BC FERRIES RELEASES THIRD QUARTER RESULTS

VICTORIA, Feb. 23 /CNW/ - British Columbia Ferry Services Inc. (BC Ferries) released its third quarter results today for fiscal 2010/11. The Company reported a net loss of $12.4 million for the three months ended December 31, 2010, compared to a net loss of $20.4 million in the same quarter last year. The current year third quarter results included a one-time gain of $9.3 million from the sale of the Company's former head office building. Net earnings for the nine-month period ended December 31, 2010 were $42.8 million, up from $40.2 million for the same period in the previous year.

Quarterly results are affected by the seasonality of leisure travel patterns. The second quarter, covering the summer period, experiences the highest traffic levels and highest net earnings. The third and fourth quarters reflect a seasonal reduction in traffic as well as higher refit and maintenance expenses. 

For the three months ended December 31, 2010, total revenue increased by $2.4 million to $162.3 million compared to the same period the year prior. Total revenue for the nine months ended December 31, 2010, increased $8.6 million to $598.6 million

For the three months ended December 31, 2010, total operating expenses increased $3.8 million to $165.6 million, compared to the same period last year, with expenses in the nine month period ended December 31, 2010 increasing by $12.3 million to $510.5 million compared to the nine months ended December 31, 2009. The increase in expenses reflects higher vessel and terminal maintenance costs; an increase in wages and benefits; and an increase in fuel prices. 

On October 1, 2010, the Government of Canada announced that BC Ferries' request for duty remission on the four vessels built overseas had been granted. The $119.4 million in remission of import taxes and related GST has been utilized in an across the board ferry fare reduction of approximately 2 per cent effective October 18, 2010, and will be included in determining future fares in performance term three, which covers the period from April 1, 2012 through March 31, 2016. $20.0 million of this amount will be allocated to upgrade key assets in the ship repair and maintenance business in British Columbia. 

In the third quarter of fiscal 2010/11, vehicle traffic declined by 0.9 per cent and passenger traffic increased by 0.4 per cent compared to the same period the year prior. Drop-trailer traffic increased, while bus and other commercial traffic decreased. On a year-to-date basis, vehicle traffic was 1.5 per cent lower and passenger traffic was 0.5 per cent lower than the prior year. 

"With continued low traffic volumes and our commitment to fund on-going ship repair and maintenance programs as well as safety programs, we are currently forecasting a net loss for the year ending March 31, 2012, in the range of $20 million," said David L. Hahn, BC Ferries' President and CEO. "As a Crown Corporation in the past when faced with economic challenges, capital expenditures and other spending were cut to the detriment of the business. We will maintain all programs to ensure long-term safety and reliability."

In addition to low traffic levels, other factors contributing to the anticipated loss are such items such as the Harmonized Sales Tax, Transport Canada mandates and Freedom of Information overhead expenses. BC Ferries' strong balance sheet and cash position (aided significantly by the $119.4 million remission of federal import taxes and related GST on new vessels) will enable the Company to continue investing in its vessels, terminals and other assets. The Company expects to return to profitability in 2013.

By October 2010, BC Ferries relocated its head office to a new building in downtown Victoria. The initial term of the lease is 15 years, with four renewal options of five years each. On November 1, 2010, BC Ferries advanced the developer of the property $24.2 million for a term of 15 years, secured by a second mortgage on the property. Incidental to the loan, the developer has granted BC Ferries a purchase option for up to 50 per cent of their equity interest in the new building at a price of $24.2 million. On November 1, 2010, the previous head office building was sold for approximately $11.0 million, resulting in a net gain on the sale of $9.3 million.

On December 1, 2010, fuel rebates were removed from the major and minor routes. Currently, no fuel rebates or surcharges are in place on any of BC Ferries' 25 routes. In mid-December 2010, the Queen of Cumberland and Queen of Nanaimo returned to service in the Southern Gulf Islands after the completion of $6 million and $4 million refit and asset betterment projects respectively.

BC Ferries' full financial statements, including notes and Management's Discussion and Analysis, are filed on SEDAR and will be available at www.sedar.com.

FORWARD LOOKING STATEMENTS

This release contains certain "forward looking statements". These statements relate to future events or future performance and reflect management's expectations regarding our growth, results of operations, performance, business prospects and opportunities and industry performance and trends. They reflect management's current internal projections, expectations or beliefs and are based on information currently available to management. Some of the market conditions and factors that have been considered in formulating the assumptions upon which forward looking statements are based include traffic, the Canadian Dollar relative to the US Dollar, fuel costs, construction costs, the state of the local economy, fluctuating financial markets, demographics, tax changes, and the requirements of the Coastal Ferry Services Contract.

Forward looking statements included in this release include statements with respect to traffic levels; our short and long-range business plans; expectations regarding the impacts of the Harmonized Sales Tax, certain Transport Canada mandates, and Freedom of Information and Protection of Privacy Act overhead expenses; and expectations of a net loss in 2012 and a return to profitability in 2013. In some cases, forward looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. In evaluating these statements, prospective investors should specifically consider various factors including, but not limited to, the risks and uncertainties associated with traffic volume and tariff revenue risk, safety and security, asset risk, accident risk, tax risk, environmental risk, regulatory risk, labour disruption risk, limitations of vessel repair facilities, risk of default under material contracts and aboriginal land claims.

Actual results may differ materially from any forward looking statement. Although management believes that the forward looking statements contained in this release are based upon reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this release, and British Columbia Ferry Services Inc. assumes no obligation to update or revise them to reflect new events or circumstances except as may be required by applicable law.


BRITISH COLUMBIA FERRY SERVICES INC.
Consolidated Balance Sheets
(expressed in thousands)

                 
        December 31, 2010
(unaudited)
      March 31, 2010
                 
Assets                
Current assets:                
  Cash and cash equivalents     $ 95,666     $ 10,608
  Restricted short-term investments       37,040       37,240
  Other short-term investments       59,279       7,678
  Accounts receivable       14,978       17,707
  Prepaid expenses       6,050       6,813
  Inventories       17,830       18,040
  Regulatory assets             -       4,775
        230,843       102,861
Property, plant and equipment       1,572,445       1,644,069
Intangible assets       32,995       26,406
Assets held for sale       200       200
Long-term loan receivable       24,247        
Long-term land lease       33,094       33,437
       $ 1,893,824     $ 1,806,973
Liabilities and Shareholders' Equity                
Current liabilities:                
  Accounts payable and accrued liabilities     $ 47,724     $ 38,884
  Interest payable on long-term debt       15,481       18,319
  Accrued employee costs       47,733       48,644
  Deferred revenue       12,605       16,023
  Regulatory liabilities       697               -
  Current portion of long-term debt       18,375       9,000
  Current portion of accrued employee future benefits       800       800
  Current portion of obligations under capital lease       1,101       398
        144,516       132,068
                 
Accrued employee future benefits       11,381       11,130
Regulatory liabilities       1,003       4,325
Long-term debt       1,335,027       1,348,183
Obligations under capital lease       47,968       139
Other long-term liabilities       209       172
        1,540,104       1,496,017
Shareholders' equity:                
  Share capital       75,478       75,478
  Retained earnings       278,242       235,478
        353,720       310,956
Commitments                
         $ 1,893,824     $ 1,806,973




BRITISH COLUMBIA FERRY SERVICES INC.
Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings (unaudited)
(expressed in thousands)

           
    Three months ended       Nine months ended
    December 31       December 31
      2010       2009       2010       2009
                               
Revenue:                              
  Tariffs   $ 99,086     $ 96,792     $ 373,007     $ 366,171
  Ferry service fees     33,954       33,614       118,892       117,462
  Federal-Provincial Subsidy Agreement     6,731       6,731       20,193       20,193
  Retail     17,208       17,067       65,351       65,831
  Other income     5,344       5,684       21,134       20,309
      162,323       159,888       598,577       589,966
                               
Expenses:                              
  Operations     96,676       95,278       315,201       305,813
  Maintenance     26,815       22,781       63,289       60,613
  Administration     7,531       7,812       22,365       22,274
  Cost of retail goods sold     6,525       6,389       24,482       24,272
  Amortization     28,059       29,508       85,188       85,211
      165,606       161,768       510,525       498,183
                               
(Loss) earnings from operations     (3,283)       (1,880)       88,052       91,783
                               
Gain on foreign exchange     67              37       173       74
Interest expense     (18,367)       (17,246)       (54,354)       (50,318)
Gain (loss) on disposal of capital assets        9,146         (1,310)       8,893       (1,335)
Net (loss) earnings     (12,437)       (20,399)       42,764       40,204
                               
Other comprehensive income        -           -              -               -
                               
Net (loss) earnings and comprehensive income     (12,437)       (20,399)       42,764       40,204
                               
Retained earnings, beginning of period     290,679       298,697       235,478       238,094
                               
Retained earnings, end of period   $ 278,242     $ 278,298     $ 278,242     $ 278,298




BRITISH COLUMBIA FERRY SERVICES INC.
Consolidated Statements of Cash Flows (unaudited)
(expressed in thousands)

           
    Three months ended       Nine months ended
    December 31       December 31
      2010       2009       2010       2009
                               
Cash provided by (used in):                              
                               
Operations:                              
  Net (loss) earnings   $ (12,437)     $ (20,399)     $ 42,764     $ 40,204
  Items not involving cash:                              
    Amortization     28,059       29,508       85,188       85,211
    Other non-cash charges     (8,874)       1,604       (7,084)       1,355
  Long-term regulatory costs deferred     (1,628)       2,098       (6,904)       8,352
  Change in non-cash operating working capital (note 10)     7,931       6,591       (414)       (14,392)
      13,051       19,402       113,550       120,730
                               
Financing:                              
  Repayment of long-term debt        -          -       (4,500)       (4,500)
  Repayment of short-term loans        -          -           -       (17,956)
  Repayment of capital lease obligations     (318)       (125)       (715)       (422)
      (318)       (125)       (5,215)       (22,878)
                               
Investing:                              
  Proceeds from  disposal of property, plant and equipment and intangible assets       11,040       1,843       11,118       1,847
  Purchase of property, plant and  equipment and intangible assets     (34,420)       (18,454)       (78,196)       (54,370)
  Recovery of import duties and related taxes (note 4)     119,449       -       119,449       -
  Reduction of debt service reserves     -       -       200       -
  Advancement of long-term loan     (24,247)          -       (24,247)       -
  Purchase of investments     (51,382)       (7,500)       (51,601)       (7,525)
      20,440       (24,111)       (23,277)       (60,048)
                               
Increase (decrease) in cash and cash equivalents     33,173       (4,834)       85,058       37,804
                               
Cash and cash equivalents, beginning of period     62,493       55,040       10,608       12,402
                               
Cash and cash equivalents, end of period   $ 95,666     $ 50,206     $ 95,666     $ 50,206

SOURCE British Columbia Ferry Services Inc.

For further information:

Media Contact:
BC Ferries, Media Relations
Victoria: (250) 978-1267


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