A province on the move.

Transcription

1 Alberta Used Oil Management Association annual report 2012

2 16th Annual General Meeting Friday, June 7, 2013 Starting at 11:00am MDT The Westin Edmonton Strathcona Room Street Edmonton, Alberta T5J ON7 A province on the move. Contents 01 Message from Alberta s Minister of Environment and Sustainable Resource Development 02 AUOMA s Mission 03 Meeting Challenges in 2012 Report from Chairman and Executive Director 10 Summer 2012 with Mr. Oil Drop & our Recycling Ambassadors 12 Schedule of Used Oil Materials Collected in Auditor s Report 15 Financial Statements 19 Notes to Financial Statements IBC AUOMA Corporate Information

3 Message from Honourable Diana McQueen Minister of Environment and Sustainable Resource Development As Albertans, we are surrounded by breathtaking beauty from vast rolling prairies to the majestic Rocky Mountains, we are fortunate to live in a place with such significant ecological heritage. But we are also blessed with abundant natural resources that fuel prosperity and growth. Our challenge is to ensure that future stainability of our landscapes, air and water through responsible resource management. We all have a responsibility to be stewards of the environment and organizations like the Alberta Used Oil Management Association are an important partner in ensuring we limit our impacts on Alberta s lands by encouraging wise disposal of waste products. The Alberta Used Oil Management Association helps Albertans make smart choices when disposing their used oil, filters and containers. Since 1997, this non-profit association has made every drop count by recycling more than billion litres of used oil, while keeping 23 million kilograms of toxic containers out of our landfills by turning them into new products like patio furniture and landscape materials. The work of the association has been recognized around the work as a model of environmental, economic and social success and for this, the Government of Alberta congratulates you. Alberta Environment and Sustainable Resource Development is committed to working with the Alberta Used Oil Management Association in the years ahead to meet the challenges we face and reach our shared goals of environmentally sustainable practices. On behalf of all Albertans, I want to thank The Alberta Used Oil Management Association for its continued dedication to environmental excellence, leadership and ongoing stewardship. Honourable Diana McQueen Minister of Environment and Sustainable Resource Development 01

4 AUOMA s Mission To continue Alberta s recycling success Used oil is the largest potential single-source of hazardous material in Alberta and its disposal must be properly managed. The mission of the provincial used oil materials recycling program is to continue managing end-use of used oil, used oil filters and used oil containers through its successful industry-led stewardship program launched sixteen years ago. Formalized by Alberta government legislation on April 30, 1997, the Alberta Used Oil Management Association (AUOMA) is the Delegated Administrative Organization (DAO) charged with managing programs facilitating the collection and recycling of used oil materials in the province. The program is funded through an Environmental Handling Charge (EHC), not by government tax, placed on wholesale suppliers of targeted lubricating oil materials. The EHC is remitted by member companies to AUOMA who in turn compensates private sector, registered collectors/processors through a Return Incentive (RI) on the recovery of these materials. Year-round collection points are located around the province. A Freight Equalization Zone Pricing on RI makes it possible for collectors to be compensated for pick-ups in every corner of Alberta. AUOMA is a non-profit association responsible for meeting the challenges of the recovery, recycling and reuse of used oil materials. AUOMA s continuing success is made possible by committed partnerships with its members, the first sellers of lubricating oil, oil filters and plastic containers; collectors and processors of used oil materials; provincial recycling organizations; the Alberta Government; and similar provincial recycling associations across Canada. AUOMA

5 Meeting Challenges in 2012 Report from Chairman and Executive Director The achievements of 2012 demonstrate AUOMA s commitment to meeting the challenges facing the provincial used oil materials recycling program. In each of the association s core businesses, work has moved forward significant savings and improved program efficiencies were attained through program changes, research concluded that led to a business case for revitalizing AUOMA s recycling program and to a redirection of incentive application, and new communication tools to advance messaging between AUOMA and its stakeholders. The following summarizes the work AUOMA has accomplished in 2012 to meet the challenges of Making Every Drop Count. Performance Measure Improved Financial Performance Financial sustainability and accountability remain high on AUOMA s agenda Significant savings and revenue increases to the association s finances led to a significantly reduced deficit and lower draw on a reserve fund. This was achieved without loss to recovery and recycling results for used oil materials collectors and processors incented by AUOMA. The two significant changes which affected AUOMA s financial performance were the conclusion of the Used Oil Space Heater Program, incentives for self-use of used oil as shop fuel, and a decrease of $0.01 per litre to the return incentive for used oil collections. A business case for revitalizing AUOMA s program, which includes the financial initiatives mentioned above, was concluded. This reference serves as a beacon for AUOMA planning, including advice to government on regulation and direction to AUOMA s Board of Directors on business planning. The case proposes a regulation change that will continue to improve industry management of program revenues and expenditures. The case includes a rationale for adding automotive glycol products, i.e., anti-freeze and anti-freeze containers, windshield washer containers, diesel exhaust fluid containers, to the Incentive Program and enabling an EHC/levy for used glycol products available for recycling. Automotive glycol products are already collected as part of used oil material collections, and collectors/processors receive incentive for them, but AUOMA receives no funding for these products to be recycled. Performance Measure Advanced Recycling Network AUOMA acknowledges the continuing need for a consistent urban and rural collection network throughout the province. A strong recycling network is crucial to meeting the challenges of reliable recycling solutions and the best environmental outcomes for Alberta s used oil materials. AUOMA is also working with processors to seek new uses and markets for recycled used oil materials. A three year Return Incentive Compliance Review, undertaken by PricewaterhouseCoopers, was completed in The results indicated a need to reconsider the target for AUOMA s incentive if better program performance measurement is to be achieved, especially measurement of end-result of recycled materials. 03

6 AUOMA continues its vital connection with affiliate used oil management associations across Canada, a network that is growing, as well as its registered collectors and processors. AUOMA strives to maintain strong relations with all key stakeholders, on behalf of its members, including the Government of Alberta, particularly the Minister and Ministry of Environment and Sustainable Resource Development. Performance Measure Volumes increase AUOMA s primary measure of success recovery volumes of used oil materials rose modestly in 2012, although the percentage of recovery of used oil over used oil available for recovery decreased very slightly over the year. Used oil 92,107,972 litres, 81.5% of used oil available for recycling was collected, up 142,942 litres over Used filters 8,080,810 filters, 93.6% of used filters available for recycling, up by 8,230 filters over the previous year. Used plastic oil containers 2,496,973 kilograms, 91.8% of used plastic containers available*, an increase of 89,995 kg over Since the inception of the program in 1997 to the end of 2012, the program has recovered and recycled: over 1,152 billion litres of used oil over 98 million used oil filters over 23 million kilograms of used plastic oil containers * Approximately 19% of plastic containers recovered are non-oil, automotive glycol containers, compatible with used oil containers and incented for recovery, but not levy funded. Performance Measure Improved communications through the website AUOMA s new look website ( with its enhanced content management system was launched in May With the phenomenal growth and use of smart phones, an important addition to AUOMA s communications has also been the launch of its mobile website in June ( Central to the functionality of both new sites is the simplicity of finding the nearest used oil materials collection point for small volumes or the nearest registered collector for large volumes. Tracking results since the launch indicate both sites are being visited and used effectively. From launch to end of December 2012, the main site had 5,439 visits with 53% doing recycling centre searches. The mobile site attracted 1,101 visits with nearly 35% searching for the nearest recycling centre. For members, the new main website provides easy access to the EHC Remittance Form. Board members have a secure login section to access relevant AUOMA business documents, agendas and meeting minutes. AUOMA

7 Performance Measure Optimum recovery of used oil materials Actual % Planned % Actual % Used oil recovered Used oil filters Used oil containers

8 Performance Measure Improved communications with Members survey As used oil recycling matures, the program is experiencing changes. There is a need to look at adjusting what products the program handles, regulation changes to handle new products and how the Alberta used oil management program is funded. In May 2012, a six question survey was distributed electronically to all 215 registered companies of the Alberta program with a response rate of 11%. Question 1 asked if members support an industry levy called an Environmental Handling Charge (EHC) to finance incentive programs such as used oil materials recycling. YES for support 85% NO 15% Question 2 asked if members supported change to the regulation removing the described rate of levies/ehc from the regulation allowing the membership, with the Board of Directors, to set appropriate fees required to meet operating costs of the used oil management program. YES for support 70% NO 30% Question 3 addressed support for increasing the current $0.05 levy/ehc on used oil containers to $0.10/litre with oil fluid remaining at $0.05/litre. This is in line with the other programs across Canada. YES for the increase 65% NO 25% N/A 10% Question 4 looked at members opinions of the importance of consistency and harmonization of used oil management programs across Canada. VERY IMPORTANT 80% NOT IMPORTANT 20% Question 5 wanted to know where members stood on supporting a new regulation that includes other automotive liquids and containers including anti-freeze/coolant, anti-freeze/ coolant containers and windshield washer containers. YES for support 90% NO 5% N/A 5% Question 6 tackled the question of member support of a levy/ehc anti-freeze/anti-freeze/ coolant and windshield containers. Currently these products are free riders included in the used oil management program s collection and processing system. SUPPORT A LEVY 70% NO SUPPORT 25% N/A 5% The survey contained a seventh point where members included comments which were generally positive and helpful to AUOMA. The survey results were very close to results from similar surveys conducted in A follow-up Members newsletter was distributed electronically highlighting the survey response, as well as AUOMA s new websites, the successful Summer Ambassadors program and filter study. AUOMA

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10 Performance Measure - Improved communications with Alberta communities Each summer, AUOMA, with the assistance of the Recycling Council of Alberta (RCA), hires youthful Ambassadors to reach out to Alberta communities to promote used oil material recycling and conduct special materials surveys. These eager Ambassadors travel thousands of kilometres, meet thousands of people and see the province as few of us ever do. During the summer, the Ambassadors connected with 28 different events ranging from Red Deer s annual Westerner Days Fair & Exhibition to the nostalgic Cruisin the DUB Show n Shine in Aldersyde. The annual Ambassadors community outreach program is supported by AUOMA in partnership with other DAO s such as the Alberta Recycling Management Authority (ARMA) and the Beverage Container Management Board (BCMB). The summer was highlighted by an Ambassador-produced video featuring Mr. Oil Drop on YouTube dancing to the 80 s music chart hit, Safety Dance. Permission to use the song was courtesy of the Montreal-based rock group, Men without Hats. The 2012 Ambassador survey focused on used oil filters. Every two years, AUOMA has the Ambassadors survey used oil filter collectors to determine if the appropriate program materials are being recycled. The Ambassadors analyzed 206 drums filled with recycled used oil filters over an eight day period in May and June. The survey was done on site with the cooperation of the following collectors: Pnewko Trucking Ltd., Lacombe; Newalta, Redwater; and Little Dipper Holdings, Lloydminster. Meeting the recycling and administrative challenges to Make Every Drop Count! Clint Domansky Chairman Roger Jackson Executive Director AUOMA

11 Used Oil Recovered millions of litres Litres of Used Oil Recycled 92,107,972 litres of used oil recovered in 2012, 146,942 litres more than in This is a recovery rate of 81.5% of used oil available for recycling. Since 1997, this brings the total litres of used oil collected to 1,152,488,461 litres Fascinating Fact A typical Canadian household uses over 120,000 litres of water a year, averaging 329 litres a day for household and gardening uses (1). You, plus eight neighbours, use over 1 million litres of water each year. But it only takes one litre of used oil to contaminate one million litres of water. 10 (1) Environment Canada - Water Conservation - Every Drop Counts (actual) 2011 (actual) 2012 (actual) 2013 (planned) Filters Recovered millions Number of Used Oil Filters Recycled 8,080,810 used oil filters were collected and recycled, 8,230 more filters tha the previous year, a recovery rate of 93.6% of filters available for recycling. From program inception to 2012, 98,191,864 filters were recovered and delivered to steel recycling mills. Fascinating Fact Recycling steel is economical (2). It is cheaper than mining iron ore and producing new steel. The energy saved by recycling reduces the annual energy consumption of the steel industry by about 75%, which is enough to power eighteen million homes for one year. The steel industry has been actively recycling for over 150 years (2). (2) (actual) 2011 (actual) 2012 (actual) 2013 (planned) Containers Recycled millions of kilograms 1998 (actual) 2011 (actual) 2012 (actual) 2013 (planned) Kilograms of Used Oil Containers Recycled 2,496,973 kg of used oil containers were collected and recycled in 2012, a gain of 89,995 kg over This is 91.8% of the containers available for recycling. Since the beginning of the program, 23,104,324 kg of plastic containers have been recovered and recycled into useful products. Fascinating Fact The Leatherback Turtle, the largest of all sea turtles, has been around for over 150 million years, surviving the dinosaurs. But now is endangered. A serious threat is from marine debris like discarded plastics that resemble their favorite prey, jellyfish. When ingested, the debris may block their digestive tract, preventing them from eating. Another good reason to recycle all plastics. (3) (3) 09

12 AUOMA

13 1. Merchandise table at Banff Annual Rod Run, June Bonnyville, Alberta s Gear Grabber Classic, Jul Cruisin the Dub, Aldersyde 4. Here s an old timer Rock N Aug., St. Albert, Aug Mr. Oil Drop at Red Deer s Westerner Days, Jul Mr. Oil Drop at Mayor s Enviro Expo, Calgary, June Another classic Rock N August, St. Albert, Aug Kids love Mr. Oil Drop, Enviro Expo, Calgary, June Mr. Oil Drop at Red Deer s Westerner Days, Jul A hot looking rod at Rock n August, St. Albert, Aug Classic cars, Rock N August, St. Albert, Aug

14 Auditor s Report Schedule of Used Oil Materials Collected April 26, 2012 Independent Auditor s Report To Alberta Used Oil Management Association We have audited the accompanying schedule of used oil materials collected as reported by Alberta Used Oil Management Association for the year ended December 31, 2012, calculated as disclosed in note 1 to the schedule. Management s Responsibility for the Schedule Management is responsible for the preparation of the schedule in accordance with the basis of measurement as described in note 1, and for such internal control as management determines is necessary to enable the preparation of the schedule that is free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the schedule 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 schedule is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the schedule. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the schedule, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the schedule 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 schedule. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial information in the schedule of used oil materials collected as reported by Alberta Used Oil Management Association as at December 31, 2012 is prepared, in all material respects, in accordance with the basis of measurement as described in note 1. Chartered Accountants AUOMA

15 Schedule of Used Oil Materials Collected For the year ended December 31, 2012 Current year Prior year volumes volumes January 1, 2012 January 1, 2011 to to December 31, 2012 December 31, 2011 Used oil 92,107,972 litres 91,961,030 litres Used oil filters 8,080,810 filters 8,072,580 filters Used oil containers 2,496,973 kilograms 2,406,978 kilograms Approved by the Board of Directors Director Director The accompanying notes are an integral part of these financial statements. 1 Basis of presentation Volume measurement and measurement uncertainty Volumes of oil, containers of oil and weight of filters collected are based on actual measurements taken by the Collector/Transporters of these materials and verified by Generators and Processors. The conversion factor from weight of filters in a drum to the number of filters is based on studies performed by independent consultants and management s best estimates. A full drum is defined as weighing approximately 90 kg and contains on average: 115 filters less than or equal to 203 millimetres in length and 15 filters greater than 203 millimetres in length. Management s estimates and assumptions affect the number of filters collected during the reporting year. Actual results could differ from these estimates and such differences could be material. Oil containers are collected in bulk with the actual weights being reported and will include containers where an EHC has not been remitted and described as ineligible containers. These ineligible containers are the same type of plastic and therefore deemed as being environmentally important that they be diverted from landfill. As well, it is operationally and financially impractical to segregate these ineligible containers from the bulk collection. Based on studies performed by independent consultants, management estimates that the actual weight of the containers collected and reported in the Schedule consists of approximately 19% of ineligible containers. Actual results could differ from these estimates and such differences could be material. 13

16 Auditor s Report Financial Statements April 26, 2013 Independent Auditor s Report To the Members of Alberta Used Oil Management Association We have audited the accompanying financial statements of Alberta Used Oil Management Association, which comprise the statements of financial position as at December 31, 2012, December 31, 2011 and January 1, 2011 and the statements of operations, changes in net assets and cash flows for the years ended December 31, 2012 and December 31, 2011, and the related notes, which comprise 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 not-for-profit organizations, 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 audits. We conducted our audits 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 in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Alberta Used Oil Management Association as at December 31, 2012, December 31, 2011 and January 1, 2011 and the results of its operations and its cash flows for the years ended December 31, 2012 and December 31, 2011 in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Accountants AUOMA

17 Statements of Financial Position Assets December 31, December 31, January 1, $ $ $ Current assets Cash and cash equivalents (note 4) 298,976 Accounts receivable 4,312,986 4,336,565 4,192,010 Prepaid expenses and deposits 18,310 21,895 19,226 4,630,272 4,358,460 4,211,236 Property and equipment (note 5) 5,081 3,490 6,229 Investments (notes 6, 7 and 8) 4,060,336 4,741,107 5,274,640 Liabilities 8,695,689 9,103,057 9,492,105 Current liabilities Bank indebtedness (note 4) 90, ,526 Return incentives payable 1,888,632 2,216,582 2,158,211 Accounts payable and accrued liabilities 138, , ,561 Commitments (note 9) 2,026,918 2,432,462 2,514,298 Net Assets Unrestricted 2,603,354 1,925,998 1,696,938 Internally restricted (note 8) 4,060,336 4,741,107 5,274,640 Invested in property and equipment internally restricted 5,081 3,490 6,229 6,668,771 6,670,595 6,977,807 8,695,689 9,103,057 9,492,105 Approved by the Board of Directors Director Director The accompanying notes are an integral part of these financial statements. 15

18 Statements of Changes in Net Assets For the years ended December 31, 2012 and December 31, 2011 Invested in property and Internally Unrestricted equipment restricted Total $ $ $ $ Balance January 1, ,696,938 6,229 5,274,640 6,977,807 Excess of expenditures over revenue (470,940) (2,739) 166,467 (307,212) Transfers of investments (note 8) 700,000 (700,000) Balance December 31, ,925,998 3,490 4,741,107 6,670,595 Excess of expenditures over revenue (219,726) (1,327) 219,229 (1,824) Investment in capital assets (2,918) 2,918 Transfers of investments (note 8) 900,000 (900,000) Balance December 31, ,603,354 5,081 4,060,336 6,668,771 The accompanying notes are an integral part of these financial statements. AUOMA

19 Statements of Operations For the years ended December 31, 2012 and December 31, $ $ Revenue Environmental handling charges 16,490,477 16,592,193 Investment and other income 132, ,969 Registration fees 1,603 2,005 16,624,977 16,863,167 Expenditures Program costs Return incentives 15,746,736 16,005,392 Communications and public relations 142, ,916 Consulting 69, ,853 Management and administration contracts (note 12) 54,355 56,030 Compliance reviews 52,711 65,000 Professional fees (note 12) 28,720 32,604 Bad debt 50,000 16,093,877 16,503,795 Administrative costs Management and administration contracts (note 12) 354, ,452 Board expenses (note 10) 88,738 50,424 Professional fees (note 12) 86,878 66,075 Office and general expenses 61,431 70,711 Rent 54,199 50,636 Amortization 1,327 2, , ,037 16,741,130 17,102,832 Unrealized gain (loss) on investments (note 7) 114,329 (67,547) Excess of expenditures over revenue (1,824) (307,212) The accompanying notes are an integral part of these financial statements. 17

20 Statements of Cash Flows For the years ended December 31, 2012 and December 31, 2011 Cash provided by (used in) $ $ Operating activities Environmental handling charges 16,494,663 16,394,833 Investment and other income 21,056 11,319 16,515,719 16,406,152 Program activities Return incentives (16,074,692) (15,947,021) Other program activities (301,402) (473,309) Administration (655,871) (598,341) (17,031,965) (17,018,671) Investing activities Proceeds from sale of investments net 794, ,188 Acquisition of property and equipment (2,918) 791, ,188 Unrealized gain (loss) on sale of investments 114,329 (67,547) Increase in cash and cash equivalents 389, ,122 Bank indebtedness Beginning of year (90,404) (203,526) Cash and cash equivalents (bank indebtedness) End of year 298,976 (90,404) The accompanying notes are an integral part of these financial statements. AUOMA

21 Notes of Financial Statements December 31, 2012 and December 31, Authority and purpose The Alberta Used Oil Management Association (the Association) was incorporated under the Societies Act of the Province of Alberta on April 22, 1993 and commenced active operations effective September 1, As a not-for-profit organization, no provision for corporate income taxes has been provided in these financial statements, pursuant to Section 149 (1)(l) of the Income Tax Act. Pursuant to the Lubricating Oil Material Recycling and Management Regulation, Alberta Regulation 82/97, the Association has been delegated responsibility to administer the Lubricating Oil Material Recycling and Management Fund and to establish and administer a lubricating oil material waste minimization, recycling and management program in Alberta. 2 Transition to accounting standards for not-for-profit organizations (ASNPO) $ Excess of expenditures over revenue for the year ended December 31, 2011, as previously reported (239,665) Unrealized losses on investments previously recorded as an adjustment to net assets (67,547) Excess of expenditures over revenues for the year ended December 31, 2011 under ASNPO (307,212) Effective January 1, 2012, the Association elected to adopt Canadian accounting standards for not-for-profit organizations (Part III of the CICA Handbook) (ASNPO) as issued by the Canadian Accounting Standards Board. Subject to certain transition elections, the accounting policies selected under this framework have been applied consistently and retrospectively as if these policies had always been in effect. The following adjustment and election were made by the Association on transition to ASNPO: The excess of expenditures over revenue for the year ended December 31, 2011 increased by $67,547 to reflect the change in fair value of investments in pooled index funds quoted in an active market. Prior to the transition, changes in the fair value of these investments were recorded in the statement of changes in net assets. The Association has elected to continue to measure capital assets at their historic value. The transition from Canadian GAAP to ASNPO had no significant impact on cash flows generated by the Association. 19

22 Notes of Financial Statements December 31, 2012 and December 31, Significant accounting policies These financial statements have been prepared by management in accordance with ASNPO. The preparation of financial statements for a period necessarily includes the use of estimates and approximations which have been made using careful judgment. Actual results could differ from those estimates. Significant estimates include the determination of the return incentives paid for ineligible containers (note 11). These financial statements have, in management s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. a) Revenue recognition These financial statements have been prepared using the deferral method, the key elements of which are: i) Environmental handling charge (EHC) revenue EHC is collected when the lubricating oil, oil filters and oil containers are first sold by a registrant. EHC revenue is recognized when there is reasonable assurance of collection, and the related services have been performed. ii) Investment income Investment income is unrestricted and recognized as revenue in the year it is earned. b) Return incentives and infrastructure development incentives Return incentive expenditures (RI) are recognized in the year when the lubricating oil materials are collected by a registered collector and completed claim forms are received and accepted by the Association. Infrastructure development incentives are recognized when the used oil containers are received at a processor and completed claim forms are received and accepted by the Association. c) Property and equipment Property and equipment are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis at the following annual rates: Furniture and fixtures Computer equipment 5 years 3 years AUOMA

23 Notes of Financial Statements December 31, 2012 and December 31, 2011 d) Cash and cash equivalents Cash and cash equivalents comprises demand deposits and short-term investment with maturity of less than three months. e) Internally restricted funds In addition to the operating fund, which is unrestricted, the Association maintains two reserve funds that may be used to fund operating or capital costs as follows: i) Internally restricted The purpose of this reserve is to ensure there are sufficient cash resources to meet operational needs. ii) Invested in property and equipment The purpose of this reserve is to separately account for capital assets. f) Financial instruments The Association s financial assets include cash and cash equivalents, accounts receivable and investments. Cash and cash equivalents are recorded at fair value with realized and unrealized gains and losses reported in the statement of operations for the period in which they arise. Accounts receivable is classified as loans and receivables and is accounted for at amortized cost using the effective interest rate method. Accounts receivable is initially recorded at fair value. Investments are held in pooled index funds. No segregated or individual stocks or bonds are held and any asset backed commercial paper held in the funds is sponsored by Canadian large banks. Investments are recorded at fair value with unrealized gains and losses included in investment income. Dividends and interest income from available for sale investments are recorded in investment income in the statement of operations. The Association s financial liabilities include bank indebtedness, return incentives payable and accounts payable and accrued liabilities. All financial liabilities are classified as other liabilities and are accounted for at amortized cost using the effective interest rate method. Financial liabilities are initially measured at fair value. The fair value of a financial instrument on initial recognition is normally the transaction price, which is the fair value of the consideration given or received. Subsequent to initial recognition the fair values of financial instruments that are quoted in active markets are based on bid prices for financial assets. Purchases and sales of financial assets are accounted for at trade dates. Transaction costs on financial instruments are expensed when incurred. All derivative instruments, including embedded derivatives, are recorded at fair value unless exempted from derivative treatment as a normal purchase and sale. The Association determined that it does not have any derivatives and has not entered into any hedge transactions. 21

24 Notes of Financial Statements December 31, 2012 and December 31, 2011 g) Measurement uncertainty The preparation of financial statements in conformity with Canadian accounting standards for not-for-profit organizations requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts for operations during the reporting period. By their nature, these estimates are subject to future periods could be significant. Accounts significantly affected by estimates in these financial statements are return incentives and infrastructure development incentives payable and EHC accruals where the fees paid by customers in the current year would not be submitted by registrant until the next year. h) Allocated expenses Expenses relating to management and administration contracts and legal fees are allocated between program costs and administrative costs as noted below. The Association allocates these expenses by identifying the appropriate basis of allocation, and applies that basis consistently each year % % Management and administration contracts Executive director contract Program costs Administrative costs Other contract staff Program costs Administrative costs Legal fees Program costs Administrative costs (Unless legal services relate exclusively to a function) 4 Cash and cash equivalents (bank indebtedness) $ $ Cash on hand Bank account balance 298,876 60,940 Outstanding cheques in excess of bank balance (151,444) Revolving line of credit Cash and cash equivalents (bank indebtedness) 298,976 (90,404) The Association has an operating line of credit arrangement. Interest is charged at the bank s prime lending rate plus 1.25% ( %). A general security agreement has been provided as collateral for any advances. At December 31, 2012, the credit limit was $994,697 (2011 $781,619), however, no amount was drawn on the facility. AUOMA

25 Notes of Financial Statements December 31, 2012 and December 31, Property and equipment 2012 Accumulated Cost amortization Net $ $ $ Furniture and fixtures 33,534 30,966 2,568 Computer equipment 30,402 27,889 2,513 63,936 58,855 5, Accumulated Cost amortization Net $ $ $ Furniture and fixtures 33,534 30,568 2,966 Computer equipment 27,484 26, ,018 57,528 3,490 6 Investments Cost Market value Cost Market value $ $ $ $ ATB Compass conservative 1,567,434 1,758,022 1,512,242 1,584,553 Canadian money market 617, ,743 1,509,731 1,509,731 Bond funds Equity Short term bond and mortgage 1,684,203 1,684,571 1,642,507 1,646,823 3,869,380 4,060,336 4,664,480 4,741,107 Unrealized gain 190,956 76,627 The market value of pooled funds at December 31, 2012 and 2011 represents the year-end quoted unit values that are based on the net asset market values of the funds. 23

26 Notes of Financial Statements December 31, 2012 and December 31, Change in unrealized gain (loss) on investments $ $ Balance Beginning of year 76, ,174 Realized loss (gain) transferred to investment income 885 (127,908) Unrealized change in market value 113,444 60,361 Net change for the year 114,329 (67,547) Balance End of year 190,956 76,627 8 Internally restricted net assets In fiscal year 2001, the Board of Directors internally restricted $4,572,234 of net assets through establishing a reserve fund. The purpose of the reserve fund is to cover the costs of the following: winding up the Association s programs, ensuring there are sufficient cash resources to meet operational needs, any unanticipated changes to the Association s programs and mandate, and any unforeseen claims or events. Investment income earned on the reserve fund principal balance, including amounts recapitalized, is to be maintained in the fund. Excess revenue over expenditures not required to cover the cost of ongoing programs may be allocated to the reserve fund as determined by the Board of Directors. In addition, the Board of Directors has stipulated that the reserve fund be maintained at a goal of 9 to 12 months of the Association s expenses and contractual commitments. During the year, the Board of Directors approved the transfer of $900,000 (2011 $700,000) to fund general operations $ $ Balance Beginning of year 4,741,107 5,274,640 Disposal of investments (918,526) (4,572,488) Purchase of investments 124,311 3,978,594 Unrealized gain for the year (note 7) 113,444 60,361 Balance End of year 4,060,336 4,741,107 AUOMA

27 Notes of Financial Statements December 31, 2012 and December 31, Commitments Under the terms of financial services and use agreements, the Association is charged a fee for provision of financial administration services of various staff to August In addition, under the terms of a service agreement expiring August 2013, the Association is charged a monthly rate for provision of professional and technical services. The Association has a lease for office space until June 2015 for the current location. The estimated minimum annual payments required under these agreements are as follows: Contract services Facilities Total $ $ $ ,704 28, , ,433 29, ,880 14, ,704 73, , Compensation As required under the Lubricating Oil Material Recycling and Management Regulation, Alberta Regulation 82/97, the remuneration and benefits paid to all members of the Board of Directors (on an individual basis by name) and to all management personnel who report directly to one or more members of the Board of Directors (on an aggregate basis) are as follows: $ $ Board of Directors compensation (included in board expenses) Mr. Lyle Hoffman (Treasurer) Audit, Remittance Assessment and Governance, Compensation and Fund Management Committees 5,790 5,375 Mr. Paul Robinson Governance, Compensation and Fund Management Committee 1,400 1,260 Mr. Lee Wilkie (Secretary) Audit Committee Mr. Tom Burton 1,600 7,670 8,595 Members of the Board of Directors have the option to decline compensation $ $ Executive Director compensation (allocated between management and administration contracts program costs and management and administration contracts administrative costs) (note 12) 137, ,500 25

28 Notes of Financial Statements December 31, 2012 and December 31, Ineligible containers The RI paid for Used Oil Containers may include payment for ineligible containers from related products such as windshield washer fluid, engine coolants, and fuel or oil additives. Containers for these products are currently excluded from the Association s program. Since these containers are generally made of the same plastic as used oil containers, there is limited economic or environmental benefit in separating these containers from the used oil container waste stream. There are also additional costs related to segregating these materials. On account of these factors, the Association has elected not to strictly enforce the removal of these containers in RI payments. Based on studies performed by independent consultants, the Association has determined that the percentage of ineligible containers is approximately 19%. This percentage is used to estimate the amount spent on ineligible plastics. The estimated amount is $725,000 for the year ended December 31, 2012 (2011 $670,000). 12 Allocated expenses For the year ended December 31, 2012, total expenses allocated between program costs and administrative costs were as follows: $ $ Management and administration contracts Executive director contract (note 10) 137, ,500 Other contract staff 271, , , ,482 Legal fees (included in professional fees) 63,528 49, Financial risk management The Association s financial instruments comprise of cash and cash equivalents, investments, accounts receivable, bank indebtedness, return incentives payable and accounts payable and accrued liabilities. Credit risk The Association is subject to credit risk with respect to accounts receivable. However, the Association is not exposed to any significant concentration of credit risk due to its large registrant base. Management monitors these accounts regularly and does not believe that the Association is exposed to significant credit risk at the balance sheet date. Included in accounts receivable is approximately $184,000 (2011 $184,000) that the Association is currently investigating with regards to its collection. While the Association believes this amount is fully recoverable, future developments and additional information could become available that may indicate that the carrying value of this receivable should be revised. The Association believes that future revision to AUOMA

29 Notes of Financial Statements December 31, 2012 and December 31, 2011 carrying value, if any, would not have a material adverse affect on the Association s financial condition. However, should such revisions be necessary, the amounts could be material to the period in which they are reported. Interest rate risk The Association is potentially subject to concentrations of interest rate risk principally with its investments. The Association manages interest risk by diversifying between specific investment entities. The Association s operating line of credit bears interest at variable rates. There were no amounts drawn down on this facility as at December 31, The Association does not use derivative instruments to reduce its exposure to this interest rate risk. Currency risk The Association is subject to currency risk with its investments. Accordingly, the values of these financial instruments will fluctuate as a result of changes in foreign currency prices. Management does not enter into foreign exchange contracts to limit the exposure to foreign currency exchange risk. This risk is mitigated by diversification of investments holdings amongst different countries. Market risk The Association is subject to market risk with its investments. Accordingly, the value of these financial instruments will fluctuate as result of changes in market prices, market conditions, or factors affecting the net asset values of the underlying investments. Should the value of the financial instruments decrease significantly, the Association could incur material losses upon disposal of the instruments. This risk is mitigated by diversification of portfolio holdings amongst different asset classes and by holding investments with diverse maturity dates and a variety of issuers. Liquidity risk The Association manages its liquidity to finance its expenses, working capital and overall capital expenditures. The Association primarily finances its liquidity through environmental handling charges, income from its investments and registration fees. The Association expects to continue to meet future requirements through this source. 27

30 Board of Directors Back Row (L-R) Pat Kane, Bob Jones, Glenn Thompson, Keith Tully. Front Row (L-R) Paul Robinson, Lyle Hoffman, Clint Domansky, Lee Wilkie (Absent: Richard Voyer) Clint Domansky, Petro-Canada Lubricants, Chairman and Director Lyle Hoffman, Hoffman Consulting, Treasurer and Director Lee Wilkie, Baldwin Filters, Secretary and Director Bob Jones, Alberta Association of Municipal Districts & Counties, Director Glenn Thompson, Imperial Oil Ltd., Director Patrick Kane, Alberta Environment and Sustainable Resource Development, Director Paul Robinson, Minit Lube Ltd., Director Keith Tully, United Farmers of Alberta (UFA), Director Richard Voyer, Husky Energy Inc., Director AUOMA

31 Audit Committee Lyle Hoffman, Chairman Lee Wilkie Glenn Thompson Governance, Compensation and Fund Management Committee Lyle Hoffman, Chairman Keith Tully Paul Robinson Remittance Assessment Committee Lyle Hoffman, Chairman Patrick Kane Bob Jones Legal Counsel Davis LLP Barristers & Solicitors Auditors PricewaterhouseCoopers LLP Executive Director Roger Jackson AUOMA Suite 1008, Empire Building, Jasper Avenue Edmonton, Alberta T5J 1V9 T F Information

32 ALBERTA USED OIL MANAGEMENT ASSOCIATION Suite 1008, Empire Building Jasper Avenue Edmonton, Alberta T5J 1V9 T F Information Printed on Recycled Paper