Financial Statements March 31, 2009
Contents Page Auditors report 1 Statements of operations and changes in net assets 2 Statement of financial position 3 Statement of cash flows 4 Notes to the financial statements 5-13 Schedule of revenues Household user fees 14 Disposal fees 14 Schedule of expenditures Administration 15 Advertising, education and public relations 15 Residential collection 15 Disposal 16-17 Tire collection and disposal 17
Auditors report To the Board of Directors of Grant Thornton LLP Suite 501 199 Grafton Street PO Box 187 Charlottetown, PE C1A 7K4 T (902) 892-6547 F (902) 566-5358 www.grantthornton.ca We have audited the statement of financial position of as at March 31, 2009 and the statements of operations, changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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. In our opinion, these financial statements present fairly, in all material respects, the financial position of as at March 31, 2009 and the results of its operations and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Charlottetown, Prince Edward Island June 12, 2009 Chartered Accountants Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
Statements of operations and changes in net assets Year ended March 31 2009 2008 Revenues Household user fees (Page 14) $ 12,093,393 $ 11,933,621 Disposal fees (Page 14) 8,148,471 7,919,702 Tires 1,859,642 1,149,178 Decommissioning and monitoring 24,447 26,234 Other 196,342 145,696 22,322,295 21,174,431 Expenditures Administration (Page 15) 1,259,044 1,178,286 Advertising, education and public relations (Page 15) 100,014 120,993 Operational costs Residential collection (Page 15) 8,447,806 8,161,583 Disposal (Pages 16 17) 6,648,969 6,498,837 Tire collection and disposal (Page 17) 1,859,642 1,149,178 Decommissioning and monitoring 24,447 26,234 18,339,922 17,135,111 Excess revenues over expenditures before interest on long term debt and depreciation and amortization 3,982,373 4,039,320 Interest on long term debt 1,697,210 1,783,211 Excess revenues over expenditures before depreciation and amortization 2,285,163 2,256,109 Depreciation and amortization 2,179,633 2,101,910 Excess revenues over expenditures 105,530 154,199 Government assistance, deficit relief (Note 2) - 1,256,285 Increase in net assets $ 105,530 $ 1,410,484 Net assets (liabilities), beginning of year $ 154,199 $ (1,256,285) Increase in net assets 105,530 1,410,484 Net assets, end of year $ 259,729 $ 154,199 See accompanying notes to the financial statements. 2
Statement of financial position March 31 2009 2008 Assets Current Cash $ 4,714,885 $ 1,112,057 Receivables (Note 4) 1,024,322 4,368,134 Investment held in trust (Note 5) 200,000 200,000 Prepaids 66,647 73,033 6,005,854 5,753,224 Performance deposits 106,501 101,016 Intangible assets (Note 6) 399,937 520,021 Capital assets (Note 7) 23,510,097 23,586,548 $ 30,022,389 $ 29,960,809 Liabilities Current Payables and accruals $ 1,850,531 $ 1,142,042 Deferred revenue - 210,822 Current portion of long term debt (Note 9) 746,930 700,981 2,597,461 2,053,845 Contractor deposits 104,000 99,000 Long term debt (Note 9) 25,331,210 26,078,140 Asset retirement obligation (Note 10) 1,729,989 1,575,625 29,762,660 29,806,610 Net assets 259,729 154,199 $ 30,022,389 $ 29,960,809 Commitments (Note 11) On behalf of the Board Director Director See accompanying notes to the financial statements. 3
Statement of cash flows Year ended March 31 2009 2008 Increase (decrease) in cash and cash equivalents Operating Cash received from customers $ 25,457,168 $ 20,789,414 Cash payments to suppliers (15,352,857) (15,070,001) Cash payments to employees (2,169,494) (2,072,259) Interest paid (1,702,425) (1,795,619) 6,232,392 1,851,535 Financing Receipt of proceeds from deficit relief assistance - 1,256,285 Repayment of long term debt (700,981) (2,146,946) Repayment of short term borrowings - (900,000) (700,981) (1,790,661) Investing (Decrease) increase in performance deposits (5,485) 906 Proceeds from disposal of capital assets 37,223 - Purchase of capital assets (1,960,321) (407,340) (1,928,583) (406,434) Net increase (decrease) in cash and cash equivalents 3,602,828 (345,560) Cash and cash equivalents Beginning of year 1,112,057 1,457,617 End of year $ 4,714,885 $ 1,112,057 See accompanying notes to the financial statements. 4
Notes to the financial statements March 31, 2009 1. Nature of operations The corporation is a Prince Edward Island crown corporation established under the provisions of the Environmental Protection Act and therefore is exempt from income taxes under paragraph 149(1)(d) of the Canadian Income Tax Act. The corporation s objective is to implement and manage a province-wide waste management system. This includes the collection and disposal of solid waste generated in Prince Edward Island. 2. Government assistance, deficit relief The Cabinet of the Province of Prince Edward Island determined that the Government will relieve from its accumulated deficit (net liabilities $1,256,285) as at March 31, 2007. The proceeds from this relief were used to pay down long term debt owing to the Province effective November 29, 2007. 3. Summary of significant accounting policies Basis of presentation The financial statements of the corporation have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). Cash and cash equivalents Cash and cash equivalents include cash on hand and balances with banks, net of bank overdrafts, and highly liquid temporary money market instruments with original maturities of three months or less. Bank borrowings are considered to be financing activities. Depreciation Depreciation is applied to write-off the cost less salvage value of capital assets over their estimated useful lives are follows: Buildings Landfill cells Leachate facility Compost facility Waste Watch drop-off centers Waste and compost carts Site equipment Motor vehicles Office equipment Computer equipment Computer software Leasehold improvements 20 yrs, straight line 5 and 8 yrs, straight line 15, 25 and 30 yrs, straight line 10, 15, 20 and 25 yrs, straight line 15 yrs, straight line 10 and 20 yrs, straight line 5 and 10 yrs, straight line 5 yrs, straight line 5 yrs, straight line 5 yrs, straight line 5 yrs, straight line 5 yrs, straight line 5
Notes to the financial statements March 31, 2009 3. Summary of significant accounting policies (continued) Amortization Amortization is applied to write-off the cost of intangible assets over their estimated lives as follows: Updates at PEI Energy Systems Waste Watch implementation costs 10 yrs, straight line 10 yrs, straight line Accounting estimates and measurement uncertainty The preparation of financial statements in conformity with GAAP requires the use of estimates as at the date of the financial statements that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenditures during the reporting periods presented. Measurement uncertainty exists when there is a variance between the recognized amount and another reasonable amount. Some accounting measurements require management s best estimate, based on assumptions as at the financial statements date that reflect the most probable set of economic conditions and planned courses of actions. Allowance for doubtful accounts, depreciation, accrued liabilities and asset retirement obligation are the most significant items that are based on accounting estimates. Actual results could differ from the estimates made by management in these financial statements, and these differences, which may be material, could require adjustment in subsequent reporting periods. Employee future benefits Permanent employees of the corporation participate in a defined benefit pension plan sponsored by the Province of Prince Edward Island. As these multi-employer plans meet the accounting requirements for treatment as defined contribution plans, the current year employer contributions are accounted for as current pension expense. Changes in accounting policies Effective April 1, 2008, the corporation adopted the new provisions of CICA Handbook Section 3862 Financial Instruments Disclosure, released in July 2006 and effective for fiscal periods beginning on or after October 1, 2007. These revised standards will enhance the standards on financial instruments issued in January 2005 and will expand on their disclosure requirements, placing an increased emphasis on disclosure about the risks and exposure relating to recognized and unrecognized financial instruments and how those risks are managed. The adoption of Section 3862 is not expected to have a material effect on the corporations operating results or financial position. Effective April 1, 2008, the corporation adopted CICA Handbook Section 1400, General Standards of Financial Statement Presentation. This section provides revised guidance on management s responsibilities to assess and disclose the corporation s ability to continue as a going concern. The adoption of this section had no significant impact on the corporation s financial statements for the year ended March 31, 2009. 6
Notes to the financial statements March 31, 2009 3. Summary of significant accounting policies (continued) Effective April 1, 2008, the corporation adopted CICA Handbook Section 1535, Capital Disclosures. This section requires the corporation to disclose additional information about capital and the manner in which it is managed. This additional disclosure includes quantitative and qualitative information regarding the corporation s objectives, policies and processes for managing capital. The required disclosures are included in Note 16. Recent accounting pronouncements CICA has issued Section 3064, Goodwill and Intangible Assets, which will replace Section 3062, Goodwill and Intangible Assets. The new standard established standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of preproduction and start-up costs and requires that these costs be expensed as incurred. The new standard applies to fiscal years beginning on or after October 1, 2008. Management does not anticipate that this section will have a material impact on its financial statements. In January 2009, CICA Handbook Section 1582, Business Combinations, was issued replacing the former Section 1581, Business Combinations. This section establishes standards for the accounting for a business combination under the acquisition method. This new section applies prospectively to a business combination for which the acquisition date is on or after the beginning of the first annual report period beginning on or after January 1, 2011. Management does not anticipate that this section will have a material impact on its statements. In February 2008, the Accounting Standards Board ( AcSB ) confirmed that the use of International Financial Reporting Standards ( IFRS ) will be required in 2011 for publicly accountable enterprises in Canada. In April 2008, the AcSB issued an IFRS Omnibus Exposure Draft proposing that publicly accountable enterprises be required to apply IFRS, in full and without modification, on January 1, 2011. The adoption date of January 1, 2011 will require the restatement, for comparative purposes, of amounts reported. The corporation is continuing to assess the financial reporting impacts of the adoption of IFRS and, at this time, the impact on future financial position and results of operations is not reasonably determinable or estimable. 4. Receivables 2009 2008 Trade $ 776,253 $ 1,148,808 Province of Prince Edward Island household user fees 34,402 3,023,124 Goods and services tax, net 213,667 196,202 $ 1,024,322 $ 4,368,134 7
Notes to the financial statements March 31, 2009 5. Investment held in trust The corporation holds in trust $200,000, as part of an agreement dated July 10, 2000 with the Community of Miltonvale Park, to provide area residents with the infrastructure for delivery of domestic water services. In the event that the corporation is unable to substantially commence the undertaking by July 13, 2005 then the Community of Miltonvale Park may demand payment of the funds from the trustee plus accrued interest. The commencement date and subsequent extension thereof has passed but the community has yet to demand the funds. It is management s opinion that the corporation will not be released from its obligation unless the community demands the funds. The fair market value of this investment as at March 31, 2009 was $240,485 (2008 - $230,046). 6. Intangible assets 2009 2008 Accumulated Net Net Cost amortization book value book value Updates at PEI Energy Systems $ 388,860 $ 273,100 $ 115,760 $ 154,652 Waste Watch implementation costs 811,930 527,753 284,177 365,369 $ 1,200,790 $ 800,853 $ 399,937 $ 520,021 7. Capital assets 2009 2008 Accumulated Net Net Cost depreciation book value book value Land $ 504,420 $ - $ 504,420 $ 504,420 Buildings 58,406 17,786 40,620 43,540 Landfill cells 4,946,532 3,769,138 1,177,394 1,457,511 Leachate facility 1,371,268 21,532 1,349,736 - Compost facility 21,000,488 5,766,213 15,234,275 16,245,505 Waste Watch drop-off centers 1,306,189 554,740 751,449 838,528 Waste and compost carts 5,552,078 1,937,869 3,614,209 3,695,782 Site equipment 1,135,912 524,144 611,768 548,172 Motor vehicles 543,990 335,437 208,553 227,341 Office equipment 47,771 46,753 1,018 3,904 Computer equipment 78,476 75,327 3,149 2,895 Computer software 82,048 82,048 - - Leasehold improvements 94,774 81,268 13,506 18,950 $ 36,722,352 $ 13,212,255 $ 23,510,097 $ 23,586,548 8
Notes to the financial statements March 31, 2009 8. Bank indebtedness The corporation is party to a centralized banking agreement among the Government of Prince Edward Island, other crown entities and the bank. 9. Long term debt 2009 2008 6.40% debenture amortized to and maturing in December 2027, payable in quarterly instalments of principal and interest of $599,547. The debenture is unconditionally secured by the Province of Prince Edward Island. $ 26,078,140 $ 26,779,121 Less: current portion 746,930 700,981 $ 25,331,210 $ 26,078,140 Annual principal repayments in each of the next five years are due as follows: 2010 - $746,930; 2011 - $795,852; 2012 - $848,063; 2013 - $903,654; 2014 - $962,889. 10. Asset retirement obligation The following presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement, including the capping, closure, and post-closure costs of landfill cells: 2009 2008 Asset retirement obligation, beginning of year $ 1,575,625 $ 1,432,680 Liabilities incurred 75,583 71,311 Accretion expense 78,781 71,634 Asset retirement obligation, end of year $ 1,729,989 $ 1,575,625 The total undiscounted amount of estimated cash flows required to settle the obligation is $2,000,000 (2008 - $2,000,000), which has been discounted using a credit-adjusted risk-free rate of 5%. Most of these obligations are not expected to be paid for several years in the future and will be funded from general corporation resources at the time of closure. 9
Notes to the financial statements March 31, 2009 11. Commitments The corporation conducts a portion of its operations, the compost facility, pursuant to an operating agreement dated April 1, 2008. Effective April 1, 2008, the agreement provides for the payment by the corporation to the operator of the facility a minimum annual fee plus an excess tonnage fee. The minimum annual fee commitments for the following years, excluding the excess tonnage fees, under the operating agreement are as follows: 2010 $ 1,799,280 2011 $ 1,835,266 The corporation has entered into agreements to lease office and storage space. Minimum rent payable for the next four years on these leases are as follows: 2010 $ 54,177 2011 $ 50,949 2012 $ 40,521 2013 $ 30,600 The corporation has entered into various agreements for the collection of recyclables, waste and compost materials. Minimum payments for the contracts currently in place for the next four years are as follows: 2010 $ 3,718,382 2011 $ 3,577,097 2012 $ 3,153,242 2013 $ 2,207,071 The corporation has entered into a waste processing agreement dated August 8, 1995 to supply PEI Energy Systems with a minimum annual guaranteed amount of 30,617 metric tonnes of waste. The 30 year agreement, expiring in August 2025, provides for the payment by the corporation of a $45 per metric tonne quarterly fee adjusted for consumer price index fluctuations. Any shortage is the responsibility of the corporation. Current annual costs for the waste processing are estimated at $1,842,069. The corporation has entered into two separate agreements to transport and dispose baled tires. The contracts are for an estimated 9,871 metric tonnes of baled tires to be hauled and disposed between November 1, 2007 and April 30, 2010 for a cost of $70 per metric tonne for transportation and $50 per metric tonne for disposal. 10
Notes to the financial statements March 31, 2009 12. Financial risk management The corporation s financial instruments consist of cash and cash equivalents, receivables, investments held in trust, accounts payables and accrued liabilities, asset retirement obligation and long term debt. Financial risk factors The following sections describe the corporation s financial risk exposure and related mitigation strategies: Credit risk Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The corporation is subject to credit risk through trade receivables. The corporation mitigates credit risk associated with its trade receivables through establishing credit approval limits and a regular monitoring process. The corporation generally considers the credit quality of its financial assets that are neither past due or impaired to be solid. Credit risk is mitigated due to the large number of customers. Allowance for doubtful accounts is reviewed at each balance sheet date. The corporation updates its estimates of allowances for doubtful accounts based on customer history. Household user fees are collected by the Province of Prince Edward Island through its provincial tax system. Interest rate risk Interest rate risk is the potential for financial loss arising from changes in interest rates. Financial instruments that potentially subject the corporation to interest rate risk include financial liabilities with floating interest rates. The corporation currently has no financial instruments which are exposed to interest rate risk due to floating rates. Liquidity risk Liquidity risk is the risk that the corporation may not have cash available to satisfy financial liabilities as they come due. The corporation actively maintains a committed credit facility to ensure that it has sufficient available funds to meet current and foreseeable future financial requirements at a reasonable cost. Market risk The corporation is subject to market risk related to the price of diesel fuel. The corporation has entered into various agreements for the collection of recyclables, waste and compost materials. These contracts include a provision that requires the corporation to pay an annual fuel adjustment based on the annual average price of diesel fuel as compared to the base rate per the contract. For the year end March 31, 2009, had the average price of diesel fuel increased or decreased by 10% during the year, the earnings of the corporation would have increased or decreased by approximately $80,500. The corporation currently has no strategy in place to mitigate this risk. Management does monitor the current price of fuel on a regular basis. Fair values The carrying amounts for cash and cash equivalents, receivables, accounts payables and accrued liabilities approximate fair value due to the short term maturity of these instruments or terms of the instrument. The carrying amount for the long term debt approximated fair value as the interest rate was reflective of rates available for similar debt. 11
Notes to the financial statements March 31, 2009 13. Employee future benefits During the year, the full time employee s of the corporation voted to participate in the mutliemployer contributory defined benefit pension plan, administered by the Province of Prince Edward Island under the Civil Service Superannuation Act. The Civil Service Superannuation Fund provides pensions to employees of the Provincial Government and certain Crown corporations and agencies based on the length of service and average of best three year s salary. Since sufficient information is not readily available to account for the corporation s participation in the plan using defined benefit pension plan accounting, these financial statements have been prepared using accounting rules for defined contribution pension plans. The current year expense for this pension plan is $63,086. 14. Related party transactions Included in these financial statements are transactions with various Prince Edward Island crown corporations, departments, agencies, and boards related to the corporation by virtue of common influence by the Government of Prince Edward Island. Routine operating transactions in the ordinary course of business with related parties are settled at prevailing market prices under normal trade terms. 15. Rate regulation The corporation is subject to rate regulation on the household user fees and disposal fees charged to residents of Prince Edward Island under the Island Regulatory Appeals Commission Act. The purpose of this Act, which is administered by the Island Regulatory and Appeal Commission (IRAC), is to regulate the rate the corporation may charge for collection and disposal of solid waste within Prince Edward Island and to ensure at all times a just and reasonable price for this service. Changes in household user fees and disposal fees can only be implemented with the approval of IRAC. 12
Notes to the financial statements March 31, 2009 16. Capital management The corporation s objectives when managing capital is to safeguard the corporation s ability to support the normal operating requirements on an ongoing basis, support any capital expenditures that maybe required in the normal operations of the corporation, and generate sufficient cash flow to manage its existing debt. The corporation s capital consists of cash and cash equivalents, long term debt and net assets. The corporation s primary uses of these funds are to finance capital expenditures, repay debt obligations and fund normal operations. In order to facilitate the management of its capital requirements, the corporation prepares annual operating budgets and actual to budget forecasts on a quarterly basis. To maintain or obtain additional capital, the corporation may issue new debt, reduce operating costs, utilize the central banking credit agreement or make a request to IRAC to increase household user and disposal fees. The corporation is not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year. 17. Other matters Costs associated with the closure and decommissioning of provincial dump sites are the responsibility of the Province of Prince Edward Island. 13
Schedule of revenues Year ended March 31 2009 2008 Household user fees Billed by $ 65,455 $ 72,944 Billed through property taxes 12,121,561 11,957,357 Cart revenues 525 - Refunds and adjustments (94,148) (96,680) $ 12,093,393 $ 11,933,621 Disposal fees East Prince Waste Management facility $ 2,487,215 $ 2,193,325 Energy from Waste 1,077,774 1,270,018 Central Compost facility 518,951 649,498 Brockton 93,756 83,933 Dingwells Mills 85,649 83,062 Murray River 48,543 45,414 New London 88,690 88,975 Residential 3,729,213 3,499,366 Other 18,680 6,111 $ 8,148,471 $ 7,919,702 14
Schedule of expenditures Year ended March 31 2009 2008 Administration Bad debt $ 13,700 $ - Dues and memberships 1,875 2,147 Insurance 13,757 13,734 Interest and bank charges 5,215 12,408 Miscellaneous 3,458 1,855 Office equipment 1,072 2,960 Office supplies 19,160 19,358 Professional fees 27,691 35,660 Rent 53,712 48,303 Repairs and maintenance 8,194 7,999 Salaries and benefits 1,022,893 942,140 Supplies 1,455 4,759 Telephone 46,196 41,475 Travel 32,093 37,170 Utilities 8,573 8,318 $ 1,259,044 $ 1,178,286 Advertising, education and public relations Advertising $ 1,395 $ 2,686 Education 46,881 54,579 Public relations 15,441 27,926 Wages and benefits 36,297 35,802 $ 100,014 $ 120,993 Residential collection Cart purchases and storage $ 24,390 $ 31,326 Collection contracts Compost and waste 3,163,235 3,075,832 Recyclables 1,150,300 1,121,203 Operations support technicians Wages and benefits 190,797 146,438 Vehicle and supplies 35,353 40,663 Other 24,367 25,718 Tippage on residential waste and compost 3,859,364 3,720,403 $ 8,447,806 $ 8,161,583 15
Schedule of expenditures Year ended March 31 2009 2008 Disposal East Prince Waste Management facility Accretion $ 78,781 $ 71,640 Equipment rental 16,284 15,084 Gas and oil 66,223 58,735 Household hazardous waste 31,941 30,911 Leachate disposal 362,890 429,041 Office and miscellaneous 13,287 10,178 Repairs and maintenance 148,405 91,309 Salaries, wages, and benefits 320,206 319,700 Security 8,342 9,010 Supplies and materials 131,815 81,079 Telephone 4,276 4,203 Travel and conferences 3,981 7,504 Utilities 18,093 16,338 Queens County Regional Landfill $ 1,204,524 $ 1,144,732 Repairs and maintenance $ 146 $ 590 Utilities 1,707 1,501 Energy from Waste $ 1,853 $ 2,091 Fly ash disposal $ 262,285 $ 256,558 PEI Energy Systems contract 1,890,861 1,876,133 Repairs and maintenance scale 3,300 2,455 Scale house supplies 2,607 4,141 Wages and benefits scale operator and inspector 106,582 103,528 Central Composting facility $ 2,265,635 $ 2,242,815 Contract $ 1,728,939 $ 1,732,965 Insurance 44,905 74,683 Property tax 154 187 Supplies 16,663 20,404 Wages and benefits 123,251 127,387 $ 1,913,912 $ 1,955,626 16
Schedule of expenditures Year ended March 31 2009 2008 Disposal (continued) Waste Watch Drop-Off Centers Blue bag disposal $ 20,000 $ 20,044 Green Isle Environmental contract 391,392 328,834 Household hazardous waste 147,596 141,849 Material and supplies 18,613 23,639 Miscellaneous 2,670 2,855 Repairs and maintenance 183,772 133,868 Security 1,776 1,644 Signage 1,560 856 Telephone 3,168 4,084 Travel 21,554 18,346 Utilities 11,031 8,514 Wages and benefits 265,291 292,706 Transportation of material $ 1,068,423 $ 977,239 Contracted hauling $ - $ 2,474 Motor vehicle 87,199 66,153 Supplies 3,246 3,149 Wages and benefits 104,177 104,558 $ 194,622 $ 176,334 $ 6,648,969 $ 6,498,837 Tire collection and disposal Collection $ 220,140 $ 213,115 Disposal 1,639,502 936,063 $ 1,859,642 $ 1,149,178 17