Teamsters Canada Rail Conference (TCRC), Canadian Pacific Railway (CPR), Long-Term Disability Health and Welfare Trust Fund for Locomotive Engineers Financial Statements For the year ended November 30, 2014
Long-Term Disability Health and Welfare Trust Fund for Locomotive Engineers Financial Statements For the year ended November 30, 2014 Contents Independent Auditor's Report 2 Financial Statements Statement of Financial Position Statement of Changes in Net Assets Available for Benefits 3 4 5
IBDO Tel: 905 639 9500 Fax: 9056334939 Toll free: 8882362383 www.bdo.ca BDO Canada LLP 3115 Harvester Road, Suite 400 Burlington ON L7N 3N8 Canada Independent Auditor's Report To the Trustees of Teamsters Canada Rail Conference (TCRC), Long Term Disability Health and Welfare Trust We have audited the accompanying financial statements of Teamsters Canada Rail Conference (TCRC), Canadian Pacific Railway (CPR), Long Term Disability Health and Welfare Trust (the 'Trust Fund"), which comprise the statement of financial position as at November 30, 2014 and the statement of changes in net assets available for benefits for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for pension plans, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Trust Fund's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust Fund's internal control An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for Qualified Opinion The scope of our audit did not extend to an examination of the payroll records of the contributing employers. Accordingly, our verification of contribution revenue was limited to the amounts recorded in the records of the Trust Fund and we were not able to determine whether any adjustments might be necessary to contribution revenue, decrease in net assets for the years ended November 30, 2014 and 2013, assets as at November 30, 2014 and 2013 and net assets available for benefits as at December 1 and November 30 for both the 2014 and 2013 years, Our audit opinion on the financial statements for the year ended November 30, 2013 was modified accordingly because of the possible effects of this limitation in scope, Qualified Opinion In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Trust Fund as at November 30, 2014 and the changes in its net assets available for benefits for the year then ended in accordance with Canadian accounting standards for pension plans. Chartered Professional Accountants, Licensed Public Accountants Burlington, Ontario March 17, 2015 2 BOO CanadilllP, a Canadian limited tiabllity partnership, IS a member of 800 International limited, a UK company limltt'd by guarant('(', and forms part of the international BOO network of Independent member firms.
Statement of Financial Position November 30 2014 2013 Assets Cash Investments (Note 2) Accounts receivable Income taxes recoverable $ 57,205 $ 8,686,158 5,765 243,364 8,324,590 5,765 6,390 8,749,128 8,580,109 Liabilities Accounts payable and accrued liabilities Premiums payable 149,327 663,850 187.483 119,765 813,177 307,248 Net Assets Available for Benefits $ 7,935,951 $ 8,272,861 ---=;jji!!p~--f-':---=--------- Trustee The accompanying notes are an integral part of these financial statements. 3
Statement of Changes in Net Assets Available for Benefits For the year ended November 30 2014 2013 Increase in assets Contributions - TCRC Locomotive Engineers members at CPR $ 1,786,167 Claims experience refund Investment income (Note 3) 512 2 631 2 z 298 2 798 Decrease in assets Premium costs 2,441,408 Premium reimbursement (Note 7) Administration (Note 6) 109,379 Audit (Note 6) 17,025 Bank charges 306 Bonding insurance 7,754 HSTexpense 4,558 LTD Medical 14,500 Educational conferences and meetings 23,186 Investment management fees 17,218 Legal (Note 6) 200 Printing, stationery and website 22277 2 z 637 z 811 Decrease in net assets (339,013) Income tax expense (recovery) f2 z 103) Decrease in net assets for the year (336,910) Net assets available for benefits, beginning of year 8 z 272 z 861 Net assets available for benefits, end of ~ear $ 7,935,951 $ 1,817,583 1A87,390 440,787 3,745,760 1,721,019 1,852,271 124,096 11,978 1,880 7,754 16,000 42,705 14,898 426 6,707 3,799,734 (53,974) (6,3901 (47,584) 8,320A45 $ 8,272,861 The accompanying notes are an integral part of these financial statements. 4
November 30,2014 1. Significant Accounting Policies Purpose of the Fund The purpose of the Trust Fund is to provide benefits to members upon eligibility. Basis of Presentation These financial statements are prepared using Canadian accounting standards for pension plans, which are applicable to all benefit plan financial statements. For accounting policies that do not relate to the Trust Fund's investment portfolio, the Trust Fund has elected to apply Canadian accounting standards for private enterprises Revenue Recognition Contributions are recognized on an accrual basis in the accounts on the basis of earnings as reported by the Canadian Pacific Railway Company. Claims Experience Refund The refund, if any, is recorded in the year of receipt. Investments Investments are stated at fair value. The fair value of cash and short-term notes approximates cost plus accrued interest due to their short-term nature. The fair value of all other investments is based on closing quoted market prices. The gain (loss) on sale of investments is determined by the excess (shortfall) of proceeds over average cost of investments sold. The fair value adjustment represents the unrealized appreciation (depreciation) in fair value of investments held at the year end less the related unrealized appreciation (depreciation) as at the previous year end. Dividends and interest are reinvested within the pooled funds. Income Tax Status The Trust Fund is an inter-vivos personal trust recognized administratively by Canada Revenue Agency. The net investment income earned by the Trust Fund is subject to income tax to the extent investme,nt income exceeds allowable expenses. Foreign Currencies Foreign currency accounts are translated to Canadian dollars as follows: At the transaction date, each asset, liability, revenue or expense is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the year end date, monetary assets and liabilities, including investments which are carried at fair value, are translated into Canadian dollars by using the exchange rate in effect at that date and the resulting foreign exchange gains and losses are included in income in the current period. Use of Estimates The preparation of financial statements in accordance with Canadian accounting standards for pension plans requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenditures during the year. Actual results could differ from management's best estimates as additional information becomes available in the future. 5
November 30 1 2014 2. Investments CIBC Wood Gundy Short-term notes Fixed income Common stocks Pooled funds Accrued income 2014 2013 Fair Value Cost Fair Value Cost $ 1,871,119 $ 1,847,968 $ 1,633,625 $ 1,608,717 3,877,320 3,722,309 3,703,707 3,686,364 1,702,987 1,643,933 1,543,843 1,558,654 1,191,874 1,122,240 1,390,052 1,110,993 42 1 858 42 1 858 53,363 53,363 $ 8,686,158 $ 8,379,308 $ 8,324,590 $ 8,018,091 3. Investment Income 2014 2013 Interest $ 149,558 $ 202,618 Dividends 56,231 55,018 Gain (loss) on sale of investments 306,479 (98,144) Fair value adjustment 363 281,295 $ 512,631 $ 440,787 6
November 30, 2014 4. Financial Instrument Risks The Trust Fund may be exposed to a variety of financial risks including credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). These risks have not changed from the prior year. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation that is entered into with the Trust Fund. The risk of default on transactions in listed securities is considered minimal, as the trade will fail if either party to the transaction does not meet its obligation. While the Plan may be exposed to credit risk with respect to bonds, it manages this risk by investing in investment-grade and government bonds. As at November 30, the Plan's bonds by credit rating are as follows: 2014 2013 %of %of Bonds Total Bonds Total AAA $ 1,389,797 24 $ 1,603,983 30 AA 804,210 14 795,354 15 A 3,450,765 60 2,854,059 53 BBB 103 2 667 2 83,936 2 $ 5,748,439 100 $ 5,337,332 100 Liquidity Risk The Trust Fund is also exposed to liquidity risk in the event that investments must be sold quickly. The Trust Fund's assets are invested in securities that are traded in an active market and can be readily disposed of as liquidity needs arise. 7
Teamsters Canada Rail Conference (TCRe), November 30,2014 4. Financial Instrument Risks - (Continued) Market Risk Interest rate risk arises from the possibility that changes in interest rates will affect the fair value of financial instruments. It arises when the Trust Fund invests in interest-sensitive investments such as bonds and other fixed-income investments that will fluctuate due to changes in prevailing levels of market interest rates. The Trust Fund mitigates this risk by investing in interest-bearing investments with varying maturity dates. As at November 30. the terms to maturity of interest-bearing investments are as follows: Less 2014 than 1-5 5-10 > 10 {millions~ 1 ~ear ~ears ~ears ~ears Total Bonds $ 1.87 $ 2.71 $ 0.90 $ 0.27 $ 5.75 Less 2013 than 1-5 5-10 >10 (millions} 1 ~ear ~ears ~ears ~ears Total Bonds $ 1.63 $ 2.70 $ 0.65 $ 0.35 $ 5.33 These bonds have stated interest rates from 1.25% to 7.24% (2013-1.25% to 7.24%). As at November 30, 2014. had prevailing interest rates increased or decreased by 1% with respect to interest-bearing investments other than the underlying holdings of the pooled funds. with all other variables held constant. net assets available for benefits would have decreased or increased, respectively by approximately $158,000 (2013 - $161,000). In practice, actual results may differ from this sensitivity analysis and the difference could be material. Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign currencies. As at November 30, 2014, had the Canadian dollar appreciated or depreciated by 5% relative to other currencies, with all other variables held constant. net assets available for benefits would have decreased or increased, respectively by approximately $7.900 (2013 - $9,800). In practice, actual results may differ from this sensitivity analysis and the difference could be material. Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices, other than those arising from interest rate risk or currency risk, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in a market. The Trust Fund manages market risk by diversifying investments in accordance with the Trust Fund's Statement of Investment Policies and Procedures, which is approved by the Trustees. If market prices had increased or decreased by 10% on November 30, 2014, the net assets available for benefits of the Trust Fund would have increased or decreased, respectively, by approximately $294,000 (2013 - $299,000). In practice, actual results may differ from this sensitivity analysis and the difference could be material. 8
November 30, 2014 4. Financial Instrument Risks - (Continued) Financial Instruments Fair Value Hierarchy Disclosure of a three-level hierarchy for fair value measurements is based upon transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1: For securities valued based on unadjusted quoted prices in active markets for identical assets. Level 2: For securities valued based on inputs, other than quoted prices included in Level 1, that are observable for the asset, either directly or indirectly. Level 3: For securities valued based on inputs that are based on unobservable market data. As at November 30, 2014, the following table represents a summary of investments held by level: 2014 2013 Level 1 - Common Stocks $ 1,702,987 $ 1,543,843 Level 2 - Short-term notes, fixed income, and pooled funds 6,983,171 6,780,747 There were no transfers between levels during the year. $ 8,686,158 $ 8,324,590 5. Capital Management The Trust Fund considers its capital to be its Net Assets Available for Benefits. The Trust Fund's objective when managing its capital is to safeguard its ability to continue to provide benefits to its eligible members. The Trustees monitor the Trust Fund's financial position to ensure its objective is met. There have been no changes in what the Trust Fund considers to be its capital and there have been no significant changes to the Trust Fund's capital management objectives, policies and processes in the year. 9
November 30, 2014 6. Trust Information (a) Description of Policy Benefits Actual benefits including conditions and limitations thereto are governed by the provisions of the Group Insurance Policy with the Great-West Life Assurance Company and reference should be made to this Policy for more detailed information. The following is a brief summary of the Policy benefits: The Trust Fund provides long-term disability benefits to eligible members of the Teamsters Canada Rail Conference who are Locomotive Engineer employees of Canadian Pacific Railway Company. FUll-time permanent employees under age 65 are eligible for benefit on the first day of the month following completion of 60 days of continuous employment. The eligible members listing is updated monthly as advised by the employer. Benefits payable to eligible members are 50% of monthly earnings, commencing when all weekly indemnity benefits have been exhausted (26 to 41 weeks). The Trust Fund also provides specific loss benefits and Accidental Death and Dismemberment coverage to eligible members of the Teamsters Canada Rail Conference who are Locomotive Engineer employees of Canadian Pacific Railway Company. Full-time, permanent employees under age 65 are eligible immediately if the employee is insurable otherwise, eligibility commences on the date of insurability. The eligible members listing is updated monthly as advised by the employer. Benefits payable to eligible members are the principal sum ($10,000) or a portion thereof, between 1/8 and 3/4 1 depending on the extent of the injury sustained while insured. (b) Professional Fees Recipients of professional fees are as follows: 2014 2013 Administration Canadian Benefits Consulting Group Ltd. $ 109,379 $ 124 1 096 Audit BOO Canada LLP $ 17,025 $ 11,978 Legal CaleyWray LLP $ 200 $ 426 10
November 30,2014 6. Trust Information - (Continued) (c) Remuneration There were no salaries paid by the Trust Fund during the year. 7. Premium Reimbursement During the prior year, the Trustees approved a plan to refund Members for their premium contribution deductions made during the period December 1, 2011 to November 30, 2012. This reimbursement was completed by November 30, 2013. 11