Fort Mcmurray Airport Authority | 2011 Annual Report BUILDING the VISION

Fort McMurray Airport Authority | 2011 Annual Report BUILDING THE VISION

2012 Annual Report.indd 1 5/1/2012 2:14:43 PM MESSAGE FROM THE CHAIR ...... 4-7 GOVERNANCE AND ACCOUNTABILITY...... 8 BOARD OF DIRECTORS AND SENIOR MANAGEMENT...... 9 BREAKING GROUND: CONSTRUCTION TIMELINE...... 10-11 BUILDING A NEW PASSENGER EXPERIENCE...... 12 BUILDING OUR ORGANIZATION...... 13 BUILDING OUR BUSINESS...... 14 BUILDING RELATIONSHIPS, BUILDING COMMUNITY...... 15 BUILDING ON SUCCESS BY MEASURING IT...... 18 MANAGEMENT DISCUSSION & ANALYSIS...... 20 FINANCIAL STATEMENTS...... 32

TABLE OF CONTENTS Mission “We are responsible stewards of our airports, achieving superior performance in the conduct of safe, secure, effective and efficient operations. Our airport businesses contribute significantly to the economy of the Region, Alberta and Canada.” Vision “We are Canada’s Premier Regional Airport, connecting the World to the people, resources and opportunities in the Wood Buffalo Region.” 2

2012 Annual Report.indd 2 5/1/2012 2:14:43 PM bag.pdf 1 3/16/2012 12:23:32 PM

M Y Key Success Drivers CM

CMY K To Optimize the Customer Experience Core Values To Lead a High Performing Airport Team Excellence in Safety, Security and Environmental To Achieve Environmentally Responsible Sustainable Performance and Profitable Growth We conduct our businesses in a culture of safety and security that promotes To Foster Effective Stakeholder Relationships best practices and sharing of experience and mutual support. We are sensi- tive to and support sustainable environmental processes. Mission Commercially Focused and Fiscally Responsible “We are responsible stewards of our airports, achieving superior performance We have a commercial operating philosophy/culture and operate the airport in the conduct of safe, secure, effective and efficient operations. Our airport as a robust business. We maintain a strategic focus on risk mitigation and businesses contribute significantly to the economy of the Region, Alberta and financial strength. Canada.” Exemplary Customer Service through Teamwork We are customer service leaders. Together with our stakeholders, we are Vision Team FlyFortMac with a common goal of superior customer service. “We are Canada’s Premier Regional Airport, connecting the World to the people, resources and opportunities in the Wood Buffalo Region.” Leadership 3 We value leadership with integrity and innovation in support of our Vision.

2012 Annual Report.indd 3 5/1/2012 2:14:44 PM Authority (ACFA), which offers inherent advan- Building the vision tages similar to those enjoyed by municipali- ties. For the Fort McMurray Airport Authority (FMAA), 2011 was a year of building momen- tum, following on a very successful planning Developing our organization year in 2010. Construction began on the new Building the vision is more than a solid credit 15,000 square-metre air terminal building. rating or concrete and steel. It’s about people. Passenger numbers soared to lead the nation. We are a young organization – 2011 was our We set a new path for real estate develop- second full year of operation. As we prepare ment. Looking ahead, 2012 is the year of for the 2014 opening of the new terminal, we continuing to build the vision – the vision to be have to develop the organization to efficiently Canada’s premier regional airport. and effectively run the new facility. In 2012, we are focusing on further nurturing and develop- The cornerstone of that vision is the design ing a high-performance team that top-perform- and construction of the new air terminal building individuals will want to join. These individu- ing set to open in April 2014. We officially als will be given an opportunity to grow as the broke ground during a ceremony on August team achieves the best airport experience for 29, 2011 with former Premier Ed Stelmach our customers. and key stakeholders attending. The new terminal will provide the Regional Municipality of Our people, whether they work directly for Wood Buffalo with an airport that matches its the airport authority or for one of our partner status as a primary engine propelling Alberta’s companies operating at the airport, reflect the and Canada’s economic growth. It will dra- Wood Buffalo region. We want to ensure the matically improve how we connect the people, warmth and hospitality of our region greets resources and opportunities of this region with each customer. the rest of Canada and the world. Team FlyFortMac is a concept that brings E Construction was awarded the Site Works together the entire airport community. From contract in May 2011. In August, Ledcor taxicabs, to parking, to check-in, to security, Construction Ltd. was awarded the contract to to food and beverage, to airline services, we construct the new terminal. Both projects are want to provide a consistently friendly, top-tier on time, on budget and on track. customer experience. With that aim, we are working together with our tenants and airline Underpinning the start of this critical project partners under the Team FlyFortMac banner is FMAA’s secure financing condition. The to offer customer-service training and improve loan is very large; however, we have secured communication among all airport employees. financing from the Alberta Capital Finance 4

2012 Annual Report.indd 4 5/1/2012 2:14:48 PM Connecting to the world Real estate development is one way to increase non-aero- nautical revenue. This in turn helps keep passenger fares While we build the terminal and the organization, we continue competitive. to diligently pursue airlines to provide the air service the region needs. Target number one is international service. Starting in 2012, we will provide management advisory ser- We believe the demand here supports a wider array of flights vices to the Fort Chipewyan Airport for the Regional Munici- catering to business and leisure markets. pality of Wood Buffalo. These flights also bring with them more cargo opportuni- Working with our region ties. Given the number of international companies that are currently invested in the oil sands region, significant cargo FMAA is strongly committed to working within our region, is shipped by truck to the region. Customs services at Fort and partners farther abroad, to build an efficient, integrated McMurray Airport would greatly enhance this key logistic transportation system – a system that combines all modes requirement, potentially taking many trucks off Highway 63. of transportation for the optimal movement of people and goods. That’s why we participate in many stakeholder Negotiations are underway with the Canada Border Services initiatives such as the Municipal Development Plan and the Agency (CBSA) to provide customs services to passengers Comprehensive Regional Infrastructure Sustainability Plan and handle cargo. They will use interim facilities in the cur- (CRISP). rent terminal which are currently under construction and will be ready for fall 2012. Our CEO is also a member of the Athabasca Oil Sands Area Transportation Coordinating Committee recently established WestJet’s foray into the regional service with turboprop by the provincial government to make recommendations on regional aircraft will open new short-haul markets in Western current and future transportation needs in the region. Canada that we hope to take advantage of. Improving air service and communication is a community Pursuing new business opportunities endeavour and that’s why we are members of the Fort Mc- Fundamental to being Canada’s premier regional airport is Murray Chamber of Commerce, Rotary Club and other key building all aspects of our business. That includes seizing community and industry organizations. all the opportunities our land base and our location offers. In March we announced a new Industrial Park with up to 46 acres of land available for lease. Gas, water and power will be available on the site by fall 2012.

2012 Annual Report.indd 5 5/1/2012 2:14:49 PM Forging accountability We recognize operating Fort McMurray Airport is an important responsibility. We are striving to earn and foster trust by being accountable to the region we serve. We do that through this publication, the Annual General Meeting, our website, community presentations, our Business Advisory Committee, Team FlyFortMac, and by engaging local media. How we define and measure success is available in our yearly business plans, and our rolling five-year strategic plan which is available on our website.

We are clear about our progress and our challenges. Building the terminal is absolutely critical. The project financing is secured and we have a strong credit rating. Still, our debt to revenue ratio is high. We have essentially exhausted our ability to access more capital from the markets. That’s why we are working with all three levels of government to access funding to ensure we have the base infrastructure at Fort McMurray Airport needed to serve our region’s growth. This also helps to ensure the airport is optimally connected to the region’s transportation network.

2012 Annual Report.indd 6 5/1/2012 2:14:51 PM We are greatly appreciative that the municipality has contributed We also have requested up to $35 million from the province to fund $25 million towards the civil works projects enabling the construc- the services outside the airport project such as water, sewage, tion of the new air terminal building. roadway allocations and necessary crown lands for operational use. As we build the new Fort McMurray Airport, we want to recognize The Fort McMurray Airport is also seeking $25 million as the federal the leadership of former Chair Jonathan McKenzie, Director Roy contribution to our major project development in order to fund an Williams and Director Roxanne Wells-Devaney. As these leaders extension to our runway to enhance safety and operational depart, new Directors have stepped up to guide the organization: effectiveness.This would be about ten percent of the total project Ken Balkwill, Mario Kulas and Trent Obrigewitsch. We also thank cost of $258 million. Other airports have recently received federal Director Peter Wallis for his leadership as Interim Chair in 2011. funding assistance: Prince George Airport, Quebec Airport, Halifax International Airport and Whitehorse Airport. We are hopeful to also Together, with the help and guidance of our community, we will receive this funding. build an airport the Fort McMurray Region and Alberta will take pride in. We are building the vision.

Scott Clements, Allan Kallal President and CEO Chair, Fort McMurray Airport Authority Board of Directors

2012 Annual Report.indd 7 5/1/2012 2:14:52 PM Governance and Governance and Accountability Framework Accountability The Fort McMurray Airport Authority was incorporated in December 2009 and its first Board was formed effective January 1, 2010. The Board consists of ten positions appointed by five appointing bodies. It is the fourth airport authority to form in Alberta: Calgary, Edmonton and FORT MCMURRAY AIRPORT BOARD OF DIRECTORS Red Deer being the others. Under Alberta legis- lation, Airport Authorities act as businesses in- Allan Kallal -Chair Governance Committee dependent of governments, but are accountable Cheryl Alexander - Director Finance & Audit Committee through regulations and good business practice Ken Balkwill - Director Special Committee to users and appointers. In January 2010, FMAA Jeff Fitzner - Director Capital Projects Committee acquired the airport from the municipality. Mario Kulas - Director Trent Obrigewitsch - Director Mildred Ralph - Director Accountability in an organization as diverse as Sheldon Schroeder - Director the FMAA relies on many different tools and Peter Wallis - Director processes to provide the Board the information Bernd Wehmeyer - Director members need to fulfill their oversight respon- sibilities and to hold their administration accountable for the implementation of the Board 's policies and programs.The primary components Master Plan of the Accountability Framework are identified in the adjacent model.

SNC Lavalin

2012 Annual Report.indd 8 5/1/2012 2:14:53 PM Board of Directors Senior Management

Allan Kallal Cheryl Alexander Ken Balkwill Jeff Fitzner Chair Director Director Director

Scott Clements, Sally Warford, Ter Hamer, President and CEO Chief Operating Officer Chief Financial Officer

Management Clayton Rozak, Manager of Operations Jesse Meyer, Manager of Airport Services Mario Kulas Trent Obrigewitsch Mildred Ralph Pauline Brown, Manager of Customer and Terminal Services Director Director Director bag.pdf 1 3/16/2012 12:23:32 PM

CMY

Sheldon Schroeder Peter Wallis Bernd Wehmeyer Director Director Director

2012 Annual Report.indd 9 5/1/2012 2:15:00 PM Breaking ground to build the vision The new 15,000-square-metre terminal will dramatically change how customers experience the Fort McMurray Airport when it opens in April 2014. Customers will enjoy enhanced comfort, ease-of-movement and a wide array of shopping and dining options. Furthermore, the new terminal will boost FMAA’s capacity to attract new air services. Here is the project timeline. 6. ATB Structure April 2013

5. Site Works 1. Project Designs December 2012 June 2011 2. Groundbreaking 3. Utilities Ceremony December 2011 August 2011

4. ATB Foundations July 2012

2012 Annual Report.indd 10 5/1/2012 2:15:06 PM Two football fields of more space How big is the new terminal? When complete, it will span 2.5 Canadian Football League fields. That’s two more 6. ATB Structure football fields than the existing terminal. It all adds up to April 2013 more services, comfort and stress-free movement.

7. ATB Interior Finishes 9. Airport Activation August 2013 January 2014

8. ATB Construction Completion December 2013

10. Grand Opening April 2014

2012 Annual Report.indd 11 5/1/2012 2:15:13 PM Building a new passenger Safety and service every day The safety of our customers and employees is paramount. We once again achieved experience 100 per cent operational status in 2011. Our 2011 safety-training exercises, building on the success of 2010, were conducted competently and to the satisfaction of The new terminal will surpass the existing terminal in every way, offering a customer Transport Canada and management. experience far and above the existing terminal. The services, space and friendly design will welcome, comfort and delight our passengers.

Still, we are not waiting for a new building to improve how we serve our customers. We are building an organization with service at its heart. Team FlyFortMac at your service Striving to do better means working together. Team FlyFortMac encompasses all of the staff who work at Fort McMurray Airport, and the more than 40 companies that operate here. Customer-service training and communications are the hallmarks of the team.This includes delivering friendly, responsive service across the airport – whether it’s a commercial airline passenger or an industrial customer picking up an important part shipped from Toronto. Improving the old With passenger numbers rising, we must do everything we can to care for our customers in the existing terminal. We are expanding the passenger lounge. We have added new carpet, seats, TVs and have given the room a new paint job! But we’re not done yet. We’re making other adjustments to make the building as comfortable and efficient as possible while the new terminal takes shape. New runway-cleaning equipment helps ensure the airport stays operational, all day, every day.

2012 Annual Report.indd 12 5/1/2012 2:15:18 PM Building our organization We are proud of our people. In just two short years in operation, they are building a culture defined by a keen focus on the customer and achieving business objectives. The foundations of that culture are clearly defined in the planning cycle, performance metrics and development opportunities for all of our staff.

On a day-to-day basis, this kind of culture thrives on teamwork and a shared purpose. Our staff relish the task of keeping the airport open all day, every day – year round. And they strive to plan for the future. We believe nurturing this kind of culture will help us attract and retain the best people. And we need them. Our airport continues to grow in lock step with our region.

Managing organizational risks Fort McMurray Airport is a major transportation hub. That brings risks. We have developed an enterprise risk management (ERM) strategy to identify and miti- gate risks that could affect our financial stability and operational capacity. 13

2012 Annual Report.indd 13 5/1/2012 2:15:20 PM Building our business To serve our region’s aviation needs we have to keep the business on a solid footing and growth trajectory. We do that by making the best use of our land and location, and by pursuing new revenue sources. Real estate ramp up With 1,266.7 acres of land, opportunities abound to increase aviation-related business and non-aviation-related business at Fort McMurray Airport. In March 2011, weFOR made LEASE available >up INDUSTRIAL/COMMERCIALto 46 acres south of the runway for a new industrialDEVELOPMENT park. Highlights LANDinclude: • 40-year land lease with renewal options • Ready for immediate development • Airport District zoning (discretionary uses include general industrial, hotel, warehouse) • Storage,Fort and Automotive McMurray and Equipment Repair and Storage Airport • RangeFORT Road MCMURRAY,83 access to Highway AB 69 • Gas, power, water (Q1 2012)

Fort McMurray Airport

INDUSTRIAL PARK

14 Property Highlights 2012 Annual Report.indd 14 5/1/2012 2:15:21 PM > +/- 46 acre industrial/commercial development site > 40 year land lease with renewal options > Ready for immediate development > Airport District zoning > Range Road 83 access to Highway 69 > Gas, power, water (Q1 2012) Opportunity Summary

The Fort McMurray Airport Authority is off ering for lease a +/- 46 acre industrial/commercial greenfi eld development site. The property is off ered with a 40 year lease term and renewal options. A detailed information package is available from the listing agent.

KEN WILLIAMSON, CFA SORAB GILL, BCOMM COLLIERS MACAULAY NICOLLS INC. VICE PRESIDENT UNLICENSED ASSISTANT 3555 Manulife Place, 10180 - 101 Street NATIONAL INVESTMENT SERVICES 780 969 3025 Edmonton, AB T5J 3S4 780 969 2999 [email protected] Main 780 420 1585 [email protected] www.collierscanada.com New passenger record set at Fort McMurray Airport The number passengers served at Fort McMurray Airport surged by seven per cent in 2011, setting a new passenger record. We surpassed 760,000 passengers, eclipsing the previous record in 2008 when close to 734,000 passengers used the airport.

Our air service Fort McMurray Airport is served by seven air carriers providing regularly scheduled passenger service to six non-stop destinations. Seven carriers provide chartered FOR LEASE > INDUSTRIAL/COMMERCIAL DEVELOPMENT LAND passenger service. Non-stop destinations • Calgary Fort McMurray Airport • Edmonton • Fort Chipewyan FORT MCMURRAY, AB • Prince Albert • Toronto • Vancouver

Air Carriers – Scheduled • Air Canada Jazz • Central Mountain Air • Connect Air Fort McMurray Airport • Northwestern Air • Swanberg Air • Transwest Air • WestJet

Air Carriers – Chartered • Esso • Suncor • Syncrude INDUSTRIAL • Shell PARK • North Cariboo • Canadian North • Enerjet N

15 Property Highlights 2012 Annual Report.indd 15 5/1/2012 2:15:23 PM > +/- 46 acre industrial/commercial development site > 40 year land lease with renewal options > Ready for immediate development > Airport District zoning > Range Road 83 access to Highway 69 > Gas, power, water (Q1 2012) Opportunity Summary

KEN WILLIAMSON, CFA SORAB GILL, BCOMM COLLIERS MACAULAY NICOLLS INC. VICE PRESIDENT UNLICENSED ASSISTANT 3555 Manulife Place, 10180 - 101 Street NATIONAL INVESTMENT SERVICES 780 969 3025 Edmonton, AB T5J 3S4 780 969 2999 [email protected] Main 780 420 1585 [email protected] www.collierscanada.com New air and cargo services hinge on customs facilities Air service is critical to achieving the potential of our region. Efficient and effective air service is a direct factor in business decisions – and in attracting and retaining the people the region needs to build and sustain its economy.

To help expand air and cargo services, we are working with CBSA to bring customs services to Fort McMurray Airport.

Customs services are required to attract international flights to Fort McMuray Airport. It’s also critical for expanding our cargo business. Just-in-time delivery of parts via air helps local businesses run more efficiently.

Supporting general aviation General and corporate aviation supports numerous industries and is an important part of our business.

General aviation includes private and recreational flying, flight schools and flight training, charter services, search and rescue, avionics, helicopter activity, corporate services, private charters, and spin-off activities such as aircraft maintenance and air ambulance services.

Fort McMurray Airport hosts several fixed base operators (FBO). FBOs provide a variety of services, including: • Aircraft handling • Refuelling services • Executive flight lounges

The terminal expansion will free up land on the north side of the Fort McMurray Airport, generating new opportunties for a business to locate at the airport.

2012 Annual Report.indd 16 5/1/2012 2:15:26 PM Building relationships, building community Actively participating in the community we serve un- derpins our accomplishments and is vital to our future success.

Planning our future together Investing in our community Fort McMurray Airport is a major hub in the RMWB’s transportation network. As such, We invest in many organizations, charities and community events that work to build we participate in the Municipal Development Plan and the Comprehensive Regional our community, including Keyano College and Northern Lights Health Foundation Infrastructure Sustainability Plan (CRISP). Festival of Trees.

FMAA CEO Scott Clements is a member of the newly established Athabasca Oil Sands Area Transportation Coordinating Committee. The Committee was formed by Communicating with our community the provincial government to make recommendations on current and future transpor- Ongoing communication and dialogue is important for all relationships – and no tation needs in the region. more important than the relationship between our organization and the Wood Buffalo region. From up-to-the-second information on the arrivals and departures on our Furthering our connection to the community is our Business Advisory Council. The website, to publication of our strategic plan, we are committed to keeping the commu- Council is made up of regional business leaders who provide insight and feedback nity informed about Fort McMurray Airport. about air service. Members also serve as ambassadors for the airport in the community. As well, we are members of the Fort McMurray Chamber of Commerce, Rotary 17 Club and other key community and industry organizations.

2012 Annual Report.indd 17 5/1/2012 2:15:30 PM Measuring success As part of measuring performance, we have set Key Success Drivers (KSDs). They are how we measure ourselves and how our community can measure our performance. Below are the five-year strategic goals for each KSD. To Optimize the Customer Experience 1.1 By achieving and maintaining 100% operational status for our airport(s) and facilities 1.2 By playing a leadership role in the Network of Airports in the RMWB, including the Air Transportation component of CRISP and the management of Fort Chipewyan Airport 1.3 By building a new Air Terminal Building by Spring, 2014 1.4 By becoming an International Airport, including Cargo, by 2014 1.5 By improving/optimizing the existing Air Terminal Building in the interim period 1.6 By being measured in the superior category by industry standards by 2014 1.7 By achieving Optimal Air Service 1.8 By working with Team FlyFortMac to achieve “best in class” status by recognized airport benchmarking metrics 1.9 By optimizing Airport Infrastructure and Facilities

2012 Annual Report.indd 18 5/1/2012 2:15:32 PM To Lead a High Performing Airport Team 2.1 By executing a well-defined Strategic Planning Cycle and Performance Metrics including an Enterprise Risk Management (ERM) strategy 2.2 By optimizing FMAA Organizational Development 2.3 By developing and implementing an FMAA Environmental, Health & Safety Strategy (SMS) 2.4 By working with Team FlyFortMac to achieve recognition as a High-performing Organization To Achieve Environmentally Responsible Sustainable and Profitable Growth 3.1 By Meeting Strategic and Financial Commitments 3.2 By developing and implementing an Environmentally Responsible Multi-year Growth Strategy

To Foster Effective Stakeholder Relationships 4.1 By achieving and maintaining effective stakeholder relations 4.2 By establishing a meaningful community presence by implementing the Community Investment Plan

2012 Annual Report.indd 19 5/1/2012 2:15:36 PM FORT MCMURRAY AIRPORT AUTHORITY MANAGEMENT DISCUSSION & ANALYSIS For the Year ended December 31, 2011

2012 Annual Report.indd 20 5/1/2012 2:15:36 PM TABLE OF CONTENTS Interim Financial Information...... 22 Outlook & Passenger Trends...... 23 Passenger Activity...... 23-24 Operations by Fiscal Quarter...... 25 Revenues: Year ended December 31, 2011...... 26 Revenue Analysis...... 27 Expenses: Year ended December 31, 2011...... 28 Expense Analysis...... 29 Five Year Financial Outlook...... 30 Captial Asset Management...... 31

2012 Annual Report.indd 21 5/1/2012 2:15:36 PM (36.69%) and an increase in expenses before amortization of $898,452 (9.87%). FORWARD LOOKING The improvement in Net Revenue is primarily due to an increase in rates and charges in 2011 coupled with increased passenger growth of 6.9%. Included in STATEMENTS expenses for the nine months are amortization of $10,921,574 (2010: $10,628,932) This Management Discussion and Analysis (MD & A) contains information that while interest on operations was $37,522 (2010: $187,928). is forward looking which reflects management’s expectations regarding the Fort McMurray Airport Authority’s (FMAA) future growth, results of operations, performance, and business prospects and opportunities. Wherever possible, words such FMAA History as “believe”, “expect” and similar expressions have been used to identify these The FMAA was incorporated in December 2009 under the Regional Airport Authori- forward looking statements. The statements reflect management’s current beliefs ties Act (Alberta) and its first Board was formed effective January 1, 2010. It is the and are based on information currently available to management. Forward look- fourth airport authority to form in Alberta. In Alberta, Airport Authorities act as busi- ing statements involve significant risk, uncertainties and assumptions. A number of nesses independent of governments, but accountable through regulations and good factors could cause actual results, performance or achievements to differ materially business practice to users and appointers. Effective January 1, 2010, the Authority from the results discussed or implied in the forward looking statements. Although the completed the process of acquiring the assets of the Fort McMurray Airport from the forward looking statements contained in this MD & A are based upon what manage- Municipality. ment believes to be reasonable assumptions, the Authority cannot assure readers that actual results will be consistent with these forward looking statements. These Fort McMurray Airport is Alberta’s air gateway to the Athabasca Oil Sands which is forward looking statements are made as of the date of this MD & A. a major contributor to the prosperity of Alberta and Canada. FMAA employs some 50 people, with hundreds of others involved in the many businesses at and near the airport. FMAA is committed to the development of an international air terminal and INTERIM FINANCIAL is considering other major initiatives related to airport activity.

INFORMATION FMAA has experienced significant growth over the last few years, and along with This MD&A of the FMAA for the year ended December 31, 2011 should be read in planned growth there is a need to improve the airport infrastructure to serve the conjunction with the Authority’s Unaudited Financial Statements and notes as at needs of the region. The Airport Redevelopment and Expansion project has com- December 31, 2011. menced that will see the development of a new air terminal building, apron and taxiway development, along with other infrastructure such as parking, roads and The accompanying unaudited financial statements of the FMAA have been prepared utilities. The project is planned to be opened by April, 2014. by and are the responsibility of management. The FMAA unaudited financial statements have been prepared in accordance with Canadian accounting standards for FMAA, like other airport authorities, is dependent on the level of aviation activity, in- not-for-profit organizations. cluding passengers at its airport. Fort McMurray Airport is currently served by seven air carriers providing regularly scheduled passenger service to over six non-stop Additional information relating to the Authority is posted at www.flyfortmac.ca domestic destinations. In addition, there are seven carriers providing charter passenger services. Currently there are no cargo carriers providing freight or integrated For the year ended December 31, 2011, FMAA had net revenue of $1,891,202, courier services with the two major commercial carriers providing limited cargo which is a $4,932,902 improvement from the same period ended December 31, capacity in the belly of passenger aircraft serving Fort McMurray Airport. 2010. During the period, FMAA experienced positive revenue growth of $6,123,996

2012 Annual Report.indd 22 5/1/2012 2:15:36 PM Outlook The aviation forecast for 2012 anticipates a growth in passenger traffic, enplaned and deplaned, to 790,000 passengers, an increase of 3.4% from the 2011 level of 763,708. A number of major Oil Sands projects will be initiated in 2012, fueled by the price of oil remaining near $100 barrel, which will contribute to the airport passenger growth. There should as well be an increase in traffic created by new scheduled and charter air services to Fort McMurray Airport, with the possibility of International Flights com- mencing late in the year with the cooperation of Canada Border Services Agency (CBSA). The Alberta economy has weathered the economic downturn and is returning to a sustainable pace of growth. Over the medium term, strengthening investment, particularly in the unconventional oil sector, will boost employment and incomes in the province, despite weakness in the conventional gas sector. Passenger Trends Growth in passenger activity at the Fort McMurray Airport is inextricably tied to capital expansion in the Athabasca Oil Sands. As we move beyond the recent downturn into the next economic cycle, Fort McMurray is well-positioned to enjoy continued air service growth and an expansion of the air service route network.

At the international level, FMAA is working to further improve scheduled passenger services in the years ahead. The inclusion of an international component in the new air terminal building and customs services provided by the CBSA will provide the opportunity for scheduled and charter international services with the opening of the expanded facilities, if not before.

The Canadian air carrier industry, dominated by Air Canada and West Jet, has experienced a level of success that parallels the Canadian economy. To date, aircraft load factors have remained high and both carriers have taken steps to cope with fluctuations in costs and demand. Fort McMurray continues to be an important domestic origin/ destination airport for both carriers and this role will grow in the years ahead. Scheduled air travel to the regional destinations is provided by Tier 3 carriers and continues to be an important part of our service. These carriers will continue to find niche markets using Fort McMurray Airport as a regional hub. PASSENGER ACTIVITY The following table reflects the passenger activity on a quarterly basis for 2011 with comparative information from 2006 to 2010. For the year ended December 31, 2011, passenger traffic increased by 49,049 or 6.86%.

2006 2007 2008 2009 2010 2011 Q1 100,731 140,484 169,521 174,154 172,413 188,305

Q2 107,060 146,994 183,194 176,528 176,847 189,930

Q3 114,916 152,164 192,974 182,278 183,455 195,633

Q4 120,980 156,029 190,298 171,402 181,944 189,840

Annual 443,687 595,671 7 35,987 704,362 714,659 763,708 23

2012 Annual Report.indd 23 5/1/2012 2:15:36 PM 24

2012 Annual Report.indd 24 5/1/2012 2:15:36 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Income by Fiscal Quarters - 2011 (Unaudited) 12 Months Ended Dec 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31, 2011 REVENUE Airport Improvement Fee 1,972,760 2,558,200 2,693,250 2,726,340 9,950,550 Other Airfield Revenue 1,296,580 1,668,574 1,548,243 1,531,468 6,044,865 Parking Revenue 732,356 659,689 636,705 719,062 2,747,812 Car Rental Agencies Revenue 496,003 440,260 473,065 538,502 1,947,830 Land Lease Revenue 195,823 219,681 220,186 227,523 863,213 Building Lease Revenue 205,102 188,673 193,272 209,105 796,152 Other Revenue 114,346 122,208 136,954 91,031 464,539 Total Revenue 5,012,970 5,857,285 5,901,675 6,043,031 22,814,961 EXPENSES Salaries & wages 1,229,827 1,232,331 1,213,619 1,613,932 5,289,709 Operating 599,619 425,467 424,337 624,102 2,073,525 General & Administrative 323,042 471,183 295,500 518,430 1,608,155 Contract Services Expense 12,265 16,011 17,124 20,619 66,019 Airport Improvement Fee Handling 138,093 179,074 194,796 190,987 702,950 (Gain) Loss on Disposal of Assets 0 0 (5,000) 0 (5,000) Other Expenses 11,063 11,903 2,050 671 25,687 Authority Board Costs 40,546 60,049 67,852 39,204 207,651 Total Expenses 2,354,455 2,396,018 2,210,278 3,007,945 9,968,696

Earnings before interest, taxes & Amortization 2,658,516 2,396,018 2,210,278 3,035,087 12,846,266 INTEREST & AMORTIZATION Amortization Expense 2,682,789 2,685,103 2,742,040 2,807,609 10,917,541 Interest on Loans - Operations 38,687 0 0 (1,165) 37,522

Interest and Amortization Total 2,721,476 2,685,103 2,742,040 2,806,444 10,955,063 Total Income (Loss) (62,960) 776,164 949,356 228,643 1,891,203

2012 Annual Report.indd 25 5/1/2012 2:15:37 PM REVENUE ANALYSIS YEAR ENDED DECEMBER 31, 2011 2011 2010 Change REVENUE Airport Improvement Fee 9,950,550 6,211,205 60.20% AIF- Equivalent Fee 920,079 0 0.00% Other Airfield Revenue 5,124,786 4,965,339 3.21% Parking Revenue 2,747,812 2,220,075 23.77% Car Rental Agencies Revenue 1,947,830 1,840,033 5.86% Land Lease Revenue 863,213 480,797 79.54% Building Lead Revenue 796,152 512,713 55.28% Other Revenue 464,599 460,803 0.81%

Total Revenue 22,814,961 16,690,965 36.69%

2012 Annual Report.indd 26 5/1/2012 2:15:37 PM REVENUE ANALYSIS TWELVE MONTHS ENDED DECEMBER 31, 2011 FMAA achieved revenues of $22.81 million for the year ended December 31, 2011, compared to $16.69 million for the year ended December 31, 2010, an increase of 36.7%.

Airport Improvement Fee (AIF) is the largest component of revenue and is levied for each departing passenger using the air terminal building on aircraft of ten seats or more. The AIF and the AIF Equivalent (AIF-E) for Charter flights are used to fund the redevelopment and expansion of the airport facilities, and to repay interest and principal when debt is used for redevelopment and expansion. For the year ended December 31, 2011, the AIF and AIF-E together totaled $10.87 million (47.6% of total revenue. Com- parative totals for 2010 were $6.21 Million (37.2% of total revenue).

Since March 1, 2010, departing passengers have been charged an AIF at a rate of $20.00 for destinations outside the region, and $10 within the region. Effective March 1, 2011 the AIF and AIF-E rates were set at $30 for departing passengers outside of the region.

Total 2011 revenue from airline activity (Airfield – landing terminal and other related fees) totaled $5.12 million (22.5% of total revenue). 2010 comparisons show revenue from airline activity totaled $4.97 million (29.8% of total revenue).

FMAA 2011 results also includes revenue from other commercial activities including parking (12.04% of total revenue), car rental concessions (8.5% of total revenue), land leases (3.8% of total revenue) and building space leases/concessions and other (5.5% of total revenue).These are increasingly important revenue streams and the FMAA seeks to diversify its revenue and be less dependent on airline-related fees.

2012 Annual Report.indd 27 5/1/2012 2:15:37 PM EXPENSE ANALYSIS YEAR ENDED DECEMBER 31, 2011 2011 2010 Change EXPENSES Salaries & Wages 5,289,709 4,792,320 10.38% Operating 2,073,525 1,920,019 8.00% General & Administrative 1,674,174 1,392,317 20.24% Airport Improvement Fee Handling 702,950 440,345 59.64% Loss on Disposal of Assets (5,000) 99,395 -105.03% Authority Board Costs 207,651 202,043 2.78% Other Expenses 21,654 69,362 -68.78% Total Revenue 9,964,663 8,915,801 11.76%

Wages rating rative Assets Ope EXPENSES Administ Salaries & nt Fee Handling Other Expenses rity Board Costs TOTAL EXPENSES ral & Autho Gene Loss on Disosal of

28 Airport Improveme

2012 Annual Report.indd 28 5/1/2012 2:15:37 PM EXPENSE ANALYSIS TWELVE MONTHS ENDED DECEMBER 31, 2011 Expenses for FMAA before interest and amortization for the year ended December 31, 2011 totaled $9.96 million compared to the totals for 2010 of $8.92 million, an increase of 11.8%.

Amortization, not included in the above table, totaled $10.9 million for 2011, an increase of 2.75% over the previous year’s total of $10.6 million.

Staff salaries, wages and benefits were $5.29 million (53.1% of total EBITA expenses) for 2011. Comparable totals for 2010 were $4.79 million and 53.75%. These include all FMAA personnel costs, but do not include any contracted services.

Operating expenses amounted to $2.1 million (20.8% of total EBITA expenses) for 2011, with 2010 comparisons weighing in at $1.9 million and 21.5%. General and administrative expenses amounted to $1.7 million (16.8% of EBITA expenses) and $1.4 million and 15.6% for 2010. (A certain portion of Officer salaries, legal and consultant fees related to the new terminal project are included in the costs of that project.) There is a 7% AIF handling fee included in expenses which fees are paid to the airlines for collect- ing the AIF on behalf of FMAA. For 2011, this amounted to $703 thousand (2010: $440 thousand).

2012 Annual Report.indd 29 5/1/2012 2:15:37 PM FIVE YEAR FINANCIAL OUTLOOK This five-year financial outlook as well as the final results for the current year is based on current assumptions that are believed to be most likely given the current economic climate over this period. Passenger volumes, parking use, leasing activity, construction costs and capital investments are all critical supporting assumptions.

Fort McMurray Airport Results Budget Forecast Forecast Forecast Forecast Forecast 211-2016 2011 2012 2013 2014 2015 2016 Passenger Forecast 763,708 790,000 832,000 891,000 913,000 937,000 Passenger Growth 6.9% 4.4% 5.3% 7.1% 2.5% 2.6% REVENUE Airport Improvement Fee 9,950,550 10,640,646 11,206,351 12,001,032 12,297,354 12,620,614 AIF- Equivalent Fee (Charters) 920,079 947,973 1,297,20 1,389,531 1,423,841 1,461,269 Other Airfield Revenue 5,124,786 5,337,604 5,762,065 6,465,035 6,759,196 6,936,874 Parking Revenue 2,747,812 3,056,533 3,130,623 3,352,627 3,435,408 3,525,714 Car Rentals 1,947,830 1,892,258 1,580,316 1,692,381 1,734,168 1,779,754 Land Lease/Rental 863,213 1,005,228 1,148,798 1,177,518 1,206,956 237,130 Building Lease/Rental 796,152 789,772 792,806 1,189,209 1,858,611 1,625,252 Other 464,539 684,626 691,821 709,116 726,844 745,015

Total before Grants 22,814,961 24,354,640 25,610,300 27,976,449 29,169,378 29,931,624 Grants - RMWB - Sustaining 1,000,000 Grants - RMWB - Project - 11,500,000 6,250,000 6,250,000 -

TOTAL REVENUE 22,814,961 36,854,640 31,860,300 34,226,449 29,169,378 29,931,624 EXPENSES Salaries, Wages & Benefits 5,289,709 5,903,404 6,023,177 6,791,132 6,960,910 7,134,933 General & Administrative/Other 1,690,828 2,129,185 2,258,502 2,546,461 2,610,123 2,675,376 AIF Collection Fees 702,950 744,845 784,444 840,072 860,815 883,443 Customs/CBSA - 558,294 - - - - Operations Expense 2,073,525 2,365,583 2,334,484 2,632,130 2,697,934 2,765,382 Authority/Director Costs 201,651 282,835 301,478 309,015 316,740 324,659

TOTAL EXPENSES 9,964,663 11,984,146 11,702,085 13,118,810 13,446,522 13,783,792

EBITA 12,850,298 24,870,494 20,185,215 21,107,639 15,722,856 16,147,831 AMORTIZATION & INTEREST 10,959,096 10,982,630 11,149,744 14,586,444 18,023,144 18,163,444

30 Net Earnings (Loss) 1,891,202 13,887,864 9,008,471 6,521,195 (2,300,288) (2,015,615)

2012 Annual Report.indd 30 5/1/2012 2:15:38 PM CAPITAL ASSESSMENT MANAGEMENT New Terminal Building In 2011, FMAA invested $43.4 million towards construction of the new Air Terminal Building which was announced on December 10, 2010 and is slated to open the spring of 2014. Total funds invested to date now total $58.9 million. This new Air Terminal Building will have in excess of 15,000 square meters and will have up to eight gates, served initially by four bridges, with the others being ground loading gates. The building will be constructed on a site south of the existing runway with a new access from Highway 69. The terminal will be a highly functional and efficient building with many amenities aimed at a high-level of customer satisfaction and service. Improvements will include all aspects of service: road access, parking, check in, security, hold room space, baggage handling, food and beverage, retail, rental car facilities, arrivals level convenience, barrier free and general passenger experience. There is also a provision to accommodate international flights, for both cargo and passengers going to and from the US and Mexico. The total investment in the Terminal as of December 31, 2011 is approximately 29.7% of the total estimated construction costs.

SCHEDULE OF REMAINING PROJECT DRAWS : ALBERTA CAPITAL FINANCE AUTHORITY

Balance as of December 31, 2011 $70,000,000 March 15, 2012 $20,000,000 June 15, 2012 $30,000,000 September 15, 2012 $78,077,910 Approved ACFA Financing $198,077,910

Payments, Principal and Interest, commence September 15, 2014. Interest rate is 4.719% and the loan is for a 30 year term.

Maintenance Capital In addition to the new Air Terminal Building, a further $1.66 million was invested in sustaining capital expenditures at the airport for 2011. Capital Expenditure Projections – 2012 to 2016 The following table summarizes the projected maintenance and air terminal building project capital expenditures that are required for the next five years at Fort McMurray Airport.

2012 2013 2014 2015 2016 Capital Expenditures Maintenance 2,361,000 1,400,000 1,400,000 1,400,000 1,400,000 ATB Project 61,991,640 49,627,739 35,495,450 - Other Expansion - - - Total Capital Expenditures 64,352,640 51,072,739 36,895,450 1,400,000 1,400,000

2012 Annual Report.indd 31 5/1/2012 2:15:38 PM FORT MCMURRAY AIRPORT AUTHORITY FINANCIAL STATEMENTS For the Year ended December 31, 2011

2012 Annual Report.indd 32 5/1/2012 2:15:38 PM STATEMENT OF MANAGEMENT ACCOUNTABILITY These financial statements of the Fort McMurray Airport Authority (“the Authority”) for the year ended December 31, 2011 have been prepared by and are the responsibility of the Authority’s management. The Authority’s financial statements include disclosures necessary for a fair presentation of the financial position, results of operations and cash flows of the Authority and have been prepared in accordance with Canadian Accounting Standards for not-for-profit organizations (“GAAP”), and disclosure otherwise required by the laws and regulations to which the Authority is subject.

The Finance and Audit Committee of the Board of Directors meets periodically with management and independent auditors to review significant accounting, internal con- trols, and auditing matters. They also review and recommend the annual financial statements of the Authority to the Board of Directors.

Scott Clements Ter Hamer President and Chief Executive Officer Chief Financial Officer

2012 Annual Report.indd 33 5/1/2012 2:15:38 PM

Deloitte & Touche LLP

2000 Manulife Place 10180 - 101 Street Edmonton AB T5J 4E4 Canada

Tel: 780-421-3611 Fax: 780-421-3782 www.deloitte.ca Independent Auditor’s Report

To the Board of Directors of the Fort McMurray Airport Authority

We have audited the accompanying financial statements of Fort McMurray Airport Authority, which comprise the statement of financial position as at December 31, 2011, and the statements of operations and 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.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audits. 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.

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 audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fort McMurray Airport Authority as at December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2011 in accordance with Canadian accounting standards for not-for- profit organizations.

Chartered Accountants

April 27, 2012 34

2012 Annual Report.indd 34 5/1/2012 2:15:38 PM TABLE OF CONTENTS Statement of Financial Position...... 36 Satement of Operations and Net Assets...... 37 Statement of Cash Flows...... 38 Notes to the Financial Statements...... 39-47

2012 Annual Report.indd 35 5/1/2012 2:15:38 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Financial Position As of December 31, 2011 2011 2010 $ $

Cash and cash equivalents 5,937,986 5,193,481 Restricted cash (Note 2) 29,687,762 0 Accounts receivable 2,615,773 1,325,702 Inventory 164,974 190,091 Mortgage receivable (Note 3) 20,401 18,863 Investments (Note 6) 74,850 0 Prepaid expenses 60,378 82,251

38,562,124 6,810,388

Tangible capital assets (Note 4) 183,085,969 148,928,721 Intangible assets (Note 5) 29,951 50,822 Investments (Note 6) 282,427 720,688 Mortgage receivable (Note 3) 546,926 565,436

222,507,397 157,076,055

Accounts payable and accrued liabilities 10,283,987 1,817,655 Term debt (Note 7) 0 14,926,192 10,283,987 16,743,847

Term debt (Note7) 70,000,000 0 80,283,987 16,743,847

COMMITMENTS (Note 10) CONTINGENCIES (Note 12)

NET ASSETS Net Assets 142,223,410 140,332,208

222,507,397 157,076,055

2012 Annual Report.indd 36 5/1/2012 2:15:38 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Operations and Net Assets For the year ended December 31, 2011

2011 2010 REVENUE Airport Improvement Fee 9,950,550 6,211,205 AIF- Equivelent 920,079 0 Other Airfield Revenue 5,124,786 4,965,339 Parking Revenue 2,747,812 2,220,075 Car Rental Agencies Revenue 1,947,830 1,840,033 Land Lease Revenue 863,213 480,797 Building Lease Revenue 796,152 512,713 Other Revenue 464,539 460,803 Total Revenue 22,814,961 16,690,965 EXPENSES Amortization Expense 10,921,574 10,628,932 Salaries & Wages 5,289,709 4,792,320 Operating 2,073,525 1,920,019 General & Administrative 1,674,174 1,392,317 Airport Improvement Fee handling 702,950 440,345 (Gain) Loss on Disposal of Tangible Capital Assets (5,000) 99,395 Financing Costs 37,522 187,928 Authority Board Costs 207,651 202,043 Other expenses 21,654 69,366

Total Expenses 20,923,759 19,732,665

NET REVENUE (DEFICIENCY) 1,891,202 (3,041,700)

NET ASSETS, BEGINNING OF YEAR 140,332,208 143,373,908 NET ASSETS, END OF YEAR 142,223,410 140,332,208

2012 Annual Report.indd 37 5/1/2012 2:15:39 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Cash Flows For the year ended December 31, 2011 2011 2010 $ $ OPERATING Net Revenue (deficiency) 1,891,202 (3,041,700) Items not affecting cash: (Gain) Loss on disposal of tangible capital assets (5,000) 99,395 Amortization of tangible capital assets 10,879,322 10,610,815 Amortization of intagnible 38,218 16,940 Amortization of long-term investment 4,034 1,177

12,807,776 7,686,627

Change in non-cash working capital Accounts receivable (1,290,071) (124,302) Inventory 25,117 3,693 Prepaid expenses 21,873 (9,743) Accounts payable and accrued liabilities 8,466,332 (430,812)

20,031,027 7,125,463 INVESTING Net change in restricted cash (29,687,762) 0 Repayments of mortgage receivable 16,972 16,030 Expenditures on major capital project (43,390,557) (7,195,578) Other capital expenditures (1,666,013) (2,768,694) Purchase of intangible assets (17,347) (67,762) Proceeds from disposal of tangible capital assets 25,000 1,074,794 Net change in long term investments 359,377 121,886 (74,360,330) (8,819,324) FINANCING Proceeds from long-term debt 70,000,000 1,412,626 Repayent of long-term debt (14,926,192) (275,556)

55,073,808 1,137,070 NET CASH INFLOW (OUTFLOW) 744,505 (556,791) 5,193,481 5,750,272 38 Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 5,937,986 5,193,481

2012 Annual Report.indd 38 5/1/2012 2:15:39 PM NOTES TO THE FINANCIAL STATEMENTS For the year ended December 31, 2011 1. NATURE OF OPERATIONS The Fort McMurray Airport Authority (The “Authority”) was incorporated December 1, 2009 and began operating January 1, 2010, under the provisions of the Regional Airports Authorities Act (Alberta) (the “Act”) for the purpose of managing the Fort McMurray Airport (the “Airport”) in a safe, secure and efficient manner, and to advance economic and community development by promoting improved airline and transportation service and an expanded aviation industry. In accordance with the provisions of the Act, all Authority surpluses are applied towards promoting its purposes, and no dividends are paid out of the surpluses. Surpluses in these financial statements are described as net assets.

The Authority is considered to be a not-for-profit organization under section 149 of the Income Tax Act (Canada) and, accordingly, is exempt from payment of income tax.

Transfer of Assets Effective January 1, 2010, the Authority entered into a Transition and Transfer agreement with the Regional Municipality of Wood Buffalo to transfer the assets and operations of the Fort McMurray Regional Airport Commission (the “Commission”) to the Authority. Tangible Capital Assets of the Commission were transferred to the Authority for a nominal amount through a Bill of Sale, Assignment and Assumption Agreement. Tangible Capital Assets were recorded on the transfer at the carrying amount of the Commission.

The Regional Muncipality of Wood Buffalo, through Council Resolution January 26, 2010, formally transferred the membership and interest in the Commission to the Authority to be effective January 1, 2010. The Authority assumed the operations of the former Commission as a subsidiary of the Authority, appointing the Authority Chief Executive Officer and Chief Financial Officer as sole directors of the Commission. Upon transfer, the assets, liabilities and net assets of the Commission were assumed by the Authority. 2. ACCOUNTING POLICIES The financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations (“GAAP”) and reflect the following significant accounting policies:

Cash and Cash Equivalents Cash and cash equivalents includes unrestricted cash on deposit with financial institutions and short-term investments with maturities of three months or less from the date of acquisition. Cash and cash equivalents also include bank indebtedness consisting of overdrawn bank accounts. Bank indebtedness is included in cash and cash equivalents as it regularly fluctuates from being positive to overdrawn.

Restricted Cash As of December 31, 2011, restricted cash on deposit related to airport improvement was $29,687,762 (December 31, 2010 – nil). 39

2012 Annual Report.indd 39 5/1/2012 2:15:39 PM Accounts Receivable Accounts receivable are stated after evaluation as to their collectability and an appropriate allowance for doubtful accounts where considered necessary.

Inventory Inventory is valued at the lower of cost and the net realizable value with the cost being determined on a first in, first out basis.

Tangible Capital Assets Tangible capital assets exclude the cost of facilities constructed on airport lands which are owned by tenants. Tangible capital assets are recorded at cost. Interest directly attributable to the acquisition, construction or development of tangible capital assets is capitalized. Amortization is based on their estimated useful life at the following rates using the straight line method: Buildings 15-34 years Maintenance Equipment 10 years Airside/Groundside Paving Structures 10 years Airside Lighting Structures 10 years Parking Lots 6-20 years Apron Expansion 11 years Light Vehicle Fleet 4-5 years Fire Trucks 10 years Firefighter Equipment 5 years Furniture & Fixtures 5 years Computer Hardware 3 years

Intangible Assets Intangible assets with a finite life are accounted for at cost. Amortization is based on their estimated useful life using the straight-line method over two years.

Investments Investments are recorded at cost. Earnings from these investments are recognized only to the extent received or receivable. The Authority recognizes in net earnings an impairment loss, if any, when it determines that a significant adverse change has occurred during the period in the expected timing or amount of future cash flows. When the extent of impairment of a previously written-down asset decreases and the decrease can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed in net earnings in the period the reversal occurs.

Impairment of Long-Lived Assets When a long-lived asset no longer has any long-term service potential to the Authority, the excess of its net carrying amount over any residual value is recognized as an expense in the statement of operations. No impairment loss was recorded for the year ended December 31, 2011.

2012 Annual Report.indd 40 5/1/2012 2:15:39 PM Revenue Recognition The Authority recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the price to the user is fixed or determinable and collection is reasonably assured. Specifically, revenue generated from Airport Improvement Fees, airfield revenues, fees charged for parking, car rental agencies, land lease, building lease and other revenues, are recognized as the airport facilities are utilized. Concession revenues are charged on a monthly basis and are recognized on a percentage of sales or specified minimum rent basis. Other rentals are recognized over the term of the respective agreements. The Authority follows the deferral method of revenue recognition for externally restricted revenues.

Airport Improvement Fees The Authority derives revenue from the Airport Improvement Fee (“AIF”), which is collected by air carriers pursuant to an agreement among various airports in Canada, The Air Transport Association of Canada and air carriers serving airports that are signatories to the agreement. AIF revenue is used to fund the costs of new airport infrastructure, as well as major improvements to existing facilities at Fort McMurray Airport. Effective March, 2011 the AIF was set at $30, except departures to local area destinations where it is $10. It was $20 at December 31, 2010 for non-local area destinations. The AIF revenue is recognized when departing passengers board their aircraft as reported by the airlines.

Airport Improvement Fee – Equivalent In addition, effective March 1, 2011, the Authority derives revenue from the Airport Improvement Fee – Equivalent (“AIF-E”) for Charter aircraft exceeding ten seats at the same rates as for the AIF described above. There was no charge prior to March 1, 2011 for the AIF-E.

Use of Estimates The preparation of financial statements in conformity with Canadian Accounting Standards for not-for-profit organizations requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the year.

Financial instruments Financial assets and liabilities are initially recognized at fair value when the Authority becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial instruments are measured at amortized cost except for the following instruments:

Investments in unlisted shares are measured at cost less any reduction for impairment;

Investments in listed shares and derivative financial instruments that are not designated in a qualifying hedging relationship are measured at fair value at the balance sheet date. The fair value of listed shares is based on quoted bid prices while the fair value of the derivative financial instruments is based on fair value confirmation received from the banker with whom those instruments are negotiated. Fair value fluctuations including interest earned, interest accrued, gains and losses realized on disposal and unreal- ized gains and losses are included in other income.

Transaction costs related to financial instruments measured at fair value are expensed as incurred. Transaction costs related to the other financial instruments are added to the carrying value of the asset or netted against the carrying value of the liability and are then recognized over the expected life of the instrument using the straight-line method. Any premium or discount related to an instrument measured at amortized cost is amortized over the expected life of the item using the straight-line method and recognized in net earnings as interest income or expense.

2012 Annual Report.indd 41 5/1/2012 2:15:39 PM With respect to financial assets measured at cost or amortized cost, the Authority recognizes in operations an impairment loss, if any, when it determines that a significant adverse change has occurred during the period in the expected timing or amount of future cash flows. When the extent of impairment of a previously written-down asset decreases and the decrease can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed in operations in the period the reversal occurs.

3. MORTGAGE RECEIVABLE In the prior year, the Authority assumed a mortgage receivable previously advanced by the Commission to a member of the Senior Management. The mortgage bears interest at 3.5% per annum, principal and interest payments of $1,437 biweekly and is due May, 2033. The mortgage is secured by the related asset. The current portion of the mortgage is $20,401 (December 31, 2010 - $18,863) and the long-term portion of the mortgage is $546,926 (December 31, 2010 - $565,436). The total amounts owing to the Authority as of December 31, 2011 are $567,327 (December 31, 2010 - $584,299). Interest income earned for the year ended December 31, 2011 was $19,948 (2010 - FORT MCMURRAY AIRPORT AUTHORITY Statement of Cash Flows $21,344).

4. TANGIBLE CAPITAL ASSETS December 31, 2011 Decemeber 31, 2010 Cost Accumulated Net Book Value Net Book Value Amortization Land 24,690,500 0 24,690,500 24,690,500 Buildings 82,188,745 7,917,545 80,271,200 37,588,292 Maintenance Equipment 277,213 33,262 243,951 122,643 Groundside Paving Structure 9,683 1,452 8,231 9,199 Airside Paving Structure 44,192,371 8,825,804 35,366,567 39,780,008 Airside Lighting Structures 2,372,111 460,131 1,911,980 2,146,554 Parking Lots 2,565,656 609,520 1,956,136 2,271,624 Apron Expansion 42,535,313 7,551,875 33,983,438 37,759,375 Light Vehicle Fleet 5,010,632 1,670,464 3,340,168 3,055,878 Fire Trucks 1,357,262 271,452 1,085,810 1,221,536 Firefighter Equipment 39,200 15,680 23,520 31,360 Furniture & Fixtures 157,341 50,686 106,655 129,317 Computer Hardware 176,144 78,331 97,813 122,435

$204,572,171 $21,486,202 $183,085,969 $148,928,721 During the year, the Authority purchased mobile equipment for a cost of $795,000 conditional upon trade-in of their existing unit. The transaction has been recorded at the fair value of the mobile equipment received of $1,135,000 and the difference of $340,000 has been recorded in accounts payable and accrued liabilities as a deferred gain which will be taken into income upon completion of the transaction in January 2012 when the Authority’s existing unit is traded in.

Included in Buildings are $58,925,287 (December 31, 2010 - $15,533,662) of cumulative costs related to assets under construction. These assets are not subject to amortization. The Alberta Capital Finance Authority holds a General Security Agreement over all Personal Property of the Fort McMurray Airport Authority.

Incremental interest for year ended December 31, 2011 incurred during the construction of tangible capital assets of $1,475,492 (2010 - $325,102) is included as part of the cost of the assets.

2012 Annual Report.indd 42 5/1/2012 2:15:39 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Cash Flows

5. INTANGIBLE ASSETS FORT MCMURRAY AIRPORT AUTHORITY December 31, 2011 Decemeber 31, 2010 Statement of Cash Flows Cost Accumulated Net Book Value Net Book Value Amortization Computer Software 85,109 55,158 29,951 50,822

6. INVESTMENTS The Authority holds shares of Alberta Oilsands Inc. (“AOS”), 995442 NWT Ltd. and guaranteed deposits, recording its investments at cost as follows: December 31, 2011 Decemeber 31, 2010 Guaranteed deposits Scotia Bank - 1.9% matures July, 2014 141,242 418,233 Royal Bank of Canada - 2% Matures August, 2012 74,850 145,089 Alberta Oilsands Inc. 2 12,150 Hotel Investment 141,183 145,216 357,277 720,688 Less current 74,850 0 Long term investments $282,427 $720,688

Guaranteed deposits as of December 31, 2011, including accrued interest, consists of Guaranteed Investment Certificates with maturity dates and interest rates shown.

Alberta Oilsands Inc. The Authority holds a royalty interest on oil production from its property and warrants to purchase 2,000,000 shares of AOS. Costs of legal and review costs incurred with AOS have been invoiced to the company. The agreement with AOS has warrant agreements, provides an option to acquire shares at prices currently in excess of market and provides for an overriding royalty on any production from airport lands.

995442 NWT Ltd. (Nova Hotel) The Authority has a 30 year lease with 995442 NWT Ltd. for a hotel at the airport. The Authority’s investment in 995442 NWT Ltd. consists of the engineering and legal costs to review the lease agreement. The hotel opened September 2010 and pays a nominal monthly rent plus a percentage of gross revenue. The carrying costs are amortized over the remaining life of the lease. 7. TERM DEBT Alberta Capital Finance Authority (“ACFA”) On March 7, 2011, the Authority secured long-term financing for construction of the new Airport Terminal Building scheduled to open April 2014. The new facility has estimated total construction costs of $198 million. Quarterly draws totaling $198 million have been set between March 2011 and September 2012 at a fixed rate of 4.719% for 30 years, due March 15, 2041. Interest only payments commenced September 2011 with principal and interest payments scheduled to commence September 2014 in the amount of $13,046,904 annually. The debenture is secured by a first charge on all Authority assets.

2012 Annual Report.indd 43 5/1/2012 2:15:40 PM FORT MCMURRAY AIRPORT AUTHORITY Statement of Cash Flows

A Letter of Credit in the amount of up to $10 million in support of the debenture issued by the ACFA has been arranged by the RBC, pari passu with ACFA. During the year, all debt outstanding from RBC was fully repaid and the loan agreements were terminated.

Capital debt relating to the Authority is as follows:

December 31, 2011 Decemeber 31, 2010 ACFA - New Airport Terminal Loan 70,000,000 0 RBC - Bridge Financing 0 9,552,860 RBC - Business Term Loan 0 5,373,332 70,000,000 14,926,192 FORT MCMURRAY AIRPORT AUTHORITY Less current portion 0 14,926,192 Statement of Cash Flows Long-term debt 70,000,000 0

Under the terms of the ACFA facility, when debentures are outstanding, the Authority is required to maintain an Interest Coverage Ratio of not less than 1.25 : 1 and net cash flows greater than zero as of the end of any fiscal quarter on a rolling four fiscal quarter basis. All covenants have been met.

Principal payments required in each of the next five years are as follows:

$ 2012 0 2013 0 2014 1,851,542 2015 3,835,384 2016 4,018,491 9,705,417 8. RELATED PARTY TRANSACTIONS Mortgage Receivable The Authority assumed a mortgage receivable to a member of Senior Management. See Note 3 for particulars.

Regional Municipality of Wood Buffalo (“RMWB”) The RMWB is an appointee of three directors to the Board of Directors of the Authority, and had previously appointed all directors to the predecessor Board of Directors of the Commission. The net assets of the Commission were transferred to the Authority with an effective date of January 1, 2010.

On May 24, 2011, the Council of the RMWB approved a matching funding grant of $25 Million, to provide civil works to support the development of the new airport terminal building. The Authority is currently working with the RMWB to finalize the funding agreement. Funding is expected to be paid over the next three years as follows: 2012 - $12.5 million 2013 - $6.25 million 44 2014 - $6.25 million

2012 Annual Report.indd 44 5/1/2012 2:15:40 PM In 2010, the RMWB approved a by-law which waives the RMWB portion of property taxes while leaving the Authority responsible for only that portion of the property taxes that are paid to the Provincial Government, as well as that portion of the property taxes used for Senior Citizen support.

Staff Housing The Authority owns seven staff housing units all of which are rented to current employees. The rental charge is based on the housing policy of the RMWB. It is slightly below the perceived market rent in the community and has been treated as a taxable benefit to the involved employees. The 2011 annual staff rents totaled $147,552 (2010 - $138,398) and the direct expenses associated with these totaled $29,440 (2010 - $101,152).

These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 9. PENSION AND RETIREMENT PLANS Employees of the Authority participate in the Local Authorities Pension Plan (LAPP), which is one of the multi-owner plans covered by the Public Sector Pension Plans Act of Alberta.

Total service contributions by the Authority to the LAPP for the calendar year 2011 were $323,683 (2010 - $269,681).

The Authority has a defined contribution supplementary retirement plan for Senior Executives. The expense recorded in the statements for 2011 totaled $30,979 (2010 – 31,417). The Authority requires members to contribute to the plan at a rate equal to that required by LAPP.

10. COMMITMENTS The Authority has commenced construction of a new Airport Terminal and related site works with a projected opening of spring, 2014, the approximate total construction cost of which is $198.2 million. During the year, the new Airport Terminal contract was awarded for $78.2million and the site works contract was awarded for $49.1 million.

11. FINANCIAL INSTRUMENTS The Authority’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, mortgage receivable, investments and other like amounts that will result in future cash receipts, as well as accounts payable and accrued liabilities, long-term debt and other like amounts that will result in future cash outlays.

Credit Risk The Authority is exposed to credit risk as it provides credit to a large number of customers in the normal course of its operations. This risk is minimized through the Authority’s diverse customer base and assessment of potential customer’s financial condition prior to extending credit.

Interest Rate Risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk. In seeking to minimize the risk from interest rate fluctuations, the Authority manages exposure through its normal operating and financing activities. The Authority is exposed to interest rate risk with respect to term loans subject to refinanc- ing. The ACFA project financing has been secured for the 30-year term of the note at 4.719%. 45

2012 Annual Report.indd 45 5/1/2012 2:15:40 PM 12. CONTINGENCIES In the normal course of operations, there are pending claims against the Authority or assumed from the predecessor Commission. Litigation is subject to many uncertainties and the outcome of individual matters is not predictable with assurance. In the opinion of management, it is not possible to predict the ultimate outcome of these claims, if any, which may result.

13. ECONOMIC DEPENDENCE Revenue generated from major airlines such as Air Canada/Jazz and WestJet account for approximately one-half of total revenues on a recurring basis. In addition, passengers flying with these airlines generate a significant portion of remaining revenue amounts. The Authority’s ability to continue variable operations is dependent on Air Canada/ Jazz and WestJet continuing to fly to and from the Airport. As of the financial statement date, the Authority believes that their relationship with these airlines will continue into

the foreseeable future. 14. CAPITAL MANAGEMENT The Authority’s objectives when managing capital are:  To safeguard the Authority’s ability to continue as a going concern.  To provide adequate capital to fund the Authority’s growth, without charging Air Terminal users any more than is reasonably required.  To meet debt covenants of current and future debt obligations.

 Liquidity Risk The Authority actively maintains its credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost.

Management believes that future cash flows from operations, along with available credit under existing banking facilities, will be adequate to support the payment of the Au- thority’s financial liabilities. Further, management also believes that the financing secured from ACFA for the new Airport Terminal project will be adequately serviced by the Airport Improvement Fees payable by departing passengers.

2012 Annual Report.indd 46 5/1/2012 2:15:40 PM 15. DIRECTOR & OFFICER REMUNERATION

This information is provided pursuant to The Regulations of the Act.

Total compensation paid and expenses reimbursed to each Director for the year ended December 31, 2011 was:

DIRECTOR GROSS TRAVEL DEVELOPMENT REMUNERATION PAY & TRAINING

Cheryl Alexander $ 5,467 $ 1,525 $ 0 Ken Balkwill $ 2,775 $ 1,564 $ 0 Jeff Fitzner $13,692 $ 0 $ 0 Allan Kallal $ 8,040 $ 0 $ 0 Mario Kulas $ 0 $ 2,369 $ 0 Jonathan McKenzie $31,925 $ 4,243 $ 0 Mildred Ralph $12,025 $ 0 $ 0 Sheldon Schroeder $13,417 $ 697 $ 0 Peter Wallis $20,351 $ 6,748 $ 0 Bernd Wehmeyer $ 7,754 $ 0 $ 0 Roxanne Wells-Devaney $10,700 $ 3,447 $ 0 Roy Williams $13,408 $ 1,599 $ 0

OFFICER REMUNERATION

CEO $262,288 $35,771 $7,906 COO $214,763 $11,222 $4,785 CFO $200,695 $ 5,553 $4,793

Officer compensation includes base salary, bonus, pension, employer paid contributions and taxable benefits.

2012 Annual Report.indd 47 5/1/2012 2:15:40 PM BUILDING

THE VISION Fort McMurray Airport Authority Site 1, Box 9, RR1 Fort McMurray, AB T9H 5B4 Phone: 780-790-3910 Fax: 780-790-3904 Email: [email protected]

www.flyfortmac.ca

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