HomeMy WebLinkAboutFCS-11-141 - 2010 Annual Financial Report
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KrTCHENER
Financial Services
REPORT TO:
DATE OF MEETING:
SUBMITTED BY:
PREPARED BY:
WARD(S) INVOLVED:
DA TE OF REPORT:
REPORT NO.:
SUBJECT:
Mayor Carl Zehr, Chair, and Members of the Audit Committee
June 27, 2011
Dan Chapman, Deputy CAG of Finance and Corporate
Services and City Treasurer
Sheri Brisbane, Supervisor of Financial Reporting
All
June 17, 2011
FCS-11-141
2010 AUDITED FINANCIAL STATEMENTS
RECOMMENDATION:
THAT the 2010 audited financial statements of the City of Kitchener be approved.
REPORT:
Staff is pleased to submit the 2010 audited financial statements of the City of Kitchener. A
presentation of financial statement highlights will be given at the Audit Committee meeting on
June 27. Representatives of the City's external auditors will also be in attendance to discuss
the audit findings report.
FINANCIAL IMPLICATIONS:
None.
COMMUNICA TIONS:
The audited financial statements will be posted in the City website and notice will be provided to
all residents through the "Your Kitchener" publication in accordance with Section 295 (1) of the
Municipal Act, 2001.
ATTACHMENTS:
. 2010 audited fi nancial statements
. Audit Committee Presentation
. Audit Findings Report to Audit Committee (KPMG)
ACKNOWLEDGED BY:
Dan Chapman, Deputy CAO of Finance and Corporate Services and
City Treasurer
CITY OF KITCHENER
Consolidated Statement of
Financial Position
As at December 31,2010
(in thousands of dollars)
DRAFT
Financial assets
Cash and temporary investments
Taxes receivable
Trade and other accounts receivable
Inventory for resale
Investments (Note 4)
Investment in Kitchener Power Corp. and
its affiliates (Note 5)
2010 2009
75,815 64,643
20,978 20,286
52,833 47,999
15,048 17,247
9,513 12,860
168,642 162,872
342,829 325,907
80,974 62,263
333 5,831
8,390 7,335
81,327 72,200
23,487 22,787
194,511 170,416
148,318 155,491
816,937 730,480
1,693 1,648
912 739
819,542 732,867
967,860 888,358
Liabilities
Accounts payable and accrued liabilities
Deferred revenue - obligatory reserve funds (Note 7)
Deferred revenue - other
Municipal debt (Note 8)
Employee future benefits (Note 10)
Net financial assets
Non-financial assets
Tangible capital assets - net (Note 11)
Inventory of supplies
Prepaid expenses
Accumulated surplus
See accompanying notes
1-2
CITY OF KITCHENER DRAFT
Consolidated Statement of
Operations
Year Ended December 31, 2010
(in thousands of dollars)
2010 2010 2009
Actual Budget Actual
(unaudited)
Revenues
Taxation 101,266 99,507 95,849
User fees and charges
Gasworks 100,782 105,647 112,394
Water and sewer 34,821 37,445 29,800
Other 40,272 35,516 37,056
Grants 23,255 32,298 24,228
Contributions of tangible capital assets 8,505 9,117
Investment income 6,601 8,615 6,764
Penalty and interest on taxes 3,226 2,816 2,937
Obligatory reserve funds revenue recognized 17,841 15,802 11,986
Share of net income of Kitchener Power
Corp. and its affiliates (Note 5) 7,522 4,238
Other 8,884 10,540 8,566
Total revenues 352,975 348,186 342,935
Expenses
General government 26,727 23,978 35,650
Protection to persons and property 40,696 34,547 38,367
Transportation services 30,117 33,364 33,623
Environmental services 22,530 18,208 17,822
Health services 1,775 1,576 1,830
Social and family services 1,830 1,768 1,756
Recreation and cultural services 58,577 55,100 58,537
Planning and development 11 ,829 11 ,283 8,761
Gasworks 79,392 93,770 90,880
Total expenses 273,473 273,594 287,226
Annual surplus 79,502 74,592 55,709
Accumulated surplus, beginning of year 888,358 888,358 841 ,899
Effect of change in accounting policies
of Kitchener Power Corp. (9,250)
Accumulated surplus, end of year 967,860 962,950 888,358
See accompanying notes
1-3
CITY OF KITCHENER
Consolidated Statement of
Change in Net Financial Assets
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
2010 2010 2009
Actual Budget Actual
(unaudited)
Annual surplus 79,502 74,592 55,709
Amortization of tangible capital assets 28,436 28,155
Acquisition of tangible capital assets (119,098) (94,874) (73,388)
Loss on disposal of tangible capital assets 3,850 11 ,454
Proceeds on disposal of tangible capital assets 355 409
Effect of change in accounting policies
of Kitchener Power Corp. (9,250)
Acquisition of supplies of inventories (3,832) (6,793)
Acquisition of prepaid expenses (266) ( 137)
Consumption of supplies inventory 3,787 6,817
Use of prepaid expenses 93 59
Change in net financial assets (7,173) (20,282) 13,035
Net financial assets, beginning of the year 155,491 155,491 142,456
Net financial assets, end of the year 148,318 135,209 155,491
See accompanying notes
1-4
CITY OF KITCHENER
Consolidated Statement of
Cash Flow
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
Operating
Annual surplus
Items not involving cash
Amortization
Loss on sale of tangible capital assets
Change in employee future benefits
Contributions of tangible capital assets
Change in non-cash assets and liabilities
Taxes receivable
Trade and other accounts receivable
Inventory of supplies
Inventory for resale
Prepaid expenses
Deferred revenue - obligatory reserve funds
Deferred revenue - other
Accounts payable and accrued liabilities
Net change in cash from operating activities
Investing
Acquisition of tangible capital assets
Proceeds on disposal of tangible capital assets
Share of net income of Kitchener Power
Corp. and its affiliates
Dividends received from Kitchener Power Corp.
Net acquisition of long-term investments
Net change in cash from investing activities
Financing
Municipal debt issued
Municipal debt repaid
Net change in cash from financing activities
Net change in cash and temporary investments
Cash and temporary investments,
beginning of year
Cash and temporary investments,
end of year
2010 2009
79,502 55,709
28,436 28,155
3,850 11 ,454
700 1,628
(8,505) (9,117)
(692) (1,501 )
(4,834) (3,430)
(45) 24
2,199 3,195
(173) (78)
(5,498) (2,298)
1,055 (14,793)
18,711 (4,965)
114,706 63,983
(110,593) (64,271 )
355 409
(7,522) (4,238)
1,752 1,938
3,347 (475)
(112,661) (66,637)
16,129 15,101
(7,002) (6,413)
9,127 8,688
11 ,172 6,034
64,643 58,609
75,815 64,643
See accompanying notes
1-5
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
1. Summary of significant accounting policies
These consolidated financial statements of The Corporation of the City of Kitchener (the
"City") have been prepared by management in accordance with Canadian generally accepted
accounting principles for local governments as established by the Public Sector Accounting
Board of the Canadian Institute of Chartered Accountants. The following is a summary of the
significant accounting policies followed in the preparation of these financial statements:
a. Basis of consolidation
i. Consolidated entities
These consolidated financial statements reflect the assets, liabilities, reserves,
surpluses/deficits, revenues, and expenditures of those City funds and governmental
functions or entities which have been determined to comprise a part of the aggregate City
operations based upon control exercised by the City except for the City's government
businesses which are accounted for on the modified equity basis of accounting. The
following boards, municipal enterprises and utilities have been included in the
consolidated financial statements:
. Kitchener Public Library
. Kitchener Downtown Improvement Area Board of Management
. Belmont Improvement Area Board of Management
. The Centre in the Square Inc.
. Waterworks Enterprise
. Gasworks Enterprise
. Sewer Surcharge Enterprise
. Building Enterprise
. Golf Enterprise
All inter-organizational and inter-fund transactions and balances have been eliminated.
ii. Government business enterprises
Kitchener Power Corp. and its affiliates are not consolidated but are accounted for on the
modified equity basis which reflects the City of Kitchener's investment in the enterprises
and its share of net income since acquisition. Under the modified equity basis, the
enterprises' accounting principles are not adjusted to conform to those of the City, and
inter-organizational transactions and balances are not eliminated.
iii. Accounting for region and school board transactions
The taxation, other revenues, expenditures, assets and liabilities, with respect to the
operations of the school boards and the Regional Municipality of Waterloo, are not
reflected in these consolidated financial statements.
iv. Trust funds
Trust funds and their related operations administered by the City are not consolidated,
but are reported separately on the "Trust Funds Statement of Continuity and Balance
Sheet" (see Note 3).
1-6
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
1. Summary of significant accounting policies (continued)
b. Basis of accounting
i. Accrual basis of accounting
The consolidated financial statements are prepared using the accrual basis of
accounting. The accrual basis of accounting recognizes revenues in the period in which
the transactions or events occurred that gave rise to the revenues and expenditures are
recognized in the period the goods and services are acquired and a liability is incurred or
transfers are due.
ii. Trade and other accounts receivable
Trade and other accounts receivable are reported net of any allowance for doubtful
accounts.
iii. Inventory for resale
Inventory for resale is valued at the lower of cost or net realizable value on a first-in-first-
out basis.
iv. Investments
Portfolio investments are carried at cost, net of accumulated amortization on premiums
and discounts. Premiums and discounts are amortized on a straight line basis over the
term to maturity. Interest income is recorded as it accrues. When the value of any
portfolio investment is identified as impaired, the carrying amount is adjusted to the
estimated realizable amount and any adjustments are included in investment income in
the period the impairment is recognized.
v. Deferred revenue
Government transfers, contributions and other amounts are received from third parties
pursuant to legislation, regulation or agreement and may only be used in the conduct of
certain programs, in the completion of specific work or for the purchase of tangible capital
assets. In addition, certain user charges and fees are collected for which the related
services have yet to be performed. Revenue is recognized in the period when the related
expenses are incurred, services performed or the tangible capital assets are acquired.
vi. Employee future benefits
The contributions to a multi-employer, defined benefit pension plan are expensed when
contributions are due. The costs of post-employment benefits are recognized when the
event that obligates the City occurs; costs include projected future income payments,
health care continuation costs and fees paid to independent administrators of these
plans, calculated on a present value basis.
The costs of post-employment benefits are actuarially determined using the projected
benefits method prorated on service and management's best estimate of retirement ages
of employees, salary escalation, expected health care costs and plan investment
performance. Liabilities are actuarially determined using discount rates that are
consistent with the market rates of high quality debt instruments. Any gains or losses
from changes in assumptions or experience are amortized over the average remaining
service period for active employees.
1-7
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
1. Summary of significant accounting policies (continued)
vii. Non-financial assets
Non-financial assets are not available to discharge liabilities and are held for use in the
provision of services. They have useful lives that extend beyond the current year and are
not intended for sale in the ordinary course of operations. The change in non-financial
assets during the year, together with the excess of revenues over expenses, provides the
consolidated change in net financial assets for the year.
a. Tangible capital assets
Tangible capital assets are recorded at cost which includes all amounts that are
directly attributable to acquisition, construction, development or betterment of the
asset. The cost less residual value of the tangible capital assets is amortized on a
straight-line basis over their estimated useful lives as follows:
Assets
Land
Land improvements
Building & building improvements
Leasehold improvements
Machinery & equipment
Computer hardware
Computer software
Linear assets
Vehicles
Amortization period
The original cost of land is not amortized
1 0 to 25 years
20 to 50 years
Over the useful life of the improvement or the
lease term, whichever is shorter
3 to 15 years
3 to 1 0 years
1 to 1 0 years
20 to 1 00 years
3 to 25 years
b. Contributions of tangible capital assets
Tangible capital assets received as contributions are recorded at their fair value at
time of receipt and are recorded as revenue.
c. Leases
Leases are classified as capital or operating leases. Leases which transfer
substantially all the risks and benefits incidental of ownership are accounted for as
capital leases. All other leases are accounted for as operating leases and the related
lease payments are charged to expenses as incurred.
1-8
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
1. Summary of significant accounting policies (continued)
d. Inventory of supplies
Inventories held for consumption are recorded at the lower of cost and replacement
cost.
e. Works of art and cultural and historic assets
Works of art and cultural and historic assets are not recorded as assets in these
financial statements.
viii. Government transfers
Government transfers are recognized in the financial statements in the period in which
the events giving rise to the transfer occur, providing the transfers are authorized, any
eligibility criteria have been met and reasonable estimates of the amounts can be made.
Government transfers and developer contributions-in-kind related to capital acquisitions
are required to be recognized as revenue in the consolidated financial statements in the
period in which the tangible capital assets are acquired.
ix. Use of estimates
Since precise determination of many assets and liabilities is dependent upon future
events, the preparation of periodic financial statements necessarily involves the use of
estimates and approximations. These have been made using careful judgments. Actual
results could differ from these estimates.
2. Operations of school boards and the Regional Municipality of Waterloo
Further to Note 1 a) iii, the taxation, other revenues and requisitions for the school boards
and the Regional Municipality of Waterloo are comprised of the following:
Taxation and user charges
Share of payments in lieu of taxes
Share of linear properties
Amounts requisitioned
School
Boards
85,637
5
63
85,705
Region
Total
178,908
1,181
108
180,197
264,545
1,186
171
265,902
3. Trust funds
Trust funds administered by the City have not been included in the "Consolidated Statement
of Financial Position", nor have their operations been included in the "Consolidated
Statement of Operations". The trust funds under administration are comprised of the
following:
Cemetery perpetual care and prepaid internment funds
Musagetes - Arts & Culture Fund
2010
10,324
2009
9,486
844
10,330
10,324
1-9
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
4. Investments
Investments are made up of the following:
2010 2010 2009 2009
Cost Market Cost Market
Value Value
Bonds and debentures 8,378 8,363 11,929 12,047
Common Stock 1,135 1,351 931 1,136
9,513 9,714 12,860 13,183
5. Investment in Kitchener Power Corp. and its Affiliates
Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power
Corp., a holding company, along with its wholly owned subsidiaries, including Kitchener-
Wilmot Hydro Inc., was incorporated on July 1,2000.
On August 1, 2000, under by-laws passed by the City and the Township of Wilmot, the net
assets of the former Hydro-Electric Commission of Kitchener-Wilmot were transferred to the
new corporations. The City took back a 92.25% share in the common shares of Kitchener
Power Corp. and a 92.25% share in long-term notes payable by the affiliates for the assets
transferred. Certain surplus property assets and cash funds were excluded from the transfer
and turned over to the City and the Township.
The investment is composed of the following:
Kitchener Power Corp. common shares
Kitchener - Wilmot Hydro Inc. long-term notes
receivable
Share of net income and prior period adjustments due to
changes in accounting policies since acquisition,
net of dividends
2010
61,244
2009
61 ,244
70,998
70,998
36,400
168,642
30,630
162,872
The Kitchener-Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 5.91 %.
There are no repayment terms and there is no intent to redeem the notes or the shares.
1-10
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
5. Investment in Kitchener Power Corp. and its Affiliates (continued)
The following table provides condensed financial information with respect to Kitchener Power
Corp.:
Current assets
Capital assets
Regulatory assets
Future income taxes
Total assets
Current liabilities
Long-term debt
Regulatory liabilities
Other liabilities
Total liabilities
Net assets
Results of operation
Revenues
Expenses
Net income
City's share of net income - 92.25%
2010
75,024
143,258
20,970
12,861
252,113
34,677
85,714
16,606
9,269
146,266
105,847
195,771
(187,617)
8,154
7,522
2009
65,742
138,170
15,072
12,443
231 ,427
27,1 06
76,962
18,781
8,984
131,833
99,594
178,829
(174,235)
4,594
4,238
6. Insurance pool
Liabilities include an amount of $4,711 (2009 - $4,760) which represents funds belonging to
the Waterloo Region Municipalities Insurance Pool and administered by the City on behalf of
the Pool's members. The members entered an agreement in 1998 to purchase property
damage and public liability insurance on a group basis and share a retained level of risk.
The members pay an actuarially determined annual levy to fund insurance, prefund expected
losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a
predetermined deductible and any losses above a predetermined total in any year.
The City's share of Pool levies is 25.05% (2009 - 26.23%) and its share of the Pool surplus
as at May 31,2010 was $1,052 (2009 - $1,030). The City's share of the Pool surplus has not
been included in the "Consolidated Statement of Financial Position".
1-11
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
7. Deferred revenue - obligatory
Development charges
Recreational land
2010
(2,444)
2,777
333
2009
3,843
1,988
5,831
The continuity of deferred revenues is as follows:
Balance, beginning of year
Collections
Interest earned
Other revenue
Contributions used
Balance, end of year
2010
5,831
11 ,555
46
742
(17,841)
333
2009
8,129
8,836
290
563
(11,987)
5,831
8. Municipal debt
a. The City has assumed responsibility for the payment of principal and interest charges on
certain long-term debt issued by other municipalities. At the end of the year, the outstanding
principal amount of this liability is $81,327 (2009 - $72,200).
b. The annual principal payments are:
2011
2012
2013
2014
2015 - 2024
7,256
6,886
6,836
7,116
53,233
81,327
c. The annual principal and interest payments required to service the long-term debt are
within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs
and Housing.
d. The long-term liabilities carry interest rates ranging from 1.50% to 6.40%.
9. Pension plan
The City makes contributions to the Ontario Municipal Employees Retirement System
(OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefit
plan which specifies the amount of the retirement benefit to be received by the employees
based on the length of service and rates of pay. Employee contributions are matched by the
City. Contributions were required on account of current service in 2010 amounting to $6,214
(2009 - $5,721).
1-12
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
10. Employee future benefits
The estimated liability for employee future benefits is comprised of the following:
Sick leave benefit plan
Post retirement benefits
Future payments required to WSIB
2010
11,827
9,118
2,542
23,487
2009
11,571
8,764
2,452
22,787
a. Sick leave
Under the sick leave benefit plan, unused sick leave can accumulate and certain employees
may become entitled to cash payments when they leave the City's employment. The expense
for the current year was $2,157 (2009 - $2,114) and is comprised of the following items:
Current period benefit cost
Amortization of actuarial losses
Retirement benefit expenditures
Retirement benefit interest expenditures
Total expenditures related to retirement benefits
2010
893
392
1,285
872
2,157
2009
872
416
1,288
826
2,114
The actuarial valuation of the future liability for sick leave assumes a discount rate of 4.75%
(2009 - 5.25%). The last actuarial valuation for this liability was completed at December 31,
2009, with an actuarial update provided to the end of the current year.
As at December 31,2010, the unamortized actuarial losses were $5,383 (2009 - $5,094) and
are amortized over 13 to 14 years (2009 - 13 to 14 years). The amount of benefits paid
during the year were $1,900 (2009 - $695).
A reserve fund to provide for this liability is included in accumulated surplus, in the amount of
$4,605 (2009 - $4,537).
Anticipated payments over the next five years to employees who are eligible to retire are:
2011
2012
2013
2014
2015
2,233
481
624
749
751
4,838
b. Post-retirement benefits
The City pays certain health, dental and life insurance benefits on behalf of its retired
employees up to the age of 65 if they have at least ten years service with the City. The last
actuarial valuation for this liability was completed at December 31, 2009, with an actuarial
update provided to the end of the current year. The expense for the year was $1,191 (2009-
$1,195) and is comprised of the following items:
1-13
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
10. Employee future benefits (continued)
Current period benefit cost
Amortization of actuarial losses
Retirement benefit expenditures
Retirement benefit interest expenditures
Total expenditures related to retirement benefits
2010
430
215
645
546
1,191
2009
428
240
668
527
1,195
As at December 31,2010, the unamortized actuarial losses were $1,996 (2009 - $1,628) and
are amortized over 12 years (2009 - 12 years). The amount of benefits paid during the year
were $838 (2009 - $780).
The actuarial estimate of the future liability for post-retirement benefits assumes a discount
rate of 4.75% (2009 - 5.25%) and inflation rates for benefit premiums of 5% to 9% (2009 -
5% to 9%).
The City holds no reserve in accumulated surplus to meet this liability.
c. WSIB
The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits
payments on behalf of the City as a Schedule 2 employer. The City paid $728 (2009 - $999)
in costs to employees during the year.
The actuarial valuation of the future liability for WSIB benefits (completed at December 31,
2010) assumes a discount rate of 4.75% (2009 - 5%).
The expense for the current year was $817 (2009 - $793) and is comprised of the following
items:
Current period benefit cost
Amortization of actuarial losses
Retirement benefit expenditures
Retirement benefit interest expenditures
Total expenditures related to retirement benefits
2010
679
2009
652
679
138
817
652
141
793
As at December 31, 2010, the unamortized actuarial losses were $2,463 (2009 - Snit) and
are amortized over 10 years (2009 - 10 years). The amount of benefits paid during the year
were $728 (2009 - $999).
A reserve fund to provide for this liability is included in accumulated surplus, but is currently
unfunded.
11. Tangible capital assets
The write-down of tangible capital assets during the year was $1,934 (2009 - $35). Assets
contributed to the City totaled $8,505 (2009 - $9,117).
See Schedule A
1-14
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
12. Accumulated surplus
The accumulated surplus consists of individual fund surpluses/(deficits) and reserves as
follows:
2010 2009
Surplus:
Invested in tangible capital assets 816,937 730,480
Other (22,538) (9,363)
Equity in Kitchener Power Corp. and its affiliates 168,642 162,872
Unfunded
Employee future benefits (23,487) (22,787)
Total surplus 939,554 861 ,202
Reserves:
Acquisition of capital assets 6,266 7,015
Total reserves 6,266 7,015
Reserve funds set aside for specific purpose by Council for:
Sick leave 4,605 4,537
Capital expenditures 4,682 2,575
Tax rate stabilization 1,159 1 ,760
Workplace safety and insurance (329)
Insurance 131 384
Centre in the Square Inc. 2,680 2,385
Other 8,783 8,829
Total reserve funds 22,040 20,141
967,860 888,358
13. Contingent liabilities
a. The City has extended a line of credit not to exceed $2,000 to Kitchener Housing Inc.
Interest is charged on the outstanding balance at bank prime plus 1 % (rate as at December
31,2010 was 4%).
b. Legal action has been undertaken against the City relating to a number of contract
disputes and other matters. The outcome of these actions is not presently determinable. It is
management's opinion that the City's insurance will adequately cover any potential liability
arising from these contract disputes and other matters. Should any liability be determined
and not covered by insurance it will be recognized in the period when it is determined.
1-15
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2010
(in thousands of dollars)
DRAFT
14. Segmented information
The City of Kitchener is a diversified municipal government institution that provides a wide
range of services to its citizens, including fire, roads, water, sewer, gasworks, libraries, and
community services.
Segmented information has been prepared by major functional classification of activities
provided, consistent with the Consolidated Statement of Operations and provincially
legislated requirements.
For each reported segment, revenues and expenses represent both amounts that are directly
attributable to the segment and amounts that are allocated on a reasonable basis.
The accounting policies used in these segments are consistent with those followed in the
preparation of the consolidated financial statements as disclosed in Note 1. For additional
information see the Consolidated Schedule of Segmented Disclosure.
See Schedule B
15. Budget figures
The budget figures reflected in these consolidated statements are those approved by Council
at a meeting on January 18, 2010. Budget figures have been translated to reflect changes in
Public Sector Accounting Board standards.
16. Comparative figures
Certain of the prior year's comparative figures have been restated to conform to the current
year's presentation.
1-16
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Place holder for letter from the Auditor
DRAFT
2-20
TRUST FUNDS DRAFT
Balance Sheet
Year Ended December 31,2010
(in thousands of dollars)
2010 2009
Assets
Accounts receivable 191 102
Interest receivable 36 432
Investments (Note 2)
Short-term 2,072 2,249
Long-term 8,027 7,549
10,326 10,332
Liabilities
Accounts payable 2 2
Fund Balance 10,324 10,330
10,326 10,332
2-21
TRUST FUNDS DRAFT
Statement of Continuity
Year Ended December 31, 2010
(in thousands of dollars)
2010 2009
Capital Receipts
Perpetual care 328 341
Interest earned 339 310
Other 549 27
1,216 678
Expenditures
Transfer to cemeteries operations 245 202
Other 977 231
1,222 433
Net change in fund (6) 245
Balance, beginning of year 10,330 10,085
Balance, end of the year 10,324 10,330
2-22
TRUST FUNDS
Notes to the Financial Statements
Year Ended December 31,2010
(in thousands of dollars)
DRAFT
1. Summary of Significant Accounting Policies
The Financial Statements have been prepared in accordance with Canadian generally
accepted accounting principles for local government as recommended by the Public Sector
Accounting Board of the Canadian Institute of Chartered Accountants. The significant
accounting policies are summarized below.
Basis of Accounting
Sources of financing and expenditures are reported on the accrual basis of accounting. The
accrual basis of accounting recognizes receipts as they become available and measurable;
expenditures are recognized as they are incurred and measurable as a result of receipt of
goods or services and the creation of a legal obligation to pay.
2. Investments
The long-term investments of $8,027 (2009 - $7,549) reported on the Balance Sheet at cost,
have a market value of $8,030 (2009 - $7,595).
3. Statement of Cash Flows
A separate statement of cash flows is not presented, since cash flows from operating,
investing and financing activities are readily apparent from the other financial statements.
2-23
TRUST FUNDS DRAFT
Schedule of Continuity by Fund
Year Ended December 31,2010
(in thousands of dollars)
0) - 0
0 "'0 1Il 1Il 1Il ....
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M C'Cl c: c.. CI> CI> c: M
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Perpetual Care
Mount Hope Cemetery 567 0 20 16 20 1 582
Woodland Cemetery 4,045 141 142 13 142 3 4,197
Bridgeport Cemetery 133 2 5 1 5 0 135
Williamsburg Cemetery 1,414 184 50 117 50 101 1,614
St. Peter's Cemetery 505 0 17 11 17 28 488
Cemetery Trusts
FE Teremain 16 0 1 0 1 0 16
Florence V. Cober 9 0 0 0 0 0 9
L.F. Glick 21 0 1 0 1 0 21
Edna Atherton 1 0 0 0 0 0 1
George Wright Estate 43 0 1 0 1 0 43
E. L. Goetz 1 0 0 0 0 0 1
E. Weiderhold 38 0 1 0 1 0 38
Prepaid Interments 2,693 0 101 391 7 0 3,178
General Trusts
Musagetes Arts & Culture Fund 844 0 0 0 0 844 0
10,330 328 339 549 245 977 10,324
2-24
Place holder for Letter from the Auditor
DRAFT
2-25
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
As at December 31,2010
(in thousands of dollars)
DRAFT
Assets
Cash
Term deposit
Total Assets
Liabilities and accumulated surplus
Accounts payable
Accumulated net revenue
Total liabilities and accumulated surplus
2010 2009
12 14
16 15
28 29
7 3
21 26
28 29
2-26
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Operations and Accumulated Surplus
Year Ended December 31,2010
(in thousands of dollars)
DRAFT
2010 2009
Revenue
Assessments 25 25
25 25
Expenses
Streetscaping 3 4
Audit 2 2
Summer maintenance 9 4
Insurance 1 1
Winter maintenance 10 13
Advertising 5 4
Miscellaneous 2
30 30
Net (deficit)tsurplus for year (5) (5)
Accumulated surplus, beginning of year 26 31
Accumulated surplus, end of year 21 26
2-27
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to the Financial Statements
Year ended December 31, 2010
DRAFT
1. Summary of Significant Accounting Policies
The financial statements of the Belmont Improvement Area Board of Management are the
representation of management and have been prepared in accordance with Canadian
generally accepted accounting principles for local governments as recommended by the
Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since
precise determination of many assets and liabilities is dependent upon future events, the
preparation of periodic financial statements necessarily involves the use of estimates and
approximations. These have been made using careful judgments. The following is a summary
of the significant accounting policies followed in the preparation of these financial statements.
2. Basis of Accounting
Revenues and expenditures are reported on the accrual basis of accounting. The accrual
basis of accounting recognizes revenues as they become available and measurable;
expenditures are recognized as they are incurred and measurable as a result of receipt of
goods or services and the creation of a legal obligation to pay.
3. Statement of Cash Flows
A separate statement of cash flows is not presented, since cash flows from operating,
investing and financing activities are readily apparent from the other financial statements.
2-28
~~JJ
KPMG llP
Gharttulld Aceou ntaRts
115 King Str99l South, 2.'d Fbor
VVaterbo ON N 2.J 5/lJ
Telephone
Fax
I ntemet
519-747-8300
519-747-833 0
VWWI'.~mgC<3
I nde pe nde nt Au dito rs' R ep ort
We have audited the accompanying financial statements of Kitchener Downtown Improvement Area
80 ard of Man ag eme nt, which com prise the fin ancial p osition as at De ce mbe r 31 ,2010, the statem ents
of reve nue an d e xp en se sand accum ulated surp Ius an d ch ang es in net fina ncial assets for the year
the n end ed, a nd note s, com prising a sum mary of sig nifica nt accounting policies an d oth er explan atory
info rm ation.
Managetnent IS Responsibility jor the Financial Statements
Ma na gem ent is respon sib Ie fo r the prepa ratio n an d fa ir presentatio n of.th ese finan cia I state ments in
a cco rda nce with Can adia n ge nerally a cce pted. a cco untin 9 principles, an d for such interna I co ntro I as
mana ge ment determine s is necessary to en able th e prep aratio n of fina ncial state ments that a re free
from materia I m isstateme nt, whethe r du e to fraud or erro r.
Auditors 'Responsibility
Our respon sib ility is to express an 0 plnlO n on these finan cia I stateme nts ba se don our a u.dit. We
con du cted 0 ur a udit in acco rd ance with C ana dian 9 en era lIy a cce pted au ditin 9 sta nda rds. Those
stan dards requ ire th at we com ply with ethical req uire me nts and pia nand perform a n a udit to obta in
rea so nab Ie assu ra nce ab out wh ether th e fin ancial state ments are free from materia I m isstateme nt.
An a ud it inv olve s p etfo rmin 9 procedu re s to. obta in a ud it 8V iden ce abo ut thea mo unts and disclosures in
the fina ncial stateme nts. The procedu re s se lected dep en don 0 ur judg ment, in c1u ding th e a ssessme nt
of the risks of material misstatement of the financial Statements, whether due to fraud or error. In
making tho se risk assessments, we conside r internal control releva nt to the entity's pre paration a nd fa ir
pre se ntation of the financia I state ments in orde r to de sig n audit p roce dures that are ap propriate in the
circu msta nces, but not for the purpose of expressin 9 an 0 pinion 0 n the effe ctive ne ss of the entity's
inte rn al control. An a ud it a Iso includ es ev alu ating th e app rop riate ness of acco unting po licie s used and
the re asona bien ess of acco unting estim ates ma de by man age me nt, a s we II as eva lu ating the ove ra II
pre se ntation of the fina ncia I statem ents.
We be lieve th at th e aud it evide nce we have 0 btaine d is sufficient an d ap pro priate to p rov ide a basis for
our audit opin io n.
KP M G LLP, ~ a C S""I3dan lill ited lab ility p81nerS"Jip ard a mem ber fim of 1he KPM G
network of rd3perdent memb er fim ~ affilated w ith KPM G lntem3tbrl3l Cooperatr,.e
[" KPM G lntem3tbrl3l"), a Sw~~ entity.
KP M G Carl3c13 pro~ ~ ~er.' b~ to KP M G LLP.
2-29
L~.!"
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
Kitchener Downtown Improvement Area Board of Management as at December 31, 2010, and its
results of operations and its cash flows for the year then ended in accordance with Canadian generally
accepted accounting principles.
J/fl#lb L4P
---------
Chartered Accountants, Licensed Public Accountants
March 15,2011
Waterloo, Canada
2-30
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
Year ended December 31, 2010, with comparative figures for 2009
2010 2009
Financial Assets
Cash $ 98,550 $ 66,313
Term deposits (note 2) 64,087 64,087
Accounts receivable 18,789 21,338
Prepaid expenses 5,479 8,293
186,905 160,031
Financial Liabilities
Accounts payable and accrued charges 91,374 83,310
Due to the City of Kitchener (note 4) 33,755 10,787
Deferred sublease revenue 2,350 2,350
127,479 96,447
Net financial assets 59,426 63,584
Non-Financial Assets
Tangible capital assets 2,320 1,772
Net assets $ 61,746 $ 65,356
Accumulated Surplus
Reserve for future assessment write-offs $ 29,478 $ 29,478
Accumulated net revenue 29,918 34,106
Invested in tangible capital assets 2,350 1,772
Total accumulated surplus $ 61,746 $ 65,356
See accompanying notes to financial statements.
2-31
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Revenue and Expenses and Accumulated Surplus
Year ended December 31, 2010, with comparative figures for 2009
Budget Actual Actual
2010 2010 2009
Revenue:
Assessments $ 580,000 $ 580,000 $ 545,000
Interest 1,500 1,468 1,595
Graffiti removal co-op 10,000 10,000 10,000
Other income 49,070 48,505 22,572
640,570 639,973 579,167
Expenses:
Promotions and advertising 188,000 117,791 169,597
Salaries and wages 206,170 223,918 170,735
Administration 104,400 102,406 95,652
Meetings and seminars 20,000 16,912 20,949
Safety and beautification 54,000 62,604 56,514
Member relations 68,000 84,645 46,646
Amortization 1,552 1,028
640,570 609,828 561,121
Net revenue before other items 30,145 18,046
Net assessment write-offs (note 4) 33,755 10,787
Net revenue (expenses) (3,610) 7,259
Accumulated surplus, beginning of year 65,356 65,356 58,097
Accumulated surplus, end of year $ 65,356 $ 61,746 $ 65,356
See accompanying notes to financial statements.
2-32
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Changes in Net Financial Assets
Year ended December 31, 2010, with comparative figures for 2009
2010
2009
Net revenue (expenses)
$
(3,610) $
(2,100)
1,552
Acquisition of tangible capital assets
Amortization of tangible capital assets
7,259
(1,490)
1,028
Change in net financial assets
(4,158)
63,584
Net financial assets, beginning of year
6,797
56,787
Net financial assets, end of year
$
59,426
63,584
$
See accompanying notes to financial statements.
2-33
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements
Year ended December 31,2010
1. Summary of significant accounting policies:
Kitchener Downtown Improvement Area Board of Management ("the Board") is established for the
main purpose of revitalizing the Central Business District of the City of Kitchener. It is designated
as a Business Improvement Area (BIA) through the Ontario Municipal Act and a City of Kitchener
by-law enacted in 1977.
These financial statements of the Board are the representation of management and have been
prepared in accordance with Canadian generally accepted accounting principles for local
governments, as recommended by the Public Sector Accounting Board (PSAB) of the Canadian
Institute of Chartered Accountants. Since precise determination of many assets and liabilities is
dependent upon future events, the preparation of periodic financial statements necessarily
involves the use of estimates and approximations. These have been made using careful
judgement.
(a) 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 and landfill sites, are
amortized on a straight-line basis over their estimated useful lives as follows
Asset
Useful Life - Years
Computers
4 years
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
Tangible capital assets received as contributions are recorded at their fair value at the date of
receipt and also are recorded as revenue.
(b) Accrual basis of accounting:
The accrual basis of accounting recognizes revenues as they become available and
measurable; expenditures are recognized as they are incurred and measurable as a result of
receipt of goods or services and the creation of a legal obligation to pay.
2-34
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements, page 2
Year ended December 31, 2010
2. Term deposit:
The term deposits consist of the following:
Principal
Maturity
Rate
$54,000
$10,087
June 6, 2011
October 22, 2012
185%
1.45%
3. Commitments:
The Board is committed to the following minimum lease payments for its office equipment and
space:
2011
$
14,100
4. City of Kitchener:
The Board receives assessment income from the City of Kitchener for its operations. During the
year, assessment write-offs were incurred for $33,755. This amount will be deducted from
transfers from the City of Kitchener in 2011.
5. Employer health tax:
Included in salaries and wages is the provincially administered Employer Health Tax ("EHT") at a
rate of 1.95% of employee remuneration. Information obtained by the Board from the Ontario
Business Improvement Area Associated has led management to believe that the Board may be
exempt, up to $400,000 of gross remuneration, of EHT. Management intends to challenge its
EHT assessments and prepare refund claims for certain prior years Due to the contingent nature
of this benefit, no recoverable amount has been recorded in the financial statements.
6. Statement of cash flows:
A separate statement of cash flows is not presented since cash flows from operating, investing
and financing activities are readily apparent from the other financial statements.
2-35
IJmJ
KPMG LLP
Chartered Accou nta nts
115 Ki n 9 Street South
2nd Floor
Waterloo ON N2J 5A3
Canada
Telephone
Fax
Internet
(519) 747-8800
(519) 747-8830
www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the members of the Kitchener Public Library Board
We have audited the accompanying financial statements of the Kitchener Public Library, which
comprise the statement of financial position as at December 31, 2010 and the statements of revenues
and expenses and accumulated net revenue and changes in net financial assets 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 generally accepted accounting principles, 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 qualified audit opinion.
Basis for Qualified Opinion
In common with many public library boards, the Kitchener Public Library derives revenue from fines,
rentals, partnerships, photocopying and other miscellaneous revenues, the completeness of which is
not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was
limited to the amounts recorded in the records of the entity and we were not able to determine whether
any adjustments might be necessary to contributions, excess of revenues over expenses, current
assets and net financial assets.
2-36
M_
Qualified Opinion
In our opinion, except for the possible effects on the financial statements of the matter described in the
Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects,
the financial position of the Kitchener Public Library as at December 31, 2010, and its results of
operations and its cash flows for the year then ended in accordance with Canadian generally accepted
accounting principles.
;.//#1& Lf.P
---------
Chartered Accountants, Licensed Public Accountants
Waterloo, Canada
March 29, 2011
2-37
KITCHENER PUBLIC LIBRARY
Statement of Financial Position
December 31, 2010, with comparative figures for 2009
2010 2009
Financial Assets
Cash $ 912,763 $ 698,767
Accounts receivable 99, 116 50,777
Due from City of Kitchener 104,378 52,020
1,116,257 801,564
Financial Liabilities
Accounts payable and accrued liabilities 634,946 457,834
Deferred revenue (note 2) 480,958 343,691
1,115,904 801,525
Net financial assets 353 39
Non-Financial Assets
Tangible capital assets (note 3) 5,720,794 5,967,133
$ 5,721 ,147 $ 5,967,172
Accumulated Surplus
General $ 353 $ 39
Invested in tangible capital assets 5,720,794 5,967,133
Net assets $ 5,721 ,147 $ 5,967,172
See accompanying notes to financial statements.
2-38
KITCHENER PUBLIC LIBRARY
Statement of Revenues and Expenses and Accumulated Net Revenue
Year ended December 31, 2010, with comparative figures for 2009
2010 2009
Revenue:
Grants:
Province of Ontario $ 286,755 $ 286,755
City of Kitchener:
Operating 8,673,816 8,652,795
Capital and special (note 4) 534,631 531,858
Special grants (note 5) 79,412 188,263
Fines 292,596 277,938
Interest and miscellaneous 24,324 22,280
Partnerships 40,704 44,572
Room rental 21,800 45,857
Photocopy 23,783 23,068
9,977,821 10,073,386
Expenses:
Personnel costs (Schedule) 7,181,103 7,113,337
Resource materials 1,587,481 1,540,064
Equipment (Schedule) 334,909 294,127
Administrative (Schedule) 179,832 202,630
Facilities costs (Schedule) 457,760 419,559
Processing/bindery 131,613 134,872
Programs and publicity (Schedule) 27,797 37,020
General library equipment 16,747 709
Expenditures related to capital and special (note 4) 227,192 353,266
Required expenditures related to special [:Jrants (note 5) 79,412 188,263
10,223,846 10,283,847
Net deficit (246,025) (210,461 )
Accumulated net revenue, beginning of year 5,967,172 6,177,633
Accumulated net revenue, end of year $ 5,721,147 $ 5,967,172
See accompanying notes to financial statements.
2-39
KITCHENER PUBLIC LIBRARY
Statement of Changes in Net Financial Assets
Year ended December 31,2010, with comparative figures for 2009
2010 2009
Deficiency of revenue over expenditures $ (246,025) $ (210,461 )
Acquisition of tangible capital assets (1,146,298) (1,131,998)
Amortization of tangible capital assets 1,392,637 1,342,475
Change in net financial assets 314 16
Net financial assets, beginning of year 39 23
Net financial assets, end of year $ 353 $ 39
See accompanying notes to financial statements.
2-40
KITCHENER PUBLIC LIBRARY
Notes to Financial Statements
Year ended December 31,2010
The Kitchener Public Library (the "Board") was incorporated as a not-for-profit organization, without
share capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City") and is
dependent on the City for a significant portion of its operating and capital funding.
The Board contributes to the community as a resource and a gateway with sources of information and
works of imagination.
The financial statements of the Board are the representation of management and have been prepared
in accordance with Canadian generally accepted accounting principles for local governments, as
recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered
Accountants. Since precise determination of many assets and liabilities is dependent upon future
events, the preparation of periodic financial statements necessarily involves the use of estimates and
approximations. These have been made using careful judgements. The following is a summary of the
significant accounting policies followed in the preparation of these financial statements.
1. Significant accounting policies:
(a) Accrual basis of accounting:
The accrual basis of accounting recognizes revenues as they become available and
measurable; expenditures are recognized as they are incurred and measurable as a result of
receipt of goods or services and the creation of a legal obligation to pay.
(b) 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:
Furniture, fixtures and equipment
Specialty and other equipment
Computer
Books and audio visual resources
10 - 30 years
8 yea rs
3 - 1 0 yea rs
2 - 1 0 yea rs
2. Deferred revenue:
Deferred revenue represents the annual Board's approval of the appropriation of unspent funds,
and are subject to external restrictions as to how the funds are disbursed. These appropriations
are included in required expenses and are subsequently charged directly to operations when
spent.
2-41
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KITCHENER PUBLIC LIBRARY
Notes to Financial Statements, page 3
Year ended December 31,2010
4. Capital and special grants:
Each year, the City approves capital and special grants for the Board to purchase specific capital
items
The capital grants approved for 2010 included $80,700 for general renovations, maintenance and
upgrading of existing facilities, $605,653 for communication infrastructure and technology
upgrades, and $100,000 for telephone systems.
The portion of these grants and previous year grants that are included in revenue in 2010 is
$534,631 (2009 - $531,858).
5. Special grants:
In 2010, the Board received various special noncrecurring grants and donations totaling $210,480
(2009 - $221,210). The portion of these grants and previous year special grants that are included
in revenue in 2010 is $79,412 (2009 - $188,263). The remainder is included in deferred revenue.
6. Pension plan:
The Board makes contributions to the Ontario Municipal Employees Retirement Systems
(OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefit plan
which specifies the amount of the retirement benefit to be received by the employees based on
the length of service and rate of pay.
During the year, the Board incurred expenses equal to $374,838 (2009 - $359,020) for current
service on behalf of its staff.
7. Related party transactions:
The Kitchener Public Library Foundation (the "Foundation") is an independent organization which
raises funds to support the development of the Kitchener Public Library.
The accounts of the Foundation are not included in these financial statements
During the year, the Foundation donated $24,871 (2009 - $22,942) to the Board to fund various
projects.
8. Statement of cash flows:
A separate statement of cash flows is not presented, since cash flows from operating, investing
and financing activities are readily apparent from the other financial statements.
2-43
KITCHENER PUBLIC LIBRARY
Schedule of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses
Year ended December 31, 2010, with comparative figures for 2009
2010 2009
Personnel:
Salaries $ 6,057,545 $ 6,013,828
Health benefits 331 , 1 02 320,701
Pension benefits 607,422 591 ,845
Employment insurance 115,242 115,377
WSIB 18,314 18,134
Sick leave reserve 25,000 25,000
Staff training 26,478 28,452
$ 7,181,103 $ 7,113,337
Equipment:
Technology $ 161,044 $ 1 41 ,584
Equipment maintenance 19,301 24,754
Amortization 154,564 127,789
$ 334,909 $ 294,127
Administrative:
Postage and delivery $ 11 , 150 $ 13,814
Insurance 16,555 16,555
Professional services 38,876 49,979
General business 49,437 35,564
Telephone 31,941 49,317
Stationery 31,873 37,401
$ 179,832 $ 202,630
Facilities:
Facilities expenses $ 236,511 $ 205,184
Country Hills building 24,750 24,750
Main utilities 152,388 151,745
Forest Heights utilities 17,982 17,187
Pioneer Park building 21,898 15,058
Grand River Stanley Park building 4,231 5,635
$ 457,760 $ 419,559
Programs and publicity:
Promotional $ 19,683 $ 23,925
Public programs 8,114 13,095
$ 27,797 $ 37,020
2-44
b'~I!'
KPMG llP
Gharl9llld Accou ntaRts
115 King Str99t South, 2.'d Fbor
VVaterbo ON N 2.J 5/lJ
Telephone
Fax
I ntemet
519-747 -8300
519-747 -ffi3 0
VWWI'. kp mg C<3
Independent Auditors' Report
To th e Directors of The C entre in the Squ are Inc.
We have audited the accompanying financial statements of The Centre in the Square Inc., which
com prise th e fin an cia I p ositio n as at De ce mbe r 31 ,2010, the statem ents of 0 peration s, ch an ges in net
fina ncial assets, a nd cash tlows fo r the yea r th en end ed, and note s, co mprisin 9 a sum mary of
sign ificant accou nting po licie s an d other explan atory inform ation.
Management's ReEpansibility far the Financial Statements
Ma na gem ent is respo nsible fo r the prep aratio nand fa ir presentatio n of th ese fina ncial state ments in
a cco rda nce with Can adia n ge nerally a cce pted a cco unting principles, and for su ch internal co ntrol as
mana ge ment determine s is necessary to en able th e prep aratio n of fina ncial statem ents th at are fre e
from materia I m isstateme nt, whethe r du e to fraud or erro r.
Au ditars'. R espa nsibility
.0 ur respon sib ility is to express an 0 plnlO non th ese finan cia I state me nts base don 0 ur au dit. We
con du cted 0 ur a udit in acco rd ance with C ana dian gen erally accepted auditing sta nd ard s.. Tho se
stan dards requ ire th at we com ply with ethical req uire me nts and pia nand perform a n a udit to 0 btain
rea so nab Ie assu ra nce ab out wh ether th e fin ancial state ments are free from materia I m isstateme nt.
An a ud it inv olve s p etfo rmin 9 procedu re s to obta in aud it 8V iden ce abo ut the a mo unts and disclosures in
the fina ncial stateme nts. The procedu re s se lecte d d ep end on ou r ju dg ment, includ ing th e assessment
of th e risks of materia I misstatem ent of th e finan cia I state ments, wh eth er due to frau d 0 r erro r. In
making tho se risk assessments, we conside r.internal control releva nt to the entity's pre paration a nd fair
pre se ntation of the finan cia I state ments in orde r to de sig n audit p roce dures that are ap propriate in the
circu msta nces, but not for th e purpose of expressing an 0 pinion 0 n th e effe ctiv ene ss of the entity's
inte rn al control. An a ud it a Iso includ es ev alu ating th e a pprop riaten ess of a cco unting po licies use d and
the re asona bien ess of acco unting estim ates ma de by man age me nt, a s well as .ev aluatin 9 th e overall
pre se ntation of the fina ncia I statem ents.
We be lieve th at th e aud it evide nce we have 0 btaine d is sufficie nt and a pp rop riate to prov ide a ba sis for
our audit opin io n.
KP M G LLP, ~ a C a-J3dim 1m ited li3b ility ps1nerS"Jip ard a mem ber fim of lhe KPM G
network of i-deperd3nt memb er fim ~ affili3ted w ith KPM G lntem3tbrl3l Cooperatr,.e
[" KPM G lntem3tbrl3l"), a Sw~~ entity.
KP M G Carl3c13 pro~ ~ ~er.' b~ to KP M G LLP.
2-45
I~!l'
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
T he Centre in the Sq uare In c. as at Decem be r 31, 201 0, a nd its res ults 0 f op erati on s and its cas h
flows for the ye ar then en ded in accordan ce with Ca nadi an 9 enerall y acce pte d accounti ng pri ncip Ie s.
J//PI.& LLP
--------
Ch arte re d Acco untants, Li ce nse d P ubi ic Acco untants
Apri16,2011
Waterloo, Canada
2-46
THE CENTRE IN THE SQUARE INC.
Statement of Financial Position
December 31, 2010, with comparative figures for 2009
2010 2009
Net Assets
Financial assets:
Cash $ 3,046,047 $ 2,127,193
Due from The City of Kitchener 187,728 193,296
Funds held with The City of Kitchener (note 2) 279,886 779,886
Accounts receivable 75,238 50,554
Interest receivable 4,607 6,864
Cost to be recovered 271,211 316,225
Investments (note 4) 1,665,916 1,609,953
Total financial assets 5,530,633 5,083,971
Financial liabilities:
Accounts payable and accrued liabilities 936,672 932,191
Deferred revenue (note 5) 2,006,560 1,841,976
2,943,232 2,774,167
Net financial assets 2,587,401 2,309,804
Non-financial assets:
Tangible capital assets (note 11) 8,366,876 8,410,401
Inventories (note 3) 52,219 39,727
Prepaid expenses 40,485 35,722
8,459,580 8,485,850
Net assets $ 11,046,981 $ 10,795,654
Accumulated Surplus
Operating fund activities (note 12) $ $
Reserves - Capital (note 6) 478,161 237,095
Reserves - Performance Development (note 7) 497,933 500,885
Reserves - Sustainability (note 8) 322,777 301,498
Reserves - Restricted (note 9) 1,381,234 1,345,775
Invested in tangible capital assets 8,366,876 8,410,401
Accumulated surplus $ 11,046,981 $ 10,795,654
See accompanying notes to financial statements.
2-47
THE CENTRE IN THE SQUARE INC.
Statement of Operations
Year ended December 31, 2010, with comparative figures for 2009
Budget 2010 Actual 201 0 Actual 2009
(unaudited)
Revenues:
Performances $ 5,756,625 $ 4,534,493 $ 5,995,691
Ticket surcharge (notes 6 and 8) 294,575 266,319 291,900
Grants from The City of Kitchener 1,584,227 1,581,747 1,460,234
Grants from other governments 50,000 369,940 119,446
Donations 25,000 27,410 10,586
Investment income 50,000 78,081 87,563
Other 1,475,108 1,744,370 1,682,365
Gain on investments 92,489 3,727
Writedown of tangible capital assets (12,769) (33,473)
Total revenue 9,235,535 8,682,080 9,618,039
Expenses:
Direct:
Performances 5,412,775 4,509,000 5,983,773
Bar operations 86,008 161,244 139,062
Programme 22,000 23,777 49,354
Star memberships 4,000 3,956 12,615
Financial services 2,700 2,674 3,320
Ticket services 125,000 126,342 111,680
Operating:
Administration 808,025 622,952 733,862
Box office 8,200 11 ,579 5,537
Promotion 444,000 402,913 447,751
Occupancy 775,050 621,265 688,508
Salaries and wages 2,523,563 2,765,060 2,748,628
Recoveries - performances (1,563,588) (1,644,517) (1,806,476)
Amortization 595,484 644,879
Reserves expenditures 587,575 228,223 119,897
Refund to (from) The City of Kitchener 801 (24,674)
Total expenses 9,235,308 8,430,753 9,857,716
Excess of revenues over expenses
(expenses over revenues) 227 251,327 (239,677)
Accumulated surplus, beginning of year 10,795,654 10,795,654 11,035,331
Accumulated surplus, end of year $ 10,795,881 $ 11,046,981 $ 10,795,654
See accompanying notes to financial statements.
2-48
THE CENTRE IN THE SQUARE INC.
Statement of Change in Net Financial Assets
Year ended December 31, 2010, with comparative figures for 2009
Actual 2010 Actual 2009
Excess of revenues over expenses
(expenses over revenues) $ 251,327 $ (239,677)
Acquisition of tangible capital assets (564,728) (493,066)
Amortization of tangible capital assets 595,484 644,879
Write-downs of tangible capital assets 12,769 33,473
294,852 (54,391)
Net (acquisition) use of supplies inventory (12,492) 5,264
Net (acquisition) use of prepaid expenses (4,763) 7,675
(17,255) 12,939
Increase (decrease) in net financial assets 277,597 (41,452)
Net financial assets, beginning of year 2,309,804 2,351,256
Net financial assets, end of year $ 2,587,401 $ 2,309,804
See accompanying notes to financial statements.
2-49
THE CENTRE IN THE SQUARE INC.
Statement of Cash Flow
Year ended December 31, 2010, with comparative figures for 2009
Actual Actual
2010 2009
Operating activities
Excess of revenues over expenses
(expenses over revenues) $ 251,327 $ (239,677)
Items not involving cash:
Amortization 595,484 644,879
Writedown of tangible capital assets 12,769 33,473
Change in non-cash operating working capital 679,965 (348,620)
Cash provided by operating activities 1,539,545 90,055
Capital activities:
Cash used to acquire tangible capital assets (564,728) (493,066)
Investing activities
Increase in investments (55,963) (46,735)
Increase (decrease) in cash and cash equivalents 918,854 (449,746)
Cash and cash equivalents, beginning of year 2,127,193 2,576,939
Cash and cash equivalents, end of year $ 3,046,047 $ 2,127,193
See accompanying notes to financial statements.
2-50
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements
Year ended December 31, 2010
The mission of The Centre in the Square Inc. ("The Centre"), is to create memorable experiences. It
is incorporated as a municipal, not-for-profit corporation without share capital, is exempt from income
taxes under the Income Tax Act, and is a registered charity. The Centre is a Board of The City of
Kitchener ("the City") and receives a portion of its operating and capital funding from the City
1. Significant accounting policies:
The financial statements of The Centre are the representation of management and have been
prepared in accordance with Canadian generally accepted accounting principles for local
governments, as recommended by the Public Sector Accounting Board (PSAB) of the Canadian
Institute of Chartered Accountants. Since precise determination of many assets and liabilities is
dependent upon future events, the preparation of periodic financial statements necessarily
involves the use of estimates and approximations. These have been made using careful
judgement.
(a) 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:
Asset
Rate
Building
Equipment
Computers
Software
Site
9 - 1 00 years
4 - 50 years
5 - 14 years
3 years
1 0 - 50 years
(b) Accrual basis of accounting:
The accrual basis of accounting, recognizes revenues as they become available and
measurable; expenditures are recognized as they are incurred and measurable as a result of
receipt of goods or services and the creation of a legal obligation to pay.
(c) Inventories
Bar stock inventories are valued at the most recent replacement cost. Supplies inventories
are valued at the lower of cost and net realizable value on a first-in, first-out basis. Net
realizable value is defined as replacement cost.
(d) Investments:
Investments are recorded at the lower of cost or market value on a fund portfolio basis.
Interest income and all expenses are fully accrued.
2-51
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2010
1. Significant accounting policies (continued):
(e) Deferred revenue:
Performance revenue is recognized when the show occurs. Deferred gift certificate revenue
is an estimate based upon gift certificate sales during the period from July 1 to December 31
of the current year.
2. Funds held with The City of Kitchener:
Funds held with the City represent cash held in a pooled fund by the City on behalf of the Centre.
3. Inventories:
Inventories consist of the following:
2010 2009
Bar stock $ 37,545 $ 28,228
Supplies 14,674 11,499
$ 52,219 $ 39,727
4. Investments:
I nvestments consist of:
Carrying value Market Carrying value Market
2010 2010 2009 2009
Shares $ 1,135,586 $ 1,351,315 $ 930,857 $ 1,135,971
Bonds 484,186 492,836 635,043 648,425
Cash 46,144 46,144 44,053 44,053
$ 1,665,916 $ 1,890,295 $ 1,609,953 $ 1,828,449
2-52
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31,2010
5. Deferred revenue:
Deferred revenue consists of the following
2010 2009
Sponsorships $ 118,029 $ 43,203
Performances 1,764,866 1,637,371
Gift certificates 58,876 61 ,960
Donations 46,081 34,081
Membership 2,987 4,249
Other 15,721 61 ,112
$ 2,006,560 $ 1,841,976
6. Capital Reserve Fund:
The Capital Reserve Fund represents the collection of a surcharge from sale of tickets,
accumulation of grant revenues and fundraising, plus interest earned.
At the direction of the Board of Directors, expenditures from the Capital Reserve Fund are made
to finance, in whole or in part, major capital items or replacements and major maintenance
proJects.
7. Performance Development Reserve Fund:
The Centre has an agreement with the City, whereby The Centre's annual operating net revenue
is shared equally between The Centre and the City.
At the direction of the Board of Directors, transfers are made to and from the Performance
Development Reserve Fund, equal to one-half of the annual operating net revenue.
In 2010, The Centre's Board of Directors approved the transfer of half of the 2010 net operating
surplus to the Performance Development Reserve Fund.
8. Sustainability Reserve Fund:
Revenues for this Fund come from fundraising contributions. At the direction of the Board of
Directors, funds are allocated for specific capital projects and programming initiatives to ensure
the long-term sustainability of The Centre.
9. Restricted Fund:
The Restricted Fund was set up by the Board of Directors of The Centre in 2000 by a transfer of
investments from the Sustainability Reserve Fund in accordance with the Restricted Fund Policy.
Income from this fund is to be used for capital requirements, special projects and/or new
programming initiatives that help further The Centre's mandate
2-53
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2010
10. 2010 budget:
The original budgeted figures were approved by the Board of Directors at their meeting in
September 2009 and included certain expenses and offsetting recoveries on a net basis. For
purposes of presentation in these financial statements, these items have been shown as gross
amounts.
2-54
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THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31,2010
12. Operating fund activities:
Budget Actual Actual
2010 2010 2009
Revenues:
Performances $ 5,756,625 $ 4,534,493 $ 5,995,691
G rants from City of Kitchener 1,336,227 1,336,227 1,338,234
Grants, other Governments and Foundations 50,000 40,000 44,126
Donations 5,000 16,880 1,105
Investment income 5,000 12,187 12,348
Other 1,495,108 1,668,060 1,676,760
Total revenue 8,647,960 7,607,847 9,068,264
Current fund expenditures:
Direct:
Performances 5,412,775 4,509,000 5,983,773
Bar operations 86,008 161,244 139,062
Programme 22,000 23,777 49,354
Star memberships 4,000 3,956 12,615
Ticket services 2,700 2,674 3,320
Financial services 125,000 126,342 111 ,680
Operating
Administration 808,025 622,952 733,862
Box office 8,200 11,579 5,537
Promotion 444,000 402,913 447,751
Occupancy 775,050 621,265 688,508
Salaries and vvages 2,523,563 2,765,060 2,748,628
Recoveries - performances (1,563,588) (1,644,517) (1,806,476)
Total current fund expenditures 8,647,733 7,606,245 9,117,614
Operating fund net expenditures before amortization 227 1,602 (49,350)
Transfer from reserve funds (113) (801 ) 24,675
Transfer to City of Kitchener (114) (801 ) 24,675
Fund balances, end of year $ $ $
2-56
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2010
13. Schedule of reserve funds:
Performance Total
Development Capital Sustainability Restricted Funds
Revenue:
Donations and sundry $ $ 7,791 $ 634 $ $2,396 $ 10,821
G rants from The City
of Kitchener 245,520 245,520
G rants from other
government 329,940 329,940
Ticket surcharge 266,319 266,319
Investment income 7,626 2,638 11,658 43,971 65,893
Gain (loss) on investments 88,627 3,862 92,489
7,626 852,208 100,919 50,229 1,010,982
Expenditures:
Cost of fund raising 122,433 122,433
Professional fees 3,640 14,770 18,410
Programming grant 11,379 11,379
11,379 122,433 3,640 14,770 152,222
Excess of revenue over expenditures
(expenditures over revenue) (3,753) 729,775 97,279 35,459 858,760
Transfer to accumulated surplus -
tangible capital assets (564,709) (564,709)
Other transfers 801 76,000 (76,000) 801
Balance, beginning of year 500,885 237,095 301,498 1,345,775 2,385,253
Balance, end of year $ 497,933 $ 478,161 $ 322,777 $ 1,381,234 $ 2,680,105
2-57
Place holder for letter from the Auditor
DRAFT
2-58
DRAFT
GASWORKS ENTERPRISE
Statement of Operations and
Accumulated Surplus
Year ended December 31, 2010
2010 2010 2009
Actual Budget Actual
(Unaudited)
DELIVERY OPERATIONS
Gas delivery
Revenues 39,650,017 37,758,172 39,966,730
Expenses 23,065,776 20,786,190 22,703,715
16,584,241 16,971,982 17,263,015
Other programs
Revenues 8,597,448 8,137,089 7,960,035
Expenses 4,934,228 5,697,404 5,166,753
3,663,221 2,439,685 2,793,282
Contact Centre
Revenues 1,149,113 1,194,808 19,570
Expenses 1,149,113 1,194,808 22,918
(3,348)
Excess of revenue over expenses 20,247,461 19,411,667 20,052,949
Accumulated Surplus - Delivery
Balance at the beginning of the year 77,250,191 77,250,191 68,310,640
Transfer to City of Kitchener
Reserve Funds (7,133,780) (3,401,568) (5,088,285)
Transfers to City of Kitchener (6,181,767) (6,181,767) (6,025,114)
63,934,644 67,666,856 57,197,241
Add excess of revenue over expenses 20,247,461 19,411,667 20,052,949
Balance at end of period 84,182,105 87,078,523 77,250,191
SUPPLY OPERATIONS
Gas supply
Revenues
Expenses
Excess of revenue over expenses
55,069,195 62,295,173
49,937,325 58,625,612
5,131,870 3,669,561
66,189,256
61,564,061
4,625,195
Accumulated Surplus (Deficit) - Supply
Balance at beginning of the year
Add excess of revenue over expenses
Balance at end of period
(2,165,204) (2,165,204)
5,131,870 3,669,561
2,966,666 1,504,357
(6,790,399)
4,625,195
(2,165,204 )
2-59
b'J!!JJ
KPMG LLP
Chartered Accountants
115 King Street South, 2nd Floor
Waterloo ON N2J 5A3
Telephone
Fax
Internet
519-747-8800
519-747-8830
www.kpmg.ca
Independent Auditors' Report
To the shareholders of Kitchener Power Corporation
We have audited the accompanying consolidated financial statements of Kitchener Power Corporation,
which comprise the consolidated balance sheet as at December 31, 2010, the consolidated statements of
operations and comprehensive income, retained earnings 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 Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, and for such internal
control as management determines is necessary to enable the preparation of consolidated 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 consolidated 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 consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion
KPMG LLP, IS a Canadian limited liabllrry partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"!. a SWISS entity.
KPMG Canada provides services to KPMG LLP.
2-60
KITCHENER POWER CORP.
Il~J
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Kitchener Power Corporation as at December 31, 2010, and its
consolidated results of operations and its consolidated cash flows for the year then ended in accordance
with Canadian generally accepted accounting principles.
;./;?/11~ Lf..P
---------
Chartered Accountants, Licensed Public Accountants
April 1 , 2011
Waterloo, Canada
2-61
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET
As at December 31 st
ASSETS
Current assets
Cash and cash equiVcllents
Accounts receiVclble (note 4)
Inventories (note 5)
Prepaid expense
Payment-in-lieu of corporate income taxes receiVclble
Current portion of regulatory assets (note 20)
Total current assets
Non-current assets
Intangible assets - net of accumulated amortization (note 7)
Capital assets - net of accum ulated amortization (note 6)
Regulatory assets (note 20)
Future income tax assets (note 21)
Long-term investment (note 8)
Total non-current assets
Total assets
See accompanying notes
2-62
143,258,355 138,169,701
20,970,013 15,071,676
12,860,747 12,442,960
177,089,115 165,684,337
252,113,004 231,426,005
2010
$
32,032,880
35,828,545
3,668,935
826,486
371,230
2,295,813
75,023,889
2009
$
28,280,788
31,836,243
3,284,381
743,457
66,256
1,530,543
65,741,668
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET (continued)
As at December 31 st
LIABILITIES and SHAREHOLDERS' EQUITY
Curre nt liabilities
Accounts payable and accrued liabilities (note 9)
Payments-in-lieu of corporate income taxes payable
Current portion of long term debt (note 11)
Current portion of customers and construction deposits (note 1 0)
Current portion of regulatory liabilities (note 20)
Total current liabilities
Long-term liabilities
Long-term debt (note 11)
Customer deposits (note 10)
Post-employment benefits (note 13)
Regulatory liabilities (note 20)
Total long-term liabilities
Total liabilities
Shareholders' equity
Share capital - common shares (note 14)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes
2-63
2010
$
2009
$
22,279,170 16,958,473
842,385
6,373,071 6,778,716
5,182,614 3,368,781
34,677,240 27,105,970
85,713,896 76,962,142
3,887,326 3,646,7 41
5,381,065 5,337,120
16,606,383 18,780,877
111,588,670 104,726,880
146,265,910 131,832,850
66,389,385 66,389,385
39,457,709 33,203,770
105,847,094 99,593,155
252,113,004 231 ,426,005
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
As at December 31 st
Retained earnings, beginning of year
Prior year adjustment - future income taxes (note2[1])
Net Income
Prior year adjustment - PBO unamortized gain
Dividends paid out (note 25)
Retained earnings, end of year
2010 2009
$ $
33,203,770 40,737,254
(10,027,473)
8,153,939 4,593,989
(1,900,000) (2, 100,000)
39,457,709 33,203,770
See accompanying notes
2-64
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME
For the year ended December 31 st
REVENUE
Sales revenue
Distribution ser'\.1ces revenue
Electric energy ser'\.1ces (note 15)
Other revenue
Income from long-term im,estments (note 8)
Other investment income
Late payment penalties
Miscellaneous revenue (note 16)
Non-utility operations revenue
Energy conservation - OPA funding (note 17)
Total revenue
EXPENSE
Operating expense
Electric energy ser'\.1ces (note 15)
Distribution operations and maintenance
Customer accounts
General administration
Community relations
Property and capital taxes
Amortization (note 18)
Non-utility operation expense
Energy conservation - OP A programs (note 17)
Total expense
Income before interest and provision for
payments-in-lieu of corporate income taxes
Interest ex pense
Income before provision for payments-in-lieu
of corporate income taxes
Provision for payments-in-lieu of corporate income taxes (note 21)
NET INCOME AND COMPREHENSIVE INCOME
See accompanying notes
2-65
2010
$
2009
$
35,568,752 32,099,514
157,002,725 143,194,454
192,571,477 175,293,968
(14,568)
373,372 582,732
234,173 213,312
1,080,334 1,026,373
1,687,879 1,807,849
1,511,287 1,727,254
195,770,643 178,829,071
157,002,725 143,194,454
6,844,507 6,714,123
2,535,818 2,729,934
2,668,993 2,732,705
285,937 288,462
582,347 658,224
9,597,026 9,191,227
179,517,353 165,509,129
1,174,061 1,087,628
180,691,414 166,596,757
15,079,229 12,232,314
4,884,770 4,877,571
10,194,459 7,354,743
2,040,520 2,760,754
8,153,939 4,593,989
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31 st
OPERATING ACTIVITIES
Net Income
Add (deduct) charges to operations not requiring a current cash payment:
(Income) loss from long-term investments (note 8)
Gain on disposal of capital assets
Amortization (note 18)
Future income tax expense (note 21)
Increase (decrease) in non-current customer deposits (note 10)
Increase in post-employment benefits obligation (note 13)
Net change in non-cash operating \/IiOrking capital (note 19)
Cash provided by (applied to) operating activities
INVESTING ACTIVITIES
Additions to capital assets
Decrease (increase) in long-term regulatory assets I liabilities (note 20)
Dividends received (note 25)
Atria - proceeds from dividend and return of capital
Proceeds on disposals of capital assets
Cash provided by (applied to) investing activities
FINANCING ACTIVITIES
Increase (decrease) in contributed capital
Increase (decrease) in long term debt
Dividends paid out (note 25)
Cash provided by (applied to) financing activities
Net cash provided (applied) during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents represented by:
Cash
Cash equivalents
Supplemental cash flow information
Interest paid
Payments-in-lieu of corporate income taxes and capital taxes
See accompanying notes
2-66
2010
$
2009
$
8,153,939 4,593,989
14,568
(113,244) (48,051)
10,276,551 9,849,082
36,818 195,161
240,585 (103,702)
43,945 36,596
1,198,756 47,508
19,837,350 14,585,151
(20,832,224) (15,259,839)
(7,172,173) (10,772,842)
5,820
119,927 55,212
(27,884,470) (25,971,649)
4,105,073 2,349,073
9,594,139
(1,900,000) (2,100,000)
11,799,212 249,073
3,752,092 (11,137,425)
28,280,788 39,418,213
32,032,880 28,280,788
9,032,880
23,000,000
32,032,880
8,321,318
19,959,470
28,280,788
4,968,519
2,568,005
4,932,780
3,155,293
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. INCORPORATION
On July 1, 2000, Kitchener Povver Corp. was incorporated under the Business Corporation Act (Ontario)
along with its affiliate companies, Kitchener-Wilmot Hydro Inc., Kitchener Energy Services Inc. and
FibreTech (Kitchener) Inc. The incorporation was required in accordance with the provincial
government's Electricity Competition Act (Bill 35). The City of Kitchener and the Township of Wilmot
both passed by-laws, which transferred the net assets of the former Hydro-Electric Commission of
Kitchener-Wilmot to the new Company on August 1, 2000. Certain surplus property assets and cash
funds vvere excluded from the transfer and were retained by the City and the TOVVllship. The net assets
of FibreTech (Kitchener) Inc. vvere subsequently transferred to Fibretech Telecommunications I nc. on
November 1, 2000 as a result of a statutory amalgamation with Fibretech Telecommunications
(Cambridge) Inc and Fibretech Waterloo Inc. On September 1,2005, Fibretech Telecommunications Inc.
merged with Guelph FibreWired to create a new telecommunications company, Atria Netvvorks Inc.
("Atria"). Atria was subsequently sold to a third party on November 7, 2006 and was dissolved on
October 15, 2009 pursuant to Section 237(b) of the Business Corporation Act (Ontario).
Kitchener Power Corp., the holding company for the affiliate companies, oversees the operations of
Kitchener-Wilmot Hydro Inc., a regulated distribution company, and Kitchener Energy Services Inc., an
unregulated retail services company.
Outstanding share capital includes 18,450 common shares held by the City of Kitchener and 1,550
common shares held by the TOVVllship of Wilmot. These municipalities are the sole shareholders of
Kitchener Power Corp.
2. SIGNIFICANT ACCOUNTING POLICIES
[I] Changes in accounting policies
Effective January 1, 2009, the Company adopted the amended sections of CICA Handbook Section
1100, Generally Accepted Accounted Principles, CICA Handbook Section 3465, I ncome taxes and
Accounting Guideline 19 - "Disclosures by Entities Subject to Rate Regulation".
The amendment to CICA Handbook Section 1100 removed the temporary exemption pertaining to
the application of that section to the recognition and measurement of assets and liabilities arising
from rate regulation. I n response to the removal of the exemption, the Company established
accounting policies for the recognition and measurement of assets and liabilities arising from rate
regulation. In accordance INith the Canadian GAAP hierarchy guidance framework outlined in CICA
Handbook Section 1100, the Company has determined that its assets and liabilities arising from rate
regulation qualify for recognition under Canadian GAAP and this recognition is consistent INith U.S,
Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation ("FAS71 "). The Company concluded that its polices for assets and liabilities arising from
rate regulation vvere consistent with the primary sources of Canadian GAAP and were developed
through the exercise of professional judgement.
The amendment to CICA Handbook Section 3465 states that vv11ere future income taxes may be
expected to be included in approved rates charged to customers in the future and to be recovered or
returned to future customers, the recognition of a regulatory asset or liability for the increase or
reduction in future revenue is required. Furthermore, the regulatory asset or liability established by
this requirement is a temporary difference for which an additional future income tax asset or liability
is recognized. This change has been applied on a retroactive basis without restatement of prior
periods.
2-67
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[II] Basis of accounting
The financial statements have been prepared by management in accordance vvith Canadian
generally accepted accounting principles ["GAAP"] including accounting principles prescribed by the
Ontario Energy Board [the "OEB"] in the Accounting Procedures Handbook [the "AP Handbook"] for
Electric Distribution Utilities, and reflect the significant accounting policies as summarized below.
[III] Regu lation
Kitchener-Wilmot Hydro Inc. ["KW Hydro"] is regulated by the Ontario Energy Board under the
authority of the Ontario Energy Board Act, 1998. The OEB is charged with the responsibility of
approving or fixing rates for the transmission and distribution of electricity, providing continued rate
protection for rural and remote electricity customers, and for ensuring the distribution companies
fulfill obligations to connect and service customers.
The OEB has the general power to include or exclude costs and revenues in the rates of a specific
period, resulting in a change in the timing of accounting recognition from that which would have
applied in an unregulated company. The economic impact of rate regulation is reported in these
financial statements.
The following regulatory treatments have resulted in accounting treatments that differ from GAAP for
enterprises operating in a non-regulated environment:
Regulatory assets represent costs that have been deferred because it is probable that they vvill be
recovered from customers in future periods through the rate-making process.
Regulatory liabilities represent future reduction in revenues associated with amounts that are
expected to be refunded to customers through the rate-making process.
2-68
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies
[a] Financial instruments
Financial instruments - recognition and measurement - Section 3855
This Section establishes the standards for the recognition and measurement of financial
assets and financial liabilities. At inception, all financial instruments which meet the definition
of a financial asset or financial liability are to be recorded at fair value, unless fair value cannot
be reliably determined. Depending on the nature of the financial instrument, revenues,
expenses, gains and losses would be reported in either net income or other comprehensive
income. Subsequent measurement of each financial instrument llllill depend on the balance
sheet classification elected by the Company. The Company has elected the follolllling balance
sheet classifications with respect to its financial assets and financial liabilities:
. Cash is classified as "Assets Held-for- Trading" and is measured at fair value.
. Cash equivalents, comprising short-term investments, are classified as "Held-to-
Maturity Investments" and are measured at amortized cost, vvhich, upon initial
recognition, is considered equivalent to fair value.
. Accounts receivable are classified as "Loans and Receivables" and are measured at
amortized cost, which, upon initial recognition, is considered equivalent to fair value.
Subsequent measurements are recorded at amortized cost using the effective interest
rate method.
. Accounts payable and accrued liabilities and the long-term debt are classified as
"Other Financial Liabilities" and are initially measured at their fair value. Subsequent
measurements are recorded at amortized cost using the effective interest rate method.
Com prehensive incom e - Section 1530
This Section describes the recognition and disclosure requirements with respect to
comprehensive income. Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income represents the changes in the fair
value of a financial instrument which have not been included in net income.
The Company had no adjustments to other comprehensive income during the period ending
December 31, 2010.
Hedges - Section 3865
This Section establishes standards regarding the use of hedge accounting, in particular, the
criteria to be met for the application of hedge accounting and the methods of executing
various hedging strategies. The Company has not entered into any hedging transactions as
at December 31,2010.
2-69
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
[b] Inventories
I nventories consist of parts, supplies and materials held for future capital expansion. The
Company valued its inventories according to the provisions of CICA Handbook Section 3031.
Under this standard, inventories are valued at the lower of cost and net realizable value, and
items considered major spare parts are recorded as capital assets. The standard also contains
provisions requiring the reversal of inventory write-downs if the circumstances resulting in the
original write-dol/lll1 have reversed.
[c] Intangible assets
I ntangible assets are valued at cost. Costs for intangible assets include legal and professional
services incurred to incorporate Kitchener Power Corp. and its affiliated companies.
Amortization, which is intended to amortize intangible capital assets over thei r estimated service
life, is provided on the straight-line basis at an annual rate of 10%.
Full amortization is recorded in the year of acquisition and none in the year of disposal.
[d] Spare transformers and meters
Spare transformers and meters are classified as capital assets in accordance with guidance in
the CICA Handbook
[e] Capital assets and amortization
Capital assets are recorded at cost. Costs for assets installed or erected by the Corp. include
material, labour and overhead.
Amortization is provided on a straight-line basis for capital assets available for use over their
estimated service lives, at the following annual rates:
Buildings
Transformer station equipment
Distribution station equipment
Distribution system
Meters
SCADA equipment
Other capital assets
2%
2.5%
3.33%
4%
4%
6.67%
10 - 25%
Amortization on general equipment directly used in the installation of other capital assets, is
capitalized to the new assets based on a pro-ration of the time during the year they are used for
such purposes.
Full amortization is recorded in the year of acquisition and none in the year of disposal, except
for readily identified assets, which are amortized on a monthly basis.
For readily identifiable assets retired or disposed of, the asset and related accumulated
amortization are removed from the records. Differences between the proceeds, if any and the
unamortized asset amount plus removal costs are recorded as a gain or loss in the year of
disposal.
For grouped assets, the assets and accumulated amortization are removed from the records at
the end of their estimated average service life, regardless of actual service life.
2-70
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
[f] Construction in progress
Capital assets under construction at year-end are referred to as construction in progress and
disclosed as a component of capital assets. Construction in progress is recognized as a capital
asset and amortized when the asset is either put into service or construction is substantially
completed.
[g] Contributed capital
Effective May 1, 2000, Kitchener-Wilmot Hydro Inc. prospectively adopted the change in
accounting policy for contributions received in aid of construction [contributed capital], as
prescribed by the OEB "Accounting Procedures Handbook for Electric Distribution Utilities".
Contributed capital contributions are required contributions received from outside sources, used
to finance additions to capital assets. Contributed capital contributions received are treated as a
"credit" contra account included in the determination of capital assets. The amount is
subsequently amortized by a charge to accumulated amortization and a credit to amortization
expense, at an equivalent rate to that used for the amortization of the related capital assets.
[h] Customer deposits
Customer deposits are cash collections from customers to guarantee the payment of energy
bills. Deposits expected to be refunded to customers within the next fiscal year are classified as
a current liability.
[i] Payments-in-lieu of corporate incom e taxes and capital taxes
The current tax-exempt status of the Company under the Income Tax Act (Canada) and the
Corporations Tax Act (Ontario) reflects the fact that the Company is wholly owned by
municipalities. This tax-exempt status might be lost in a number of circumstances, including if
the municipality ceases to own 90% or more of the shares or capital of the Company or if a non-
government entity has rights immediately or in the future, either absolutely or contingently, to
acquire more than 10% of the shares of the Company.
Commencing October 1, 2001, the Company is required, under the Electricity Act 1998, to make
payments-in-lieu of corporate income taxes ["PI Ls'l to Ontario Electricity Financial Corporation,
which will be used to repay the stranded debt incurred by the former Ontario Hydro. These
payments are calculated in accordance with the rules for computing income and taxable capital
and other relevant amounts contained in the Income Tax Act (Canada) and the Corporations
Tax Act (Ontario) as modified by the Electricity Act 1998 and related regulations.
As a result of becoming subject to PILs, the Company's taxation year was deemed to have
ended immediately beforehand and a new taxation year was deemed to have commenced
immediately thereafter. The Company was therefore deemed to have disposed of each of its
assets at their then fair market value and to have reacquired such assets at that same amount
for purposes of computing its future income subject to PILs. For purposes of certain provisions,
the Company was deemed to have a new company and, as a result, tax credits or tax losses not
previously utilized by the Company would not be available to it after the change in tax status.
Essentially, the Company was taxed as though it had a "fresh start" at the time of its change in
tax status.
2-71
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
Ul Post-employment benefits
Employee future benefits provided by Kitchener-Wilmot Hydro Inc. include medical and life
insurance benefits. These plans provide benefits to certain employees when they are no longer
providing active service. Employee future benefit expense is recognized in the period in vvhich
the employees render the services.
Employee future benefits are recorded on an accrual basis. The accrued benefit obligations
and current service cost are calculated using the projected benefits method pro-rated on service
and based on assumptions that reflect management's best estimate. The current service cost
for a period is equal to the actuarial present value of benefits attributed to employees' services
rendered in the period. Past service costs from plan amendments are amortized on a straight-
line basis over the average remaining service period of employees active at the date of
amendment.
An actuarial valuation of the plan obligation was completed as at January 1, 2008 resulting in an
unamortized net actuarial gain of $1,032,190. The Company has adopted the corridor method
of accounting for the actuarially determined experience gains (losses). The excess of the net
accumulated actuarial gains (losses) over 10% of the accrued benefit obligation is amortized
into expense over the average remaining service period of active employees.
[k] Pension plan
Kitchener-Wilmot Hydro I nc. provides a pension plan for its employees through the Ontario
Municipal Employees Retirement System ["OMERS"]. OMERS is a multi-employer pension
plan, vvhich operates as the Ontario Municipal Employees Retirement Fund [the "Fund"] and
provides pensions for employees of Ontario municipalities, local boards, public utilities, and
school boards. The Fund is a contributory defined benefit pension plan, which is financed by
equal contributions from participating employers and employees, and by the investment
earnings of the Fund. The Company recognizes the expense related to this plan as
contributions are made.
[I] Revenue recognition and cost of electrical energy
Kitchener-Wilmot Hydro I nc. records revenue from the sale of energy on the basis of regular
meter readings and estimates of customer usage since the last meter reading to the end of the
year. The cost of power is recognized vvhen the energy is consumed.
[m] Use of estimates
The preparation of the consolidated financial statements, in conformance with Canadian
generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expense for the year. Actual results could differ from those estimates including
changes as a result of future decisions made by the OEB, Minister of Energy, or the Ministe r of
Finance.
2-72
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
3. CREDIT RISK AND FINANCIAL INSTRUMENTS
[i] Credit risk
For distribution retail customers, credit losses are generally low across the sector. The Company
provides for an allowance for doubtful accounts to absorb credit losses.
At December 31, 2010, there are no significant concentrations of credit risk with respect to any class
of financial assets.
[ii] I nterest rate risk
Cash balances not required to meet day-to-day obligations of the Company are invested in
Canadian money market instruments, with terms of one day to 364 days, exposing the Company to
fluctuations in short-term interest rates. These fluctuations could impact the level of interest income
earned by the Company.
4. ACCOUNTS RECEIVABLE
2010 2009
$ $
Electric energy 14,594,450 11,781,616
Miscellaneous 1,653,488 1,530,431
16,247,938 13,312,047
Less: Allowance for doubtful accounts (300,000) (350,000)
15,947,938 12,962,047
Unbilled revenue receivable 19,649,500 18,261,000
Interest receivabl e 141,267 226,084
Related parties - balances
City of Kitchener 81,326 385,117
Township of Wilmot 8,514 1,995
89,840 387,112
35,828,545 31,836,243
Related Party Transactions
The Company conducted the follovving transactions with related parties during the year ended December
31, 2010. These transactions are in the normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed to by the related parties.
2010 2009
$ $
City of Kitchener
Township ofWlmot
744,667
121,664
866,331
933,647
38,170
971,817
2-73
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
5. INVENTORIES
Inventories consist of:
Stores
Transformers
Meters
Thermostats for conservation programs
2010 2009
$ $
3,029,844 2,715,134
530,751 510,072
108.340 59.175
3.668.935 3,284,381
6. CAPITAL ASSETS - NET OF ACCUMULATED AMORTIZATION
Accumulated Net Book
2010 Cost Amortization Value
$ $ $
Land 3,730,479 3,730,479
Land rights 265,449 249,915 15,534
Buildings 17,834,427 5,075,870 12,758,557
Transformer station equipment 51,454,525 15,920,916 35,533,609
Distribution station equipment 2,853,105 1,888,472 964,633
Distribution system - conductors and devices 158,942,439 72,105,303 86,837,136
Distribution system - line and network transformers 50,109,118 25,528,138 24,580,980
Meters 3,623,917 2,197,301 1,426,616
SCADA - system superusory equipment 1,566,480 1,387,014 179,466
Other capital assets 16,889,346 11,266,257 5,623,089
Construction in progress 3,794,140 3,794,140
311,063,425 135,619,186 175,444,239
Less: Contributed capital (41,724,111) (9,538,227) (32,185,884)
Total 269,339,314 126,080,959 143,258,355
Accumulated Net Book
2009 Cost Amortization Value
$ $ $
Land 3,728,472 3,728,472
Land rights 265,449 247,262 18,187
Buildings 15,759,525 4,746,157 11,013,368
Transformer station equipment 40,963,390 14,674,175 26,289,215
Distribution station equipment 2,853,105 1,811,015 1,042,090
Distribution system - conductors and devices 153,264.486 69,987,181 83.277,305
Distribution systsem - line and network transformers 50,191,503 25,468,412 24,723,091
Meters 6,892,540 4,005,340 2,887,200
SCADA - system superusory equipment 1 ,599,832 1,354,274 245,558
Other capital assets 16,229,014 10,705,229 5,523,785
Construction in progress 9,172,208 9,172,208
300,919,524 132,999,045 167,920,479
Less: Contributed capital (37,619,038) (7,868,260) (29,750,778)
Total 263,300,486 125,130,785 138,169,701
2-74
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS - NET OF ACCUMULATED AMORTIZATION
2010
$
2009
$
Incorporation costs:
Cost
Accumulated amortization
Net book value
74,829
74.829
74,829
74.829
8. LONG-TERM INVESTMENTS
On November 7, 2006, Atria Netvvorks Inc. ("Atria') sold its business, including all of its assets, cash and
liabilities to a third party and is no longer operating as an active business. On December 21, 2007, Atria
reorganized its authorized share capital by creating an unlimited number of Class A, Class B, Class C
and Class D common shares. A share exchange agreement was subsequently executed by Atria and
the Company exchanged 10,000 common shares for 100 Class A common shares at the adjusted cost
base of $2,522,424. On October 15, 2009 Atria was dissolved pursuant to Section 237(b) of the
Business Corporation Act (Ontario), and the Company received a final cash distribution of $5,819.89.
2010
$
2009
$
20,388
Balance, beginning of year
Dividends paid
Return of share capital
Equity share of loss
Loss on dissolution
Cash distribution on dissolution
Balance, end of year
(14,568)
(5.820)
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2010
$
2009
$
Independent Electricity System Operator
Ontario Electricity Financial Corporation
Energy rebates payable
Others
15,294,269
889,221
13,049
6.078,631
22.279,170
12,795,900
913,970
7,402
3.241.201
16.958.473
10. CUSTOMER AND CONSTRUCTION DEPOSITS
Construction deposits
Customer deposits - current portion
2010 2009
$ $
$ $
3,574,171 4,118,216
2,798,900 2.660.500
6,373,071 6.778.716
3,887,326 3,646,741
Customer deposits - non current portion
2-75
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
11. LONG-TERM DEBT
[i] Effective August 1, 2000, Kitchener-Wilmot Hydro Inc. incurred unsecured promissory notes payable
to the City of Kitchener and to the Township of Wilmot.
During 2010, Kitchener-Wilmot Hydro Inc. incurred a ten year senior unsecured debenture payable
to Ontario Infrastructure Projects Corporation. The initial payable of $7,000,000 was received by the
Corporation on February 1, 2010 follovved by a second payment of $3,000,000 on May 17, 2010.
The amounts due at the end of the year are:
The amounts due at the end of the year are:
2010
$
City of Kitchener
Township of Wilmot
Ontario Infrastructure Projects Corporation
70,997,576
5,964,566
8,751,754
85,713,896
842,385
Ontario Infrastructure Projects Corporation
- current portion
2009
$
70,997,576
5,964,566
76.962.142
[ii] For Shareholder Debt, interest is paid quarterly at an annual effective rate established by the OEB.
The annual effective rate for January 1, 2010 to December 31, 2010 was 5.91 %. Effective May 1,
2010, the annual interest rate is 5.87%. Repayment of all or part of the outstanding principal may be
made upon eighteen months 'Mitten notice.
For Ontario Infrastructure Project Corporation debt, the annual effective interest rate is 4.28%.
Payments, which include both principal and interest, are made semi-annually in May and November.
The Company paid the following interest
City of Kitchener
Township of Wilmot
Ontario Infrastructure Projects Corporation
2010
$
4,197,902
352,669
284.231
4.834,802
12. PENSION PLAN
2009
$
4,259,855
357,874
4,617.729
As directed by the OEB the cash pension costs paid by the Company for 2005 totalling $678,442 and for
January 1, 2006 to April 30, 2006 totalling $247,542 were deferred and recognized as regulatory assets.
These amounts are currently being recovered through distribution rates as a rate rider, which became
effective when the Company rebased for rate setting purposes in 2010.
The cash pension costs for the year ended December 31, 2010 in the amount $868,303 (2009 -
$825,272) have been expensed during the period in vvhich they were incurred.
2-76
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
13. POST-EMPLOYMENT BENEFITS
Kitchener-Wilmot Hydro Inc. pays certain health, dental and life insurance benefits on behalf of its retired
employees.
The significant actuarial assumptions adopted in measuring the accrued benefit obligations are as
follows:
2010 2009
% %
Discount rate
Future general salary and wage levels increase
Future general inflation increase
Dental costs increase
Medical costs increase
5.25
3.80
2.30
5.00
8.00
5.25
3.80
2.30
5.00
9.00
Information about Kitchener-Wilmot Hydro Inc.'s defined benefits plans is as follows:
2010 2009
$ $
Accrued benefit obligation
Balance, beginning of the year 4,158,585 4,024,984
Current service cost 116,213 110,415
I nterest cost 219,276 212,148
Actuarial gain
Benefits paid (196,209) (188.962)
4,297,865 4.158.585
Unamortized actuarial gains
Balance, beginning of the year 1,178,535 1,275,540
Actuarial gain for current year
Current year amortization (95,335) (97.005)
1.083.200 1.178.535
Projected accrued benefit obligation at December 31
as determined by actuarial valuation 5,381 ,065 5.337.120
2-77
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
14. SHARE CAPITAL
2010
$
2009
$
Authorized
Unlimited common shares
Issued
20,000 common shares
66.389.385
66.389.385
15. ELECTRIC ENERGY SERVICES
Revenue
Electricity
Wholesale market selVices
Transmission selVices
Retailer selVices
2010 2009
$ $
132,266,184 119,926,188
10,192,522 11,031,452
14,481,775 12,177,121
62.244 59.693
157,002,725 143,194,454
132,266,184 119,926,188
10,192,522 11,031,452
14,481,775 12,177,121
62,244 59,693
157.002.725 143.194.454
2010 2009
$ $
541,300 627,075
162,470 151,870
101,727 65,023
113,244 48,051
63,960 46,065
29,277 19,158
22,505 23,760
45,851 45,851
1,080,334 1 ,026,373
Costs
Electricity
Wholesale market selVices
Transmission selVices
Retailer selVices
16. MISCELLANEOUS REVENUE
Pole attachment rentals, building and other rentals
Change of occupancy charges
Scrap sales
Net gain on disposal of capital assets
Unsealing I reconnection charges
Accounts payable discounts taken
Return cheque charges
Sundry
17. NON-UTILITY OPERATIONS
In 2007, the Company entered into an agreement with the Ontario Power Authority ["OPA"] to deliver
OPA funded energy conselVation and demand management ["COM"] programs. The Ontario Energy
Board classifies the revenue funding and related expense to deliver the OPA COM programs as non-
utility operations.
2-78
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
18. AMORTIZATION
Amortization - capital assets
Amortization - intangible assets
Various expense accounts
19. NET CHANGE IN NON-CASH OPERATING WORKING CAPITAL
(I ncrease) decrease in accounts receivable
(I ncrease) decrease in inventories
(I ncrease) decrease in prepaid expense
I ncrease (decrease) in payment-in-lieu of corporate income taxes
(I ncrease) decrease in current portion of regulatory assets
I ncrease (decrease) in accounts payable and accrued liabilities
I ncrease (decease) in current portion of customer and construction
deposits
I ncrease (decrease) in current portion of regulatory liabilities
2-79
2010
$
9,597,026
9,597,026
679,525
10,276,551
2009
$
9,179,382
11 .845
9,191,227
657.855
9,849,082
2010 2009
$ $
(3,992,302) (372,560)
(384,554) 389,878
(83,029) (244,038)
(304,974) (141,389)
(765,270) (1,530,543)
5,320,697 (648,158)
(405,645) (77 4,463)
1,813,833 3,368,781
1,198,756 47,508
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
20. REGULATORY ASSETS & LIABILITIES
The "Electricity Pricing, Conservation and Supply Act, 2002" [Bill 210] deems certain costs and variance
account balances to be accounted for as regulatory assets [note 2(a)].
[i] Regulatory assets consist of the following:
2010 2009
$ $
Current portion of regulatory assets:
Conservation and demand management 135 90
OEB cost assessments 108,134 72,090
OMERS pension costs 531,584 354,389
Rebate program costs 4,831
Retailer service cost variances 28,264 18,843
Retail settlement variances 1,620,450 1,080,300
Other deferred credits 7,246
2,295,813 1 530 543
Long-term portion of regulatory assets:
Conservation and demand management 59 179
IFRS transition costs 55,030 22,732
OEB cost assessments 233,150 144,926
OMERS pension costs 47,427 712,458
Rebate program costs 9,662
Renewable connection 25,620 15,669
Special purpose charge 331,875
Retailer service cost variances 34,765 50,142
Retail settlement variances 5,627,075 5,447,783
Smart meter funding and cost recovery 14,366,011 8,929,553
Other deferred credits 276,452
20,997,464 15,333,104
Less: Regulatory assets recovered (27 ,451) (261.428)
20,970,013 15,071 ,676
Total regulatory assets 23,265,826 16,602,219
2-80
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
[iii] The following table illustrates the pro-forma effect on income before provision for payments-in-lieu of
corporate income taxes, of the recognition of regulatory assets and liabilities:
2010 2009
$ $
10,194,459 7,354,743
261,668 (2,379,844)
16.439 68 551
278.107 (2.311.293)
(32,071 ) (22,710)
(328,874)
17,120 26,295
(1,314,398) (2,359,915)
(273,274)
(1,720,040)
(256,4261 (15,424)
(3.907,963) (2.371,754)
(3.629,856) ( 4.683.0471
Income before provision for payments-in-lieu of
corporate income taxes
Energy related variances
Retail settlement services
I nterest on energy related variances
Non-energy related variances
I FRS transition costs
Special Purpose Charge
Retailer services
Smart meter funding and cost recovery
Other Regulatory Assets
Regulatory Asset Recovery
I nterest on non-energy related variances
Incremental effect on income
Income before provision for payments-in-lieu of
corporate income taxes without recognition of
regulatory assets and liabilities
6,564,603
2.671.696
2-81
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
21. CORPORATE INCOME AND CAPITAL TAXES
The provision for PILs differs from the amount that lJIIOuld have been recorded using the combined
Canadian Federal and Ontario statutory income tax rate. Reconciliation between the statutory and
effective tax rates is provided as follows:
[i] Statement of Operations
Rate reconciliation:
Income from continuing operations before income taxes
Statutory Canadian Federal and Provincial income tax rate
Expected taxes on income
Taxes associated with non-taxable equity income
Other permanent differences
Increase (decrease) in income taxes resulting from:
Adjustment of prior years taxes
Other Current year tim in9 differences not tax effected
Change in tax rates on future income tax assets
Other adjustments
Valuation allowance against current year temporary differences
Dividend refund
Increased tax on investment income
Income tax expense
Effective tax rate
Components of income tax expense:
Current tax expense
Future tax provision (recovery) arising from
temporary differences
[ii] Balance Sheet
2010
$
10,194,459
31 .00%
3,160,282
(50,254)
(481 ,372)
(532,254)
(45,840)
15,202
(87,805)
62.561
2.040.520
20.02%
2,003,702
36,818
2.040,520
2009
$
7,354,743
33.00%
2,427,065
4,807
199,764
225,604
(46,278)
6,122
(155,394)
99 064
2 760 754
37.54%
2,565,593
195,161
2,760,754
Future income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's future income tax assets as at December
31, 2010 are as follows:
Capital assets - differences in net book value and
undepreciated capital cost
Regulatory adjustments
Post-employment benefit
Loss carry-forwards
2010
$
8,580,318
2,869,185
1 ,345,266
65,978
12.860.747
2009
$
8,255,255
2,755,533
1,334,280
97,892
12442960
The Company has capital losses of $82,340 [2009 - $82,340] and net loss carry forwards of
approximately $281,240 [2009 - $296,641] as at December 31, 2010.
2-82
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
22. PRUDENTIAL SUPPORT OBLIGATION
Kitchener-Wilmot Hydro Inc. purchases power from the Independent Electricity System Operator [IESO]
on behalf of its customers and retailers. The I ESO is responsible for ensuring that prudential support is
posted by all market participants to mitigate the impact of an event of default by a market participant on
the rest of the market. In this regard, at December 31,2009, Kitchener-Wilmot Hydro Inc. has posted an
irrevocable standby letter of credit as security in the amount of $29,782,438 [2010 - $29,782,438]
underwritten by the Company's principal bank. The Company has entered into a credit facility agreement
with its bank in which contains certain financial covenants.
23. GENERAL LIABILITY INSURANCE
The Company is a member of the Municipal Electric Association Reciprocal I nsurance Exchange
[MEARIE], vvhich is a pooling of general liability insurance risks. Members of MEARIE would be
assessed on a pro-rata basis should losses be experienced by MEARIE, for the years in vvhich the
Company was a member. To December 31, 2010, the Company has not been made aware of any
additional assessments.
24. CONTINGENT LIABILITY
Griffith et al. v. Toronto Hydro-Electric Commission et al.
This action has been brought under the Class Proceedings Ac~ 1992. The plaintiff class seeks $500
million in restitution for amounts paid to Toronto Hydro and to other Ontario municipal electric utilities
("LDCs") who received late payment penalties which constitute interest at an effective rate in excess of
60% per year, contrary to Section 347 of the Criminal Code. Pleadings have closed in this action. The
action has not yet been certified as a class action and no discoveries have been held, as the parties were
awaiting the outcome of a similar proceedings brought against Enbridge Gas Distribution Inc. (formerly
Consumers Gas).
On April 22, 2004, the Supreme Court of Canada released a decision in the Consumers Gas case
rejecting all of the defences which had been raised by Consumers Gas, although the Court did not permit
the Plaintiff class to recover damages for any period prior to the issuance of the Statement of Claim in
1994 challenging the validity of late payment penalties. The Supreme Court remitted the matter back to
the Ontario Superior Court of Justice for determination of the damages. At the end of 2006, a mediation
process resulted in the settlement of the damages payable by Enbridge and that settlement was
approved by the Ontario Superior Court.
In 2007, Enbridge filed application to the Ontario Energy Board [the "OEB"] to recover the Court-
approved amount and related amounts from ratepayers. On February 4, 2008 the OEB approved
recovery of the same amounts from ratepayers over a five year period.
After the release by the Supreme Court of Canada of its 2004 decision in the Consumers Gas case, the
plaintiffs in the LDC late payment penalties class action indicated their intention to proceed with their
litigation against the LDCs.
On July 22, 2010, The Honourable Mr. Justice Cumming of the Ontario Superior Court of Justice
approved the settlement in the Late Payment Penalty class action. The approved settlement of
$17,037,500 is to be shared amongst all LDCs in the Province of Ontario that did not opt out of the
settlement. As Kitchener-Wilmot Hydro Inc. did not opt out of the settlement, its share of the total
settlement amount is $273,274 vvhich the Corporation expects to pay in the summer of 2011 to the
Region of Waterloo Social Services Heat Bank fund for disbursement to people in need of financial
assistance.
In 2010, the Corporation booked the settlement as a current liability. As it is expected that the
Corporation will recover the paid amounts through future distribution rates, the expense has been
transferred to regulatory assets.
2-83
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
25. DIVIDENDS
Dividends amount of $5,750,000 were received in 2010 from Kitchener-Wilmot Hydro Inc., a subsidiary of
Kitchener Power Corp [2009 - $2,100,000]
Dividends paid out to shareholders are as follo\iVS:
City of Kitchener
Township of Wilmot
2010
$
1,748,000
152,000
1,900,000
2009
$
1,937,250
162,750
2100,000
26. COMMITMENTS
In support of the Province of Ontario's decision to install smart meters throughout Ontario by 2010 and
pursuant to Ontario Regulation 427/06, the Company launched its smart meter initiative in 2008. The
Company has committed to install 86,000 smart meters and supporting infrastructure by the end of 2010
at an estimated capital cost of $13,500,000. As of December 31, 2010, approximately 84,000 smart
meters or 98% deployment vvas completed in 2010.
In December 2009, the Company signed a financing agreement with Ontario Infrastructure Projects
Corporation ["01 PC"] to make financing available up to a maximum amount of $10,000,000 for its
investment in smart metering infrastructure assets. This funding vvas received by the Corporation in
2010.
The OEB adopted the policy that specific funding for the capital cost of smart meters should be included
in distribution rates by all Ontario electric distribution companies. The Board decided that "seed" funding
equivalent to $0.27 per customer per month be included in the Company's distribution rates commencing
May 1, 2006. This funding vvas increased to $1.00 per customer per month effective May 1, 2009
pursuant to OEB Decision and Order of March 10, 2009. Revenue has been reduced by the amount
funded in rates, and has been deferred and netted against smart metering capital costs incurred in
accordance with the AP Handbook. Unfunded costs including financing expense, are expected to be
recovered through future distribution rates once the project is completed, pursuant to the Ontario Energy
Board's guidelines.
27. EMERGING ACCOUNTING CHANGES
International Financial Reporting Standards ["I FRS"]:
On February 13, 2008, the Accounting Standards Board of Canada ["AcSB"] announced that publicly
accountable enterprises will be required to change over to IFRS effective January 1, 2011.
In 2010, the cutover date was deferred to January 1, 2012 for regulated entities, at which time, the
Corporation will be IFRS compliant.
Some of the converged standards will be implemented in Canada during the transition period with the
remaining standards adopted at the change over date. The Company has launched an internal initiative
to govern the conversion process and is currently in the process of evaluating the potential impact of the
conversion to IFRS on its financial statements.
28. COMPARATIVE FIGURES
Certain prior year comparative figures may have been restated to conform to the current year's
presentation.
2-84
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.
Contents
Executive Su m mary ....................................................................................................................... 3
Overview and Status..................................................................................................................... 3
Topics to Discuss.......................................................................................................................... 3
Sign ificant Aud it, Accou nting and Reporting Matters ................................................................4
Significant Qualitative Aspects of Accounting Practices ..........................................................5
Misstatements................................................................................................................................. 6
Audit Misstatements - Identification ............................................................................................. 6
Uncorrected Audit Misstatements................................................................................................. 6
Corrected Audit Misstatements .............................. ...................................................................... 6
Control Defi ciencies ....................................................................................................................... 7
Background...................................................................................................................... ........ .....7
Identification................................................................................................................ ..................7
Other internal control matters .............. ................ ................ ................ ................ ................ ......... 7
Ap pen dices ..................................................................................................................................... 9
Appendix 1 - Independence Letter........ .... ............ .... ............ .... ............ .... ............ .... ............ .......9
Appendix 2 - Definitions ........ .... ............................ .... ............................ .... ............................ .....12
Appendix 3 - Current Developments..........................................................................................13
Appendix 4 - KPMG's Audit Committee Resources...................................................................14
@ 2010 KPMG LLP. a Canadian limited liability partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International"), a Swiss
entity.
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Audit Findings Report to the Audit Committee
Executive Summary
Overview and Status
The purposel ofthis Audit Findings Report is to assist the Audit Committee in their review of
the financial statements of the City of Kitchener ("Kitchener") for the year ended December 31,
2010.
We have completed the audit of the financial statements with the exception of the following
remaining procedures:
. completing our discussions with the Audit Committee
. obtaining signed representation letter from management
. obtaining updated confirmation oflegal claims outstanding
. obtaining evidence of Council's approval of the financial statements.
We will update the Audit Committee on any significant matters arising from the completion of
the above procedures, as additional procedures or adjustments to the financial statements may be
necessary.
Our audit report will be dated no earlier than the date on which we have obtained sufficient
appropriate audit evidence on which to base our audit opinion on the financial statements,
including evidence that:
. all the statements that comprise the financial statements, including the related notes, have
been prepared
. Council has approved the financial statements.
Topics to Discuss
Below are topics identified from the audit that we have highlighted for discussion at the
upcoming Audit Committee meeting. We believe these topics need to be brought to your
attention, and we look forward to discussing our findings with you:
. Significant Audit, Accounting and Reporting Matters
. Significant Qualitative Aspects of Accounting Practices
. Misstatements
. Control Deficiencies
1 This Audit Findings Report should not be used for any other purpose. KPMG shall have no responsibility or liability
for loss or damages or claims, if any, to or by any third party as this Audit Findings RepOlt has not been prepared for,
and is not intended for, and should not be used by, any third party or any other purpose.
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Audit Findings Report to the Audit Committee
Significant Audit, Accounting and Reporting Matters
The following are the significant audit, accounting and reporting matters arising from the audit:
Significant Risks Related to Management's Results I Effect on the
Judgment and Action Audit
Tangible Capital Assets . Assumptions were
Now into the 2nd year, management has identified reviewed for
.
some errors in the initial adoption reasonableness
The City has 55 different asset types with a . Data was reviewed for
.
historical cost of approximately $1.1 billion. accuracy
. Calculations were re-
. Fire-trucks - inappropriate discount rates were
used in the initial valuation resulting in an checked
overstatement
. Land and Right of Way Land - errors have been
noted in the Teranet report which was utilized in
determining inventory and land values resulting in
an understatement
. Both amounts have been corrected in the current
period financial statements such that the ending
balances are accurate.
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Audit Findings Report to the Audit Committee
Significant Qualitative Aspects of Accounting Practices
The following are the significant qualitative aspects of accounting practices that we will discuss:
Significant . Kitchener has applied its significant account policies consistently
Accounting Policies on a year to year basis. These accounting policies are in
accordance with Canadian public sector accounting standards.
Significant . Management's process for identification and making accounting
Accounting estimates are consistent with prior year.
Estimates The potential impact of measurement uncertainty on the financial
.
statements has been disclosed in the financial statements.
Significant . Significant financial statements disclosures are acceptable and
Disclosures appropriate under Canadian public sector accounting standards.
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Audit Findings Report to the Audit Committee
Misstatements
Audit Misstatements - Identification
. Misstatements identified during the audit have been categorized as follows:
uncorrected audit misstatements, including disclosures
corrected audit misstatements, including disclosures
Uncorrected Audit Misstatements
. We have concurred with management's assertion that any uncorrected audit differences,
individually and in aggregate, are not material to the financial statements
Corrected Audit Misstatements
. Management has approved of the recommended audit corrections made during the course of
our examination
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Audit Findings Report to the Audit Committee
Control Deficiencies
Background
. In planning and performing our audit ofthe financial statements, we considered internal
control relevant to the preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances for the purpose of
expressing an opinion on the financial statements but not for the purpose of expressing an
opinion on internal control. Accordingly, we do not express an opinion on the effectiveness
of internal control.Our consideration of internal control was for the limited purpose described
in the preceding paragraph and was not designed to identify all control deficiencies that might
be significant deficiencies and therefore, there can be no assurance that all significant
deficiencies and other control deficiencies have been identified.
. Our awareness of control deficiencies varies with each audit and is influenced by the nature,
timing, and extent of audit procedures performed, as well as other factors.
Identification
We did not identify control deficiencies that we consider to be significant deficiencies in internal
control
Other internal control matters
As a result of our audit difference relating to Internal Orders, we have identified the internal
control matter:
Issue:
. Internal Orders are given settlement rules which dictate whether or not they settle to a
Capital account or Expense account. Management assesses each Internal Order on a
yearly basis and determines whether or not the items are capital or expense in nature.
During 2010, approximately 100,000 Internal Orders were reviewed.
. During the cunent period, one Internal Order with a Capital settlement rule contained
items that were expense in nature which was not identified by management. As a result,
items that should have been expensed were inappropriately capitalized.
Imulication:
. If an Internal Order is given an improper settlement rule and not detected by management
at year end, expenses could be inconectly capitalized and capital items may be
incorrectly expensed.
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Audit Findings Report to the Audit Committee
Recommendation:
. Management currently reviews each Internal Order regardless ofthe settlement rules to
ensure that expenses are being properly allocated to capital or expense accounts;
however, the high volume of outstanding Internal Orders increases the risk of error.
. KPMG recommends that a process be developed to reduce the number of outstanding
Internal Orders that are subject to review on an annual basis.
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Audit Findings Report to the Audit Committee
Appendices
Appendix 1 - Independence Letter
Corporation ofthe City of Kitchener
200 King Street West
Kitchener, ON
N2G 4G7
June 27, 2011
Dear Audit Committee
We have been engaged to express an opinion on the consolidated financial statements of The
Corporation of the City of Kitchener ("the Entity") as at and for the period ended December 31,
2010.
Professional standards specify that we communicate to you in wntmg, at least annually, all
relationships between the Entity (and its related entities) and our firm, that may reasonably be
thought to bear on our independence.
In determining which relationships to report, we are required to consider relevant rules and
related interpretations prescribed by the Institute of Chartered Accountants of Ontario and any
applicable legislation or regulation, covering such matters as:
a) provision of services in addition to the audit engagement
b) other relationships such as:
- holding a financial interest, either directly or indirectly, in a client
- holding a position, either directly or indirectly, that gives the right or responsibility to
exert significant influence over the financial or accounting policies of a client
- personal or business relationships of immediate family, close relatives, partners or retired
partners, either directly or indirectly, with a client
- economic dependence on a client.
We have prepared the following comments to facilitate our discussion with you regarding
independence matters.
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Audit Findings Report to the Audit Committee
PROVISION OF SERVICES
The following summarizes the professional services rendered by us to the Entity (and its related
entities) for the period ended December 31, 2010.
Description of Service
Audit
. Audits ofthe following entities
. City of Kitchener (including Gasworks and Trust Funds)
. The Centre in the Square Inc.
. Kitchener Public Library
. Kitchener Downtown Improvement Area Board of Management
. Belmont Improvement Area Board of Management
. Audit of Compliance with the Federal Gas Tax Agreement
. Audit ofthe Senior Day Out and Peer Helping Program
Tax
. Advisory services in connection with potential solar project
OTHER RELATIONSHIPS
Weare not aware of any relationships between our firm and the Entity (and its related entities)
that may reasonably be thought to bear on our independence during the period from January 1,
2010 to June 27, 2011.
CONFIRMATION OF INDEPENDENCE
Professional standards require that we confirm our independence to you in the context of the
Rules of Professional Conduct/Code of Ethics of the Institute of Chartered Accountants of
Ontario.
Accordingly, we hereby confirm that we are independent with respect to the Entity (and its
related entities) within the meaning of the Rules of Professional Conduct/Code of Ethics of the
Insti tute Chartered Accountants of Ontario as June 27, 2011.
OTHER MATTERS
This letter is confidential and intended solely for use by those with oversight responsibility for the
financial reporting process in carrying out and discharging their responsibilities and should not be
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Audit Findings Report to the Audit Committee
used for any other purposes. No responsibility for loss or damages, if any, to any third party is
accepted as this letter has not been prepared for, and is not intended for, any other purpose. This
letter should not be distributed to others outside the Entity without our prior written consent.
We look forward to discussing with you the matters addressed in this letter as well as other
matters that may be of interest to you. We will be prepared to answer any questions you may have
regarding our independence as well as other matters.
Yours very truly,
K;1/11Lf LLP
-----------
Chartered Accountants, Licensed Public Accountants
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Audit Findings Report to the Audit Committee
Appendix 2 - Definitions
Terminology Definition
Deficiency in Internal A deficiency in internal control exists when the design or operation
Control of a control does not allow management or employees, in the
normal course of performing their assigned functions, to prevent or
detect misstatements on a timely basis. A deficiency in design
exists when (a) a control necessary to meet the control objective is
missing; or (b) an existing control is not properly designed so that,
even ifthe control operates as designed, the control objective
would not be met. A deficiency in operation exists when a properly
designed control does not operate as designed or the person
performing the control does not possess the necessary authority or
competence to perform the control effectively.
Significant Deficiency A significant deficiency in internal control is a deficiency or
in Internal Control combination of deficiencies in internal control that, in the auditor's
professional judgment, is of sufficient importance to merit the
attention of those charged with governance.
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Audit Findings Report to the Audit Committee
Appendix 3 - Current Developments
Government Transfers
. Sets outs recognition principles for government transfers.
. May allow deferral oftransfers received if certain conditions exist that create a liability.
. This standard is effective for fiscal years beginning on or after April 1, 2012. The standard
may be applied retroactively or prospectively.
Tax Revenue
. PS 3510 - Tax Revenue was approved by PSAB in November 2009.
. This standard sets out revenue recognition principles for tax revenue.
. Provides principles for recognition oftaxes collected on behalf of others.
. This standard is effective for fiscal years beginning on or after April 1, 2012.
Financial Instruments
. Sets out principles to be used in establishing an accounting standard with respect to financial
instruments and derivative instruments.
. Fair value measurement proposed for derivatives and portfolio investments that are equity
instruments quoted in an active market. Fair value can be applied to non-equity instruments
through an accounting policy choice.
. This standard is effective for fiscal years beginning on or after April 1, 2012.
Foreign Currency Translation
. PSAB has approved amendments to Section PS 2600 to be consistent with the new standard for
Financial Instruments.
. This standard requires all monetary items and those non-monetary items included in the fair
value category to be translated using the exchange rate on the financial statement date. Hedge
accounting and the scope exclusion for foreign exchange reserves in PS 2600 have been
removed.
. The amended standard is effective for fiscal years beginning on or after April 1 , 2012 and must
be adopted when the new Financial Instruments standard is adopted.
Liability for Remediation and Mitigation of Contaminated Sites
. PS 3260 - Liability for Contaminated Sites was approved by PSAB in March 2010.
. A liability for remediation of contaminated sites should be recognized when an environmental
standard exists, the contamination exceeds the environmental standard, the government is
directly responsible or accepts responsibility, it is expected future economic benefits will be
given up and a reasonable estimate of the amount can be made.
. This standard is effective for fiscal years beginning on or after April 1 , 2014.
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Audit Findings Report to the Audit Committee
Appendix 4 - KPMG's Audit Committee Resources
General
. Accountability e-Lert - Periodic electronic newsletter
www.kpmg.ca/accountability
. Canadian Audit Committee Update - Semi-annual publications
http://www.kpmg.ca/audi tcommi ttee/update .html
. Audit Committee Roundtables - Spring and Fall
http://www.kpmg.ca/auditcommi ttee/roundtables .html
. Audit Committee Institute Web site
www.kpmg.ca/auditcommi ttee
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