QUEENSTOWN AIRPORT 2010 Annual Report queenstownairport.com QUEENSTOWN AIRPORT CORPORATION LIMITED
“The importance of Queenstown Airport as the gateway to our region continues to grow. In the past year the number of national and international air services, passengers and carriers has steadily increased. The demands of that growth continue to be met with the provision of new baggage areas, runway lighting and terminal services all underway for completion in the year to come. The directors and executive have managed the corporation’s assets in the best interests of the community at large. The strengthening of the balance sheet, through the introduction of a new strategic shareholder, has ensured that the corporation can now face the signifi cant challenges of the years to come with certainty. The airport is now able to provide even greater benefi t to the economic well-being of the community of the Lakes District.” Mayor Clive Geddes Queenstown Lakes District Council.
2 Contents
QUEENSTOWN AIRPORT CORPORATION LIMITED Financial Statements For the Financial Year Ended 30 June, 2010
Chairman’s Report ...... 4
Chief Executive Offi cer’s Report ...... 8
Directors’ Responsibility Statement ...... 12
Statement of Comprehensive Income ...... 14
Statement of Financial Position ...... 15
Statement of Changes in Equity ...... 16
Cash Flow Statement ...... 17
Notes to the Financial Statements ...... 18
Statement of Service Performance ...... 39
Statement of Corporate Intent ...... 40
Audit Report ...... 42
Statutory Disclosures ...... 44
Directory ...... 46
3 QUEENSTOWN AIRPORT CORPORATION LIMITED
Chairman’s Report
Queenstown Airport continues to be the fastest growing airport in Australasia and is pivotal to the economic growth aspirations of the Lakes District region. Even the global fi nancial crisis failed to impact on our trend for double-digit growth, with a 44 per cent increase in international and 15 per cent increase in domestic arrivals during the year in review. Since 2005, international passenger volumes have quadrupled, and domestic passenger volumes increased 22 per cent. Our fi nancial performance refl ects this year’s record passenger growth (particularly in international fl ights) and the fl ow through to commercial operations, as well as our stringent management of operating costs. This has resulted in a 7.8 per cent increase in EBITDA (earnings before interest, tax, and depreciation) to $7.62M. NPAT (net profi t after tax) this fi nancial year resulted in a loss of $3.75M as a result of tax changes announced in the Government’s May Budget, which included the abolition of depreciation on commercial buildings. A normalised NPAT would equate to $3.91M, an increase of 102 per cent. Cash fl ows from operating activities of $6.66M increased by 34 per cent. A consequence of the tax changes is that, in accordance with international fi nancial reporting standards, the Company was required to report a tax charge in the current year of $6.25M, which represents the liability for future tax arising because a tax deduction for depreciation of buildings will not be available from 1 April 2011. This unforeseen charge had two material effects on our fi nancial position – fi rst, our equity reserves were reduced by $6.25M, causing the Company to breach one of the covenants in its borrowing facilities; and secondly, the long-term bank borrowings were required to be reclassifi ed in full as ‘current’ in the Statement of Financial Position. Since balance date the new capital raised has corrected this position and Queenstown Airport is again in full compliance with its banking facilities, which do not fall due until December 2012. While we would potentially have been able to renegotiate the covenant had we not raised new capital, the situation did highlight the Company’s inherent sensitivity to external shocks and how our capital raising has signifi cantly mitigated our exposure to such fi nancial risks. By exceeding the revenue threshold of $10M in the previous year, the Company graduated into a new regulatory regime under the Airport Authorities Act. Queenstown Airport is now defi ned as a ‘Specifi ed Airport’ – the fi rst airport outside of Auckland, Wellington and Christchurch – which requires the Company to make extensive additional disclosures primarily in relation to aeronautical operations. This year’s disclosures may be downloaded from our website. The reporting regime stipulates reporting based on revalued assets. As a result the Company has changed its accounting policy for its annual fi nancial statements with respect to the recognition of land, buildings, roading, carparking and runways from historical cost to the revaluation model. The effect of this change is to increase the recorded equity of the Company by $77,010,830. A more detailed analysis of the changes is included in the summary of accounting policies. During the year under review we invested $2.5M in the Runway End Safety Area (RESA) which is an ongoing project due for completion next year prior to the commencement of the RESA regulations in October 2011. A further $5M was expended to undertake the routine ten-year runway overlay. We have continued to progress work on extending the airport’s air noise boundaries and expect to conclude discussions with Airways Corporation to install runway lights in the near future. This will greatly increase the safety of daytime and enable the introduction of non-daylight fl ight operations. While our new terminal building opened in 2007, our growth has signifi cantly outstripped forecasts. We are currently operating in a building that was designed for 700,000 passenger movements but coped, barely, with a record 811,000 during the year in review. For the coming year we are forecasting 950,000 passenger movements.
4 For the fi rst time, a summer month – January – took over from the usual winter month of July as the airport’s busiest and the current schedules suggest this change is permanent. Some drivers in this change of trend include low cost carriers introducing new visitors to the region, which has facilitated a price trigger point in the choice of transportation, together with the growth of golf as a key drawcard for the district. Our forecasts indicate that strong growth will continue, requiring ongoing investment in Queenstown Airport’s facilities, particularly during the next four years. To facilitate this growth the Board has focused on expanding our capital base, as we were unanimous in our view that the necessary investment could not prudently be debt funded. The key outcome immediately after balance date was the issuing of 4,013,485 new shares to Auckland International Airport Limited (AIAL), amounting to a 24.99 per cent share in Queenstown Airport Corporation Ltd. The transaction raised $27.7M of new capital, which has been invested in the Company, and did not involve the sale of existing shares by Queenstown Lakes District Council. A further option exists for AIAL to increase their holding to 35 per cent by the provision of a further $20.8M prior to 30 June
5 QUEENSTOWN AIRPORT CORPORATION LIMITED
2011, subject to Queenstown Lakes District Council approval. The new capital means we can increase the airport’s operating capacity without increasing fi nancial risk through borrowing. A stronger capital structure will also allow the Company, for the fi rst time, to return regular dividends to the community via the Queenstown Lakes District Council shareholding in the foreseeable future. Queenstown Airport acknowledges debate in the local community about Auckland Airport’s investment. In response we note the alternatives put forward would all have involved raising further debt in one form or another, in turn potentially exposing the Company to signifi cant fi nancial and economic risk in the event of a downturn in passenger volumes. Unlike many other airports, Queenstown is predominantly a tourist airport and is not underpinned by business travel. Tourist based airports have more than their fair share of risks that can impact passenger volumes suddenly and signifi cantly in the form of economic shocks, oil price spikes, wars, terrorist attacks, pandemics, accidents and natural disasters. Given the Board was of the unanimous view that a strong and commercial equity partner was necessary, the additional benefi t of forming a strategic alliance with Auckland Airport is that we can access their technical expertise and all-important market intelligence to grow visitors to our region. Other clear advantages include operational synergies which will allow us to reduce costs and improve effi ciencies in the roll out of future capital investment and property portfolio projects. Restructuring our balance sheet has quite literally transformed Queenstown Airport from a liability to the Queenstown Lakes District Council into an asset. I thank all Board members for their support and professionalism in exercising sound commercial judgement in a process with constrained options to serve the best interests of both the airport and our community. The year ahead will be dominated as always by continuing to plan and deliver increased operational capacity to meet the rapid growth of the region. I wish to thank Duncan Fea who has retired after eight years on our Board in accordance with Council policy. Duncan was Chair of the Audit Committee and in the early part of last decade was responsible for undertaking a lot of the fi nancial analysis and fi nancial modelling in support of our terminal redevelopment. Duncan has been replaced by Alison Gerry, a Wakatipu resident, who is a current director of Kiwibank and has a strong treasury and risk management background. I also note the retirement of Mayor Clive Geddes and Chair of the Finance and Corporate Accountability committee John S Wilson who are not seeking re-election to the Queenstown Lakes District Council. Clive helped champion many of the initiatives and master planning of our airport, recognising that the airport is fundamental to the district’s growth, during his three terms in offi ce. Thank you gentlemen for your support. I also extend thanks to CEO Steve Sanderson and all of the airport’s management and staff for their contribution during a year when much has been achieved in meeting the objectives of the Company.
...... Markark A. TaylorTay Chairman
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A6C9>C (!..( )!%-( )!%-+ )!&,* )!&(* )!(,( '%%* '%%+ '%%, '%%- '%%. '%&% 7 QUEENSTOWN AIRPORT CORPORATION LIMITED CEO’s Report The big takeout for the year was growth, growth and continuation of double digit growth. Queenstown is no longer a regional airport – it now qualifi es as a ‘Specifi ed Airport Company’ under the Airport Authorities Act and we’ve reached this new level a lot more quickly than anyone anticipated. When I fi rst started in this job three years ago, the one million passenger mark seemed so far away but all things being equal we’re only a year off achieving that milestone. This year the number of aircraft movements means we’ve already surpassed one million seats available in and out of Queenstown. The current terminal building that opened in 2007 was designed and built for a mix of 5 per cent international and 95 per cent domestic passengers. That mix has since transformed into 22 per cent international and 78 per cent domestic. Needless to say, handling international visitors requires a lot more real estate and facilities. 8 It’s my understanding that Queenstown Airport is Australasia’s fastest growing airport. Low-cost carriers are introducing large numbers of new visitors to our region and allow for short, accessible stays. Growth has also come about as the result of a change in people’s choice of transport with fl ying frequently cheaper than driving. In addition, Queenstown has fully evolved into a four-season destination, evidenced by January being our record month during the year in review. And we now benefi t from being an ideal choice of ‘mono’ or ‘dual’ destination – many overseas tourists visit Australia and ‘dual destination’ into Queenstown en route or on their way home. The introduction of Auckland Airport as a new shareholder and strategic partner will have signifi cant positive effects on our operations. Auckland’s scale means it offers Queenstown Airport a wealth of highly relevant expertise in commercial developments, engineering and aeronautical design, route development, promotion of destinations and master planning. We look forward to working with Auckland Airport across a range of operational areas, helping us through the often problematic phase of evolution from a small business into a medium-sized business. Operating revenues rose within the fi nancial year under review by 18.9 per cent to $13.3M, driven by an increase in passenger numbers and aircraft. During the year we noted the mix of aircraft change from smaller turbo prop aircraft in favour of Boeing 737 and Airbus 320 jets, as well as more direct jet fl ights from Auckland and Wellington. The increase in both passengers and aircraft traffi c increased our commercial revenue, notably from carparking and retail. EBITDA increased 7.8 per cent to $7.62M. Looking at passenger movements in more detail, this year we achieved a record number of international visitors – up 44 per cent to 107,600. Loadings were also outstanding, averaging 79 per cent. Queenstown Airport continues to be well supported by Air New Zealand, Qantas, Jetstar and Pacifi c Blue, all of which increased their capacity into Queenstown. In the year ahead, Jetstar is moving from a domestic to international carrier and has introduced fl ights on a new route from Queenstown to the Gold Coast as well as to Melbourne. For the fi rst time, visitors can now catch a morning international fl ight out of Queenstown as these new Jetstar fl ights originate in Auckland (as an early morning domestic leg) while all other international fl ights currently depart Queenstown in the afternoon as a return fl ight to Australia. Our ongoing strategic project to construct the Runway End Safety Area (RESA) is on schedule and will be completed before the October 2011 deadline. The RESA is a mandatory CAA safety requirement for us to maintain Queenstown Airport’s international status and involves extending the runway 90m to the east into the Shotover Delta. At the western end of the runway we are installing a jet blast fence which will be completed by the end of 2010 at a cost of close to $1M. Completing all the RESA requirements will see the airport spending close to $10M. During the year, Plan Change 35 – extending the airport’s noise boundaries – was notifi ed and is currently going through a hearing process. Included in this plan is provision for noise insulation of affected houses situated inside the airport’s new noise boundaries, at a cost of around $5M. Another major expense has been the runway overlay, a ten-yearly project. The overlay was undertaken over a six-week period costing $5M. We have just commenced work extending the western side of the terminal to accommodate an expanded baggage makeup area. Costing $4M, the project will more than triple our existing capacity. It is required in order to meet future growth and to cater for the change by Air New Zealand from B737s to A320s, which require bags to be placed in containers. We are also planning to extend the international arrivals hall in the coming year. The existing facility can only manage the equivalent of one jet-load of passengers at a time, with passengers on additional fl ights having to wait on aircraft while the hall clears. As the airport gets busier we need to be able to cope with up to three jets at a time. We are mindful that Queenstown is often the fi rst and last impression international visitors have of New Zealand and this doesn’t match up with the experience of standing in queues or being held on board a landed aircraft. 9 QUEENSTOWN AIRPORT CORPORATION LIMITED Our growth and capacity planning has also highlighted the need to build an additional three jet hardstands within the next 12 months to three years. Each new stand will cost $1.2M. Also, as our runway currently doubles as a taxiway, additional investment will be required between 2012 and 2015 to construct a ‘heavy taxiway’. This will free up the runway and consequently increase our capacity to meet demand. Queenstown Airport is the only substantial New Zealand airport without runway lights. While RNP is used more and more in adverse daylight weather conditions, runway lights would make a signifi cant contribution to passenger safety and further enhance schedule reliability. We are in discussions with the airlines and Airways Corporation about installation of lights and this summer some will be installed to improve safety during daylight hour operations. Overall, the airlines support the introduction of lights to improve operations and Jetstar has made a commitment to work towards introducing fl ights operating after dark. In terms of our commercial operations, this year we introduced a bar into the terminal and note a change of ownership of the café – both outlets are now owned and operated by the Good Group Limited. We doubled the size of our duty free facilities airside and landside; Global Culture opened a new outlet in July; and Jetstar, Pacifi c Blue and Qantas extended their check-in facilities. There was continued strong demand for car rentals and Queenstown remains one of the largest outlets in New Zealand. I wish to thank our customers – Air New Zealand, Qantas, Jetstar and Pacifi c Blue. While Pacifi c Blue is exiting from domestic services, it will maintain its Sydney and Brisbane routes direct to Queenstown. As previously mentioned, Jetstar is introducing a Melbourne fl ight and a new route direct to the Gold Coast, connecting to Japan. This will give travellers on the Japan Gold Coast service an easy option to travel on to Queenstown out of what has been a declining market. Also of note, Air New Zealand has substantially increased its overall capacity, introducing several new services and aircraft with bigger capacity. Our management of Wanaka Airport has seen us continue to develop its master planning, including protection of the airport through noise boundaries and designations. We have also worked with Lake Wanaka Tourism and Wanaka Chamber of Commerce to develop a six-month trial of new twice-a-day services to Christchurch by Eagle Air. The community will need to get in behind this new service to see it graduate from a six-month trial to a permanent service. The Queenstown Airport Corporation continues to enjoy a very stable team of management and staff. Our small but fast-growing operation requires a talent base that is multi-skilled and highly driven, and it is a pleasure lead such a team. We welcomed four new permanent staff during the year – Ralph Fegan, Operations Manager of Wanaka Airport; Sue Albrecht, Administrator of Wanaka Airport; Doug McKay, Rescue Fire Offi cer at Queenstown Airport; and Mel Wenlock, Executive Assistant at Queenstown Airport. I thank everyone for their commitment and dedication to meeting the demands of an airport growing at an incredible pace – a very exciting time and workplace. ...... SteveSteve SaSandersonnderson Chiefhi f Executive i Offi ffi cer 10 THE QUEENSTOWN MANAGEMENT TEAM, LEFT TO RIGHT: KAREN CASTIGLIONE - Finance and Property Manager CHRIS READ - General Manager Aeronautical STEVE SANDERSON - Chief Executive Offi cer SIMON BARR - General Manager Commercial DANIEL DEBONO - Operations Manager (at right) 11 QUEENSTOWN AIRPORT CORPORATION LIMITED Directors’ Responsibility Statement The Directors of Queenstown Airport Corporation Limited are pleased to present the Annual Report and fi nancial statements for Queenstown Airport Corporation Limited for the year to 30 June 2010. The Directors are responsible for presenting fi nancial statements in accordance with New Zealand law and generally accepted accounting practice, which give a true and fair view of the fi nancial position of the Company as at 30 June 2010 and the results of operations and cash fl ows for the year ended on that date. The Directors consider the fi nancial statements of the Company have been prepared using accounting policies which have been consistently applied and supported by reasonable judgements and estimates and that all relevant fi nancial reporting and accounting standards have been followed. The Directors believe that proper accounting records have been kept which enable with reasonable accuracy, the determination of the fi nancial position of the Company and facilitate compliance of the fi nancial statements with the Financial Reporting Act 1993. 12 The Directors consider that they have taken adequate steps to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be suffi cient to provide a reasonable assurance as to the integrity and reliability of the fi nancial statements. This Annual Report is dated 21 September 2010 and is signed in accordance with a resolution of the Directors made pursuant to section 211(1)(k) of the Companies Act 1993. For and on behalf of the Board by: ...... MarkMkATl A Taylor Alison Gerry Chairman Director 21 September 2010 21 September 2010 13 QUEENSTOWN AIRPORT CORPORATION LIMITED Statement of Comprehensive Income For the Financial Year Ended 30 June, 2010 Notes 2010 2009 $ $ Income Revenue 2(a) 13,327,953 11,257,602 Other gains/(losses) 2(a) (515,512) 50,570 ...... Total income 12,812,441 11,308,172 Expenditure Operating expenses 2,837,992 2,672,282 Employee benefi ts expense 2(b) 1,409,634 1,287,045 Depreciation expense 2(c) 2,493,959 2,398,174 Amortisation 11,446 6,677 Finance costs 2(d) 1,701,678 2,321,577 Runway maintenance 102,077 242,515 Audit fees 4 83,381 27,569 Fringe Benefi t Tax 8,208 - Subvention payment 81,261 - Loss on revaluation of property, plant and equipment 751,228 - ...... Total operating expenditure 9,480,864 8,955,839 Surplus before income tax 3,331,577 2,352,333 Less: Income tax expense 3 (7,086,111) (705,700) ...... (Loss)/profi t for the year (3,754,534) 1,646,633 Other comprehensive income Revaluation of properties 77,010,830 - Income tax relating to components of other comprehensive income 3(b) (2,022,640) - ...... Other comprehensive income for the year net of tax 74,988,190 - ...... Total comprehensive income for the year, net of taxation $71,233,656 $1,646,633 ...... The accompanying notes form part of these fi nancial statements. 14 Statement of Financial Position As at 30 June, 2010 Notes 2010 2009 $ $ Current assets Cash and cash equivalents 17(a) 165,837 6,473 Trade and other receivables 5 1,032,479 661,238 Prepayments 304,425 39,942 Other fi nancial assets 6 66,432 - ...... Total current assets 1,569,173 707,653 ...... Non-current assets Property, plant and equipment 7 132,259,841 47,532,366 Deferred tax assets 3(a) - 680,857 Intangible assets 19 956,042 556,118 ...... Total non-current assets 133,215,883 48,769,341 ...... Total assets 134,785,056 49,476,994 ...... Current liabilities Bank overdraft (secured) 10, 17(a) - 163,922 Trade and other payables 8 1,552,242 920,924 Income in advance 90,092 90,720 Employee entitlements 9 181,934 171,642 Current tax payable 3(c) 720,712 251,103 Other fi nancial liabilities 6 471,470 - Borrowings (secured) 10 35,749,951 - ...... Total current liabilities 38,766,401 1,598,311 ...... Non-current liabilities Borrowings (secured) 10 - 30,500,000 Deferred tax liabilities 3(d) 7,325,055 - ...... Total non-current liabilities 7,325,055 30,500,000 ...... Total liabilities 46,091,456 32,098,311 ...... Net assets $88,693,600 $17,378,683 ...... Equity Share capital 11 10,412,199 10,330,938 Retained earnings 12 3,293,211 7,047,745 Revaluation reserve 74,988,190 - ...... Total equity $88,693,600 $17,378,683 ...... The accompanying notes form part of these fi nancial statements. 15 QUEENSTOWN AIRPORT CORPORATION LIMITED Statement of Changes in Equity For the Financial Year ended 30 June, 2010 Notes 2010 2009 $ $ Equity at beginning of year 17,378,683 15,732,050 Total comprehensive income for the year, net of tax 71,233,656 1,646,633 Contributions from shareholders 81,261 - ...... Equity at end of year $88,693,600 $17,378,683 ...... The accompanying notes form part of these fi nancial statements. 16 Cash Flow Statement For the Financial Year ended 30 June, 2010 Notes 2010 2009 $ $ Cash fl ows from operating activities Receipts from customers 12,994,727 11,400,798 Interest received 150 5,321 Payments to suppliers and employees (4,087,053) (3,787,098) Interest paid (1,565,347) (2,321,577) Income tax paid (net) (633,143) (373,357) Net GST (payment)/receipt (47,398) 49,270 ...... Net cash infl ow/(outfl ow) from operating activities 17(b) 6,661,936 4,973,357 ...... Cash fl ows from investing activities Proceeds from sale of land 63,500 - Purchase of property, plant and equipment (11,321,992) (4,085,837) Purchase of intangible assets (411,370) (292,494) ...... Net cash infl ow/(outfl ow) from investing activities (11,669,862) (4,378,331) ...... Cash fl ows from fi nancing activities Proceeds from issue of shares 81,261 - Proceeds from borrowings/(repayments) 5,249,951 (550,000) ...... Net cash infl ow/(outfl ow) from fi nancing activities 5,331,212 (550,000) ...... Net increase/(decrease) in cash and cash equivalents 323,286 45,026 Cash and cash equivalents at the beginning of the fi nancial year (157,449) (202,475) ...... Cash and cash equivalents at the end of the fi nancial year 17(a) $165,837 $(157,449) ...... The accompanying notes form part of these fi nancial statements. 17 QUEENSTOWN AIRPORT CORPORATION LIMITED Notes to the Financial Statements For the Financial Year ended 30 June, 2010 1. SUMMARY OF ACCOUNTING POLICIES Reporting Entity The Queenstown Airport Corporation Limited (“the Company”) is a company established under the Airport Authorities Act 1966 and registered under the Companies Act 1993. The Company is a reporting entity for the purposes of the Financial Reporting Act 1993. The Company is a profi t-oriented company incorporated and domiciled in New Zealand. Its principal activity is the operation of a commercial airport in Queenstown, New Zealand. Statement of Compliance The fi nancial statements of the Company have been prepared in accordance with the Financial Reporting Act 1993, the Companies Act 1993, the Airport Authorities Act 1966 and the Airport Authorities (Airport Companies Information Disclosure) Regulations 1999, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP). The Company qualifi es for Differential Reporting exemptions as it does not have public accountability and it is not large. All available reporting exemptions allowed under the Framework for Differential Reporting have been adopted with the exception of NZ IAS-7 ‘Cash Flow Statements’ and NZ IAS-12 ‘Income Taxes’ with which the Company has fully complied. The fi nancial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for profi t- oriented entities that qualify for and apply differential reporting concessions. Basis of Preparation The preparation of fi nancial statements in conformity with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and in future periods if the revision affects both current and future periods. The fi nancial statements have been prepared on the basis of historical cost, except for the revaluation of derivative fi nancial instruments and certain items of property, plant and equipment. Cost is based on the fair values of the consideration given in exchange for assets. Accounting policies are selected and applied in a manner which ensures that the resulting fi nancial information satisfi es the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The fi nancial statements are presented in New Zealand dollars. New Zealand dollars are the Company’s functional currency. 18 NOTES TO THE FINANCIAL STATEMENTS (cont.) SUMMARY OF ACCOUNTING POLICIES CONT. The following accounting policies which materially affect the measurement of results and fi nancial position have been applied: SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and GST. Revenue Landing dues are recognised in the accounting period in which the actual service is provided to the customer. Revenue from the rendering of services is recognised when it is probable that the economic benefi ts associated with the transaction will fl ow to the entity. The stage of completion at balance date is assessed based on the value of services performed to date as a percentage of the total services to be performed. Interest revenue is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s net carrying amount. Other Gains and Losses Net gains or losses on the sale of property plant and equipment and fi nancial assets are recognised when an unconditional contract is in place and it is probable that the Company will receive the consideration due. Leasing Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classifi ed as operating leases. Rentals payable under operating leases are charged to the Statement of Financial Performance on a basis representative of the pattern of benefi ts to be derived from the leased asset. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Benefi ts received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term. 19 QUEENSTOWN AIRPORT CORPORATION LIMITED SIGNIFICANT ACCOUNTING POLICIES CONT. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Tax currently payable is based on taxable profi t for the period. Taxable profi t differs from net profi t as reported in the Statement of Financial Performance because it excludes items of income or expense that are taxable in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t and is accounted for using the comprehensive balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profi ts will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets refl ects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax is recognised as a expense or income in profi t for the year, except when it relates to items credited or debited directly to other comprehensive income, in which case the deferred tax is also recognised directly in other comprehensive income. Goods and Services Tax Revenues, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST), except for receivables and payables which are recognised inclusive of GST. Where GST is not recoverable as an input tax it is recognised as part of the related asset or expense. Statement of Cash Flows Cash means cash balances on hand, held in bank accounts and bank overdrafts that the Company invests in as part of its day to day cash management. Operating activities include cash received from all income sources of the Company and record the cash payments made for the supply of goods and services. Investing activities are those activities relating to the acquisition and disposal of non-current assets. Financing activities comprise the change in equity and debt structure of the Company. Financial Instruments Financial assets and fi nancial liabilities are recognised on the Company’s Statement of Financial Position when the Company becomes a party to contractual provisions of the instrument. 20 NOTES TO THE FINANCIAL STATEMENTS (cont.) SIGNIFICANT ACCOUNTING POLICIES CONT. (i) Financial Assets The effective interest method, referred to below, is a method of calculating the amortised cost of a fi nancial asset and of allocating interest income over the relevant period. The effective interest rate is the interest rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset or, where appropriate, a shorter period. Financial Assets at Fair Value Through Profi t or Loss Financial assets at fair value through profi t or loss are stated at fair value, with any resultant gain or loss recognised in the profi t for the year. The net gain or loss is recognised in the profi t for the year and incorporates any dividend or interest earned on the fi nancial asset. Fair value is determined in the manner described later in this note. The Company holds derivative contracts that do not qualify for hedge accounting. Loans and Receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Impairment of Financial Assets Financial assets, other than those at fair value through profi t or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the fi nancial asset, the estimated future cash fl ows of the investment have been impacted. For fi nancial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the original effective interest rate. The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the profi t for the year. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the profi t for the year to the extent the carrying amount of the investment at the date of impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. (ii) Financial Liabilities Trade and Other Payables Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost, using the effective interest method. Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the Statement of Financial Performance over the period of the borrowing using the effective interest method. 21 QUEENSTOWN AIRPORT CORPORATION LIMITED (iii) Derivative Financial Instruments The Company uses derivative fi nancial instruments to hedge its exposure to foreign exchange risk arising from investing activities. The Company does not use derivative fi nancial instruments for speculative purposes. However, derivatives that do not qualify for hedge accounting, under the specifi c NZ IFRS rules, are accounted for as trading instruments. Derivatives are recognised initially at fair value. Subsequent to initial recognition derivative fi nancial instruments are stated at fair value. Changes in the fair value of derivative fi nancial instruments that do not qualify for hedge accounting are recognised in the profi t for the year as they arise. Fair Value Estimation The fair value of fi nancial instruments traded in active markets is based on quoted market prices at the balance date. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance date. 22 NOTES TO THE FINANCIAL STATEMENTS (cont.) SIGNIFICANT ACCOUNTING POLICIES CONT. Property, Plant and Equipment Property, plant and equipment are initially recognised at cost. The cost of property, plant and equipment includes all costs directly attributable to bringing the item to working condition for its intended use. Expenditure on an asset will be recognised as an asset if it is probable that future economic benefi ts will fl ow to the entity, and if the cost of the asset can be measured reliably. This principle applies for both initial and subsequent expenditure. Vehicles, plant and equipment, rescue fi re equipment and furniture are carried at cost less accumulated depreciation and impairment losses. Land, buildings, roading, carparking and runways are carried at fair value, as determined by an independent registered valuer, less accumulated depreciation and any impairment losses recognised after the date of any revaluation. Land, buildings and runways acquired or constructed after the date of the latest revaluation are carried at cost, which approximates fair value. Revaluations are carried out with suffi cient regularity to ensure that the carrying amount does not differ materially from fair value at the balance sheet date. Revaluations Revaluation increments are recognised in the property, plant and equipment revaluation reserve, except to the extent that they reverse a revaluation decrease of the same asset previously recognised in the profi t for the year, in which case the increase is recognised in the profi t for the year. Revaluation decreases are recognised in the profi t for the year, except to the extent that they offset a previous revaluation increase for the same asset, in which case the decrease is recognised directly in the property, plant and equipment revaluation reserve via other comprehensive income. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the revalued amounts of the assets. Upon disposal or derecognition, any revaluation reserve relating to the particular asset being disposed or de-recognised is transferred to retained earnings. Fair Value Land holdings and buildings were independently valued by Seagar & Partners, registered valuers, as at 30 June 2010 to fair value. The total fair value for the land and buildings and roads and carparks per the valuer is $109,005,420. The runway was independently valued by Beca Valuations Limited (Beca), registered valuers, as at 30 June 2010 to a fair value amount of $14,782,000. Where the fair value of an asset is able to be determined by reference to market based evidence, such as sales of comparable assets or discounted cash fl ows, the fair value is determined using this information. Where fair value of the asset is not able to be reliably determined using market based evidence, optimised depreciated replacement cost is used to determine fair value. To arrive at fair value the valuers used different approaches for different asset groups. The following table summarises the valuation approach: Asset Valuation Approach Terminal Building Optimised depreciated replacement costs Fire Building Optimised depreciated replacement costs Runway and Aprons Optimised depreciated replacement costs Land Direct comparison/market value 23 QUEENSTOWN AIRPORT CORPORATION LIMITED SIGNIFICANT ACCOUNTING POLICIES CONT. Depreciation Depreciation is provided on a diminishing value (DV) basis for all assets except runways so as to write- off the carrying value cost of each asset to its estimated residual value over its estimated useful life. The runway is depreciated on a straight line (SL) basis. Expenditure incurred to maintain these assets at full operating capability is charged to the profi t for the year in the year incurred. The estimated useful lives of the major asset classes have been estimated as follows: Operational Assets Rate (%) Method Buildings 2.5% - 26.4% DV Runway 1.67% - 50.0% SL Plant and equipment 25% DV Motor vehicles 26% DV Furniture 33% DV Rescue fi re 10% - 20% DV Roading and car parking 2.5% - 26% DV The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. Disposal An item of property, plant and equipment is de-recognised upon disposal or recognised as impaired when no future economic benefi ts are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profi t for the year in the period the asset is de-recognised. Intangible Assets Intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight line basis over the assessed estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for prospectively. Impairment of Non-Financial Assets At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash fl ows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use for cash-generating assets, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset for which the estimates of future cash fl ows have not been adjusted. 24 NOTES TO THE FINANCIAL STATEMENTS (cont.) SIGNIFICANT ACCOUNTING POLICIES CONT. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the profi t for the year immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the profi t for the year immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase. Employee Benefi ts Entitlements to salary and wages and annual leave are recognised when they accrue to employees. This includes the estimated liability for salaries and wages and annual leave as a result of services rendered by employees up to balance date at current rates of pay. Entitlements to sick leave are calculated based on an actuarial approach to assess the level of leave that is expected to be taken over and above the annual entitlement, and calculated using anticipated future pay rates. Standards and Interpretations Effective in the Current Period In the current year, the Company has adopted NZIAS 1 Presentation of Financial Statements (revised 2007) which is applicable for annual reporting periods beginning on or after 1 January 2009. Initial application of this standard did not affect any of the amounts recognised in the fi nancial statements, but changed the presentation of the statement of comprehensive income and statement of changes in equity. There was no change in accounting policy relating to recognition or measurement due to the initial adoption of this standard. There are a number of standards and interpretations on issue but not effective. None of these are expected to have any impact on the Company (either from a recognition or a disclosure perspective). Changes in Accounting Policy In 2010 Queenstown Airport Corporation Limited changed its accounting policy with respect to the recognition of land, buildings, roading and car parking and runways. The Company has moved from the cost model to the revaluation model pursuant to NZ IAS 16 Property, Plant and Equipment. Accordingly as of 30 June 2010 land, buildings, roading and carparking and runway assets have been recognised at fair value pursuant to an independent valuation. This change in accounting policy has had the following impact on the 2010 fi nancial statements: • A decrease in the profi t before tax of $751,228 as a result of certain individual assets being revalued below cost. • An increase in other comprehensive income of $77,010,830 as a result of certain individual assets being revalued above cost. • An increase in deferred tax liability (and a reduction in other comprehensive income) of $2,022,640 representing the deferred tax consequences of the revaluation recognised directly as other comprehensive income. • An increase in property, plant and equipment of $76,259,599 representing the increase from previous carrying value under the cost model to fair value under the revaluation model. 25 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 2. SURPLUS FROM OPERATIONS (a) Revenue Revenue from rendering of services: Landing dues 6,003,205 5,088,202 Carpark revenue 1,253,813 1,211,430 Departure tax 1,105,229 766,169 ...... 8,362,247 7,065,801 Operating lease rental revenue 3,968,884 3,371,133 ...... 3,968,884 3,371,133 Interest Revenue: Bank deposits - - Inland Revenue Department 150 5,321 ...... 150 5,321 Other revenue 996,672 815,347 ...... $13,327,953 $11,257,602 ...... Other Gains/(Losses): Net change in fair value of derivative fi nancial instruments classifi ed at fair value through profi t or loss (forward exchange contracts) (578,452) 50,570 Gain on sale of land 62,940 - ...... $(515,512) $50,570 ...... (b) Employee Benefi ts Expense Salaries and wages 1,289,634 1,166,920 Directors’ fees 120,000 120,125 ...... $1,409,634 $1,287,045 ...... 26 NOTES TO THE FINANCIAL STATEMENTS (cont.) 2010 2009 $ $ 2. SURPLUS FROM OPERATIONS CONT. (c) Depreciation Expense Buildings 1,073,058 1,274,214 Roading and carparking 259,222 59,502 Plant and equipment 334,383 323,603 Runway 521,109 455,199 Motor vehicles 4,083 5,517 Furniture 127,631 137,214 Rescue fi re 174,473 142,925 ...... $2,493,959 $2,398,174 ...... (d) Finance Costs Interest on loans 1,695,139 2,319,343 Other interest expense 6,539 2,234 ...... $1,701,678 $2,321,577 ...... 3. INCOME TAXES (a) Income Tax Recognised in Profi t or Loss Current tax expense/(credit) Current year 1,127,216 657,608 Adjustments for prior years (24,693) - ...... 1,102,523 657,608 Deferred tax expense/(credit) Origination and reversal of temporary differences 106,556 48,092 Adjustments relating to changes in tax rates (378,744) - Deferred tax relating to future non-depreciation of buildings for tax purposes 6,481,147 - Deferred tax on revaluation recognised in surplus before tax (225,371) - ...... 5,983,588 48,092 ...... 7,086,111 705,700 ...... 27 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 3. INCOME TAXES CONT. The prima facie income tax expense on pre-tax accounting surplus reconciles to the income tax expense in the fi nancial statements as follows: Surplus before income tax 3,331,577 2,352,333 ...... Income tax expense calculated at 30% 999,473 705,700 Adjustments relating to change in tax rates (378,744) - Non assessable income (18,881) - Reversal of temporary difference 253,180 - Adjustment for prior years (24,693) - Revaluation recognised in surplus before tax (225,371) - Deferred tax relating to future non-depreciation of buildings for tax purposes 6,481,147 - ...... Income tax expense $7,086,111 $705,700 ...... The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by New Zealand corporate entities on taxable profi ts under New Zealand tax law. (b) Income Tax Recognised Directly In Other Comprehensive Income There was $2,022,640 deferred tax charged directly to other comprehensive income during the period (2009: $Nil), relating to the revaluation of property, plant and equipment (excluding land). (c) Current Tax Assets and Liabilities Current Tax Refundable: Current tax refundable $Nil $Nil ...... Current Tax Payable: Current tax payable $720,712 $251,103 ...... 28 NOTES TO THE FINANCIAL STATEMENTS (cont.) 3. INCOME TAXES CONT. (d) Deferred Tax Balances Taxable and deductible temporary differences arising from the following: 2010 Opening Charged to profi t Charged to other Closing balance for the year comprehensive balance income Gross deferred tax assets/(liability): Temporary differences 680,857 (5,983,588) (2,022,640) (7,325,055) ...... $680,857 ($5,983,583) ($2,022,640) ($7,325,055) ...... 2009 Opening Charged to profi t Charged to other Closing balance for the year comprehensive balance income Gross deferred tax assets/(liability): Temporary differences 728,949 (48,092) - 680,857 ...... $728,949 ($48,092) - $680,857 ...... 2010 2009 $ $ (e) Imputation Credit Account Balances Balance at beginning of year 1,899,933 1,493,428 Income tax paid 633,229 406,505 Resident withholding tax paid - - Income tax refunded (33,148) - ...... Balance at end of year $2,500,014 $1,899,933 ...... (f) Tax Changes On 20 May 2010 the Government announced that the company tax rate will reduce from 30% to 28% and tax depreciation deductions will no longer be available for any buildings with an estimated useful life of 50 years or more. The changes were enacted 27 May 2010 and are effective for tax years beginning on or after 1 April 2011. The effect of the change in tax rate has been brought into the fi nancial statements for the year ended 30 June 2010. The impact of this change has to reduce the deferred tax liability by $378,744. The effect of the change relating to deductibility of tax depreciation of buildings has been recognised at 30 June 2010. This increased deferred tax liability by $6,481,147. 29 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 4. REMUNERATION OF AUDITORS Audit fees for fi nancial statement audit 28,775 23,840 Audit fees for assurance and related services 54,606 3,729 ...... $83,381 $27,569 ...... Audit fees for assurance and related services include: Audit of disclosure fi nancial statements The auditor of Queenstown Airport Corporation Limited, for and on behalf of the Offi ce of the Auditor- General, is Deloitte. 5. TRADE AND OTHER RECEIVABLES Trade receivables 993,686 676,030 Allowance for doubtful debts - (14,792) ...... 993,686 661,238 Goods and services tax (GST) receivable 38,793 - ...... $1,032,479 $661,238 ...... 6. OTHER FINANCIAL ASSETS/(LIABILITIES) Non-derivative fi nancial assets/(liabilities) that are not designated in effective hedge accounting relationships: - Interest rate swap* (471,470) - - Interest rate option** 66,432 - ...... $(405,038) $Nil ...... * The Company holds three interest rate swap agreements for $5,000,000 each, which are effective from 1 July 2010, 4 January 2012 and 14 May 2012. The interest rate is fi xed at 5.640%, 6.300% and 6.095% respectively. ** The Company holds an interest rate option for $10,000,000 which is effective from 4 January 2012 at a rate of 7%. A premium of $208,100 has been paid during the year. 30 NOTES TO THE FINANCIAL STATEMENTS (cont.) 7. PROPERTY, PLANT AND EQUIPMENT 2010 Cost Accumulated Net Book Value Depreciation $ $ $ Land 75,977,126 - 75,977,126 Building 27,795,709 - 27,795,709 Roading and carparking 5,784,710 - 5,784,710 Plant and equipment 1,726,992 (873,906) 853,086 Runway 20,083,255 - 20,083,255 Motor vehicles 44,355 (32,735) 11,620 Furniture 525,679 (332,248) 193,431 Rescue fi re 2,154,878 (593,974) 1,560,904 ...... $134,092,704 ($1,832,863) $132,259,841 ...... 2009 Cost Accumulated Net Book Value Depreciation $ $ $ Land 5,801,769 - 5,801,769 Buildings 29,198,179 (6,351,363) 22,846,816 Roading and carparking 4,421,752 (546,293) 3,875,459 Plant and equipment 2,348,127 (1,283,992) 1,064,135 Runway 14,032,818 (2,071,985) 11,960,833 Motor vehicles 44,355 (28,652) 15,703 Furniture 1,111,711 (821,915) 289,796 Rescue fi re 2,097,356 (419,501) 1,677,855 ...... $59,056,067 ($11,523,701) $47,532,366 ...... The carrying value of the asset categories above includes work in progress. Impairment losses recognised during the period were $Nil (2009: $Nil). 31 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 8. TRADE AND OTHER PAYABLES Trade payables* 1,086,794 782,485 Other creditors and accruals 465,448 129,834 GST payable - 8,605 ...... $1,552,242 $920,924 ...... 9. EMPLOYEE ENTITLEMENTS Accrued salary and wages 87,838 60,613 Annual leave 94,096 111,029 ...... 181,934 171,642 ...... 10. BORROWINGS At amortised cost Bank borrowings (secured)** 35,749,951 30,500,000 ...... $35,749,951 $30,500,000 ...... Disclosed in the fi nancial statements as: Current 35,749,951 - Non-current - 30,500,000 ...... $35,749,951 $30,500,000 ...... The Company has a secured facility with the Bank of New Zealand of $4 million and with Westpac of $40 million. The Company may draw funding for terms ranging from call to three years. Amount used Overdraft - 163,922 Borrowings 35,749,951 30,500,000 Amount unused 8,250,049 5,436,078 ...... $44,000,000 $36,100,000 ...... * The average credit period on purchases is 30 days. ** The Bank of New Zealand loan is secured by a general security agreement over the Company’s assets and undertakings. The Westpac loan is secured by a general security agreement over the Company’s assets, undertakings and uncalled capital. The weighted average interest rate on the term loan at balance date was 4.34% (2009: 6.35%). 32 NOTES TO THE FINANCIAL STATEMENTS (cont.) 2010 2009 $ $ 10. BORROWINGS CONT. As set out in note 3 the Company has recognised an additional $6,481,147 of deferred tax liability as a result of the change in legislation preventing a tax deduction to be taken in relation to depreciation of buildings. This liability has been recognised in accordance with fi nancial reporting standards and will reverse over time as the buildings are depreciated for accounting purposes. Recognition of this additional deferred tax liability has caused a technical breach of the banking covenant requiring a certain minimum ratio of shareholders funds to total tangible assets. Both the BNZ and Westpac have provided a waiver of this technical breach subsequent to year end. In addition the Company has repaid $26.7 million of bank debt subsequent to year end. 11. SHARE CAPITAL Fully paid ordinary shares 10,412,199 10,330,938 ...... 10,412,199 10,330,938 ...... (a) Fully Paid Ordinary Shares Number Value 2010 2009 2010 2009 Balance at beginning of year 11,998,690 11,998,690 10,330,938 10,330,938 Issue of shares 48,190 - 81,261 - ...... Balance at end of year 12,046,880 11,998,690 $10,412,199 $10,330,938 ...... All ordinary shares have equal voting rights and equal rights to distributions and any surplus on winding up of the Company. On 26 April 2010 the Company issued 48,190 fully paid up shares, to Queenstown Lakes District Council. 12. RETAINED EARNINGS Balance at beginning of year 7,047,745 5,401,112 Total profi t/(loss) for the year (3,754,534) 1,646,633 ...... Balance at end of year $3,293,211 $7,047,745 ...... 33 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 13. COMMITMENTS FOR EXPENDITURE (a) Capital Expenditure Commitments Runway End Safety Area 3,790,309 - ...... $3,790,309 $Nil ...... (b) Operating Lease Commitments Non-cancellable operating lease payments Not longer than 1 year 13,416 13,416 Longer than 1 year and not longer than 5 years 14,924 16,976 Longer than 5 years - - ...... $28,340 $30,392 ...... 14. CONTINGENT LIABILITIES AND CONTINGENT ASSETS There are no known contingent liabilities or contingent assets. 15. RELATED PARTY DISCLOSURES (a) Parent Entity Queenstown Airport Corporation Limited is 100% owned by the ultimate parent entity, Queenstown Lakes District Council. (b) Transactions with Related Parties Related parties of the Company are: Queenstown Lakes District Council (QLDC) – Shareholder Lakes Environmental Ltd – wholly owned by QLDC Lakes Leisure Limited – wholly owned by QLDC MG Valentine – Director – Trojan Holdings Ltd and NZ Ski Ltd During the year the following (payments)/receipts were (made to)/ received from related parties which were conducted on normal commercial terms: Queenstown Lakes District Council Rates (146,878) (153,600) Resource consent costs (130,283) (36,443) Subvention payment (81,261) - Issue of shares 81,261 - Lakes Environmental Ltd Resource consent costs (19,466) - Trojan Holdings Limited Rubbish removal services (53,348) (53,503) Rent received 34,602 33,624 NZ Ski Ltd Marketing and advertising - (10,000) 34 NOTES TO THE FINANCIAL STATEMENTS (cont.) 2010 2009 $ $ Lakes Leisure’s netball courts are located on Queenstown Airport Corporation’s buffer land. Negotiations between the Company, Lakes Leisure and the Queenstown Events Centre Trust for long- term access to the land are continuing. No revenue was derived from this arrangement in the year (2009 $Nil). The following amounts were receivable from related parties at balance date: Trojan Holdings Ltd 774 - The following amounts were payable to related parties at balance date: Queenstown Lakes District Council - 656 Trojan Holdings Ltd 3,872 3,134 35 QUEENSTOWN AIRPORT CORPORATION LIMITED 2010 2009 $ $ 15. RELATED PARTY DISCLOSURES CONT. (c) Other Transactions Involving Related Parties There were no other transactions with related parties. 16. SUBSEQUENT EVENTS Subsequent to year end the Company issued 4,013,485 to Auckland International Airport Limited for consideration of $27.7 million. Air New Zealand Limited and the Queenstown Community Strategic Asset Group both initiated High Court proceedings seeking to overturn the sale of shares to Auckland International Airport Limited. The result of these proceedings are unknown. Other than the transaction noted above, there were no signifi cant events after balance date (2009:Nil). 17. NOTES TO THE CASH FLOW STATEMENT (a) Reconciliation of Cash and Cash Equivalents For the purposes of the cash fl ow statement, cash and cash equivalents includes cash on hand and in bank and deposits in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the fi nancial year as shown in the cash fl ow statements is reconciled to the related items in the Statement of Financial Position as follows: Cash and cash equivalents 16,192 6,473 Bank account/(overdraft) 149,645 (163,922) ...... $165,837 ($157,449) ...... (b) Reconciliation of Surplus for the Period to Net Cash Flows from Operating Activities Profi t(Loss) for the year (3,754,534) 1,646,633 Add/(less) non-cash items: Amortisation 11,446 6,677 Depreciation 2,493,959 2,398,174 Net change in fair value of derivative fi nancial instruments 405,038 75,835 Loss on revaluation of property, plant and equipment 751,228 - Gain on sale of property, plant and equipment (62,940) - ...... 155,803 4,127,319 Changes in assets and liabilities: Increase in trade and other receivables (371,241) 163,219 Increase in prepayments (264,483) (18,450) Increase in current tax payable 469,609 284,252 Increase in trade and other payables 631,318 (286,153) Decrease in income in advance (628) 25,964 Increase in employee entitlements 10,292 33,386 Increase in deferred tax liability 5,983,272 48,092 Movement in items reclassifi ed as investing and fi nancing activities 359,600 595,728 ...... 6,817,739 846,038 ...... Net cash infl ow from operating activities $6,661,936 $4,973,357 ...... 36 NOTES TO THE FINANCIAL STATEMENTS (cont.) 2010 2009 $ $ 18. FINANCIAL INSTRUMENTS (a) Capital Risk Management The Company is not subject to any externally imposed capital requirements. (b) Signifi cant Accounting Policies Details of the signifi cant accounting policies and methods adopted, including the criteria for recognition, and the basis of measurement applied in respect of each class of fi nancial asset, fi nancial liability and equity instrument are disclosed in Note 1 to the fi nancial statements. (c) Categories of Financial Instruments Financial Assets Cash and cash equivalents 165,837 6,473 Trade and other receivables 993,686 661,238 Other fi nancial assets 66,432 - Financial Liabilities Bank overdraft - 163,922 Trade and other payables 1,552,242 920,924 Borrowings 35,749,951 30,500,000 Other fi nancial liabilities 471,470 - All fi nancial assets and liabilities are recognised at amortised cost except other fi nancial assets and liabilities which are recognised at fair value through profi t for the year. 19. INTANGIBLE ASSETS Intangible assets represent costs incurred in relation to District Planning processes for extension of the noise boundaries and amendments to the fl ight fans and are amortised on a straight line basis over 15 years from the date they are completed and ready to use. Cost Opening balance 562,795 270,301 Additions from internal developments 411,370 292,494 ...... Closing balance 974,165 562,795 ...... Accumulated amortisation Opening balance 6,677 - Amortisation expense 11,446 6,677 ...... Closing balance 18,123 6,677 ...... Carrying value $956,042 $556,118 ...... 37 QUEENSTOWN AIRPORT CORPORATION LIMITED 38 Statement of Service Performance Over the last two years the Company has set itself a task of working with all stakeholders to create a master plan aligned with the region’s growth. PERFORMANCE MEASURES • Develop a master plan that can be used as a blueprint and implemented as growth and development requires. • Continue to liaise with the Queenstown Lakes District Council as shareholders, the community and other stakeholders, in order to promote the concept of “responsible use of airspace over Queenstown”. OUTCOMES • The Company has completed its master plan out to 2037. • Implemented fi rst stages of the master plan including extending the check-in area, increasing retail space and commenced planning for the Aviation Park. • The airport provides six-monthly reports to Council. • The airport has attended local Residential Association meetings and ran open days. 2010 2010 Actual Forecast $ $ Income 12,812,441 11,391,041 Operating expenses 9,480,864 8,878,433 ...... Net surplus/(defi cit) before tax 3,331,577 2,512,608 Taxation 7,086,111 753,784 Other comprehensive income 74,988,190 0 ...... Net surplus/(defi cit) after tax $71,233,656 $1,758,824 ...... 39 QUEENSTOWN AIRPORT CORPORATION LIMITED Statement of Corporate Intent The Company sets various performance measures in its annual Statement of Corporate Intent: GOALS • To provide a quality of service to its customers and take all reasonable steps to enhance safety margins wherever possible. • To continue operating the Company as a successful business and in an effective and effi cient manner maximising the return on funds invested in the medium and long term – subordinating the latter when appropriate and necessary in order to achieve broader economic objectives. • To expand maintain and plan the facilities at the airport to allow for full domestic and trans-Tasman operational capability of aircraft types currently in use, and likely to be in use in the future, by New Zealand domestic airlines and international airlines likely to operate here. • To promote Queenstown’s commercial and non-commercial air travel and maximise usage of the airport facilities. • To seek and develop profi table business opportunities that make best use of the people, technical and fi nancial resources of the Company. • To act as a good employer by providing equal employment opportunities, good and safe working conditions as well as opportunities for individual career development. • To act as a good corporate citizen in regard to the needs of the greater Queenstown Lakes District community and the environment. • To act as a ‘good neighbour’ to the adjacent residential areas. OBJECTIVES To ensure that the Company takes action towards achieving its goals there will be a number of objectives identifi ed at the start of each fi nancial year which it believes can and should be achieved within the following year. These objectives will be measurable and achievable and the performance of the Company achieving its objectives will be reported annually. • Provide suitable terminal facilities for satisfactory trans-Tasman and domestic operations. • Promote planning measures designed to ensure the mission and goals of the Company can be achieved. • Ensure adequate communication exists between the Company and the community and its elected representatives by way of an ongoing public information service and the holding of regular open meetings with a liaison group comprising community group representatives, interested individuals, airport users, etc., while continuing existing reporting systems. • Manage the noise impact of the airport in accordance of the district plan taking into account the surrounding residential and business areas. • Develop an achievable plan to meet the revised Runway End Safety Area requirements within the prescribed transitional timeframes. • Achieve the forecast profit result. 40 STATEMENT OF CORPORATE INTENT (cont.) ACTUAL PERFORMANCE ACHIEVED • The Company has completed a comprehensive capacity study incorporating feedback from airlines, border control agencies and other stakeholders. The study will be the foundation for further expansion of terminal capacity. • The Company continues to be involved in ensuring that surrounding land developments and planning are consistent with the airport’s operations. • The shareholder of the Company is represented at Board meetings as an observer, and the Company provides six-monthly and annual reports to the shareholder. Regular meetings are held with airport users and interested members of the public regarding airport operations. • The Company continues to promote “the responsible use of airspace over Queenstown” through the Queenstown/Milford Users Group. • The Company is actively planning to develop a preferred option for the construction of Runway End Safety Areas (RESA) at the eastern and western ends of the runway. • The budgeted profi t result was a surplus after tax of $1,758,824. The actual result was a surplus of $71,233,656. There has been a one-off impact as a result of the revaluation of land holdings and buildings and related deferred income tax adjustments. • The tax paid return on shareholders funds was 409 per cent. There has been a one-off impact as a result of the revaluation of land holdings and buildings and related deferred income tax adjustments. • The actual shareholders funds to total assets is 65.5 per cent, the target was 31.5 per cent. This significant increase results from the revaluation of land holdings and buildings and related deferred income tax adjustments. • At 30 June 2010, the Company was in technical breach of banking covenants in respect of its equity ratio. The breach stemmed from the $6,481,147 adjustment to deferred tax required by a change in tax policy for building depreciation. The 2010 Government Budget announced the future non-deductibility of depreciation in respect of buildings with an estimated economic life exceeding 50 years. The Company’s bankers were fully briefed on the potential breach stemming from the tax policy change and subsequently waived the breach. • Queenstown Airport Corporation is currently promoting Plan Change 35 to establish new noise boundaries to cater for the airport’s growth. The airport has undertaken modelling for the busiest three month summer and winter periods to ascertain compliance with existing noise boundaries and will report to Queenstown Lakes District Council regarding these modelling results in accordance with its noise management plan. 41 QUEENSTOWN AIRPORT CORPORATION LIMITED AUDIT REPORT TO THE READERS OF QUEENSTOWN AIRPORT CORPORATION LIMITED’S FINANCIAL STATEMENTS AND STATEMENT OF SERVICE PERFORMANCE FOR THE YEAR ENDED 30 JUNE, 2010 The Auditor-General is the auditor of Queenstown Airport Corporation Limited (the company). The Auditor-General has appointed me, Peter Gulliver, using the staff and resources of Deloitte, to carry out the audit on her behalf. The audit covers the fi nancial statements and performance information included in the annual report of the Company, for the year ended 30 June 2010. UNQUALIFIED OPINION In our opinion: The fi nancial statements of the Company on pages 14 to 37: Comply with generally accepted accounting practice in New Zealand; and give a true and fair view of: - The company’s fi nancial position as at 30 June 2010; and - The results of its operations and cash fl ows for the year ended on that date. The performance information of the Company on pages 39 to 41 gives a true and fair view of the achievements measured against the performance targets adopted for the year ended 30 June, 2010. The audit was completed on 21 September 2010, and is the date at which our opinion is expressed. The basis of the opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and the Auditor, and explain our independence. BASIS OF OPINION We carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the New Zealand Auditing Standards. We planned and performed the audit to obtain all the information and explanations we considered necessary in order to obtain reasonable assurance that the fi nancial statements did not have material misstatements, whether caused by fraud or error. Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the fi nancial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion. The audit involved performing procedures to test the information presented in the fi nancial statements. We assessed the results of those procedures in forming our opinion. 42 AUDIT REPORT (cont.) AUDIT PROCEDURES GENERALLY INCLUDE: - determining whether signifi cant fi nancial and management controls are working and can be relied on to produce complete and accurate data; - verifying samples of transactions and account balances; - performing analyses to identify anomalies in the reported data; - reviewing signifi cant estimates and judgements made by the Board of Directors; - confi rming year-end balances; - determining whether accounting policies are appropriate and consistently applied; and - determining whether all fi nancial statement disclosures are adequate. We did not examine every transaction, nor do we guarantee complete accuracy of the fi nancial statements and performance information. We evaluated the overall adequacy of the presentation of information in the Financial Statements and Statement of Service Performance. We obtained all the information and explanations we required to support our opinion above. RESPONSIBILITIES OF THE BOARD OF DIRECTORS AND THE AUDITOR The Board of Directors is responsible for preparing fi nancial statements in accordance with generally accepted accounting practice in New Zealand. The fi nancial statements must give a true and fair view of the fi nancial position of the company as at 30 June 2010 and the results of its operations and cash fl ows for the year ended on that date. The Board of Directors is also responsible for preparing the Statement of Service Performance that gives a true and fair view of the service performance achievements for the year ended 30 June, 2010. The Board of Directors responsibilities arise from the Financial Reporting Act 1993 and the Local Government Act 2002. We are responsible for expressing an independent opinion on the fi nancial statements and performance information and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 69 of the Local Government Act 2002. INDEPENDENCE When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the New Zealand Institute of Chartered Accountants. In addition to the audit we have carried out an audit of the company’s Disclosure Financial Statements and provided assistance with fi nancial reporting matters which are compatible with these independence requirements. Other than the audit and these assignments, we have no relationship with or interests in the Company. ...... Peter Gulliver Partner DELOITTE On behalf of the Auditor-General Dunedin, New Zealand 43 QUEENSTOWN AIRPORT CORPORATION LIMITED Statutory Disclosures Your Directors have pleasure in submitting the Annual Report of the Company together with the fi nancial accounts of the Company for the year ended 30 June 2010. 1. FINANCIAL STATEMENTS The fi nancial statements for the Company for the year ended 30 June 2010 follow this report. 2. CHANGES IN ACCOUNTING POLICIES The Company has moved from the cost model to the revaluation model pursuant to NZIAS 16 Property, Plant and Equipment. Accordingly as of 30 June 2010 land, buildings and runway assets have been recognised at fair value pursuant to an independent valuation (pg 20). 3. PRINCIPAL ACTIVITIES OF THE COMPANY The principal activity of the Company during the year was airport operator. There has been no material change in the Company’s business that the Company is engaged in, during the year that is material to an understanding of the Company’s business. Details of the year under review and future prospects are included in the Chairman’s Report. 4. BOARD OF DIRECTORS The Directors of the Company during the year under review were: M A Taylor (Chairman) Duncan V Fea (retired 30 June 2010) Murray G Valentine James WP Hadley Alison Gerry (appointed 10 June 2010) 5. RESULTS FOR THE YEAR ENDED 30 JUNE 2010 Net Tax Paid Loss for the year was $3,754,534 compared with a Profi t of $1,646,633 in the previous year. The Directors recommend that no fi nal dividend be paid. Appropriation Account Net Tax Paid Profi t(Loss) of (3,754,534) Plus Retained Earnings Brought Forward 7,047,745 ...... Leaves Retained Earnings to be Carried Forward of $3,293,211 ...... 6. DIRECTORS’ INTERESTS The following transactions were entered into by the Directors of the Company during the year. During the year Trojan Holdings Ltd, was contracted to provide rubbish removal services at the airport – Mr MG Valentine, a Director during the year, is also a Director of Trojan Holdings Ltd and NZ Ski Ltd. All of the transactions were provided on normal commercial terms. 44 ANNUAL REPORT (cont.) 7. SHARE DEALINGS No Director acquired or disposed of any interest in shares in the Company during the year. 8. DIRECTORS’ REMUNERATION The following are particulars of Directors’ remuneration authorised in accordance with Section 211(1)(f) of the Companies Act 1993 from the effective date. 2010 2009 MA Taylor 45,500 39,500 MW Walker - 21,500 DV Fea 26,500 21,500 MG Valentine 24,000 21,500 JWP Hadley 24,000 16,125 ...... $120,000 $120,125 ...... 9. REMUNERATION OF EMPLOYEES There were three employees who received remuneration and any other benefi ts in excess of $100,000 for the fi nancial year as follows: Number of Employees Bracket 1 $120,000 – 130,000 1 $160,000 – 170,000 1 $240,000 – 250,000 10. DONATIONS The Company made no donations during the year. 11. USE OF COMPANY INFORMATION During the year the Board received no notices from Directors of the Company requesting to use Company information received in their capacity as Directors which would not otherwise have been available to them. 12. AUDITOR The Auditor General is the statutory auditor of the Company in accordance with the Public Audit Act 2001. The Auditor General has appointed Peter Gulliver of Deloitte to undertake the audit on her behalf. On Behalf of the Board ...... Mark A. Taylor Tay Chairman 45 QUEENSTOWN AIRPORT CORPORATION LIMITED DISCLOSURE OF INTERESTS BY DIRECTORS DIRECTORY Mark A Taylor (Chairman) BMS, CA, AMInstD Board of Directors Perry Group Ltd Mark A Taylor (Chairman) Queenstown Resort College Ltd Duncan V Fea (retired 10 July 2010) Symansis Ltd Murray G Valentine Westmed Development Capital Ltd and subsidiary James WP Hadley and associated companies Alison Gerry (appointed 10 June 2010) Taylor Partners Ltd and subsidiary and associated companies Chief Executive Offi cer Steve Sanderson GRAD DIP BA, MBA, MInstD Duncan V Fea (Director) B.Com, CA, AMInstD Cook Adam & Co Ltd Accountants Pioneer Generation Ltd McCulloch & Partners Walker Group Ltd and subsidiary companies Level 2 Plus a number of other private companies 11-17 Church St Queenstown James W P Hadley (Director) BE (Hons), CPEng, IntPE Hadley Consultants Ltd Auditors Wharehunga Forestry Ltd Deloitte Plus a number of other private companies (on behalf of the Controller and Auditor General) P O Box 1245 Murray G Valentine (Director) B.Com, CA Dunedin Alpine Deer Group Limited Animation Research Limited Bankers Aoraki Mount Cook Alpine Village Limited Westpac Farra Engineering Limited Terrace Junction Holcim (New Zealand) Limited 1092 Frankton Road Jackson Valentine Limited Queenstown Mainland Poultry Limited Mackenzie Irrigation Ltd The Bank of New Zealand Simons Pass Station Limited PO Box 70 Southern Alpine Recreation Ltd Queenstown Southern Lakes Laundries Ltd Taylormade Media Ltd Solicitors Terralink International Ltd Lane Neave Trojan Holdings Ltd 119 Armagh Street Whale Watch Kaikoura Ltd Christchurch Whitestone Pastures Ltd Plus a number of other private companies Alison Gerry BMS (Hons) MAppFin CFTP Pioneer Generation Limited Kiwibank Limited Plus other private companies 46 47 Queenstown Airport Corporation Limited Airport Administration, Queenstown Airport PO Box 2641, Queenstown 9349 New Zealand queenstownairport.com