BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

Transcription

1 2007ANNUAL REPORT BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

2 2007ANNUAL REPORT BOARD OF DIRECTORS Left to right front row: Paul Koessler, Anna Tartaglia, John Maggiore, Catherine Dennahower Second Row: Gerald Lewandowski, Patricia Anzovino, Gregory Stamm, John Lopinski, Kenneth Schoetz, Anthony Annunziata BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 1

3 2007 CHAIRMAN S REPORT 2007 CHAIRMAN S REPORT 2007 was the 80th anniversary of the opening of the Peace Bridge. To commemorate this event the Buffalo and Fort Erie Public Bridge Authority published a hardcover book describing the history of the bridge. The $50 million Border Infrastructure Fund project was completed with the opening of the new Canada Customs facility. The completion of this four year project resulted in a much better functioning bridge and Canadian plaza. In the spring the U.S. government announced that there was an impasse in moving forward with the Shared Border Management initiative which would have relocated the U.S. Customs functions from Buffalo to Fort Erie. This impasse resulted in the Authority moving forward with the Draft Environmental Impact Statement (DEIS) with a focus on a traditional Customs plaza in Buffalo. The DEIS was published in the fall. A Record of Decision from the Federal Highway Administration for the Capacity Expansion Project is anticipated in A new four-year collective agreement was negotiated with Teamsters Local 879 (Canadian) which fundamentally altered the long term cost structure for the Authority. Together with the agreement reached the previous year with the U.S. union, this will provide cost containment allowing greater flexibility to finance the long term capital plan saw the implementation of a toll increase in anticipation of moving forward with the capacity expansion and a toll adjustment to reflect currency parity between the U.S. and Canadian dollars. A toll adjustment policy was also passed to respond to future currency fluctuations. Traffic continued to be impacted by continuing confusion over the passport proposal known as the Western Hemisphere Travel Initiative (WHTI), a stronger Canadian dollar, and higher fuel prices. Overall traffic volumes declined by -3.49%, car volumes declined by -4.51%, truck volumes increased by +0.68%, and buses increased by +2.81%. Anthony Annunziata Chairman 2 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

4 2007 INDEPENDENT AUDITORS REPORT The Board of Directors Buffalo and Fort Erie Public Bridge Authority Buffalo, New York We have audited the accompanying balance sheets of Buffalo and Fort Erie Public Bridge Authority (the Authority) as of December 31, 2007 and 2006, and the related statements of revenues, expenses, and changes in net assets, and cash flows for the years then ended. These basic financial statements are the responsibility of the Authority s management. Our responsibility is to express an opinion on these basic financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of December 31, 2007 and 2006, and the changes in its net assets and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 18, 2008 on our consideration of the Authority s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit INDEPENDENT INDEPENDENT AUDITORS REPORT AUDITOR S REPORT The management s discussion and analysis preceding the basic financial statements is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. February 18, 2008 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 3

5 2007 MANAGEMENT S DISCUSSION & ANALYSIS 2007 MANAGEMENT S DISCUSSION AND ANALYSIS For the Years ended December 31, 2007 and 2006 (Unaudited) The management of the Buffalo and Fort Erie Public Bridge Authority (hereinafter referred to as the Authority) offers the following overview and analysis of the Authority s financial activities for the years ended December 31, 2007 and 2006, which should be read in conjunction with the Authority s basic financial statements and notes to the basic financial statements. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Authority s basic financial statements. It begins by presenting and explaining the basic financial statements. These statements have been prepared according to accounting principles generally accepted in the United States of America (GAAP). Revenues and expenses are recorded using the accrual basis of accounting, meaning that they are recorded and recognized by the Authority as earned/incurred, regardless of when cash is received or paid. The balance sheet presents information on all of the Authority s assets and liabilities, with the difference between the two reported as net assets. Increases or decreases in net assets serve as a relative indicator as to whether the Authority s financial position is strengthening or weakening over time. The statement of revenues, expenses, and changes in net assets shows the results of the Authority s operations during the year and reflects both operating and nonoperating activities. Changes in net assets reflect the operational impact of the current year s activities on the financial position of the Authority. The statement of cash flows provides an analysis of the sources and uses of cash. The cash flow statement shows net cash provided or used in operating, financing and investing activities. The notes to the basic financial statements include additional information needed to provide a further understanding of the basic financial statements. 4 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

6 2007 MANAGEMENT S DISCUSSION & ANALYSIS FINANCIAL STATEMENT ANALYSIS Comparative Balance Sheets as of December 31: U.S. $, in thousands ASSETS Current assets $ 35,794 $ 28,225 Restricted assets 7,853 7,695 Capital assets, net 148, ,709 Other assets Total assets $ 192,926 $ 180,108 LIABILITIES AND NET ASSETS Current liabilities $ 5,534 $ 5,337 Bonds payable 42,494 42,284 Total liabilities 48,028 47,621 NET ASSETS Invested in capital assets, net of related debt $ 104,095 $ 99,497 Restricted 7,653 7,495 Unrestricted 33,150 25,495 Total net assets 144, ,487 Total liabilities and net assets $ 192,926 $ 180,108 As noted earlier, net assets serves as an indicator of the Authority s overall financial position. The Authority s net assets increased by approximately $12.4 million during 2007 as a result of net income earned through all Authority activities. Restricted net assets are reserved for debt service, governmental payments and operating reserves, as required by the Authority s bond indenture. Substantially all unrestricted net assets have been designated by the Board of Directors for acquisition or construction of capital projects and/or major repairs and replacements MANAGEMENT S MANAGEMENT S INDEPENDENT DISCUSSION DISCUSSION AND AUDITOR S ANALYSIS AND REPORT ANALYSIS The increase in net assets invested in capital assets, net of related debt reflects the Authority s continued investment in infrastructure improvements associated with maximizing the efficiency of the existing plazas. Restricted assets and restricted net assets have increased, reflecting an increase in the debt reserve requirements. BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 5

7 2007 MANAGEMENT S DISCUSSION & ANALYSIS 2007 MANAGEMENT S MANAGEMENT S DISCUSSION DISCUSSION AND ANALYSIS AND ANALYSIS STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31: U.S. $, in thousands OPERATING REVENUE Toll revenues $ 21,717 $ 18,973 Other revenues 8,324 8,251 Total operating revenues 30,041 27,224 OPERATING EXPENSES Toll collection and traffic control 3,915 3,876 Maintenance of bridge and facilities 4,999 4,452 Administration 2,979 2,952 Depreciation 5,152 4,378 Contributions to pension plans 1,662 1,845 Other expenses 1, Total operating expenses 19,775 18,448 Operating Income 10,266 8,776 NON-OPERATING REVENUES (EXPENSES) Interest income 1,783 1,356 Interest expense & amortization of deferred financing costs (1,909) (1,734) Currency remeasurement Special investment depreciation and loss on asset valuation - (1,756) Total non-operating net revenue (expense) 57 (1,945) Capital contributions 2,088 9,236 Increase in net assets 12,411 16,067 Net assets, beginning of year 132, ,420 Net assets, end of year $ 144,898 $ 132,487 As a bi-national toll bridge operator, the Authority earns revenue and incurs expenses in both U.S. and Canadian dollars. All Canadian revenue and expenses are converted to U.S. dollars at the average rate of exchange for the year. The Canadian dollar strengthened against the U.S.. dollar during 2007, resulting in an increase in the remeasured value of both the revenue earned and expenses incurred in Canadian dollars. Toll revenues increased substantially during 2007, as toll rates were increased for passenger and commercial vehicles effective April 1, 2007 and July 1, 2007, respectively. Commercial vehicle volume increased by.7% while passenger vehicle volume declined by 4.5%.. 6 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

8 2007 MANAGEMENT S DISCUSSION & ANALYSIS Operating expenses increased by approximately $1.3 million. This increase is primarily attributable to an increase in depreciation expense, as investment in infrastructure increased substantially in 2006 and In addition, the continued strengthening of the Canadian dollar resulted in an increase of $325,000 in Canadian expenses remeasured to U.S. dollars. Total non-operating net revenue increased significantly in 2007, as $1.8 million in additional depreciation expense was recognized in 2006, associated with a reduction in the estimated useful life of certain structures that were demolished in order to finalize the Authority s Canadian plaza reconfiguration plan. As of December 31, 2006 depreciation expense was fully recognized for all assets demolished as a result of the plaza reconfiguration. Investment income was favorably impacted by an increase in investment rates and cash generated through operations, while interest expense was negatively impacted by an increase in the interest rate on the 2005 Series Bonds from 3% to 4% effective July 1, CAPITAL ASSETS AND LONG TERM DEBT The Authority s investment in capital assets as of December 31, 2007 approximated $149 million, representing 77% of the Authority s total assets. Capital assets consist of land, the Peace Bridge, buildings and plaza improvements, equipment and construction-in-progress. During 2007, the Authority invested $10 million in capital assets, primarily related to completing the reconfiguration of the Canadian plaza, which included (i) construction of buildings to accommodate Canadian Customs Border Services Agency functions, including refugee processing on the Canadian side and (ii) relocation of Canadian auto primary inspection facilities to increase queuing capacity. In addition, capital assets included on-going expenditures associated with the Bi- National Integrated Environmental Review Process whereby bridge and plaza expansion are being studied as a single action. These infrastructure improvements were partially funded through a U.S. federal government grant, with the remainder funded through net revenue generated through operations. In August 2005, the Authority issued $44,120,000 in 2005 Series Toll Bridge System Revenue Refunding Bonds, bearing interest at 3% through June 30, On July 1, 2007, the 2005 Series Bonds were remarketed at an interest rate of 4% through July 1, MANAGEMENT S MANAGEMENT S INDEPENDENT DISCUSSION DISCUSSION AND AUDITOR S ANALYSIS AND REPORT ANALYSIS The principal of, purchase or redemption price of, and interest on, the Series 2005 Bonds are payable from funds drawn under an irrevocable, direct-pay letter of credit issued by the New York Agency of Scotiabank. Moody s Investors Service, Inc., Standard & Poor s Rating Services, Inc., and Fitch Ratings have assigned ratings of Aa1 / VMIG-1, AA- / A-1+, and AA- / F1+ to the 2005 Series Bonds. BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 7

9 2007 MANAGEMENT S DISCUSSION & ANALYSIS 2007 MANAGEMENT S MANAGEMENT S DISCUSSION DISCUSSION AND ANALYSIS AND ANALYSIS FACTS THAT WILL IMPACT FINANCIAL POSITION Design and construction of a capacity expansion project resulting from the Bi-National Integrated Environmental Review Process is expected to require a future bond offering or other debt financing. The Authority may not have sufficient financial capability to fund the entire cost of construction and maintenance of this project, although it does expect to contribute materially to such cost. A draft finance plan has been developed to consider enhancement of the current financial capacity of the Authority to undertake the project and to determine the availability of other funding sources. Various factors may affect the timing and costs ultimately required to implement certain provisions of the capacity expansion project, which remains in the environmental assessment phase. Consequently, it is not currently possible to accurately predict the timing of the issuance or the amount of any financing that may be required to implement the capacity expansion project. During 2006, the Authority applied for and received a $25 million earmark for planning, design, and construction of certain capacity expansion project components under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users or SAFETEA-LU. Subsequent to approving the earmark, the Federal government reduced the state appropriation, including the $25 million earmark by approximately 14%. In addition, a portion of the available earmark has been and will be used towards funding completion of the environmental review process. The remaining available funding will be analyzed in conjunction with the overall finance plan and will be used to establish the financial threshold for evaluating project alternatives and the selection of a preferred alternative. CONTACT FOR AUTHORITY S FINANCIAL MANAGEMENT This report is designed to provide a general overview of the finances of the Authority for interested parties. Questions concerning any information within this report or requests for additional information should be addressed to Lynne M. Bogdan, Finance Manager, 100 Queen Street, Fort Erie, ON L2A 3S6. 8 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

10 BALANCE SHEETS December 31, ASSETS Current assets: Cash $ 540,016 $ 123,705 Accounts receivable, net 2,801,725 2,609,730 Grants receivable 1,116,303 1,471,111 Prepaid expenses and other assets 183, ,613 Investments 31,152,784 23,845,779 35,794,199 28,224,938 Noncurrent assets: Restricted assets: Cash 1,156,922 1,864,466 Investments 6,695,958 5,830,762 7,852,880 7,695,228 Capital assets, net 148,642, ,709,199 Deferred financing costs 636, , ,278, ,188,101 Total assets $ $192,925,887 $ $180,108,267 LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ $2,393,265 $ $2,482,357 Accrued interest payable 877, ,800 Deferred revenue 1,055,744 1,011,046 Accrued compensation and benefits 1,007, ,382 Due to other governments 200, ,000 5,533,629 5,336,585 Noncurrent liabilities: Bonds payable 42,494,183 42,284,313 Total liabilities 48,027,812 47,620,898 Net Assets: Invested in capital assets, net of related debt 104,095,262 99,497,359 Restricted 7,652,880 7,495,228 Unrestricted 33,149,933 25,494,782 Total net assets 144,898, ,487,369 Total liabilities and net assets $ $192,925,887 $ 180,108,267 BALANCE SHEETS MANAGEMENT S INDEPENDENT DISCUSSION AUDITOR S AND REPORT ANALYSIS BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 9

11 STATEMENTS OF REVENUES, EXPENSES & CHANGES IN NET ASSETS STATEMENTS OF REVENUES, MANAGEMENT S REVENUES, EXPENSES EXPENSES DISCUSSION & CHANGES & CHANGES AND IN NET IN ANALYSIS NET ASSETS ASSETS For the years ended December 31, Operating revenues: Commercial tolls $ 14,283,105 $ 12,533,485 Passenger tolls 7,433,577 6,439,352 Rentals 8,141,999 8,004,053 Other 182, ,547 Total operating revenues 30,041,417 27,224,437 Operating expenses: Toll collection and traffic control 3,915,381 3,875,575 Maintenance of bridge, buildings, plazas and equipment 4,998,991 4,452,216 Administration 2,979,027 2,952,433 Contributions to pension plans 1,662,155 1,844,726 Canadian property taxes and U.S. equalization payments 867, ,629 Payments to New York State 200, ,000 Depreciation 5,151,968 4,378,065 Total operating expenses 19,775,458 18,447,644 Operating income 10,265,959 8,776,793 Non-operating revenues (expenses): Interest income 1,783,095 1,356,014 Interest expense (1,846,120) (1,707,048) Amortization of deferred financing costs (63,401) (26,606) Currency remeasurement 183, ,581 Special investment depreciation - (1,785,380) Gain on asset disposal - 29,000 Total non-operating net revenue (expense) 56,857 (1,945,439) Increase in net assets before grant contributions 10,322,816 6,831,354 Capital contributions from grants 2,087,890 9,236,426 Increase in net assets 12,410,706 16,067,780 Net assets - beginning of year 132,487, ,419,589 Net assets - end of year $144,898,075 $132,487, BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

12 STATEMENTS OF CASH FLOW For the years ended December 31, Cash flows from operating activities: Toll revenue $ 21,994,526 $ 18,684,132 Payments to suppliers (5,550,120) (5,138,816) Payments for wages and employee benefits (9,206,946) (9,071,774) Other revenues 7,778,701 8,103,112 Net cash provided from operating activities 15,016,161 12,576,654 Cash used for capital financing activities: Acquisition and construction of capital assets (10,175,439) (22,078,043) Capital contributions from grants 2,611,779 9,466,772 Interest paid on debt (1,420,552) (1,330,480) Payment of financing fees (220,770) - Repayments on note payable - (489,808) Proceeds on asset disposal - 29,000 Net cash used for capital financing activities (9,204,982) (14,402,559) Cash flows from investing activities: Net deposits (to) from investments (8,172,201) 592,120 Interest income 1,783,095 1,356,014 Net cash provided from (used for) investing activities (6,389,106) 1,948,134 Effect of exchange rate changes 286, ,424 Net increase (decrease) in cash (291,233) 311,653 Cash, beginning of year 1,988,171 1,676,518 Cash, end of year $ 1,696,938 $ 1,988,171 Reconciliation of operating income to net cash used in operating activities: Operating income $ 10,265,959 $ 8,776,793 Adjustments to reconcile operating income to net cash used in operating activities: Depreciation 5,151,968 4,378,065 Allowance for unredeemed tokens and deferred toll revenue 3,684 (6,673) Changes in assets and liabilities: Accounts counts receivable e (161,786) (525,538) Prepaid expense and other assets 11,483 21,239 Accounts payable and accrued liabilities (145,059) (162,250) Deferred revenue (110,088) 95,018 $ 15,016,161 $ 12,576,654 STATEMENTS OF MANAGEMENT S CASH INDEPENDENT FLOW STATEMENTS DISCUSSION AUDITOR S OF CASH FLOWS AND REPORT ANALYSIS BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 11

13 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2007 NOTES TO REVENUES, MANAGEMENT S BASIC NOTES FINANCIAL TO EXPENSES BASIC DISCUSSION STATEMENTS FINANCIAL & CHANGES STATEMENTS AND IN NET ANALYSIS ASSETS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reporting Entity Buffalo and Fort Erie Public Bridge Authority (the Authority) was established through a legislative act as a public benefit corporation to own and operate an international toll bridge connecting the United States and Canada. The Enabling Act, under which the Authority was created, provides that on July 1, 2020 or when all bonds issued by the Authority have been discharged (current bonds final maturity date is January 1, 2025), whichever shall be later, the Authority s functions shall cease. Basis of Presentation The financial statements of the Authority are prepared in conformity with U.S. generally accepted accounting principles (GAAP) as applied to government units. The Authority applies all Governmental Accounting Standards Board (GASB) pronouncements as well as applicable Financial Accounting Standards Board (FASB) pronouncements issued on or before November 30, Measurement Focus The Authority reports as a special purpose government engaged in business-type activities, as defined by GASB Statement No. 34. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. The Authority s financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been satisfied. The Authority s policy for defining operating activities in the statements of revenues, expenses and changes in net assets are those that generally result from exchange transactions such as payments received for services and payments made to purchase those goods or services. Certain other transactions are reported as non-operating activities and include investment income, interest paid on capital debt and the net effect of currency re-measurement. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash At various times, cash in financial institutions may exceed insured limits and subject the Authority to concentrations of credit risk. Investments Investments consist of a bank term investment and government obligations and are stated at fair market value. Restricted Assets The Authority established the following accounts in order to comply with bond resolution requirements: Bond - trustee accounts established to receive amounts necessary to meet current principal and interest payments and to maintain a sufficient balance in a debt service reserve fund. Government payments - holds amounts necessary to fund payments to the State of New York as required under current legislation. Operating expense reserve - holds amounts necessary to pay current year operating expenses as defined, plus an operating reserve equal to one-sixth of the operating expenses of the Authority for the preceding year. 12 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

14 2007 NOTES TO BASIC FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Capital Assets Capital assets are reported at actual historical cost. For assets being depreciated, expense is calculated over estimated useful lives using the straight-line method. Maintenance and repairs are expensed as incurred, significant improvements are capitalized. Capitalization thresholds for determining which asset purchases are added to capital accounts and the estimated useful lives of capital assets are: Capitalization Estimated Policy Useful Life Bridge infrastructure $5, years Buildings and improvements $5, years Equipment - general $1, years Equipment - toll system $1,000 7 years Currency Translation Due to its bi-national operations, the Authority maintains accounts within its accounting records in either United States or Canadian dollars. The Authority translates all Canadian asset and liability accounts at the year-end exchange rate, except for property and equipment accounts, which are translated at historical rates in effect in the year of acquisition. The statement of revenues and expenses is converted at the average rate of exchange for the year. Translation gains and losses are included as a component of non-operating revenues (expenses) as a currency re-measurement. Compensated Absences The Authority provides for vacation, sick and compensatory time that is attributable to services already rendered. The liabilities are recorded based on employees rates of pay as of the end of the fiscal year, and include all payroll related liabilities. Net Assets Invested in capital assets, net of related debt consists of net capital assets reduced by outstanding balances of any related debt obligations attributable to the acquisition, construction, or improvement of the assets. Restricted net assets consists of net assets subject to externally imposed restrictions by creditors (such as through debt covenants), federal or state laws or enabling legislation. Unrestricted consists of all other net assets that do not meet the definition of the above restrictions and are available for general use of the Authority. The Authority has adopted a policy of using restricted funds, when available, prior to unrestricted funds. Future Impact of Accounting Pronouncements Governmental Accounting Standards Board Statement No. 45 (GASB 45), Accounting and Financial Reporting by Employees for Postemployment Benefits Other than Pensions, which changes the reporting of postemployment health insurance from a pay-as-you-go basis to an accrual basis, is required to be adopted for fiscal year ending December 31, Although the Authority has started the calculation required by GASB 45, the estimated impact on its net assets has not been determined NOTES TO MANAGEMENT S BASIC NOTES INDEPENDENT FINANCIAL STATEMENTS TO BASIC DISCUSSION FINANCIAL STATEMENTS AUDITOR S OF CASH FLOWS AND STATEMENTS REPORT ANALYSIS 2. DEPOSITS AND INVESTMENTS: NTS: The Authority s policy is to obtain collateral for its cash deposits from U.S. financial institutions. Cash deposits maintained in banks within the United States are covered by U.S. Federal Deposit Insurance and by collateral held by custodial banks in the Authority s name based upon the average daily funds available as determined by the banks. Canada Deposit Insurance covers cash deposits up to $101,833 ($100,000 Cdn$) maintained in banks within Canada. BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 13

15 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2. DEPOSITS AND INVESTMENTS (CONTINUED): Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned to it. At December 31, 2007 $680,461 of the Authority s bank deposits and bank term investments totaling $35,070,000 were exposed to custodial credit risk. The Authority s exposure to foreign currency risk derives from its deposits in Canadian denominated deposits totaling $805,416 (US$). The Authority manages its investments pursuant to the bond resolution, which defines the nature and maturity of allowable investments. In general, the Authority invests conservatively in short-term U.S. and Canadian government securities and certificates of deposit. 3. ACCOUNTS RECEIVABLE, NET: Accounts receivable $ 2,802,725 $ 2,615,730 Less allowance for doubtful accounts 1,000 6,000 $ $2,801,725 $ 2,609, INVESTMENTS: Unrestricted: Bank term investment $ 31,152,784 $ 23,845,779 Restricted: U.S. Treasury notes $ 4,837,140 $ 4,508,255 Bank term investment 1,835,388 1,299,077 Accrued interest receivable 23,430 23,430 $ 6,695,958 $ 5,830, CAPITAL ASSETS: January 1, Reclassifications December 31, 2007 Additions and Disposals 2007 Capital assets not being depreciated: Land $ $22,478,160 $ - $ - $ 22,478,160 Construction-in-progress 29,532,007 9,311,581 (19,904,988) 18,938,600 52,010,167 9,311,581 (19,904,988) 41,416,760 Capital assets being depreciated: Bridge 53,820,695 7,041-53,827,736 Buildings & Plazas 70,857,505 26,186 19,823,728 90,707,419 Equipment - general 4,147, ,793 22,238 4,413,343 Equipment - toll 4,509, ,705 59,022 5,064,870 Total depreciated assets 133,334, ,725 19,904, ,013,368 Less accumulated depreciation: Bridge (19,224,299) (1,750,180) - (20,974,479) Buildings and plazas (17,785,321) (2,246,659) - (20,031,980) Equipment - general (1,940,786) (428,186) - (2,368,972) Equipment - toll (2,685,217) (726,943) - (3,412,160) Total accumulated depreciation (41,635,623) (5,151,968) - (46,787,591) Total depreciated assets, net 91,699,032 (4,378,243) 19,904, ,225,777 Total capital assets, net $ 143,709,199 $ $4,933,338 $ - $ 148,642, BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

16 2007 NOTES TO BASIC FINANCIAL STATEMENTS 5. CAPITAL ASSETS (CONTINUED): January 1, Reclassifications December 31, 2006 Additions and Disposals 2006 Capital assets not being depreciated: Land $ 22,478,160 $ - $ - $ 22,478,160 Construction-in-progress 23,223,510 21,256,835 (14,948,338) 29,532,007 45,701,670 21,256,835 (14,948,338) 52,010,167 Capital assets being depreciated: Bridge 53,104, ,543 53,820,695 Buildings & Plazas 58,894,402-11,963,103 70,857,505 Equipment - general 3,592, ,003 (108,515) 4,148,619 Equipment - toll 4,447,756 61,387-4,509,143 Total depreciated assets 120,038, ,390 12,571, ,335,962 Less accumulated depreciation: Bridge (17,504,078) (1,720,221) - (19,224,299) Buildings and Plazas (15,509,139) (3,551,682) 1,275,500 (17,785,321) Equipment - general (2,811,738) (232,062) 1,101,707 (1,942,093) Equipment - toll (2,025,737) (659,480) - (2,685,217) Total accumulated depreciation (37,850,692) (6,163,445) 2,377,207 (41,636,930) Total depreciated assets, net 82,187,749 (5,437,055) 14,948,338 91,699,032 Total capital assets, net $ 127,889,419 $15,819,780 $ - $ 143,709,199 Certain structures, totaling $5.7 million that were constructed during the 1990s were originally estimated to have a 40 year useful life. During 2005, management determined that these structures would need to be demolished in accordance with the Authority s Canadian plaza reconfiguration plan. Accordingly, the Authority revised the estimated useful lives of the structures to 24 months at January 1, This change in estimate resulted in an additional $1,785,380 of depreciation expense for the year ended December 31, This additional depreciation expense was reported as special investment depreciation, a non-operating expense, in the Statement of Revenues, Expenses, and Changes in Net Assets. 6. CANADIAN DUTY-FREE BUILDING AND RELATED NOTE PAYABLE: During 1998, the Authority entered into an agreement with a Canadian duty-free enterprise ( dutyfree ) to construct a new duty-free building NOTES TO MANAGEMENT S BASIC NOTES INDEPENDENT FINANCIAL STATEMENTS TO BASIC DISCUSSION FINANCIAL STATEMENTS AUDITOR S OF CASH FLOWS AND STATEMENTS REPORT ANALYSIS Construction costs incurred by the Authority were approximately $3.1 million. The agreement required the duty-free to remit monthly rental payments to the Authority over an eight-year period ending in October The monthly payment of approximately $55,000 made through October 2006 provided the Authority a full return of all construction costs, an interest component to provide the Authority a return for financing the construction and an administrative component to cover costs of administering ng the arrangement. ent. In connection with the above transaction, the Authority obtained a $2.9 million demand installment loan, with interest at 5.7%, which was fully repaid at December 31, BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 15

17 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2007 NOTES TO REVENUES, MANAGEMENT S BASIC NOTES FINANCIAL TO EXPENSES BASIC DISCUSSION STATEMENTS FINANCIAL & CHANGES STATEMENTS AND IN NET ANALYSIS ASSETS 7. BOND INDEBTEDNESS: January 1, December 31, Due Within 2007 Increases Decreases 2007 One Year Serial bonds $44,120,000 $ - $ - $44,120,000 $ - January 1, December 31, Due Within 2006 Increases Decreases 2006 One Year Serial bonds $44,120, $44,120,000 $ - In August 2005, the Authority issued $44,120,000 in variable rate Toll Bridge System Revenue Refunding Bonds to currently refund $43,915,000 of outstanding 1995 Series bonds with interest rates ranging from 5.125% to 6.0%. The net proceeds of $43,639,394 (after payment of $480,606 for underwriting fees and other issuance costs) plus $4,788,824 in Series 1995 bond reserve monies were used to refund the original bonds and establish the Series 2005 debt reserves. The current refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2,242,465. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through the year 2024 using the effective interest method. The net difference is $1,625,817 and $1,835,687 at December 31, 2007 and The Series 2005 bonds, which are special revenue obligations of the Authority, were issued as variable rate obligations. They bore an initial term rate interest of 3.0% through July 1, On July 1, 2007 the bonds were remarketed at an interest rate of 4% until July 1, 2010, payable semi-annually on July 1 and January 1, beginning January 1, On July 1, 2010, the bonds will be subject to mandatory tender without a bondholder right to retain, at which time the bonds will be subject to alternate methods of determining interest rates from time to time and conversion to a fixed rate of interest to maturity. Under an irrevocable letter of credit issued by a bank, the trustee is entitled to draw an amount sufficient to pay the principal of the bonds when due, the purchase price of the bonds tendered by the holders and not remarketed, and up to 199 days interest. This letter of credit has an initial stated amount of $46,558,856 and accrues interest on the stated amount at.195% per annum. It will expire on August 4, 2010 unless earlier terminated or extended. Debt service requirements based on the 4.0% rate in effect at year end are as follows: Years ending December 31, Principal Interest 2008 $ - $ 1,764, ,764, ,380,000 1,709, ,185,000 1,622, ,265,000 1,531, ,655,000 6,175, ,145,000 3,353, ,490, ,800 $ 44,120,000 $ 18,352, BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

18 2007 NOTES TO BASIC FINANCIAL STATEMENTS 8. PENSION PLANS: Plan Descriptions The Authority contributes to two single-employer defined benefit pension plans: the Pension Plan for Employees of Buffalo & Fort Erie Public Bridge Authority in the United States (U.S. Plan) and Pension Plan for Employees of Buffalo & Fort Erie Public Bridge Authority in Canada (Canadian Plan)(collectively the Plans). The Plans cover all full and part-time employees in the United States and Canada, and provide retirement and death benefits and certain annual cost of living adjustments to plan members and beneficiaries. The Board of Directors has the authority to establish and amend benefit provisions of the Plans. Separate financial statements are not required, nor have they been prepared for either pension plan. The Authority is in the process of establishing a defined contribution plan which will be offered to new employees in place of the Plans. Funding Policy The Authority pays the full cost of all benefits provided under the Plans and its policy is to expense the amount funded annually. Annual required contributions to the Plans are actuarially determined no less than frequently than every other year and are computed based on Canadian governmental funding requirements to eliminate certain deficiencies over fifteen years. Contributions to the Plans totaled approximately $1.6 million in 2007 and $1.7 million in Plan Information The Authority s annual pension cost for the current year and related information for each plan is as follows: Canadian United States Retirement Plan Retirement Plan Actuaral valuation date 1/1/2007 1/1/2006 Actuarial cost method Projected Unit Credit Remaining amortization period - 13 Asset valuation method Market value basis Actuarial assumptions: Investment rate of return 5.5% 6.0% Projected salary increases 4.0% 4.0% Includes inflation at: 2.5% 3.0% Cost of living adjustments 1.5% 1.0% 2007 NOTES TO MANAGEMENT S BASIC NOTES INDEPENDENT FINANCIAL STATEMENTS TO BASIC DISCUSSION FINANCIAL STATEMENTS AUDITOR S OF CASH FLOWS AND STATEMENTS REPORT ANALYSIS Annual Plan Costs and Funding Canadian Plan U.S. Plan Service cost and net investment return $283,000 $(1,130,000) $(1,217,000) $(1,770,000) Interest 665, ,000 1,087,000 1,051,000 Annual pension cost 948,000 (509,000) (130,000) (719,000) Contributions made (646,000) (802,000) (934,000) (944,000) Decrease (increase) in funded status 302,000 (1,311,000) (1,064,000) (1,663,000) Unfunded liability (funding excess), beginning of year (196,000) 1,115,000 1,374,000 3,037,000 Unfunded liability (funding excess), end of year $106,000 $(196,000) $310,000 $1,374,000 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 17

19 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2007 NOTES TO REVENUES, MANAGEMENT S BASIC NOTES FINANCIAL TO EXPENSES BASIC DISCUSSION STATEMENTS FINANCIAL & CHANGES STATEMENTS AND IN NET ANALYSIS ASSETS 8. PENSION PLANS (CONTINUED): Three year trend information is as follows: Annual Pension Percentage of Unfunded Year Ending Cost (APC) APC Contributed Liability Canadian Plan 12/31/ ,000 68% 106,000 12/31/2006 (509,000) N/A - 12/31/ , % 1,115,000 U.S. Plan 12/31/2007 (130,000) N/A 310,000 12/31/2006 (719,000) N/A 1,374,000 12/31/2005 1,621,000 58% 3,037,000 Required Supplementary Information Schedules of Funding Progress Canadian Plan UAAL as a Actuarial Actuarial Funded Valuation Value of Liability Assets over Ratio Covered Payroll Date Assets (a) (AAL) (b) AAL (a-b) (a/b) Payroll (c) ((b-a)/c) Actuarial Accrued Excess (Deficiency) of Percentage of Covered 1/1/2007 $11,930,000 $11,762,000 $168, % $1,903,000 N/A 1/1/2006 $10,586,000 $11,701,000 $(1,115,000) 90% $1,896,000 59% 1/1/2005 $9,275,000 $10,716,000 $(1,441,000) 87% $1,751,000 82% US Plan UAAL as a Actuarial Excess Percentage Actuarial Actuarial Accrued (Deficiency) of Funded of Covered Valuation Value of Liability Assets over Ratio Covered Payroll Date Assets (a) (AAL) (b) AAL (a-b) (a/b) Payroll (c) ((b-a)/c) 1/1/2006 $14,415,000 $17,453,000 $(3,038,000) 83% $2,822, % 1/1/2004 $11,301,000 $14,661,000 $(3,360,000) 77% $3,203, % 1/1/2002 $10,588,000 $11,852,000 $(1,264,000) 89% $3,090,000 41% 9. RENTALS: The Authority, as lessor, has entered into noncancelable operating leases with a U.S. duty-free enterprise and a Canadian duty-free enterprise. The Authority recognized approximately $6.1 million and $5.5 million in rental income in 2007 and 2006, respectively, from the duty-free enterprises. This amount included approximately $2.7 million and $2.3 million of additional contingent rental payments based upon the sales levels of the lessees in 2007 and 2006, respectively. The Authority maintains a twelve-year lease through 2010, subject to optional renewal, with the Canadian duty-free enterprise. Based upon the agreement, the minimum rental payments to be received by the Authority are approximately $1.7 million for 2008; subsequent years minimum rental is based on 75% of the immediately preceding year s minimum and contingent rental payments. The Authority maintains a five-year lease with the U.S. duty-free enterprise. This lease is subject to three 5 year renewals, with the last renewal period expiring in Based upon the agreement, the minimum rental payments to be received by the Authority are approximately $1.9 million for 2008; subsequent years minimum rental is based on 50% of the immediately preceding year s minimum and contingent rental payments. The Authority also leases certain real property space under cancelable operating leases to commercial enterprises and governmental agencies. These leases are generally maintained on a month-to-month basis. 18 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

20 2007 NOTES TO BASIC FINANCIAL STATEMENTS 10. POST-EMPLOYMENT BENEFITS: The Authority provides certain health, dental and life insurance benefits to all retired employees. Substantially all of the Authority s employees may become eligible for these benefits if they reach the normal retirement age while working for the Authority. As of December 31, 2007, 58 retirees were receiving these benefits. The Authority has elected to account for the post-employment benefits on a pay as you go basis. The Authority s expense for post-employment benefits in 2007 and 2006 was approximately $515,000 and $496,000 respectively. 11. DEFERRED COMPENSATION PLAN: All employees of the Authority in the United States are offered participation in a deferred compensation plan (the plan ) created in accordance with Internal Revenue Code Section 457. The plan permits eligible participants to defer a portion of their salary until future years. Under the plan, amounts deferred are not available to employees until separation, retirement, death or unforeseen emergency. All amounts deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are held in trust, until paid or made available to the employee or other beneficiary. 12. COMMITMENTS AND CONTINGENCIES: Risk Management The Authority purchases commercial insurance for various risks of loss due to torts, theft, damage, errors and omissions, injuries to employees and natural disasters. Losses resulting from acts of terrorism have been excluded from property and excess liability policies. The Terrorism Risk Insurance Act of 2002 of the United States governs coverage for acts of terrorism under the general liability policy. Grants The Authority receives financial assistance from federal and state agencies in the form of grants. The expenditure of funds received under these programs generally requires compliance with the terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the Authority. Based on prior experience, the Authority expects any such amounts to be immaterial. The Authority is a party to a funding agreement whereby the U.S. Federal Government has agreed to fund the bi-national integrated environmental process, up to a maximum of $17.6 million. The terms and conditions of the agreement specify that if the Authority suspends or delays work on the aforementioned process, or takes other actions resulting in the loss of federal participation, the Authority must repay all amounts received under the funding agreement. Potential recoveries under this agreement as of December 31, 2007 approximate $16.8 million. The Authority has no plans to suspend or delay work on the project and completion is expected in Capacity expansion costs continue to be recorded as construction-in-progress at December 31, In the event that the expansion project is suspended or delayed for an extended period, the future benefit of expenditures may be unpaid and subject to adjustment NOTES TO MANAGEMENT S BASIC NOTES INDEPENDENT FINANCIAL STATEMENTS TO BASIC DISCUSSION FINANCIAL STATEMENTS AUDITOR S OF CASH FLOWS AND STATEMENTS REPORT ANALYSIS BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 19

21 2007 NOTES TO BASIC FINANCIAL STATEMENTS 2007 NOTES TO REVENUES, MANAGEMENT S BASIC NOTES FINANCIAL TO EXPENSES BASIC DISCUSSION STATEMENTS FINANCIAL & CHANGES STATEMENTS AND IN NET ANALYSIS ASSETS 12. COMMITMENTS AND CONTINGENCIES (CONTINUED): Operating Lease Commitments In October 2005, a new duty-free store opened on the U.S. plaza and the old store was demolished. The new store, constructed at a cost of $2.8 million and financed by the operator, is expected to be temporary in nature, as completion of the Authority s capacity expansion project may require the reconfiguration or relocation of the U.S. plaza. In the event that relocation of the temporary store is required prior to 2015, the Authority s lease with the duty free operator requires partial reimbursement, on a descending scale ranging from 25% to 5%, for the cost of construction of such temporary store. Contractual Commitments As of December 31, 2007 the Authority had contractual commitments of approximately $1.1 million, primarily related to on-going capital construction projects. Litigation The Authority is involved in various legal proceedings, which, in the opinion of management, will not have a material adverse effect upon the financial position of the Authority. 13. NET ASSETS: Unrestricted Designated Net Assets The Board of Directors has designated available unrestricted net assets for acquisition or construction of capital projects and maintenance. Restricted Net Assets Debt service funds: Debt service fund $ 901,422 $ 670,389 Debt service reserve fund 3,960,120 3,861,773 Operating expense reserve account 2,791,338 2,963,066 Total restricted assets $ 7,652,880 $ 7,495, BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY

22 It is in the line of progress and bound to come and no power on earth can prevent in no distant day a bridge across the Niagara River within the limits of Buffalo, the same as there are bridges everywhere where the growth of the country will justify the investment necessary for their construction. Alonzo C. Mather, 1903 The bridge company has been fi nanced. The location has been selected and the bridge will be built. Frank B. Baird, 1925 It gives me great pleasure to be present on the occasion of the formal dedication of this bridge which commemorates the peace which has happily endured between the British Empire and the United States for more than a century. HRH Edward, the Prince of Wales, 1927

23 BUFFALO AND FORT ERIE PUBLIC BRIDGE AUTHORITY 1 Peace Bridge Plaza, Buffalo, NY Queen Street, Fort Erie, ON L2A 3S