It is my pleasure to present our Annual Report on the 2012 financial ac vi es of the Northern Rockies Regional Municipality. It has been a great year!

2012 A R

M M B S It is my pleasure to present our Annual Report on the 2012 financial ac vi es of the Northern Rockies Regional Municipality. It has been a great year! Our 2012 audit has proven that we are in a strong financial posi on and that we sustain the internal controls necessary to properly manage and disclose our financial responsibili es. We are truly accountable to the community and the province. As conveyed in our vision for the community we proudly embrace life in our unique northern community and we work to create innova ve solu ons that enhance our quality of life. This statement is indica ve of just how advanced we are in coming up with solu ons for the benefit of our northern region across every sector. This innova on is especially evident in the development of the Infrastructure Development Community Agreement carried through over many years of hard work for the benefit of our region today and in the future. Moving forward into 2013, we are excited by the success of the recent Infrastructure Funding Loan Authoriza on Referendum. 90% of voters supported the NRRM borrowing the monies required to kick start future funding from the Government of BC, in accordance with our recently announced Infrastructure Development Contribu on Agreement (IDCA). The IDCA is the legal instrument for the Province to provide up to $10 million annually to the NRRM for infrastructure funding for 20 years, beginning in 2015. The purpose of the agreement is to ensure that the NRRM s community infrastructure is upgraded and expanded at minimal impact to the taxpayers. The agreement is will assist us in facilita ng the growth in BC s natural gas industry, and also future forestry and mining development. Through the IDCA, the Northern Rockies Regional Municipality will finally get our Fair Share. It is an exci ng me to be in Fort Nelson, and we are very happy that you have chosen to be a part of this beau ful northern community. Yours faithfully, Mayor Bill Streeper Page 1 of 36

M C It is the role of Council to act as the governing body of the municipal corpora on; to make decisions necessary for the successful and con nuing opera on of the municipality; and to represent the best interest of the ci zens of the municipality as a whole. Council is a con nuing body, notwithstanding changes in its membership by elec on or appointment, and exercises its powers through resolu ons and bylaws passed in open mee ngs. Council acts as a collec ve body. It is important to note that the members of Council cannot make valid and binding decisions independently, unless express authority has been granted or legislated. Council acts to foster economic and social opportuni es for the community, and strives to advance the goals and objec ves of the municipality. Councillor Doug McKee, Councillor Danny Soles, Councillor Kim Eglinski, Mayor Bill Streeper, Councillor Laurie Dolan, Councillor Todd Osbourne, Councillor Ron Vigeant Page 2 of 36

A M The Northern Rockies Regional Municipality (NRRM), incorporated on February 6th, 2009, is the first Regional Municipality in BC and officially combines the former en es of the Town of Fort Nelson and the Northern Rockies Regional District. Some of the key differences between the former local government system and the new Regional Municipality are: The NRRM is responsible for rural public roads and rural policing; The Province no longer collects the Provincial Rural property tax and tax collec ons in the rural area are transferred to the Regional Municipality; The powers and responsibili es of a Municipality including planning, land use and bylaw applica on now extends to the borders of the new Regional Municipality; The NRRM intends to take a unified approach to land use planning, property tax policies and building issues that fall within its jurisdic on; The 3.3 Ra o Industrial Tax Policy. The NRRM now applies the same tax rate to u li es, light industry and major industry, and offers each the advantage of predictability and stability; and Northern Rockies Partnership, an en ty that will formally bring together First Na ons, Industry, the Regional Municipality and the Provincial Government. C V ( O C P ) In Fort Nelson we stand at the gateway of the Northern Rockies, located in the heart of a prosperous and diverse economic region that strives to preserve the integrity of the natural environment. We are a welcoming, self reliant and healthy community. We proudly embrace life in our unique northern community and we work to create innova ve solu ons that enhance our quality of life. Our community is beau ful, well planned and safe. Our unique environment provides us with diverse choices and ample opportuni es for employment, educa on, recrea on, housing and health and wellness. As residents of Bri sh Columbia s first Regional Municipality, we are responsive to the needs of our residents, we encourage ac ve public involvement and we proac vely support inclusive and familyoriented decision making that balances cultural, social, environmental and economic needs in a collabora ve and transparent manner. Page 3 of 36

M S Taxpayers and residents o en overlook the sheer volume and value of services provided by their local government. Some of the services provided by the Northern Rockies Regional Municipality include: Road Maintenance Including paving, pot hole patching and crack repairs; maintenance of sidewalks and shoulders; maintenance and installa on of signage; line pain ng; maintenance of public parking areas; snow removal; street sweeping; ditch and storm drainage maintenance. Water Systems Provision of safe drinking water; provision of water and hydrants for fire protec on purposes; water conserva on ini a ves. Sewer Systems Collec on, treatment and disposal of domes c sanitary sewage. Solid Waste Collec on Residen al and commercial solid waste (garbage) collec on and disposal; maintenance of highway sites. Parks Facili es Maintenance of community owned parks and facili es; parks equipment maintenance and upgrading (including Demonstra on Forest and Community Trail) Cemetery Services Maintenance and opera on of community cemeteries (Fort Nelson and Toad River). Animal Control Provision of animal control services (primarily dog control and licencing). Building Inspec on Provision of building inspec on services to provide compliance with Provincial building, plumbing and fire code regula ons. Subdivision Approvals Subdivision approvals to ensure compliance with local land development regula ons ensuring a level of consistency in land servicing. Page 4 of 36

M S C Zoning and Land Use Provision of regula ons to ensure a level of consistency and advance indica on of land uses. Bylaw Enforcement Enforcement of local land use, noise, nuisance and related regula ons. Economic Development A rac on of economic development interests and new business opportuni es as well as business reten on promo on. Tourism Development Support for the opera on of the Visitor Informa on Centre and promo on of tourism development and tourism a rac on opportuni es. Recrea on Facili es and Programs Provision of recrea onal facili es and programs including the Recrea on Complex and Aqua c Centre. Cultural Services Support of the local library, theatre, museum, golf course and other various community organiza ons. General Government central administra on, finance, human resources, common services and legisla ve opera ons for the Regional Municipality Fire Department Provision of fire protec on and emergency planning for the security of property and ci zens of the Regional Municipality Northern Rockies Regional Airport Opera on of the regional airport and all related ac vi es. Page 5 of 36

2012 H P W P A Roadways, Sidewalks Road rehabilita on of Liard Street, 50 th Street, 51 st and 52 nd Avenue completed Gateway intersec on completed Barber Crescent construc on underway Design begins for 44 th and 49 th Street road rehabilita on Sidewalk on Airport Drive East from 50 th Avenue N to 52 nd Ave E Pedestrian Safety Report (improved ligh ng, signage, sidewalk condi on/ accessibility, crosswalk paint) ICBC road safety audit Water Water treatment plant on site self chlorina on system installed Improvements between raw water reservoirs #2 and #3 Amended Water Use Restric on Bylaw 78,2012 Sewer Sewer UV disinfec on underway RV sani dump underway Sewer Master Plan process begins Fleet/Equipment Replacement of three pickups and one van Purchase of soil & asphalt compactor Landfill Landfill cell design begins P W T N Winter sand usage 1,894 m 3 (2,477 yards) Water consump on 281,542,580 gallons Bulk water only 45,928,520 gallons Bulk water revenue $1,232,767 Sewer flows 222,599,080 gallons Solid waste 14,204 metric tons Page 6 of 36

2012 H N R R A P A Management of airport transferred from ATCO to Regional Municipality Repairs to Runway 08 26 Design for new washrooms and renova ons at Airport Terminal Building & Maintenance Shop Safety Management System Plan Phase 4 completed Strategic Parking Plan completed In excess of 100,000 passenger transits through the regional airport in 2012 R, P C P A Recrea on Design for aqua c centre expansion at recrea on complex Telephone system & wireless upgrade Replacement of ice edger Neighbourhood Parks & Ball Diamonds Fence replacement and playground extension at Art Fraser Park Picnic tables and benches at Art Fraser Park Ligh ng replacement at Demonstra on Forest E H R C Emergency Services Community Christmas Dinner Remembrance Day Ceremony Science Alive Easter Event Spookarama Breakfast with Santa Whatchamacalit Rec dance program Fitness classes 16 mul day rentals 36 one day rentals 5 one day events 7 memorials/funerals 10 weddings 34 birthday par es Peewee Prov tournament Horn River tournament Brian Bell tournament 2 ska ng carnivals Skate with Santa Valen nes skate Trade show Dry Grad celebra ons Culture Support to community organiza ons through grant in aid program Support for opera ons at the library, theatre, museum and golf course Page 7 of 36

2012 H C D P P A Upgrade of Zoning Bylaw 729,2008 underway Ongoing development of light industrial lots Acquisi on of airport lands underway Physician recruitment and housing ini a ves Military Vehicle Preserva on Associa ons Convoy of the Alaska Highway 4th Annual Northern Rockies Shale Gas Symposium Sign Bylaw No 73,2012 Amended Traffic Control Bylaw 74,2012 Housing Incen ve Study Planning guides for Building Permits, Subdivisions, OCP/Rezoning, Development Permits, Development Variance Permits, and Temporary Use Permits Mild to Wild: Hiking and Motorized Trail Guide D I Building Permits Issued 92 New residen al 22 New industrial 2 New commercial 2 Other 66 Total Building Permit Revenue $83,763 Total Building Permit Construc on Value $18,753,741 Number of Business Licences Issued 109 P S P A Fire Department Upgrade office equipment Emergency Opera ons Centre training F D C S Fire 108 28% Medical 147 39% Rescue 47 12% Haz Mat 35 9% Other 45 12% Page 8 of 36

2013 D R G Con nua on of the transi on of Provincial roads into the NRRM s responsibility for April 1, 2014 Improve security on infrastructure throughout the NRRM including fences, gates and cameras Undertake a servicing study for the Mountainview area to enable preliminary subdivision design Implement recommenda ons from ICBC Road Safety Audit installa on of traffic signs & markings Development of Andy Bailey gravel pit to produce materials for roadway maintenance/construc on Purchase of land & rights of way as required to infrastructure improvements & u lity rights of way Expansion of the Public Works compound to accommodate the storage of winter sand Proceed with final design for road rehabilita on of 44 th and 49 th Streets Complete construc on of Barber Crescent Ongoing major maintenance including sidewalk spot repairs and roadway asphalt patching Sidewalk installa on & storm sewer repairs along Simpson Trail (Mountainview to Rec Complex) Street ligh ng enhancements at various loca ons to improve visibility at crosswalk loca ons The applica on of asphalt to two well travelled paths that connect the community trail W U Water model calibra on for water distribu on system upkeep Feasibility study for poten al implementa on of water meters Desludging of reservoir #2 Repair of main water line which feeds the curling club Ongoing major maintenance including vibra on analysis and infrared thermal tes ng S U Comple on of the RV sanitary dump Development of a Sewer Master Plan to enable sewer treatment and ou all meet the latest Page 9 of 36

2013 D S W Con nua on of landfill abandonment work for closed landfills Update of the Solid Waste Management Plan Electric fence repairs Construc on of landfill cell #4 F D Undertake a Fire Underwriter s Survey Upgrade self contained breathing apparatus system and packs Purchase a skid unit to be used where road access to large fire trucks is difficult N R R A Develop a land use, development and 10 year capital plan Undertake an airport economic impact assessment Develop an environmental assessment and management plan Develop a website for NRRA with enhanced marke ng capabili es Undertake a terminal building energy audit and assessment Implement a runway surface condi on repor ng system pending ACAP funding Conduct a pavement condi on and load ra ng assessment Purchase runway sweeper and airfield snow blower pending ACAP funding Installa on of fencing pending ACAP funding Complete air tanker base reloca on study Undertake a land survey of the airport Complete construc on of new washrooms and renova ons at ATB and maintenance shop Apron rehabilita ons, expansions and airfield ligh ng pending ACAP funding Airport upgrades including apron upgrades and parking improvements Page 10 of 36

2013 D R Purchase replacement office equipment Design and construc on of aqua c centre (recrea on facility comple on) Installa on of age friendly outdoor exercise equipment C D Comple on of Alaska Highway Corridor Transporta on Study Bylaw Re writes Building Bylaw; Zoning Bylaw; Subdivision & Development Servicing Bylaw Light industrial park future planning phases Toad River Subdivision project Residen al lot development E D T Support ongoing ini a ves of the Agricultural Advisory Commi ee, Forestry Roundtable Commi ee Develop a community energy management plan Con nue the economic forecas ng/socioeconomic indicators project Con nued support of the Northern Environmental Ac on Team (NEAT) Northern Rockies community forest applica on Off highway vehicle project Regional branding and signage ini a ves Con nued support of the Visitor Informa on Centre opera ons A endance at sports shows to further enhance tourism opportuni es Implementa on of a tourism strategic plan G G Enhance security system at Town Hall Update so ware applica ons to enhance customer usage Develop an asset management program Town hall upgrades for life safety and code deficiencies Page 11 of 36

S O NRRM C C F R D W I B 1. To ensure that the region s shale gas and other resources are developed in a manner that protects the natural environment and the safety and health of the region s residents. 2. To establish a partnership with the First Na ons within the region to address ma ers of mutual concern and to collaborate in the provision of services. 3. To design and implement a regional economic planning process to ensure that benefits of resource development are op mized for all stakeholders and that impacts associated with industrial development are properly addressed. 4. To advance the objec ves and policies of the NRRM through the use of its legisla ve power and authority. 5. To diversify the NRRM s economy by ensuring that the region s forest resources are protected for use by processing facili es in the NRRM. 6. To establish the NRRM as the key service centre suppor ng industrial development within its boundaries. 7. All economic, social and financial costs incurred in the region associated with the development of shale gas resources, including the cost of expanding community infrastructure and services, must be fully addressed and paid for by the Provincial Government and industry as a cost of doing business; such costs cannot and will not be borne by the exis ng residen al and business taxpayers of the communi es within the region. 8. To ensure that the benefits associated with the development of resources within the NRRM are shared in a fair and equitable manner with the communi es of the region and that resource development leaves an enduring legacy for the communi es of the region. 9. To ensure that Provincial investments in provincial services are made in a mely manner to accommodate growth and address impacts. Page 12 of 36

P T E In 2011 the Northern Rockies Regional Municipality adopted the 2012 Tax Exemp on Bylaw No. 62,2011 to exempt certain specified land and improvements situated within the municipality, as provided under the Community Charter. The amount of taxes that would have been imposed on the proper es if they were not exempt in 2012 is as follows: Bhav Khandan Darbar Guru Sikh Society $211.59 Catholic Episcopal Corpora on of Whitehorse 576.33 Chris an & Missionary Alliance Canadian Pacific District 463.02 Community Health Services Society, occupier within the Town Square 1,352.44 Congrega on of the Jehovah Witnesses of Fort Nelson 298.51 Elks Lodge Society 335.19 Energy Services BC, occupier within the Town Square 927.65 FN Aboriginal Friendship Society 9,678.32 FN Chamber of Commerce, occupier with the Recrea on Centre 1,108.81 FN Playschool Society, occupier within the Town Square 2,181.70 Fort Nelson Family Development Society 5,434.74 Fort Nelson Public Library, occupier within the Town Square 5,761.13 Fort Nelson Rod & Gun Club 525.62 Fort Nelson Senior Ci zen's Housing Complex 5,622.14 Fort Nelson Temple Building Society 227.28 Historical Society Museum 1,916.21 Northern Lamplighters Ac vity Centre Associa on 612.72 Northern Rockies Seniors Society 3,810.56 Pentecostal Assemblies of Canada 288.29 Phoenix Theatre Mgmt Society, occupier within the Town Square 9,120.36 Scouts Proper es (BC/Yukon) Ltd 52.55 United Church of Canada 477.13 Page 13 of 36

CONSOLIDATED FINANCIAL STATEMENTS OF Northern Rockies Regional Municipality Year Ended December 31, 2012 Page 14 of 36

Management s Responsibility for the Consolidated Financial Statements The accompanying financial statements of the Northern Rockies Regional Municipality (the Regional Municipality ) are the responsibility of management and have been prepared in compliance with legisla on, and in accordance with Canadian public sector accoun ng standards for local governments as recommended by the Public Sector Accoun ng Board of the Canadian Ins tute of Chartered Accountants. A summary of the significant accoun ng policies are described in Note 1 to the financial statements. The prepara on of financial statements necessarily involves the use of es mates based on management s judgment, par cularly when transac ons affec ng the current accoun ng period cannot be finalized with certainty un l future periods. The Regional Municipality s management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transac ons are properly authorized and recorded in compliance with legisla ve and regulatory requirements, and reliable financial informa on is available on a mely basis for prepara on of the financial statements. These systems are monitored and evaluated by management. Mayor and Council meet with management and the external auditor to review the financial statements and discuss any significant financial repor ng or internal control ma ers prior to their approval of the financial statements. The financial statements have been audited by Sander Rose Bone Grindle LLP, independent auditors by the Regional Municipality. The accompanying Independent Auditors Report outlines their responsibili es, the scope of their examina on and their opinion on the Regional Municipality s financial statements. Chief Administra ve Officer Director of Finance Page 15 of 36

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Consolidated Statement of Financial Posi on As at December 31, 2012 2012 2011 (restated) Financial Assets Cash and cash equivalents $9,702,654 $4,790,134 Accounts receivable (Note 3) 2,569,671 3,391,769 Land for sale 4,519,883 4,445,360 Tax sale proper es (Note 4) 1,406 4,674 16,793,614 12,631,937 Liabili es Short term borrowing (Note 6) 6,500,000 7,500,000 Accounts payable & accrued liabili es (Note 7) 4,405,085 4,886,971 Due to Northern Rockies Regional Hospital District 1,464,989 1,645,413 Deferred revenue 7,761 7,670 Debenture debt (Note 8) 16,866,795 17,619,626 Capital lease obliga ons (Note 9) 972,547 1,206,530 30,217,177 32,866,210 Net Debt (13,423,563) (20,234,273) Non Financial Assets Tangible capital assets (Note 10) 148,593,736 146,314,924 Prepaid expenses 5,337 7,737 148,599,073 146,322,661 Accumulated Surplus (Note 11) $135,175,510 $126,088,388 Approved by: Toni Thurbide Director of Finance See accompanying notes to consolidated financial statements Page 17 of 36

Consolidated Statement of Opera ons For the Year Ended December 31, 2012 2012 2012 2011 Budget Actual Actual (unaudited) (restated) Revenue Taxes $33,006,180 $34,065,649 $31,655,129 Less collec ons for other governments (9,593,690) (10,503,543) (8,616,639) 23,412,490 23,562,106 23,038,490 Government transfers 11,625,140 2,617,261 7,203,847 Fees and charges 5,775,210 7,296,441 5,233,425 Land sales 146,425 2,174,686 Actuarial adjustments 200,143 182,906 Gain on disposal of tangible capital assets 45,097 40,812,840 33,867,473 37,833,354 Expenses General government 2,921,280 2,123,026 2,089,384 Protec ve services 13,180,390 2,232,057 3,284,819 U lity services 3,086,700 2,253,403 2,093,217 Community development 2,500,720 2,051,937 1,701,576 Recrea onal and culture 4,960,050 4,420,696 4,048,836 Transporta on services 7,668,810 1,716,872 2,374,745 Environmental waste management 850,260 740,036 684,280 Cemetery 41,430 41,533 37,092 Airport 12,622,780 2,201,359 1,114,305 Land development costs 151,562 1,634,391 Amor za on on tangible capital assets 5,767,445 4,515,738 Debt charges 1,003,540 1,080,425 1,053,453 48,835,960 24,780,351 24,631,836 Annual Surplus (Deficit) (8,023,120) 9,087,122 13,201,518 Accumulated Surplus, beginning of year 126,088,388 98,755,634 Prior Period Adjustment (Note 13) 14,131,236 Accumulated Surplus, beginning of year, as restated 126,088,388 112,886,870 Accumulated Surplus, end of year ($8,023,120) $135,175,510 $126,088,388 See accompanying notes to consolidated financial statements Page 18 of 36

Consolidated Statement of Changes in Net Financial Liabili es For the Year Ended December 31, 2012 2012 2012 2011 Budget Actual Actual (unaudited) (restated) Excess Revenue Over Expenses ($8,023,120) $9,087,122 $13,201,518 Remove trust funds from accumulated surplus (20,307) Landfill liability established (841,068) Amor za on of tangible capital assets 5,767,445 4,515,738 Proceeds disposal of tangible capital assets 301,500 (Gain) loss on disposal of tangible capital assets (45,097) Contributed asset 186,800 Change in work in progress 54,051,297 (8,715,868) Acquisi on of tangible capital assets (62,870,749) (8,442,005) Property held for resale 617,800 Change in joint venture 516,793 3,138,841 Change in prepaid expenses 2,400 (391) Decrease (increase) in Net financial Liabili es (8,023,120) 6,810,711 3,641,058 Net Financial Liabili es, beginning of year (23,995,178) (20,234,273) (23,875,331) Net Financial Liabili es, end of year ($32,018,298) ($13,423,562) ($20,234,273) See accompanying notes to consolidated financial statements Page 19 of 36

Consolidated Statement of Cash Flow For the Year Ended December 31, 2012 2012 2011 (restated) Opera ng Excess revenue over expenses $9,087,122 $13,201,518 Adjustment for non cash items Actuarial adjustment on debt (182,906) Amor za on of tangible capital assets 5,767,445 4,515,738 (Gain)/loss on disposal of tangible capital assets (45,097) Adjustment removing Trust Funds from accumulated surplus (19,849) Decrease (increase) in non cash financial assets Accounts receivable 822,098 240,839 Property held for resale (74,523) (3,640,760) Prepaid expenses 2,400 (391) Tax sale proper es 3,268 18,331 Increase (decrease) in non cash liabili es Short term borrowing (1,000,000) 7,500,000 Accounts payable (481,886) (2,378,365) Deferred revenue 91 (6,033) 14,080,918 19,248,122 Capital Acquisi on of tangible capital assets (8,819,452) (17,157,873) Proceeds from disposal of tangible capital assets 301,500 Investment in joint venture 516,793 3,138,841 (8,001,159) (14,019,032) Financing Repayment of long term debt (752,831) (552,688) Proceeds from capital lease 1,060,719 Repayment of capital leases (233,983) (132,659) Due to Northern Rockies Regional Hospital District (180,424) 168,339 (1,167,238) 543,711 Change in cash and cash equivalents 4,912,521 5,772,801 Cash and cash equivalents, beginning of year 4,790,134 (982,667) Cash and cash equivalents, end of year $9,702,655 $4,790,134 See accompanying notes to consolidated financial statements Page 20 of 36

Notes to Consolidated Financial Statements December 31, 2012 The Northern Rockies Regional Municipality was incorporated in the Province of Bri sh Columbia on February 6, 2009 and its principal ac vi es include the provision of legisla ve; administra ve; protec ve; u lity; recrea on and cultural; and transporta on services to its residents. The Northern Rockies Regional Municipality is a con nua on of the Town of Fort Nelson and Northern Rockies Regional District, which were amalgamated on February 6, 2009. The notes to the consolidated Financial Statements are an integral part of the statements. They explain the significant accoun ng and repor ng policies and principles underlying these statements. They also provide relevant supplementary informa on and explana ons which cannot be conveniently expressed in the consolidated financial statement. 1. Significant Accoun ng Policies The consolidated financial statements have been prepared in accordance with accoun ng standards recommended for local governments and prescribed by the Public Sector Accoun ng Board ( PSAB ) of the Canadian Ins tute of Chartered Accountants. The following is a summary of the Regional Municipality s significant accoun ng policies: Basis of presenta on The consolidated financial statements of the Regional Municipality are the representa ons of management prepared in accordance with Canadian public sector accoun ng standards. Previous year s amounts have been restated to conform to the current year s presenta on. Basis of consolida on The Regional Municipality s resources and opera ons are segregated into the General and Statutory Reserve Funds for accoun ng and financial repor ng purposes. The consolidated financial statements include all the accounts of these funds. All material inter fund transac ons and balances have been eliminated within the consolidated financial statements. The Regional Municipality entered into a Joint Venture called NRM Industrial Subdivision Joint Venture in the development of light industrial lands. In accordance with PS 3060, Government Partnership, of the Public Sector Accoun ng Board handbook, the Regional Municipality is required to account for the Joint Venture using propor onate consolida on. Accordingly, the consolidated financial statements include 50% of the accounts of the Joint Venture. The Cemetery Trust Fund and the Employee Trust Fund are administered by the Regional Municipality and are specifically excluded from the consolidated financial statements and are reported separately (Note 14). Accrual accoun ng The accrual method for repor ng revenues and expenses has been used. Land held for sale Land held for resale is measured at the lower of cost and net realizable value. Cost consists of material costs, subcontractor costs, and other costs incurred in bringing the land to their present loca on and condi on. Costs of land for sale are segregated for specific projects and are assigned by using specific iden fica on of their individual costs. Net realizable value is the es mated selling price in the ordinary course of business less es mated costs of comple on and the es mated selling costs. Page 21 of 36

Notes to Consolidated Financial Statements December 31, 2012 Revenue recogni on Taxa on revenue Annual levies for non op onal municipal services and general administra ve services are recorded as taxes for municipal purposes. Levies imposed by other taxing authori es are not included as taxes for municipal purposes. Taxes are recognized as revenue in the year they are levied. Through the Bri sh Columbia Assessments appeal process taxes may be adjusted by way of supplementary roll adjustments. The effects of these adjustments on taxes are recognized at the me they are awarded. Government transfers Government transfers are recognized as revenue in the period that the transfer is authorized, eligibility criteria, if any, have been met by the Regional Municipality, and a reasonable es mate of the amount to be received can be made. Fees and charges revenue Charges for permits, licences, leases, user fees (recrea on, solid waste, water, waste water and airport) are included in this category. These revenues are recorded on the accrual basis and recognized when earned. Expenses Expenses are recorded in the period in which the goods or services are acquired and a liability is incurred. Use of es mates Management has made es mates and assump ons that affect the amount reported in preparing these financial statements. Significant areas requiring the use of management es mates relate to the determina on of tangible capital assets historical cost, es mated useful life and related amor za on, and landfill post closure costs. Actual results could differ from the es mates. Budget informa on Unaudited budget informa on, presented on a basis consistent with that used for actual results, was included in the Northern Rockies Regional Municipality Consolidated Five Year Plan and was adopted through Bylaw No. 71,2012 on May 7, 2012. Financial instruments The Regional Municipality s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabili es, amounts due to Northern Rockies Regional Hospital District, debenture debt and capital lease obliga ons. Unless otherwise noted, it is management s opinion that the Regional Municipality is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximate their carrying value, unless otherwise noted. Reserves for future expenses Reserves for future expenses are non statutory reserves which represent an appropria on of surplus for specific purposes. Transfers to reserves for future expenses include funds to finance incomplete projects and accumula ons for specific purposes. Page 22 of 36

Notes to Consolidated Financial Statements December 31, 2012 Statutory reserve funds The use of these funds is restricted by the Community Charter and associated Municipal Bylaws. Statutory reserve funds are funded 100% by cash. Work in progress Work in progress represents capital projects under construc on but not yet completed and are valued at cost. Tangible capital assets The Regional Municipality records physical assets including assets held under capital lease, at cost in the period they were acquired or when the asset is put into use. Tangible capital assets are recorded at cost, net of disposals, write downs and amor za on. The useful life is applied on a straight line basis to calculate amor za on. A full year of amor za on is claimed in the year of acquisi on, providing the asset is in use, and no amor za on is claimed in the year of disposal. Useful Life (Years) Land n/a Land improvements 15 25 Buildings 20 50 Machinery and equipment 5 15 Vehicles 6 15 Transporta on infrastructure 5 50 Sewer infrastructure 25 80 Water infrastructure 25 80 Airport infrastructure 15 60 2. Change in Accoun ng Policy Effec ve January 1, 2012, the Northern Rockies Regional Municipality adopted Sec on PS3150 Tangible Capital Assets, of the Public Sector Accoun ng Board handbook. Sec on PS3150 requires municipali es to record and amor ze their tangible capital assets over their es mated useful lives. In prior years, tangible capital asset addi ons were either capitalized or expensed in the year of acquisi on or construc on. In order to adopt Sec on PS3150, the Regional Municipality had to retroac vely adjust the historical cost of its tangible capital assets and record amor za on for prior years. These adjustments have been reported as a prior period adjustment to accumulated surplus which is explained in Note 12 to the consolidated financial statements. The cost of tangible capital assets includes both actual and es mated historical cost. When historical cost records were not available, other methods were used on a consistent basis to es mate the historical cost which included using discounted replacement cost. Page 23 of 36

Notes to Consolidated Financial Statements December 31, 2012 3. Accounts Receivable Accounts receivable are recorded net of allowance and are comprised of the following: 2012 2011 Property taxes receivable $ 546,787 $ 703,791 Due from senior governments 611,458 1,147,834 Trade accounts and other 1,411,426 1,540,144 4. Tax Sale Proper es $ 2,569,671 $ 3,391,769 Property tax acquired for taxes subject to redemp on Opening balance Addi ons Disposals at cost Balance at 2012 Balance at 2011 $4,674 $1,406 $4,674 $1,406 $4,674 5. Line of Credit The Regional Municipality holds a line of credit which includes a demand opera ng facility of up to $995,000 which was undrawn at December 31, 2012 (2011 $nil). This facility bears interest at prime rate plus 1.25% per annum. 6. Short Term Borrowing The Regional Municipality obtained short term borrowing issued through the Municipal Finance Authority at an annual rate of 1.7%. 7. Accounts Payable and Accrued Liabili es 2012 2011 Wages and accrued benefits $ 965,524 $ 786,858 Payable to trust accounts 165,186 142,813 Trade 1,956,251 2,236,723 Landfill closure/post closure liability 902,196 841,069 Refundable deposits 78,806 80,580 Subdivision development 337,122 798,928 $ 4,405,085 $ 4,886,971 Page 24 of 36

Notes to Consolidated Financial Statements December 31, 2012 8. Debenture Debt The Regional Municipality obtains debt instruments through the Municipal Finance Authority (the Authority ) pursuant to security issuing bylaws under authority of the Community Charter to finance certain capital expenditures. Debt outstanding comprises: Bylaw Maturity 2012 2011 Date Recrea on purposes 104/202/197 2038 $7,394,281 $7,554,735 Water purposes: 71/508/120 2014 102,448 150,368 63/59/78 2016 227,684 277,994 71/472/120 2019 283,999 317,854 71/529/120 2019 155,895 174,479 63/431/77 2021 1,040,911 1,130,816 95/608/170 2025 936,645 990,811 95/623/170 2025 418,410 442,607 95/643/170 2025 300,826 318,223 102/659/188 2027 321,926 337,385 102/687/188 2032 1,074,998 1,109,710 102/174/188 2032 818,110 857,396 102/700/188 2032 2,592,558 2,676,365 $8,274,410 $8,784,008 Sewer purposes: 71/473/120 2019 330,774 370,205 95/644/170 2025 52,447 55,480 95/658/170 2025 551,887 583,803 102/700/188 2032 262,996 271,395 $1,198,104 $1,280,883 $16,866,795 $17,619,626 Future principal instalments over the next five years, assuming no changes in terms or interest rates, are as follows: 2013 $552,688 2014 552,688 2015 524,021 2016 524,021 2017 499,821 Page 25 of 36

Notes to Consolidated Financial Statements December 31, 2012 8. Debenture Debt con nued Municipal Finance Authority Debt Reserve Fund The Municipal Finance Authority of Bri sh Columbia provides capital financing for municipali es. The Authority is required to establish a Debt Reserve Fund. The Regional Municipality is required to pay into the Debt Reserve Fund certain amounts set out in the debt agreements. The Authority pays into the Debt Reserve Fund these monies from which interest earned thereon less administra ve expenses becomes an obliga on to the Regional Municipality. It must then use this fund if at any me there are insufficient funds to meet payments on its obliga ons. When this occurs the Regional Municipality may be called upon to restore the fund. Upon maturity of a debt issue, the unused por on of the Debt Reserve Fund established for that issue will be discharged to the Regional Municipality. The proceeds from these discharges will be credited to income in the year they are received. As at December 31, 2012 the total of the Regional Municipality s MFA Debt Reserve Fund is comprised of: 2012 2011 Cash deposits $ 310,857 $ 301,738 Demand notes 652,578 652,578 $ 963,435 $ 954,316 9. Capital Lease Obliga ons Finance contract repayable in monthly instalments of $1,911 including interest at 2%, secured by certain equipment Finance contract repayable in monthly instalments of $2,696 including interest at 2%, secured by certain equipment Finance contract repayable in monthly instalments of $11,171 including interest at 2%, secured by certain equipment Finance contract repayable in monthly instalments of $3,723 including interest at 2.5%, secured by certain equipment 2012 2011 $87,765 $127,100 367,403 392,051 473,979 596,780 43,400 90,599 $972,547 $1,206,530 Minimum future lease obliga on payments over the next five years, assuming no change in terms or interest rates, are as follows: 2013 $233,202 2014 189,337 2015 189,337 2016 403,925 2017 Page 26 of 36

Notes to Consolidated Financial Statements December 31, 2012 10. Tangible Capital Assets Land Improvements Buildings Vehicles Machinery & Equipment Land Cost Balance, beginning of year $4,667,858 $557,441 $10,802,291 $4,152,575 $10,589,126 Add: addi ons during the year 84,306 56,185,210 121,905 133,323 Less: disposals during the year (50,358) (249,751) (37,088) Balance, end of year 4,701,806 557,441 66,737,750 4,237,392 10,722,449 Accumulated amor za on Balance, Beginning of year 353,845 7,394,103 2,476,060 5,263,920 Add: amor za on 22,244 1,365,915 277,941 485,362 Less: accumulated amor za on on disposals (43,706) (37,088) Balance, end of year 376,089 8,716,312 2,716,913 5,749,282 Net book value of tangible capital assets $4,701,806 $181,352 $58,021,438 $1,520,479 $4,973,167 Work in progress $33,782 $3,478,285 Included in the above are the following assets under capital lease 2012 2011 Cost Acc Amort NBV NBV Vehicles 1,312,485 378,242 934,243 1,021,742 Equipment 209,324 55,820 153,504 167,460 1,521,809 434,062 1,087,747 1,189,202 Page 27 of 36

Notes to Consolidated Financial Statements December 31, 2012 10. Tangible Capital Assets con nued Water Infrastructure Sewer Infrastructure Roads Infrastructure Airport Infrastructure Total 2012 Total 2011 $41,569,986 $14,750,053 $36,060,999 $20,854,623 $144,004,952 $135,595,652 6,346,005 62,870,749 8,442,005 (26) (337,223) (32,705) 41,569,986 14,750,053 42,406,978 20,854,623 206,538,478 144,004,952 11,291,869 7,702,839 15,604,227 13,032,973 63,119,836 58,636,802 640,107 247,433 2,136,527 591,916 5,767,445 4,515,739 (26) (80,820) (32,705) 11,931,976 7,950,272 17,740,728 13,624,889 68,806,461 63,119,836 $29,638,010 $6,799,781 $24,666,250 $7,229,734 $137,732,017 $80,885,116 $1,420,625 $5,929,027 $10,861,719 $65,429,808 Page 28 of 36

Notes to Consolidated Financial Statements December 31, 2012 11. Accumulated Surplus Reserves for Future Expenditures Statutory Reserves Fund Surpluses Investment in Tangible Capital Assets Total 2012 Total 2011 (restated) Balance as Restated 6,514,176 2,472,504 40,908,460 76,193,248 126,088,388 112,886,870 Excess of revenue over 2,899 8,887,673 200,143 9,090,715 12,654,455 expenses Transfers 127,450 127,481 (579,905) 324,974 Repayment of long term debt Subdivision development Accumulated surplus, end of year (552,688) 552,688 (3,593) (3,593) 547,063 $6,641,626 $2,602,884 $48,659,947 $77,271,053 $135,175,510 $126,088,388 Balances Beginning of Year (restated) Transfer From Transfer To Balances End of Year Non Statutory Reserves General reserves 5,996,018 111,620 6,107,638 Water reserves 518,158 15,830 533,988 6,514,176 127,450 6,641,626 Statutory Reserves Feasibility reserve 92,012 92,012 Tax sale lands reserve 52,818 52,818 Capital works reserve 243,673 243,673 Machinery & equipment reserve 1,912,322 (374,198) 504,578 2,042,702 Sewer reserve 119,529 119,529 Water reserve 52,150 52,150 2,472,504 (374,198) 504,578 2,602,884 Surplus General purposes 37,511,935 (637,461) 9,035,783 45,910,257 Water purposes 2,792,861 (427,969) 2,364,892 Sewer purposes 56,601 (215,273) (158,672) Subdivision development 547,063 (3,593) 543,470 40,908,460 (1,284,296) 9,035,783 48,659,947 Investment in Non Financial Assets Investment in tangible capital assets 76,193,248 1,077,805 77,271,053 Accumulated Surplus $126,088,388 $(1,658,494) $10,745,616 $135,175,510 Page 29 of 36

Notes to Consolidated Financial Statements December 31, 2012 12. Prior Period Adjustment As explained in Note 2 of the consolidated financial statements the Regional Municipality adopted Sec on PS 3150, Tangible Capital Assets, of the Public Sector Accoun ng Board handbook. In order to adopt Sec on PS 3150, the Regional Municipality had to retroac vely adjust the cost of its tangible capital assets and record amor za on for prior years. This has resulted in an increase in land for sale, tangible capital assets, revenue and expenses; and a decrease in accounts payable. This has resulted in a net increase in surplus of $14,972,307. In prior years the investment in the Joint Venture has been reported as a por olio investment. This has resulted in a qualifica on of the audit report as the Regional Municipality is required under PSAB to propor onately consolidate the Joint Venture. This year the Regional Municipality has chosen to propor onately consolidate the Joint Venture and as a result has restated prior year s amounts. This has resulted in an increase in cash, accounts receivable, land held for resale, accounts payable, revenue and expenses. This has resulted in a net increase in surplus of $547,062. In prior years liability for landfill closure costs had not been reported in accordance with Sec on PS 3270, Solid Waste Landfill Closure and Post Closure Liability, of the Public Sector Accoun ng Handbook. This year the Regional Municipality has chosen to recognize the landfill post closure liability and as a result has restated prior year s amounts. This has resulted in an increase to accounts payable and expenses. The net decrease in surplus is $841,069. 13. Commitments and Con ngencies Pension Liability The Regional Municipality and its employees contribute to the Municipal Pension Plan (the plan), a jointlytrusteed pension plan. The Board of Trustees, represen ng plan members and employers, is responsible for overseeing the management of the pension plan, including investment of the assets and administra on of the benefits. The pension plan is a mul employer contributory pension plan. Basic pension benefits provided are defined. The plan has about 176,000 ac ve contributors and approximately 67,000 re red members. Ac ve members include approximately 35,000 contributors from local governments. The lastest valua on as at December 31, 2009 indicated an unfunded liability of $1,024 million for basic pension benefits. The next valua on will be as at December 31, 2012 with results available in 2013. Defined contribu on plan accoun ng is applied to the Plan as the Plan exposes the par cipa ng en es to actuarial risks associated with the current and former employees of other en es, with the result that there is no consistent and reliable basis for alloca ng the obliga on, Plan assets and cost to individual en es par cipa ng in the Plan. The Regional Municipality paid $446,090 (2011 $318,511) for employer contribu ons while employee contribu ons were $417,592 (2011 $302,388) to the plan in fiscal 2012. Legal Liabili es The Regional Municipality is poten ally exposed to lawsuits arising from the ordinary course of opera ons. Although the outcome of such ma ers cannot be predicted with certainty, management does not consider the Regional Municipality s exposure to be material to these financial statements. Page 30 of 36

Notes to Consolidated Financial Statements December 31, 2012 Landfill Closure and Post Closure Costs Included in payables is $902,196 (2011 $841,069). These amounts represent management s total es mated liability for landfill closure and post closure care. The es mated liability for these costs is recognized as the landfill site s capacity is used. Es mated total expenses represent the sum of the discounted future cash flows for closure and post closure care ac vi es discounted at an annual es mated borrowing cost of 2%. Landfill closure and post closure care requirements have been defined in accordance with the Ministry of Environment s Landfill Criteria for Municipal Solid Waste and include final covering and landscaping of the landfill, monitoring groundwater, surface water and landfill gas and erosion se lement for a period of 25 years. The reported liability is based on es mates and assump ons with respect to events extending over the remaining life of the landfill. The remaining capacity of the landfill site is es mated at 1,570,228 cubic metres, which is 86% of the site s total capacity. The landfill site is expected to reach capacity in 2034. 14. Trust Funds In accordance with PSAB recommenda ons for local governments, trust funds are not included in the Regional Municipality s consolidated financial statements. The Regional Municipality administers a Cemetery Maintenance Fund for the perpetual care and maintenance of the Regional Municipality owned and operated cemeteries. As at December 31, 2012 the Cemetery Trust Fund balance is $21,358 (2011 $20,160). The Regional Municipality administers an Employee Trust Fund on behalf of its employees. As at December 31, 2012 the Employee Trust Fund balance is $4,805 (2011 $456). 15. Segmented Informa on The Northern Rockies Regional Municipality provides a various services within various divisions. The segmented informa on as disclosed in this sec on reflects those func ons offered by the Regional Municipality as summarized below: General government ac vi es related to the administra on of the Regional Municipality as a whole including central administra on, finance, human resources, common services and legisla ve opera ons. Protec ve services ac vi es related to providing for the security of the property and ci zens of the Regional Municipality including, policing, fire protec on, emergency planning, building inspec on, animal control and bylaw enforcement. The popula on of the Regional Municipality was reported below 5,000 in the 2011 census and policing costs ceased as of April 1, 2012. U lity services ac vi es related to sewer and water u li es. Sewer u lity ac vi es are related to gathering, trea ng, transpor ng, storing and discharging sewage or reclaimed water. Water u lity ac vi es are related to supplying, storing, trea ng and transpor ng water. Community development services ac vi es related to community planning, economic development and tourism. Recrea on and cultural services ac vi es related to all recrea onal and cultural services including the maintenance of parks and facili es for recrea onal and culture ac vi es. Page 31 of 36

Notes to Consolidated Financial Statements December 31, 2012 15. Segmented Informa on con nued Transporta on services ac vi es related to transporta on services including maintenance of roads, sidewalks, street ligh ng and signage. Environmental health services ac vi es related to solid waste management. Cemetery ac vi es related to cemetery maintenance. Airport services ac vi es related to opera on of the airport. Subdivision development ac vi es related to opera on of the NRM Industrial Subdivision Joint Venture. Page 32 of 36

Notes to Consolidated Financial Statements December 31, 2012 15. Segmented Informa on 2011 General Protec ve U lity Community Recrea on Government Services Services Development & Culture Revenue Taxes $31,655,129 $ $ $ $ Collec ons for other governments (8,616,639) Government grants 611,300 878,807 3,840,342 4,175 1,369,223 Fees and charges 163,112 231,376 2,782,177 43,787 743,709 Land sales Actuarial adjustment 11,639 171,267 Proceeds from disposal of tangible capital assets 23,824,541 1,110,183 6,793,786 47,962 2,112,932 Expenses Salaries, wages and employee benefits 1,266,166 1,096,995 903,628 736,445 1,856,745 Contracted and general services 507,632 1,919,209 159,715 907,355 574,714 Materials and supplies 204,151 244,239 593,546 57,776 717,516 U li es 72,857 16,426 181,828 349,874 Grants 514,497 Other 38,578 Alloca ons 7,950 254,500 35,490 Amor za on 158,736 151,277 1,149,506 119,157 Total before debt 2,248,120 3,436,096 3,242,723 1,701,576 4,167,993 Debt interest and fiscal services 600,872 452,581 Total opera ng expenses 2,248,120 3,436,096 3,843,595 1,701,576 4,620,574 Excess (deficiency) revenue over expenses $21,576,421 ($2,325,913) $2,950,191 ($1,653,614) ($2,507,642) Page 33 of 36

Notes to Consolidated Financial Statements December 31, 2012 Transporta on Environmental Cemetery Airport Subdivision 2011 2011 Services Waste Mgmt Development Actual Budget $ $ $ $ $ $31,655,129 $31,587,510 (8,616,639) (8,730,630) 500,000 7,203,847 12,821,660 27,634 427,874 3,410 803,577 6,769 5,233,425 4,697,650 2,174,686 2,174,686 182,906 527,634 427,874 3,410 803,577 2,181,455 37,833,354 40,376,190 694,835 61,126 25,495 6,641,435 6,746,190 194,768 475,830 583,136 5,322,359 6,341,070 1,709,422 122,829 997 435,310 4,085,786 31,971,810 94,860 13,895 95,859 825,599 929,640 514,497 654,090 1,634,391 1,672,969 (319,140) 10,600 10,600 (1,620) 2,136,685 1,329 3,932 795,116 4,515,738 4,511,430 685,609 41,024 1,909,421 1,634,391 23,578,383 46,641,180 1,053,453 1,037,280 4,511,430 685,609 41,024 1,909,421 1,634,391 24,631,836 47,678,460 ($3,983,796) ($257,735) ($37,614) ($1,105,844) $547,064 $13,201,518 ($7,302,270) Page 34 of 36