#1PEI's Front Door to Economic Development 2013 ANNUAL REPORT @ CHARLOTTETOWN Departures flypei www.flypei.com CHARLOTTETOWN AIRPORT AUTHORITY#2Empty#3Table of Contents 4 7 8 11 11 13 14 Greetings from the Chairman of the Board and the Chief Executive Officer Business Planning Strategic Priorities Marketing & Business Development Review Air Service Marketing Operational Review Financial Review Human Resources Community Relations 156722 19 Governance Financial Statements M#44 Charlottetown Airport | 2013 Annual Report Greetings from the Chairman of the Board and the Chief Executive Officer Chairman of the Board Letter When most people think about travel they think about sun-filled days at the beach with the family, exploring a new city, or learning about a foreign culture. We all know these soft benefits of travel... we feel them, we experience them, they are tangible. But what many of us don't think about are the economic benefits that travel brings to the broader community. For example, what about a company looking for a new headquarters for their office? They first have to travel to the destination to investigate, explore and assess the skilled workforce before they will relocate. Or what about a local company wanting to export their products or expertise internationally? They first have to travel to be connected conveniently to world markets. Or what about visitors vacationing on the Island? They first have to travel here and with them comes new export dollars for our Island economy. Air travel opens Prince Edward Island to the world, and Charlottetown Airport is the FRONT DOOR to this economic development in our community. Our Authority is proud of the economic benefits the airport brings to the Island, worth more than $90 million annually. Convenience and safety are of utmost importance to our Authority. This is a key reason why we partnered with the City of Charlottetown and the provincial government in the construction of a new roundabout at the main entryway leading to the airport. We would like to thank the City of Charlottetown for leading this project and the Province of Prince Edward Island for their support in improving public safety at this busy intersection. Although we experienced a small decrease in passenger traffic for the first six months of 2013, record-breaking traffic during the busy tourism season from July to September brought us to a total of 296,301 passengers for the year. That almost matches the record setting numbers in 2012. It was with great sadness that PEI's aviation community said goodbye to well-respected aviator, businessman, colleague and friend, Bob Bateman, after a courageous battle with ALS. Bob founded Prince Edward Air in 1989 with one plane and himself as pilot, and grew the business into a significant regional provider of air medical evacuation, courier and air charter services. Bob was an instrumental member of our Authority board for close to six years and contributed greatly to the development of the airport with his expertise and insight. He will be missed. This year marks my retirement as chairman of Charlottetown Airport Authority's board of directors. I've truly enjoyed my time working with the board, management and staff of the Airport Authority as well as the many stakeholders in the broader community, and would like to thank all of you for your support and encouragement over my seven and a half year tenure. Sincerely, отбит David McKenna, Chairman#55 Chief Executive Officer Letter Everyone connected with Charlottetown Airport - staff, the board of directors, terminal service providers, the airlines, and our government partners - work collaboratively as a team to deliver an enjoyable travel experience for you, the air traveller. This past year the airport team took this even one step further when our front line staff were the first in PEI to be trained through the World Host Training Program. This program, delivered by the Tourism Industry Association of PEI, aims to further enhance skills and techniques to provide exceptional customer service and hospitality. That customer-oriented spirit is also reflected in the community work staff at Charlottetown Airport is involved with. In 2013, we hosted our first flypei runway run in support of Habitat for Humanity PEI. More than 300 participants braved strong winds and rain to join us for this inaugural event, which raised over $6,000 for the charity. Arrivals Arrivées Connecting Islanders to the World... traveller convenience is a key priority because that's why travellers choose to fly and that's why travellers choose to fly to and from Charlottetown Airport. Air traveller research conducted throughout 2013 showed that residents of Prince Edward Island accounted for almost 60 percent of the airport's passenger traffic. More Islanders are flying more often and we certainly thank all Islanders for their continued support and for understanding the importance that the airport has on our local economy. Looking ahead to 2014, we are excited that Charlottetown Airport is a major partner with PEI 2014 as we look to capitalize on what is expected to be a great year for tourism in Prince Edward Island. The airport's major airline partners, Air Canada and WestJet, have responded to demands for more seat capacity, boosting the number of scheduled seats by eight percent between July and August. As CEO of Charlottetown Airport Authority, I extend many thanks to our dedicated and hardworking staff who make the airport what it is today. I would also like to recognize our board of directors for their valuable experience and guidance. Very special thanks goes out to David McKenna for his commitment to the Airport Authority and for his support, expertise, and leadership during his term as chairman. Many thanks also to the Province of Prince Edward Island and the City of Charlottetown for recognizing the important economic value of Charlottetown Airport to Charlottetown and the province, and supporting the initiatives that are necessary to both maintain and grow that economic value. We are proud to be the "Front Door" to economic development in our broader community, but that wouldn't be possible without the collaboration and partnerships with all levels of government. Sincerely, Doug Newson, CEO#6GHT#7Business Planning Charlottetown Airport Authority embarked on a business planning process in 2012 to define what success will look like over the next five years. This process sought input from airport stakeholders, looked at the challenges the airport faces, and identified opportunities for growth. Working closely with other stakeholders and partners we developed a new road map for the future. The following is an outline of our new strategic direction. Mission Prince Edward Island's gateway to the world and catalyst for economic development. Vision Inspiring pride and ownership in Prince Edward Island's airport. Guiding Principles Safety And Security First We put people first and our number one priority is the safety and security of every passenger and employee and of our facilities. Service Excellence We strive to deliver positive experiences for our passengers, tenants, partners, and other stakeholders. People-Oriented We work together to foster an open and cooperative environment that encourages professional development, teamwork, communication, and mutual respect. Valued Partnerships We value partnering with community, business, and government for the benefit of the Airport and our province. Results-Oriented We strive to be innovative in our thinking and approaches, turning challenges into opportunities and focusing on achieving optimal results for the Airport. Responsible Stewardship We are transparent and accountable to all stakeholders, managing our finances and infrastructure prudently and continually seeking ways to protect the environment and the future viability of Prince Edward Island's Airport. 7#800 8 Charlottetown Airport | 2013 Annual Report Strategic Priorities The Airport Authority will address the five key strategic priorities and goals for continuing to grow the number of passengers flying to and from PEI, working towards our vision of inspiring pride and ownership in Prince Edward Island's airport.. Enhance Air Service GOAL 1: Maintain existing air service and aggressively pursue growth Exceptional Passenger Experience GOAL 2: Deliver the best small airport experience Engaged Island Community GOAL 3: Engage the Island community in ownership of the Airport Sound Financial Management GOAL 4: Continue the tradition of strong financial management Organizational Excellence GOAL 5: Foster a safe, healthy, and accountable work environment#9Empty#10Departures Départs 明 CHARLOTTETOWN#11New Island Artwork: Tania Doucet "Sailing Island Skies" Marketing & Business Development Review Air Service With 296,301 passenger movements in 2013, passenger traffic almost matched 2012's record setting year. Air Canada continues to be the main service provider to Charlottetown Airport with daily year-round service to Toronto, Montreal and Halifax and seasonal direct service to Ottawa. In 2013, WestJet provided similar service to 2012 with daily service to Toronto three days a week in the winter months. WestJet also continued their schedule of two flights per day during the busy summer months to meet the needs of the Island's tourism industry. Sunwing Vacations provided Islanders with the option to fly direct from PEI for their southern vacation by offering a twelve-week service to Puerto Plata, Dominican Republic. Delta Air Lines continued with daily summer service non- stop from New York City to Prince Edward Island for the peak tourism season.#12"...ability to get in and out of Charlottetown by air was a critical aspect in deciding to set up our business here." Invesco Adam Runge Invesco Canada Ltd. We are a leading independent global investment management firm that established an office in PEI seven years ago. When we were in the evaluation stage of choosing a city for our new near shore enterprise centre in 2007, the ability to get in and out of Charlottetown by air was a critical aspect in deciding to set up our business here. We've grown from a team of 25 people to an office of two hundred and seventy employees! I travel frequently across North America and even as far as South East Asia from our small airport here in PEI and there is nothing like the ease and the simplicity of starting or ending a journey at home here in Charlottetown.#13Marketing In an effort to instill pride of ownership of our airport and encourage Islanders to travel we must communicate the offerings we have and the value proposition of flying from PEI. The airport launched a new multi- media campaign in the spring, which featured prominent Islanders flypei www.ftypeicom and frequent travellers telling why they choose to fly from PEI. This print, online and radio advertising campaign was successful building pride in the services our airport offers. It also raised awareness of the ease and convenience of why people choose to fly from the Island. CHARLOTTETOWN Charlottetown Airport ***** 47 ratings) 9.081 likes 292 taking the Iflypei because... I'm all about Keeping it Local it's less hassle Time Expans lim Message Flyaway to California! AIR CANADA Enter Now! Enter to WIN a trip for 2 to California and $1000 cash! flypei awwPypa.com Connecting stand- HOLLY WOO We also ran two radio promotions with our airline partners to promote that Islanders can choose to fly from Charlottetown for their southern vacations. This is a growing travel segment and we want to promote the convenience of using our Island airport. Both of these promotions were successful in raising awareness of Charlottetown Airport and generating interest in travel. More than 5,000 Islanders entered contests online and we continue to communicate with them through our quarterly E-traveller newsletter. In 2013, the airport continued to engage with the community through social media, which included posting messages and interacting on the business Facebook page and Twitter account. The social media audience has increased significantly and activities have been very successful in linking the airport with consumers and building on our positioning that Charlottetown Airport is a convenient choice for Islanders. 13#1414 Charlottetown Airport | 2013 Annual Report Operational Review The airport saw another successful construction season in 2013. The main, large-scale capital project was the construction of the Brackley Point Road/Airport roundabout and airport access road. This project was led by the City of Charlottetown but was a three-way partnership with the Airport Authority, the city and the provincial government. The construction of the roundabout has greatly improved safety and overall traffic flow and airport access at this busy intersection. The reconstruction of the airport access road, complete with a paved walking trail connecting to the Community of Brackley trail, increases accessibility and the overall aesthetics of the airport gateway. Another heavy civil project this past year included remedial work to Apron I. This is a concrete panel apron that runs parallel with the terminal. Several of these panels had cracked and heaved around a catch basin. These panels were replaced as part of our ongoing Apron I rehabilitation program. Our main equipment purchase in 2013 was the replacement of our dated parking pay system this past spring. The new system provides more functionality and an additional pay-on-foot station in the departures end of the terminal for easier accessibility. In addition to these major capital projects we have made investments in repairs and rehabilitation of some of our other hard surfaces both air and groundside. Annually we make significant investments in asphalt and concrete crack sealing and asphalt patching. This past year we continued replacing our aging fleet and equipment where required. Notable purchases included a loader, a tractor and finish mower, and a new half-ton truck for maintenance activities. Summary of Capital Expenditures in 2013 Main Access Road $ 610,899 Vehicles, Motor & Shop Equipment $ 377,528 Departures Area Expansion & Terminal Upgrades $ 375,028 Hard Surface Rehabilitation & Repairs $ 342,890 Parking System Land Development Misc. Small Projects & Equipment $ 208,210 42,650 In 2013, the Authority completed its first full year with its Safety Management System. Safety Management System is a mandated program that provides comprehensive management of 52,167 safety risks and complements other operational specific Total $ 2,009,372 programs at the Airport.#15Financial Review Continued strong passenger demand and airline capacity play a pivotal role in the revenues generated by Charlottetown Airport Authority. In 2013, landing and terminal fees as well as passenger facility fee revenues were close to those recorded in 2012, which was a record setting year for passenger traffic. Increased operational costs due to adverse winter weather conditions coupled with increased costs associated with depreciation and maintenance and repairs of both buildings and equipment resulted in a drop in our bottom line from prior years; however the Airport Authority was able to generate excess revenues of $1.70 million in 2013, a slight increase from budgeted excess revenues of $1.63 million. Both the City of Charlottetown and the Province of Prince Edward Island support the Charlottetown Airport through property tax grants. Their support is greatly appreciated and through continued partnerships such as these we anticipate providing increased economic benefits for our Island economy. As always, our continued and ongoing success would not be possible without the support of our airline partners, Air Canada, WestJet, Delta Air Lines and Sunwing Airlines. 2013 Actual vs. Business Plan Forecast Plan Actual Difference Revenues 8,125,102 8,426,820 301,718 Expenses 6,493,823 6,721,985 228,162 Capital 1,641,000 2,009,372 368,372 Explanation Airline schedule and fleet changes positively impacted landing and terminal fees as well as Passenger Facility Fees. Increased repairs to terminal building as well as increased costs to clear runways/aprons and snow removal associ- ated with weather conditions. Variance equivalent to remaining capital costs associated. with departures area expansion project that was approved in a prior year. 15#16116 Charlottetown Airport | 2013 Annual Report Business Plan Cash Flow Forecast 2014 - 2018 Year Revenues Expenses Capital 2014 2015 2016 2017 2018 8,310,441 8,430,486 8,493,042 8,465,082 8,497,042 6,857,630 6,958,913 7,091,317 1,681,000 1,013,000 5,883,235 7,406,108 7,363,826 7,708,591 3,459,017 Note: Revenues includes PFF, operations, and investment income Human Resources Charlottetown Airport Authority currently has a team of 21 dedicated and loyal employees, a group that grows to 22 in the summer months. These individuals are a very hard working and knowledgeable group that contribute significantly to our ongoing success. Many of our employees have been with us since day one and we thank each and every one of them for their professionalism and efforts. In 2013 we did say goodbye to Greg McGuire, our supervisor of safety and security. We wish Greg all the best in his future endeavors. Replacing Greg in that position is long-time employee, Todd Bannister. We also welcomed one new team member last year, Keith Panton, who joined us in October and has been a great fit for our organization.#17Community Relations The Airport Authority believes in a strong, vibrant and growing community and supports this vision through special events and charitable partnerships. In 2013, we were pleased to be a partner in the Shellfish Festival that was held in the fall in Charlottetown and the COPA for Kids event held in June at the airport by the Canadian Owners and Pilots Association. For the first time, we held our own community event at the airport in support of Habitat for Humanity. The inaugural flypei runway run was held in June and more than 300 participants braved the weather from tropical storm Andrea to raise more than $6,000 for Habitat for Humanity Women Build. This event was a major success and we will make it an annual activity in support of our community. Both the Airport Authority and its employees support numerous charities and community not-for-profit organizations with the donation of time, expertise and money. Six prominent organizations that the Authority and its employees supported in 2013 are: • Habitat for Humanity • Queen Elizabeth Hospital Foundation • Prince County Hospital Foundation • Stars for Life • United Way • Easter Seals D QEH Foundation O 17#18"...50% of our guests arrive to us via the Charlottetown Airport." Karen Davey Inn at St. Peter's I am the proud owner of PEI's award winning 4.5-star waterfront Inn in the picturesque village of St. Peter's. Air travel is very important to our business as 50% of our guests arrive to us via the Charlottetown Airport. Air travel connects visitors to our Island and we are always pleased to welcome our guests from away.#19Governance The Airport Authority's board of directors meets six times a year with committee meetings taking place on an ongoing basis. The current committees of the board are: executive, finance and audit, infrastructure and development, human resources, governance, and nominating. All committees are actively involved in airport activities, although the executive committee is convened only when decisions are required on an urgent basis between regularly scheduled board meetings. We were extremely pleased to welcome Kent Scales and Kathryn Coll as the newest board members of Charlottetown Airport Authority. Kent began his term in September 2013 as a nominee of the City of Charlottetown, while Kathryn joined the board in April as a nominee of the Greater Charlottetown Area Chamber of Commerce. Both have been valuable additions to the board. We would like to acknowledge and thank outgoing board member Harry Snow for his commitment to the board over the past three years. The board also lost a valuable member of our team as well as the Charlottetown business community in 2013. Bob Bateman passed away after a courageous battle with ALS. Bob made a valuable contribution to the Airport Authority, both during his tenure on our board as well as through his career as founder and president of Prince Edward Air. His expertise in business and aviation, as well as his sense of humour will certainly be missed by the airport community and Prince Edward Island as a whole. BANG MARY MAS#2020 20 Charlottetown Airport | 2013 Annual Report Shaun MacIsaac Clair Sudsbury Heather Howatt George MacDonald Paul Beauregard Robert Sear Nominators' Representatives As of December 31, 2013 Government of Canada (2) Shaun Maclsaac Clair Sudsbury Government of PEI (1) Heather Howatt Federation of PEI Municipalities (1) George MacDonald Charlottetown Airport Authority Inc (3) Paul Beauregard Robert Sear Ernie Brennan City of Charlottetown (2) David McKenna Kent Scales City of Summerside (1) Mike Gallant Tourism Industry of PEI (1) Judy MacDonald Greater Charlottetown Area Chamber of Commerce (1) Kathryn Coll Ernie Brennan David McKenna Kent Scales Mike Gallant Judy MacDonald Kathryn Coll Scott MacKenzie charlottetown AIRPORT PRINCE EDWARD ISLAND Chief Executive Officer Doug Newson Director, Planning & Development Jason Lindsay Director, Finance & Administration Susan Ching Director, Operations Ken Gallant Combined salaries of the senior management team $379,180 Board of Directors remuneration Doug Newson Jason Lindsay Susan Ching Ken Gallant consisting of honorariums and per diems $52,175#2159 RUNW 2013 flypei RUNWAY RUN 201 615 UNWA 2013 616#2222 22 Charlottetown Airport | 2013 Annual Report Financial Statements Charlottetown Airport Authority Inc. December 31, 2013 March 3, 2014 Independent Auditor's Report To the Board of Directors of Charlottetown Airport Authority Inc. We have audited the accompanying financial statements of Charlottetown Airport Authority Inc., which comprise the statement of financial position as at December 31, 2013, and the statements of operations, changes in net assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian 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. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Charlottetown Airport Authority Inc. as at December 31, 2013, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits 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. Areenault Best Cameron Ellis Chartered Accountants#23Statement of Financial Position As at December 31, 2013 Assets Current assets 2013 2012 Long-term investments (note 3) Capital assets (note 4) Pension surplus (note 11) Cash 1,862,951 1,287,381 Short-term investments (note 3) 3,430,647 5,457,042 Accounts receivable 581,120 595,525 Prepaid expenses 134,511 122,593 6,009,229 7,462,541 5,584,780 18,638,078 252,000 2,169,542 18,242,567 271,000 30,484,087 28,145,650 Liabilities Current liabilities Accounts payable and accrued liabilities (note 6) 891,843 253,335 Security deposits 129,934 123,034 Deferred revenue 105,069 82,502 1,126,846 458,871 Severance pay obligation (note 10) Deferred capital contributions (note 5) 183,861 168,817 5,076,193 5,125,610 6,386,900 5,753,298 Contingencies (note 7) Net Assets Invested in capital assets 13,561,885 13,116,957 Internally restricted for future requirements (note 8) 10,213,215 9,057,600 Unrestricted 322,087 217,795 24,097,187 22,392,352 30,484,087 28,145,650 Approved by the Board of Directors Ели Липыта Director Director 23#2424 Charlottetown Airport | 2013 Annual Report Statement of Changes in Net Assets For the year ended December 31, 2013 2013 2012 Invested Restricted in Capital Assets Requirements for Future Unrestricted Total Total $ - Net assets Beginning of year 13,116,957 9,057,600 217,795 22,392,352 19,900,808 Excess revenue (expenses) for the year Internally imposed restrictions (note 8) (1,099,457) 2,804,292 1,704,835 2,491,544 2,700,000 (2,700,000) Investment in capital assets, net of related capital contributions and proceeds of disposals Net assets End of year 1,544,385 (1,544,385) 13,561,885 10,213,215 322,087 24,097,187 22,392,352#25Statement of Operations For the year ended December 31, 2013 2013 2012 $ Revenue Rentals 630,708 605,638 Concessions Parking 627,794 625,749 426,799 434,988 Landing fees 1,043,307 1,067,952 Terminal fees 904,807 911,464 Airport services 66,006 59,016 Other income 681,952 674,068 Amortization of deferred capital contributions 437,794 362,562 Grants in lieu of property taxes (note 9) 474,239 386,509 5,293,406 5,127,946 Expenses Salaries and benefits 1,765,174 1,741,407 Property taxes 497,356 410,682 Materials, supplies and services 2,880,154 2,691,242 Amortization 1,579,301 1,211,241 6,721,985 6,054,572 Operating loss before passenger facility fees (1,428,579) (926,626) Passenger facility fees. 2,971,520 2,985,335 Operating income 1,542,941 2,058,709 Other income (expense) Investment income 138,844 128,459 Gain on sale of disposal of capital assets 42,050 2,376 Defined benefit pension income (cost) (note 11) (19,000) 302,000 161,894 432,835 Excess revenue for the year 1,704,835 2,491,544 25#2626 Charlottetown Airport | 2013 Annual Report Statement of Cash Flows For the year ended December 31, 2013 Cash provided by (used in) Operating activities Net earnings for the year Items not affecting cash Amortization Amortization of deferred capital contributions Gain on disposal of capital assets 2013 2012 $ $ 1,704,835 2,491,544 1,579,301 1,211,241 (437,794) (362,562) (42,050) (2,376) 2,804,292 3,337,847 Net change in non-cash working capital items Decrease in accounts receivable Decrease (increase) in prepaid expenses 14,405 (11,918) 24,166 9,816 Increase in security deposits 6,900 100 Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in deferred revenue 638,508 (352,739) 22,567 (17,665) 670,462 (336,322) 3,474,754 3,001,525 Financing activities Increase in severance pay obligation Decrease (increase) in pension surplus benefit Decrease in pension deficit obligation Increase in deferred capital contributions 15,044 19,000 4,751 (271,000) (31,000) 388,377 2,225,865 422,421 1,928,616 Investing activities Purchase of capital assets (2,009,372) Proceeds on disposal of capital assets 76,610 Decrease (increase) in long-term investments (3,415,238) (8,286,365) 3,701 3,161,120 (5,348,000) (5,121,544) Decrease in net cash Net cash - Beginning of year Net cash - End of year (1,450,825) (191,403) 6,744,423 6,935,826 5,293,598 6,744,423 Net cash consists of Cash Short-term investments Supplementary disclosure Interest received 1,862,951 1,287,381 3,430,647 5,457,042 5,293,598 6,744,423 173,054 115,762#27Notes to Financial Statements December 31, 2013 1 2 Purpose of the organization Charlottetown Airport Authority Inc. was incorporated without share capital under Part II of the Canada Corporations Act in 1996. The Authority operates the Charlottetown Airport and airport business park under a 60-year lease with the Government of Canada. Charlottetown Airport Authority Inc. is currently exempt from federal and provincial income taxes. Summary of significant accounting policies Basis of accounting These financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations. These financial statements include the following significant accounting policies: Method of accounting Charlottetown Airport Authority Inc. follows the deferral method of accounting for contributions. Re- stricted contributions are recognized as revenue in the year in which the related expenditures are in- curred. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Cash Cash consists of cash on hand and bank balances. Revenue recognition Rental revenue arises from agricultural and commercial land leases and airline rental of space in the air terminal building. These revenues are recognized on an accrual basis. Concession income is recognized as earned and is primarily from licenses to vehicle rental agencies and other concession type operations. Parking revenue consists of fees paid for long and short term parking by travellers, car rental parking, and employee parking, and is recognized as earned. Landing and terminal fees are recognized upon the landing of aircraft at the airport. Airport services revenue consists of aircraft parking fees, snow removal charges and other miscellaneous charges to airport users, and are recognized as it is earned. Other income consists primarily of recovered costs and is recognized in the period in which the cost recovery occurs. 27#2828 Charlottetown Airport | 2013 Annual Report Deferred government contributions Government contributions relating to the acquisition of capital assets are recorded as deferred capital contributions. These amounts are amortized on the same basis as the related capital assets are amortized. Government grants relating to expenses are shown as revenue in the period in which the related expenses are incurred. Capital assets and amortization Purchased capital assets are recorded at cost. Contributed capital assets are recorded at fair value at the date of contribution. Amortization of capital assets is calculated using the straight-line method. The estimated useful life of individual assets within a category is determined upon acquisition and once it is put into use, the asset's cost is written off over this term as follows: Mobile equipment Equipment and furniture Business park Leasehold improvements Use of estimates 1 - 25 years 2-15 years 40 years 5 - 25 years The preparation of these financial statements in conformity with Canadian accounting standards for not- for-profit enterprises requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the current period. Significant items subject to such estimates and assumptions include the valuation of accounts receivable, and the estimated useful life of capital assets. Actual results could differ from those estimates. Financial instruments (a) Measurement of financial instruments Charlottetown Airport Authority Inc.'s financial instruments consist of cash, short-term investments, accounts receivable, long-term investments, accounts payable and accrued liabilities and security deposits. The company initially measures its financial assets and financial liabilities at fair value adjusted by, in the case of a financial instrument that will not be measured subsequently at fair value, the amount of transaction costs directly attributable to the instrument. This fair value amount is then deemed to be the amortized cost of the financial instrument. The company subsequently measures all its financial assets and financial liabilities at amortized cost. Investments are classified as short-term or long-term based on their individual maturity dates.#29(b) Impairment Financial assets measured at amortized cost are tested for impairment when there are indicators of possible impairment. When a significant adverse change has occurred during the period in the expected timing or amount of future cash flows from the financial asset or group of assets, a write-down is recognized in net earnings. The write-down reflects the difference between the carrying amount and the higher of: i) The present value of the cash flows expected to be generated by the asset or group of assets; ii) The amount that could be realized by selling the asset or group of assets; iii) The net realizable value of any collateral held to secure repayment of the asset or group of assets. When events occurring after the impairment confirm that a reversal is necessary, the reversal is recognized in net earnings up to the amount of the previously recognized impairment. (c) Risks Transacting in financial instruments exposes the Authority to certain financial risks and uncertainties. These risks include: i) Credit risk: The Authority is exposed to credit risk in connection with the collection of its accounts receivable. The Authority mitigates this risk by performing continuous evaluation of its accounts receivables. ii) Liquidity risk: The Authority's exposure to liquidity risk is dependent on the collection of accounts receivable or raising of funds to meet commitments and sustain operations. The Authority controls liquidity risk by management of working capital, cash flows and availability of borrowing facilities. iii) Market risk: The Authority's investment in publicly traded securities exposes the company to market risk since these equity investments are subject to price fluctuations in the open market. 29#3030 Charlottetown Airport | 2013 Annual Report 3 Investments 2013 2012 $ Cash investment account 10,997 Accrued interest receivable 106,607 6,854 140,819 Short term investments (market value - $3,377,477; 2012 - $5,438,352) 3,313,043 5,309,369 3,430,647 5,457,042 Long-term investments. (market value - $5,618,003; 2012 - $2,165,356) (maturity range March 2015 - December 2016) 5,584,780 2,169,542 9,015,427 7,626,584 4 Capital assets 2013 2012 Accumulated Cost $ amortization Net Net $ $ Mobile equipment 3,768,873 Equipment and furniture 1,206,698 2,137,326 591,345 1,631,547 1,554,466 615,353 444,765 Business park 2,020,277 341,106 Leasehold improvements 21,527,942 6,815,935 1,679,171 14,712,007 1,117,762 15,125,574 28,523,790 9,885,712 18,638,078 18,242,567#315 Deferred capital contributions 60 Mobile equipment Leasehold improvements Accounts payable and accrued liabilities Trade GST, HST and PST 2013 2012 Accumulated Cost amortization $ Net $ Net $ 1,219,089 819,720 7,912,519 3,235,695 399,369 4,676,824 461,861 4,663,749 9,131,608 4,055,415 5,076,193 5,125,610 2013 2012 863,397 28,446 246,417 6,918 891,843 253,335 7 Commitments and contingencies (a) Charlottetown Airport Authority Inc. is involved in a legal dispute concerning a personal injury matter. No amount has been accrued in the records of the Authority as the outcome of the dispute is uncertain and the amount of the liability, if any, is expected to be fully covered by insurance. (b) Under the ground lease agreement with Transport Canada, the Authority is not required to pay rent to the Landlord until the year 2016. At that time, rent will become payable using a formula based on annual airport revenues. (c) The responsibility for any liability that may arise in the future relating to the existence of hazardous substances, originating before the transfer on March 1, 1999 to the Authority, rests with the Government of Canada. The Authority has responsibility for any environmental liabilities that arise from hazardous substance problems that occur subsequent to the transfer date. 31#3232 Charlottetown Airport | 2013 Annual Report 8 Net assets internally restricted for future requirements Effective December 31, 2013, the Board authorized the transfer of $2,700,000 (2012 - $3,500,000) from unrestricted net assets to internally restricted net assets. The internal restrictions set by the Board allow transfers from this fund only for authorized purposes including the purchase of capital assets. 9 Grants in lieu of property taxes 10 11 The Province of Prince Edward Island and the City of Charlottetown provide the Authority annually with grants in lieu of property taxes. The granted amount of $474,239 for the year ended December 31, 2013 (2012 - $386,509) is included as revenue in these financial statements. Severance pay obligation Employees are entitled to severance pay under the terms of a collective agreement and management contracts. The severance pay obligation is accrued by the Authority commencing with an individual's employment. Pension plan Charlottetown Airport Authority Inc. is a member of the Canadian Airport Authorities and Canadian Port Authorities Pension Plan (the "Plan"), a multiple employer pension plan. The Plan includes both a defined benefit portion ("Superannuation Plan") and a defined contribution portion ("Defined Contribution Plan"). Employees who were previously employed by Transport Canada automatically became members of the Superannuation Plan on March 1, 1999 when control of the Charlottetown airport was transferred to Charlottetown Airport Authority Inc. The Superannuation Plan was closed to new members subsequent to that date, and all other employees of the Authority are members of the Defined Contribution Plan. Eligible employees contribute to the Superannuation Plan each year at the rate of 7.5% of earnings up to $3,500, 4.0% of earnings between $3,500 and $51,100 and 7.5% of earnings above $51,100. The Authority is required to make annual contributions to the Superannuation Plan as advised by the actuaries. Employees who are members of the Defined Contribution Plan contribute up to 6% of earnings, while the Authority matches 100% of employees' contributions. Pension expense for the Defined Contribution Plan was $66,937 for 2013 (2012 - $62,003).#33LOUN Alecher Valuation information on the Superannuation Plan for the year ended December 31, 2013 is provided by the Plan's actuary, AON Consulting Inc., from their most recent actuarial valuation of the Plan, completed as of June 2013 and extrapolated to December 31, 2013. Significant assumptions used by the Plan's actuary for this valuation are: Discount rate Expected return on assets Salary escalation rate Indexation rate 2013 2012 5.50% 5.70% n/a 6.50% 4.00% 4.00% 2.50% 2.50% The following information is calculated by the Plan's actuary in accordance with Accounting Standards for Private Enterprises: du Mest gave Jamaque CA MERDU de Gener Luplants dat prided NORD Carabe Fundam ே Jer m Nuiane Cancel PACIFIQUE Hontaguas SCAL Amja zone) Tapouyes Olan 33#3434 Charlottetown Airport | 2013 Annual Report Superannuation Plan - Actuarial valuation information 2013 2012 $ $ Defined benefit plan assets Fair value of plan assets - - Balance beginning of year Expected return on assets Charlottetown Airport Authority Inc. contributions Employee contributions Benefits paid Actuarial gain on plan assets Balance end of year 1,076,000 62,000 1,025,000 67,000 2,000 (54,000) 80,000 42,000 1,233,000 1,076,000 65,000 132,000 2,000 (190,000) Defined benefit plan obligations Accrued benefit obligation - Liabilities beginning of year - Current service cost Interest cost Benefits paid Actuarial losses (gains) 805,000 1,056,000 13,000 22,000 45,000 56,000 (54,000) (190,000) 172,000 (139,000) 981,000 805,000 Balance end of year Reconciliation of the funded status of the Superannuation Plan to the amount recorded in the financial statements Fair value of the plan assets 1,233,000 1,076,000 Accrued benefit obligation Funded status of plan - surplus Valuation allowance adjustment 981,000 805,000 252,000 271,000 Accrued benefit asset 252,000 271,000 Accrued benefit asset - beginning of year 271,000 (31,000) Defined benefit pension income (cost) for the year (19,000) 302,000 Accrued benefit asset per financial statements - end of year 252,000 271,000#35Empty#36charlottetown AIRPORT PRINCE EDWARD ISLAND Charlottetown Airport Authority 250 Maple Hills Avenue, Suite 132 Charlottetown, PE C1C 1N2