CREST Incorporated Financial Statements Year ended December 31, 2016

Financial Statements

• Management's Responsibility for the Financial Statements: 1
• Independent Auditors' Report: 2
• Statement of Financial Position: 4
• Statement of Operations: 5
• Statement of Change in Net Debt: 6
• Statement of Cash Flows: 7
• Notes to Financial Statements: 8

MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The accompanying financial statements of the Capital Region Emergency Service Telecommunications (CREST) Incorporated (the "Company") are the responsibility of management and have been prepared in compliance with legislation, and in accordance with Canadian public sector accounting principles for governments established by the Public Sector Accounting Board of The Chartered Professional Accountants of Canada. A summary of the significant accounting policies are described in note 1 to the financial statements. The preparation of financial statements necessarily involves the use of estimates based on management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods.

The Company’s management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are properly authorized and recorded in compliance with legislative and regulatory requirements, and reliable financial information is available on a timely basis for preparation of the financial statements. These systems are monitored and evaluated by management.

The Company's finance committee meets with management and the external auditors to review the financial statements and discuss any significant financial reporting or internal control matters prior to their approval of the financial statements.

The financial statements have been audited by KPMG LLP, independent external auditors appointed by the Company. The accompanying Independent Auditors’ Report outlines their responsibilities, the scope of their examination and their opinion on the Company’s financial statements.

General Manager

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Capital Region Emergency Service Telecommunications (CREST) Incorporated

We have audited the accompanying financial statements of Capital Region Emergency Service Telecommunications (CREST) Incorporated (‘‘the Company’’), which comprise the statement of financial position as at December 31, 2016, and the statements of operations, change in net debt and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, 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.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our 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, we consider 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 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 Capital Region Emergency Service Telecommunications (CREST) Incorporated as at December 31, 2016, and its results of operations, its changes in net debt and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Chartered Professional Accountants

Month DD, YYYY Victoria, Canada

Statement of Financial Position

December 31, 2016, with comparative information for 2015

Contingent liabilities (note 3(b)(iii)) Commitments (note 8)

The accompanying notes are an integral part of these financial statements.

On behalf of the Board: Director Director

Statement of Operations

Year ended December 31, 2016, with comparative information for 2015

The accompanying notes are an integral part of these financial statements.

Statement of Change in Net Debt

Year ended December 31, 2016, with comparative information for 2015

The accompanying notes are an integral part of these financial statements.

Statement of Cash Flows

Year ended December 31, 2016, with comparative information for 2015

The accompanying notes are an integral part of these financial statements.

Notes to Financial Statements

Year ended December 31, 2016

Capital Region Emergency Service Telecommunications (CREST) Incorporated (the "Company" or “CREST”) was incorporated under the laws of British Columbia and designated under the Emergency Communications Corporations Act (British Columbia).

The Company provides centralized emergency communications, and related public safety information services to municipalities, regional districts, the provincial and federal governments and their agencies, and emergency service organizations throughout the Capital Regional District. These services are provided to shareholder/members of the Company pursuant to a Members’ Agreement with the Company.

The Company is exempt from tax under the Income Tax Act.

1. Significant accounting policies:

The financial statements of the Company are prepared by management in accordance with Canadian public sector accounting principles as recommended by the Public Sector Accounting Board (“PSAB”) of The Chartered Professional Accountants of Canada. The Company’s shareholders are primarily municipalities within the Capital Regional District and, pursuant to an agreement with the Company, are obligated to share in the funding of ongoing operations including the acquisition of tangible capital assets. Significant accounting policies adopted by the Company are as follows:

(a) Basis of accounting:

The Company follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay.

(b) Long-term debt:

Long-term debt is recorded net of principal repayments and actuarial adjustments.

(c) Employee benefits:

The Company and its employees make contributions to the Municipal Pension Plan. These contributions are expensed as incurred. The costs of a multi-employer defined contribution pension plan, such as the Municipal Pension Plan, are the employer's contributions due to the plan in the period.

1. Significant accounting policies (continued):

(d) Non-financial assets:

Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year and are not intended for sale in the ordinary course of operations.

Tangible capital assets:

Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land, are amortized on a straight line basis over their estimated useful lives as follows:

(i) Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use.

(ii) Tangible capital assets are written down when conditions indicate that they no longer contribute to the Company's ability to provide goods and services, or when the value of future economic benefits associated with the asset are less than the book value of the asset.

(iii) The Company does not capitalize interest costs associated with the acquisition or construction of a tangible capital asset.

(e) Foreign currency translation:

Monetary items denominated in a foreign currency are adjusted at the reporting date to reflect the exchange rate in effect at that date. Realized exchange gains and losses are included in the determination of annual surplus for the period.

1. Significant accounting policies (continued):

(f) Financial instruments:

Financial instruments consist of cash, MFA cash deposits, accounts receivable, other receivables, accounts payable and accrued liabilities, short-term debt and long-term debt.

All financial assets and liabilities are recorded at cost or amortized cost and the associated transaction costs are added to the carrying value of these investments upon initial recognition and amortized using the effective interest rate method. Transaction costs are incremental costs directly attributable to the acquisition or issue of a financial asset or a financial liability. Interest attributable to financial instruments are reported in the statement of operations.

(g) Use of estimates:

The preparation of financial statements in accordance with Canadian public sector accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates.

2. Other receivables:

The Company has entered into a cost recovery arrangement with certain members to collect payment for equipment-use charges over a period of 10 years. Interest charged by the Company on outstanding payments due from members is equivalent to the Company’s borrowing rate on funds used to purchase equipment such that no surplus or deficit is generated from these transactions.

Payments to be collected from members and paid by the Company to MFA are as follows:

3. Debt:

The Company obtains debt through the Municipal Finance Authority of British Columbia ("MFA") to finance capital expenditures. Sinking Fund contributions are managed by the MFA, and are not presented as assets of the Company.

Debt principal is reported net of principal repayments and actuarial gains.

The loan agreements with the MFA provide that, if at any time, the scheduled payments provided for in the agreements are not sufficient to meet the MFA’s obligations in respect to such borrowings, the resulting deficiency becomes a joint and several liability of the Company along with each member municipality within the CRD.

(a) Short-term debt:

During the year, $4,000,000 of short-term debt was obtained through MFA's interim financing program. This short-term debt will be converted to long-term debt in fiscal 2017.

(b) Long-term debt:

(i) Terms, gross debt, principal repayments and net debt are as follows:

3. Debt (continued):

(b) Long-term debt (continued):

(ii) The total principal payments on long term debt are as follows:

The long-term debt matures in annual amounts to the year 2026 with interest payable ranging from 1.55% to 5.49% per annum.

(iii) As a condition of the borrowing, the Company is required to lodge security by means of interest bearing cash deposits and demand notes based on the amount of the borrowing. The cash deposits are withheld from the debenture proceeds by the MFA as a debt reserve fund. The interest bearing cash deposits held by the MFA on the Company's behalf are included in the Company's financial assets as restricted cash and earnings on restricted cash as other income (2016 - $11,855; 2015 - $8,577) in the statement of operations. The cash is held by the MFA as security against the possibility of debt repayment default. At December 31, 2016 there were contingent demand notes of $1,627,344 (2015 - $1,171,137) which are not included in the financial statements of the Company. If the debt is repaid without default, the deposits are refunded to the Company and demand notes released.

4. Tangible capital assets:

4. Tangible capital assets (continued):

5. Share capital:

6. Accumulated surplus:

Accumulated surplus consists of the following:

7. Capital Regional District service fees:

The Capital Regional District (“CRD”), a shareholder, distributes to CREST service fees that are collected under a fee bylaw. The fee is established to contribute towards the emergency communication service operated by CREST. Revenues from the CRD in 2016 totaled $1,411,222 (2015 - $1,400,999).

In 2017, the Company entered into a 5 year agreement with CRD specifying the annual service fees over the agreement term. The contribution amount for 2017 totals $1,584,612 and is adjusted each year thereafter in accordance with the percentage change in the Consumer Price Index (CPI) for Victoria, BC.

8. Commitments:

The Company has lease commitments totaling approximately $302,000 annually. The leases are for tower sites and their terms range from five to 20 years with options to renew.

In 2015, the Company entered into a contract to purchase radio infrastructure equipment and associated services over an estimated 3 year implementation period from approximately 2016 to 2018. The base cost of the contract is $12.3 million and will be financed through debt with MFA.

9. Classification of expenses by object:

10. Financial plan:

The financial plan data presented in these financial statements is based upon the 2016 financial plan approved by the Board of Directors on December 10, 2015.

11. Municipal Pension Plan:

The Company and its employees contribute to the Municipal Pension Plan ("Plan"), a jointly trusteed pension plan. The board of trustees, representing plan members and employers, is responsible for administering the plan, including investment of assets and administration of benefits. The pension plan is a multi-employer defined benefit pension plan. Basic pension benefits are based on a formula. As at December 31, 2015, the Plan has about 189,000 active members and approximately 85,000 retired members. Active members include approximately 37,000 contributors from local governments.

11. Municipal Pension Plan (continued):

Every three years an actuarial valuation is performed to assess the financial position of the plan and adequacy of plan funding. The actuary determines an appropriate combined employer and member contribution rate to fund the plan. The actuary's calculated contribution rate is based on the entry-age normal cost method, which produces the long-term rate of member and employer contributions sufficient to provide benefits for average future entrants to the plan. This rate is then adjusted to the extent there is amortization of any funding deficit.

Employers participating in the plan record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). This is because the plan records accrued liabilities and accrued assets for the plan in aggregate, resulting in no consistent and reliable basis for allocating the obligation, assets and cost to individual employers participating in the plan.

The most recent valuation for the Municipal Pension Plan as at December 31, 2015, indicated a $2,224 million funding surplus for basic pension benefits on a going concern basis. The next valuation will be as at December 31, 2018, with results available in 2019.

The Company paid $47,862 (2015 - $50,703) for employer contributions and employees paid $32,886 (2015 - $39,609) to the plan in fiscal 2016.