UNAUDITED FINANCIAL STATEMENTS Quarterly Results Three months to March 31, 2012 Statement of Management Responsibility Unaudited Financial Statements and Notes Management s Discussion and Analysis Page 1 of 17
PACIFIC PILOTAGE AUTHORITY 1000 1130 West Pender Street Vancouver, BC V6E 4A4 UNAUDITED FINANCIAL STATEMENTS Quarterly Results Three months to March 31, 2012 Statement of Management Responsibility: Management is responsible for the preparation and fair presentation of these quarterly financial statements in accordance with the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations and for such internal controls as management determines is necessary to enable the preparation of quarterly financial statements that are free from material misstatement. Management is also responsible for ensuring all other information in this quarterly financial report is consistent, where appropriate, with the quarterly financial statements. Based on our knowledge, these unaudited quarterly financial statements present fairly, in all material respects, the financial position, results of the operations and cash flows of the corporation, as at the date of and for the periods presented in the quarterly financial statements. Originally signed by: Kevin Obermeyer President and CEO Originally signed by: Bruce Chadwick Director of Finance Vancouver, BC May 15, 2012 Page 2 of 17
Unaudited PACIFIC PILOTAGE AUTHORITY Statement of Financial Position (in thousands) ASSETS As at March 31, As at March 31, 2012 2011 Current Cash and cash equivalents $ 6,921 $ 5,822 Accounts receivable, trade 4,189 4,791 Prepaid expenses and other receivables 1,146 682 Non-current 12,256 11,295 Long-term investments 5,262 5,096 Property and equipment 10,477 11,056 Intangible asset 270 250 16,009 16,402 $ 28,265 $ 27,697 Current LIABILITIES Accounts payable and accrued liabilities $ 6,175 $ 5,802 Other employee benefits 16 160 Bank indebtedness - 3,468 Non-current 6,191 9,430 Other employee benefits 915 736 EQUITY 915 736 7,106 10,166 Retained earnings 21,159 17,531 21,159 17,531 $ 28,265 $ 27,697 Page 3 of 17
Unaudited PACIFIC PILOTAGE AUTHORITY Statement of comprehensive income (in thousands) Revenues 3 Months to March 31 2012 2011 Pilotage charges $ 13768 $ 13,694 Interest and other revenues (9) 18 13,759 13,712 Expenses Contract pilots' fees 8,436 8,201 Operating costs of pilot boats 1,650 1,507 Salaries and benefits 1,348 1,265 Transportation and travel 1,150 1,182 Depreciation property and equipment 218 226 Professional and special services 144 158 Pilots' training 242 148 Rentals 66 67 Computer services 51 64 Interest expense - 25 Utilities, materials and supplies 48 40 Amortization intangible asset 30 30 Communications 23 26 Repairs and maintenance 19 18 13,425 12,957 Profit for the year 334 755 Other comprehensive income Comprehensive income - - Total comprehensive income $ 334 $ 755 Page 4 of 17
Unaudited PACIFIC PILOTAGE AUTHORITY Statement of changes in equity (in thousands) 3 Months to March 31 2012 2011 Retained earnings, beginning of year $ 20,825 $ 16,776 Profit for the year Other comprehensive income 334 755 Total comprehensive income 334 755 Retained earnings, end of year 21,159 17,531 Page 5 of 17
Unaudited PACIFIC PILOTAGE AUTHORITY Statement of Cash Flows (in thousands) Cash flows from operating activities 3 Months to March 31 2012 2011 Cash receipts from customers $ 14,379 $ 13,527 Cash paid to employees and suppliers (13,227) (12,298) Other income received 20 14 Interest paid - (25) Employee severance benefit payments (132) - Net cash provided by operatings 1,040 1,218 Cash flows from investing activities Purchase of long-term investments (1,362) (3,130) Proceeds on disposal of long-term investments 1,348 1,127 Acquisition of property and equipment (218) - Acquisition of intangible asset - - Net cash used in investing activities (232) (2,003) Cash flows from financing activities Re-payment of bank indebtedness - (164) Cash used in financing activities - (164) Net increase in cash and cash equivalents 808 (949) Cash and cash equivalents, beginning of year 6,113 6,771 Cash and cash equivalents, end of year $ 6,921 $ 5,822 Represented by: Cash $ 6 $ 112 Cash equivalents 6,915 5,710 Page 6 of 17
Notes to the Unaudited Financial Statements 1. Basis of Presentation These financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ). In accordance with the Treasury Board of Canada Standard, these financial statements do not include all of the financial statement disclosure required for annual financial statements and should be read in conjunction with the Authority s Canadian GAAP annual consolidated financial statements for the year ended December 31, 2011. In management s opinion, the financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim period presented. 2. Authority and objectives The (the Authority) was established in 1972 pursuant to the Pilotage Act. The objectives of the Authority are to establish, operate, maintain and administer a safe and efficient pilotage service within designated Canadian waters. The Act further provides that the tariffs of pilotage charges shall be fixed at a level that permits the Authority to operate on a self-sustaining financial basis and shall be fair and reasonable. Coastal pilotage services are provided by the British Columbia Coast Pilots Ltd. under an agreement for services. Pilotage services on the Fraser River are provided by employee pilots. The Authority is a Crown corporation named in Part I of Schedule III to the Financial Administration Act and is not subject to any income taxes. 3. Significant accounting policies The significant accounting policies are as follows: (a) Cash equivalents Cash equivalents represent short-term, highly liquid investments and consist of Canadian dollar deposits held at Canadian chartered banks. (b) Financial assets The Authority s financial assets include accounts receivable, trade and long-term investments. (i) Classification The Authority classifies its financial assets into the following categories: at fair value through profit or loss and loans and receivable. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (ii) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets that are classified as held for trading or that have been designated as financial assets at fair value through profit or loss upon initial recognition. A financial asset is classified as held for trading if it has been acquired principally for the purpose of selling in the short term. Derivatives are also classified as held for trading unless they are designated as hedges. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. Page 7 of 17
The Authority has elected to designate all its long-term investments at fair value through profit or loss. The long-term investments are initially recognized at fair value and subsequently measured at fair value at each reporting date. Fair value is based on the quoted price of the securities at the reporting date. Purchases and sales of investments are recognized on a settlement date basis. Gains and losses arising from changes in fair values or sales of long-term investments are included in interest and other revenues on the statement of comprehensive income. Interest and other revenues are also presented net of investment expenses. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Authority s accounts receivable, trade and other receivables are classified as loans and receivables. Accounts receivable, trade and other receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. (c) Property and equipment Property and equipment are initially recorded at cost, and subsequently measured at amortized cost. The cost of assets constructed by the Authority includes design, project management, legal, materials, interest on directly attributable construction loans, and construction costs. Spare engines are carried at cost and will be depreciated when put in service. Depreciation is calculated on a straight-line basis and is based on the estimated useful lives of the assets as follows: Buildings and floats 10-20 years Pilot boats 25 years Pilot boat engines 7,500-10,000 running hours Pilot boat generators 10 years Equipment - communication and other 10 years - computers 3 years Leasehold improvements shorter of 10 years or remaining term of lease The assets residual values and estimated useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. In addition, an asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. (d) Intangible asset Acquired computer software is recorded at cost and amortized on a straight-line basis over its estimated useful life of 5 years. (e) Accounts payable and accrued liabilities Accounts payable and accrued liabilities are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. Page 8 of 17
(f) Employee benefits (i) Pension benefits All eligible employees of the Authority are covered by the Public Service Pension Plan (the Plan ), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and the Authority to cover current service cost. Pursuant to legislation currently in place, the Authority has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total pension obligation of the Authority. (ii) Other employee benefits Employees are entitled to severance and sick leave benefits as provided for under collective agreements or employment contracts. The liability for these benefits is estimated and recorded in the financial statements as the benefits accrue to the employees. The costs and the defined benefit obligation are actuarially determined using the projected unit credit method prorated on service that incorporates management s best estimate assumptions. Actuarial gains and losses are recognized immediately in other comprehensive income (OCI). (g) Revenue recognition Revenues from pilotage charges are recognized on an accrual basis, at their fair value, when pilotage services are provided. Interest income is also recognized on an accrual basis using the effective interest method. Page 9 of 17
Management s Discussion and Analysis Unaudited quarterly financial results to March 31, 2012 Traffic review 2012 The strong traffic levels of 2011 have continued into the first quarter of 2012. Compared to budget, the Authority s traffic is up by 160 assignments. Looking at the same quarter last year traffic is within 69 assignments, thus very comparable year over year. Traffic analysis for 3 months to March 31, 2012: Actual 2012 to Actual 2012 to Actual 2012 Budget 2012 Budget 2012 Actual 2011 Actual 2011 Coastal trips 2,523 2,403 5% 2,582-2% 2nd pilot 83 90 89 Total 2,606 2,493 2,671 River trips 289 242 19% 293-1% Total 2,895 2,735 2,964 The key commodity sectors for the 1 st quarter are commented on below: The automobile sector with two terminals in the Fraser River has increased by 80 trips. The increase is mainly due to the difficulties in Japan during the 1 st quarter of 2011. Container ship trips for the 1 st quarter totalled 440, which is very comparable to the prior year. Containers are the largest import commodity in our jurisdiction. Cruise ship traffic will not start until May 2012. The 2012 annual trip numbers are forecast to be very comparable to the prior year. Coal trips for the 1 st quarter totalled 210, which is very comparable to the prior year. Grain trips decreased slightly from the prior year by 60, ending the quarter at 360. The Authority has budgeted for a decrease in trips for 2012 mainly due to the restructuring of the Canadian Wheat Board and preliminary crop forecasts. Petroleum, potash and sulphur trips are up by 30 trips when compared to the prior year. This category may fluctuate from year to year since many external factors can influence tonnage volumes. The forest product sector ended the quarter with 360 trips. This is a decrease from the prior year by 60 trips. Page 10 of 17
Financial review and comparison to 2012 Corporate Plan (Budget) For the 1 st quarter the Authority has recorded a profit of $334,000 as compared to a budgeted profit of $140,000. With actual trip levels exceeding the budget by 160 in the 1 st quarter the Authority has benefitted from increased revenues, especially in the pilotage and launch categories. The YTD revenue variances are reflected below. Comparison to 2012 Corporate Plan (Budget) As at March 31 Actual Corp. Plan Variance Variance Actual Revenues in 000's 2012 2012 Fav. (unfav.) % 2011 Coastal Pilotage $9,754 $8,999 $755 8% $9,707 River Pilotage $674 $530 $144 27% $649 Travel - Coastal $1,129 $1,130 ($1) 0% $1,200 Travel - River $39 $36 $3 8% $40 Total Launch $1,830 $1,550 $280 18% $1,732 Launch Replacement Fee $342 $303 $39 13% $329 Personal Pilotage Unit Fee $0 $0 $0 $37 Interest and other revenues ($9) $30 ($39) $18 Total Income $13,759 $12,578 $1,181 9% $13,712 The favourable coastal pilotage revenue variance was directly attributable to traffic volumes and was offset by an increased payout to the entrepreneur pilots as they are paid by the trip. Additionally the payout ratio for contract pilotage services ended the quarter at 86% compared to a budget of 84%. This is explainable as the budget was based on a nil contract settlement increase at January 1, 2012, as compared to the 4% awarded in a final offer selection process. The river pilotage is performed by employee pilots so this favourable variance of $144,000 contributes through to the bottom line. Travel revenues and costs are variable and fluctuate with trip volumes and location of trips. The favourable launch revenues were somewhat offset by increased contractor costs at Pine Island since this station utilizes a contractor who is paid by the trip. Once this increased payout is adjusted for, the favourable revenue variances from employee crewed stations contribute to the bottom line subject to some minor increases in overtime. In total the launch sector contributed $200,000 in excess of budget. Pilot training includes expenses for senior pilots to enhance their skills and apprentice pilot costs. For this reporting period, this sector was $80,000 unfavourable to budget mainly due to one more apprentice being started than the budget had anticipated. Additionally, the 1 st quarter absorbed $35,000 in senior pilot training costs that were budgeted for later in the year. On the other hand, there was $120,000 of software expenditures budgeted for the 1 st quarter that will not be expended until later in the year. The higher than expected revenues also helped the administration overhead ratio to end the period at 9.0%, slightly under the budgeted ratio of 10.0% of revenues. The Authority s budgeted target for the year of 2012 remains at 8.5%. Page 11 of 17
Looking ahead for the balance of the year to December 31, 2012, the Authority is forecasting a profit of $405,000 as compared to a budgeted profit of $980,000. After deducting launch replacement and personal pilotage unit revenues the forecast profit decreases to a loss of $586,000. Both of these revenue items will be discontinued with the next tariff filing expected in the 4 th quarter of 2012. Appropriations The Authority is prohibited from receiving Parliamentary appropriations as per section 36.01of the Pilotage Act. The Authority has been financially self-sufficient since inception in 1972 and regularly endorses strategy that will ensure this strategic goal remains among the highest priority. Enterprise Risk Management The Authority has endorsed an Enterprise Risk Management (ERM) program. ERM has been incorporated as part of the Authority s strategy with the intention of cultivating a culture of enterprise risk awareness. All areas of the Authority have been incorporated into this program, including entrepreneur and employee pilots, launches, dispatch and administration, along with the Board and management. ERM updates and mini-risk exercises are regularly included on the agendas of staff meetings. The ERM Committee is chaired by a Board member and includes representation from each of the areas mentioned above. The risk register and action plan are regularly reviewed and adjusted by the Committee who meets quarterly. At these meetings they re-evaluate the risk register with a view to identifying new risks and ensuring adequate mitigation measures are in place. During 2011 the program was revamped and the risk register expanded as the Authority had previously grouped certain risks together. It is felt the new approach is a more detailed and logical way to display our risks and is not an expansion of risks. The following chart shows the current risks and ranking status as of this quarterly report. Risk Table Priority Risk Title & Background Category Sub-Category Likelihood Impact Risk Rating 1 Pilot Protocols and Participation in an Incident Strategic None LOW EXTREME HIGH 2 Future Recruitment of Suitable Qualified Pilots Strategic None LOW EXTREME HIGH 3 Maintaining Good Stakeholder Relationships with the Shareholder Strategic None MEDIUM VERY HIGH HIGH 4 Maintaining Good Stakeholder Relationships with the Marine Industry Strategic None MEDIUM VERY HIGH HIGH Page 12 of 17
Priority Risk Title & Background Category Sub-Category Likelihood Impact Risk Rating 5 Maintaining Good Stakeholder Relationships with Pilots Strategic None MEDIUM VERY HIGH HIGH 6 Failure of Key IT Applications Operational Technology LOW VERY HIGH MEDIUM 7 Changing Economic and Financial Conditions & Political Issues Affecting Traffic Volume External Financial LOW VERY HIGH MEDIUM 8 Communication During an Incident (Media) Incidents Communication VERY LOW VERY HIGH MEDIUM 9 Economic Health of BC Coast Pilots Ltd. External Vendors VERY LOW VERY HIGH MEDIUM 10 Training of Coastal Pilots Organizational Training LOW HIGH MEDIUM 11 Management Succession Organizational Human Resources LOW HIGH MEDIUM 12 Drugs and Alcohol Operational OH&S LOW HIGH MEDIUM 13 Recruiting and Training of Launch Crew Organizational Training LOW HIGH MEDIUM 14 Internal and External Fraud Financial Fraud LOW HIGH MEDIUM 15 Financial & Administration Systems Financial None LOW HIGH MEDIUM 16 Labour Management ILWU Organizational Human Resources LOW HIGH MEDIUM 17 Labour Management FRP Organizational Human Resources LOW HIGH MEDIUM Page 13 of 17
Priority Risk Title & Background Category Sub-Category Likelihood Impact Risk Rating 18 Labour Management - Launch Crews Organizational Human Resources LOW HIGH MEDIUM 19 Delay of Vessel due to the Authority Operational None LOW HIGH MEDIUM 20 IT Vendor Issues Operational Technology LOW HIGH MEDIUM 21 General Safety of Pilots Operational OH&S HIGH MEDIUM MEDIUM 22 General Safety of Authority Launch Crews Operational OH&S MEDIUM MEDIUM MEDIUM 23 Changes and/or Shortcomings / Errors within Industry External None MEDIUM MEDIUM MEDIUM 24 Delay of Vessel due to External Issues Operational None HIGH LOW MEDIUM 25 Recruiting and Training of River Pilots Organizational Training VERY LOW HIGH LOW 26 HR Management for the Authority Organizational Human Resources VERY LOW HIGH LOW 27 Disaster and Emergency Planning Operational Hazard VERY LOW HIGH LOW 28 Incident Management Coordination Across Borders Incidents Incident Management VERY LOW HIGH LOW 29 Communication During an Incident (Government) Incidents Communication VERY LOW HIGH LOW 30 Traffic Management During a Cross Border Incident Incidents Incident Management VERY LOW HIGH LOW Page 14 of 17
Priority Risk Title & Background Category Sub-Category Likelihood Impact Risk Rating 31 General Safety of Authority Office Staff and Guests Operational OH&S LOW MEDIUM LOW 32 Pandemic Operational OH&S LOW MEDIUM LOW 33 New technology and subsequent training - Pilot Organizational Technology LOW MEDIUM LOW 34 Main Office Security Operational Security LOW MEDIUM LOW 35 Compliance with Regulations and Legislation Legal & Regulatory Compliance LOW MEDIUM LOW 36 New Technology and Subsequent Training - Authority Organizational Technology LOW MEDIUM LOW 37 Security of Physical Assets Operational Security LOW MEDIUM LOW 38 Hazardous/Dangerous or Toxic Cargo External Hazard LOW MEDIUM LOW 39 Accounts Receivable Financial None LOW MEDIUM LOW 40 Recruitment and Training of Administration Staff Organizational Training LOW LOW LOW 41 Incident Management Coordination within Canada Incidents Incident Management VERY LOW MEDIUM LOW 42 Coordinating Multiple Investigations as a Result of a Cross-Border Incident Incidents Incident Investigation VERY LOW MEDIUM LOW 43 Special Events Planning Operational Hazard VERY LOW MEDIUM LOW Page 15 of 17
Priority Risk Title & Background Category Sub-Category Likelihood Impact Risk Rating 44 Ports and/or Terminals Significantly Changing the Way they do Business External None MEDIUM LOW LOW 45 Management of Variable Costs External Financial LOW LOW LOW 46 Financial Reserve/Tariff Financial None LOW LOW LOW 47 Accounts Payable Financial None VERY LOW LOW LOW 48 Issues with Operating in Shared Waterways Emerging None Un-rated Un-rated Un-rated 49 Pilots Boarding Vessels Via Helicopter Hoisting Emerging None Un-rated Un-rated Un-rated 50 Political Interference Emerging None Un-rated Un-rated Un-rated Page 16 of 17
Key Performance Indicators Performance of the Authority is regularly reviewed by the Board of Directors. Certain key performance indicators are incorporated as part of this review and they are included below. 1 st Quarter to March 31, 2012 Performance Indicator GOAL TO DATE 1 On time service delivery (Total assignments less delays caused by Pilots or Authority/ total assignments) 100% 99.96% 2 Error free dispatches (Total dispatches less number of errors/number of dispatches) 100% 99.96% 3 Incidents on Vessels under Pilotage Class A Incident Class B and C Incidents 4 Incidents on Pilot Launches Class A Incident Class B and C Incidents 0% <0.05% 0% <0.05% 0% 0.10% 0% 0% 5 Unscheduled launch downtime causing operational delays (Total downtime days causing delays/total days) 6 Combined computer runtime (Vancouver and Victoria) 0% 0% 100% 100% 7 Maintain an overhead cost of less than 8.5% 8.5% 9.0% 8 Maintain an adequate contingency fund (2010 5% total revenue) 9 Accounts Receivable (Percentage of invoices under 30 calendar days) 5% 8.0% 90% 93% 10 Maintain an average of 8 working days to resolve all complaints 8 days 4.5 days 11 Maintain an average of 8 working days to resolve all invoice disputes 8 days 1.9 days. Page 17 of 17