for coal is dependent on the requirements of integrated steel mill customers. These customers largely determine the shipping schedule and, therefore, the timing of coal sales. Coal prices are typically negotiated for each coal year commencing April 1. Realized prices depend on U.S. dollar price settlements, whether coal sales volumes from one coal year are carried over into the following year, and the U.S./Canadian dollar exchange rate. The cost of product sold has been trending up largely because of significant inflation in the cost of mining inputs. Net income for the fourth quarter of 2006 includes a $53 million write-down of NYCO's assets in anticipation of its sale. Net income from continuing operations for the second quarter of 2007 includes an $79 million charge to future income tax expense resulting from a change in tax legislation. Net income from continuing operations for the first quarter of 2007 through the first quarter of 2008 includes the significant impact of changes in unrealized gains and losses on our foreign exchange forward contracts. Unit cost of product sold for the first quarter of 2007 was unusually high due to weather-related rail transportation problems, which caused unplanned shutdowns and interruptions of production. Transportation costs are primarily rail haulage charges and port loading fees, which are, in part, dependant on coal prices.

Outlook

Elk Valley Coal has completed negotiations for more than two-thirds of its anticipated coal sales for the 2008 coal year commencing April 1, 2008 with its highest quality coal products being priced at or above US$300 per tonne. If the remainder of the contracts are settled on similar terms, taking into account all ranges of coal products, including thermal and PCI coals, and including the impact of carryover tonnage from the 2007 coal year, the average coal price for the 2008 calendar year is forecast to be in the range of US$195 to US$205 per tonne. Based on these prices, transportation costs for the 2008 calendar year are expected to be in the range of $42 to $44 per tonne. The substantial increase in coal prices over the 2007 coal year reflects the extreme tightness in the metallurgical coal market. Changes in economic conditions, especially in the U.S., China or India, or in the global supply of metallurgical coal could cause a decrease in prices for the 2009 coal year.

For the 2008 calendar year, Elk Valley Coal's sales volumes are expected to be in the range of 23 to 25 million tonnes. Elk Valley Coal is dependent on rail service in order to deliver its product to its customers. The frequency and timeliness of rail shipments during the first quarter of 2008 fell short of Elk Valley Coal's requirements. Coal inventories at the Vancouver ports remain low while inventories at the mine sites are high. This has led to reduced plant production at certain mine sites where on-site coal storage had reached capacity. If rail shipments do not increase to the level required by Elk Valley Coal's business for the remainder of 2008, it will continue to adversely affect production and sales levels and could lead to unscheduled plant shutdowns, which could increase unit cost of product sold and vessel demurrage costs.

Cost of product sold for the calendar year is expected to be in the range of $45 to $47 per tonne, subject to stabilization of diesel fuel prices. Diesel fuel is a major input cost for Elk Valley Coal and there was significant inflation in diesel prices during the first quarter. Each $0.01 per litre increase in the price of diesel fuel increases the cost of coal produced by approximately $0.09 per tonne.

Capital spending at Elk Valley Coal in 2008 is planned to be approximately $200 million (Trust's share -$120 million), which is more than double its capital spending levels in recent years. All of the planned expenditures are sustaining in nature. The increase in sustaining capital expenditures reflects normal variability in capital requirements associated with the aging of mining fleets and increased equipment requirements resulting from changes in mining conditions. A tight labour market, contractor availability and delivery times for equipment purchases may influence actual capital spending. The Trust expects Elk Valley Coal's sustaining capital requirements over the next few years to be at these higher levels. Expenditures by Elk Valley Coal in 2008 in excess of approximately $80 million will be financed by the Trust and Teck Cominco in proportion to their ownership interests in Elk Valley Coal. The Trust will finance its share of the funding to Elk Valley Coal by utilizing proceeds from its distribution reinvestment plan or available lines of credit, which will limit the impact on distributable cash.

Number of Units Outstanding

There were approximately 149 million trust units outstanding on March 31 and April 21, 2008. Approximately 19,000 options were outstanding under the exchange option plan on the respective dates.

Changes in Accounting Policies

Inventories

The Trust adopted CICA Handbook Section 3031, Inventories, effective January 1, 2008. Section 3031 provides new guidelines for accounting for inventories. The adoption of Section 3031 did not have a material impact on the consolidated financial statements of the Trust.

Financial instruments

The Trust adopted CICA Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation, effective January 1, 2008. Additional quantitative and qualitative information regarding the Trust's financial instruments and the associated risks is provided in note 9 to the accompanying consolidated financial statements.

Capital disclosures

The Trust adopted CICA Handbook Section 1535, Capital Disclosures, effective January 1, 2008. This section requires the Trust to disclose its objectives and requirements for managing its capital. This new disclosure is provided in note 10 to the accompanying consolidated financial statements.

Risk Factors

Unitholders should refer to the 'Key Risk and Uncertainties' section in the Trust's 2007 Management's Discussion and Analysis, and the 'Risk Factors' section in the 2007 Annual Information Form for other factors that could potentially impact the Trust's financial performance and its ability to meet its targets.

Caution Regarding Forward-Looking Statements

This management's discussion and analysis contains forward-looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995 relating, but not limited to, the Trust's expectations, intentions, plans and beliefs. Forward-looking information can often be identified by forward-looking words such as "anticipate", "believe", "expect", "goal", "plan", "intend", "estimate", "optimize", "may", and "will" or similar words suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. This management's discussion and analysis contains forward-looking information, included in, but not limited to, the sections titled 'Overview', 'Results of Operations', 'Liquidity and Capital Resources', 'Outlook, and 'Changes in Accounting Policies'.

Unitholders and prospective investors are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, of both a general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking information or contribute to the possibility that predictions, forecasts, or projections will prove to be materially inaccurate.

The forward-looking statements contained in this management's discussion and analysis are based, in part, upon certain assumptions made by the Trust, including, but not limited to, the following: no material disruption in production; no material variation in anticipated coal sales volumes, coal prices or cost of product sold; no material variation in the forecasted yields, strip ratios, haul distances and productivity for each mine in which the Trust has an interest; no material increases in the global supply of hard coking coal other than what is currently projected by management; significant quantities of weaker coking coals will not be substituted for hard coking coal; continued strength in global steel markets; no material disruption in construction or operations at minesites; no variation in availability or allocation of haul truck tires to Elk Valley Coal in 2008; an absence of labour disputes in the forecast period; no further material increase in the cost of labour; no material variations in markets and pricing of metallurgical coal other than anticipated variations; no material variation in anticipated mining, energy or transportation costs; continued availability of and no further material disruption in rail service and port facilities; no material delays in the current timing for completion of ongoing projects; financing will be available on terms favourable to the Trust and Elk Valley Coal; no material variation in the operations of Elk Valley Coal customers which could impact coal purchases; no material variation in historical coal purchasing practices of customers; coal sales contracts will be entered into with new customers; existing inventories will not result in decreased sales volumes; parties execute and deliver contracts currently under negotiation; and, no material variations in the current taxation environment other than those changes that have already been announced.

The Trust cautions that the list of factors and assumptions set forth above is not exhaustive. Some of the risks, uncertainties and other factors which negatively affect the reliability of forward-looking information are discussed in the Trust's public filings with the Canadian and United States securities regulatory authorities, including its most recent management information circular, annual information form, quarterly reports, management's discussion and analysis, material change reports and news releases. Copies of the Trust's Canadian public filings are available on SEDAR at www.sedar.com. The Trust's U.S. public filings, including the Trust's most recent annual report on form 40-F as supplemented by its filings on form 6-K, are available at www.sec.gov. The Trust further cautions that information contained on, or accessible through, these websites is current only as of the date of such information and may by superseded by subsequent events or filings. The Trust undertakes no obligation to update publicly or otherwise revise any information, including any forward-looking information, whether as a result of new information, future events or other such factors that affect this information except as required by law.



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)

Three months ended
March 31
(millions of Canadian dollars, ---------------------
except per unit amounts) 2008 2007
----------------------------------------------------------------------------
Revenues $ 332.0 $ 350.5

Expenses
Cost of product sold 159.7 130.0
Transportation 128.6 107.4
Selling, general and administration 9.6 5.7
Depreciation and depletion 14.6 12.1
---------------------
312.5 255.2

Income from operations 19.5 95.3

Other expense
Interest expense (4.4) (5.0)
Other items, net (note 4) (11.6) (0.8)
---------------------
Income before taxes 3.5 89.5

Income tax expense (note 5) 3.0 12.7
---------------------
Net income from continuing operations 0.5 76.8

Income from discontinued operation - NYCO (note 13) - 0.2
---------------------

Net income $ 0.5 $ 77.0
---------------------
---------------------

Other comprehensive income (note 12) - 3.8
---------------------

Comprehensive income $ 0.5 $ 80.8
---------------------
---------------------
Weighted average number of units outstanding (millions)
(note 11)
Basic 148.6 147.0
Diluted 148.6 147.1

Basic and diluted amounts per unit
Net income from continuing operations $ - $ 0.52
Net income from discontinued operation - NYCO $ - $ -
---------------------
Net income $ - $ 0.52
---------------------
---------------------


CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS
(unaudited)

Three months ended
March 31
---------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Balance - beginning of period $ 2,005.9 $ 1,672.6

Net income 0.5 77.0
---------------------

Balance - end of period $ 2,006.4 $ 1,749.6
---------------------
---------------------

The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Three months ended
March 31
---------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Operating activities
Net income from continuing operations
$ 0.5 $ 76.8
Items not using (providing) cash:
Depreciation and depletion 14.6 12.1
Loss on disposal of capital assets - 0.1
Provision for asset retirement obligations, net 0.4 0.9
Decrease (increase) in unrealized gain on foreign
exchange forward contracts 39.5 (7.1)
Unrealized foreign exchange loss (gain) on long-term
debt 11.2 (3.1)
Future income tax expense (reversal) (1.0) 0.9
Other items, net 1.8 0.4
Non-controlling interest (0.1) 1.0
Operating cash flow from discontinued operation - NYCO
(note 13) - (0.8)
---------------------
66.9 81.2

Increase in non-cash working capital (23.8) (8.0)
---------------------

Cash from operating activities 43.1 73.2
---------------------
Investing activities
Additions to capital assets (26.2) (6.2)
Proceeds on disposal of capital assets - 0.5
Other investing activities, net (0.1) (0.1)
Investing cash flow from discontinued operation - NYCO
(note 13) - (0.1)
---------------------

Cash used in investing activities (26.3) (5.9)
---------------------
Financing activities
Distributions paid (78.8) (139.7)
Proceeds from distribution reinvestment plan (note 11) 13.5 -
Other financing activities, net (0.4) (1.3)
---------------------
Cash used in financing activities (65.7) (141.0)
---------------------
Decrease in cash and cash equivalents (48.9) (73.7)

Cash and cash equivalents - beginning of period 151.5 144.6
---------------------
Cash and cash equivalents - end of period $ 102.6 $ 70.9
---------------------
---------------------

The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.


CONSOLIDATED BALANCE SHEETS
(unaudited)

March 31 December 31
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------

Assets

Current assets
Cash and cash equivalents $ 102.6 $ 151.5
Accounts receivable 95.8 72.4
Fair value of foreign exchange forward
contracts - 38.7
Inventory 142.4 134.0
Prepaid expenses 3.1 4.9
----------------------------
343.9 401.5

Capital assets 666.8 652.8

Goodwill 12.9 12.9

Other assets 19.1 19.6
----------------------------

$ 1,042.7 $ 1,086.8
----------------------------
----------------------------
Liabilities

Current liabilities
Accounts payable and accrued liabilities $ 125.7 $ 111.5
Fair value of foreign exchange forward
contracts 0.8 -
Income taxes payable 11.0 18.3
Distributions payable 74.3 78.6
Current portion of long-term debt 1.7 1.6
----------------------------
213.5 210.0

Long-term debt (note 6) 291.8 280.9

Other long-term liabilities (note 7) 160.0 157.2

Future income taxes (note 5) 125.9 126.9
----------------------------
791.2 775.0
----------------------------

Commitments and contingencies (note 8)

Unitholders' equity (note 11)

Trust units 412.8 399.3
Accumulated earnings 2,006.4 2,005.9
Accumulated cash distributions (2,167.7) (2,093.4)
Accumulated other comprehensive income (note 12) - -
----------------------------

251.5 311.8
----------------------------

$ 1,042.7 $ 1,086.8
----------------------------
----------------------------

The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.

Notes to Consolidated Financial Statements
(unaudited)


1. STRUCTURE OF FORDING CANADIAN COAL TRUST AND NATURE OF OPERATIONS

Fording Canadian Coal Trust (the Trust) is an open-ended mutual fund trust existing under the laws of Alberta and governed by its Declaration of Trust. The Trust does not carry on any active business. The Trust directly and indirectly owns all of the interests of Fording LP, which holds a 60% interest in Elk Valley Coal. Elk Valley Coal owns and operates six metallurgical coal mines in British Columbia and Alberta. The Trust previously held a 100% interest in NYCO, which was sold in June 2007 and is accounted for as a discontinued operation in the consolidated financial statements. The Trust uses the cash it receives from its investments to make quarterly distributions to its unitholders.

Elk Valley Coal is a general partnership between Fording LP and affiliates of Teck Cominco Limited (Teck Cominco). Teck Cominco is the managing partner of Elk Valley Coal and is responsible for managing its business and affairs, subject to certain matters that require the agreement of the Trust and Teck Cominco. The consolidated financial statements of the Trust reflect its proportionate interest in Elk Valley Coal.

These consolidated financial statements should be read in conjunction with the Trust's 2007 annual consolidated financial statements and notes thereto and other public disclosure documents of the Trust.

The preparation of these consolidated financial statements requires management to make certain estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes. Actual amounts could differ from those estimates. A discussion of the accounting estimates that are significant in determining the Trust's financial results is contained in the Management's Discussion and Analysis for 2007.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and follow the same accounting principles and methods of application as described in the Trust's annual financial statements for 2007, except as discussed in note 3. Certain of the comparative figures have been reclassified to conform to the current year presentation.

3. CHANGES IN ACCOUNTING POLICIES

Inventories

The Trust adopted CICA Handbook Section 3031, Inventories, effective January 1, 2008. Section 3031 provides new guidelines for accounting for inventories. The adoption of Section 3031 did not have a material impact on the consolidated financial statements of the Trust.

Financial instruments

The Trust adopted CICA Handbook Sections 3862, Financial Instruments - Disclosures, and 3863, Financial Instruments - Presentation, effective January 1, 2008. Additional quantitative and qualitative information regarding the Trust's financial instruments and the associated risks is provided in note 9.

Capital disclosures

The Trust adopted CICA Handbook Section 1535, Capital Disclosures, effective January 1, 2008. This section requires the Trust to disclose its objectives and requirements for managing its capital. This new disclosure is provided in note 10.



4. OTHER ITEMS, NET

Three months ended
March 31
-----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------

Interest and investment income $ 1.2 $ 1.2
Foreign exchange gains (losses) from financial
instruments:
Foreign exchange gain (loss) on revaluation of U.S.
dollar-denominated accounts receivable 3.7 (1.0)
Unrealized foreign exchange gain (loss) on revaluation
of U.S. dollar-denominated long-term debt (11.2) 3.1
Realized gain (loss) on foreign exchange forward
contracts 34.8 (9.7)
Increase (decrease) in unrealized gains on foreign
exchange forward contracts (39.5) 7.1
Non-controlling interest (0.1) (1.0)
Other (0.5) (0.5)
-----------------------

$ (11.6) $ (0.8)
-----------------------
-----------------------


5. INCOME TAXES

Income tax expense is made up of the following components:

Three months ended
March 31
-----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Current income tax expense:
Canadian corporate income taxes $ 0.7 $ 0.2
Provincial mineral taxes and Crown royalties 3.3 11.6
-----------------------
4.0 11.8

Future income tax expense (reversal):
Canadian corporate income taxes (2.6) -
Provincial mineral taxes and Crown royalties 1.6 0.9
-----------------------
(1.0) 0.9
-----------------------

Total income tax expense $ 3.0 $ 12.7
-----------------------
-----------------------


The following table reconciles the income tax expense calculated using
statutory tax rates to the actual income tax expense.


Three months ended
March 31
-----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Expected income tax expense at Canadian
statutory tax rate of 39% (2007 - 39%) $ 1.4 $ 34.9

Increase (decrease) in taxes resulting from:
Allocation of net income to unitholders (1.4) (34.9)
Provincial mineral taxes and Crown royalties 4.9 12.5
Future Canadian corporate income taxes
recognized as a result of the taxation change (2.6) -
Other 0.7 0.2
-----------------------

Income tax expense $ 3.0 $ 12.7
-----------------------
-----------------------


The temporary differences comprising the future income tax assets and
liabilities are as follows:


March 31 December 31
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------

Future income tax assets:
Asset retirement obligations $ 49.6 $ 48.2
Other 15.3 12.6
64.9 60.8

Future income tax liabilities:
Capital assets carrying value in
excess of tax basis 190.8 187.7
-----------------------

Net future income tax liabilities $ 125.9 $ 126.9
-----------------------
-----------------------


6. LONG-TERM DEBT AND BANKING FACILITIES

March 31 December 31
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Long-term debt
Five-year bank credit facilities:
US$283.0 million in LIBOR rate loans with
an average interest rate of
4.8% (2007 - 5.5%) $ 290.9 $ 279.6

Other debt
Equipment financing due 2009
bearing interest at 5.1% 1.3 1.4
Capital lease obligations expiring in
2011 with interest rates varying from
5.3% to 5.5% 1.3 1.5
-----------------------
293.5 282.5

Less current portion (1.7) (1.6)
-----------------------
$ 291.8 $ 280.9
-----------------------
-----------------------


The Trust and Elk Valley Coal together have a five-year revolving bank credit facility with a syndicate of banks that will mature on February 11, 2012. The banks have committed up to $400.0 million to the Trust and up to $200.0 million to Elk Valley Coal, of which the Trust's share is $120.0 million.

At March 31, 2008, the Trust's share of other uses of the bank credit facility in the form of issued and outstanding letters of credit and guarantees was $35.3 million. The Trust's share of unused bank facilities at March 31, 2008 was $193.8 million.

In addition to the bank credit facility, Elk Valley Coal has a separate unsecured credit line for the purpose of issuing letters of credit. At March 31, 2008, the Trust's share of letters of credit issued and outstanding under this credit line was $11 million.



7. OTHER LONG-TERM LIABILITIES

March 31 December 31
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Asset retirement obligations $ 121.9 $ 119.9
Pension and other post-retirement benefits 30.1 29.0
Non-controlling interest 6.1 6.4
Other, net 1.9 1.9
-----------------------
$ 160.0 $ 157.2
-----------------------
-----------------------


Pension and other post-retirement benefits

Substantially all employees participate in either a defined benefit or defined contribution plan. The pension expense for the first quarter of 2008 was $4.9 million (2007 - $5.1 million).

8. COMMITMENTS AND CONTINGENCIES

Neptune Terminals guarantee

By virtue of its 46% ownership interest in Neptune Bulk Terminal (Canada) Ltd. (Neptune Terminals), Elk Valley Coal is contingently obligated for its share of the bank indebtedness and asset retirement obligations of Neptune Terminals. The Trust's share of these contingent obligations was $16.4 million as at March 31, 2008.

Foreign exchange forward contracts

At March 31, 2008, the Trust had outstanding foreign exchange forward contracts totalling US$195.0 million at an average contracted exchange rate of US$0.97. All of the contracts mature prior to March 31, 2009. As of March 31, 2008, the fair value of the outstanding contracts was an unrealized loss of $0.8 million, which is recorded as a current liability in the consolidated balance sheet.

9. ACCOUNTING FOR FINANCIAL INSTRUMENTS

The Trust's financial instruments include cash and cash equivalents, accounts receivable and payable, derivative financial instruments, distributions payable, and long-term debt. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and distributions payable recorded on the consolidated balance sheet are reasonable estimates of their fair values due to the relatively short periods to maturity and the commercial terms of these instruments. The carrying amount of the Trust's long-term debt approximates fair value due to the floating interest rate on the debt.

Cash and cash equivalents are classified as held-to-maturity and are recorded at amortized cost on the consolidated balance sheet. Accounts receivable are classified as loans and receivables and are also recorded at amortized cost.

Derivative financial instruments, which consist of foreign exchange forward contracts, are classified as held-for-trading and are recorded at fair value on the consolidated balance sheet. Fair value is measured using the quoted market rate for forward contracts of a similar maturity date.

Accounts payable, distributions payable, and long-term debt are classified as other financial liabilities and are recorded at amortized cost. The Trust's principal financial liability is its long-term debt and substantially all of the interest expense reported in the consolidated statements of income and comprehensive income is associated with this long-term debt.

Gains or losses and fees associated with all financial instruments are included in Other items, net in the consolidated statements of income and comprehensive income.

Financial instruments risk exposure and management

The Trust is exposed to various risks associated with its financial instruments. These risks are categorized as credit risk, liquidity risk and market risk.

Credit risk

The Trust is exposed to credit losses in the event of non-payment of accounts receivable by Elk Valley Coal's customers. However, Elk Valley Coal normally sells to large, well established customers of high credit quality. In addition, Elk Valley Coal obtains, to the extent practical, either export trade credit insurance or confirmed irrevocable letters of credit as security for all accounts receivable. The export trade credit insurance is provided by a Canadian Crown corporation and the likelihood of default by the insurance provider is considered by Elk Valley Coal to be remote. For confirmed irrevocable letters of credit, Elk Valley Coal requires that they be issued by a major international bank of high credit quality. The maximum credit risk that the Trust is exposed to by way of its accounts receivable is equal to the carrying amount of $95.8 million at March 31, 2008. The Trust believes that it has no significant concentrations of credit risk related to its accounts receivable.

The Trust is also exposed to credit risk associated with the performance of counterparties to its foreign exchange forward contracts. This risk is mitigated by entering into contracts with several different financial institutions that are of high credit quality. The Trust believes that it has no significant concentrations of credit risk related to its foreign exchange forward contracts.

As of March 31, 2008 there are no financial assets that the Trust deems to be impaired or that are past due according to their terms and conditions.

Liquidity risk

Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with its financial liabilities. The table below summarizes the future undiscounted cash flow requirements for financial liabilities at March 31, 2008:



less than less than less than
(millions of Canadian dollars) 1 month 1 year 5 years Total
----------------------------------------------------------------------------

Accounts payable and accrued
liabilities $ 125.7 $ - $ - $ 125.7
Distributions payable 74.3 - - 74.3
Long-term debt - 1.7 291.8 293.5
------------------------------------------
$ 200.0 $ 1.7 $ 291.8 $ 493.5
------------------------------------------
------------------------------------------


For a description of how the Trust manages its liquidity to ensure it can meet its short and long-term obligations, please refer to the Liquidity and Capital Resources section of the Trust's 2007 Management's Discussion and Analysis dated March 14, 2008 and the Management's Discussion and Analysis for the first quarter of 2008 included in this earnings report.

Market risk

The significant market risk exposures affecting the financial instruments held by the Trust are those related to foreign currency exchange rates and interest rates which are explained as follows:

Foreign currency exchange rates

The Trust's U.S. dollar-denominated accounts receivable, foreign exchange forward contracts and long-term debt are exposed to foreign currency exchange rate risk because the value of these financial instruments will fluctuate with changes in the U.S./Canadian dollar exchange rate. For each US$0.01 decrease in the U.S./Canadian dollar exchange rate (i.e. the U.S. dollar strengthening against the Canadian dollar), the net value of the Trust's financial instruments outstanding as of March 31, 2008 would decrease by approximately $5 million, which would be charged to net income.

Interest rates

The Trust is exposed to interest rate risk on its long-term debt and, to a minor extent, on its interest bearing investments in cash and cash equivalents. The Trust's long-term debt bears a floating interest rate that is derived from the London Interbank Offered Rate (LIBOR). A 1% (i.e. 100 basis point) increase in LIBOR would cause interest expense to increase by approximately $3 million per annum based on the balance of long-term debt outstanding as at March 31, 2008.

10. CAPITAL DISCLOSURES

The capital structure of the Trust consists of long-term debt and unitholders' equity, which is comprised of issued units and accumulated earnings, less accumulated cash distributions.

Due to the nature of the Trust and its formation, including the requirement under the Declaration of Trust to pay annual distributions in an amount sufficient to ensure the Trust is not liable for current corporate income taxes, the amount of unitholders' equity tends to be relatively low. In addition, the Trust's investment in a cyclical resource business results in volatility in its net income and cash flows. As a result of these factors, the Trust's borrowing capacity is determined based on its earnings and cash flows as opposed to traditional debt-to-equity ratios. The Trust's objective is to maintain debt levels relative to its earnings and cash flows such that the debt could be considered equivalent to investment-grade.

A distribution reinvestment plan was implemented during 2007 that has the effect of increasing units outstanding over time as additional units are issued each quarter in lieu of cash distributions. For the first quarter 2008 distribution to be paid in April 2008, unitholders representing approximately 19% of the Trust's outstanding units elected to participate in the distribution reinvestment plan.

Under the syndicated bank credit facility, the Trust is required to comply with certain ratios of debt to earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) and EBIDTA to interest expense. To date, the Trust has complied with these externally imposed capital requirements.

The Trust will become subject to Canadian corporate income taxes beginning in 2011. This may result in changes to the capital structure of the Trust or the nature of the Trust itself.



11. UNITHOLDERS' EQUITY

Units issued and outstanding

Three months ended
March 31, 2008
----------------------
(in millions of units and Canadian dollars) Units Amount
----------------------------------------------------------------------------
Balance, beginning of period 148.3 $ 399.3
Units issued under distribution reinvestment plan 0.4 13.5
----------------------
Balance, end of period 148.7 $ 412.8
----------------------
----------------------


At March 31, 2008, there were approximately 18,600 options outstanding to purchase units, all of which are fully vested and exercisable at any time. The options have a weighted average exercise price of $3.94 per unit and the remaining weighted average contractual life is 2.2 years.



Accumulated distributions to unitholders

Three months ended
March 31
----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Opening accumulated cash distributions $ 2,093.4 $ 1,734.6
Distributions declared and payable 74.3 95.6
----------------------
Closing accumulated cash distributions $ 2,167.7 $ 1,830.2
----------------------
----------------------


Earnings per unit

For the periods presented, in calculating diluted earnings per unit, net income remains unchanged from the basic earnings per unit calculation and the number of units outstanding is increased for the dilutive effect of outstanding unit options. The treasury stock method is used to determine the dilutive effect of unit options and other dilutive instruments. For the quarter ended March 31, 2008, the average number of units outstanding for purposes of calculating both basic and diluted earnings per unit was 148.6 million units.

Distribution reinvestment plan

Approximately 380,000 units were issued under the distribution reinvestment plan during the quarter ended March 31, 2008 in lieu of cash distributions of $13.5 million. In addition, approximately 0.2 million units were issued in April 2008 in lieu of cash distributions of $13.9 million.

In 2007, distribution payments were reflected in the consolidated statements of cash flows net of reinvestments under the distribution reinvestment plan. Effective January 1, 2008, the proceeds from the distribution reinvestment plan are shown as a separate cash inflow in the consolidated statements of cash flows. The distribution reinvestment plan was established in the first quarter of 2007 and proceeds were first received by the Trust during the second quarter of 2007.

12. ACCUMULATED OTHER COMPREHENSIVE INCOME



Accumulated other comprehensive income is made up of the following
components:

Three months ended
March 31
----------------------
(millions of Canadian dollars) 2008 2007
----------------------------------------------------------------------------
Accumulated other comprehensive income,
beginning of period:
Foreign currency translation account balance $ - $ 4.5
Other comprehensive income (loss):
Settlement of foreign exchange forward
contracts outstanding on January 1, 2007 - 4.5
Foreign currency translation adjustments
related to NYCO - (0.7)
----------------------
- 3.8
----------------------

Accumulated other comprehensive income,
end of period $ - $ 8.3
----------------------
----------------------


13. DISCONTINUED OPERATION - NYCO

The sale of NYCO was completed in June 2007. For accounting purposes, NYCO is classified as a discontinued operation.



Income from discontinued operation for the three months ended March 31, 2007
was as follows:

(millions of Canadian dollars)
----------------------------------------------------------------------------
Revenues $ 11.6
Cost of product sold (8.2)
Transportation (2.1)
Selling, general and administration 0.3
Depreciation and depletion (1.0)
-----------
Income from operations 0.6
Income tax expense (0.4)
-----------
Income from discontinued operation $ 0.2
-----------


14. SUBSEQUENT EVENT

Subsequent to March 31, 2008, the Trust entered into US$601 million of foreign exchange forward contracts at an average contracted exchange rate of US$0.99. All of the contracts mature prior to March 31, 2009.

Contact Information

  • Fording Canadian Coal Trust
    Colin Petryk
    Director, Investor Relations
    (403) 260-9823
    or
    Fording Canadian Coal Trust
    Najda Dupanovic
    Coordinator, Investor Relations
    (403) 260-9892
    Email: investors@fording.ca
    Website: www.fording.ca