TOWN OF MORINVILLE MORINVILLE, ALBERTA FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER

MORINVILLE, ALBERTA FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012 Hawkings Epp DumontLLP Chartered Accountants

Hawkings Epp Dumont LLP Chartered Accountants 10476 Mayfield Road Telephone: 780-489-9606 Edmonton, Alberta Toll Free: 1-877-489-9606 T5P 4P4 Fax: 780-484-9689 www.hawkings.com Email: hed@hedllp.com INDEPENDENT AUDITORS' REPORT To the Mayor and Council of the Town of Morinville Morinville, Alberta We have audited the accompanying financial statements of the Town of Morinville, which comprise the statement of financial position as at December 31, 2012, and the statements of operations and accumulated surplus, changes in net financial assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Town of Morinville as at December 31, 2012, and the results of its operations and accumulated surplus, changes in its net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Edmonton, Alberta April 9, 2013 HAWKINGS EPP DUMONT LLP Chartered Accountants Stony Plain Office Lloydminster Office Suite 101, 5300-50 Street 5102-48 Street PO Box 3188 Stn Main PO Box 10099 Stony Plain, Alberta T7Z 1T8 Lloydminster, Alberta T9V 3A2 Telephone: 780-963-2727 Telephone: 780-875-7433 Fax: 780-963-1294 Fax: 780-875-5304 Email: email@hawkings.com Email: hed@hedlloyd.com

STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2012 FINANCIAL ASSETS Cash $ 10,123,131 $ 8,882,516 Accounts receivable (Note 2) 1,847,429 4,447,901 11,970,560 13,330,417 LIABILITIES Accounts payable and accrued liabilities (Note 3) 2,505,078 2,552,663 Deposit liabilities 351,197 351,277 Deferred revenue (Note 4) 3,026,965 3,603,517 Long-term debt (Note 5) 5,683,220 3,584,691 11,566,460 10,092,148 NET FINANCIAL ASSETS 404,100 3,238,269 NON-FINANCIAL ASSETS Prepaid expenses 759,066 25,595 Tangible Capital Assets (Schedule 1) 121,079,149 118,794,699 121,838,215 118,820,294 ACCUMULATED SURPLUS (Note 7) $122,242,315 $122,058,563 CONTINGENCIES (Note 10) ON BEHALF OF TOWN COUNCIL: Mayor Deputy Mayor The accompanying notes are an integral part of these financial statements. 3.

STATEMENT OF OPERATIONS AND ACCUMULATED SURPLUS FOR THE YEAR ENDED DECEMBER 31, 2012 Budget Actual Actual 2012 (Note16) Revenue Net taxation (Schedule 2) $ 6,984,596 $ 6,958,318 $ 6,570,850 Water fees 2,095,000 2,210,976 2,073,576 Wastewater fees 1,340,000 1,489,975 1,398,105 Franchise fees 888,549 994,634 928,685 Government transfers for operating (Schedule 3) 872,290 748,437 965,060 Sales to other governments 597,500 710,652 644,779 Penalties and fines 695,000 622,494 1,004,974 Solid waste fees 657,991 581,128 540,922 Development fees and permits 460,500 372,344 388,795 Rentals 346,260 301,503 265,660 Other 91,640 160,487 246,097 Investment income 90,000 117,706 100,706 Sales and user charges 228,255 89,329 85,339 Local improvements 51,764 51,202 51,202 Offsite levies - 32,969 664,262 15,399,345 15,442,154 15,929,012 Expenses Public works 4,050,477 4,444,129 4,329,121 General administration 3,337,147 2,953,498 2,749,205 Parks and recreation 2,682,525 2,882,135 2,722,854 Protective services 2,314,432 2,408,236 2,291,626 Water 1,831,648 1,898,902 1,920,791 Wastewater 1,418,304 1,405,089 1,333,736 Solid waste 930,188 912,021 861,419 Planning and development 927,082 900,173 959,871 Library 270,273 457,155 309,180 Council and legislative 294,000 229,137 241,209 Family and community support services 232,271 226,557 214,966 18,288,347 18,717,032 17,933,978 Excess (Deficiency) of Revenue over Expenses Before Other Items (2,889,002) (3,274,878) (2,004,966) Other Items Government transfers for capital (Schedule 3) 3,201,166 3,166,945 4,545,751 Contributed tangible capital assets - 260,113 3,684,000 Gain on disposal of tangible capital assets - 31,572 420 Excess (Deficiency) of Revenue over Expenses $ 312,164 183,752 6,225,205 Accumulated Surplus, Beginning of Year, As Previously Stated 121,823,363 115,581,158 Prior Period Adjustment (Note 14) 235,200 252,200 Accumulated Surplus, Beginning of Year, as Restated 122,058,563 115,833,358 Accumulated Surplus, End of Year $122,242,315 $122,058,563 The accompanying notes are an integral part of these financial statements. 4.

STATEMENT OF CHANGES IN NET FINANCIAL ASSETS FOR THE YEAR ENDED DECEMBER 31, 2012 Excess of Revenue over Expenses $ 183,752 $ 6,225,205 Acquisition of tangible capital assets (7,084,178) (9,784,193) Contributed tangible capital assets (260,113) (3,684,000) Proceeds on disposal of tangible capital assets 82,739 420 Amortization of tangible capital assets 5,008,675 4,722,368 Gain on disposal of tangible capital assets (31,572) (420) (2,284,449) (8,745,825) Use (acquisition) of prepaid expenses (733,472) 8,957 Decrease In Net Financial Assets (2,834,169) (2,511,663) Net Financial Assets, Beginning of Year 3,238,269 5,749,932 Net Financial Assets, End of Year $ 404,100 $ 3,238,269 The accompanying notes are an integral part of these financial statements. 5.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2012 Operating Activities Excess of revenue over expenses $ 183,752 $ 6,225,205 Non-cash items included in excess of revenue over expenses: Amortization of tangible capital assets 5,008,675 4,722,368 Contributed tangible capital assets (260,113) (3,684,000) Gain on disposal of tangible capital assets (31,572) (420) 4,900,742 7,263,153 Change in non-cash working capital balances: Accounts receivable 2,600,472 1,749,897 Prepaid expenses (733,472) 8,957 Accounts payable and accrued liabilities (47,585) (323,158) Deposit liabilities (80) (69,844) Deferred revenue (576,552) 74,876 1,242,783 1,440,728 6,143,525 8,703,881 Financing Activities Long-term debt proceeds 2,825,000 3,000,000 Long-term debt principal repayments (726,471) (350,385) 2,098,529 2,649,615 Capital Activities Acquisition of tangible capital assets (7,084,178) (9,784,193) Proceeds on disposal of tangible capital assets 82,739 420 (7,001,439) (9,783,773) Change in Cash for the Year 1,240,615 1,569,723 Cash, Beginning of Year 8,882,516 7,312,793 Cash, End of Year $ 10,123,131 $ 8,882,516 The accompanying notes are an integral part of these financial statements. 6.

SCHEDULE OF TANGIBLE CAPITAL ASSETS SCHEDULE 1 FOR THE YEAR ENDED DECEMBER 31, 2012 Land Engineered Machinery and Land Improvements Buildings Structures Equipment Vehicles COST: Balance, Beginning of Year $ 8,667,106 $ 3,450,723 $ 18,397,499 $ 139,445,973 $ 4,729,709 $ 2,436,764 $ 177,127,774 $ 163,699,435 Acquisition of tangible capital assets 513 493,062 3,895,115 2,665,647 59,827 230,127 7,344,291 13,468,193 Disposal of tangible capital assets (11,517) - - - (242,739) (89,463) (343,719) (39,854) Balance, End of Year 8,656,102 3,943,785 22,292,614 142,111,620 4,546,797 2,577,428 184,128,346 177,127,774 ACCUMULATED AMORTIZATION: Balance, Beginning of Year - 1,283,096 4,262,441 50,043,990 1,986,222 757,326 58,333,075 53,650,561 Annual amortization - 179,950 698,669 3,603,138 360,379 166,539 5,008,675 4,722,368 Accumulated amortization on disposals - - - - (215,685) (76,868) (292,553) (39,854) Balance, End of Year - 1,463,046 4,961,110 53,647,128 2,130,916 846,997 63,049,197 58,333,075 NET BOOK VALUE OF TANGIBLE CAPITAL ASSETS $ 8,656,102 $ 2,480,739 $ 17,331,504 $ 88,464,492 $ 2,415,881 $ 1,730,431 $ 121,079,149 $ 118,794,699 Cost includes construction in progress of $3,120,661 (2011 - $2,599,378). These amounts are not amortized until the asset is completed and in use. The accompanying notes are an integral part of these financial statements. 7.

SCHEDULE OF PROPERTY TAXES SCHEDULE 2 FOR THE YEAR ENDED DECEMBER 31, 2012 2012 (Budget) (Actual) (Actual) (Note16) Taxation Real property taxes $ 9,272,134 $ 9,485,822 $ 8,820,352 Linear property taxes 102,876 102,876 95,187 Government grants in place of property taxes 54,298 54,298 52,087 9,429,308 9,642,996 8,967,626 Deduct: Education 2,355,091 2,585,982 2,308,913 Seniors Foundation 89,621 98,696 87,863 2,444,712 2,684,678 2,396,776 Net Municipal Property Taxes $ 6,984,596 $ 6,958,318 $ 6,570,850 The accompanying notes are an integral part of these financial statements. 8.

SCHEDULE OF GOVERNMENT TRANSFERS SCHEDULE 3 FOR THE YEAR ENDED DECEMBER 31, 2012 2012 (Budget) (Actual) (Actual) (Note16) Federal Transfers Operating $ 4,000 $ (4,691) $ 1,760 Provincial Transfers Operating 748,290 658,994 626,730 Capital 3,201,166 3,166,945 4,545,751 3,949,456 3,825,939 5,172,481 Local Government Transfers Operating 120,000 94,134 336,570 $ 4,073,456 $ 3,915,382 $ 5,510,811 Operating Government Transfers Federal $ 4,000 $ (4,691) $ 1,760 Provincial 748,290 658,994 626,730 Local 120,000 94,134 336,570 872,290 748,437 965,060 Capital Government Transfers Provincial 3,201,166 3,166,945 4,545,751 $ 4,073,456 $ 3,915,382 $ 5,510,811 The accompanying notes are an integral part of these financial statements. 9.

SCHEDULE OF SEGMENTED INFORMATION SCHEDULE 4 FOR THE YEAR ENDED DECEMBER 31, 2012 General Protective Parks and Public Water, Wastewater Planning Administration Services Recreation Works and Solid Waste and Development Other Total REVENUE Net taxation $ 6,958,318 $ - $ - $ - $ - $ - $ - $ 6,958,318 Water, wastewater and solid waste fees - - - - 4,282,079 - - 4,282,079 Government transfers 1,035,619 405,032 57,800 2,126,945-25,978 264,008 3,915,382 Franchise fees 994,634 - - - - - - 994,634 Sales to other governments 400 291,554 - - 413,877 4,445 376 710,652 Penalties and fines 158,333 437,442 - - 23,126-3,593 622,494 Offsite levies 32,968 - - - - - - 32,968 Other revenues 529,619 33,829 370,079 - - 381,565 69,165 1,384,257 9,709,891 1,167,857 427,879 2,126,945 4,719,082 411,988 337,142 18,900,784 EXPENSES Salaries, wages and benefits 1,350,506 755,329 1,211,293 937,880 638,202 328,456 545,756 5,767,422 Contracted and general services 775,458 1,229,293 226,679 139,112 666,132 552,850 65,688 3,655,212 Materials, goods and utilities 389,100 238,255 562,856 642,646 301,994 1,868 248,945 2,385,664 Purchases from other governments - - 33-1,480,627 - - 1,480,660 Transfers to governments 85,000 6,400 65,857 - - 17,000 52,244 226,501 Interest on long-term debt 40,378-89,269 18,560 - - - 148,207 Bank charges and short-term interest 33,784-4,640 - - - 219 38,643 Other expenses (1,880) - - - 7,928 - - 6,048 2,672,346 2,229,277 2,160,627 1,738,198 3,094,883 900,174 912,852 13,708,357 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES BEFORE AMORTIZATION 7,037,545 (1,061,420) (1,732,748) (545,401) 1,624,199 (488,186) (575,710) 5,192,427 Amortization of tangible capital assets 281,150 178,959 721,507 2,705,930 1,121,129 - - 5,008,675 EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES $ 6,756,395 $ (1,240,379) $ (1,732,748) $ (3,251,331) $ 503,070 $ (488,186) $ (575,710) $ 183,752 The accompanying notes are an integral part of these financial statements. 10.

SCHEDULE OF EXPENDITURES BY OBJECT SCHEDULE 5 FOR THE YEAR ENDED DECEMBER 31, 2012 2012 (Budget) (Actual) (Actual) (Note 14) Salaries, wages and benefits $ 5,956,544 $ 5,767,422 $ 5,499,412 Contracted and general services 4,104,812 3,655,212 3,579,617 Materials, goods and utilities 2,092,220 2,385,664 2,203,634 Purchases from other governments 1,385,360 1,480,660 1,423,234 Transfers to governments, agencies and organizations 465,473 226,501 292,682 Interest on long-term debt 241,938 148,207 90,966 Bank charges and short-term interest 12,000 38,643 55,441 Other expenses 30,000 6,048 66,624 Amortization 4,000,000 5,008,675 4,722,368 $ 18,288,347 $ 18,717,032 $ 17,933,978 The accompanying notes are an integral part of these financial statements. 11.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 1. SIGNIFICANT ACCOUNTING POLICIES These financial statements are the representations of the Town's management prepared in accordance with Canadian public sector accounting standards. Significant aspects of the accounting policies adopted by the Town are as follows: (a) (b) Reporting Entity These financial statements reflect the assets, liabilities, revenues, and expenditures, and changes in equity balances and cash flows of the Town. Basis of Accounting The financial statements are prepared using the accrual basis of accounting. The accrual basis of accounting records revenue as it is earned and measurable. Expenses are recognized as they are incurred and measurable based upon receipt of goods and services and/or the legal obligation to pay. Funds from external parties and earnings thereon restricted by agreement or legislation are accounted for as deferred revenue until used for the purpose specified. (c) Use of Estimates The preparation of financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenditure during the period. Where management uncertainty exists, the financial statements have been prepared within reasonable limits of materiality. Actual results could differ from those estimates. (d) Prepaid Local Improvement Charges Construction and borrowing costs associated with local improvement projects are recovered through annual special property assessments during the period of the related borrowing. These levies are collectible from property owners for work performed by the Town. Where a taxpayer has elected to prepay the outstanding local improvement charges, such amounts are recorded as deferred revenue. Deferred revenue is amortized to revenue on a straight-line basis over the remaining term of the related borrowing. In the event that the prepaid amounts are applied against the related borrowing, the deferred revenue is amortized to revenue by an amount equal to the debt repayment. (e) Government Transfers Government transfers are recognized in the financial statements as revenue in the period that the events giving rise to the transfer occurred, providing the transfers are authorized, any eligibility criteria have been met by the Town, and reasonable estimates of the amounts can be made. 12.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Requisition of Over-Levies and Under-Levies Over-levies and under-levies arise from the difference between the actual levy made to cover each requisition and the actual amount requisitioned. If the actual levy exceeds the requisition, the over-levy is accrued as a liability and property tax revenue is reduced. In situations where the actual levy is less than the requisition amount, the under levy is accrued as a receivable and as property tax revenue. Requisition tax rates in the subsequent year are adjusted for any over-levies or under-levies of the prior year. (g) Non-Financial Assets Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year and are not intended for sale in the normal course of operations. The change in non-financial assets during the year, together with the excess of revenue over expenses, provides the consolidated change in net financial assets for the year. i) Tangible Capital Assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets is amortized on a straight-line basis over the estimated useful life as follows: Land improvements Buildings Engineered structures Machinery and equipment Vehicles 10-50 years 25-50 years 20-100 years 5-40 years 5-20 years One-half of the annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. ii) Contributions of Tangible Capital Assets Tangible capital assets received as contributions are recorded at fair value at the date of receipt and also are recorded as revenue. iii) Leases Leases are classified as capital or operating leases. Leases which transfer substantially all of the benefits and risks incidental to ownership of property are accounted for as capital leases. All other leases are accounted for as operating leases and the related lease payments are charged to expenses as incurred. 13.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 2. ACCOUNTS RECEIVABLE Trade $ 631,268 $ 362,205 Property taxes 602,234 531,880 Utilities 473,345 446,383 Goods and Services Tax 170,582 242,931 Government transfers - 2,894,502 1,877,429 4,477,901 Allowance for doubtful accounts (30,000) (30,000) $ 1,847,429 $ 4,447,901 3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Trade $ 2,106,777 $ 2,061,953 Construction holdbacks 271,616 392,372 Vacation 101,761 74,270 Accrued interest on long-term debt 24,924 24,068 $ 2,505,078 $ 2,552,663 4. DEFERRED REVENUE Deferred revenue consists of the following amounts which have been restricted by third parties for a specific purpose. These amounts are recognized as revenue in the period in which the related expenditures are incurred. Government transfers $ 2,942,909 $ 3,553,478 Other 84,056 50,039 $ 3,026,965 $ 3,603,517 14.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 5. LONG-TERM DEBT Debenture debt held by Alberta Capital Finance Authority, repayable in annual installments of $69,137 including interest at 6%; due August 15, 2022. $ 508,857 $ 545,278 Debenture debt held by Alberta Capital Finance Authority, repayable in annual installments of $52,258 including interest at 6%; due July 15, 2019. 291,722 324,508 Debenture debt held by Alberta Capital Finance Authority, repayable in annual installments of $318,912 including interest at 2.2545%; due June 15, 2016. 2,135,038 2,714,905 Debenture debt held by Alberta Capital Finance Authority, repayable in semi-annual installments of $114,602 including interest at 2.634%; due June 15, 2027. 2,747,603 - Repayments of principal and interest over the next five years are as follows: $ 5,683,220 $ 3,584,691 Principal Interest Total 2013 $ 824,239 $ 164,185 $ 988,424 2014 846,271 142,153 988,424 2015 868,983 119,441 988,424 2016 573,488 96,023 669,511 2017 267,900 83,149 351,049 Thereafter 2,302,339 325,297 2,627,636 Interest on long-term debt amounted to $148,207 (2011 - $90,966). $ 5,683,220 $ 930,248 $ 6,613,468 The Town's total cash payments for interest amounted to $147,350 (2011 - $89,921) 15.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 6. EQUITY IN TANGIBLE CAPITAL ASSETS Tangible capital assets (Schedule 1) $184,128,346 $177,127,774 Accumulated amortization (Schedule 1) (63,049,197) (58,333,075) Long-term debt (Note 5) (5,683,220) (3,584,691) $115,395,929 $115,210,008 7. ACCUMULATED SURPLUS Restricted surplus General capital $ 2,406,885 $ 3,075,368 Sanitary capital 1,416,404 1,532,606 Offsite levies - transportation 1,412,100 1,378,147 General operating 987,052 500,000 Offsite levies - water 732,461 714,609 Recreation - developer 472,333 547,059 Offsite levies - sanitary 379,037 375,656 Fire vehicles 135,022 133,818 Water contingency 132,399 100,000 Public works vehicles 99,572 27,711 Sanitary contingency 85,000 85,000 Library 79,710 93,212 Storm sewer capital 40,695 40,332 Office equipment 34,833 34,522 Transportation 24,465 24,247 Traffic safety committee 8,000 - Parks, recreation and culture 5,495 11,619 Water capital (287,747) (320,417) Community Cultural Centre (1,317,330) (1,504,934) 6,846,386 6,848,555 Equity in tangible capital assets (Note 6) 115,395,929 115,210,008 $122,242,315 $122,058,563 16.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 8. SALARIES AND BENEFITS DISCLOSURE Disclosure of salaries and benefits for municipal officials, the Chief Administrative Officer and designated officers as required by Alberta Regulation 313/2000 is as follows: Salary (1) Benefits (2) Total Total Mayor L. Bertschi $ 28,842 $ 5,677 $ 34,519 $ 41,487 Mayor P. Krauskopf 3,877 785 4,662 - Councilors D. Pattison 20,206 5,609 25,815 22,262 N. Boutestein 19,632 5,586 25,218 23,092 L. Holmes 19,320 5,576 24,896 24,862 G. Boddez 16,720 5,490 22,210 23,049 P. Krauskopf 16,897 4,835 21,732 24,043 B. Van De Walle 10,496 1,387 11,883 19,087 S. Fingler 5,001 546 5,547 - Chief Administrative Officer 130,706 34,659 165,365 193,773 Designated Officers (4) 336,683 69,922 406,605 426,017 (1) Salary includes regular base pay, per diem payments and any other direct cash remuneration. (2) Benefits and allowances include the employer's share of the employee benefits and contributions made on behalf of employees including pension, health care, dental coverage, vision coverage, group life insurance, accidental disability and dismemberment insurance, long and short-term disability plans, professional memberships and tuition. 17.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 9. DEBT LIMITS Section 276(2) of the Municipal Government Act requires that debt and debt limits as defined by Alberta Regulation 255/2000 for the Town be disclosed as follows: Total debt limit $ 23,163,231 $ 23,893,518 Total debt (5,683,220) (3,584,691) Amount of total debt limit unused $ 17,480,011 $ 20,308,827 Debt servicing limit $ 3,860,539 $ 3,982,253 Debt servicing (988,424) (440,307) Amount of debt servicing limit unused $ 2,872,115 $ 3,541,946 The debt limit is calculated at 1.50 times revenue of the Town (as defined in the Alberta Regulation 255/2000) and the debt service limit is calculated as 0.25 times such revenue. Incurring debt beyond these limitations requires approval by the Minister of Municipal Affairs. These thresholds are a conservative guideline used by Alberta Municipal Affairs to identify municipalities that could be at a financial risk if further debt is acquired. The calculation taken alone does not represent the financial stability of the Town. Rather, the financial statements must be interpreted as a whole. In addition to the debenture debt, the Town is approved for a revolving demand loan of $1,000,000 that is available, if needed, for operating cash flow. The interest rate is set at prime minus 0.5%. The loan has not been drawn upon. The loan is secured by the cash and investments of the Town. 10. CONTINGENCIES (a) The Town is a member of the Alberta Municipal Insurance Exchange. Under the terms of membership, the Town could become liable for its proportionate share of any claim losses in excess of the funds held by the exchange. Any liability incurred would be accounted for as a current transaction in the year the losses are determined. (b) The Town of Morinville has entered into arrangements with surrounding municipalities for the construction of a booster station. The City of St. Albert has funded construction. Under the agreement, the Town of Morinville will be responsible for its proportionate share of construction costs (approximately $660,000) when the Town reaches a population of 10,000 people. The Town intends to accumulate a reserve fund for the future payment. (c) The Town of Morinville is involved in various legal disputes at December 31, 2012, the outcomes of which are not determinable at year end. Any related settlements not covered by insurance will be recorded as an expense in the year incurred. 18.

NOTES TO FINANCIAL STATEMENTS (CONT'D) DECEMBER 31, 2012 11. LOCAL AUTHORITIES PENSION PLAN Employees of the Town participate in the Local Authorities Pension Plan (LAPP), which is covered by the Public Sector Pension Plans Act. LAPP is financed by employer and employee contributions and investment earnings of the LAPP Fund. The Town is required to make current service contributions to the Plan of 9.91% of pensionable earnings up to the Canada Pension Plan year's maximum pensionable earnings and 13.74% for the excess. Employees of the Town are required to make current service contributions of 8.91% of pensionable earnings up to the year's maximum pensionable earnings and 12.74% on pensionable earnings above this amount. Total current and past service contributions made by the Town to the LAPP in 2012 were $367,720 (2011 - $346,088). Total current and past service contributions made by the employees of the Town to the LAPP in 2012 were $333,059 (2011 - $308,065). At December 31, 2011, the LAPP disclosed an actuarial deficit of $4.6 billion (2010 - $4.6 billion). 12. FINANCIAL INSTRUMENTS The Town's financial instruments consist of cash, accounts receivables, accounts payable and accrued liabilities, and long-term debt. It is management's opinion that the Town is not exposed to significant interest, liquidity, currency or credit risk arising from these financial instruments Unless otherwise noted, the fair value of these financial instruments approximates their carrying value. 13. SEGMENTED INFORMATION The Town provides a range of services to its residents. For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The accounting policies used in these segments are consistent with those followed in the preparation of the financial statements as disclosed in Note 1. For additional information see the Schedule of Segment Disclosure (Schedule 4). 14. PRIOR PERIOD ADJUSTMENT During the fiscal year the Town identified tangible capital assets that had previously not been recorded. The Town has accounted for this change retrospectively and restated comparative figures. The effect on the financial statements has been to decrease 2011 excess of revenue over expenses by $17,000 and increase tangible capital assets, equity in tangible capital assets and accumulated surplus by $235,200. 15. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the current year's financial statement presentation. 16. BUDGET The budget figures are provided for information purposes only, and have not been audited. 17. APPROVAL OF FINANCIAL STATEMENTS These financial statements were approved by Council and Management. 19.