STE. ANNE NATURAL GAS CO-OP LTD. Financial Statements For The Year Ended April 30, 2016

Transcription

1 Financial Statements

2 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The financial statements of Ste. Anne Natural Gas Co-op Ltd. have been prepared in accordance with Canadian accounting standards for private enterprises. When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. These statements include certain amounts based on management's estimates and judgments. Management has determined such amounts based on a reasonable basis in order to ensure that the financial statements are presented fairly in all material respects. The integrity and reliability of Ste. Anne Natural Gas Co-op Ltd.'s reporting systems are achieved through the use of formal policies and procedures, the careful selection of employees and an appropriate division of responsibilities. These systems are designed to provide reasonable assurance that the financial information is reliable and accurate. The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board and meets periodically with management and the members' auditors to review significant accounting, reporting and internal control matters. Following its review of the financial statements and discussions with the auditors, the Audit Committee reports to the Board of Directors prior to its approval of the financial statements. The Committee also considers, for review by the Board and approval by the members, the engagement or re-appointment of the external auditors. The financial statements have been audited on behalf of the members by Hawkings Epp Dumont LLP, in accordance with Canadian accounting standards for private enterprises. Malcolm Davidson, Chairman Kevin Ouderkirk, General Manager Onoway, Alberta June 22,

3 INDEPENDENT AUDITOR'S REPORT To the Members of Ste. Anne Natural Gas Co-op Ltd. We have audited the accompanying financial statements of Ste. Anne Natural Gas Co-op Ltd., which comprise the balance sheet as at April 30, 2016 and the statements of income, retained earnings and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (continues)

4 Independent Auditor's Report to the Members of Ste. Anne Natural Gas Co-op Ltd. (continued) Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Ste. Anne Natural Gas Co-op Ltd. as at April 30, 2016 and the results of its operations and its cash flow for the year then ended in accordance with Canadian accounting standards for private enterprises. Stony Plain, Alberta June 22, 2016 Hawkings Epp Dumont LLP Chartered Accountants

5 Balance Sheet As At April 30, 2016 ASSETS CURRENT Cash $ 960,628 $ 770,272 Accounts receivable (Note 3) 260, ,156 Inventory (Note 4) 249, ,160 Goods and services tax recoverable - 5,447 Prepaid expenses (Note 5) 59,943 73,302 1,530,817 1,441,337 LONG TERM INVESTMENTS (Note 6) 93,378 93,436 RESTRICTED CASH (Note 7) 1,930,693 1,930,693 BUILDING UNDER CONSTRUCTION - 1,928,393 PROPERTY, PLANT AND EQUIPMENT (Note 8) 10,449,437 4,722,169 $ 14,004,325 $ 10,116,028 LIABILITIES CURRENT Accounts payable (Note 9) $ 235,096 $ 714,509 Wages payable 223,964 - Equal billing credits 96,894 7,494 Renter/security deposits 120, ,934 Customer deposits 100, ,668 Goods and services tax payable 14,054 - Current portion of long term debt (Note 10) 145,494 40,094 Current portion of obligations under capital lease (Note 11) 105,501-1,041, ,699 LONG TERM DEBT (Note 10) 3,181,789 3,341 CAPITAL LEASE (Note 11) 149,918-4,372, ,040 MEMBERS' EQUITY Memberships 7,908 7,568 Replacement reserve (Note 7) 1,930,693 1,930,693 Retained earnings 7,692,778 7,179,727 9,631,379 9,117,988 $ 14,004,325 $ 10,116,028 ON BEHALF OF THE BOARD Director Director The accompanying notes are an integral part of these financial statements. 4

6 Statement of Income GAS SALES $ 3,311,604 $ 4,416,035 GAS PURCHASES 2,106,653 3,166,163 GROSS PROFIT 1,204,951 1,249,872 OTHER REVENUE Service charges 2,492,365 2,351,111 System upgrade charges 383, ,516 Secondary sales and services - net (Schedule 1) 118, ,594 2,994,272 2,818,221 EXPENSES Operations expenses (Schedule 2) 2,170,281 2,101,351 Administration expenses (Schedule 3) 1,380,015 1,000,927 Building expenses (Schedule 4) 128,511 71,993 Board expenses (Schedule 5) 112, ,968 Other expenses (Schedule 6) 103,444 33,694 Federation levy 100,435 79,633 Insurance 71,738 60,288 Amortization 374, ,247 4,441,015 3,720,101 INCOME (LOSS) FROM OPERATIONS (241,792) 347,992 OTHER INCOME Gain on disposal of property, plant and equipment 566,140 6,100 Penalties and transfer fees 126, ,226 Tap operating revenue 31,800 31,800 Interest income 30,240 43,105 Meter reading , ,356 NET INCOME $ 513,051 $ 557,348 The accompanying notes are an integral part of these financial statements. 5

7 Statement of Retained Earnings RETAINED EARNINGS - BEGINNING OF YEAR $ 7,179,727 $ 6,176,745 NET INCOME FOR THE YEAR 513, ,348 7,692,778 6,734,093 TRANSFER FROM REPLACEMENT RESERVE - 445,634 RETAINED EARNINGS - END OF YEAR $ 7,692,778 $ 7,179,727 The accompanying notes are an integral part of these financial statements. 6

8 Statement of Cash Flow OPERATING ACTIVITIES Net income $ 513,051 $ 557,348 Items not affecting cash: Amortization 374, ,247 Gain on disposal of property, plant and equipment (566,140) (6,100) 321, ,495 Changes in non-cash working capital: Gas accounts 69, ,239 Inventory 12,831 (60,417) Accounts payable (479,412) 296,305 Wages payable 223,964 - Prepaid expenses 13,359 (5,443) Goods and services tax payable 19,501 (13,273) Equal billing credits 89,400 (183,695) Renter/security deposits (5,756) 13,875 Customer deposits (6,610) 1,692 (63,484) 1,009, ,599 1,812,778 INVESTING ACTIVITIES Purchase of property, plant and equipment - operations (6,230,577) (235,827) Proceeds on disposal of property, plant and equipment - operations 569,292 6,100 Purchase of property, plant and equipment - system (345,949) (367,177) Restricted cash (Note 7) - 445,634 Building under construction 1,928,393 (1,928,393) Cash flow used by investing activities (4,078,841) (2,079,663) FINANCING ACTIVITIES Members Grants 9, ,192 Members' contribution 462, ,519 Long term investments 58 - Proceeds from long term financing 3,380,414 - Repayment of long term debt (96,566) (40,094) Repayment of obligations under capital lease (99,582) - Proceeds from capital lease 355,002 - Cash flow from financing activities 4,011, ,976 INCREASE IN CASH FLOW 190, ,091 Cash - beginning of year 770, ,181 CASH - END OF YEAR $ 960,628 $ 770,272 The accompanying notes are an integral part of these financial statements. 7

9 Notes to Financial Statements The Co-operative is incorporated in the Province of Alberta pursuant to the Rural Utilities Act. The Co-operative operates a natural gas distribution system in the County of Lac Ste. Anne, Alberta. The Co-operative is non taxable pursuant to Section 149(1)(l) of the Income Tax Act. 1. SUMMARY OF ACCOUNTING POLICIES Basis of presentation The financial statements were prepared in accordance with Canadian accounting standards for private enterprises (ASPE). Measurement uncertainty The preparation of financial statements in conformity with Canadian accounting standards for private enterprises requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Such estimates are periodically reviewed and any adjustments necessary are reported in earnings in the period in which they become known. Actual results could differ from these estimates. Financial instruments policy Financial instruments are recorded at fair value when acquired or issued. In subsequent periods, financial assets with actively traded markets are reported at fair value, with any unrealized gains and losses reported in income. All other financial instruments are reported at amortized cost, and tested for impairment when indicators of impairment exist. Transaction costs on the acquisition, sale, or issue of financial instruments are expensed when incurred. Cash and cash equivalents Cash and cash equivalents consists of cash on hand, deposits held with a Canadian financial institution less any cheques written in excess of the bank balance. Inventory Inventory is measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventory includes all costs to purchase, convert, and bring the inventories to their present location and condition. Cost is determined using specific identification for major equipment and the weighted-average cost formula for all other inventory items. Inventory valuation reserves are maintained for inventory that is slow moving or obsolete. Other investments Investments for which there are quoted prices in an active market are carried at fair value. Unrealized gains or losses are reported as part of net income. Investments for which there is not an active market are carried at amortized cost except when it is established that their value is impaired. Impairment losses, or reversal of previously recognized impairment losses, are reported as part of net income. (continues) 8

10 Notes to Financial Statements 1. SUMMARY OF ACCOUNTING POLICIES (continued) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated amortization. Property, plant and equipment is amortized over its estimated useful life at the following rates and methods: Buildings 5% straight-line method Automotive 20% straight-line method Computer equipment 25% straight-line method Computer software 20% straight-line method Furniture and fixtures 15% straight-line method Tools and dies 15% straight-line method Heavy equipment 20% straight-line method Communication equipment 15% straight-line method Land improvements 8% straight-line method Transmission system 2% straight-line method Government grants The Co-operative receives government grants for transmission and distribution system expenses. These grants are deducted from the corresponding property, plant and equipment category. It is the Co-operative's policy to amortize the grants over the life of the related property, plant and equipment with a corresponding reduction of the amortization claimed. Total grants received to date are $9,229,231 ( $9,220,031). Members' contributions In addition to the $1 membership fee, new members contribute to the cost of installing a natural gas service to their property. The present charge for a rural service is $7,000 ( $7,000) and for an urban service is $4,000 ( $4,000). These contributions are deducted from the corresponding distribution system costs. It is the Co-operative's policy to deduct these contributions from the distribution system cost and to amortize the contribution over the life of the related asset with a corresponding reduction of amortization claimed. Total members' contributions received to date are $15,680,521 ( $15,217,789). Customer deposits Payments from customers in contemplation of a natural gas installation are classified as deposits on the balance sheet until such time as the project commences. The deposit is then transferred to members' contributions. (continues) 9

11 Notes to Financial Statements 1. SUMMARY OF ACCOUNTING POLICIES (continued) Revenue recognition Revenue for the sale of gas is recognized as revenue as the gas is consumed by the Co-operative's members. Revenue for the sale of goods and services is recognized when services are provided or products are delivered to members, there is clear proof that an arrangement exists, amounts are fixed or can be determined and the ability to collect is reasonably assured. Investment income comprises interest from cash and interest from fixed income investments, realized gains and losses on the sale of investments and unrealized appreciation and depreciation of the fair value of index pooled funds. Interest on fixed income investments is recognized over the term of the respective investments using the effective interest method. 2. FINANCIAL INSTRUMENTS The Co-operative is exposed to various risks through its financial instruments and has a comprehensive risk management framework to monitor, evaluate and manage these risks. The following analysis provides information about the Co-operative's risk exposure and concentration as of April 30, (a) Credit risk Credit risk arises from the potential that a counter party will fail to perform its obligations. The Cooperative is exposed to credit risk from customers. In order to reduce its credit risk, the Cooperative reviews a new customer's credit history before extending credit and conducts regular reviews of its existing customers' credit performance. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific accounts, historical trends and other information. The Co-operative has a significant number of customers which minimizes concentration of credit risk. (b) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Co-operative is exposed to this risk mainly in respect of its receipt of funds from its customers and other related sources, long-term debt, obligations under capital leases and accounts payable. (c) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency rate risk, interest rate risk and other price risk. The Co-operative is mainly exposed to interest rate risk. (d) Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks from interest rate fluctuations, the Co-operative manages exposure through its normal operating and financing activities. The Cooperative is exposed to interest rate risk primarily through its credit facilities. Unless otherwise noted, it is management s opinion that the Co-operative is not exposed to significant risks arising from these financial instruments. 10

12 Notes to Financial Statements 3. ACCOUNTS RECEIVABLE Gas accounts $ 256,761 $ 329,064 Insurance receivable 10,000 - A/R - Past the meter sales 9,156 15,592 U.F.A Allowance for doubtful accounts (15,000) (15,000) $ 260,917 $ 330,156 During the year, the charge for impairment related to accounts receivable is reported as bad debt expense on the statement of income with other expenses and is net of recoveries of $6,731 ( $14,573) 4. INVENTORY Inventory $ 249,329 $ 262,160 Inventory is comprised of meters, pipe, parts and accessories used for the construction and repair of the distribution system. The amount of inventory recognized as an expense during the year was $577,711 ( $388,452). 5. PREPAID EXPENSES Insurance $ 27,031 $ 26,093 Software support 13,330 9,532 Federation dues 13,163 34,835 Office equipment rental 6,419 - Trademark - 2,842 $ 59,943 $ 73, LONG TERM INVESTMENTS Gas Alberta Inc. debenture due June 30, 2016, without interest $ 92,500 $ 92,500 Gas Alberta Inc. 878 Class "A" shares at cost ( ) $ 93,378 $ 93,436 11

13 Notes to Financial Statements 7. RESTRICTED CASH / REPLACEMENT RESERVE As required by Section 17 of the Rural Utilities Act and, pursuant to a by-law passed by the general membership, a reserve has been established for the purpose of future replacement, extension or increase in the capacity of the transmission and distribution system. These funds are currently invested in interest bearing guaranteed investment certificates at annual rates ranging from 0% to 1.05%. Balance - beginning of year $ 1,930,693 $ 2,376,327 Transfer from retained earnings - 445,634 Balance - end of year $ 1,930,693 $ 1,930,693 Restricted cash consists of the following: Investment $ 2,081,030 $ 1,502,454 Restricted cash current account (158,116) 420,021 Accrued interest 7,779 8,218 $ 1,930,693 $ 1,930, PROPERTY, PLANT AND EQUIPMENT Cost Accumulated Net book Net book amortization value value Land $ 182,023 $ - $ 182,023 $ 184,338 Buildings 5,585,682 93,095 5,492,587 3,153 Furniture and fixtures 571, , ,128 79,425 Tools and dies 568, ,068 52,491 80,046 Automotive 258, ,077 57,358 50,254 Computer equipment 138,502 17, ,189 - Computer software 299, ,856 74,581 79,195 Heavy equipment 707, , , ,277 Communication equipment 59,498 36,304 23, Land improvements 14,200 14, Transmission system - net 5,256,558 1,546,159 3,710,399 3,942,773 $ 13,641,785 $ 3,192,348 $ 10,449,437 $ 4,722,169 The transmission and distribution system is valued at cost net of government grants and members' contributions: Transmission system $ 30,166,310 $ 13,872,325 $ 16,293,985 $ 16,547,902 Government grants (9,229,231) (5,643,548) (3,585,683) (3,760,975) Members' contributions (15,680,521) (6,682,618) (8,997,903) (5,783,260) $ 5,256,558 $ 1,546,159 $ 3,710,399 $ 3,942,773 12

14 Notes to Financial Statements 9. ACCOUNTS PAYABLE Gas payable $ 76,522 $ 189,445 Trade payable 158, ,064 $ 235,096 $ 714, LONG TERM DEBT ATB loan bearing interest at 2.45% per annum, repayable in monthly blended payments of $18,500. $ 3,323,942 $ - GE Capital Solutions loan bearing interest at 0% per annum, repayable in monthly payments of $3,341. 3,341 43,435 3,327,283 43,435 Amounts payable within one year (145,494) (40,094) $ 3,181,789 $ 3,341 Principal repayment terms are approximately: 2017 $ 145, , , , ,773 Thereafter 2,577,074 $ 3,327,283 13

15 Notes to Financial Statements 11. CAPITAL LEASE National Leasing lease bearing interest at % per annum, repayable in monthly blended payments of $3,818. $ 111,847 $ - DL Financial Solutions Partner lease bearing interest at 3.42% per annum, repayable in monthly blended payments of $3, ,267 - Wajax Equipment lease bearing interest at % per annum, repayable in monthly blended payments of $1, , ,419 - Amounts payable within one year (105,501) - $ 149,918 $ - Future minimum capital lease payments are approximately: 2017 $ 119, , ,559 Total minimum lease payments 277,882 Less: amount representing interest at various rates (22,463) $ 255,419 14

16 Secondary Sales and Services (Schedule 1) SECONDARY SALES AND SERVICES $ 366,920 $ 435,472 COST OF SALES 248, ,878 $ 118,492 $ 127,594 Operations Expenses (Schedule 2) OPERATIONS Wages and benefits $ 1,346,992 $ 1,280,269 System repairs and maintenance 209, ,355 Subcontracts 201, ,112 Vehicle repairs 158, ,963 Vehicle leases 148, ,347 Training 63,665 26,958 Uniforms 22,157 21,475 Small tools 13,652 22,808 Travel 12,020 3,800 Licenses 3,885 3,869 Mileage (construction recovery) (9,066) (18,605) $ 2,170,281 $ 2,101,351 The accompanying notes are an integral part of these financial statements. 15

17 Administration Expenses (Schedule 3) ADMINISTRATION Wages and benefits $ 995,781 $ 636,303 Postage 72,230 76,371 Telephone 64,746 67,075 Office 54,932 37,681 Advertising and promotion 53,360 38,983 Computer system 41,278 38,916 Equipment rentals 29,271 27,052 Professional fees 22,375 23,402 Consulting fees 14,553 23,468 Audit fees 12,815 12,222 Repairs and maintenance 9,648 - Meetings and conventions 9,026 19,214 Subcontracts $ 1,380,015 $ 1,000,927 The accompanying notes are an integral part of these financial statements. 16

18 Building Expenses (Schedule 4) BUILDING Repairs and maintenance $ 62,626 $ 41,483 Utilities 39,790 16,442 Property taxes 26,095 14,068 $ 128,511 $ 71,993 Board Expenses (Schedule 5) BOARD Campbell, Gene $ 7,860 $ 6,349 Chorley, Jim 6,420 7,371 Davidson, Malcolm 7,704 7,761 Giebelhaus, Lloyd 6,266 7,448 Liss, Clarence 7,944 7,605 Meier, Denis 5,964 2,823 Pointe, Reg 11,806 14,669 Poirier, Guy 7,776 7,290 Purdy, Russ 7,952 8,784 Turk, George 2,700 9,643 72,392 79,743 Directors' mileage 10,419 12,284 Directors' group expense 29,608 27,941 $ 112,419 $ 119,968 Other Expenses (Schedule 6) OTHER Interest on long term debt $ 57,224 $ - Interest on obligations under capital lease 15,832 - Interest and bank charges 12,403 9,932 Memberships 11,254 9,189 Bad debts 6,731 14,573 $ 103,444 $ 33,694 The accompanying notes are an integral part of these financial statements. 17

19 System Construction Costs (Schedule 7) SYSTEM CONSTRUCTION COSTS Material $ 124,722 $ 175,089 Wages and benefits 111, ,462 Vehicle expenses 38,996 46,024 RMO construction 22,359 - Subcontracts 16,611 12,253 Engineering 4,198 10,888 Easements 1,829 2,316 Damage claims 1, $ 321,675 $ 367,177 The accompanying notes are an integral part of these financial statements. 18