Edmonton Economic Development Corporation Financial Statements (using Public Sector Accounting Standards with PS 4200 Sections) December 31, 2012, December 31, 2011 and January 1, 2011
March 28, 2013
Independent Auditor’s Report To the Shareholder of Edmonton Economic Development Corporation
We have audited the accompanying financial statements of Edmonton Economic Development Corporation, which comprise the statements of financial position as at December 31, 2012, December 31, 2011, and opening balances as at January 1, 2011 and the statements of operations and cash flows for the years ended December 31, 2012 and December 31, 2011, and the statement of remeasurement gains and losses for the year ended December 31, 2012 and the related notes including 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 for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our 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.
PricewaterhouseCoopers LLP TD Tower, 10088 102 Avenue NW, Suite 1501, Edmonton, Alberta, Canada T5J 3N5 T: +1 780 441 6700, F: +1 780 441 6776 “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
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 Edmonton Economic Development Corporation as at December 31, 2012, December 31, 2011 and opening balances as at January 1, 2011 and the results of its operations and its cash flows for the years ended December 31, 2012 and December 31, 2011, in accordance with Canadian Public Sector Accounting Standards for not-for-profit organizations. Other matter Without modifying our opinion, we draw attention to the budget column included in the statement of operations and note 4, which have been provided for information purposes only. Information included therein has not been subject to separate audit procedures.
Chartered Accountants
Edmonton Economic Development Corporation Statements of Operations For the years ended December 31, 2012 and December 31, 2011
Budget 2012 $ (Unaudited – Note 4)
Actual 2012 $
Actual 2011 $ (Restated – Note 3(b))
14,500,000 12,336,000 7,859,486
13,904,850 12,336,000 8,050,320
13,270,029 12,086,000 7,710,770
34,695,486
34,291,170
33,066,799
16,616,938 15,243,484 1,994,256
16,133,247 15,116,977 1,947,163
15,608,125 14,523,397 1,744,968
33,854,678
33,197,387
31,876,490
840,808
1,093,783
1,190,309
2,165,800 298,612 (1,007,254)
2,439,177 299,509 (1,244,731)
2,165,800 322,685 (1,007,254)
1,457,158
1,493,955
1,481,231
Revenue Convention Centre food, beverage and rental revenues City of Edmonton tax levy (note 5) Other external revenues
Expenses Salaries and related costs Operating and program costs Cost of food and beverage sold
Operating surplus before amortization and interest Amortization of property and equipment Interest on long-term debt (note 11) Amortization of facility grants
Net deficit for the year
(616,350)
The accompanying notes are an integral part of these financial statements.
(400,172)
(290,922)
Edmonton Economic Development Corporation Statement of Remeasurement Gains For the year ended December 31, 2012
$
Accumulated remeasurement gains – Beginning of year
-
As previously reported
-
Adjustment due to adoption of Public Sector Accounting Standard 3450 – Financial Instruments
-
As restated
-
Unrealized gains (losses) attributable to Derivatives, portfolio investments or foreign exchange
-
Accumulated remeasurement gains – End of year
-
Due to the nature of the Company’s operations, there were no unrealized remeasurement gains or losses as at January 1, 2012 and for the year ended December 31, 2012.
The accompanying notes are an integral part of these financial statements.
Edmonton Economic Development Corporation Statement of Cash Flows For the years ended December 31, 2012 and December 31, 2011
2012 $
2011 $
Cash provided by (used in) Operating activities Net operating deficit for the year Items not affecting cash Amortization of property and equipment Amortization of facility grants
(400,172)
(290,922)
2,439,177 (1,244,731)
2,165,800 (1,007,254)
794,274 Net change in non-cash working capital items
867,624
(1,474,072)
503,935
(679,798)
1,371,559
Investing activities Mortgage receivable repayment
16,391
15,320
(230,000)
(58,255)
(542,196)
(516,235)
Capital activities Investment in property and equipment
Financing activities Long-term debt repayment
(Decrease) increase in cash and cash equivalents
(1,435,603)
812,389
Cash and cash equivalents – Beginning of year
8,170,126
7,357,737
Cash and cash equivalents – End of year
6,734,523
8,170,126
1,972,511 4,762,012
3,364,646 4,805,480
6,734,523
8,170,126
Cash and cash equivalents consists of Cash Short-term investments
Supplementary information (note 19)
The accompanying notes are an integral part of these financial statements.
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
1
General Edmonton Economic Development Corporation (the Company) was established as a company under Part 9 of the Companies Act (Alberta) to promote economic development and tourism in the City of Edmonton. In addition, the Company operates and maintains the Shaw Conference Centre and the Edmonton Research Park. Funding of the Company, in part, is from an annual grant provided by the City of Edmonton. The Company is wholly owned by the City of Edmonton and, therefore, is exempt from paying taxes under the Income Tax Act. The Company receives a significant portion of its revenue from the City of Edmonton.
2
Significant accounting policies These financial statements have been prepared by management in accordance with Canadian Public Sector Accounting Standards (PSAS), including standards which apply to government not-for-profit organizations. The preparation of financial statements in conformity with PSAS necessarily includes the use of estimates and approximations which have been made using careful judgment. Actual results could differ from those estimates. Such estimates include the amortization of property and equipment. These financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below. a)
Revenue recognition i)
Contributions The Company follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be estimated and ultimate collection is reasonably assured.
ii)
Shaw Conference Centre Revenue from the Shaw Conference Centre is recognized when services are provided and ultimate collection is reasonably assured.
iii) Research Park Rental revenue from the Research Park is recognized over the term of the related lease agreement and ultimate collection is reasonably assured.
(1)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
iv)
Facility grants Provincial government assistance received for the construction of the Advance Technology Centre is deferred and amortized to income on a straight-line basis over the estimated life of the building, in the amount of $80,000 per year. Amortization of this grant was completed in 2012. Federal, provincial and municipal assistance received for the leasehold improvements to buildings at the Research Park is deferred, and is amortized to income consistent with the amortization of the leasehold improvements (note 2(e)).
v)
Sponsorship contracts The Company has a sponsorship agreement with Shaw Communications Inc., which expires in September 2017. Under this agreement the Company will receive a net amount of $165,000 in each remaining year of the agreement for the exclusive rights for the name: Shaw Conference Centre.
vi)
Related party transactions The Company reports certain revenues and expenses on a net basis as agent for the shareholder (note 5). When deciding the most appropriate basis for presenting revenue and related costs, both the legal form and substance of the transaction are reviewed to determine each party’s respective role in the transaction. Where the Company’s role is that of principal, revenue is recognized on the gross basis. This requires revenue to comprise the gross value of the transaction with any related expenditure charged as an operating expense. When the Company’s role in a transaction is that of an agent, revenue is recognized on the net basis, with revenue representing the margin earned, if any. Funding for TEC Edmonton (note 15) and the Edmonton Film Fund (note 22(b)) is presented on a net basis while funding for the Destination Marketing Fund (note 22(a)) is presented on a gross basis.
b)
Cash Cash consists of cash on deposit.
c)
Short-term investments Short-term investments consist of guaranteed investment certificates with a maturity of 90 days or less.
d)
Inventory Inventories of food and beverage are recorded at the lower of cost, determined on a specific item basis, and replacement cost. Beverage inventories are recorded at weighted average cost.
(2)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
e)
Property and equipment Land, buildings, tenant improvements and leasehold improvements are capitalized and recorded at cost. Amortization on these assets is provided once the assets have been put into use using the straight-line basis under the following terms: Research park buildings Research park tenant and leasehold improvements 35% of cost 65% of cost
25 years 25 years 5 years
Certain Shaw Conference Centre and Gateway Park Visitor Information Centre property and equipment are purchased through a capital budgeting and request process controlled by the City of Edmonton. These funds and the related assets are owned by the City of Edmonton and are excluded from the Company’s financial statements. f)
Impairment of long-lived assets Long-lived assets with a finite life are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed by sale are reported at the lower of carrying amount or fair value less costs to sell.
g)
Capital contributions Capital contributions are recorded at fair market value at the time of contribution, increasing the value of property and equipment, and are offset by a credit of the same amount to deferred capital contributions. Capital assets and deferred contributions are amortized to the statement of operations over the estimated useful life of the asset as disclosed in note 2 (e)).
h)
Internally restricted net assets (note 21) The Board of Directors authorizes the transfer of net assets to and from the following reserves: i)
Shaw Conference Centre operations The Shaw Conference Centre operations reserve was established for the purpose of funding future Shaw Conference Centre activities.
ii)
Shaw Conference Centre capital The reserve was established to provide for future capital upgrades and replacements in the Shaw Conference Centre, and is funded through surpluses generated by operations.
(3)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
i)
Financial instruments (note 17) The Company has classified its financial instruments as follows: Cash and short-term investments are classified as “Held for trading”. They are measured at fair value and the gains or losses resulting from the re-measurement at the end of each period are recognized in the statement of operations. Accounts receivable and mortgage receivable are classified as “Loans and Receivables”. They are recorded at cost, which upon their initial measurement is equal to their fair value. Accounts payable and accrued liabilities and long-term debt are classified as “Other Financial Liabilities”. They are initially measured at their fair value, except for the capital loan due to the City, which was initially measured at its carrying amount. Subsequent measurements are recorded at amortized cost using the effective interest rate method. Transfer funding receivable and payable are the present value of the amounts receivable from the City and payable to TEC Edmonton, as approved annually by City Council under the agreements in place until 2015.
3
Transition to Canadian Public Sector Accounting Standards In December 2010, the Canadian Accounting Standards Board issued a comprehensive set of accounting standards applicable to not-for-profit organizations and changes for government not-for-profit organizations (GNPO). The standards are effective for fiscal years beginning on or after January 1, 2012 and require retrospective application, except for certain exemptions and exceptions contained within the standards. Commencing with the 2012 fiscal year, the Company has adopted PSAS with PS 4200 sections and section PS 2125, First time adoption by government organizations. These financial statements are the first financial statements for which the Company has applied PSAS. The Company has elected to apply the standards in section 4200 which applies only to GNPO. The transition to PSAS had no impact to net assets at the date of transition, January 1, 2011. These accounting changes have been applied retroactively with the restatement of prior periods except for the accounting standards contained in PS 3450, as this standard specifically prohibits retroactive application. The following changes have been implemented to comply with PSAS:
(4)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
a)
Statement of financial position December 31, 2011 $
January 1, 2011 $
21,678,098
23,244,189
1,000,000
1,000,000
Total assets – as restated
22,678,098
24,244,189
Total liabilities – as previously stated
17,445,704
18,720,873
1,000,000
1,000,000
18,445,704
19,720,873
2012 $
2011 $
4,232,294
4,523,216
-
-
4,232,294
4,523,216
Total assets – as previously stated TEC Edmonton funding commitment
TEC Edmonton funding commitment
(i)
(i)
Total liabilities – as restated
Net assets – Beginning of year – as previously stated (ii)
TEC Edmonton
Net assets – Beginning of year – as restated b)
Statement of operations 2011 $ Net deficit for the year – as previously stated
(290,922)
(ii)
TEC Edmonton Tax levy funding Operating costs Net deficit for the year – as restated
(1,000,000) 1,000,000 (290,922)
(i) The
City of Edmonton has agreed to provide the Company with funding for TEC Edmonton of $1,000,000 for each of the fiscal years to 2015 subject to annual approval by City Council (note 15). These funding commitments have been determined to be financial instruments and, accordingly, are reflected as the values of the future funding receivable and payable in the statements of financial position.
(5)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
(ii)
The Company reassessed its accounting treatment of transactions with TEC Edmonton (note 2 (a-vi) and note 15). PSAS Section 4200 establishes whether to report revenue at gross or net of expenses if the company acts as a principal or as an agent. The Company concluded that it is serving as an agent for the City of Edmonton. As a result, tax levy funding and operating costs decreased by $1,000,000 in 2011.
Except as described in (i) and (ii), the restatement had no other impact on the other previously reported financial statements.
4
Budget preparation The Company’s budget was approved by the Board of Directors on October 7, 2011. This budget was prepared on the basis that it provides a net zero cash requirement. The basis used to compute this was as follows:
Net deficit for the year Items not affecting cash Amortization of property and equipment Amortization of capital grants
Actual $
(616,350)
(400,172)
2,165,800 (1,007,254)
2,439,177 (1,244,731)
Operating surplus (net of non-cash items)
542,196
794,274
Cash items for capital Long-term debt repayment
542,196
542,196
-
252,078
Net balance
5
Budget $
Related party transactions The City of Edmonton owns the Shaw Conference Centre and provides the facility and related assets (see note 2(e)) to the Company at no charge under a lease which expires July 1, 2015. The City of Edmonton, in the normal course of operations, provides funding to the Company, including tax levy funding, capital funding, and grants. Tax levy funding of $12,336,000 has been received in 2012 (2011 – $12,086,000) and is recorded as revenue by the Company. Capital funding of $830,068 (2011 – $1,905,831) has also been provided by the City of Edmonton for projects related to assets owned by the City of Edmonton which are thereby excluded from the statement of financial position. Included in accounts receivable is $802,915 (2011 – $353,293) due from the City of Edmonton and in accounts payable is $32,873 (2011 – $113,750) due to the City of Edmonton at December 31, 2012. Long-term debt in the form of a debenture of $6,000,000 and a borrowing facility up to an authorized total of $6,483,000 has been provided to the Company by the City of Edmonton (note 11).
(6)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
The Company has an agreement in place with the City of Edmonton which was in effect in 2012. In 2007, the City of Edmonton sold to the Company land for $1 in the Edmonton Research Park which was in turn leased to an arm’s length third party. Lease payments are collected by the Company and remitted to the City of Edmonton less an administrative fee (note 16). TEC Edmonton is a related party and information regarding this organization and transactions with it, is provided under note 15.
6
Inventory The Company’s inventory of $338,820 (2011 – $391,731) consists of consumable food and beverage items used at events at the Shaw Conference Centre. Due to its perishable nature, this inventory is typically purchased for short term usage only.
7
Mortgage receivable
Mortgage receivable, interest at 7% per annum, due in equal monthly instalments of $1,524 including principal and interest Less: Current portion
2012 $
2011 $
19,053 17,537
35,444 16,391
1,516
19,053
In 1994, the Company sold some land to Research Ventures Inc. (RVI) for $250,000. In order for RVI to fund the sale, the Company loaned RVI $200,000.
8
Property and equipment 2012
Land Buildings Tenant improvements Computer systems Leasehold improvements
Cost $
Accumulated amortization $
1,889,834 15,662,508 2,599,529 35,901 12,467,600
6,991,908 1,581,516 35,901 7,918,079
1,889,834 8,670,600 1,018,013 4,549,521
32,655,372
16,527,404
16,127,968
Net $
(7)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
2011
Land Buildings Tenant improvements Computer systems Leasehold improvements
Cost $
Accumulated amortization $
1,889,834 7,599,100 2,135,647 35,901 12,467,600
6,532,439 1,428,260 6,127,526
1,889,834 1,066,661 707,387 35,901 6,340,074
24,128,082
14,088,225
10,039,857
Net $
Effective January 1, 1993, the Company assumed the assets, liabilities (note 11(a)) and undertakings of the Edmonton Research and Development Park Authority, along with those of various other authorities. The Research Park Assets are included with the property and equipment of Edmonton Economic Development Corporation. Title to those assets is in the name of the City of Edmonton. Tenant improvements consist of construction costs to accommodate tenants in the Advance Technology Centre and Research Centre One. Leasehold improvements consist of the accumulated cost of renovating the leased premises at the Biotechnology Business Development Centre (BBDC). Amortization commenced in April, 2008. Effective May, 2012, on the default of a land lease in the Research Park, the Company assumed possession of a building and improvements. The assets have been assessed by an independent third party, who has provided assessed values of $8,063,408 and $233,881 respectively. Under PSAS, these assets are recorded at the fair values as increases in the property and equipment balances, offset by an amount of contributed capital funding categorized under long term liabilities (note 9). These balances are being amortized to income and expense over a 25 year term (note 2(e)), beginning in June, 2012
9
Deferred capital contributions
Capital grants – Biotechnology Business Development Centre Capital grant – Research Centre One Capital grant – Advance Technology Centre Capital contribution – Afexa building
Less: Current portion
2012 $
2011 $
1,958,354 714,220 8,059,811
2,850,768 749,060 80,000 -
10,732,385
3,679,828
679,230
1,007,254
10,053,155
2,672,574
(8)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
10 Deferred revenues 2012 $
2011 $
Tourism programs Economic Development
234,645 127,831
3,216,283 337,168
Less: Current portion
362,476 362,476
3,553,451 3,553,451
-
-
The significant decrease is due to the transfer of the Destination Marketing Fund to a separate legal entity effective January 1, 2013 (note 22(a)).
11 Long-term debt 2012 $
2011 $
Debenture Capital loan
863,650 4,884,637
1,264,155 5,026,328
Less: Current portion
5,748,287 569,464
6,290,483 542,196
5,178,823
5,748,287
Payments of principal and interest required over the next five years are as follows: $ 2013 2014 2015 2016 2017 a)
841,705 841,713 376,412 376,412 376,412
Debenture In 1981, a debenture for $6,000,000 issued by the City of Edmonton was allocated to the Edmonton Research and Development Park Authority. The liability for this debenture was assumed by the Company effective January 1, 1993 as part of the consolidation of the Authorities of the City of Edmonton. In 2003, the City of Edmonton and the Company renegotiated the payment terms of the debenture. Under the new terms, repayment commenced December 31, 2005 with equal annual payments of interest and principal in the amount of $465,293 per year. The last payment is due December 31, 2014. The land, buildings and tenant improvements with a carrying value of $2,565,591 (2011 – $2,710,838) are pledged as collateral.
(9)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
The long-term debt is eligible for the Alberta Government municipal interest rebate program, which reduces the effective rate. The effective rate of interest was 11.1% per annum through to 2006. Subsequent to 2006, the principal outstanding bears interest at 5.125%. Interest expense for the year was $64,788 (2011 – $84,313). b)
Capital loan The City of Edmonton and the Company entered into an agreement dated February 3, 2005, which provides a borrowing facility up to an authorized total of $6,483,000, for the purpose of carrying out renovations to the Biotechnology Business Development Centre. In 2007, the Company drew down $2,500,000 and in May, 2008 the Company drew down a further $3,000,000 resulting in total borrowings on the facility of $5,500,000 at December 31, 2009. The $2,500,000 loan is repayable over 25 years, at 4.758% interest, in payments of $86,027 semi-annually due in June and December of each year. The $3,000,000 loan is repayable over the same term but with interest of 4.657% and payments of $102,180 due in instalments of interest and principal in March and September of each year. Interest expense for the year on the total facility was $234,721 (2011 – $241,157).
12 Contingencies In the normal course of operations, the Company is party to various claims and legal proceedings. While the final outcome with respect to these proceedings cannot be determined with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Company’s financial position or results of operations.
13 Pension plan The Company has a defined contribution and a defined benefit plan covering eligible employees. Contributions are computed as a percentage of compensation. The expense related to the defined contribution plan for the year ended December 31, 2012 is $209,957 (2011 – $150,037) and for the defined benefit plan the expense for the year ended December 31, 2012 is $134,051 (2011 – $139,369). The defined benefit plan is a multiemployer plan administered outside the Company. Because the Company is not the sponsor of the plan, sufficient information to determine actuarial liability is not available, and the plan is accounted for using the standards for defined contribution plans.
(10)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
14 Interest in and advances to joint venture Travel Alberta International Inc. (TAI) is a separate legal entity, owned and managed, each as to 50% by the Company and the Company’s Calgary counterpart. On November 21, 2008 notice was given to terminate Travel Alberta International Inc.’s contract with the Province of Alberta effective March 31, 2009. As a result of the termination of the contract, the shareholders of TAI authorized the wind down of operations and TAI ceased to be a going concern as of March 31, 2009. In conjunction with the wind up of operations, TAI entered into an agreement with the Province of Alberta which provides marketing and operational funds to TAI during the transition period as well as outlines the process to transfer certain capital assets and commitments to the Province as of April 1, 2009. In 2010, the Company received a payment of $355,685 from TAI as proceeds on dissolution, to be used for Tourism marketing. The amount was recorded as deferred revenue, to be amortized equally over 3 years, starting in 2010. The $118,562 to be recognized in each of the three years represents the anticipated levels of related tourism marketing activity. To December 2012, the full amount has been recognized.
15 Participation in TEC Edmonton The Company and the University of Alberta entered into an agreement on January 1, 2006 to participate in TEC Edmonton. This agreement is $1,000,000 for each of the fiscal years to 2015, subject to the annual approval and receipt of funds from the City. The purpose of TEC Edmonton is to develop ideas, people and business opportunities in the high growth technology-based business sectors of Edmonton and the greater Capital Region. In 2012, $1,000,000 (2011 – $1,000,000) was provided. Liabilities or obligations to third parties that can’t otherwise be satisfied by the assets or resources within control of TEC Edmonton or from insurance and rights of indemnification are to be satisfied as 50% from the Company and 50% from the University of Alberta. At December 31, 2012, the Company is not aware of any liabilities or obligations that cannot be satisfied by the assets or resources within control of TEC Edmonton. The Company has determined that joint venture accounting is not the appropriate treatment for the TEC Edmonton agreement. The Company is acting as an agent on behalf of the City of Edmonton. Accordingly, funding received from the City, and subsequently forwarded to TEC Edmonton, is not reflected in the statement of operations.
(11)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
16 Financial commitments The Company is committed to make minimum annual lease payments under a lease for office space and has committed to other obligations for the next five years and in aggregate as follows: $ 2013 2014 2015 2016 2017 Thereafter
2,202,013 1,604,420 1,347,733 124,791 124,791 99,900
In 2007, the City of Edmonton sold to the Company two parcels of land in the Edmonton Research Park, which in turn were leased to an arm’s length third party in 2008, under the terms, conditions and restraints preapproved by the City of Edmonton. In 2009, the agreement between the third party and the Edmonton Research Park was amended and one of these parcels of land was returned to the Company. This parcel of land was then transferred to the City of Edmonton (note 5). During 2012, the Company received notice from the third party of their intention to surrender the remaining parcel of land. Negotiations for the surrender were substantially complete at year-end and the transfer of the land back to the City will be completed in 2013. Under the terms of the land transfer, the lease payments made by the third party to the Company are remitted to the City of Edmonton less an administrative fee. The Company does not guarantee the lease obligations of the third party, nor is it responsible for applicable property and business taxes. On January 11, 2008, the Company entered into a 25-year lease effective April 1, 2007, with the Alberta Government Ministry of Infrastructure and Transportation covering the building now occupied by the Biotechnology Business Development Centre. The lease terms are $1 per year for the first five years of the term, after which annual rental payments will consist of a 50% share of annual net operating profits, as measured after appropriate allocations to reserves for the long-term care of the building. There are no minimum rent guarantees. The foregoing table includes no estimates for the quantum of that 50% share.
(12)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
17 Financial instruments and risk management The Company’s financial instruments are exposed to certain financial risk, including credit risk, liquidity and market risk. a)
Financial instruments The Company has classified its financial instruments as follows:
Financial assets Held-for-trading, measured at fair value Cash and short-term investments Loans and receivables, measured at amortized cost Accounts receivable Mortgage receivable Transfer funding receivable Financial liabilities Trade accounts payable and accrued liabilities Transfer funding payable Long-term debt b)
2012 $
2011 $
6,734,523
8,170,126
4,164,888 19,053 1,000,000
3,040,940 35,444 1,000,000
6,709,882 1,000,000 5,748,287
3,921,942 1,000,000 6,290,483
Credit risk Credit risk is the risk of financial loss to the Company if a customer or party to a financial instrument fails to meet its contractual obligation and arises principally from the Company’s cash, short-term investments and accounts receivable. The maximum amount of credit risk exposure is limited to the carrying value of the balances disclosed in these financial statements. The Company manages its exposure to credit risk on cash and short-term investments by placing these financial instruments with high-credit quality financial institutions. With respect to accounts receivable, the Company monitors the credit risk and credit rating of all customers on a regular basis. Aged receivables balances are constantly monitored and an allowance for credit losses is provided in the period in which the losses become known. Balances are considered for impairment on a case by case basis when they are over 90 days past due or if there is indication that a customer will default. The Company is subject to a concentration of higher credit risk related to accounts receivable at the Edmonton Research Park, one of the Company’s divisions. A significant portion of the Edmonton Research Park’s tenants are in industries such as technology and research and development. These balances are monitored on an on-going basis and the credit risk is reduced by customer credit evaluations. The allowance for doubtful accounts related to the Company was $73,372 at December 31, 2012, of which $8,472 are accounts of the Edmonton Research Park, $30,565 are accounts of Edmonton Tourism, $3,376 are accounts of Economic Development, and $30,959 are accounts of the Shaw Conference Centre.
(13)
Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
c)
Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company is dependent on its sole shareholder, the City of Edmonton for a significant portion of its funding. A volunteer Board of Directors, composed of up to 15 local business leaders appointed by the City of Edmonton, governs the Company and approves the annual budget for the organization. Yearly audited financial statements are provided to the City of Edmonton and a communications and reporting process is also in place to keep the City of Edmonton informed of the Company’s activities and financial results throughout the year. On a day to day basis, the Company’s management reduces liquidity risk by continuously monitoring forecasted and actual cash flows to ensure it will have sufficient liquidity to meet its liabilities. The Company’s cash and short-term investments are all available on demand. All accounts payable and accrued liabilities are due within the current operating period. For long-term debt repayments, see note 11 and for financial commitments, see notes 15 and 16.
d)
Market risk Market risk is the risk that changes in market prices, such as foreign currency and interest rates will affect the Company’s earnings or the value of the financial instruments held. Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of the exchange in foreign exchange rates and the degree of volatility of these rates relative to the Canadian dollar. The Company does not enter into transactions that are denominated in foreign currencies and thus is not exposed to the risk of earnings fluctuations arising from foreign exchange rates. Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to interest rate risk arising primarily from fluctuations in rates on its cash and short term investments. The Company believes that the interest rate risk is remote due to the short period to maturity of these investments and low interest rates. Interest rate fluctuation exposure is also minimized on the Company’s mortgage receivable and long-term debt since these financial instruments are issued at fixed interest rates.
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Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
18 Capital management The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern so that it can continue its mandate of promoting economic development in Edmonton. The Company defines capital it manages as net assets composed of internally restricted net assets, unrestricted net assets and net assets invested in property and equipment. All operating surplus is either retained, reinvested in the Company’s operations, property and equipment or reserve. Reserves are established to provide future funding for the Company as determined by the Board (note 21). The Company manages its capital structure and makes adjustments to it in light of economic conditions. All significant decisions regarding capital must be approved by the Company’s Board of Directors.
19 Supplementary cash flow information
Interest paid Interest received
2012 $
2011 $
299,509
325,470
57,630
60,642
The Company had the following non-cash transactions, which are not included in the statements of cash flows (note 8): 2012 $
2011 $
Contributed capital funding
8,297,289
-
Acquisition of a building and improvements
8,297,289
-
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Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
20 Net assets
Balance – January 1, 2011
Internally restricted $ (Note 21)
Unrestricted $
Investment (deficiency) in property and equipment $
1,878,978
1,990,636
653,602
4,523,216
Total $
Purchase of property and equipment
-
(58,255)
58,255
-
Loan repayment
-
(516,235)
516,235
-
Net operating (deficit) surplus for the year
-
867,624
Transfer to (from) internally restricted net assets (note 21)
87,143
Balance – December 31, 2011
1,966,121
(1,158,546)
(87,143) 2,196,627
(290,922)
-
-
69,546
4,232,294
Acquisition of property and equipment
-
(8,527,289)
8,527,289
-
Contributed capital funding (note 8)
-
8,297,289
(8,297,289)
-
Loan repayment
-
Net operating surplus (deficit) for the year
794,274
Transfer to (from) internally restricted net assets (note 21)
Balance – December 31, 2012
(542,196)
(20,460) 1,945,661
542,196 (1,194,446)
20,460 2,239,165
(400,172)
(352,704)
3,832,122
Investment (deficiency) in property and equipment is internally restricted and consists of the following: 2012 $ Property and equipment (note 8) Deferred revenue – capital contributions (note 9) Long-term debt (note 11)
16,127,968 (10,732,385) (5,748,287) (352,704)
2011 $ 10,039,857 (3,679,828) (6,290,483) 69,546
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Edmonton Economic Development Corporation Notes to Financial Statements December 31, 2012, December 31, 2011 and January 1, 2011
21 Internally restricted net assets Shaw Conference Centre operations $
Shaw Conference Centre capital $
2012 $
2011 $
Balance – Beginning of year Transfer (from) to reserve
40,000 -
1,926,121 (20,460)
1,966,121 (20,460)
1,878,978 87,143
Balance – End of year
40,000
1,905,661
1,945,661
1,966,121
22 Subsequent events a)
Destination Marketing Fund In 2005, the Province of Alberta agreed to allow Edmonton hotels to retain a portion of the provincial room tax, for the purpose of funding local marketing efforts. The Company became the operating party to a series of agreements with individual hotels, creating the Destination Marketing Fund (DMF). With general direction from a steering committee, the Company received self-assessed remittances from the hotels, and disbursed the funds on their behalf. In October 2012, the DMF incorporated as a separate legal entity. Effective January 1, 2013, the DMF will assume control of the fund balance of $3,108,166. Effective December 31, 2012, the Company classified the amount as accounts payable, removing it from deferred revenues. The transfer of the fund balance is being arranged between the Company and the DMF.
b)
Edmonton Film Entertainment Fund The Company has entered into agreements with the City of Edmonton and an external party to establish an Edmonton Film Fund (EFF or the Fund). EFF is an initiative through which the Company will co-fund with the external party the costs of pre-sold film projects to be shot in Edmonton. The primary purpose of the Fund is to support the development of a sustainable film industry in Edmonton, and to generate a positive financial return on investments made through the Fund. The Company will act as agent on behalf of the City and will receive up to $5,000,000 in funding from the City, who will release funds based on individual projects. Any amounts paid by the City will be matched by the external party. On November 30, 2012, the Company established a wholly owned subsidiary, incorporated as a nondistributing company under the Alberta Business Corporations Act, to segregate Fund activities for reporting and accounting purposes. The first project approved under the EFF agreements began filming in January, 2013.
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