Financial Statements of Transport Canada - 2009-2010

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(Unaudited)
For the year ended March 31, 2010

Transport Canada

Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2010, and all information contained in these statements rests with the management of Transport Canada. These financial statements have been prepared by management in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in the department’s Departmental Performance Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training, and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout the department; and through conducting an annual assessment of the effectiveness of the system of internal control over financial reporting.

An assessment for the year ended March 31, 2010 was completed in accordance with the Policy on Internal Control and the results and action plans are summarized in the annex.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

The effectiveness and adequacy of the department’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of the department's operations, and by the Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the financial statements to the Deputy Minister of Transport Canada.

The financial statements of Transport Canada have not been audited.

Original signed by

Yaprak Baltacıoğlu,
Deputy Minister
Ottawa, Canada

August 16, 2010

Original signed by Linda Brouillette
Director General, Human Resources,
on behalf of André Morency

André Morency,
Chief Financial Officer
Ottawa, Canada

August 16, 2010

Statement of Operations (Unaudited)
For the Year Ended March 31, 2010

(in thousands of dollars)
2010 2009
(Restated -
Note 18)
(Note 19)
Expenses (Note 4)
An Efficient Transportation System 580,557 462,811
A Safe Transportation System 473,687 449,952
Internal Services 235,443 363,914
A Secure Transportation System 118,416 156,671
A Clean Transportation System 14,099 181,692
Ship-Source Oil Pollution Fund and other programs (Note 15) 973 6,244
Total expenses 1,423,175 1,621,284
Revenues (Note 5)
An Efficient Transportation System 292,453 314,461
A Safe Transportation System 62,235 59,799
Internal Services 12,828 21,645
A Secure Transportation System 112 193
Ship-Source Oil Pollution Fund and other programs (Note 15) 9,598 10,213
Total revenues 377,226 406,311
Net cost of operations 1,045,949 1,214,973

The accompanying notes form an integral part of these financial statements.

Statement of Financial Position (Unaudited)
At March 31, 2010

(in thousands of dollars)
2010 2009
(Restated -
Note 18)
Assets
Financial assets
Accounts receivable and advances (Note 6) 31,761 22,105
Loans receivable (Note 7) 13,264 12,515
Rent receivable (Note 8) 42,149 49,429
Investments (Note 9) 52,792 52,792
Total financial assets 139,966 136,841
Non-financial assets
Prepaid expenses 2,484 2,809
Inventory 12,350 12,243
Tangible capital assets (Note 10) 2,720,407 2,788,590
Total non-financial assets 2,735,241 2,803,642
Total 2,875,207 2,940,483
Liabilities and Equity of Canada
Liabilities
Accounts payable and accrued liabilities (Note 11) 937,543 952,806
Vacation pay and compensatory leave 25,451 28,459
Deferred revenue 3,693 2,365
Employee severance benefits (Note 12) 91,660 99,153
Lease obligation for tangible capital assets (Note 13) 622,313 638,422
Environmental and contingent liabilities (Note 14) 173,047 220,735
Total liabilities 1,853,707 1,941,940
Equity of Canada 1,021,500 998,543
Total 2,875,207 2,940,483

Contingent liabilities (Note 14)
Contractual obligations (Note 16)
The accompanying notes form an integral part of these financial statements.

Statement of Equity of Canada (Unaudited)
At March 31, 2010

(in thousands of dollars)
2010 2009
(Restated -
Note 18)
Equity of Canada, beginning of year 998,543 1,141,398
Net cost of operations (1,045,949) (1,214,973)
Current year appropriations used (Note 3) 1,011,716 1,040,016
Revenues not available for spending (35,681) (47,748)
Refund of previous year’s expenditures (5,838) (3,018)
Change in net position of the Consolidated Revenue Fund (Note 3) 11,938 7,214
Services received without charge from other government departments (Note 17) 86,771 75,654
Equity of Canada, end of year 1,021,500 998,543
Restricted equity of Canada (see Note 15) 389,689 381,064
Non-Restricted equity of Canada 631,811 617,479
Equity of Canada 1,021,500 998,543

The accompanying notes form an integral part of these financial statements.

Statement of Cash Flow (Unaudited)
For the Year Ended March 31, 2010

(in thousands of dollars)
2010 2009
(Restated -
Note 18)
Operating activities
Net cost of operations 1,045,949 1,214,973
Non-cash items
Amortization of tangible capital assets (146,073) (161,869)
Services received without charge (86,771) (75,654)
Loss on disposal and write-down of tangible capital assets (11,511) (32,196)
Allowance for environmental and contingent liabilities 47,688 (15,858)
Prior years’ assets under construction expensed (14,330) (3,071)
Employee severance benefits 7,493 (17,500)
Other 13 (283)
Variations in Statement of Financial Position
Increase (decrease) in financial assets 3,125 (25,962)
Increase (decrease) in inventory and prepaid expenses (218) 3,567
Increase (decrease) in other liabilities 16,943 42,588
Cash used by operating activities 862,308 928,735
Capital investment activities
Principal repayment of tangible capital leases 16,109 15,407
Acquisitions of tangible capital assets 92,567 65,599
Transfer of tangible capital assets with no monetary impact 14,317 3,354
Proceeds from disposal of tangible capital assets (3,166) (16,631)
Cash used by capital investment activities 119,827 67,729
Financing activities
Net cash provided by Government of Canada (982 135) (996,464)

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements (Unaudited)
March 31, 2010

1. Authority and objectives

Transport Canada is a department of the Government of Canada named in Schedule 1 of the Financial Administration Act and reports to Parliament through the Minister of Transport, Infrastructure and Communities.

Transport Canada is responsible for the transportation policies, programs and goals set by the Government of Canada, which are supported through the following departmental programs:

  • An Efficient Transportation System program: establishes marketplace frameworks to govern the economic behaviour of transportation sector organizations; provides leadership for Gateways and Trade Corridors strategies; provides stewardship for federal transportation assets and implements transportation infrastructure projects in partnership with provinces, territories, municipal governments and private sector entities; stimulates innovation.
  • A Clean Transportation System program: advances the federal government’s clean air agenda in the transportation sector and complements other federal programs designed to reduce air emissions for the health of Canadians; helps to protect the marine environment by reducing the pollution of water from transportation sources; fulfills Transport Canada’s responsibilities in working towards a cleaner and healthier environment with regard to its own operations.
  • A Safe Transportation System program: develops transportation safety regulations and oversees their implementation; manages programs to support safety-related investments at small airports, to protect navigable waterways, to certify and license aircrafts, vessels and road vehicles; and provides air transport services to support aviation safety oversight work and federal and municipal clients.
  • A Secure Transportation System program: develops policies and programs that respond to emerging security risks and keep Canada competitive; develops transportation security regulations and oversees their implementation by industry; and works with international and national partners to advance a shared and effective transportation security agenda.
  • The Internal Services program: Internal Services are groups of related activities and resources that are administrated to support the needs of programs and other corporate obligations of Transport Canada. Internal Services include only those activities and resources that apply across its organization and not to those provided specifically to a program.

Transport Canada delivers its programs and services under numerous legislative and constitutional authorities including the Department of Transport Act, Canada Transportation Act, Aeronautics Act, Canada Marine Act, Canada Shipping Act, Navigable Waters Protection Act, Railway Safety Act, Transportation of Dangerous Goods Act, Motor Vehicle Safety Act, Canadian Air Transport Security Authority Act and Marine Transportation Security Act.

2. Summary of significant accounting policies

The financial statements have been prepared in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

  1. Parliamentary appropriations – Transport Canada is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the department do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.
  2. Net Cash Provided by Government – Transport Canada operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the department is deposited to the CRF and all cash disbursements made by the department are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.
  3. Change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non-respendable revenue recorded by the department. It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.
  4. Revenues:
    • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
    • Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.
    • Revenues that have been received but not yet earned are recorded as deferred revenues.
  5. Expenses – These are recorded when the underlying transaction or expense occurred subject to the following:
    • Grants are recognized in the year in which the conditions for payment are met. In the case of grants, which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
    • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement.
    • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
    • Services provided without charge by other government departments for accommodation, the employer’s contribution to the health and dental insurance plans, worker's compensation, and legal services are recorded as operating expenses at their estimated cost.
  6. Employee future benefits
    • Pension benefits: Eligible employees participate in the Public Service Pension Plan administered by the Government of Canada. The department’s contributions to the plan are charged to expenses in the year incurred and represent the total departmental obligation to the plan. Current legislation does not require the department to make contributions for any actuarial deficiencies of the plan.
    • Severance benefits: Employees are entitled to severance benefits, as provided for under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
  7. Accounts receivables from external parties are stated at amounts expected to be ultimately realized; a provision is made for external receivables where recovery is considered uncertain.
  8. Loans receivable are recorded at cost. They are written down to their net present value to reflect concessionary terms using market rates at the time of the loans. Loan discounts are amortized over the term of the loans. A provision is made for loans where recovery is considered uncertain.
  9. Investments in Crown corporations are recorded at cost. If there is a permanent impairment in value, an allowance is recorded to reduce the carrying value of the investment to a nominal amount.
  10. Contingent liabilities – Contingent liabilities are potential liabilities, which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
  11. Environmental liabilities – Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management’s best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of the department’s obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.
  12. Inventories – Inventories consist of spare parts, material, supplies and publications held by the Department. Inventories, other than serialized inventory items or rotable parts, are valued at average cost. Serialized inventory items and rotable parts are valued on a specific cost basis. A serialized inventory item is consumable inventory, which has a serial number and is required to be tracked for airworthiness purposes. Inventories with no further service potential are valued at the lower of cost or net realizable value.
  13. Foreign currency transactions – Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect on March 31, 2010. Losses resulting from foreign currency transactions are included in miscellaneous expenses on the statement of operations.
  14. Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections. Land has no minimal cost threshold.

    Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the assets as follows:

    Asset type Amortization period
    Confederation Bridge 100 years
    Buildings and works:
    Buildings 20 to 40 years
    Works and Infrastructure 10 to 40 years
    Machinery and equipment:
    Machinery and equipment 5 to 20 years
    Informatics hardware 3 to 5 years
    Informatics software 3 years
    Vehicles:
    Ships and boats 10 to 20 years
    Aircrafts 6 to 20 years
    Motor vehicles 6 to 35 years
    Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
    Assets under construction Once in service, in accordance with asset type
    Leased tangible capital assets According to the useful life of the asset if a bargain purchase offer exists or over the term of the lease
  15. Measurement uncertainty – The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management’s estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

3. Parliamentary appropriations

Transport Canada receives most of its funding through annual Parliamentary appropriations. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years. Accordingly, the department has different net results of operations for the year on a government-funding basis than on an accrual accounting basis. The differences are reconciled in the tables on the following page:

  1. Reconciliation of net cost of operations to current year appropriations used

    (in thousands of dollars)
    2010 (Restated
    - Note 18)
    2009
    Net cost of operations 1,045,949 1,214,973

    Adjustments for items affecting net cost of operations but not affecting appropriations:

    Add (Less):

    Amortization of tangible capital assets (146,073) (161,869)
    Services provided without charge (86,771) (75,654)
    Revenues not available for spending 35,681 47,748
    Allowance for environmental and contingent liabilities 47,688 (15,858)
    Loss on disposals and write-downs of tangible capital assets (11,511) (32,196)
    Prior years’ work-in-progress expensed (14,330) (3,071)
    Variation in vacation pay and compensatory leave 3,008 (2,605)
    Employee severance benefits 7,493 (17,500)
    Refunds of previous years' expenditures 5,838 3,018
    Other 13 (283)
    Total adjustments for items affecting net cost of operations but not affecting authorities 886,985 956,703

    Adjustments for items not affecting net cost of operations but affecting appropriations:

    Add (Less):

    Variation in prepaid expenses (325) 1,309
    Variation in inventory 107 2,258
    Acquisitions of tangible capital assets 92,567 65,599
    Transfer of tangible capital assets with no monetary impact 14,317 3,354
    Repayment of lease obligation for tangible capital assets 16,109 15,407
    Other 1,956 (4,614)
    Total adjustments for items not affecting net cost of operations but affecting authorities 124,731 83,313
    Current year appropriations used 1,011,716 1,040,016
  2. Appropriations provided and used

    (in thousands of dollars)
    2010 2009
    Appropriations provided
    Vote 1 – Operating expenditures 448,660 398,081
    Vote 5 – Capital expenditures 182,948 78,926
    Vote 10 – Transfer payments 740,606 810,898
    Statutory amounts 205,392 174,664
    Total authorities provided 1,577,606 1,462,569
    Less:
    Appropriations available for future years (1,137) (882)
    Lapsed appropriations: Operating (49,710) (40,807)
    Lapsed appropriations: Capital (76,317) (12,691)
    Lapsed appropriations: Transfer payments (437,844) (368,173)
    Lapsed: Crown assets disposal (882) -
    Total Lapsed (564,753) (421,671)
    Current year appropriations used 1,011,716 1,040,016
  3. Reconciliation of net cash provided by Government to current year appropriations used

    (in thousands of dollars)
    2010 2009
    Net cash provided by Government 982,135 996,464
    Revenues not available for spending 35,681 47,748
    Refunds of previous years' expenditures 5,838 3,018
    Total of net cash provided by Governement 1,023,654 1,047,230
    Change in net position in the Consolidated Revenue Fund
    Variation in financial assets (3,125) 25,962
    Variation in liabilities (13,935) (45,193)
    Proceeds of disposal – Capital assets 3,166 16,631
    Other adjustments 1,956 (4,614)
    Total of net postion in the Consolidated Revenue Fund (11,938) (7,214)
    Current year appropriations used 1,011,716 1,040,016

4. Expenses

The following table presents details of expenses by category:

(in thousands of dollars)
2010 (Restated
- Note 18)
2009
Transfer payments
Other levels of governments within Canada 133,897 211,526
Industry 116,627 106,303
Non-profit organizations 112,036 77,713
Individuals 483 85,834
Other countries and international organizations 183 172
Total transfer payments 363,226 481,548
Operating Expenses
Salaries and employee benefits 553,274 546,483
Amortization of tangible capital assets 146,073 161,869
Professional and special services 125,824 183,115
Equipment repair and maintenance 59,237 40,939
Interest on lease obligation for tangible capital assets 40,879 40,559
Accommodation 36,994 30,440
Travel and relocation 33,899 38,947
Utilities, materials and supplies 22,844 23,001
Net loss on disposal of tangible capital assets 11,511 32,196
Telecommunications 7,202 10,943
Payments in lieu of property taxes 7,092 6,513
Rentals 6,104 6,088
Information services – communications 5,519 5,123
Postage 3,555 3,602
Pollution control 973 6,244
Damage and other claims against the Crown 265 1,322
Miscellaneous (1,296) 2,352
Total operating expenses 1,059,949 1,139,736
Total expenses 1,423,175 1,621,284

5. Revenues

The following table presents details of revenues by category:

(in thousands of dollars)
2010 2009
Sales of goods and services:
Airport rent 250,095 268,280
Aircraft maintenance and flying services 38,475 33,110
Monitoring and enforcement revenues 36,946 40,459
Rentals and concessions 26,456 28,010
Transport facilities user fees 13,868 14,625
Pollution control revenues 9,598 10,213
Interest 925 642
Miscellaneous 546 10,420
Research and development 317 552
Total revenues 377,226 406,311

6. Accounts receivable and advances

(in thousands of dollars)
2010 2009
Accounts receivable from other government departments 13,965 7,895
Accounts receivable from external parties 19,392 17,927
Advances to employees 325 390
Total 33,682 26,212
Less: Allowance for doubtful accounts on external accounts receivable (1,921) (4,107)
Total accounts receivable and advances 31,761 22,105

7. Loans receivable

(in thousands of dollars)
2010 2009
Saint John Harbour Bridge Authority 22,647 22,647
Victoria Harbour 2,279 2,365
St. Lawrence Seaway Management Corporation 77 168
Total 25,003 25,180
Less: Discounts on loans (11,739) (12,665)
Total Loans 13,264 12,515
  1. Saint John Harbour Bridge Authority

    The loan receivable from the Saint John Harbour Bridge Authority consists of consolidated non-interest bearing advances made in connection with the financing, construction and operation of a toll bridge across the harbour of Saint John, New Brunswick. The Saint John Harbour Bridge Authority has a debt repayment schedule starting in March 2009 and ending in 2016. A discount of $10,910,850 is recorded to reflect the concessionary nature of the loan ($11,552,665 at March 31, 2009).

  2. Victoria Harbour

    The Victoria Harbour long-term receivable relates to the sale of a parcel of Victoria Harbour land for $2,578,469. A discount of $828,133 is recorded to reflect the concessionary nature of the loan ($1,111,575 at March 31, 2009). A payment of $85,440 was received in fiscal year 2009-10 ($42,720 in 2008-09).

  3. St-Lawrence Seaway Management Corporation

    The St-Lawrence Seaway Management Corporation loan portfolio account was established by subsection 80(1) of the Canada Marine Act. The loan portfolio is managed in accordance with the Seaway Agreements between Transport Canada and the St-Lawrence Seaway Management Corporation. The remaining loan is secured by title on the property, and has prescribed monthly repayment terms with an annual interest rate of 7%, and was repayable by March 2004. The mortgagor is in negotiations with Transport Canada and Justice Canada with respect to the remaining loan, which was repayable March 2004.

8. Rent receivable

The National Airport System (NAS) consists of Canadian airports considered essential to air transportation in Canada, including 3 airports owned by Territorial Governments. Transport Canada has leased all of these airports under long-term operating agreements with Canadian Airport Authorities (21) and a municipal government (1).

In fiscal year 2003-04, Transport Canada entered into lease amendments with nine of the Canadian Airport Authorities, which provided for deferral of a portion of the airport rent payable by the Airport Authorities to Transport Canada for the 2003 to 2005 lease years. The total rent deferred for 2003 to 2005 is payable to Transport Canada over ten years beginning in the 2006 lease year. Repayments of $7,280,000 were received in fiscal year 2009-10 ($7,323,000 in 2008-09). Rent receivable was $42,149,000 at March 31, 2010 ($49,429,000 at March 31, 2009).

9. Investments

(in thousands of dollars)
2010 2009
Royal Canadian Mint 40,000 40,000
VIA Rail Canada Inc. 9,300 9,300
Parc Downsview Park Inc. 2,492 2,492
Ridley Terminals Inc. 1,000 1,000
Total Investments 52,792 52,792
  1. Royal Canadian Mint

    As a result of Government restructuring in 2006-07, the Royal Canadian Mint was transferred from the Canada Revenue Agency to Transport Canada. The investment of $40,000,000 is divided into 4,000 shares of $10,000 each.

  2. VIA Rail Canada Inc.

    In fiscal year 1979-80, a non-budgetary authority was granted to Transport Canada to purchase common shares of Via Rail Canada Inc. to be valued at $100 per share for a total value of $9,300,000.

  3. Parc Downsview Park Inc.

    The investment in Parc Downsview Park Inc. is for the purpose of allowing the completion of the transfer of lands from the department of National Defense to Parc Downsview Park Inc.

  4. Ridley Terminals Inc.

    On November 1, 2000, the shares of Ridley Terminals Inc. owned by Canada Ports Corporation were transferred to the Crown under the administration of Transport Canada at $90,000,000. Due to concerns regarding the viability of Ridley Terminals Inc., for prior years, the investment in Ridley Terminals Inc. has been written-down by $89,000,000 for a nominal value of $1,000,000 in Transport Canada’s financial statements.

10. Tangible capital assets

(in thousands of dollars)
Assets Cost Accumulated Amortization 2010
Net book
value
2009
Net book
Value
(Restated - Note 18)
Opening balance
(Restated - Note 18)
Acquisitions Transfer Disposals
and
write-offs
Closing balance Opening balance
(Restated - Note 18)
Amortization Disposals
and
write-offs
Closing balance
Land (1) 225,034 29,374 - 61 254,347 - - - - 254,347 225,034
Buildings and works (2) 3,758,154 6,654 22,766 28,147 3,759,427 2,296,821 107,581 16,418 2,387,984 1,371,443 1,461,333
Machinery and equipment (3) 181,818 6,055 (6,343) 2,957 178,573 122,527 9,477 3,910 128,094 50,479 59,291
Vehicles 738,464 5,149 8,878 13,411 739,080 533,685 19,732 9,571 543,846 195,234 204,779
Leasehold improvements 17,222 50 175 - 17,447 9,763 1,094 - 10,857 6,590 7,459
Assets under construction 108,767 45,285 (25,476) - 128,576 - - - - 128,576 108,767
Confederation Bridge 818,820 - - - 818,820 96,893 8,189 - 105,082 713,738 721,927
Total 5,848,279 92,567 - 44,576 5,896,270 3,059,689 146,073 29,899 3,175,863 2,720,407 2,788,590

Amortization expense for the year ended March 31, 2010 is $146,073 (2009 - $161,869).

(1) Includes land for 23 National Airports with a net book value of $165,360 (2009 - $165,360).

(2) Includes building and works for 23 National Airports with a net book value of $690,603 (2009 - $778,477).

(3) Includes machinery and equipment for 23 National Airports with a net book value of $634 (2009 - $713).

(a) National Airport System assets

The National Airport System (NAS) assets recorded above consist of the land, buildings, works and infrastructures of 23 Canadian airports.

Transport Canada has leased all of these airports under long-term operating agreements with Canadian Airport Authorities (21) and a municipal government (1). These agreements are in accordance with the federal National Airports Policy, the Public Accountability Principles for Canadian Airport Authorities and the Fundamental Principles for the Creation and Operations of Canadian Airport Authorities, which, in part, entails the transfer of the management, operations and maintenance of certain airports in Canada to Canadian Airport Authorities.

Transport Canada has the right to terminate the operating agreements and assume the responsibility for the management, operation and maintenance of the airport if the leased airports are not operated in accordance with the terms of the respective operating agreements and the Policies and Principles referred to above.

11. Accounts payable and accrued liabilities

(in thousands of dollars)
2010 2009
Payables to third parties 811,557 844,689
Payables to other government departments 114,313 62,011
Accrued salaries 7,541 30,476
Other 4,132 15,630
Total accounts payable and accrued liabilities 937,543 952,806

12. Employee Benefits

  1. Pension benefits: The department’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

    Both the employees and the department contribute to the cost of the plan. The 2009-10 expense amounts to $70,314,000 ($61,246,000 in 2008-09), which represents approximately 1.9 times (2.0 times in 2008-09) the contributions by employees.

    The department’s responsibility with regard to the plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the plan’s sponsor.

  2. Employee severance benefits: The department provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

    (in thousands of dollars)
    2010 2009
    Accrued benefit obligation, beginning of year 99,153 81,653
    Expense for the year (167) 25,146
    Benefits paid during the year (7,326) (7,646)
    Accrued benefit obligation, end of year 91,660 99,153

13. Lease obligations for tangible capital assets

Under the Northumberland Strait Crossing Act, the Government of Canada entered into a long-term capital lease arrangement in 1992 and is obligated to pay an annual subsidy of $41,900,000 to the Strait Crossing Finance Inc., a wholly owned corporation of the Province of New Brunswick, for the construction of the Confederation Bridge. The annual payments made by Transport Canada are due on April 1 and will be used to retire $661,000,000 of 4.5 per cent real rate bonds issued in October 1993 by Strait Crossing Finance Inc. to finance the construction of the bridge. Annual payments made by Transport Canada began in 1997 and will continue until 2033. At such time, the ownership of the bridge will be transferred to the Government of Canada.

On April 1, 2009 an annual payment in the amount of $56,668,000 (2008-09 - $56,066,000) was made. This payment represents payment of principal in the amount of $16,109,000 (2008-09 - $15,407,000) and interest expense of $40,559,000 (2008-09 - $40,659,000).

The department has recorded a capital lease obligation of $622,313,000 as of March 31, 2010 ($638,422,000 at March 31, 2009), based on the present value for the future subsidy payments using an interest rate of 6.06% (2009 – 6.06%).

Future minimum annual lease payments are as follows:

Maturing year (in thousands of dollars)
2010-2011 57,721
2011-2012 55,807
2012-2013 56,650
2013-2014 57,506
2014-2015 and thereafter 1,209,773
Total future minimum lease payments 1,437,457
Less: imputed interest (6.06%) 815,144
Balance of obligations under leased tangible capital assets 622,313

14. Contingent liabilities

  1. Contaminated sites

    Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where Transport Canada is obligated or likely to be obligated to incur such costs. The department has identified approximately 404 sites (527 sites in 2009) where such action is possible and for which a liability of $146,546,829 ($197,684,580 in 2009) has been recorded. The department has estimated additional clean-up costs of $34,911,819 ($125,189,335 in 2009) that are not accrued, as these are not considered likely to be incurred at this time. Transport Canada’s ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by the department in the year in which they become known.

  2. Claims and litigation

    Claims have been made against Transport Canada in the normal course of operations. Legal proceedings for claims totaling approximately $71,935,208 ($107,873,525 in 2009) were still pending at March 31, 2010. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements. An amount of $26,500,000 has been recorded in the financial statements as of March 31, 2010 ($23,050,000 in 2009).

    Transport Canada is named as a defendant in a claim for $22,500,000 filed by the Mohawks of Akwesasne. The action was first initiated in 1976 for unlawful expropriation and breach of fiduciary duty regarding the expropriation of land in the 1950's for the construction of the St Lawrence Seaway and of the Seaway International Bridge. The outcome of this claim is not determinable at this time.

15. Restricted equity of Canada

The department includes in its revenues and expenses certain transactions that legislation requires be earmarked for expenses relating to specified purposes. The department has two such accounts:

  1. The Ship-Source Oil Pollution Fund

    The Ship-Source Oil Pollution Fund (Fund) was established pursuant to section 702 of the Canada Shipping Act, to record levy tonnage payments for oil carried by ships in Canadian waters. Maritime pollution claims, the fee of the fund administrator, and related oil pollution control expenses, are financed out of the Fund.

    (in thousands of dollars)
    2010 2009
    Restricted Ship-source Oil Pollution:
    Opening balance 380,314 376,432
    Revenues for the year 9,526 10,126
    Expenses for the year (969) (6,244)
    Closing balance 388,871 380,314
  2. Fines for transport of dangerous goods

    The Fines for Transport of Dangerous Goods account was established pursuant to the Transportation of Dangerous Goods Act 1992 and related regulations to record fines levied by courts.

    (in thousands of dollars)
    2010 2009
    Restricted - Fines for Transport of Dangerous Goods:
    Opening balance 750 663
    Revenues 72 87
    Expenses (4) -
    Closing balance 818 750
    Restricted equity of Canada 389,689 381,064

16. Contractual obligations

The nature of Transport Canada’s activities results in some large multi-year contracts and obligations whereby the department is committed to making future payments when the services are performed and goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)
2010-11 2011-12 2012-13 2013-14 2014-15
Thereafter
Total
Transfer payments 375,367 328,887 235,492 65,180 62,497 1,067,423
Tangible capital assets 15,100 541 308 - - 15,949
Other goods and services 30,380 8,315 1,386 1,386 543 42,010
Software maintenance agreements 1,157 - - - - 1,157
Operating leases 1,410 1,048 597 - - 3,055
Total 423,414 338,791 237,783 66,566 63,040 1,129,594

17. Related party transactions

Transport Canada is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The department enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, Transport Canada received services, which were obtained without charge from other Government departments as presented below.

During the year Transport Canada received without charge from other departments, accommodation, the employer’s contribution to the health and dental insurance plans, worker's compensation, and legal services. These services without charge have been recognized in the department’s Statement of Operations as follows:

(in thousands of dollars)
2010 2009
Accommodation 36,994 30,440
Contributions covering employer's share of employees' insurance premiums 37,843 35,731
Worker's compensation 3,370 3,329
Legal services 8,564 6,154
Total 86,771 75,654

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada, are not included as an expense in the department 's Statement of Operations.

18. Correction of error

  1. In 2009-2010 Transport Canada indentified Inventories that should have been expensed according to Accounting Policies on Inventories. The correction represents a decrease to inventory in 2008-2009 and prior years. Consequently, the comparative financial statements presented for the year ended March 31, 2009 have been restated. The effect of this adjustment is presented in the table below.

  2. In 2009-2010 Transport Canada indentified Tangible capital assets that should have been expensed according to Accounting Policies on Tangible capital assets. The correction represents a decrease to Tangible capital assets in 2008-2009 and prior years. Consequently, the comparative financial statements presented for the year ended March 31, 2009 have been restated. The effect of this adjustment is presented in the table below.

(in thousands of dollars)
2008-2009 As previously stated Effect of the adjustments Restated amounts
18 (a) 18 (b)
Statement of Operations
Expenses: A Safe Transportation System 451,289 1,907 (3,244) 449,952
Net cost of operations 1,216,310 1,907 (3,244) 1,214,973
Statement of Financial Position
Inventory 62,557 (50,314) 12,243
Tangible capital Assets 2,805,328 (16,738) 2,788,590
Equity of Canada 1,065,595 (50,314) (16,738) 998,543
Statement of Equity of Canada
Equity of Canada, beginning of the year 1,209,787 (48,407) (19,982) 1,141,398
Net cost of operations (1,216,310) (1,907) 3,244 (1,214,973)
Equity of Canada, end of the year 1,065,595 (50,314) (16,738) 998,543
Statement of Cash Flow
Net cost of operations 1,216,310 1,907 (3,244) 1,214,973
Amortization of tangible capital assets (162,708) 839 (161,869)
Increase in inventory and prepaid expenses 5,474 (1,907) 3,567
Acquisitions of tangible capital assets 63,194 2,405 65,599

19. Comparative information

Comparative figures have been reclassified to conform to the current year’s presentation.

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