Financial Statements of Transport Canada - 2010-2011

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(Unaudited)
For the year ended March 31, 2011

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, 2011, 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 Transport Canada’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in Transport Canada’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 Transport Canada; 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, 2011 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 Transport Canada’s system of internal control is reviewed by the work of internal audit staff, who conduct periodic audits of different areas of Transport Canada’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 29, 2011

Original signed by

André Morency,
Chief Financial Officer
Ottawa, Canada

August 29, 2011

Statement of Financial Position (Unaudited)
At March 31

(in thousands of dollars)
2011 2010
(Restated
– Notes 19 & 20)
Assets
Financial assets
Due from Consolidated Revenue Fund 1,071,346 885,460
Accounts receivable and advances (Note 4) 39,869 31,719
Loans receivable (Note 5) 1,646 13,349
Rent receivable (Note 6) 34,784 42,106
Total financial assets 1,147,645 972,634
Non-financial assets
Prepaid expenses 2,015 2,484
Inventory (Note 7) 12,822 12,350
Tangible capital assets (Note 8) 2,632,399 2,720,407
Total non-financial assets 2,647,236 2,735,241
Total 3,794,881 3,707,875
Liabilities and Equity of Canada
Liabilities
Accounts payable and accrued liabilities (Note 9) 1,116,733 958,679
Vacation pay and compensatory leave 25,653 25,451
Deferred revenue (Note 10) 3,620 3,693
Employee future benefits (Note 11) 92,950 91,660
Lease obligations for tangible capital assets (Note 12) 605,471 622,313
Environmental remediation and contingent liabilities
(Note 13)
196,359 173,047
Total liabilities 2,040,786 1,874,843
Equity of Canada (Note 14) 1,754,095 1,833,032
Total 3,794,881 3,707,875

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

Original signed by

Yaprak Baltacıoğlu,
Deputy Minister
Ottawa, Canada

August 29, 2011

Original signed by

André Morency,
Chief Financial Officer
Ottawa, Canada

August 29, 2011

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

(in thousands of dollars)
2011 2010
(Restated
– Notes 19 & 20)
Expenses (Note 17)
An Efficient Transportation System 673,751 567,297
A Safe Transportation System 480,123 472,216
Internal Services 250,038 243,607
A Clean Transportation System 85,020 14,416
A Secure Transportation System 77,220 117,378
Ship-Source Oil Pollution Fund and other programs (Note 14) 5,926 973
Total expenses 1,572,078 1,415,887
Revenues (Note 17)
An Efficient Transportation System 300,793 292,453
A Safe Transportation System 62,240 62,235
Internal Services 13,943 12,828
A Secure Transportation System 80 112
Ship-Source Oil Pollution Fund and other programs (Note 14) 9,421 9,598
Total revenues 386,477 377,226
Net cost of operations 1,185,601 1,038,661

Segmented information (Note 17)

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

Statement of Equity of Canada (Unaudited)
At March 31

(in thousands of dollars)
2011 2010
(Restated
– Note 19 & 20)
Equity of Canada, beginning of year 1,833,032 1,819,922
Net cost of operations (1,185,601) (1,038,661)
Net cash provided by Government 833,079 982,135
Change in due from the Consolidated Revenue Fund 185,886 (17,135)
Services provided without charge by other departments (Note 16a) 87,699 86,771
Transfer from (to) other government departments (Note 18)* - -
Equity of Canada, end of year 1,754,095 1,833,032

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

* During the year Transport Canada transferred its $2,492,000 investment in Parc Downsview Park to the Privy Council Office. The resulting decrease in the investment balance has been accounted for in the restated opening balance of the equity account. See Note 18 and 19 for details.

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

(in thousands of dollars)
2011 2010
(Restated
– Note 19 & 20)
Operating activities
Net cost of operations 1,185,601 1,038,661
Non-cash items:
Amortization of tangible capital assets (Note 8) (155,444) (146,073)
Services provided without charge by other departments (Note 16) (87,699) (86,771)
Loss on disposal and write-down of tangible capital assets (3,884) (11,511)
Prior years’ work-in-progress expensed (12,813) (14,330)
Adjustments of previous years accounts payable 10,602 5,361
Other 343 (5,348)
Variations in Statement of Financial Position:
Variation in accounts receivables and advances 8,150 9,614
Variation in loans receivable (11,703) 834
Variation in rents receivable (7,322) (7,323)
Variation in prepaid expenses (469) (325)
Variation in inventory 472 107
Variation in accounts payables and accrued liabilities (158,054) 22,551
Variation in vacation pay and compensatory leave (202) 3,008
Variation in deferred revenue 73 (1,328)
Variation in employee future benefits (1,290) 7,493
Variation in environmental remediation and contingent liabilities (23,312) 47,688
Cash used in operating activities 743,049 862,308
Capital investing activities
Acquisitions of tangible capital assets 96,316 92,567
Transfer of tangible capital assets with no monetary impact (11,887) 14,317
Proceeds from disposal of tangible capital assets (11,241) (3,166)
Cash used in capital investing activities 73,188 103,718
Financing activities
Lease payments for tangible capital assets 16,842 16,109
Cash used in financing activities 16,842 16,109
Net cash provided by Government of Canada 833,079 982,135

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

Notes to the Financial Statements (Unaudited)
For the Year Ended March 31

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

These financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

  1. Parliamentary authorities – Transport Canada is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to Transport Canada do not parallel financial reporting according to generally accepted accounting principles since authorities 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 authorities from Parliament. Note 3 provides a 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 Transport Canada is deposited to the CRF and all cash disbursements made by Transport Canada 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 Government.

  3. Amounts due from/to the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that Transport Canada is entitled to draw from the CRF without further appropriations to discharge its liabilities.

  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 revenue takes place.
    • Revenues that have been received but not yet earned are recorded as deferred revenues.
  5. Expenses – Expenses are recorded on the accrual basis:

    • 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, provided that the transfer is authorized and a reasonable estimate can be made.
    • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
    • Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans, legal services and worker's compensation are recorded as operating expenses at their estimated cost.
  6. Employee future benefits

    • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. Transport Canada’s contributions to the plan are charged to expenses in the year incurred and represent Transport Canada’s total obligation to the Plan. Current legislation does not require Transport Canada to make contributions for any actuarial deficiencies of the Plan.
    • Severance benefits: Employees are entitled to severance benefits 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 and loans receivables are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.

  8. 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.

  9. Environmental remediation liabilities – Environmental remediation 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 Transport Canada becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of Transport Canada’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.

  10. Inventory – Inventory consists of parts, material and supplies held for future program delivery and not intended for resale. Inventories, other than serialized inventory items, are valued at average cost. Serialized inventory items 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. If there is no longer any service potential, inventory is valued at the lower of cost or net realizable value.

  11. 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 at year-end. Gains and losses resulting from foreign currency transactions are included in miscellaneous expenses on the statement of operations.

  12. 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. Transport Canada 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 capitalization threshold.

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

    Asset Class 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
    Computer hardware 3 to 5 years
    Computer software 3 years
    Vehicles:
    Ships and boats 10 to 20 years
    Aircraft 6 to 20 years
    Motor vehicles 6 to 35 years
    Leasehold improvements Lesser of the remaining term of 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

    Assets under construction are recorded in the applicable capital asset class in the year they become available for use and are not amortized until they become available for use.

  13. Measurement uncertainty – The preparation of these financial statements 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 allowance for doubtful accounts, contingent liabilities, environmental remediation 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 authorities

Transport Canada receives most of its funding through annual Parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, Transport Canada 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 following tables:

(a) Reconciliation of net cost of operations to current year authorities used:

(in thousands of dollars)
2011 2010
(Restated)
Net cost of operations 1,185,601 1,038,661
Adjustments for items affecting net cost of operations but not affecting authorities:
Amortization of tangible capital assets (155,444) (146,073)
Loss on disposal and write-downs of tangible capital assets (3,884) (11,511)
Prior years’ work-in-progress expensed (12,813) (14,330)
Services provided without charge by other government departments (87,699) (86,771)
Variation in vacation pay and compensatory leave (202) 3,008
Variation in employee future benefits (1,290) 7,493
Variation in allowance for environmental remediation and contingent liabilities (23,312) 47,688
Variation of the St-Lawrence Seaway Capital Fund Trust Deficit (4,424) 7,288
Refund of prior years' expenditures 2,173 5,838
Revenue not available for spending 295,908 35,681
Adjustments of previous years accounts payable 10,602 5,361
Provision for valuation of loans (10,322) -
Expenditures not affecting authorities (specified purposes) (5,925) (973)
Other (2 245) (4,375)
Total adjustments for items affecting net cost of operations but not affecting authorities 1,186,724 886,985
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets 96,316 92,567
Transfer of tangible capital assets with no monetary impact (11,887) 14,317
Variation in prepaid expenses (469) (325)
Variation in inventory 472 107
Variation in lease obligations for tangible capital assets 16,842 16,109
Other - 1,956
Total adjustments for items not affecting net cost of operations but affecting authorities 101,274 124,731
Current year authorities used 1,287,998 1,011,716

(b) Authorities provided and used

(in thousands of dollars)
2011 2010
Authorities provided
Vote 1 –Operating expenditures 672,244 448,660
Vote 5 – Capital expenditures 225,388 182,948
Vote 10 – Transfer payments 909,939 740,606
Statutory amounts 150,325 205,392
Total authorities provided 1,957,896 1,577,606
Less:
Authorities available for future years (4,683) (1,137)
Lapsed authorities: Operating (25,276) (49,710)
Lapsed authorities: Capital (140,960) (76,317)
Lapsed authorities: Transfer payments (498,979) (437,844)
Other lapsed amounts - (882)
Current year authorities used 1,287,998 1,011,716

4. Account receivable and advances

The following table presents details of Transport Canada’s accounts receivable and advances balances:

(in thousands of dollars)
Accounts Receivable and Advances 2011 2010
Receivable from other government departments 18,244 13,965
Receivable from external parties 23,581 19,350
Employee advances 163 325
Total accounts receivable and advances before allowance for doubtful accounts 41,988 33,640
Allowance for doubtful accounts on receivables from external parties (2,119) (1,921)
Total accounts receivable and advances 39,869 31,719

5. Loans receivable

The following table presents details of Transport Canada’s loans and repayable contributions receivable balances:

(in thousands of dollars)
Loans and repayable contributions receivable balances 2011 2010
Saint John Harbour Bridge Authority 22,647 22,647
Victoria Harbour 2,322 2,364
St. Lawrence Seaway Management Corporation 77 77
Total Loans receivable before allowance and discounts on loans 25,046 25,088
Less:
Allowance on loans (11,735) -
Discounts on loans (11,665) (11,739)
Total Loans receivable 1,646 13,349
  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 ($10,910,850 at March 31, 2010). During the year, no discount was taken since a full valuation allowance was established to reflect Transport Canada's best estimate of the loss on the realization of this loan.

  2. Victoria Harbour

    The Victoria Harbour loan receivable relates to the sale of a parcel of Victoria Harbour land for $2,578,469. A discount of $753,745 is recorded to reflect the concessionary nature of the loan ($828,133 at March 31, 2010). A payment of $42,720 was received in fiscal year 2010-11 ($42,720 in 2009-10).

  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%. The mortgagor is in negotiations with Transport Canada and Justice Canada with respect to the loan, which was repayable March 2004.

6. 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 and a municipal government.

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 for eight of the nine 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 $7,322,682 were received in fiscal year 2010-11 ($7,322,682 in 2009-10). Rent receivable was $34,783,895 at March 31, 2011 ($42,106,577 at March 31, 2010).

7. Inventory

The cost of consumed inventory recognized as an expense in the Statement of Operations is $ 3,603,588 in 2010-2011 ($5,568,702 in 2009-2010).

8. Tangible capital assets

(in thousands of dollars)
Tangible capital assets Cost Accumulated Amortization 2011
Net book
value
2010
Net book
Value (Restated – Note 19)
Opening balance (Restated – Note 19) Acquisitions Transfer Disposals
and
write-offs
Closing balance Opening balance (Restated – Note 19) Amortization Disposals
and
write-offs
Closing balance
Land (1) 254,347 15,601 - 2,896 267,052 - - - - 267,052 254,347
Buildings and works (2) 3,759,427 11,880 45,679 34,357 3,782,629 2,387,984 107,089 24,727 2,470,346 1,312,283 1,371,443
Machinery and equipment (3) 178,573 5,807 6,306 6,080 184,606 128,094 9,190 4,821 132,463 52,143 50,479
Vehicles 739,080 4,949 16,100 16,905 743,224 543,846 27,429 13,986 557,289 185,935 195,234
Leasehold improvements 17,447 16 9,098 2 26,559 10,857 3,548 - 14,405 12,154 6,590
Work-in-progress 128,576 58,063 (77,183) 12,174 97,282 - - - - 97,282 128,576
Confederation Bridge 818,820 - - - 818,820 105,082 8,188 - 113,270 705,550 713,738
Total 5,896,270 96,316 0 72,414 5,920,172 3,175,863 155,444 43,534 3,287,773 2,632,399 2,720,407

Amortization expense for the year ended March 31, 2011 is $155,444 (2010 - $146,073).

(1) Includes land for 23 National Airports with a net book value of $173,666 (2010 - $165,360).

(2) Includes building and works for 23 National Airports with a net book value of $618,025 (2010 - $690,603).

(3) Includes machinery and equipment for 23 National Airports with a net book value of $560 (2010 - $634).

The transfer column represents assets that were put into use in the year and have been transferred to other capital asset classes as applicable.

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 and a municipal government. 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.

9. Accounts payable and accrued liabilities

The following table presents details of Transport Canada’s accounts payable and accrued liabilities:

(in thousands of dollars)
Accounts payable and accrued liabilities 2011 2010
Accounts payables to external parties 993,742 811,557
Accounts payables to other government departments and agencies 56,584 114,313
Accrued salaries 10,059 7,541
Other accounts payable and accrued liabilities 56,348 25,268
Total Accounts payable and accrued liabilities 1,116,733 958,679

10. Deferred revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from external parties which are restricted to fund the expenditures related to specific research projects and amounts received for fees prior to services being performed. Revenue is recognized in the period that these expenditures are incurred or the service is performed. Details of the transactions related to this account are as follows:

(in thousands of dollars)
2011 2010
Shared-cost agreements — Transportation research and development *
Opening balance 2,374 1,138
Amounts received 1,006 1,236
Revenue recognized (1,774) (-)
Closing balance 1,606 2,374
Others (non-specified purpose)
Opening balance 1,319 1,227
Amounts received 1,340 1,265
Revenue recognized (645) (1,173)
Closing balance 2,014 1,319
Closing balance 3,620 3,693

* A shared-cost agreement is a common undertaking whereby the parties involved agree to participate in carrying out a project. This may involve the sharing of resources and the purchase of goods or services. The Transportation Development Center utilizes joint cost sharing agreements with private and other government organizations on Research and Development projects related to transportation. The major themes include: rail, aviation safety and surface transportation.

11. Employee future benefits

  1. Pension benefits

    Transport Canada’s employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. 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 Transport Canada contribute to the cost of the plan. The 2010-11 expense amounts to $68,257,000 ($70,314,000 in 2009-10), which represents approximately 1.9 times (1.9 times in 2009-10) the contributions by employees.

    Transport Canada’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. Severance benefits

    Transport Canada 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 authorities. Information about the severance benefits, measured as at March 31, is as follows:

    (in thousands of dollars)
    Severance Benefits 2011 2010
    Accrued benefit obligation, beginning of year 91,660 99,153
    Expense for the year 9,688 (167)
    Benefits paid during the year (8,398) (7,326)
    Accrued benefit obligation, end of year 92,950 91,660

12. Lease obligation 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 indexed to the annual inflation rate 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 $661,542,613 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, 2010 an annual payment in the amount of $57,721,021 (2009-10 - $56,668,074) was made. This payment represents payment of principal in the amount of $16,842,083 (2009-10 - $16,108,709) and interest expense of $40,878,938 (2009-10 - $40,559,364).

Transport Canada has a capital lease obligation of $605,470,877 as at March 31, 2011 ($622,312,961 as at March 31, 2010), based on the present value for the future payments using an interest rate of 6.06% (2010 – 6.06%).

The obligations related to the upcoming years include the following:

Maturing year (in thousands of dollars)
2011-2012 59,075
2012-2013 56,650
2013-2014 57,506
2014-2015 58,375
2015-2016 and thereafter 1,151,398
Total future minimum lease payments 1,383,004
Less: imputed interest (6.06%) 777,533
Balance of obligations under leased tangible capital assets 605,471

13. Environmental remediation and contingent liabilities

Environmental remediation and contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. They are grouped into two categories as follows:

  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. Transport Canada has identified approximately 406 sites (404 sites in 2010) where such action is possible. A liability of $164,678,256 for 114 sites ($146,546,829 in 2010 for 149 sites) has been recorded in accrued liabilities. Transport Canada has estimated additional clean-up costs of $16,545,936 for 18 sites ($34,911,819 in 2010 for 24 sites) 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 remediation liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by Transport Canada in the year in which they become likely and are reasonably estimable.

  2. Claims and litigation

    Claims have been made against Transport Canada in the normal course of operations. These claims include items with pleading amounts and others for which no amount is specified. Based on Transport Canada’s assessment, legal proceedings for claims estimated at $8,000,208 ($43,035,208 in 2009-2010) were pending at March 31, 2011. 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 $31,680,677 has been recorded in the financial statements as of March 31, 2011 ($26,500,000 in 2010).

14. Restricted equity of Canada

Transport Canada includes in its revenues and expenses certain transactions that legislation requires be earmarked for expenses relating to specified purposes. Transport Canada 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)
    2011 2010
    Restricted Ship-Source Oil Pollution:
    Balance, beginning of year - Restricted 388,871 380,314
    Revenues 9,389 9,526
    Expenses (5,735) (969)
    Balance, end of year - Restricted 392,525 388,871
  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)
    2011 2010
    Restricted - Fines for Transport of Dangerous Goods:
    Balance, beginning of year - Restricted 818 750
    Revenues 32 72
    Expenses (191) (4)
    Balance, end of year - Restricted 659 818
    Restricted equity of Canada 393,184 389,689
    Unrestricted equity of Canada, end of year 1,360,911 1,443,342
    Total equity of Canada – end of year 1,754,095 1,833,031

15. Contractual obligations

The nature of Transport Canada’s activities can result in some large multi-year contracts and obligations whereby Transport Canada will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)
Contractual obligations 2011-12 2012-13 2013-14 2014-15 2015-16
Thereafter
Total
Transfer payments 348,308 264,529 149,875 33,891 65,314 861,917
Tangible capital assets 5,306 1,290 213 - - 6,809
Other goods and services 24,198 7,182 2,089 1,616 1,999 37,084
Software maintenance agreements 254 - - - - 254
Operating leases 864 864 864 504 - 3,096
Building retrofits 518 - - - - 518
Total 379,448 273,865 153,041 36,011 67,313 909,678

16. Related party transactions

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

  1. Common services provided without charge by other government departments:

    During the year Transport Canada received services without charge from certain common service organizations, related to accommodation, legal services, the employer’s contribution to the health and dental insurance plans and worker's compensation coverage. These services provided without charge have been recorded in Transport Canada’s Statement of Operations as follows:

    (in thousands of dollars)
    2011 2010
    Accommodation 38,244 36,994
    Employer's contribution to the health and dental insurance plans 38,146 37,843
    Worker's compensation 3,197 3,370
    Legal services 8,112 8,564
    Total 87,699 86,771

    The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General are not included in Transport Canada’s Statement of Operations.

  2. Administration of programs on behalf of other government departments

    1. Canada Strategic Infrastructure Fund (CSIF) and Border Infrastructure Fund (BIF)

      Under a memorandum of understanding signed with Infrastructure Canada on January 31, 2003, Transport Canada administers the Canada Strategic Infrastructure Fund (CSIF) and the Border Infrastructure Fund (BIF). During the year, Transport Canada incurred expenses of $217,079,438 ($308,833,717 in 2009-10) related to CSIF and $67,783,158 ($80,763,281 in 2009-10) related to BIF on behalf of Infrastructure Canada. These expenses are reflected in the financial statements of Infrastructure Canada and are not recorded in these financial statements.

    2. Building Canada Fund (BCF)

      Under a memorandum of understanding signed with Infrastructure Canada on April 25, 2008, Transport Canada administers the Building Canada Fund (BCF). During the year, Transport Canada incurred expenses of $286,443,112 ($92,672,371 in 2009-10) related to BCF on behalf of Infrastructure Canada. These expenses are reflected in the financial statements of Infrastructure Canada and are not recorded in these financial statements.

  3. Other transactions with related parties

    (in thousands of dollars)
    2011 2010
    Expenses – Other Government departments and agencies 96,522 101,390
    Revenues – Other Government departments and agencies 47,157 49,954

17. Segmented Information

Presentation by segment is based on Transport Canada's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in Note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:

(in thousands of dollars)
Expenses
An Efficient Transportation System A Safe Transportation System Internal Services A Clean Transportation System A Secure Transportation System Ship-Source Oil pollution fund and other programs 2011 2010 (Restated – Note 19 & 20)
Other levels of governments within Canada 214,966 19,927 - 823 - - 235,716 134,202
Non-profit organizations 1,342 4,278 29 1,596 (2,264) - 4,981 48,732
Industry 93,856 5,429 - 2,080 820 - 102,185 116,626
Individuals 511 (2) - 10 - - 519 483
Other Countries and International Organizations 72 30 - - - - 102 183
Total transfer payments 310,747 29,662 29 4,509 (1,444) - 343,503 300,226
Salaries and employee benefits 47,985 310,062 136,298 17,290 55,204 - 566,839 553,274
Amortization of tangible capital assets 124,322 16,724 11,310 643 2,445 - 155,444 146,073
Professional and special services 36,783 38,578 51,221 54,926 9,965 - 191,473 126,200
Net loss on disposal of tangible capital assets 10,233 (3,951) (2,246) (154) 2 - 3,884 11,511
Interest on capital lease 41,466 - - - - - 41,466 40,879
Travel and relocation 2,991 22,838 2,785 1,045 3,999 - 33,658 33,531
Equipment repair and maintenance 15,009 24,442 16,867 206 1,704 - 58,228 61,272
Accommodation (Note 16) 3,255 19,914 10,046 1,230 3,799 - 38,244 36,994
Utilities, materials and supplies 3,382 13,458 2,146 104 506 - 19,596 20,801
Telecommunications 463 2,484 6,673 52 424 - 10,096 7,202
Payments in lieu of taxes 5,114 1,144 621 - 10 - 6,889 7,092
Information services – communications 564 2,418 1,167 719 264 - 5,132 5,519
Rentals 532 3,363 1,910 371 163 - 6,339 6,104
Damage and other claims against the Crown 1,928 1,459 29 42 8 - 3,466 265
Postage 106 2,018 654 81 227 - 3,086 3,555
Pollution control (Note 14) - - - - - 5,926 5,926 973
Statutory Payment to St.Lawrence Seaway Management 68,425 - - - - - 68,425 55,712
Other 446 (4,490) 10,528 3,956 (56) - 10,384 (1,296)
Total operating expenses 363,004 450,461 250,009 80,511 78,664 5,926 1,228,575 1,115,661
Total expenses 673,751 480,123 250,038 85,020 77,220 5,926 1,572,078 1,415,887
Revenues
Sales of goods and services:
Airport rent 243,962 - - - - - 243,962 250,095
Monitoring and enforcement revenues 14,755 2,285 11,729 - - - 28,769 26,456
Rentals and concessions 15,503 22,398 1,160 - 80 - 39,141 36,946
Aircraft maintenance and flying services - 35,938 - - - - 35,938 38,475
Transport facilities user fees 14,156 200 - - - - 14,356 13,868
Miscellaneous 12,133 1,419 1,054 - - - 14,606 546
Pollution control revenues
(Note 14)
- - - - - 9,421 9,421 9,598
Interest 75 - - - - - 75 925
Research and development 209 - - - - - 209 317
Total revenues 300,793 62,240 13,943 - 80 9,421 386,477 377,226
Net cost from continuing operations 372,958 417,883 236,095 85,020 77,140 (3,495) 1,185,601 1,038,661

18. Transfers from / to other government departments

Effective August 6, 2010, Transport Canada transferred responsibility for the Canada Lands Company Limited (CLCL) to the Privy Council Office in accordance with the Order-in-Council (P.C. 2010-1068), including the stewardship responsibility for the assets related to CLCL along with CLCL's three wholly owned subsidiaries, Canada Lands Company Limited, Parc Downsview Park and the Old Port of Montreal Corporation. Accordingly, Transport Canada transferred the following assets related to the Canada Lands Company Limited to the Privy Council Office on August 6, 2010.

(in thousands of dollars)
Assets
Investment – Downsview Park 2,492
Adjustment to Equity of Canada (see note under Statement of Equity) (2,492)

19. Adoption of new accounting policies

During the year, Transport Canada adopted the revised Treasury Board accounting policy TBAS 1.2: Departmental and Agency Financial Statements which is effective for Transport Canada for the 2010-2011 fiscal year. The major change in the accounting policies of Transport Canada required by the adoption of the revised TBAS 1.2 is the recording of amounts due from the Consolidated Revenue Fund as an asset on the Statement of Financial Position.

The adoption of the new Treasury Board accounting policies have been accounted for retroactively. The table under (note 20) shows the impact on the comparatives for 2009-10.

(in thousands of dollars)
Impact on Statement of Financial Position
Due from Consolidated Revenue Fund 885,459
Investment (52,792)
Impact on Equity of Canada
Due from Consolidated Revenue Fund (885,459)
Investment 52,792

20. Correction of error

St. Lawrence Seaway Capital Fund Trust Deficit:

During fiscal 2010-2011 Transport Canada recorded a $25.6M liability at year end, representing the accumulated deficiency of the St. Lawrence Seaway Capital Fund Trust, which is used to cover specific operating and capital expenditures of the St. Lawrence Seaway Management Corporation (SLSMC).

As of March 31, 2011, there was a $25.6M accumulated net asset deficiency recorded on the balance sheet of the St. Lawrence Seaway Capital Fund Trust (of which $4.4M relates to the current fiscal year). This is now being offset by a corresponding receivable “Due from Transport Canada”.

The current year portion of accumulated deficiency ($4.4M) was recorded as a liability in the 2010-2011 financial statement while a restatement of prior years’ financial statements is presented to reflect the department’s obligation to fund the Trust’s prior years’ accumulated deficits.

Impact of Note 19 & 20 on the comparatives for 2009-2010
(in thousands of dollars)
2009-2010
As previously stated
Effect of changes 2009-2010
Restated
Note 19 Note 20
Statement of Financial Position
Financial Assets 139,966 832,667 - 972,633
Accounts payable and accrued liabilities (937,544) - (21,135) (958,679)
Equity of Canada (1,021,500) (832,667) 21,135 (1,833,032)
Statement of Operations
Expenses: An Efficient Transportation System* 574,585 - (7,288) 567,297
Net cost of operations 1,045,949 - (7,288) 1,038,661
Statement of Equity of Canada
Equity of Canada, beginning of the year (1,015,678) (832,667) 28,423 (1,819,922)
Net cost of operations 1,045,949 - (7,288) 1,038,661
Equity of Canada, end of the year (1,021,500) (832,667) 21,135 (1,833,032)
Statement of Cash Flow
Net cost of operations 1,045,949 - (7,288) 1,038,661
Decrease (increase) in liabilities 16,943 - 7,288 24,231

* Comparative figure has been reclassified to conform to the current year’s presentation; previously stated at $580,557

21. Comparative information

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

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