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Post by Low Light Mike on Jun 9, 2007 10:27:55 GMT -8
(more excerpts)
(page 5) ------------------------ Revenue Comparison to Prior Years
(TOTAL REVENUES)
Our total revenues have increased steadily over the past three fiscal years, as shown in the table below. (FLUGEL-NOTE: the tables don't cut/paste well.....if you're interested in revenue breakdowns, you'll want to see these for yourself)
Our largest revenue source is vehicle and passenger tariffs. The annual average tariff rate increase was 2.8% on our three major routes and 4.4% on the remaining routes, as permitted by the Coastal Ferry Act. From time to time we utilize promotional fare reductions designed to stimulate growth in traffic levels or shift traffic away from our busiest sailings.
The greatest portion of our revenues, 61%, is earned on our three major routes connecting Vancouver Island to the lower mainland and Vancouver and is entirely direct revenue from customers and related social program fees. The revenue from the other routes makes up 38% while other general revenue consisting of marketing rights, advertising revenues, interest earned and net foreign exchange gains, is only 1% of the total revenue.
The revenue from our other routes consists of 19% from customers and related social program fees, 15% from ferry service fees and 4% from payments under the Federal- Provincial subsidy agreement.
------------------------ (MAJOR ROUTES)
Vehicle traffic and passenger traffic increased marginally. The increase in average tariff per vehicle was $0.77 while the increase in average tariff per passenger was $0.31. The increased traffic and higher average fares resulted in a total increase of $8.8 million in tariff revenue.
Social program fees are reimbursements from the Province of discounts provided on fares for BC seniors, students traveling to and from school, persons with disabilities and persons traveling under the medical Travel Assistance Program. These fees have increased as a result of higher program usage and higher fares.
All of our vessels that provide service on our major routes have a gift shop and options for food service. Food sales increased $3.1 million as a result of higher spending per passenger and the higher number of passengers carried. Gift shop sales increased $0.9 million with significant improvements in sales of books, clothing and giftware. Eighty percent of the book titles we carry are BC related. We introduced new apparel and gift products which have met with success. We have been able to achieve higher sales while increasing margins.
Fees for reservations, parking commissions and surcharges from assured loading ticket sales are also showing a marked increase as a result of both increased prices and increased usage.
----------------- (page 7-8 ) (OTHER ROUTES)
Our other routes consist of 22 regulated northern service and inter-island routes, and eight small non-regulated routes. One of the regulated routes, as well as all of the non-regulated routes, are operated under contract by alternative service providers. We receive fees from the Province for the provision of service on the non-regulated routes.
Twenty-one percent of the vehicle traffic decrease and 26.7% of the passenger traffic decrease is directly related to the loss of the Queen of the North. The negative effect on tariff revenue resulting from this incident is approximately $2.2 million in vehicle tariff revenue and $2.5 million in passenger tariff revenue.
The increase in average tariff per vehicle was $0.41 while the average passenger tariff did not change. The increased average vehicle fare, partially offset by the reduction in traffic levels on the northern and other routes limited the total tariff revenue increase to $0.8 million.
We receive ferry service fees for these routes under the Coastal Ferry Services Contract. The drop in fees reflects the negotiated reduction of $0.9 million resulting from the modified summer service we provided as a result of the loss of the Queen of the North.
Reimbursements from the Province for social program fees increased as a result of higher program usage and higher fares. The loss of the regular northern service throughout the summer months resulted in a decrease in retail sales of approximately $1.2 million. This was partially offset by higher food sales per passenger on other routes and additional sales from an expanded gift shop on the Queen of Surrey, which operates between Horseshoe Bay and Langdale.
The drop in stateroom rental is also as a result of the modified service on the northern routes over the summer months. Gross margin is 4.3% lower mainly due to higher costs on our northern routes.
Fees for reservations, parking commissions and other revenue have shown a marked percentage increase, despite the limited northern service during the summer months.
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Post by Low Light Mike on Jun 9, 2007 10:48:21 GMT -8
(more excerpts) (page 10- ) --------------------------- ExpensesFuel Deferral and Related Surcharge In September 2004, the British Columbia Ferries Commissioner issued an order authorizing us to maintain deferred fuel cost accounts to mitigate the effect on our earnings of volatility in fuel oil prices. The Commissioner established set prices for fuel oil for each of the years until March 31, 2008. At the start of each fiscal year in the first performance term, the set prices increase by the Consumer Price Index (Vancouver). The first such increase, effective April 1, 2005, was 2.0%. The Commissioner ordered an additional 5% increase in the set price per route group effective July 24, 2005. On April 1, 2006 our set prices increased a further 1.9%. On March 30, 2007, the Commissioner proposed the continued use of set prices for fuel oil for the second performance term. Differences in fuel costs arising from our actual price paid per litre being higher or lower than the unit set price are charged or credited to the deferred fuel cost accounts. Continuing high fuel costs have caused increases in the balances of the deferred fuel cost accounts. We filed applications with the British Columbia Ferries Commissioner under Section 42 of the Coastal Ferry Act requesting extraordinary price cap increases to allow for fuel surcharges in order to reduce or eliminate these balances. After receiving approval, we implemented fuel surcharges on July 25, 2005, February 1, 2006 and June 22, 2006. Proceeds from the fuel surcharges are credited against balances in the deferred fuel cost accounts. Under an agreement reached in March 2007, the Province made a one-time $7.0 million ferry service fee payment for fiscal 2007, that was applied against the deferred fuel cost accounts in accordance with the agreement. As a result, the balances in our deferred fuel cost accounts totalled $18.8 million at March 31, 2007 ($22.7 million at March 31, 2006). In the absence of this one-time payment, the balance of the deferred fuel cost accounts would have grown to $25.8 million. The Commissioner has also set an efficiency target requiring us to reduce fuel consumption by 1% in fiscal 2007 and by an additional 1% in fiscal 2008. We filed our fuel savings plan with the Commissioner in June 2006. This plan is available on our website at www.bcferries.com. During the year ended March 31, 2007, and after removing the impact of the loss of the Queen of the North, we bettered the fuel consumption target set by the Commissioner. We have decreased our annual consumption by over six million litres (5.1%) from the level of fuel consumed three years prior. We are continuing to implement a wide variety of fuel saving measures ranging from operating our vessels more efficiently to installing new, more fuel-efficient engines on some of our vessels and fuel monitoring systems on others. ----------------------------- (page 11) Year to Year Comparison of Expenses 2007 – 2006The $17.4 million increase in operations expenses reflecting: • $8.5 million increase in wages and benefits, including lump sum payments to employees totalling $3.4 million, as a result of the arbitration award; $1.2 million in additional training costs (an increase in operational training from approximately 8,000 to approximately 11,000 person days); and wage rate increases of $6.7 million, partially offset by improved labour scheduling practices and as a result of reduced service on northern routes. • $3.8 million increase in property tax expense. In fiscal 2006 we received a refund of $8.2 million in settlement of terminal property tax assessment appeals for 2004 and 2005; • $2.6 million increase reflecting our renewed uniform program; and • $1.6 million net increase in marine insurance premiums. Maintenance expenses, which include expenditures for vessel refit and maintenance as well as terminal maintenance activities, were $3.8 million higher, reflecting our commitment to safety. Administration expenses decreased $0.6 million mainly as a result of a $2.2 million reduction in severance and restructuring costs, partially offset by a $1.5 million increase in data communications and telecommunication costs. Amortization increased a total of $2.4 million as a result of additional assets coming into service including $1.8 million reflecting the Queen of Surrey $37.2 million upgrade; Interest expenses decreased $5.8 million due to: • $4.0 million of additional interest capitalized reflecting our investment in fleet and terminal revitalization plans; • $2.7 million increase in interest rate support recorded under the Structured Financing Facility Program offered by the Government of Canada. A total of $9.9 million in support for the Queen of Oak Bay, Queen of Nanaimo and Queen of Surrey mid-life upgrades has been granted of which we have reflected $4.7 million ($2.0 million in fiscal 2006) as a decrease in bond interest costs and $0.5 million ($0.6 million in fiscal 2006) to offset interest costs previously capitalized on the upgrades. The remaining $2.1 million will be applied against future bond interest costs. These decreases in interest expense were partially offset by an overall increase in our average level of debt and the effect of interest rates payable on the debt instruments issued and in place as described in the “Liquidity and Capital Resources” section below. ====================
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Post by Low Light Mike on Jun 9, 2007 11:11:12 GMT -8
(more excerpts - pages 12-13) -----------------------------
Liquidity and Capital Resources
We fund our operations and capital acquisitions with cash flow generated from operations, as well as bank financing and debt issues. We expect operating cash flows to fund approximately one half of the capital expenditures over the next five years, with the balance funded by borrowings.
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Long-Term Debt
In May 2004 we entered into a master trust indenture. This indenture established common security and a set of common covenants by us for the benefit of our lenders. Our financing plan encompasses an ongoing program capable of accommodating a variety of corporate debt instruments and borrowings ranking pari passu. We do not currently view common share equity as a potential source of capital and have no present intention of offering common shares to the public or other investors.
Under this indenture we completed two $250 million public offerings in fiscal 2005: a 5.74% Senior Secured Bonds, Series 04-1, due May 27, 2014 and a 6.25% Senior Secured Bonds, Series 04-4, due October 13, 2034. The net proceeds were used primarily to repay a portion of our indebtedness to the Province, to fund reserves required in connection with these bonds and for general corporate purposes. Interest on these bonds is payable semiannually.
We also entered into a credit agreement with a syndicate of Canadian banks which is secured under the indenture. Under this agreement, we have available a five year revolving facility in the amount of $155 million which expires May 12, 2012, but is renewable annually under certain conditions. This replaced a one-year and a three-year revolving credit facility of $77.5 million each that we held at March 31, 2006. The revolving term facility is available for working capital purposes, to fund the upgrade and acquisition of vessels and terminal upgrades and other general corporate purposes.
In fiscal 2006 we finalized two loan agreements with KfW, a German export credit bank. These agreements are secured under the Master Trust Indenture. The agreements allow us to borrow up to $90 million per loan, with the net proceeds to be used to finance the purchase of two of the three Super C-class vessels currently being built. These funds will not be advanced until the date upon which we accept delivery of the applicable vessel from the ship builder. The principal amount of each loan will be repaid over the twelve year term of the loan.
In March 2007 we closed a $250 million senior secured bond issue, Series 07-1, due March 20, 2037. These private placement bonds will bear interest at 5.021%, payable semiannually. The net proceeds will be used primarily to repay our credit facility, to fund capital expenditures and for general corporate purposes.
------------------- (page 13) Terminal Leases
We entered into a master agreement with the British Columbia Transportation Financing Authority (“BCTFA”) effective March 31, 2003, as part of the restructuring of our Company. In return for the transfer of ownership interest in all ferry terminals from the former British Columbia Ferry Corporation to the BCTFA at the time of the corporate restructuring, we received recognition of prepayment of rent under terminal leases.
The leases grant us exclusive access and use of ferry terminal properties for a period of 60 years commencing April 1, 2003. The leases are renewable for an additional period of 20 years at a total cost of $20 per lease if the Coastal Ferry Services Contract is renewed. We must manage, maintain and develop the terminals at our own cost.
Since the original transfer, $5.1 million of additional lands at Horseshoe Bay and Swartz Bay were added to the existing terminal leases in exchange for highway improvements.
If we fail to meet our obligations under the terminal leases or default under the Coastal Ferry Services Contract, the BCTFA may at its option re-enter and take possession of the ferry terminal properties and at its option terminate the leases. The BCTFA has entered into an acknowledgement agreement with the Bondholders’ Trustee which sets out certain limitations of the use of this option.
In addition to the above, we have entered into a 40-year lease agreement with the Town of Sidney, BC to manage and develop an existing ferry terminal owned by the town. This terminal is the western end of a ferry route connecting Vancouver Island with Anacortes, WA. The route is operated by Washington State Ferries.
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(page 14) (FLUGEL NOTE: This has lots of accounting mumbo-jumbo (or "mumbo-coastal" here in BC)....but this essentially means that the Federal Gov't Tax Dept has denied some BCFS GST refund claims. Yeah, the new privatised-structure cost BCFS $6.1 Million in denied GST claims... ouch.) --
$6.1 million decrease in GST payable reflecting an April 2006 payment of denied ITC claims. Effective April 2, 2003, we became subject to GST but are limited in our ability to obtain input tax credits (“ITCs”) because certain of our services are exempt under the Excise Tax Act.
In fiscal 2006, we reviewed the options available to us and filed an amended ITC claim for the period April 2, 2003 through June 30, 2005. Canada Revenue Agency (“CRA”) has completed an audit of our GST filings, including review of our amended claims.
Although CRA determined the methods used in our revised filings to be generally fair and reasonable, they have denied us the ability to file the amended claim which totalled $3.2 million. In addition, CRA has taken the position that vessel fuel and lubricants used for propulsion supports only GST exempt lines of business resulting in denial of ITC claims of approximately $2.2 million for the period April 2, 2003 through March 31, 2006.
In April 2006, we paid all amounts related to the denied ITC claims. However, we disagree with CRA’s interpretation of the law in this instance and are pursuing recovery through the appeal process; =================
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Post by Low Light Mike on Jun 9, 2007 11:23:40 GMT -8
(more excerpts - pages 15-18) ------------------------------------------- Investing in our Capital Assets
Capital expenditures in fiscal 2007 totalled $262.6 million. This level of expenditure reflects significant investments in our fleet, terminals and information systems to increase customer service and operating efficiency. Expenditures included:
• $206.0 million in new vessels, vessel upgrades and modifications including:
• $99.1 million of a total budget of $102 million for the purchase and modification of the Northern Adventure; • $25.4 million of the $38 million mid-life upgrade which includes safety, structural and mechanical improvements to the Queen of Alberni; • $21.5 million of the $542 million Super C-class new vessel construction project; • $13.0 million of the $57 million project for the construction of a new intermediate class vessel to replace the Queen of Tsawwassen; • $10.9 million of the completed $37 million mid-life upgrade which included safety, structural and mechanical improvements to the Queen of Surrey; • $9.2 million of the $12 million completed reconstruction of the Kuper; • $8.7 million of the budgeted total of $24 million for the upgrade and replacement of propulsion and safety equipment on the Quinsam, the Quinitsa and the Queen of Capilano; • $7.4 million of the $200 million project for the construction of the new Northern Expedition;
• $38.0 million in marine structures at many of our terminals, including: • $11.4 million of a $16 million project to upgrade the berths at Departure Bay terminal; • $7.0 million of a $12 million project to upgrade the berths at Horseshoe Bay terminal; • $6.2 million of a $24 million completed project to construct a new berth at Swartz Bay terminal; and • $3.7 million of the completed terminal modifications to accommodate the new Northern Adventure;
• $11.6 million in terminal and building upgrades and equipment, including $5.2 million at Swartz Bay, $1.8 million at Departure Bay and $1.2 million at Alert Bay terminals. Over the next five years, we plan to invest $237 million in our terminals for building and marine structure upgrades; and
• $6.9 million in computer hardware and software development which will improve communications technology and enhance customer service in areas such as automated ticketing, retail and food service management and security of customer credit card information.
---------------------------------------- Major Vessel Upgrades
The Queen of Surrey, which provides service on our Langdale-Horseshoe Bay route, returned to service on June 27, 2006, following an extensive $37 million mid-life upgrade. The 26-year-old vessel underwent significant upgrades to prepare it for another 20 years of service. The upgrades included safety, structural and mechanical improvements as well as improved and expanded passenger amenities. The Queen of Surrey is the fourth of five Cclass vessels identified for mid-life upgrade. Similar upgrades have already been undertaken on the Queen of Coquitlam, Queen of Cowichan and Queen of Oak Bay.
The fifth, and final, C-class vessel to undergo such a major upgrade, the Queen of Alberni, began its upgrade in November 2006. The vessel, which usually provides service on our Duke Point – Tsawwassen route, commenced its six-month $38 million mid-life upgrade at Vancouver Drydock in North Vancouver. The vessel’s extensive upgrade will include safety and mechanical improvements, as well as new passenger amenities and will prepare the 31-year-old vessel for another 20 years of service.
----------------------- Coastal Renaissance, Coastal Inspiration and Coastal Celebration
In September 2004 we entered into contracts with Flensburger Schiffbau-Gesellschaft (“FSG”) of Germany to build three new Super C-class vessels that will be the largest double ended vessels in the world. Each vessel will measure 160-metres in length and have a capacity of 1,650 passengers and 370 vehicles. The contracts are design-build and fixed price, totalling $325 million. They provide us with substantial guarantees related to delivery dates, performance criteria, cost certainty and quality of construction. These contracts, together with the related import duty and taxes of approximately $112 million, form the majority of the total project budget of $542 million. We are currently seeking a remission of the import duty, but we are uncertain as to the outcome of this application. Foreign currency based payments in this project have been hedged in Canadian dollars to manage the foreign exchange risk.
Construction of the Coastal Renaissance started in August 2006, and the vessel was launched in Germany in April 2007. Construction of the Coastal Inspiration commenced in November 2006 while construction of the Coastal Celebration began in April 2007. These new vessels will replace aging vessels which currently provide service on our major routes. The Coastal Renaissance is expected to be in service in early 2008. Delivery of the other two Super C-class vessels is expected in early and mid 2008, respectively. This project is expected to be completed on schedule and within budget.
------------- Northern Adventure In March 2007, the Northern Adventure went into service on our northern routes, in time to relieve the Queen of Prince Rupert for its annual refit. The two-year-old vessel, a replacement for the Queen of the North, was purchased for $51 million in October 2006. The import duty and taxes on this vessel purchase totalled $17 million. We are currently seeking a remission of the import duty portion of this payment, but we are uncertain as to the outcome of this application. The vessel underwent significant modifications at Victoria Shipyards to update safety and security equipment, modify the stern, upgrade electrical, heating and lighting systems and upgrade customer amenities. This 117-metre vessel has 74 state rooms and will accommodate over 600 passengers and 101 vehicles. The Northern Adventure underwent further modifications during May 2007, prior to the start of the busy summer season. The total budget for the acquisition and modification of this vessel is $102 million.
Northern Expedition Following a rigorous competitive bidding process, we signed a $133 million contract with Flensburger Schiffbau-Gesellschaft (“FSG”) of Germany to build a new vessel to replace the 41- year-old Queen of Prince Rupert, operating on our northern routes. The import duty and taxes on this contract will total approximately $43 million. We will be seeking a remission of the import duty, but we are uncertain as to the outcome of our future application. This design-build, fixed price contract (the majority of the total project budget of $200 million) provides us with substantial guarantees for delivery dates, performance criteria, cost certainty and quality of construction. Foreign currency based payments in this project have been hedged in Canadian dollars to manage the foreign exchange risk. This 150-metre vessel, which is expected to be in service in the spring of 2009, will have 55 staterooms and will accommodate 130 vehicles and 600 passengers.
New Intermediate Vessel In December 2006, the keel was laid for a new intermediate class ferry at Vancouver Shipyards in North Vancouver. The $45.5 million contract with Vancouver Shipyards constitutes the majority of the total project budget of $57 million. The new intermediate vessel will allow for the retirement of the 47-year-old Queen of Tsawwassen. Once complete, the vessel will measure 100-metres in length and have a capacity of 600 passengers and 125 vehicles. It will feature a new state-of-the-art lifesaving system as well as a variety of amenities including a comfortable lounge and snack bar for passengers to enjoy. The vessel is expected to be in service by the summer of 2008.
Kuper In March 2007 a new addition to our fleet, the Kuper, went into service on our smaller island routes. The hull of the new vessel is built from the original structure of the John Atlantic Burr, which we purchased in August 2005 from the State of Utah Transportation Department. The vessel was disassembled in Utah and rebuilt with significant upgrades at Allied Shipbuilders in North Vancouver. During the construction period, a new 11-foot wide longitudinal section was inserted into the hull to provide an additional lane on the vehicle deck. The project also included new lifesaving equipment, navigational equipment, piping and electrical system. The total cost of this 32-vehicle ferry was $12 million. The Kuper is the fourth and largest of our “K-class” vessels, joining the Kahloke, the Klitsa and the Kwuna.
------------- Terminal Marine Structures As we reinvest in our terminal infrastructure and prepare for the arrival of the new Super Cclass vessels, significant upgrades are underway at many of our terminals. In October 2006 we officially opened a new state-of-the-art berth at Swartz Bay terminal on Vancouver Island. This $24 million project was undertaken to replace the outdated counterweighted ramp lift system and certain old marine structures and brings a new level of technology to our berthing arrangements for our largest vessels. The improved design of this new floating berth will speed up the loading and unloading process with fewer ramp adjustments as the ramp rises and falls with the tide. This berth is now able to accommodate our Spirit-class vessels and will also be able to service the new Super C-class vessels.
Modifications of marine structures are currently underway at Departure Bay and Horseshoe Bay terminals to accommodate the new Super-C vessels. These berth upgrades, expected to be complete in the fall of 2007, include new trestles, dolphins2 and catwalks.
Modifications were completed in March 2007 at Prince Rupert, Port Hardy, McLoughlin Bay and Skidegate terminals to accommodate the new Northern Adventure. The Northern Adventure is wider at the stern than our other northern service vessels. To enable stern loading and unloading, modifications to the terminal marine structures were necessary for access to berths for safe docking. 2 A cluster of pilings firmly fixed to the sea bed and used to assist vessels during docking.
----------------------- Information Technology
In September 2006, we implemented an automated ticketing pilot project at our Tsawwassen and Swartz Bay terminals on our major routes. Foot passengers at these terminals now have the option of using the automated ticketing kiosks or a staffed ticket booth to purchase tickets. Passengers have the option to pay with either a debit or credit card at the kiosks. This project has been well received by our customers. In fiscal 2007 we incurred $0.5 million of the $1.3 million total project costs. We expect to proceed with implementing this technology at other locations in the near future.
We have also completed $3.0 million ($1.8 million in fiscal 2007) of a $4.5 million project to improve communication technology services, replace obsolete technology, reduce costs and manage growth as our business demands change. This project is expected to improve shipto-shore data communications and provide a more stable, secure and faster network.
Other ongoing projects include a new time collection system, enhanced reporting initiatives, enhanced crew scheduling system, and security projects. These projects focus on obtaining efficiencies, improving safety and security and providing better service to our customers. =================
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Post by Low Light Mike on Jun 9, 2007 11:39:45 GMT -8
(more excerpts - pages 21-23) --------------------------- OUTLOOK
Safety
The safety of the public, our employees and the protection of the environment are our highest priorities. In July 2006, we commissioned former BC Auditor General, George L. Morfitt to conduct an independent review of our safety policies, procedures and practices. The report resulting from this comprehensive safety review was received in January 2007. The report, which makes 41 recommendations on safety enhancements, states the following conclusion in its summary overview:
“We concluded from our review that, overall, the company is operating a safe coastal ferry transportation system. The company directors, management and staff are highly committed to operational safety, both for the travelling public and for BC Ferries personnel. Nevertheless, there are a number of areas identified in this report where safety and related administrative processes and procedures should be strengthened.”
We are implementing all of the various recommendations in the report. Some recommendations have already been put into practice and some will be incorporated into our new safety program. During fiscal 2008 we plan to increase the level of operational training we conduct from approximately 11,000 to approximately 14, 000 person days. This increase in training, together with other planned safety initiatives, will increase our safety related expenditures by over $4 million next year. We also plan to conduct a similar comprehensive operational safety review at a minimum of every five years as part of our ongoing commitment to ensuring the safety of our passengers and employees. ---------------------------
Traffic
Ferry traffic levels are affected by a number of factors including transportation costs, the value of the Canadian dollar, weather, global security, levels of tourism, disposable personal income, the local economy and population growth. We experienced a moderate decrease in both total passenger and total vehicle traffic in the last two fiscal years, however over the past five years they are both trending upwards.
During the last two fiscal years some events that negatively affected traffic levels were the implementation of three fuel surcharges, the loss of capacity on our Northern routes and an unprecedented number of severe wind and snow storms in November and December, 2006. With the introduction of the new Northern Adventure into service in March 2007, we anticipate traffic on our northern routes to return to former levels. Over the next few years, we anticipate modest traffic volume increases on all our routes.
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Market Growth
Notwithstanding the pressure on traffic volumes, we see opportunities for growth. Container traffic to Vancouver Island is expected to expand as overseas container movements to the Vancouver Gateway increase and large “big box” retailers continue to locate on Vancouver Island.
We have experienced a steady growth in ancillary revenues. We see continuing opportunities to improve the revenue from our ancillary services including reservations, food and retail and assured loading.
In February 2007 we signed a 40 year lease with the Town of Sidney on Vancouver Island under which we will manage and develop the town’s international ferry terminal. The lease recognizes Washington State Ferries as a priority user and promotes use by other operators. This provides us with an opportunity to support the community and to develop innovative new business strategies. ----------------
Asset Renewal Program
Although we have one of the largest fleets in the world, the average age of our assets is currently among the oldest of major ferry operators worldwide. To address this we will continue with our fleet and asset renewal program. We added two new vessels to our fleet this fiscal year, the Northern Adventure and the Kuper. Over the five year period ending March 2012, we expect to spend approximately $1.2 billion, which includes bringing six new vessels into service. Upgrading and replacing a large share of our fleet through new vessel acquisitions and our revitalization program will assist in maintaining operational reliability. We continue to reinvest our retained earnings into our asset renewal program. As the capital projects are completed and come into service, amortization and financing costs will increase. We expect that this will cause a decrease in our future earnings in the near term. ---------------------
Regulation
Transport Canada regulates safety on our vessels by authority of the Canada Shipping Act. It is expected that a revised Act with more stringent regulations will be introduced in the near future. At present, the impact of the revised regulations on the useful life of some of our vessels and/or the requirement for vessel upgrades is not well defined. We will address this changing regulatory environment through our planning processes and asset renewal initiatives as information becomes available. As always, the safety and security of our customers and employees remains our highest priority.
In 2001, the federal government enacted the Marine Transportation Security Act. Initially the legislation and the associated regulations were limited to international ports and vessels. These regulations have been extended to include domestic marine services, including domestic ferries. We will be required to satisfy a specific level of security on our vessels and at our terminals servicing our major routes by November 2009. Considerable security investments will be required in the areas of fencing, cameras, closed circuit TV, better access controls and screening. We are in the process of defining the capital and operating requirements necessary for us to comply with the upcoming regulations. Through the Marine Security Contribution Program, we are eligible for reimbursement of $3.8 million of federal funding to help offset the costs of perimeter security, access control measures and training.
Our tariffs are regulated and our service levels are monitored by the British Columbia Ferries Commissioner. The Commissioner regulates our tariffs by establishing price caps over a performance term. Our first performance term ends March 31, 2008 and our second performance term ends March 31, 2012. In March 2007 the Commissioner set preliminary price caps for the second performance term. ------------------------
Competition New competitors have emerged in both the passenger only market as well as the commercial traffic market in the past few years. To date, passenger only competitors have not been successful at sustaining operations. Competition may increase in these markets with the potential emergence of alternate vehicle and passenger ferry services. We remain mindful of these potential changes in the market, and we are constantly seeking ways to improve operational efficiency and customer service.
We are also exploring opportunities with additional or alternative service providers, in an effort to reduce costs and provide services on our regulated routes, as mandated by the Coastal Ferry Act. While we maintain responsibility for the long-term delivery of ferry services, we are required to test the market to determine if another operator, under contract to us, can provide a more cost-effective service offering. In February 2007, we issued a Request for Proposal on the Brentwood Bay-Mill Bay route to two proponents. The closing date is June 15, 2007 and we expect to make a decision whether to proceed with an alternative service provided on this route by the end of December 2007. We are also currently working with a potential alternate service provider regarding a possible pilot project for the Buckley Bay to Denman Island and Hornby Island to Denman Island routes. Additionally, we expect to issue a Request for Proposals regarding the operation of our four routes north of Port Hardy however, the timing of this request is uncertain. --------------------------
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Post by Low Light Mike on Jun 9, 2007 11:52:56 GMT -8
(more excerpts - pages 24-27) (FLUGEL-NOTE): this is a good overview of the various risks that impact on BCFS. In a lot of cases, this is their required stating-of-the-obvious, but it's interesting reading nonetheless) -----------------------------------
RISK MANAGEMENT
Understanding and managing risk are important parts of our business. We have processes in place throughout our company to manage risks that inevitably arise in the normal course of business.
We are working towards the completion of an Enterprise Risk Management program which will address risk management from an organization-wide perspective and will complement existing strengths. This is a comprehensive approach that incorporates organization-wide awareness, prioritized risk identification and risk mitigation strategies that target the highest risk areas. Our immediate emphasis is on implementing the recommendations included in the Morfitt operational safety review performed this fiscal year (see “Safety” below).
The following are some of the risk factors that we have considered during the risk identification process. ----------------------
Accident/Casualty Loss The occurrence of a vessel related accident or mishap could have a material adverse effect on our business prospects, financial condition or results of operations, and could result in a default under the Coastal Ferry Services Contract unless such accident or mishap qualified as an event of force majeure.
Due to the nature of our business, we may be subject to liability claims arising out of accidents or disasters, including claims for serious personal injury or death.
Apart from well established safety programs, we have a sound conventional insurance program to insure both our physical assets and legal liability for injuries and damage. This is designed to mitigate the financial impact of serious incidents. There can be no guarantee, however, that the insurance coverage will be sufficient to cover all such accidents or disasters.
In addition to conventional insurance, we have our own wholly owned insurance subsidiary, BCF Captive Insurance Company Ltd. Its prime purpose is to absorb a large proportion of the deductibles payable under our commercial insurance programs. The objective is to optimize conventional insurance programs, spread the cost of random events among all routes and protect direct route financial results from unnecessary volatility. ------------------
Asset Risk We operate in a capital-intensive industry and have an aging infrastructure that requires substantial investment. We plan to spend approximately $1.2 billion in capital expenditures over the next five years, with approximately 75% related to new vessel acquisitions, vessel upgrades and component replacement. Our plan includes the replacement of six of our oldest vessels before the end of fiscal 2012.
At March 31, 2007, we have total long-term debt of $750 million. Future indebtedness is subject to certain limitations. The level of indebtedness could increase our vulnerability to general adverse economic and industry conditions, and limit our flexibility in planning for, or reacting to, changes in business. Also, there can be no guarantee that we will have access to sufficient resources or will be able to maintain our fleet by extending the economic life of existing vessels through major refurbishment. --------------------------
Regulatory Risk Our operations are subject to a wide variety of national and local laws and regulations, all of which may change at any time. There is the potential that the introduction of new safety or other regulations, including new taxes, or the interpretation of existing regulations, may impose a new, unexpected and significant cost burden. There can be no guarantee that regulatory changes in the future will not have an adverse effect on us.
We cannot predict how the British Columbia Ferries Commissioner’s interpretation, administration and enforcement of the Coastal Ferry Act will change over time. Such changes may impact our ability to sustain or increase profitability. ---------------------------
Traffic Level and Tariff Revenue Risk Future vehicle and passenger traffic on our vessels will be affected by, among other things, population levels and economic conditions in British Columbia and also by tariff rates. No assurance can be given as to the level of traffic on our system and the tariff revenue that will result.
There is a risk that over the long term a general decline in travel (or a reduction in the growth rate) may occur as a result of compounding increases in tariffs. Under the Coastal Ferry Act, we are permitted to increase tariffs on major routes by 2.8% and on the remaining routes by 4.4% each year during the first performance term. In addition to these permitted annual increases, we have applied and may again apply to the Commissioner for other tariff increases, the need for which results from extraordinary situations. In fiscal 2006 and 2007, the British Columbia Ferries Commissioner approved three extraordinary price cap increases to allow for the implementation of fuel surcharges.
To date, the price increases we have implemented have not caused an obvious decrease in demand. Significant increases in fares may occur during the second performance term. Demand elasticity could change as prices increase, thereby resulting in a negative impact on tariff revenue.
We believe that a significant number of our customers travel for leisure purposes. Traffic on our vessels may decline, or fail to increase as expected, if world or local events have a negative effect on tourism or other leisure travel. ------------------------
Environmental Risk Our operations are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials and hazardous wastes, discharge of storm water and vessel fuel delivery.
If we were to be involved in an environmental accident or be found in material violation of applicable law and regulations, we could be responsible for material clean-up costs, property damage, and fines or other penalties, any of which could have a material adverse effect. Although we believe we maintain adequate environmental insurance, there can be no guarantee that the insurance coverage will be sufficient to cover all such losses. ---------------------------
Security Risk Deliberate, malicious acts could cause death, injury or property damage. The occurrence of a major incident could also negatively affect the propensity for the public to travel, reducing our ferry traffic levels. The effect could vary depending on whether it was a domestic or international incident and whether or not it was in the marine transportation industry. It could also lead to a substantial increase in insurance and security costs. Any resulting reduction in tariff revenues and/or increases in costs could have a material adverse impact on our business, results from operations and financial condition. --------------------------
Human Resources The majority of our employees are members of the BC Ferry and Marine Workers’ Union. On March 8, 2007, a final award was released by arbitrator Vince Ready, building on the October 2004 interim award. This is expected to provide us with labour stability until the end of the term on October 31, 2012 and provide a unique and innovative dispute resolution process to facilitate future collective bargaining. However, there can be no guarantee that other labour disturbances will not occur and have a material adverse effect on our operations.
We are also dependent on maintaining our ability to attract, train and retain employees with the requisite skill and capabilities to operate in the marine industry. Shortages of critical skills are emerging in some areas in which we operate. -----------------------------
Income Tax Risk We received an advance income tax ruling from Canada Revenue Agency (“CRA”) that, provided the facts and other statements set out therein are accurate, we are a “Tax Exempt Corporation” described in paragraph 149(1)(d.1) of the Income Tax Act. This ruling is subject to a proposed amendment to subsection 149(1.3) of the Income Tax Act announced by the Department of Finance on December 20, 2002, the essential elements of which are now included in a February 27, 2004 release from the Department of Finance of draft amendments to the Income Tax Act. We have received a non-binding opinion from CRA that proposes subsection 149(1.3), if amended as proposed on December 20, 2002, will not cause us to cease to be a Tax Exempt Corporation. There can be no assurance that subsection 149(1.3) of the Income Tax Act will be amended as proposed, or that we are and will continue to be a Tax Exempt Corporation. ----------------------
Performance Risk There is a risk that we will default under the Coastal Ferry Services Contract or the Terminal Leases. The consequences of such default could include, among other things, an adjustment to service fees from the Province or the forced sale of our vessels to the Province for net book value and termination of the Terminal Leases. --------------------------
Treaty Negotiations: Aboriginal Rights and Title Canadian courts have recognized that aboriginal peoples may possess rights at law in respect of land used or occupied by their ancestors where treaties have not been concluded to deal with these rights and where treaties between aboriginal peoples and the Crown set out express rights. These rights may vary from limited rights of use for traditional purposes to a right of aboriginal title and will depend upon, among other things, the nature and extent of the prior aboriginal use and occupation of lands. The courts have encouraged the Canadian federal and provincial governments and aboriginal peoples to resolve rights claims through the negotiation of treaties.
Aboriginal groups have claimed substantial portions of land in British Columbia over which they assert aboriginal title or in which they have a traditional interest.
A process is now in place within British Columbia to deal with aboriginal land claims under the British Columbia treaty process. These negotiations have been and will likely remain ongoing for a number of years, depending on the commitment of the parties involved and the precedents set by the outcomes of the first settlement agreements. Under evolving jurisprudence, Canadian governments have a duty to consult and accommodate aboriginal peoples where Crown approvals or licences are required in respect of existing or new terminal facilities or operations at such facilities and could affect or impact aboriginal interests.
Under the master agreement, the Province retains its liability, to the extent any exists, for the acts and omissions of the Province that occurred prior to our possession of the ferry terminal properties leased under the Terminal Leases and will reimburse us for any damages we suffer as a result.
In addition, the Province will reimburse us for damages suffered if there is a final court decision or a treaty settlement that recognizes or confers upon aboriginal peoples a proprietary or other interest in the ferry terminal properties which right or interest interferes with our quiet enjoyment of the ferry terminal properties as set out in the Terminal Leases. ====================
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Post by Low Light Mike on Jun 9, 2007 12:05:48 GMT -8
(more excerpts - pages 32-35) -----------------------------------
CORPORATE STRUCTURE AND GOVERNANCE
Board of Directors
The Board has assumed responsibility for the stewardship of the Company by overseeing the conduct of the business, supervising Management, which is responsible for the day-today conduct of the business and endeavoring to ensure that all major issues affecting the business and affairs of the Company are given proper consideration.
At March 31, 2007, the Board was comprised of the following Directors: Chair: Elizabeth J. Harrison Q.C. Vice Chair: Thomas W. Harris Members: Douglas E. Allen, Peter R.B. Armstrong, Sandy M. Fulton, David L. Hahn, John R. Henderson, Doreen J. Hewitt, Maureen V. Macarenko, Robert W. McCaskill, G. Raymond Whitehead, Graham M. Wilson
Effective April 1, 2007 Peter R.B. Armstrong ceased to be a Director and effective May 15, 2007 A. Daniel Miller became a Director.
The Board Governance Manual articulates the governance framework under which the Board fulfills its stewardship responsibilities. The Manual assembles in one document the essential elements for providing an appropriate level of governance for the organization. It includes, among other things, terms of reference for the Board, Chair, Directors, Committees and Committee Chairs and serves as a practical guide for the Board and Management in fulfilling their respective duties and responsibilities. The governance framework is a product and responsibility of the Board.
The Board is committed to the principles of independence and accountability. The Board has adopted policies and practices that ensure it has the capacity, independent of Management, to fulfill the Board’s responsibilities, make objective assessments of Management and assess the merits of Management initiatives. The Governance and Human Resources Committee has an ongoing responsibility to ensure that the governance structures and processes continue to enable the Board to function independently.
The Board and Management recognize that there is a regular need for the Board to meet without Management in attendance. It is general practice to conduct a portion of every Board meeting with only independent directors present.
The Board and its Committees each have the authority to retain any outside advisor, at the Company’s expense, that it determines to be necessary to permit it to carry out its duties.
The recruitment of directors is undertaken with the objective of ensuring the Board is composed of a majority of strong, qualified independent directors. The Board supports the concept that the role of the Board Chair is separate from that of the President & CEO and that the Board Chair should be an independent Director. These principles are reflected in the Board Governance Manual.
The Board has adopted a definition of an independent Director for members of the Audit and Finance Committee consistent with the definition of independence in Multilateral Instrument 52-110. This definition, with some modification that is consistent with Multilateral Instrument 52-110, also applies to determining the independence of other members of the Board.
The Board is responsible for determining whether directors are independent pursuant to the definition of independence adopted by the Board. To do this the Board requires members to disclose their relationships with the Company and its subsidiaries. These disclosures are reviewed by the General Counsel, the Corporate Secretary, the Chair of the Board and the Chair of the Governance and Human Resources Committee. Any director who is deemed independent and whose circumstances change such that he or she might be considered to no longer be an independent director is required to promptly advise the Board of the change in circumstances. Directors are required annually to attest to their independence in writing.
Mr. David L. Hahn, President & CEO, is the only director who is a member of Management of the Company. By virtue of his being a member of Management, Mr. Hahn is not independent. The other directors of the Company, including the Chair of the Board, have been determined by the Board to be independent pursuant to the definition of independence adopted by the Board.
Directorships The following were directors of another issuer, other than British Columbia Ferry Services Inc. (“BCFS”), which is a reporting issuer (or the equivalent) in Canada or a foreign jurisdiction:
Elizabeth J. Harrison, Q.C.: Director, Unilens Vision Inc.
Graham M. Wilson: Director, ITRON Inc. Director, Naikun Wind Group Trustee and Director, Hardwoods Distribution Trust Trustee, Daylight Resources Trust.
----------------------------- Nomination of Directors
The B.C. Ferry Authority (the “BCFA”), through its Board of Directors, selects the Board of Directors of British Columbia Ferry Services Inc. (“BCFS”) by March 31 each year. While not a requirement, it is current practice that the directors of BCFA will also be directors of BCFS.
The Articles of Incorporation of BCFS permit a total of 20 directors of BCFS, hence directors may be appointed to the Board of BCFS in addition to those who are also directors of BCFA. It is viewed as desirable to maintain consistency between the two Boards so that the interests of BCFA and BCFS are properly aligned. However, the ability to appoint additional directors to the Board of BCFS gives flexibility in ensuring adequate skill sets and experience are available within the members of the Board of BCFS.
The BCFS Board has established a Nominating Committee to lead the director nomination processes for BCFS. The Nominating Committee is composed entirely of directors who are independent, pursuant to the definition of independence adopted by the Board of BCFS. The Chair of the Board of BCFS is the Chair of the Nominating Committee. Descriptions of the Nominating Committee’s responsibilities, powers and operations are included in the Board Governance Manual.
Each year the skill sets and experience of the incumbents and any retiring directors of BCFS are reviewed by the Nominating Committee in the context of the skills and experience profile adopted by the BCFS Board and the ongoing governance needs of BCFS. Any gaps are identified. Potential conflicts of interest and other extenuating circumstances are also identified.
The skill sets and experience of the candidates for the BCFA Board that are put forward by the nominating entities and the Province are reviewed by the Nominating Committee to ascertain if there will be any gaps in the skill sets and experience of the Board of BCFS, assuming BCFA directors also become BCFS directors. If gaps are identified, the Nominating Committee, in consultation with the President & CEO, seeks out suitable candidates for nomination as directors of BCFS to fill such gaps.
The Nominating Committee makes recommendations to the BCFS Board of Directors on suitable candidates for appointment to the BCFS Board. These recommendations take into account the talents of the existing BCFS Board, and the talents of all nominees (including BCFA Board nominees and appointees who may become BCFS Board members, if applicable), taking the skills and experience profile established for BCFS directors into account.
The BCFS Board makes its decision on prospective directors and forwards its recommendations to the BCFA Board. The BCFA Board then determines the directors of BCFS and causes BCFA, as the sole holder of the single voting share of BCFS, to appoint such directors to the Board of BCFS. -----------------------------
Compensation The Governance and Human Resources Committee reviews the compensation of directors and the President & CEO annually. The Committee is composed entirely of independent directors and operates under terms of reference adopted by the Board.
The Committee engages an external compensation advisor to research and provide independent advice to the Committee on the level and types of compensation for directors and the President & CEO. In making its recommendations to the Board, the Committee takes into account the types of compensation and the amounts paid by other comparable companies. ====================
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Post by Low Light Mike on Jun 9, 2007 12:18:36 GMT -8
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Post by Low Light Mike on Feb 29, 2008 20:26:57 GMT -8
Here are some excerpts from the BCFS 3rd quarter (up to 12/31/2007) filing. Their MD&A (Management's Discussion & Analysis). Find it at www.sedar.com. Look for pubco filings under "British Columbia Ferry Services", for Feb.28, 2008. ==================== On November 20, 2007, the hull of the Island Sky, our new intermediate class ferry, was launched and subsequently towed to Victoria Shipyards where the superstructure will be loaded onto the vessel. The Island Sky will allow for the retirement of the 48-year-old Queen of Tsawwassen. A $45.5 million contract with Vancouver Shipyards constitutes the majority of the total project budget of $57 million. --------------- On December 14, 2007, the third and final Super C-class vessel, the Coastal Celebration, was officially launched at Flensburger Schiffbau-Gesellschaft (FSG) of Germany, with completion expected in May 2008. The Coastal Celebration is expected to be in service on the Swartz Bay-Tsawwassen route by the fall of 2008. --------------------- During the nine months ended December 31, 2007, the greatest portion of our revenues, 60%, was earned on our three major routes connecting Vancouver Island to Vancouver and the Lower Mainland. The revenue from the northern routes contributed 8% and other routes contributed 31%. Remaining general revenue, 1%, consists mainly of marketing rights and interest earned. --------------------------------------- Our largest revenue source is vehicle and passenger tariffs. The annual average tariff rate increase was 2.8% on our three major routes and 4.4% on the remaining routes, as permitted by the Coastal Ferry Act. From time to time, we utilize promotional fare reductions designed to stimulate growth in traffic or shift traffic away from our busiest sailings. In calculating the price cap, vehicle and passenger tariffs are combined. -------------------------------- Year-to-date revenue from our northern routes consists of 38% from customers and related social program fees, 54% from ferry service fees and 8% from payments under the Federal-Provincial subsidy agreement. The revenue from ferry service fees has increased 74% from fiscal 2007, reflecting resumption of full service with deployment of the new Northern Adventure on our northern routes. ------------------------------------ Northern Service On March 22, 2006 the Queen of the North, operating on its regular route from Prince Rupert to Port Hardy, ran aground on Gil Island in Wright Sound and subsequently sank. ...We purchased oil spill response equipment for the Village of Hartley Bay and have provided oil spill response training to interested Hartley Bay residents. We engaged Hartley Bay residents in the ongoing monitoring of the incident site for leakage and of the adjacent waters for presence and distribution of oil sheen. We equipped them with portable global positioning systems to ensure accuracy of observation and reporting. --------------------------- We anticipate a third replacement vessel for the northern service will be acquired and commence operating during our next performance term. Negotiations with the Provincial government for increased service fees with respect to this vessel are ongoing. ----------------------------- Administration expenses increased $1.1 million ($2.2 million year-to-date) mainly as a result of an increase in wages and benefits and partially for information technology support for system growth and development. ---------------------------- We fund our operations and capital acquisitions with cash flow generated from operations, as well as bank financing and debt issues. We expect operating cash flows to fund approximately one half of the capital expenditures over the next five years, with the balance funded by borrowings. ----------------------------------- The Queen of New Westminster, which usually operates on our Duke Point–Tsawwassen route, is currently undergoing a project to extend the life of the 44-year-old vessel for a further thirteen years of reliable service. This $55 million project will include significant upgrades for structural fire protection; a new marine evacuation system; major electrical upgrades; boiler, auxiliary generator and emergency generator renewal; and propulsion controls upgrade. The Queen of New Westminster is expected to return to service in the fall of 2008 and be redeployed on our Tsawwassen–Swartz Bay route. -------------------------------------- The Coastal Celebration will journey home with promotional stops in London, Los Angeles and Seattle to raise awareness for the Games and to promote British Columbia as a tourist destination. ------------------------------ Island Sky On November 20, 2007, the hull of the Island Sky, our new intermediate class ferry, was launched and subsequently towed to Victoria Shipyards where the superstructure will be loaded onto the vessel prior to returning to Vancouver Shipyards in North Vancouver for completion. The $45.5 million contract with Vancouver Shipyards constitutes the majority of the total project budget of $57 million. The new intermediate vessel will allow for the retirement of the 48-year-old Queen of Tsawwassen. The new vessel will measure 100-metres in length and have a capacity of approximately 600 passengers and 125 vehicles. It will feature a new state-of-the-art lifesaving system as well as a variety of amenities, including a comfortable lounge and snack bar for passengers. Although the contract provides for delivery of this vessel by April 7, 2008, we have been informed by the shipyard that their revised estimate of the delivery date is June 30, 2008.----------------------- Information Technology Capital expenditures in information technology include computer hardware and software development to improve operational data capture and reporting, time collection and database security. We implemented a new system to capture and report operational statistics in a more timely and accurate manner. This system utilizes an integrated data management solution to standardize traffic data collection and capture processes. We expect to launch a new card-based electronic payment method in the spring of 2008. This Smart Media card is an electronic swipe card that can be loaded with dollars and redeemed for travel (and eventually, other products and services) instead of using cash, credit cards or prepaid paper tickets. The new card will also offer customers loss protection, which is not available with the current prepaid paper tickets. Other ongoing projects include enhanced reporting initiatives, better external and internal communications, real-time credit card authorization, automated ticketing, and replacement of obsolete technology and security projects. These projects focus on obtaining efficiencies, improving safety and security and providing better service to our customers. ----------------------------- Traffic Ferry traffic levels are affected by a number of factors, including transportation costs, the value of the Canadian dollar, weather, global security, levels of tourism, disposable personal income, the local economy and population growth. We experienced a moderate decrease in both total passenger and total vehicle traffic in the last two fiscal years; however, over the past five years they are both trending upwards. In the nine months ending December 31, 2007, we experienced increased traffic levels on our major and northern routes and an overall decrease in traffic levels on our other routes. During the last two fiscal years, traffic levels were negatively affected by the loss of capacity on our northern routes, an unprecedented number of severe wind and snow storms in November and December 2006, and the implementation of three fuel surcharges. With the introduction of the Northern Adventure into service in March 2007, we anticipated that traffic on our northern routes would return to former levels. Since the resumption of full service, traffic levels have not yet reached the levels experienced in fiscal 2006, but they are steadily increasing. Over the next few years, we anticipate modest traffic volume increases on all our routes. ----------------------------------- Given the planned transportation improvements south of the Fraser River in the Lower Mainland, our strategy is to shift a larger portion of commercial traffic to our Tsawwassen–Duke Point route by utilizing promotional fare reductions. We also plan to increase the commercial capacity on this route with the deployment of the second Super C-class vessel, the Coastal Inspiration, in the summer of 2008. ------------------------------- We are also currently working with a potential alternative service provider regarding a possible pilot project for the Buckley Bay-Denman Island and Hornby Island-Denman Island routes ----------------------------------- Changes in Accounting Policies Effective April 1, 2007, we adopted the CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments – Disclosure and Presentation, and CICA Handbook Section 3865, Hedges. These new Handbook sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles. (sorry, I couldn't resist cut/pasting this item !! ;D Gunther's going to have to learn these new Handbook sections !) -----------------------------------
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Post by Scott on Feb 29, 2008 20:33:33 GMT -8
Any idea what this is?
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Post by Low Light Mike on Feb 29, 2008 20:40:12 GMT -8
The Chilliwack's northern-service replacement: MV Northern Discovery. It won't be ordered or acquired until the next contract term of the Coastal Ferry Agreement. BCFS is still trying to lobby Mr. Falcon & the Provincial Finance Dept for money to purchase this.
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Post by Taxman on Feb 29, 2008 22:06:02 GMT -8
Changes in Accounting Policies Effective April 1, 2007, we adopted the CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments – Disclosure and Presentation, and CICA Handbook Section 3865, Hedges. These new Handbook sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles. (sorry, I couldn't resist cut/pasting this item !! ;D Gunther's going to have to learn these new Handbook sections !) ----------------------------------- Don't worry Flugel, they teach us well. We covered comprehensive income last semester, did 3251, 3855 and covered hedges this semester, although hedges was not in depth. You also missed (they also missed) CICA 3031, which the mention earlier, which superseeds 3030 (Inventories). Oops, 3031 comes into effect on April 1, whereas the quoted statement was 2007.
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Post by Scott (Former Account) on Aug 13, 2007 10:28:42 GMT -8
BC FERRIES RELEASES 2006/07 ANNUAL REPORTThe 2006/07 Annual Reports for B.C. Ferry Authority and British Columbia Ferry Services Inc. (BC Ferries) are now available on the BC Ferries’ website . Copies of the Annual Reports will be available at the Annual General Meeting of the B.C. Ferry Authority and the Annual Public Meeting of British Columbia Ferry Services Inc., which will be held at 4 p.m. on Thursday, September 13 at the Evergreen Theatre, Powell River Recreation Complex, 5001 Joyce Avenue, Powell River, B.C. The public is invited to attend the annual meetings and an opportunity will be provided to ask questions and express views. Direct link to PDF file here.
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Post by Low Light Mike on Aug 17, 2007 14:56:45 GMT -8
I'm curious to know which of our regular members here have read all or parts of this 2006/07 annual-report.
Just curious to know if this stuff interests anyone besides me. Who knows, we may have something to discuss. I've started 1-way discussions on this type of thing before, so if anyone wants to start something now, I'll read and respond with my thoughts and replies.
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Neil
Voyager
Posts: 7,175
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Post by Neil on Aug 17, 2007 23:02:24 GMT -8
I'm ploughing through it bit by bit. A couple of thoughts;
Their total long term debt is $750 million. They plan $1.2 billion in capital expenditures over the next five years. Anyone surprised that they're raising prices, or that they're not racing to divest themselves of routes under the ASP process that might cut down on their revenue and subsidy flow? This is a big, big, debt that they so far have been servicing quite well, judging by their credit rating- and they want to keep lenders confident that they will have a solid future revenue stream.
It's always interesting to see the difference in newbuild contracts with shipyards, and the total 'project' cost. Flensburger is getting $325 million for the three new boats, there is expected taxes and duty of $112 million, but the total project is given as $542 million. The new intermediate vessel is $45 million from the yard, $57 million total. What's the $12 million dollar difference?
I found it interesting that they acknowledged the possibility that fare increases could lessen revenue, but they did it without saying how they might deal with that; it was a part of the factors that they were listing that could negatively affect their future revenue.
Lots to digest. I'll get through it eventually.
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Post by Northern Exploration on Aug 18, 2007 6:36:16 GMT -8
I've skimmed it and just stopped and read any section quickly that appeared interesting. I have been planning on going back over it but haven't had the chance.
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Post by Low Light Mike on Aug 18, 2007 7:47:30 GMT -8
Here's an interesting bit for the detail-nerds: On Page-30 is the vessel chart. This notes a "Year" for each vessel, presumably the in-service date. There is an inconsistency, re the use of dates for non-BC-built vessels, purchased second-hand. Northern Adventure and Kuper are both listed as "2007", which is the BC in-service date. Queen of Chilliwack is listed as "1978", which is Basto-I's European in-service date. Howe Sound Queen is listed as 1964, which presumably is the Napoleon L.'s Quebec in-service date. (note that I've said "in-service date" instead of "launch date" or "keel lay date". I realise that there's a difference, but that's not relevant to me for this particular discussion). ---------------------------------------------------- A slip of of continuity, or a conspiracy. Decide for yourselves. Maybe if the dates were consistent, this would affect the amount by which our "Liberal Gov't" is only a "so called Liberal Gov't".....to piggy-back onto someone's favourite soundbite...
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Post by Low Light Mike on Aug 18, 2007 8:00:44 GMT -8
re the long term debt, here's some detail on increases in the debt for the year: ======================= Here's the more generic comment that appears on page-34 of the report: ferriesbc.proboards20.com/index.cgi?board=bcferriesnews&action=display&thread=1174251184 see reply #5 in that thread, including a link to the lawyer's commentary. ===================== The total long term debt at 3/31/2007 of approx $750million is the 3 different bond-issues, of $250million each, that have been done over the past few years. Here's the more detailed comment from page-44 of the annual report: Flugel commentary on the debt:- It looks like the periodic $250million bond issues are the "permanent financing" that's done in order to repay the various temporary financing items that are done each year. ie. they use their bank credit facility agreements and the German export loans to pay for various capital expenditures in the year. Then they do a debt-consolidation of sorts, by taking out a clean $250million bond issue, and using it to clear off all the various aforementioned debt items. The result on their balance sheet at each year-end is a growing long term debt amount that can easily be seen in its $250million increments, as well as some residual short-term-debt that hasn't been repaid yet. Now to the question of repayment of these long term bond issues. What are the repayment terms? Well, it's not like a mortgage with regular payments against the principal. Instead, it's interest-only payments twice a year, and then full principal is due in 2014, 2034 and 2037 respectively for the 3 bond issues. How it will make the large repayments in those years is anyone's guess. If a future Provincial Gov't changes the BC Ferries structure back to a true public model, then perhaps the debt will be repaid with proceeds from BC Treasury (ie. Provincial debt).
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Post by Low Light Mike on Aug 18, 2007 8:42:49 GMT -8
I found it interesting that they acknowledged the possibility that fare increases could lessen revenue, but they did it without saying how they might deal with that; it was a part of the factors that they were listing that could negatively affect their future revenue. I think this was part of the "risk analysis" part of the Management Discussion and Analysis. This was interesting in how they brainstormed all the various risk-factors that might affect BC Ferries. This is standard type disclosure for a public company to be required to make, but interesting for us in the ferry-context. Some factors are clearly outside of the company's control, and other factors are possibly reactions to company policies and directions......
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Post by Scott on Aug 18, 2007 9:19:01 GMT -8
Thanks Flugel for your expert analysis! For most of us it's just a lot of numbers... thanks for breaking them down and drawing some conclusions and possible implications.
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Post by Low Light Mike on Aug 18, 2007 11:52:35 GMT -8
You're welcome, John.
Although one area of the BCFS Report that I've avoided is the fuel-hedging accounts. This was a favourite topic of Old Tar's (nee Cascade) who frequently commented on this item. I avoid reading/thinking about anything to do with financial-hedging as much as possible. ;D Not the easiest of concepts to be understood by me.
Re the bond debt, I suppose it's the continued ability to make the semi-annual interest payments (building a trusted track record) and the overall financial health that will impact the company's ability to continue to make these successful bond issues. As Neil has said, it's this necessity that results in the profit-driven strategy which impacts on minor-route high fares.
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Post by yvr on Aug 19, 2007 20:31:53 GMT -8
Annual Report and Math Errors!!!
On page 9 of the report it states the Sonia received $30 million in modifications. If you add that to the purchase price which was around $52 million - total $82 Mil.
On page 33 it states the Sonia cost $102 million!!!
Oh well what's $20 million of your tax dollars!
Perhaps it's David's method of creative accounting!
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Neil
Voyager
Posts: 7,175
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Post by Neil on Aug 19, 2007 21:30:36 GMT -8
Nice try, yvr, but we've been over this, ad nauseum. The numbers add up, but since they've been posted here before, and are in the report(s), I don't see much point in going over them again.
Speaking of math errors (!!!), page 9 of the report is a picture, page 33 a diagram. But, hey, at least we know your exclamation mark key is working.
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Post by yvr on Aug 20, 2007 19:37:49 GMT -8
Nearly Neil, the numbers of $51 million and $30 million come from the BCF annual report and total $81 million. $102 million comes directly from page 33. (Don't forget West Coast Kid is saying she still needs another $25 million of mods). Are you trying to defend the Sonia purchase?
I believe you were trying to include terminal mods into the numbers. However on P. 47 they are listed under a separate heading.
As for page numbering - you may wish to recheck your criticism of my math - pages 9 and 33 are not pictures and diagrams, as you state!
Yes you are correct, my exclamation mark key does work very well!!!
Enjoy!
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Post by WettCoast on Aug 20, 2007 20:06:26 GMT -8
(Don't forget West Coast Kid is saying she still needs another $25 million of mods). The $25 million is not based on anything other than my guess-timate on what the costs might be for 'fixing' the NorAd's main 'issues' (adding bow loading and a forward observation lounge). There will be other significant costs associated with making this ship better suited for its planned Hecate Strait future.
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