HHB derives 100% of its Revenue from tolls and fees collected from the Angus L. Macdonald and A. Murray MacKay Bridges. Revenue in fiscal 2017 was budgeted to decline from 2016 based on a forecasted drop in traffic of 1.0% due to the ongoing closures of the Macdonald Bridge for the Big Lift project. Actual results were better than forecast as traffic declined only 0.38% versus the prior year resulting in toll revenue exceeding budget although slightly below the prior year. Apart from bridge closures for construction, the single biggest impact on toll revenues is adverse winter weather during the Monday to Friday workweek.

Operating and administrative (O&A) expenses include the costs to staff the toll facilities, bridge patrol and MacPass customer service. Costs also include maintaining toll equipment, information technology platforms as well as accounting and treasury functions, public relations and professional fees. In fiscal 2017, HHB increased service levels in several areas that lead to higher O&A expenses versus the prior year. These included an in-house tow truck service to improve clearance times on the bridges and a new IT position focused on network security. The 2017 O&A costs exceeded budget due to higher levels of contract staff required to support operations during the Big Lift and increased insurance costs.

The Maintenance expenses include costs of maintaining the structural integrity of the bridges and upkeep of buildings and equipment. Costs include snow removal, corrosion protection through painting, consulting engineering fees and operational costs of buildings, the vehicle fleet and properties. In fiscal 2017 HHB benefitted with lower costs from a restructured paint program that focused only on the MacKay bridge while the Macdonald was under construction for the Big Lift. The milder winter of 2016, compared to 2015, also contributed to lower maintenance costs in fiscal 2017 versus the prior year. Utility costs were lower with savings realized from LED lights installed in the prior year and reduced lighting on the Macdonald bridge during the Big Lift.

Amortization of property plant and equipment is a non-cash charge that represents the cost of HHB’s fixed assets over their expected useful life. Amortization costs were lower in fiscal 2017 than budgeted because of the delay in completing the installation of new deck segments on the Big Lift. The significant capital costs of the new deck segments did not have amortization charged until installation was completed which reduced amortization in fiscal 2017 compared to the budget amount. Amortization costs were lower than the prior year because of accelerated charges taken in prior years to recognize the decommissioning of significant portions of the Macdonald Bridge prior to the start of the Big Lift project.

Net Finance costs consist of interest costs for HHB’s long term debt offset by interest income earned on cash held in operating and loan reserve accounts. The determination of substantial completion of the Big Lift project for accounting purposes was linked to the completion of new deck segment installation. Interest costs related to the financing of the Big Lift are recorded as an expense after the installation was complete. The budget assumed that substantial completion would be mid-way through fiscal 2017 but the actual completion of deck segment replacement wasn’t until February, resulting in materially lower net finance costs in fiscal 2017 than budgeted.

Outlook
For accounting purposes, the Big Lift project was deemed substantially complete in late fiscal 2017. In fiscal 2018 there will be a full year of Big Lift related amortization and finance expense recorded on the Statement of Comprehensive Income, lowering it by $2.8 million and $4.3 million respectively each year. The extra expenses will reduce the reported Comprehensive Income to an estimated $7 million – 8 million per year instead of the $14 million plus recorded the past two years.

The Big Lift project continued to have a significant impact on the statement of financial position. As the project progressed, current assets dropped in fiscal 2017 as deposits on hand at the end of fiscal 2016 were used to finance the increase in property plant and equipment. Overall, total assets continued to increase in Fiscal 2017 as HHB also invested a portion of current year toll revenues to fund the Big Lift as well as other capital projects.

Total debt and liabilities declined in fiscal 2017 as HHB continued to pay down debt using toll revenue proceeds. HHB financed the Big Lift project with a $160 million loan that closed in fiscal 2015 and no additional debt is expected to be needed to complete the project. The Big Lift loan is included in long term debt with repayments scheduled to begin following the completion of the project. Equity has increased in fiscal 2017 with positive comprehensive income recorded for the year. Approximately $14 million of the equity balance is recorded as a reserve for restricted assets, comprised of funds set aside under various loan agreement terms.