Notes to the Condensed Interim Financial Statements (Unaudited)

For the three and nine months ended December 31, 2023

(In thousands of Canadian dollars)

1.  Corporate information

CATSA is a Crown corporation listed under Part I, Schedule III of the Financial Administration Act and is an agent of His Majesty in right of Canada. CATSA is responsible for securing specific elements of the air transportation system, from passenger and baggage screening, to screening airport workers.

CATSA is funded by parliamentary appropriations and accountable to Parliament through the Minister of Transport. In prior years, CATSA provided screening services on a cost recovery basis to certain designated and non-designated airports. There are currently no arrangements in place for CATSA to provide services on a cost recovery basis.

These condensed interim financial statements have been authorized for issuance by the Board of Directors on February 22, 2024.

 2.  Basis of preparation

The condensed interim financial statements have been prepared in accordance with Section 131.1 of the Financial Administration Act and International Accounting Standard 34 Interim Financial Reporting (IAS 34) as issued by the International Accounting Standards Board (IASB) and approved by the Accounting Standards Board of Canada.

Section 131.1 of the Financial Administration Act requires that most parent Crown corporations prepare and make public quarterly financial reports in compliance with the Treasury Board of Canada’s Directive on Accounting Standards: GC 5200 Crown Corporations Quarterly Financial Report. These condensed interim financial statements have not been audited or reviewed by CATSA’s external auditor.

As permitted by IAS 34, these interim financial statements are presented on a condensed basis and therefore do not include all necessary disclosures to conform, in all material respects, with IFRS disclosure requirements applicable to annual financial statements. These condensed interim financial statements are intended to provide an update on the latest complete set of audited annual financial statements. Accordingly, they should be read in conjunction with the audited annual financial statements for the year ended March 31, 2023.

 3.  Summary of significant accounting policies

Significant accounting policies used in these condensed interim financial statements are disclosed in note 3 of CATSA’s audited annual financial statements for the year ended March 31, 2023.

 4.  Trade and other receivables

Trade and other receivables are comprised of:

5. Inventories

Inventories are comprised of:

 6. Property and equipment

A reconciliation of property and equipment is as follows:

7. Intangible assets

A reconciliation of intangible assets is as follows:

8. Right-of-use assets

A reconciliation of right-of-use assets is as follows:

 9. Employee benefits

(a) Employee benefits asset and liability

Employee benefits asset and liability recognized and presented in the Condensed Interim Statement of Financial Position are detailed as follows:

b) Employee benefits costs

The elements of employee benefits costs are as follows:

For the three and nine months ended December 31, 2023, CATSA recognized an expense of $311 (2022 - $236) and $934 (2022 - $748), respectively, in relation to the defined contribution component of the RPP.

(c) Significant actuarial assumptions

Assumptions used to measure the defined benefit plan assets and liabilities are reviewed and, as necessary, revised at each reporting period. This typically includes reviewing the discount rates and actual rate of return on the plan assets against rates previously estimated, to reflect the current assumptions and circumstances. Changes to actuarial assumptions result in remeasurement gains and/or losses recognized in other comprehensive income (loss).

For the three months ended December 31, 2023, remeasurement losses of $20,021 resulted from a decrease in the discount rate of 100 basis points (from 5.60% at September 30, 2023 to 4.60% at December 31, 2023). This was partially offset by a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions for the RPP (9.66% actual versus 1.22% expected).

For the three months ended December 31, 2022, remeasurement gains of $4,999 resulted primarily from a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions for the RPP (3.15% actual versus 1.00% expected).

For the nine months ended December 31, 2023, remeasurement losses of $10,678 resulted from a decrease in the discount rate of 30 basis points (from 4.90% at March 31, 2023 to 4.60% at December 31, 2023). This was partially offset by a higher actual rate of return on plan assets than the rate used in CATSA’s assumptions for the RPP (4.72% actual versus 3.68% expected).

For the nine months ended December 31, 2022, remeasurement gains of $9,383 resulted from an increase in the discount rate of 100 basis points (from 4.00% at March 31, 2022 to 5.00% at December 31, 2022). This was partially offset by a lower actual rate of return on plan assets than the rate used in CATSA’s assumptions for the RPP (-8.70% actual versus 3.00% expected).

(d) Employer contributions

Employer contributions paid to the defined benefit plans are as follows:

Total employer contributions to the defined benefit plans are estimated to be $5,306 for the year ending March 31, 2024.

10. Provisions and contingencies

Several claims, audits and legal proceedings have been asserted or instituted against CATSA. By nature, these amounts are subject to many uncertainties and the outcome of the individual matters is not always predictable. As at December 31, 2023, claims, audits and legal proceedings are not expected, individually or in the aggregate, to have a material adverse effect on the financial statements.

(a) Provisions

During the nine months ended December 31, 2023, there were no provisions recorded.

(b) Contingencies – Decommissioning costs

During the nine months ended December 31, 2023, there have been no material changes to contingencies related to decommissioning costs. For a description of CATSA’s decommissioning costs, refer to note 10(b) of the audited annual financial statements for the year ended March 31, 2023.

11. Lease liabilities

CATSA has leases for office space and data centres. CATSA has included extension options in the measurement of its lease liabilities when it is reasonably certain to exercise the extension option.

A reconciliation of lease liabilities is as follows:

CATSA recognized the following expenses not included in the measurement of the lease liabilities as follows:

Variable lease payments include operating costs, property taxes, insurance, and other service-related costs.

For the three and nine months ended December 31, 2023, CATSA recognized a total cash outflow for leases of $1,048 (2022 - $1,463) and $2,978 (2022 - $4,881), respectively.

The following table presents the undiscounted cash flows for contractual lease obligations:

12. Deferred government funding

A reconciliation of the deferred government funding liability is as follows:

For additional information on government funding, see note 14.

13. Expenses

The Condensed Interim Statement of Comprehensive Income (Loss) presents operating expenses by program activity. The following table presents operating expenses by major expense type:

¹ Other administrative costs include insurance, network and telephone expenses, and facilities maintenance.
² Other business related costs include travel expenses, conference fees, membership and association fees, and meeting expenses.

14. Government funding

Parliamentary appropriations approved for the fiscal year and amounts used by CATSA during the nine months ended December 31 are as follows:

The following table reconciles parliamentary appropriations for operating expenses that were received and receivable with the amount of appropriations used:

The following table reconciles parliamentary appropriations for capital expenditures and lease payments that were received and receivable with the amount of appropriations used:

15. Fair values of financial instruments

Derivative financial instruments are recorded at fair value in the Condensed Interim Statement of Financial Position. The fair values of cash, trade and other payables, and current holdbacks approximate their carrying amount due to the current nature of these instruments.

The carrying amounts and corresponding fair values of CATSA’s remaining financial assets and liabilities are as follows:

¹ The fair value is based on a discounted cash flow model based on observable inputs.

There were no transfers between levels during the nine months ended December 31, 2023, or the year ended March 31, 2023.

16. Contractual commitments

During the three and nine months ended December 31, 2023, CATSA announced the new airport screening services contracts. The term of the new contracts is from April 1, 2024 to March 31, 2029, and they are renewable for two additional five-year periods at CATSA’s discretion. The impact of the new contracts to CATSA’s contractual commitment balances totals $4,706,700.

There have been no other material changes to CATSA’s contractual commitments, other than normal purchasing activity relating to property and equipment and intangible assets and the usage of existing contracts relating to payments to screening contractors and equipment maintenance and spare parts.

For a description of CATSA’s contractual commitments, refer to note 16 of the audited annual financial statements for the year ended March 31, 2023.

17. Related party transactions

CATSA had the following transactions with related parties:

(a) Government of Canada, its agencies and other Crown corporations

CATSA is wholly owned by the Government of Canada, and is under common control with other Government of Canada departments, agencies and Crown corporations. CATSA enters into transactions with these entities in the normal course of operations. These related party transactions are based on normal trade terms applicable to all individuals and corporations.

CATSA’s primary source of funding is parliamentary appropriations received from the Government of Canada. For the three and nine months ended December 31, 2023, government funding of $243,428 (2022 – $222,658) and $719,159 (2022 – $657,347), respectively, is recognized in the Condensed Interim Statement of Comprehensive Income (Loss), and includes parliamentary appropriations for operating expenses, parliamentary appropriations for lease payments, and amortization of deferred government funding related to capital expenditures. Parliamentary appropriations receivable of $116,582 (March 31, 2023 – $120,464), are included in trade and other receivables in the Condensed Interim Statement of Financial Position.

(b) Transactions with CATSA’s post-employment benefit plans

Transactions with the RPP, SRP and ODBP are conducted in the normal course of business. The transactions with CATSA’s post-employment benefit plans consist of contributions as disclosed in note 9. No other transactions were made during the three and nine month periods.

18. Net change in working capital balances and supplementary cash flow information

The following table presents the net change in working capital balances:

For the three and nine months ended December 31, 2023, the change in trade and other receivables excludes amounts of $2,898 (2022 – $1,295) and $3,406 (2022 – $2,729), respectively, in relation to government funding related to capital expenditures, as these amounts relate to investing activities.

For the three and nine months ended December 31, 2023, the change in trade and other payables excludes amounts of $1,220 (2022 – $4,533) and $6,573 (2022 – $3,807), respectively, in relation to the acquisition of property and equipment and intangible assets, as these amounts relate to investing activities.

For the three and nine months ended December 31, 2023, the change in holdbacks excludes amounts of $86 (2022 – $137) and $1,674 (2022 – $134), respectively, in relation to the acquisition of property and equipment, as these amounts relate to investing activities.