2002/03 Annual Service Plan Report Ministry of Transportation

Appendix 3 — BC Transportation Financing Authority Financial Statements

Management Report

Year ended March 31, 2003

The consolidated financial statements of the BC Transportation Financing Authority have been prepared by management in accordance with Canadian generally accepted accounting principles.

Management is responsible for the preparation of the financial statements and has established a system of internal control to provide reasonable assurance that assets are safeguarded, transactions are properly authorized, and financial records provide reliable information for the preparation of financial statements.

The Board of Directors is responsible for the review and approval of the financial statements and meets with management and the external auditor to discuss the results of the audit examination and financial reporting matters. The external auditor has full access to the Board of Directors with and without the presence of management.

The Auditor General of British Columbia has performed an independent audit of the financial statements. The Auditor's report outlines the scope of his examination and expresses an opinion on the financial statements of the BC Transportation Financing Authority.

BC Transportation Financing Authority

BC Transportation Financing Authority

Consolidated Balance Sheet

BC Transportation Financing Authority

Consolidated Statement of Earnings and Retained Earnings

BC Transportation Financing Authority

Consolidated Statement of Cash Flows

BC Transportation Financing Authority

Notes to Consolidated Financial Statements

Year ended March 31, 2003

BC Transportation Financing Authority (BCTFA) was established in 1993 as a Crown Corporation of the Province of British Columbia by the enactment of the Build BC Act with a mandate to plan, acquire, construct, hold and improve transportation infrastructure throughout British Columbia.

While BCTFA owns all provincial highways and lands held for future highway development, administration, regulatory responsibility and operational authority for management of the highways, as set out in the Highway Act, are the responsibility of the Minister and the Ministry of Transportation.

Highway Constructors Ltd. (HCL), a wholly owned subsidiary, was formed to provide the labour force and labour relations structure for contractors working on major transportation infrastructure projects. HCL will cease operations when its legal obligation to provide the labour force for contractors is complete. This work is expected to be completed in 2003/2004.

1. Significant accounting policies:

a) Basis of presentation:
As prescribed by Section 18(8) of the Build BC Act, the consolidated financial statements of BCTFA are prepared in accordance with Canadian generally accepted accounting principles.

b) Principles of consolidation:
The consolidated financial statements include the assets, liabilities and operating results of BCTFA and its wholly owned subsidiary, HCL. Inter-company accounts and transactions are eliminated. General and administrative costs of HCL that relate directly to the provision of labour and associated services of BCTFA projects are capitalized as part of the cost of constructing the related infrastructure.

c) Temporary investments and marketable securities:
Temporary investments and marketable securities are carried at the lower of cost and fair market value.

d) Corridor protection:
Corridor protection properties are stated at cost. These properties are held for future highway development. The cost of these properties will become part of work in progress when the applicable projects commence.

e) Capital assets:
Land is stated at cost.

Work in progress consists of direct project expenditures and related financing costs. Capitalization of interest during construction ceases semi-annually when a project is substantially complete and ready to use. Project costs are written down in the year it is determined no tangible asset will result.

Highway infrastructure transferred from the Province of British Columbia is recorded at net book value and, where necessary, estimates were used.

Completed infrastructure is stated at cost. Assets are amortized on a straight-line basis over their estimated useful lives, as follows:

f) Deferred capital contributions:
Deferred capital contributions include the offset for the highway infrastructure transferred to the BCTFA from the Province of British Columbia and other capital contributions received from outside agencies. These contributions are amortized to income at the same rate as the related highway infrastructure is amortized to expense.

g) Federal and provincial taxes:
Both the BCTFA and HCL are exempt from corporate income taxes. HCL is subject to the Goods and Services Tax.

h) Bond discounts, premiums and issue costs:
Bond discounts and premiums are amortized using the effective yield method over the term of the related debt. Fiscal agency fees are capitalized in the year incurred. Other issue costs are deferred and written off on a straight-line basis over the term of the related debt.

i) Related party transactions:
The BCTFA is related through common ownership to all Province of British Columbia ministries, agencies and crown corporations. Transactions with these entities, unless disclosed separately in these financial statements, are generally considered to be in the normal course of operations, and are recorded at the exchange amount.

j) Use of estimates: The presentation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.

2. Cash and temporary investments:

Cash and temporary investments at the end of the period consist of deposits with banks and investments in money market instruments.

($ 000s)	2003	2002
Cash	911	2,379
Temporary investments	3,125	2,255
	4,036	4,634

3. Marketable securities:

As part of the Ballard Power Systems Inc. and Province of BC Fuel Cell Program Agreement, BCTFA holds 28,250 shares with a market value of $0.4 million at March 31, 2003 (2002 — $1.4 million).

BCTFA also holds 499,720 share purchase warrants in Hillsborough Resources Ltd. These warrants expire on October 5, 2005. Each warrant entitles the BCTFA to purchase a common share at a price of $0.36. The market value at March 31, 2003 was $0.285 per share (2002 — $0.56).

4. Assets held for resale:

BCTFA, on behalf of the Province, purchased the Bombardier Centre for Advanced Transit Systems pursuant to a contractual commitment between Bombardier and Rapid Transit Project 2000 Ltd. The contract set out certain circumstances under which Bombardier could unilaterally elect to sell the Centre at a fixed amount to the Province. The assets are being held for resale in 2003/2004 and, based on an appraisal, were written down to a net realizable value of $8.0 million at March 31, 2003. The write down amount has been presented as an extraordinary item.

5. Long term receivables:

Long term receivables are due from partners in economic development projects. Interest rates range from 0% to 9.325% with terms from 8 to 17 years.

6. Corridor protection:

A corridor protection fund has been established to support the acquisition of properties in advance of need as part of a corridor protection strategy. The assessed value of corridor protected lands at March 31, 2003 was $251.8 million.

($ 000s)	2003	2002
Cash	4,006	4,006
Properties — Purchased by BCTFA	5,624	5,624
	9,630	9,630
Properties — Transferred from the Province	23,877	24,193
	33,507	33,823

7. Capital assets:

($ 000s)			2003	2002
	Cost	Accumulated Amortization	Net Book Value	Net Book Value
Land	782,820		782,820	781,683
Work in progress	106,487		106,487	127,046
Completed infrastructure	6,299,455	1,060,720	5,238,735	5,242,132
	7,188,762	1,060,720	6,128,042	6,150,861

8. Capital debt and sinking funds:

($ 000s)	2003	2002
Bonds and notes payable to the Province of British Columbia
Fixed-rate debt:
Various issues at an average effective interest rate of 6.444% (2002 — 6.582%) maturing at various times to 2039.	1,966,227	1,647,499
Variable-rate debt:
Various issues at an average effective interest rate of 2.606% (2002 — 3.602%), maturing at various times to 2027	869,464	992,927
	2,835,691	2,640,426
Sinking funds on deposit with the Province of British Columbia	(174,936)	(126,587)
Net capital debt	2,660,755	2,513,839

At March 31, 2003, the coupon rates on fixed-rate debt ranged from 5.70% to 9.50% (2002 — 5.70% to 9.50%). All foreign currency debt has been swapped to Canadian dollars.

Sinking funds are established to retire debt. Projected sinking fund contributions for each of the next five years are (in 000s):

2004     $61,080

2005     $69,506

2006     $78,295

2007     $86,749

2008     $88,670

The Minister of Finance and Corporate Relations is the fiscal agent of the BCTFA. Debt borrowed through the provincial government's fiscal agency program carries a provincial guarantee.

Pursuant to Section 23(1) of the Build BC Act, BCTFA may borrow the sums of money considered necessary to carry out its mandate. At March 31, 2003, the BCTFA was authorized to borrow up to $2,743 million, net of sinking funds.

9. Capital Contributions:

($ 000s)		Opening Balance	Additions/ (Disposal)	Amortization	Closing Balance
Deferred Capital Contributions		3,016,733	12,138	(187,457)	2,841,414
Contributed Surplus		520,424	(1,212)		519,212
Total Contributions		3,537,157	10,926	(187,457)	3,360,626
Consisting of:
	Provincial government	3,482,802	309	(186,589)	3,296,522
	Federal government	17,874	10,572		28,446
	Municipal governments	8,049	—	(223)	7,826
	Other	28,432	45	(645)	27,832
		3,537,157	10,926	(187,457)	3,360,626

Contributed surplus represents the offset for land contributed to BCTFA by the province of British Columbia and is not amortized.

10. Dedicated taxes:

Under the Build BC Act, the Province of British Columbia collects gasoline and motor fuel taxes on behalf of BCTFA under Section 13 of the Motor Fuel Tax Act (3.25 cents per litre, increased by 3.5 cents March 1, 2003 to 6.75 cents per litre), and car rental taxes under Section 26 of the Social Services Tax Act ($1.50 per car rental day).

The increase on March 1, 2003 of 3.5 cents per litre resulted in additional revenues of $19.6 million for Fiscal 2002/2003. These funds are dedicated to future expenditures under the Transportation Investment Plan.

($ 000s)		2003	2002
Tax revenues earned:
	Motor Fuel Tax Act	212,224	185,724
	Social Services Tax Act	11,000	11,000
		223,224	196,724

11. HCL operations:

HCL is the employer of the construction labour force on various transportation infrastructure projects. HCL recovers its construction labour costs from the construction contractors. Payments and recoveries in the year ended March 31, 2003 were $5.8 million (2002 — $56.1 million), made up of $0.8 million from contractors for non-BCTFA projects (Rapid Transit Project 2000 Ltd.) and $5.0 million from contractors on BCTFA projects. Construction labour costs on BCTFA projects are capitalized as part of the cost of constructing the related infrastructure.

12. Other revenue:

($ 000s)	2003	2002
Sierra Yoyo Desan Road tolls (Note 14)	2,830	2,775
Properties	3,460	3,329
Economic development projects	1,130	1,014
Other	248	1,027
	7,668	8,145

13. Grant programs:

The BCTFA provided grants during the year under the following programs:

• Newly Incorporated Territory Program — road improvements to fulfil outstanding commitments under the former provincial Incorporation Assistance Program.
• Skytrain Millennium Line — a portion of an interim financial contribution advanced for start-up costs in 2002 was not required and was returned in 2003.

14. Sierra Yoyo Desan Road:

In 1999, BCTFA entered into a five year contract with Walter Construction (Canada) Ltd. for improvements to the Sierra Yoyo Desan Road, an industrial access road in north-eastern BC primarily serving petroleum, forest and pipeline companies. Costs are recovered from an annual contribution by the Ministry of Energy and Mines and from tolls levied on industrial users. Recovered costs are included in Other Revenue.

15. Ministry of Transportation services:

In 2003, $2.8 million (2002 — $15.4 million) was paid to the Ministry of Transportation for general services not specifically attributable to individual capital construction projects.

In addition to the services above, the Ministry of Transportation provided BCTFA the non-monetary services of the use of Ministry staff and related overhead estimated at $0.25 million.

16. Interest expense:

17. Write down of project costs and disposal of assets:

Project costs of $10.4 million for the Sea-to-Sky Highway were written off in 2002/2003. These costs relate to aspects of the project that will not proceed.

In 2003, BCTFA transferred highways to recently incorporated communities and received government approval to transfer highways to local governments where the highways no longer served a provincial need. The net book value written off for these transfers is $2.4 million.

18. Commitments:

At the end of each year, the BCTFA has a number of general commitments outstanding for ongoing infrastructure projects. Such future expenditures are charged to the capital program of the year in which the work or service is performed. The approved capital program for 2003/04 is $297.8 million.

19. Contingencies:

Contingent liabilities of $79.6 million remain after deducting the estimated settlement expense currently accrued from gross claims and environmental issues outstanding for capital projects.

20. Obligations under Capital Leases:

Effective March 28, 2003, the BCTFA has assumed obligations under capital leases for the M.V. Queen of Surrey and the M.V. Queen of Oak Bay. These obligations are fully offset by irrevocable trust funds with the Province of British Columbia.

21. Subsequent Events:

Bill 18 (Coastal Ferry Act), passed on March 26, 2003, provided for the restructuring of BC Ferries. In April, 2003 the province retained ownership of the ferry terminal lands by having BCTFA purchase them from British Columbia Ferry Corporation (BCFC) at a fair market value of $74 million and subsequently lease these assets back to BCFC for a term of 55 years.

On May 6, 2003, the province announced its intention to seek a private-sector investor who will assume responsibility for the operation, maintenance and rehabilitation of the Coquihalla Highway between Merritt and Hope. Under the new arrangement, the BCTFA will retain ownership of the Coquihalla Highway roadbed and right-of-way. The financial effect of this proposed transaction on the operations of the BCTFA is not determinable at this time.

22. Comparative Change:

Where necessary prior years figures have been restated to conform to the current year's presentation.