The 3/31/2008's MD&A is now posted on SEDAR. Here is the link:
www.sedar.com/CheckCode.do;jsessionid=000043xN0atHc8e1kANhYeBFk9z:-1Here are some highlights (I can't cut/paste charts, so if you're interested in this report, you should check out the link......)
The highlights that I'm posting are things that caught my eye when reading the report, either as new info, clarification of things we've discussed here, or maybe even funny corp-speak items.....
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On January 4, 2008, the hull structure of the Island Sky, our new intermediate class ferry, was completed. Steelwork in general is substantially complete and installation and outfitting in preparation for equipment and system testing is underway. The Island Sky will allow for the retirement of the 48-year-old Queen of Tsawwassen. A $46 million contract with Vancouver Shipyards constitutes the majority of the total project budget of $57 million. The shipyard estimates delivery of the vessel by June 27, 2008.
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In fiscal 2006 we executed 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 for partial financing of the purchase of two of the three Super C-class vessels. In February 2008, to coincide with conditional acceptance of the Coastal Inspiration, we received $90 million in proceeds under the loan agreements. In May 2008, to coincide with conditional acceptance of the Coastal Celebration, we received a further $90 million in proceeds under the loan agreements. These are 12-year amortizing loans, at a fixed interest rate of 4.98%. The agreements defer the principal payments for the first three years to a second tranche on which interest is payable at a floating rate and the principal is due at maturity.
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(
re the Queen of the North's insurance proceeds):
We maintain commercial insurance coverage for incidents of this nature. Insurance proceeds, net of deductible, of $67.9 million
were received in May 2006 in settlement of the claim under the hull and machinery policy. We reported an extraordinary gain of $61.3 million for this event in the first quarter of fiscal 2007. These funds were utilized to partially fund the acquisition of the Northern Adventure. We expect that substantially all passenger
claims, claims from other parties and costs incurred for environmental containment or cleanup will be paid by our liability insurer.
[
Fluge comment: It's been alleged (either on-forum or off-forum, or both?) that these insurance proceeds were never received by BCFS, ie they are still receivable from the insurance company. The above underlined comment contradicts this allegation. So I guess you just have to choose who to believe. If the insurance proceeds have not yet been received by BCFS, then there would be a much larger problem for people to consider, re the accuracy of these here annual filings.....]
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We anticipate a third replacement vessel for the northern service will be acquired and will enter service during our third performance term. Negotiations with the provincial government for increased ferry service fees with respect to this vessel are ongoing.
[
Flugel: nothing new here, re NorDisc. We've got to wait until Term-3.......]
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During fiscal 2008, the Province agreed to reimburse us a maximum of $1.6 million for the refit of the 23-year-old
Nicola, which provides service on our unregulated Prince Rupert-
Lax Kwala’ams route. At March 31, 2008, we recorded a $0.5 million reduction of maintenance expense, equal to the refits costs incurred to that date.
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Interest expenses decreased due to:
....• $2.7 million increase in interest rate support recorded under the Structured Financing Facility Program.
A total of $9.9 million in support for the Queen of Oak Bay, Queen of Nanaimo and Queen of Surrey mid-life upgrades was granted of which we 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.
[
Flugel: I didn't realize that this FEDERAL program actually pays BC Ferries to offset the interest costs arising from these major refits.....]
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Liquidity and Capital ResourcesWe 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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....$3.5 million increase in regulatory liabilities reflecting the increase in tariff revenues collected in excess of the price cap of $3.4 million for the major routes and $0.1 million for the northern routes; These funds will be returned to passengers in future periods through discount fare promotions;
[
Flugel: wow, so if they collect tariff revenues in excess of caps, they then have to repay this to customers (by coast saver?), and so it's recorded as a "regulatory liability" until they return that excess to the customers. I didn't realize this....... So Coast-Savers is something that they "have to do"? Hey Neil, you'll be reading this sometime, what do you think of this? Does it make sense to you, re this being another purpose for having the coast-savers?]
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Capital expenditures for new vessels, vessel upgrades and vessel modifications
in fiscal 2008 included the following: (in $ millions):
New Coastal Renaissance, Coastal Inspiration and Coastal Celebration 319.8
Life extension of the Queen of New Westminster 15.4
Mid-life upgrade to the Queen of Alberni 12.9
New intermediate vessel, the Island Sky 14.0
New northern vessel, the Northern Expedition 8.3
Upgrade and replacement of propulsion and safety equipment on the Quinsam, Quinitsa and Queen of Capilano 6.7
Completion of the Northern Adventure with post-acquisition modifications 5.0
Fire suppression system, improvements to crew safety and upgrades to accommodations for the Howe Sound Queen 3.0
Two-year project to install Voyage Data Recorders and navigational aids and upgrade vessel connectivity 3.0
Refurbishment of car deck on the Powell River Queen 2.3
Sewage treatment upgrade program for 13 vessels 1.9
Passenger accommodation upgrades on the Queen of Burnaby 1.4
Other projects 3.0
Import duties remission and related GST on the purchase of the Northern Adventure (13.9)
= Total 382.8 ($ million)
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Island SkyOn January 4, 2008, the hull structure of the Island Sky, our new intermediate class ferry, was completed. Steelwork in general is substantially complete and erection is underway 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 48-year-old Queen of Tsawwassen.
The new vessel will measure 102 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 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 27, 2008.
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Over the
five-year period ending March 2013, we will bring six new vessels into service with an aggregate cost of $845 million, of which $405 million has been expended to March 31, 2008. These vessels include:
• two additional Super C-class vessels, the Coastal Inspiration and Coastal Celebration;
• two northern vessels, the Northern Expedition and Northern Discovery;
• an intermediate class ferry, the Island Sky; and
• a minor vessel to replace the Tenaka.
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Market GrowthNotwithstanding the pressure on traffic volumes, we see opportunities for growth. In March 2007,
we established Pacific Marine Ventures Inc. (PMV) as a wholly owned subsidiary to pursue strategic business opportunities, including terminal management opportunities outside our routes. In September 2007, PMV assumed management of the Sidney International Ferry terminal. Under a 40-year lease, PMV is managing and
developing the towns ferry terminal with a focus on developing new business opportunities. Washington State Ferries continues to be the primary user of the facility with its service to Anacortes, Washington. At the same time, PMV is pursuing other management services opportunities.
To increase our profile in the Lower Mainland, expand our new market reach and further develop travel and tourism partnerships, in February 2008 we signed a lease to develop a
2,700 sq ft travel centre in the new Fairmont Pacific Rim property currently under construction in downtown Vancouver. We anticipate our travel centre will open in late 2009.
During fiscal 2008, we realized a 12.5% increase in commercial traffic revenue compared to the previous year. To increase our capacity in the commercial sector, we have assigned one
new Super C-class vessel to each major route between the Lower Mainland and Vancouver Island. As a result, the Coastal Inspiration will join the recently upgraded Queen of Alberni
on our Duke Point–Tsawwassen route – the route most frequently used by commercial truckers. Additionally, our commercial sales team is continuing to actively pursue new business and is implementing new integrated sales solutions and enhanced services for our commercial customers.
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During fiscal 2008, we worked with a potential alternative service provider, who approached us on an unsolicited basis, regarding a possible pilot project for the Buckley Bay-Denman Island and Hornby Island-Denman Island routes. The arrangement to consider the viability of the pilot project on an exclusive basis with this company has been terminated.
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Adoption of New Accounting StandardsEffective 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.
[
Flugel: yeah, I spent more than a few days this past year learning these new rules. It's even more exciting (not) when you have to apply these same rules to a small local not-for-profit society. Can you say accounting-standards-overkill? I'll be doing some presentations on this during future forum group-trips, something to pass the time while we're waiting at a ferry terminal. ;D ;D ]
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(that's it)