HomeMy WebLinkAboutFCS-13-083 - 2012 Audited Consolidate Finance StatementsStaff Report
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REPORT TO: Audit Committee
DATE OF MEETING: June 24, 2013
SUBMITTED BY: Dan Chapman, Deputy CAO, Finance and Corporate
Services and City Treasurer, ext 7347
PREPARED BY: Sheri Brisbane, Supervisor of Financial Reporting, ext 7349
WARD(S) INVOLVED: All
DATE OF REPORT: June 17, 2013
REPORT NO.: FCS -13 -083
SUBJECT: 2012 Audited Consolidated Financial Statements
RECOMMENDATION:
THAT the 2012 Audited Consolidated Financial Statements of the City of Kitchener be
approved.
BACKGROUND:
Staff is pleased to submit the 2012 Audited Consolidated Financial Statements of the City of
Kitchener. A presentation of financial statement highlights will be given at the Audit Committee
meeting on June 24. Representatives of the City's external auditors will also be in attendance
to discuss the Audit Findings Report.
REPORT:
These financial statements combine the results of the tax -based operations, enterprises, local
boards, capital activity, and reserve fund activities. Local boards include The Centre in the
Square Inc., Kitchener Public Library, Belmont Improvement Area, and Kitchener Downtown
Improvement Area. The 2012 year end results for the tax -based operations and the enterprises
were reported to Council in March. There have been no changes to those results. Please see
Appendix A to this report for a reconciliation between the figures presented in March and the
Audited Consolidated Financial Statements.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This reporting falls within the Efficient and Effective Government plan foundation area of the
Strategic Plan.
It helps support the financial goal of ensuring openness and transparency of City finances.
FINANCIAL IMPLICATIONS:
None
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COMMUNITY ENGAGEMENT:
This report and its attachments will provide the public with balanced and objective information to
assist them in understanding the financial position of the City as at December 31, 2012 and the
financial results for the year then ended.
The audited financial statements will be posted on the City website and notice will be provided
to all residents through Your Kitchener (a City publication delivered in the Kitchener Citizen) in
accordance with Section 295 (1) of the Municipal Act, 2001.
ATTACHMENTS:
• City of Kitchener Financial Report for the Year Ended December 31, 2012
• Audit Committee Presentation
• Audit Findings Report for the year ended December 31, 2012 (KPMG)
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO of Finance and Corporate Services and
City Treasurer
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Appendix A — Annual Surplus Reconciliation
The annual surplus presented in the Audited Consolidated Financial
Statements reconciles to the City of Kitchener year -end results presented
to Finance & Corporate Services Committee on March 18, 2013 as follows
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2012
City of Kitchener Results before PSAB Adjustments
Operating - Tax -Based (Schedule 1)
54,375
Operating - All Enterprises (Schedules 2 through 8)
4,145,566
Net change in Reserve Funds
(600,042)
3,599,900
Consolidation Entries
Kitchener Power Corp.
5,089,694
Kitchener Generation Corporation
(33,204)
Boards and BIA's (excluding TCA impacts)
(235,990)
4,820,500
PSAB Adjustments
Tangible Capital Asset Acquisitions
101,281,115
Tangible Capital Asset Disposals
(7,526,790)
Amortization expense
(34,299,301)
Debt principal repayment
8,480,162
Debt proceeds
(21,555,000)
Debt recoverable from 3rd party
10,400,000
Other
(5,152, 478)
51,627,708
Annual Surplus on Statement of Operations
60,048,107
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INTRODUCTORY SECTION
100 years of innovation
....................................................... ..............................2
KitchenerCity Council .........................................................
..............................4
Wherewe are .....................................................................
..............................5
Messagefrom the Mayor
...................................................... ..............................6
Messagefrom the CAO .........................................................
..............................7
OrganizationalStructure
...................................................... ..............................8
2012 in Review ..................................................................
..............................9
City Treasure's Message
...................................................... .............................12
FINANCIAL SECTION
Consolidated Financial Statements ....................................... .............................28
TrustFunds ....................................................................... .............................49
Belmont Improvement Area Board of Management .................. .............................55
Kitchener Downtown Improvement Area Board of Management . .............................61
KitchenerPublic Library ...................................................... .............................69
The Centre in the Square Inc ................................................ .............................79
GasworksEnterprise ........................................................... .............................92
Kitchener Generation Corporation ......................................... .............................95
KitchenerPower Corp . ........................ ............................... ............................101
STATISTICAL SECTION
Financial and Statistical Review ........... ............................... ............................127
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ibrant. Prosperous. Liveable. For over a century, Kitchener has been a community that embraces new
opportunities while respecting its heritage and embracing its past. Kitchener has always believed in
making sound investments — both financially and socially. Kitchener's track record has positioned
the City as a leader in fiscal management and a trend - setter in economic development.
Strategic and forward thinking, resilient and daring, Kitchener is a community that
embraces innovation and technology while remaining loyal to long -term investments
and forward - looking planning. In 2013, the City's 10 -year, $110 million Economic
Development Investment Fund winds down. This investment program resulted in
approximately $750 million of commercial, residential and institutional investment
in Downtown Kitchener alone. Following on that renowned and daring initiative,
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the City of Kitchener has already launched another ground- breaking economic development initiative:
the Kitchener Economic Development Strategy (KEDS). There are five key development areas in KEDS -
Start -up City, Leading -Edge Cluster wilding, Becoming a Talent Magnet, Dynamic Downtown and
Innovation District — and through focusing on these piiiars, the City is poised to create
a diverse, robust and revolutionary future.
Together with its solid economy, Kitchener offers an enviable quality of life. From festivals,
year -round special events, diverse culture and expansive green spaces, Kitchener provides
residents, visitors and neighbours opportunities to explore, discover and celebrate
community. Willkommen!
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Kitchener City Council
itchener City Council is an elected body, made up of one mayor and 30 city councillors. All council
E AF
Nmembers are elected for a four -year term. The mayor is elected by voters from all parts of the city;
and Councillors are elected by voters within specific wards.
Members of City Council meet at regularly scheduled council and committee meetings
throughout the year to discuss issues facing the City and its residents - as well as day -
to -day operational business, and to make decisions on those items based on information
presented by City staff as well as their own knowledge and beliefs, and the opinions
expressed by constituents.
Public hearings, special Council meetings, business license hearings and courts of
revision are also held as needed to consider specific matters.
As a collective group, representing the interests of citizens, Council is responsible for:
• Representing the public and considering the well -being and interests of the municipality.
• Developing and evaluating the policies and programs of the municipality.
• Determining which services the municipality provides.
• Ensuring administrative policies, practices and procedures and controllership policies, practices
and procedures are in place to implement the decisions of Council.
• Ensuring the accountability and transparency of the operations of the municipality, including the
activities of the senior management of the municipality.
• Maintaining the financial integrity of the municipality.
Mayor Councillor Councillor Councillor
Carl Zehr Scott Davey Berry Vrbanovic John Gazzola
Ward 1 Ward 2 Ward 3
Councillor Councillor
Paul Singh Bit Ioannidis
Ward 6 Ward 7
El
D
Councillor
Zyg Janecki
Ward 8
Councillor Councillor
Yvonne Fernandes Kelly Galloway - Sealock
Ward 4 Ward 5
Councillor Councillor
Frank Etherington Dan Glenn - Graham
Ward 9 Ward 10
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Where we are
s the largest municipality in Waterloo Region,
Kitchener is situated in the heart of Southwestern
Ontario, close to major highways - including Canada's
super highway, 401 - that easily connects to London,
Stratford and the Greater Toronto Area.
Situated on the Grand River, Kitchener is the perfect
destination for recreation and leisure activities,
with a plethora of choices, including many parks,
trails and natural areas.
Downtown Kitchener is the heart of the arts
and culture scene for Waterloo Region.
Festivals and special events provide
the opportunity to experience
a variety of activities and cultural
events, in celebration of
our great diversity.
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0 n behalf of Council, I am proud to introduce the City of Kitchener's 2012 Annual Financial Report.
In addition to the detailed overview of the City's financial position, this report captures the
progress and achievements throughout last year, Kitchener's centennial year as a city.
Once again, the City's annual report fulfills the corporation's commitment to full disclosure and
transparent communication — the very qualities that captured a national award for last year's financial
report.
Kitchener continues to be a municipal leader in innovative initiatives and responsible governance. As we
see the conclusion of the City's daring, yet game- changing Economic Development Investment Fund
(EDIF), we know this $110 million investment was a catalyst for the transformation this city has seen
during the 10 -year EDIF program. Kitchener has become a regional leader in repurposing former factories
and historic buildings into chic lofts, cool urban workspaces, trendy shops and vibrant, collaborative hubs
for innovation and technology. Equally exciting is the investment and commercial attraction that reaches
beyond technology into sectors such as advanced manufacturing, hospitality, arts, culture and music.
Kitchener is daring, yet calculating. We dare to dream; we dare to take planned risks. And, when our
community participates, dreams really take shape. Looking ahead, 2013 will certainly be another exciting
year for the City of Kitchener. The City's 2013 budget charts not only our fiscal direction, but also
represents the citizen's priorities in action. Meeting those priorities is what makes Kitchener a truly
livable city.
6/4:4 501-
Carl Zehr, Mayor, City of Kitchener
June 24, 2013
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am pleased to present the 2012 Annual Financial Report for the City of Kitchener. Recognition must
be extended to staff for their ongoing commitment to transparency in financial reporting and
responsible accounting practices. This corporation takes a balanced approach to fiscal management
and I am proud of staffs dedication to creating a stable financial condition for the City of Kitchener.
Cities that continue to grow must also strive to be dynamic and innovative. For Kitchener, growth and
development is exciting and has positioned the City as a leader on several fronts: technology, advanced
manufacturing, education, retail and creative sectors. Of course, growth also brings challenges in areas
such as urban and built environment, infrastructure, safety, transportation and community services.
Kitchener's history of proactive, responsible planning will position us well to meet both the demands
— and the opportunities - of growth.
As I reflect on 2012, a year of celebration of the City's 100th anniversary, I see a common thread.
Kitchener has never hesitated to rise to challenges, explore new opportunities, reshape processes and
follow new directions. This spirit of innovation, and this community's zeal, will continue shaping a future
that is vibrant, daring and thriving.
Corporately, we are committed to accountability, transparency and efficiency in governance. I have great
confidence in the City's business planning model - a coordinated community -based model that supports a
wide range of interests and priorities. As we close the books on 2012, and look ahead to the opportunities
in 2013, I am certain that the City of Kitchener will continue on its path of leadership, innovation and
dedicated service to its citizens.
'000e,4-"-O'-o��
Jeff Willmer, CAO, City of Kitchener
June 24, 2013
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Organizational Structure
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HIGHLIGHTS AND MILESTONES
n 2012, The City of Kitchener reached a significant milestone, celebrating 100 years as a city.
As a community, Kitchener is more than 200 years old, but it was the royal proclamation on
June 10, 1912 that officially made Berlin a city (the name of the city was changed from Berlin
to Kitchener in 1916).
Kitchener has a long- standing reputation as a leader in manufacturing and still excels in that sector.
Today, our entrepreneurs and innovative leaders have transformed the community into a leading edge
technology sector. These innovators are taking this region beyond traditional commerce and building
a new economy that is exciting, sustainable and growing. Growth in this sector in 2012 continued
with the hottest start -up communities in North America anchored in the Downtown.
New and Innovative Projects
• 2012 saw by far the most investment activity that our business community has witnessed for some
time, with new stores and restaurants, new proposed housing projects and enhanced storefronts
demonstrating strong confidence and excitement in the Downtown.
• Establishment of the solar panel roof at the Kitchener Operations Facility, the largest solar roof in
Canada, was the result of a partnership between the federal, provincial and municipal governments as
part of the infrastructure stimulus program. In 2012, its first full year of operation, the solar roof
generated $415,000 in revenue and created 580 mW of energy - the equivalent of powering 51 homes
while eliminating 137 tonnes of CO2 going into the atmosphere.
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• The Kitchener Memorial Auditorium underwent an expansion project, which saw the addition of nearly
1,000 seats to the arena's capacity, as well as a third level concourse, Legends - a fourth level, new
concessions, washrooms, renovated Rangers facilities including dressing rooms, medical, training and
administrative office space. The Kitchener Rangers Hockey Club will fund the cost of the expansion,
which sits at $9.6 million. The club obtained financing from the City in the form of a repayable loan,
with a 15 -year repayment schedule.
• Another initiative was the work to prevent further damage from the emerald ash
borer. There are about 6,000 ash trees along residential streets and in City parks,
accounting for 10 percent of the City street trees, and about 13 percent of the
trees in parks. The full impact of emerald ash borer is still not known. The City's
plan to deal with emerald ash borer is focused on five areas: monitoring and
adaptive management; communication; removing infested, dying and dead ash
trees; protecting large, healthy ash trees; and stumping and replanting trees.
During the 2013 capital budget process, Council approved $4.3 million over
the next 10 years for removing and chemically injecting ash trees.
• Nestled at the heart of downtown Kitchener is the city's crown jewel, Victoria Park. Victoria Park Lake
was created as part of the original park development more than 100 years ago and it serves as an
important recreational and visual resource for park visitors. The lake required improvements in
function, water quality, and managing the sediment that accumulates in the lake. The lake is now
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deeper, with a new sediment forebay (a shallow area that helps to remove
sediment from water entering the lake). Many shoreline modifications were made
to upgrade the water's edge and to discourage waterfowl use. A dock /patio was
replaced at the Boathouse. The Victoria Park Lake project - an innovative approach
to stormwater management - was made possible through Kitchener's award
winning stormwater utility, in partnership with the Region of Waterloo and
supported by the Ministry of the Environment.
• The Central Library Expansion Project saw the opening of Phase I of the
Underground Parking Garage in July 2012. The project, which will include
412 parking spaces in a three -level underground parking garage, will better
accommodate parking needs for the library and our Civic District partners.
The $40 million library project started in 2010, with expected completion
in 2014. It will see the complete renovation of all three floors of the existing
Library located on Queen Street North, along with the construction of a 25,000 square foot addition
to the rear of the building.
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am pleased to present the Annual Financial Report for the City of Kitchener for the year ended
December 31, 2012. The purpose of this report is to communicate to Council, residents and other
interested parties the 2012 financial results for the City of Kitchener. These results demonstrate
Kitchener's continued excellence in sound financial management and fiscal prudence.
FINANCIAL MANAGEMENT
The preparation and presentation of the Financial Statements and related information
contained in this annual report are the responsibility of the management team of the
City of Kitchener. Management has instituted a system of internal controls which is
intended to safeguard assets and to provide accurate, timely and complete financial
information for both internal decision making and external reporting.
The City has the following foundations in place to ensure appropriate financial controls
and accountability are maintained and to take a proactive approach to identify and
address financial challenges.
Effective and Efficient Government
The key strategic priorities related to effective and efficient government focus on five specific areas:
financial management; asset management; information technology; communications, marketing and
customer service; and organizational governance.
The City of Kitchener is constantly exploring ways to improve its financial sustainability through a balanced
approach to financial management. The City looks at how to use public monies in the most responsible
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manner while ensuring fair levels of taxation - in order to create a sustainable financial position today,
tomorrow and for generations to come.
In order to preserve its infrastructure, the City has dedicated itself to effectively managing its assets.
Understanding the health and status of capital assets, like roads, bridges, and facilities, positions the City
well to ensure the community can prosper as it did in past generations, by building upon a strong foundation
of core infrastructure.
As the world of technology moves forward at a rapid pace, the City's Information Technology group supports
the technological infrastructure for many of the City's financial and operational services. With increasing
demands for real -time information, the City is looking to bolster the use of mobile technology to help staff
report on activities remotely from the field.
The City believes in transparency as a core element to delivering high - quality customer service to citizens.
This is exemplified by the fact that the City provides accessible, plain language access through a variety
of formats to citizens on pressing and emerging issues affecting the City. It is through being open and
accessible that the City believes it can improve its engagement with the community on a broader suite
of issues.
Finally, the City works to deliver on the programs and services that matter most to the citizens of Kitchener.
This is demonstrated by the fact that all City work undertaken is aligned directly with a strategic priority
pulled from the community's strategic plan. Yet, it is not just important to simply deliver what matters most
to citizens, but also to support that delivery through a robust governance and management approach,
including a close eye on risk management and legislative compliance.
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Business Plan and Budgetary Process
Integrated planning, the direct tie between the City's strategic plan and its day -to -day work helps make
sense of what is being done and why, and allows for a more effective and efficient delivery of valued services
to citizens. Together staff and Council continue to build an innovative, caring and vibrant Kitchener with safe
and thriving neighbourhoods. The vision originally articulated in 2000 and confirmed again in 2007 is the
foothold of the City's strategic work for 2012. The strategic plan was developed in concert with City Council's
term of office, now on a four -year cycle from 2011 -2014.
Departmental business plans which are completed on a four -year cycle, take their direction from the strategic
plan. This formalizes the link between the strategic priorities of the community and Council with action
items expressed through the organization's work plans.
Staff are building a business planning process which will lead to more informed decision - making and
transparency within the administration and for Council. The final steps in the integrated process translate
strategic priorities into action, establishing budgets and measurable outcomes, and then reporting back to
the public on progress against these goals.
In addition to the multi -year business plan process, City Council approves the operating and capital budgets
for the property tax supported operations as well as all City enterprises. To provide transparency in the
budget process, budget information is posted on the City's website and budget meetings are held in a public
forum. Citizens are able to provide their input through a number of channels including social media, the
1 City's interactive budget website, or in person at a public delegation night. 1
Management staff review their budgets regularly. Detailed variance reports are prepared and presented to
i Council three times per year. These reports ensure departmental accountability for financial results and are a i
key tool to allow management to respond to financial pressures during the year.
External Audit
As required by the Municipal Act, City Council has appointed an accounting firm, KPMG LLP, to express an
independent audit opinion on management's Consolidated Financial Statements. Their reports to the
members of Council, inhabitants and ratepayers of the Corporation of the City of Kitchener accompany the
various financial statements in the financial section of this report.
Audit Committee
The Audited Consolidated Financial Statements are presented to the Audit Committee for approval. The Audit
Committee provides a focal point for communications between Council, the external auditor, the internal
auditor and management, and facilitates an impartial, objective and independent review of management
practices through the internal and external audit functions.
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FINANCIAL STATEMENT DISCUSSION AND ANALYSIS
The City of Kitchener's Consolidated Financial Statements have been prepared in accordance with
reporting standards set by the Public Sector Accounting Board (PSAB) of the Canadian Institute of
Chartered Accountants. KPMG LLP have audited the financial statements and provided the accompanying
Auditors' Report. The financial statements and auditors' report satisfy a legislative reporting requirement
as set out in the Municipal Act of Ontario.
The following financial statement discussion and analysis has been prepared by management and
should be read in conjunction with the audited Consolidated Financial Statements and Financial
& Statistical Review.
There are four required financial statements:
- statement of financial position
- statement of operations
- statement of change in net financial assets, and
- statement of cash flow.
The Consolidated Financial Statements reflect the assets, liabilities, reserve funds, surpluses /deficits,
revenues, and expenditures of the City funds and governmental functions or entities. These functions
and entities have been determined to comprise a part of the aggregate City operations based upon
control exercised by the City. The exception is the City's government business enterprises which are
accounted for on the modified equity basis of accounting. References to the "City' below include all
activity for the consolidated entity.
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Consolidated Statement of Financial Position (Balance Sheet)
The Consolidated Statement of Financial Position highlights four key figures that together describe the
financial position of a government: 1) cash resources, 2) net financial asset position, 3) non - financial
assets that are normally held for service provision such as tangible capital assets, and 4) accumulated
surplus (deficit). The statement is used to evaluate the City's ability to meet its financial obligations
and commitments.
The City's net financial asset balance is $161 million (2011 $160 million). This balance is calculated as
total financial assets less liabilities and represents the amount available to finance future operations.
Cash Position
The City's cash position is closely managed and remains adequate along with short -term investments
to meet ongoing cash requirements. The cash position decreased to $56 million from $62 million in
2011 as a result of changes in various operating activities and because of a significant increase in
investments. The Consolidated Statement of Cash Flows summarizes the sources and uses of cash
in 2012.
Loans Receivable
Loans receivable increased to $17 million from $8 million in 2011. The increase is largely the result
of the seating expansion project at the Kitchener Memorial Auditorium, for which the City has loaned
funds to the Kitchener Rangers Junior A Hockey Club. Details of loans receivable are included in
Note 4 of the Consolidated Financial Statements.
It.
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Investments
It is the policy of the City of Kitchener to invest public funds in a manner that provides the highest
investment return while protecting and preserving capital, maintaining liquidity to meet the daily cash
flow demands, and to conform to all legislation governing the investment of public funds.
The balance in investments grew in 2012 to $74 million from $56 million in 2011. At the end of
2011, the City held more funds in cash and cash equivalents rather than investments, anticipating
that investments with higher yields would become available in 2012.
Investment in Kitchener Power Corp. & Kitchener Generation Corporation
The City's investment in Kitchener Power Corp. and its affiliates is made up of the City's initial
investment and its share of net income since acquisition less dividends received. See Note 6 to the
Consolidated Financial Statements for further details.
New to the Statement of Financial Position for 2012 is the addition of the Investment in Kitchener
Generation Corporation. The City installed a 500 -kW solar roof on the top of the Kitchener Operations
Facility in 2011 and this asset has been fully transferred to Kitchener Generation Corporation in
exchange for 100% of the common shares and interest - bearing debt. Details of the new corporation
are included in Note 7 of the Consolidated Financial Statements.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of all vendor related payable balances, accrued
liabilities, payroll related liabilities, intercompany payables and sales tax payables. The combined
balance increased $12 million to $86 million in 2012 from $74 million in 2011, and is largely due to
timing of the last payroll of 2012 and various increases in intercompany payables, contingent
liabilities, and an increase in site inspection deposits.
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Municipal Debt
Millions
Municipal Debt
The City has three components that comprise the overall debt total. Debt has been issued to fund:
• a portion of the tax - supported capital program
• capital improvements to Enterprises, where the debt charges will be funded through user fees
and external sources, such as the Parking Enterprise
• the Economic Development Investment Fund (EDIF)
The City's capital investment philosophy ensures that any increases in debt charges from one year to
the next do not exceed assessment growth (excluding the impact of the debt associated with EDIF).
As well, the overall contribution from the tax base through taxes and debt charges will not increase
more than assessment growth plus inflation from one year to the next.
This philosophy has ensured that the impact on the taxpayer does not exceed inflation and that the
City must prioritize projects to fit the funding available.
The City created EDIF in 2004 as a $110 million commitment to invest in catalyst projects to
strengthen the local economy and stimulate urban development in Downtown Kitchener. The fund has
provided dollars for major strategic investment projects including the University of Waterloo School of
Pharmacy, the Communitech Hub, and King Street streetscaping. EDIF investments have had a
remarkable positive impact on the City, increasing the City's recognition as a location for innovation,
entrepreneurship, and a sought -after urban lifestyle. Highlights of the EDIF investment include:
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• Downtown properties near EDIF investments are valued over $30 million in excess of expected
assessment growth.
• Industrial properties on the Shirley Drive extension and newly- constructed Cedarview Place have grown
in value by more than $10 million, up from only $1.3 million in 2004.
• There are 1,569 jobs that can be directly linked to EDIF investments including high tech jobs, as well
as jobs in manufacturing and education.
• The Communitech Hub alone accounts for the creation of 620 jobs, including 495 in digital media.
• Major employers have found space in Downtown Kitchener due to EDIF investments including Google
(200 employees) and Desire2Learn (540 employees).
• City Centre Condominiums has filed a site plan application for summer 2013 construction of their first
phase of 179 units in a self - contained building fronting on to Young Street.
• The Upper Storey Renovation Program has resulted in six projects underway or complete, producing
28 units valued at $2.3 million.
• Since 2004, the population in downtown neighbourhoods increased by 1,718 residents, including
482 urban core residents, mostly in Kaufman Lofts.
• As of 2012, the city spent $97.8 million, and partner investments have reached $232.9 million,
representing $2.38 in additional funding by partners per $1 spent by the City.
• Since 2004, the construction value of building permits in downtown neighbourhoods has reached
$752 million.
• Communitech alone has seen $333 million in equity investments to date.
Municipal debt has increased to $111 million in 2012 from $98 million in 2011. The change in debt is a
result of new debt issuance of $21.5 million offset by repayment of $8.4 million of existing debt. The new
debt is mostly attributable to the Kitchener Memorial Auditorium Complex (KMAC) expansion project and
the 2012 component of EDIF.
The portion of debt related to the KMAC expansion project will be recovered from the Kitchener Rangers
Junior A Hockey Club, and is reflected in Loans Receivable. These amounts are shown both in Loans
Receivable and in Municipal Debt and cannot be offset in the Consolidated Statements per GAAP and
PSAB standards.
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Tangible Capital Assets by Asset Type
2012 Net Book Value - $ 929 Million (2011 Net Book Value - $ 870 Million)
M Land
$180M ($9
Assets under construction
$71M ($53M)
R Linear Assets
$422M ($409K
Tangible Capital Assets
.� VehicLds
$13M ($13M)
Buildings
$180M ($162M)
0 Leasehold Improvements
$3M ($3M)
III Machinery and Equipment
$24M ($23M)
III Computer Hardware &
Software
$9M ($10M)
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
ranging from 1 to 100 years.
During 2012, the City acquired $101 million in tangible capital assets (2011 $94 million).
Amortization of assets was $34 million (2011 $30 million). Refer to Note 13 and Schedule A
in the financial statements for a detailed breakdown of tangible capital asset activity for 2012.
The net book value of tangible capital assets at December 31, 2012 is $929 million, up from
$870 million in 2011.
01
1-24
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 23 6L
Accumulated Surplus
The City's accumulated surplus for fiscal 2012 is $1.09 billion (2011 $1.03 billion). The accumulated
surplus reflects the resources that have been built over time at the City and the balance includes items
such as tangible capital assets, equity in Kitchener Power Corp. and Kitchener Generation Corporation
and various reserve funds.
21
1-25
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 24
Millioi
$40
$35
$30
$25
$20
$15
$10
$5
Reserve Funds
2008 2009 2010 2011 2012
Reserve Funds
Reserve funds are included as part of accumulated surplus and these balances are disclosed
in Note 14 to the financial statements. Reserve fund balances have increased during 2012
to $35 million ($30 million in 2011).
Under the authority of the Municipal Act, the City has established reserve funds to set aside
funds to be used for future purposes.
Reserve funds are established to ensure future liabilities can be met, capital assets are properly
maintained and sufficient financial flexibility exists to respond to economic cycles or unanticipated
financial requirements. Council is responsible for exercising discretion with respect to the use of
reserve funds, subject to the terms of Council policy, as well as statutory and legal requirements.
A comprehensive review of the reserve fund policy was undertaken in 2012 with new guiding principles
for reserves developed to ensure the reserves continue to support the financial goals and serve
the highest priority needs of the City and its citizens.
W
1-26
0
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 25 6L
Consolidated Statement of Operations
The Consolidated Statement of Operations reports the revenues collected by the City, the cost of
providing municipal services and the resulting annual surplus /deficit.
This year, overall assessment growth was 1.81 %. While this new assessment creates revenue for the
City, there is also a cost to provide services to new development. In addition, cost increases in excess
of inflation, public demand for new services and unreliable revenue sources all place significant
pressure on the City budget. The tax rate increase for 2012 operations was 1.41 %. A special capital
Levy increase of 0.98% was also added to fund the City's Economic Development Investment Fund.
This marks the ninth year of the ten -year fund.
23
1-27
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 26
Revenues
Revenues
Revenues are received from the following sources: taxation, users fees, grants and other. Kitchener
is one of only two municipalities in Ontario that own and operate a natural gas utility. Gasworks
revenues are down from 2011 and budget due to lower customer consumption related to a mild
winter in 2012.
Grants revenue has decreased from 2011 due to the infrastructure stimulus program, which saw
funding received in 2011 from federal and provincial governments for several projects that were
completed in that year.
The 'Other' category in the chart above includes contribution of tangible capital assets, investment
income, penalties and interest on taxes, obligatory reserve funds revenue recognized, and share of
net income of Kitchener Power Corp. and Kitchener Generation Corporation. Revenues are notably
higher in this category for 2012 due to donated assets of $10.4 million from the Kitchener Rangers
Junior A Hockey Club for the Kitchener Memorial Auditorium expansion project.
1-28.
0
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 27
Expenses by Function
Expenses
The City of Kitchener is a diversified government institution and provides a wide range of services to
its citizens including fire, roads, water, sewer, natural gas, libraries, and community programs.
Schedule B of the Consolidated Financial Statements breaks the expenses into major functional
activities, consistent with provincially legislated requirements.
As is common with most Ontario municipalities, the City of Kitchener does not budget for
amortization of tangible capital assets or gains and losses on disposal of assets. However, in order
that the actual results may be compared to budget in a meaningful way, the Council - approved
budgets have been adjusted to include amortization expense and other accounting adjustments
mandated by the Public Sector Accounting Board to express the financial statements on an accrual
basis. This is the first year in which this adjustment has been made and it provides greater clarity
for all readers in assessing budget to actual variances.
General government expenses are $3.5 million higher in 2012 than 2011 as this was the first year
of debt charges on the Kitchener Operations Facility. In addition, the 2011 expense was offset with
proceeds of sale of lands that became surplus with the creation of the consolidated Kitchener
Operations Facility.
25
1-29
0
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:00 PM Page 28
. mmmmmmmmmmmmm�mmmmm�mmmmmmm�mmmmmmmmmmmmmmmmmmm
Expenses by Object
2012 - $278 Million
(2011 - $274 Million)
Environmental Services expenses have increased $11 million from 2011 with several contributing
factors such as: loss on sale of assets, the Victoria Park rehabilitation project and increased
amortization.
Gasworks expenses are down from prior year, consistent with the decrease in gasworks revenue
due to a mild winter.
Consolidated Statement of Change in Net Financial Assets
The Statement of Change in Net Financial Assets explains the difference between a municipality's
surplus or deficit for the reporting year and its change in net financial assets in the same reporting
year. This statement provides for the reporting of the acquisition of tangible capital assets and
other significant items that impact the difference between the annual surplus /deficit and the
change in net financial assets.
Consolidated Statement of Cash Flow
The statement of cash flows reports changes in cash and cash equivalents resulting from
operations, capital, investing and financing activities and shows how the City financed its activities
during the year and met its cash requirements.
a:
1-30
FinancialRepor t2012_June13_Layout 1 13 -06 -18 2:01 PM Page 29
CANADIAN AWARD FOR FINANCIAL
REPORTING
The Government Finance Officers Association of the United
States and Canada (GFOA) awarded a Canadian Award for
Financial Reporting to The City of Kitchener for its annual
Government Finance Officers Association
financial report for the fiscal year ended December 31, 2011.
The Canadian Award for Financial Reporting program was
Canadian Award
established to encourage municipal governments throughout
for
Canada to publish high quality financial reports and to provide
Financial Reporting
peer recognition and technical guidance for officials preparing
these reports.
Presented to
In order to be awarded a Canadian Award for Financial
The City of Kitchener
Reporting, a government must publish an easily readable and
Ontario
efficiently organized annual financial report, whose content
conform to program standards. Such reports should go beyond
For its Annual
the minimum requirements of generally accepted accounting
Financial Report
principles and demonstrate an effort to clearly communicate
for the Year Ended
the municipal government's financial picture, enhance an
December 31, 2011
understanding of financial reporting by municipal governments,
and address user needs.
The award is valid for a period of one year only. We believe our Executive Director
current report continues to conform to the Canadian Award for
Financial Reporting program requirements.
LOOKING AHEAD
The City's incredibly successful 10 -year $110 million Economic Development Investment Fund enters its
final year in 2013. As the returns on this major investment continue to be realized through increased
property tax assessment, new employment and business activity, it will be important for the City to take
deliberate actions to sustain these gains. The recently- adopted Kitchener Economic Development
Strategy provides a road map for the corporation into the future.
Looking ahead to 2013, the City will face pressure from the community to maintain or improve service
levels while keeping property tax and user fee increases to an affordable level. A rigorous budget process
and the continued development of the City's long -term financial plan will help the City achieve an
optimal balance of taxes levied and services provided, not just in 2013 but for the years to come.
Dan Chapman, CPA, CA, MPA
Deputy CAO, Finance and Corporate Services & City Treasurer
June 24, 2013
Q2
1-31
FinancialReport2012 _June13_Layout 1 13 -06 -18 2:01 PM Page 30
To the Mayor and Members of Council, Inhabitants and Ratepayers of
The Corporation of the City of Kitchener
We have audited the accompanying consolidated financial statAen Corporation of the City
of Kit chener, which comprise the consolidated statement of fin as at December 31,
2012, the consolidated statements of operations, change in nets and cash flows for
the year then ended, and notes, comprising a summary of sig g policies and other
explanatory information.
Management's Responsibility for the consolidated Finar4gPPStatements
Management is responsible for the preparation a V of these consolidated financial
statements in accordance with Canadian public se andards, and for such internal
control as management determines is necessary to ration of consolidated financial
statements that are free from material mi atement, aud or error.
An audit involves p
in the consolidated fin
financial stat
ng
financial statements based on our
I anadian "'gbrierally accepted auditing standards.
al requirements and plan and perform the audit to
consolidated financial statements are free from
audit evidence about the amounts and disclosures
tements. The procedures selected depend on ourjudgment, including
of material misstatement of the consolidated financial statements,
erro . aking those risk assessments, we consider internal control relevant
and resentation of the consolidated financial statements in order to
that are appropriate in the circumstances, but not for the purpose of
the effectiveness of the entity's internal control. An audit also includes
Hess of accounting policies used and the reasonableness of accounting
agement, as well as evaluating the overall presentation of the consolidated
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
4;a
1-32
2012, and its consolidated results of operations and its consolidated cash flows for the year then
ended in accordance with Canadian public sector accounting standards.
Chartered Accountants, Licensed Public Accountants
29
1-33
THE CORPORATION OF THE CITY OF KITCHENER
Consolidated Statement of Financial Position
As at December 31, 2012
mpanying
30
1-34
2012
2011
Financial assets
Cash and cash equivalents
$ 55,812,011
62,394,615
Taxes receivable
21,586,29
22,275,777
Trade and other accounts receivable
35,538
32,019,992
Loans receivable (Note 4)
16,6
7,820,988
Inventory for resale
1 ,5
13,871,309
Investments (Note 5)
84,454
6,379,944
Investment in Kitchener Power Corp. and
its affiliates (Note 6)
179,037,991
1
297
Investment in Kitchener Generation Corporation (No
4,1,§0,532
_
39 1,442
368,710,922
Liabilities
Accounts payable and accrued liabilities
6,753,513
74,263,690
Deferred revenue - obligatory reserve to 9)
859,353
1,665,764
Deferred revenue - other
,715
8,672,152
Municipal debt (Note 10)
1119 2,798
98,187,960
Employee future benefits (Note 12)
,928,057
25,643,189
37,585,436
208,432,755
Net financial assets
160,566,006
160,278,167
Non - financial asse
Tangible capit is -net
929,404,766
869,949,742
Inventory of sup p
2,062,088
2,049,446
Prepaid ex pens
1,403,769
1,111,167
932,870,623
873,110,355
AccuuAN&d sur
um „
$1,093,436,629
$1,033,388,522
mpanying
30
1-34
THE CORPORATION OF THE CITY OF KITCHENER
Consolidated Statement of Operations
Year Ended December 31, 2012
2012 2012 2011
Budget
(unaudited)
See accompanying notes
31
1-35
THE CORPORATION OF THE CITY OF KITCHENER
Consolidated Statement of Change in Net Financial Assets
Year Ended December 31, 2012
2012 2012 2011
Budget
(unaudited)
Annual surplus
$ 60,674,783
$ 60,048,107
$ 74,905,549
Amortization of tangible capital assets
34,299,301
34,299 1111,
29,898,245
Acquisition of tangible capital assets
(91,019,224)
(101, 5)
(93,591,507)
Loss on disposal of tangible capital assets
1,140,297
297
990,947
Proceeds on disposal of tangible capital
assets
2,172, 757
2,172,
314,894
Transfer of tangible capital asset to
Kitchener Generation Corporation
4,21
4,213,736
-
Acquisition of supplies of inventories
-
(4,176,824)
0,870)
Acquisition of prepaid expenses
-
835,053)
(1,
04,169)
Consumption of supplies inventory
-
4,164,182
5,232,519
Use of prepaid expenses
542,451
803,334
Change in net financial assets
11,48 liq
287,839
11,958,942
Net financial assets, beginning of the yeAhhh..
160,278,1
160,278,167
148,319,225
Net financial assets, end of the year 759,817 ° °'01lllllllll 0,566,006 $ 160,278,167
See accompanying notes;
32
1-36
THE CORPORATION OF THE CITY OF KITCHENER
Consolidated Statement of Cash Flow
Year Ended December 31, 2012
Cash and cash equivalents, end of year $ 55,812,011 $ 62,394,615
See accompanying notes
33
1-37
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
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 i a summary of the
significant accounting policies followed in the preparation of these financ atements:
a. Basis of consolidation
i. Consolidated entities
These consolidated financial statements reflect th ssets, "'0111111 ' ities, reserves,
surpluses /deficits, revenues, and expenditures of t City funds overnmental
functions or entities which have been determined t prise a part of th egate City
operations based upon control exercised by t y except for the City' ernment
businesses which are accounted for on the ified eq basis of acco ing. The
following boards, municipal enterprises utilities a been included in the
• Buildin
• Golf E
actions and balances have been eliminated.
I ration and Kitchener Power Corp. and its affiliates are not
a 6d for on the modified equity basis which reflects the City of
,MCI
nt in the enterprises and its share of net income since acquisition.
quity basis, the enterprises' accounting principles are not adjusted to
the City, and inter - organizational transactions and balances are not
r region and school board transactions
The taxa'M11h, 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).
34
1-38
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
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 asis of accounting
The accrual basis of accounting recognizes revenues in the d in which th
transactions or events occurred that gave rise to the revenues. ses are recognize
in the period the goods and services are acquired and a liabilit curred or transfers ar
due.
ii. Cash and cash equivalents um
Cash and cash equivalents include cash on ha
original maturity of 90 days or less as at the end o
Trade and other accounts receivable are
accounts.
iv. Loans receivable
Loans receivable are reported ne
is recorded as it accrues. When tt
an allowance is set up to offset tt
materials and services expense in
v. Inventory for res
highly
e
d
e
with
any allowance for doubtful
u accounts. Interest income
le is identified as impaired,
adjustments are included in
is recognized.
cost or net realizable value on an average
- arried at 3M, net of accumulated amortization on premiums
and discounts are amortized on a straight line basis over the
come is recorded as it accrues. When the value of any portfolio
W mpaired, the carrying amount is adjusted to the estimated
justments are included in investment income in the period
ment t ers, contributions and other amounts are received from third parties
purs o ation, regulation or agreement and may only be used in the conduct of
certain s, in the completion of specific work or for the purchase of tangible capital
assets. I ddition, 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.
35
1-39
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
1. Summary of significant accounting policies (continued)
viii. Employee future benefits
Non - financial assets are not available to dischal
provision of services. They have useful lives that
not intended for sale in the or d urse of
assets during the year, together s
consolidated change in net financi set
Tangible capital assets
and are held for use in the
Dnd the current year and are
The change in non - financial
aver expenses, provides the
cost which includes all amounts that are
uction, development or betterment of the
tangible capital assets is amortized on a
ul lives as follows:
10 to 100 years
15 to 50 years
Over the useful life of the improvement or the
lease term, whichever is shorter
1 to 20 years
3 to 10 years
1 to 10 years
2 to 100 years
butions 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.
36
1-40
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
1. Summary of significant accounting policies (continued)
Financi"
Operation
and prepaid
i d by the City have not been included in the Consolidated Statement of
r have their operations been included in the Consolidated Statement of
st funds under administration are comprised of cemetery perpetual care
ment funds totaling $11,405,651 (2011 - $10,788,779).
37
RMIAP
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
4. Loans receivable
Loans receivable are made up of the following:
2012 2011
Major capital improvement loans receivable $ 10,400,0 $ -
Loans receivable with forgiveness provisions 23 338,652
Minor capital improvement and other loans receivable 6 7 7,482,336
$
39 $ 7,820,988
Major capital improvement loans are individual loans in exce $500';" hen issued with
no forgiveness provision built into the loan. These loans ve repaymen ranging from
12 to 15 years. All major capital improvement loans Oar ecured and bea est at rates
ranging from 1.40% to 2.55 %. Loans issued in 201 re to allow The Kitc Rangers
Junior A Hockey Club to make improvements to t ener morial Auditori omplex
(an asset owned by the City).
Forgivable loans are those initially offered with forg s sions built into the agreement.
All loans in this category are unsecured and have re terms of five to ten years. The
forgiveness provisions range from 15% o 100% (10% fo year of the ten year term). The
balances recorded are net of the for forgiven nterest rates on these loans
range from 0% to 8 %. u
Minor
to the fp�stltwo ategoriesanTher�e is a ieteiv rm "�° � 'se any loan receivable not fitting
d to these loans with payment
terms ranging from s^2.90%lo. 0 yea majority of these loans are secured by the
asset the loan was gce, but rs are unsecured. The interest rates on these
loans range from 0°
5. Inves tments 4W
2012 2012 2011 2011
Cost Market Cost Market
Value Value
$ 61,655,641 $ 62,374,715 $ 46,500,000 $ 47,026,397
11,680,942 11,528,841 8,885,836 8,823,002
947,871 1,157,228 994,108 1,123,668
$ 74,284,454 $ 75,060,784 $ 56,379,944 $ 56,973,067
6. InvestmerifliNWhener 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 corporation. 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.
38
1-42
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
6. Investment in Kitchener Power Corp. and its Affiliates (continued)
The investment is comprised of the following:
2012
2011
Kitchener Power Corp. common shares $
61,244,208
$ 61,244,208
Kitchener - Wilmot Hydro Inc. long -term notes
receivable
70,997,576
Share of net income and prior period adjustments due to
X6,779
changes in accounting policies since acquisition,
net of dividends
41,706,513
179, 037, 9
173, 948, 297
The Kitchener - Wilmot Hydro Inc. notes are unsecure bear
interest at th
of 5.87 %.
There are no repayment terms and there is no inte deem the notes or the s
The following table provides condensed financi
rmation
espect to Kitchener Power
Corp.:
2012
2011
Current assets
65,083,948
$ 68,435,132
Capital assets
i
1$6
Regulatory assets
21,536,4
Future income taxes
6,737,762
13,287,674
Total assets MAW
258,251,486
256,154,305
Current liabilities
33,528,260
33,107,940
Long -term debt
83,932,076
84,844,106
Regulatory liabi
14,195,249
17,338,259
Other liabiliti
9,478,918
9,264,302
Total I is bil itie
141,134, 503
144, 554, 607
Net assets
117,116,983
111,599,698
Resu tions
es
213,732,054
203,946,014
enses
V
(204,574,770)
(194,893,410)
et income
9,157,284
9,052,604
's share of net ome - 92.25% $
8,447,594
$ 8,351,027
7. Inve
t in Kitc r Generation Corporation
Under
usi Corporation Act (Ontario), Kitchener
Generation Corporation
was
incorpora
ember 9, 2011.
Effective Jan
1, 2012, the City transferred the solar roof asset constructed on the surface
of the Kitchener Operations Facility to Kitchener Generation
Corporation in exchange for
100% of its common shares and interest bearing debt.
39
1-43
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
The notes receivable are unsecured and bear interest AW rate of 5.01 %. To MWnt that
's share of 14ftss - $ (33,204)
8. 4Lrance pool Is
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 24.34% (2011 - 24.88 %) and its share of the Pool surplus as
at May 31, 2012 was $1,341,433 (2011 - $1,086,203). The City's share of the Pool surplus has
not been included in the Consolidated Statement of Financial Position.
.N
MEE!
2012
Current assets
u $ 14,396
Capital assets
4,180,532
Tota I a sse is
M Aff 4,194, 928
Current liabilities
14,396
Long -term debt
3,792,362
Total liabilitie
3,806,758
Net assets
388,170
Results of oper
Re\tenues
a
415,394
's share of 14ftss - $ (33,204)
8. 4Lrance pool Is
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 24.34% (2011 - 24.88 %) and its share of the Pool surplus as
at May 31, 2012 was $1,341,433 (2011 - $1,086,203). The City's share of the Pool surplus has
not been included in the Consolidated Statement of Financial Position.
.N
MEE!
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
9. Obligatory deferred revenue
10. Municipal debt
The City has assumed responsibility for the pay cipal and interest charges on
certain long -term debt issued by other municipalities. end of the year, the outstanding
principal amount of this liability is $111 2,798 (2011 - 7,961).
The annual principal repayments are: um.
11.
2013 9,738,514
2012
2011
Recreational land
2,859,353
1,665,764
The continuity of deferred revenue is as follows:
2017
2018 and ther
10,222,256
61,287,048
2
2011
Balance, beginning of year
$ 764 $
332,789
Collections
10,410,211
Interest earned
8
7,858
Other revenue
1,285,6
843,108
Contributions used
(172,220)
,928,202)
Balance, end of year
$ 2,859,353
10. Municipal debt
The City has assumed responsibility for the pay cipal and interest charges on
certain long -term debt issued by other municipalities. end of the year, the outstanding
principal amount of this liability is $111 2,798 (2011 - 7,961).
The annual principal repayments are: um.
11.
2013 9,738,514
2014
10, 075, 243
2015
9,821,385
2016
10,118, 352
2017
2018 and ther
10,222,256
61,287,048
ui
$ 111,262, 798
The I and st payments required to service the long -term debt are within
t nual debt ent rescribed by the Ontario Ministry of Municipal Affairs and
sing.
i liabiliti arry interest rates ranging from 1.35% to 5.45 %. Interest charges for
to r I debt totaled $3,888,957 (2011 - $3,542,626).
The City ontributions to the Ontario Municipal Employees Retirement System
(OMERS), 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 2012 amounting to
$8,152,534 (2011 - $7,290,301).
41
1-45
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
12. Employee future benefits
The estimated liability for employee future benefits is comprised of the following:
2012
2011
Sick leave benefit plan
$ 13,044,324 $
12,698,320
Post - employment benefits
10,557
9,505,669
Future payments required to WSIB
4, 0
3,439,200
$ ,057 $
25,643,189
a. Sick leave
Under the sick leave benefit plan, unused sick
c mulate an
in employ ees
may become entitled to cash payments when thCity's
employm
a expense
Vccan
for the current year was $2,475,094 (2011 - $d
is comprised o
following
items:
2012
2011
Current period benefit cost
917,398 $
963,198
Amortization of actuarial losses
757,612
441,237
Sick leave benefit expense
1,675,010
1,404,435
Sick leave benefit interest expense
800,084
830,847
Total expenses related to sick leave 6ftfits
2,475,094 $
2,235,282
benefits paid dudqMe ye
A reserve fund to F
$4,48 -
leave umes a discount rate of 3.75%
its liability was completed at December 31,
of the current year.
ctuarial losses were $8,026,802 (2011 —
sars (2011 — 13 to 14 years). The amount of
f1- $1,364,382).
this liability is included in accumulated surplus, in the amount of
to enVWes who are eligible to retire are:
42
$ 17,818,270
1-46
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
12. Employee future benefits (continued)
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 of service with the City. The
expense for the year was $2,041,995 (2011 - $1,288,498) and is comp d of the following
items:
2
Current period benefit cost 1 $ 491,928
Amortization of actuarial losses 691, 266,668
Post - employment benefit expense 1,438,7 758,596
Post - employment benefit interest expense 603,263 529,902
Total expenses related to post - employment benefitoW $ 2,041,995 $ 88,498
The actuarial valuation of the future liability fort
rate of 3.75% (2011 — 3.7591o) and inflation rates
4% to 8 %).
As at December 31, 2012, the u
$6,329,401) and are amortized over
benefits paid during the year were $S
this liability was completed at Dece
end of the current year.
The City holds no
c. WSIB
The Workplace ety and
payments on b f the
was $1,669,500 ( $
lated
rance
s assumes a discount
of 4% to 8 % (2011 —
aria" es were $5,637,570 (2011 —
(2011 to 12 years). The amount of
SO 0,563. last actuarial valuation for
act arial update provided to the
to meet this liability.
;WSIB) administer injured worker benefits
employer. The expense for the current year
ised of the following items:
A reserve fund to provide for this liability is included in accumulated surplus, in the amount of
$908,428 (2011 - $836,218).
43
RMIAIFJ
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
15. Conti
a. The Cit extended a line of credit not to exceed $2,000,000 to Kitchener Housing Inc.
Interest is charged on the outstanding balance at bank prime plus 1% (rate as at December
31, 2012 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.
..
1-48
2012
" " "iillllllllllllui
" "" 2011
Surplus:
Invested in tangible capital assets
29,404,766
$ 869,949,742
Other
(26,231,630)
(15,013,967)
Equity in Kitchener Power Corp. and it Mates
179,037,991
173,948,297
Equity in Kitchener Generation Corp
4,180,532
-
UnfundedIVi^
Employee future benefits
( 7,928,057)
(25,643,189)
Total surplus
,058,463,602
1,003,240,883
Reserve funds set a o ific pur by Council for:
Capital
11,319,648
9,609,594
Stabilization
16,823,278
11,630,051
Program speci
5,371,276
4,472,302
Corporate
5,860,683
6,228,140
Develo harges
(6,714,147)
(4,344,261)
Kit 'brary
37,000
-
ner Down usin
provement Area
29,478
29,478
Centre in the a Inc.
2,245,811
2,522,335
I reserve funds
34,973,027
30,147,639
$1,093,436,629
$1,033,388,522
15. Conti
a. The Cit extended a line of credit not to exceed $2,000,000 to Kitchener Housing Inc.
Interest is charged on the outstanding balance at bank prime plus 1% (rate as at December
31, 2012 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.
..
1-48
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
16. 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, storm sewer, gasworks,
libraries, and community services.
Segmented information has been prepared by major functional
provided, consistent with the Consolidated Statement of Operations
requirements.
For each reported segment, revenues and expenses represent
attributable to the segment and amounts that are allocated on
The accounting policies used in these segments are
preparation of the consolidated financial statements as,
See Schedule B
17. Budget figures
The budget figures reflected in these consolidated
at a meeting on January 19, 2012. Budget figures ha
Accounting Board standards.
18. Comparative figures
Certain of the prior year's co
year's presentation.
45
it with the
in Note 1.
tion of activities
incially legislated
; that are directly
Isis.
(lowed in the
re those approved by Council
islated to reflect Public Sector
to conform to the current
1-49
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
Schedule A — Tangible Capital Assets
46
1-50
Land
Leasenoid
vlacninery m
computer
computer
"^illlll
Linear Assets under
Land
improvements
Buildings
improvements
equipment
software
hardware
Whicles
nd
Buildings
assets
construction
Total
Cost
Balance, beginning ofyear
$40,461,457
$44,564,833
$170,959,761
$ 3,054,251
$51,108,656
$19,862,512
/$5,
28,908,636
$131,411
,704,578
$656,647,528
$52,737,523
$1,275,858,708
Additions
2,065,890
2,667,194
19,169,117
-
4,190,484
393,073
1,884,823
6,423,213
76475
24,098,061
39,143,122
101,281,115
Transfers
(81,644)
263,936
10,803,694
-
885,640
122,519
493,340
81,644
lu. -
8,413,247
(20,988,466)
Disposals
(243,931)
(102,091)
(136,820)
(1,990,740)
(41,3
L 315)
(67,306)
,412,784)
(4,006,824)
(22,837)
(12,272,846)
Balance, end of year
42,201,772
47,393,872
200,795,752
3,054,251
54,194,040
20,336
1907,625
3ANW84
137,848,804
66,468,269
685,152,012
70,869,342
1,364,866,977
Accumulated Amortization
Balance, beginning of year
-
(19,148,723)
(75,665,144)
(381,076)
(28,141,792)
(13,557,368)
(
V(9789,608)
,635)
-
(4,210,505)
(247,199,732)
-
(405,908,966)
Disposals
-
102,091
118,148
-
1,704,710
46,895
,275
-
-
1,566,089
-
4,746,056
Amortization expense
(1,673,346)
(5,047,246)
(71,196)
(3,541 6)
(1,106,677)
(2,123,551)
(17,766,657)
(34,299,301)
Balance, end of year
-
(20,719,978)
(80,594,242)
(452,272)
(29,97
14,617,150)
,)88,968)
-
(6,334,056)
(263,400,300)
-
(435,462,211)
Net book value, end of year
42,201,772
26,673,894
120,201,510
2,601,979
24,2
4
3,531,188
,516
137,848,804
60,134,213
421,751,712
70,869,342 1
929,404,766
Net book value, beginninq of year
$40,461,457
$25,416,110
$ 95,294,617
$ 2,673,175
$22,966,8
V$ 6,305,1
$13,30711001
$131,411,253
$66,494,073
$409,447,796
$52,737,523 1
$ 869,949,742
46
1-50
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
Schedule 8 - Segmented Information
47
1-51
Social and
ati'
Year ended December 31, 2012
protection Transportation
Environmental
Flealth
Family
Cultural
h6g
a nd
General
Services
Services
Services
Services
Service
Services
ment
Gasworks
Government
Total
Revenues
Taxation
$ 31,334,692 $
13,398,912
$ 569,611 $
133,150 $
1,
$ 34,847,421 $
4,6
$
$ 16,347,160
$ 102,546,937
User fees and charges
7,091,511
6,709,319
46,366,094
1,503,573
620
20,821,646
2,406,
"
83,262,445
2,436,359
170,899,211
Grants
-
9,039,329
1,319,942
-
55,996
976
-
-
74,444
11,772,687
Investment income
224,701
(20,441)
542,722
306,053
3,915
27,572
(40,049)
134,553
6,240,524
7,519,550
Penalty and interest on taxes
-
-
-
-
-
-
3,318,267
3,318,267
Obligatory reserve funds revenue
recognized
2,378,193
3,533,957
575,068
41,886
51,426
296,301
6,876,831
Share of net income in Kitchener
Power Corp.
-
-
-
-
-
8,447,594
8,447,594
Share of net income in Kitchener
Generation Corporation
-
-
-
-
(33,204)
(33,204)
Asset donations
-
9,408,016
679,209
12 54,999
-
9,938
-
22,152,162
Other
396,546
55,615
1,067,725
44
7,8
875,587
36,256
1,352,124
619,743
4,466,893
Total revenue
39,047,450
40,968,943
60
1,
2,253,216
69,985,269
7,076,897
84,810,486
37,747,188
337,966,928
Expenses
Salaries, wages and benefits
34,150,924
9 6
7,86
1,185,
1,732,924
33,547,796
4,942,440
5,367,517
29,776,977
128,443,688
Materials and services
3,121,995
485
9,
381,1
380,546
15,700,821
1,629,003
50,710,602
14,877,696
103,260,316
Debenture debt interest
223,118
1
55,308
756,276
962,992
-
760,686
3,888,958
Internal charges and recoveries
1,641,367
99
74,954
62
53,770
1,780,406
943,307
2,676,796
(13,330,252)
-
Grants and other
6,8
....III
837,302
7
8,650
2,285,571
665,753
-
63,077
3,867,251
Amortization
1,
3,467
932,172
106,175
75,845
5,784,032
641,615
5,696,755
5,237,624
34,299,301
Loss / (gain) on sale of assets
11
16
361
108,301
(364,599)
(541,740)
98,978
624,179
4,159,307
Total expenses
, 71,694
29,
3
7
1,947,206
2,307,043
59,490,303
9,243,370
64,550,648
38,009,987
277,918,821
Net surplus / (deficit)
524,244) $
11,461,3
21,788,293 $
51,013 $
(53,827)
$ 10,494,966 $
(2,166,473) $
20,259,838
$ (262,799)
$ 60,048,107
47
1-51
THE CORPORATION OF THE CITY OF KITCHENER
Notes to Consolidated Financial Statements
Year Ended December 31, 2012
Schedule 8 - Segmented Information (continued)
Social and
at
Year ended Decemb er 31, 2011
Protection Transportation
Environmental
Health
Family
ultura
Wing and
General
Services
Services
Services
Services
Service
Services
ment
Gasworks
Government
Total
Revenues
Taxation
$ 30,866,343 $
14,021,135
$ 392,053 $
121,608 $
$
31,455,457 $
5,
$
-
$ 16,113,225 $
99,419,306
User fees and charges
7,372,266
8,616,220
45,687,174
1,349,217
565
20,349,400
2,648,
94,871,570
2,058,807
183,262,221
Grants
55,111
11,102,520
1,680,553
-
78,880
9,654
5,176
904,828
3,189,571
21,766,293
Investment income
154,460
80,223
109,231
298,288
3,062
66,781
(27,321)
(95,947)
6,592,442
7,281,219
Penalty and interest on taxes
3,155,724
3,155,724
Obligatory reserve funds revenue
recognized
(14,577)
1,668,033
5,440,350
1,778,878
129,959
925,559
9,928,202
Share of net income in Kitchener
Fbw er Corp.
-
-
-
-
-
8,351,027
8,351,027
Asset donations
95
8,008,101
206,849
1
03,390
-
10,230
-
8,672,341
Other
143,605
83,986
1,551,070
7,419
440,041
49,090
1,415,902
1,098,664
6,838,439
Total revenue
38,577,303
43,580,218
55,067,280
208
7 ,
60,743,601
8,255,526
97,236,542
41,485,019
348,674,772
Expenses
Salaries, wages and benefits
33,032,953
11,496,
6,
1,1
1,381,321
32,325,486
5,933,580
5,230,204
26,502,507
123,722,490
Materials and services
2,592,883
9,2
4,28
433,
287,696
17,415,437
1,769,401
62,480,059
14,070,723
112,620,481
Debenture debt interest
192,865
24
1,0
60,623
928,442
1,213,309
-
164,075
3,542,626
Internal charges and recoveries
1,380,122
2)
41,757
2,045,540
987,479
789,294
(8,308,132)
-
Grants and other
-
242
10,027
2,302,013
478,509
-
-
3,514,479
Amortization
1,366,879
8,556,
5,367,958
89,497
77,371
5,013,734
653,903
4,953,632
3,818,458
29,898,245
Loss / (gain) on sale of assets
1
655,333
185,552
20,543
-
138,319
28,667
55,173
(1,738,165)
470,902
Total expenses
409
9,387
1,866,803
1,858,795
60,168,971
11,064,848
73,508,362
34,509,466
273,769,223
Net surplus / (deficit)
(113,879) $
12,478,WK$
34,0
3 $
93,405 $
(89,720) $
574,630 $
(2,809,322) $
23,728,180
$ 6,975,553 $
74,905,549
48
1-52
INDEPENDENT AUDITORS' REPORT
Trust Funds
To the Mayor and Members of Council, Inhabitants and Ratepayers of The
of Kitchener
We have audited the accompanying financial statements of the
the City of Kitchener, which comprise the statement of fi
2012, the statements of operations, change in net finan :
then ended, and notes, comprising a summary of ficai
explanatory information. um
Management's Responsibility for the Financial Statements
Management is responsible for the prepay
in accordance with Canadian public sectc
management determines is necessary to
free from material misstatement, whether
Auditors' Responsibility
Our responsibility is
conducted our aud4
standards require tf
obtain reasonable
misstatemdfillEffilk
n of the City
)rporation of
ember 31,
he year
Vid other
of these financial statements
umfor such internal control as
' Ifhancial statements that are
financial statements based on our audit. We
1 nerally accepted auditing standards. Those
uirements and plan and perform the audit to
e financial statements are free from material
An
in
p' ing "' dures to obtain audit evidence about the amounts and
di ures in the fins state nts. The procedures selected depend on our judgment,
in the assess me f the risks of material misstatement of the financial statements,
whethe to fraud or or. In making those risk assessments, we consider internal control
relevant t entity' paration and fair presentation of the financial statements in order to
design audit that are appropriate in the circumstances, but not for the purpose of
expressing an o on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
49
1-53
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Trust Funds of the Corporation of the City of Kitchener as at December 31, 2012,
and its results of operations and its cash flows for the year then ended in accordance with
Canadian public sector accounting standards.
50
1-54
TRUST FUNDS
Balance Sheet
Year Ended December 31, 2012
2012 2011
Assets
Accounts receivable $ 174,292 $ 146,983
Interest receivable 59,151 49,121
Investments (Note 2)
Short -term 2,303,011 1,920,306
Long -term 8,871,29 8,674,469
See accompanying notes
51
1-55
TRUST FUNDS
Statement of Continuity
Year Ended December 31, 2012
Balance, beginning of year 10,788,779
2012
2011
Capital Receipts
88,779
Perpetual care
$ 340,897 $
274,368
Interest earned
442,211
428,965
Other
137,128
58,484
920,23
761,817
Expenditures
Transfer to cemeteries operations
39AF4
296,605
296,605
Net change in fund
qM1 6,87
465,212
Balance, beginning of year 10,788,779
0,323,567
Balance, end of the year jff 11,405,651 $
88,779
aee aUGUMPanyiny IwLcs
52
1-56
TRUST FUNDS
Notes to Financial Statements
Year Ended December 31, 2012
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. AL
Basis of Accounting
Sources of financing and expenditures are reported on the accru s of accounting. The
accrual basis of accounting recognizes receipts as they beco and measurable;
expenditures are recognized as they are incurred and mea a as ult of receipt of
goods or services and the creation of a legal obligation to um
2. Investments
The long -term investments of $8,871,297 (2011 - 4,469®rl, ed on the Bala "i'�"�e Sheet
at cost, have a market value of $9,003,835 (201 782,66
3. Statement of Cash Flows " "iillllllllllllllll uu°
A separate statement of cash flog
investing and financing activities are
presented,'
aarent from
cash flows from operating,
per financial statements.
53
1-57
TRUST FUNDS
Schedule of Continuity
by Fund
4A
Year Ended December 31, 2012
0
M
cm
U
i
Q-
V
)
d
>_
M
LU
C
Q
d
Ccu
C
lC
m
N
a U-
N
H U
D
m
Perpetual Care
uII ^23,260
Mount Hope Cemetery
$ 583,251 $
337 $
0
$
$
-
$ 584,538
Woodland Cemetery
4,294,060
144,071
173,
173,752
-
4,448,531
Bridgeport Cemetery
138,325
3,
5,
300
5,634
-
142,513
Williamsburg Cemetery
1,814,769
1
76,1
14,700
76,120
-
2,022,070
St. Peter's Cemetery
488,545
-
19,48
900
19,483
-
489,445
Cemetery Trusts
F.E. Teremain
15,550
-
620
-
15,550
Florence V. Cober
8,783
350
-
350
-
8,783
L.F. Glick
823
-
823
-
20,664
Edna Atherton
1,33
53
-
53
-
1,331
George Wright Estate
42,614
-
VII
1,698
-
1,698
-
42,614
E. L. Goetz
1,357
-
54
-
54
-
1,357
E. Weiderhold
38,065
-
1,517
-
1,517
-
38,065
Prepaid Interments
1,465
-
138,847
109,878
-
-
3,590,190
$ 10,
79 $,AWO,897
$
442,211 $
137,128
$ 303,364 $
-
$ 11,405, 651
54
1-58
INDEPENDENT AUDITORS' REPORT
To the Members of the Belmont Improvement Area Board of Management
We have audited the accompanying financial statements of the Belmont Improvement Area Board
of Management, which comprise the statement of financial position as at December 31, 2012, the
statements of operations, change in net financial assets and cash flows for ear then ended,
and notes, comprising a summary of significant accounting policies they explanatory
information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair pr
in accordance with Canadian public sector accounting sta
management determines is necessary to enable the pr
free from material misstatement, whether due to frau
Auditors' Responsibility
Our responsibility is to express an opinion these
conducted our audit in accordance with
standards require that we comply with et I re
obtain reasonable assurance about whet the
ion of these fidliNial statements
jKs, and for such int3me 4ontrol as
tion of financial sl at are
ror.
state
We belie "' t the a 'bvidence we have obtained is sufficient and appropriate to provide a
basis for our fro n.
55
1-59
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Belmont Improvement Area Board of Management as at December 31, 2012, and
its results of operations and its cash flows for the year then ended in accordance with Canadian
public sector accounting standards.
56
1-60
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
As at December 31, 2012
See accompanying notes
57
1-61
2012
2011
Financial assets
Cash
$ 11,823 $
13,756
Accounts receivable
175
1
13,931
Financial liabilities
Accounts payable
7,408
Net financial assets
6,8
6,523
Non - financial assets
Tangible capital assets
4,393
5,492
Net assets
11,207
12,015
Accumulated surplus
Accumulated net revenue
6,814
6,523
Invested in tangible capital assets
4,393
5,492
Total accumulated surplus
11,207 $
12,015
See accompanying notes
57
1-61
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Revenue and Expenses and Accumulated Surplus
Year Ended December 31, 2012
2012 2011
Revenue
Assessments $ 25,171 $ 25,000
Interest revenue - 94
Otherrewenue 1,6 2,488
27,582
Expenses
Streetscaping
2,8
1,564
Audit
1,752
1,695
Summer maintenance
4,817
81245
Insurance
V 1 ,192
Winter maintenance
10,784
13,656
Adwertis i ng
2,335
7,646
Miscellaneous
Amortization
2,837
1,099
1,607
610
27,674
36,215
Net deficit for year
Accumulated surplus, beginning of
14162,015
(808)
(8,633)
20,648
Accumulated surplus, end of year
11,207 $
12,015
See accompanying
58
1-62
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Change in Net Financial Assets
As at December 31, 2012
2012 2011
Net financial assets, end of year $ G; $ 6,523
59
1-63
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements
Year ended December 31, 2012
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 acc0rdan e with Canadian
generally accepted accounting principles for local governments as r mended by the
Public Sector Accounting Board of the Canadian Institute of Charte ccountants. Since
precise determination of many assets and liabilities is depende n future events, the
preparation of periodic financial statements necessarily involy of estimates and
approximations. These have been made using careful judgm e f g is a summary
of the significant accounting policies followed in the prepar 'on f these fi 'gl statements
a) Tangible capital assets " "'illlllll
Tangible capital assets are recorded at cost include
attributable to acquisition, construction, de ment or
cost, less residual value, of the tangible cap sets,
basis over their estimated useful lives as follows.
Assets Amortiza eriod
Equipment ears um
amounts that 'directly
rment of the asset. The
mortized on a straight -line
Annual amortization is charged in
Assets under construc %red not a
use.
Tangible capital s as co date of receiq also rded as
b) Accrual
Revenues and 61b&A
and in the year of disposal.
et is available for productive
are recorded at their fair value at the
are reported on the accrual basis of accounting. The accrual
izes revenues as they become available and measurable;
as they are incurred and measurable as a result of receipt of
p,ation of a legal obligation to pay.
cash flows is not presented, since cash flows from operating,
vities are readily apparent from the other financial statements.
60
1-64
1 1111, ,, 0 J 9 1101, 5
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We have a,udilted the accompanying financ0l stalearents of Kitchener Downtown Irnprovement Area
Board of Management, which comprise the statement of firianiciaI position as at December 31, 20,12,
the statements of revenue and expenses and accumulated surplus 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 tot, the Financial Stalerrients
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian public sector accounting standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material! misstatement, whether due to fraud or error.
A uditots" Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance wiflii Canadian generally accepted auditing standards I hose
standards require that we comply wifli ethical requirements and plan and perform an 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 d�is,cllosures in
the financial statements, The procedures, selected depend on our judgment, including the assessment
of the risks of material misstatement of the finariciall statements, whether due to fraud or error In
making those risk assessments,, we consider internal controls relevant to the entity's preparation and fair
presentation of the financial staternents 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 arid
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial! statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion
KPM(� I LY ", " f WRI,WY t s li. it hip, 1,14 1 r ( Y flv! KJV&�
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61
1-65
Page 2
Opinion
In our opinion, the financial statements present fairly, in all material mmpaots. the financial position of
Kitchener Downtown |mpnmemeniAme Board of Management as at December 31. 2012. and its
results of operations and its cash flows for the year then ended in accordance with Canadian public
sector accounting standards.
Chartered Accountants, Licensed Public Accountants
March 79.2O13
Waterloo, Canada
62
^� ����
� �����
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
Year ended December 31, 2012, with comparaflve information for 2011
2012 2011
Financial Assets
Cash $ 14,635 $ 7,255
Term deposits (note 2) 65,321 64,086
Accounts receivable 36,230 50,418
Prepaid expenses 5,279 1,488
121,465 123,247
Financial Liabilities
Accounts payable and accrued charges 48,210 51,268
Due to the City of Kitchener (note 4) 11,174 12,712
59,384 63,980
Net financial assets 62,081 59,267
Non-Financial Assets
'Tangible capital assets (note 6) 23,347 21,727
Net assets $ 85,428 $ 80,994
Accumulated Surplus
Reserve for future assessment write-offs $ 29,478 $ 29,478
Accumulated net revenue 32,603 29,789
Invested in tangible capital assets 23,347 21,727
Total accumulated surplus $ 85,428 $ 80,994
See accompanying notes to financial statements.
63
1-67
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Revenue and Expenses and Accumulated Surplus
Year ended December 31, 2012, with comparative information for 2011
Budget Actual Actual
2012 2012 2011
Revenue
Assessments
$ 650,000
$ 650,000
$ 600,000
1 nte rest
1,500
1,235
1,505
Graffiti removal co-op
-
-
5,000
Special events income
28,000
43,408
-
Other income
22,000
23,648
32,942
Member relations
701,500
718,291
639,447
Expenses
Promotions and advertising
244,000
276,729
206,294
Salaries and wages
275,100
247,996
246,620
Administration
54,921
61,228
68,945
Meetings and seminars
13,000
13,517
14,256
Safety and beautification
52,500
36,549
17,626
Member relations
62,000
61,144
48,4164
Amortization
-
5,520
5,282
701,521
702,683
607,487
Net revenue before other items
$ (21)
15,608
31,960
Net assessment write-offs (note 4)
11,174
12,712
Net revenue (expenses)
4,434
19,248
Accumulated surplus, beginning of year
80,994
61,746
Accumullatedl surplus, end of year
$ 85,428
$ 80,994
See accompanying notes to financial statements,
64
1-68
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Changes in Net Financial Assets,
Year ended December 31, 2012, with comparative information for 2011
2012 2011
Net revenue 4,434 $ 19,248
Acquiiisition of tangible capital assets (7,140) (24,689)
Amortization of tangible capital assets 5,520 5,282
Change in net financial assets 2,814 (159)
Net financial assets, beginning of year
59,267 59,426
Net financial assets, end of year 62,1081 $ 59,267
See accompanying notes to financial statements.
65
1-69
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements
Year ended December 31, 2012
1. Summary of significant accounting policies:
Kitchener Downtown Improvement Area Board of Managernent ("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-taw enacted in 1977
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 (IPSAB) 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 approximabons. These have been made using careful
jiudlgment-
(a) Tangible capital assets",
Tangible capital assets are recorded at cost which iincludes 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
Furniture and fixtures 7 years
Leasehold improvements 7 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.
66
1-70
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements,, page 2
Year ended December 31, 2012
2. Term deposits:
The term deposits consist of the following:
Principal Maturity Rate
$55,046 September 13, 2013 0.70%
$10,275 January 3, 2014 0,80%
3. Commitments:
During 2011„ the Board executed a new joint premises lease agreement with two other unrelated
parties. The lease allows for certain amounts of exclusive space for the Board and certain
amounts of common area space shared with the other joint tenants. The lease expires an June
30, 2016. The Board is committed to the following minimum payments under the agreement:
2013
$ 33,089
2014
33,906
2015
34,723
20116
17,567
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 $11,174. This amount was paid to the City of
Kitchener in 2013.
5. 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.
67
1-71
KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMEN
Notes to Financial Statements, continued
Year ended December 31, 2012
. Tangible capital assets-
$ 30,899 $ 7,140 $ - $ - $ 38 „039 $ 9 „172 21,727 $ - $ 5, 520 $ 14,692 $ 23,347
68
1-72
Accumulated
Net
Accumulated
Net
Balance,
amortization,
book value,
amortization,
book value,
Opening
Disposals/ Write- end of
begininiing
beginning
end of
end of
balance Additions
"Transfers downs year
of year
of year
Deletions Arnortization
year
year
Computers $
6 „210 886
$ - $ 7,096
$ 4,788
$ 1,422
$ 1,117
$ 5,905
$ 1,191
Furniture
21,191 6,264
27 „445
3,884
17 „301
3 „903
7,787
19,658
Leasehold
improvements
3 „498 -
3,498
600
2,998
500
1,0100
2,498
$ 30,899 $ 7,140 $ - $ - $ 38 „039 $ 9 „172 21,727 $ - $ 5, 520 $ 14,692 $ 23,347
68
1-72
1 j I I , nI'M
KPMG UP 7w44001M') 4 5 19) N T.8800
Chatleired AccownNmts M'1' 88t 0
Kuo Y-r'+ Souflh
VV0101k,") C)H N4��'J
fo, lifie members of the Kitchener Public Library Board
We have audited the accompanying financial statements of the Kitchener Public Library, which
coniprise the statement of flnanciaJ position as at December 31, 2�O 12 and the statements of revenues,
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,
ManagemeM's Responsibifity for the Financial Staternents
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian public !sector accounting standards, and for such internal' control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Aoditors'Responsibifily
Our responsibility is to express an opinion on these financial Statements based on OUT audit. We
conducted our audit in accordance with Canadian generally accepted audiiting standards, 't'hose
standards require that we cornply with ethical reqwrernents and plan and perform the audit to obtain
reasonable assurance abolUt whether the financiat staternents are free from material misstatement,
An audit involves performing procedures to obtain audit evidence about the aniounts and disclosures in
ilie financial statements, The procedures selected depenct on our judginient, including the assessment
of the risks of material rnisstateinent of the financial statements, whether due to fraud or error. In
rnaking those risk assessments, we consider internal controt relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
CirCUnislances, but not for the purpose of expressing an op,inion 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 estitTiates made by management, as welil as evaluating tt'ne overalt
presentation of the financial statements
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a, lbaisis for
our qualified aucift opinion,
69
1-73
Basis for Qtjanfied Ooinion
In cornmon with many Public library boards, the Kitchener Public Library derives revenue from fines,
rentals, partnerships, photocopying and other rniscellaneous revenues, the con'ripMeness of which is
not susceptible to satisfactory audit verification, Accordingly, OUr verification of these revenues was
firnited to the airnounts recorded in the records of the enUty and we were not able to d0crrninc whcthcr
any adjustments might be necessary to contributions, excess of revenues over expenses, current
assets and net financial assets.
Qualified Opinion
In Our opiin,ion, except for the possiible effects on the financial statements of the matter described in the
Basis for Qualified Opiriion paragraph, the financiM statements present fairly, in all material respects,
the financial: position of the Kitchener Public Library as at December 31, 2012, and its results of
operations and its cash flows for the year then ended in accordance with Canadian Public sector
accounting standards.
Chartered Accountants, Licensed Public Accountants
April 17, 2013
Watcrloo, Canada
70
1-74
KITCHENER PUBLIC LIBRARY
Statement of Financial Position
December 31, 2012, with comparative information for 2011
2012 2011
Financial Assets
Cash $ 1,293,830 1,099,422
Accounts receivable 54,285 86,094
Due from City of Kitchener 93,546 66,507
1,441,661 1,252,023
Financial Liabilities
Accounts payable and accrued liabilities 628,189 534,798
Deferred revenue (note 2) 776,239 717,421
1,404,428 1,252,219
Net financial assets (debt) 37,233 (196)
Non-Financial Assets
Tangible capitals assets (note 3)
Accumulated Surplus
General
Invested in tangible capital assets
Reserves
5,233,569 5,638,308
$ 5,270,802 $ 5,538,112
233 $ (196)
6,233,569 6,538,308
Net assets $ 5,270,802 $ 5,538,112
See accompanying notes to financial statements,
71
1-75
KITCHENER PUBLIC LIBRARY
Statement of Revenues, Expenses and Accumulated Net Revenue
Year ended December 31, 2012„ with comparative information for 2011
2012 2011
Revenue:
7,516,684
7,357,235
Grants:
1,497,885
1,578,672
Province of Ontario
$ 286,755
$ 286,755
City of Kitchener:
150,073
212,715
Operating
9,055,142
8,927,661
Capital and special (note 4)
319,771
560,887
Special grants (note 5)
20,807
67,165
Fines
237,670
256,405
Interest and miscellaneous
33,862
28,337
Partnerships
22,802
38,977
Room rental
6,661
7,212
Photocopy
20,413
22,282
10,003,883
10,195,681
Expenses:
Personnel costs (Schedule)
7,516,684
7,357,235
Resource materials
1,497,885
1,578,672
Equipment (Schedule)
408,376
411,017
Administrative (Schedule)
150,073
212,715
Facilities costs (Schedule)
423,692
435,880
Processing/bindery
110,116
86,691
Programs and publicity (Schedule)
42,634
63,572
General library equipment
17,383
9,070
Expenditures related to capital and special (note 4)
83,643
156,699
Required expenditures related to special grants (note 5)
20,807
67.165
10,271,193
10,378,716
Net deficit (267,310) (183,035)
Accumulated net revenue, beginnings of year 5,538,112 5,721,147
Accumulated net revenue, end of year $ 5,270,802 $ 5,538,112
See accompanying notes to financial statements.
72
1-76
KITCHENER PUBLIC LIBRARY
Statement of Changes in Net Financial Assets
Year ended December 31, 2012, with comparative information for 2011
2.012 2011
Deficiency of revenue over expenditures $ (267,310) $ (183,035)
Acquisition of tangible capital assets (1,122,815) (1,266,294),
Amortization of tangible capital assets 1,427,654 1,448,780
Change in net financial assets 37,429 (549)
Net financial assets (debt), beginning of year (196) 353
Net financial assets (debt), end of year 37,233 $ (196)
See accompanying notes to financial statements.
73
1-77
h0no rr
Year ended December 31, 2012
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
i
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 judgments, The following is a summary of the
significant accounting policies followed in the preparation of these financial statements.
11. 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 ands audio visual resources
Deferred revenue*
10 - 30 years
8 years
3 - 10 years
2 - 10 years
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,
74
1-78
KITCHENER PUBLIC LIBRARY
Notes to Financial Statements, page 2
Year ended December 31, 2012
3. Tangible capital) assets:
Computer
Accumulated
Net book
Accumulated
Net book
Balance,
amortization,,
value,
amortization,
value,
,Opening end of
beginning
beginning
end of
end of
balance Reclassification Additions year
of year
of year
Amortization year
year
33,422
5,951
65,568
29,738
Books and audio
visual resources $ 13,384,347 $ - $ 931,300 $ 14,315,647
$ 8,927,708
$ 4,456,639
$ 1,212,577 $ 10,140,285
$ 4,176,362
Computer
1,279,410
6,1090 161,412 1,446,912
650,683
628,727
159,794
818.834
628,078
Furniture fixtures and equipment
702,647
- 30,103 732,750
283,127
419,520
49,232
332,359
400,391
Other equipment and vehicle
101,3,96
(6,090) - 95,306
67,974
33,422
5,951
65,568
29,738
$, 15,467,800 $ - $ 1,122,815 $ 1'6,590,615 $ 9,929,492 $ 6,538,308 $ 1,427,554 $ 11,357,1046 $ 5,233,569
75
1-79
KITCHENER PUBLIC LIBRARY
Notes to Financial Statements, page 3
Year ended December 31, 2012
3. Tangible capital assets (December 31, 2011)-
Accumulated
Net book
Accumulated
Net book
Balance,
amortization,
value,
amortization,
value,
Opening
end of
beginning
beginning
end of
end of
balance
Additions
year
of year
of year
Amortization
year
year
Books and audio visual resources
$ 12,541,568
$ 842,779
$ 13,384,347
$ 7,694,277
$ 4,847,291
$ 1,233,431
$ 8,927,708
$ 4,456,639
Computer
948,161
331,249
1,279,410
482,199
465,962
168,484
650,683
628,727
Furniture fixtures and equipment
631,487
71,160
702,647
267,710
363,777
15,417
283,127
419,520
Other equipment and vehicle
80,290
21,106
101,3,96
36,526
43,764
31,448
67,974
33,422
$ 14,201,606 $ 1,266,294 $ 15,467,800 $ 8,480,712 $ 5,720,794 $ 11,448.780 $ 9,929.492 $ 5538,308
76
1-80
Year ended December 31 � 2012
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 2012 included $84,600 for general renovations, maintenance and
upgrading of existing facilities, $179,925 for communication infrastructure and technology
upgrades, and $1140,000 for Forest Heights branch roof repair.
The portion of these grants and previous year grants that are included in revenue in 2012, is
$319,771 (2011 - $560,887).
5. Special grants:
In 2012, the Board received various special non-recurring grants and donations totaling $1137,040
(2011 - $226,313). The portion of these grants and previous year special grants that are included
in revenue in 2012, is $20,807 (2011 - $67,165). 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 mufti-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 Boards ncurred expenses equal to $517,867 (2011 - $436,805) 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 $111,609 1(2011 - $7,,833) 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.
77
1-81
INUTCHENER PUBLIC LIBRARY
Schedule of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses
Year ended December 31, 2012, with comparative information for 2011
Equipment:
Technology
Equipment maintenance
Amortization
$ 7,516,684 $ 7,357,235
$ 168,742 $ 162,136
24,657 33,902
214,977 214,979
2012
2011
Personnel:
209,183
Country Hills building
Salaries
$ 6,208,582
$ 6,151,533
Health benefits
345,520
312,392
Pension benefits
760,451
670.924
Employment insurance
126,507
119,918
WSIB
23,686
1%803
Sick leave reserve
25,000
25,000
Staff training
26,938
57,665
Equipment:
Technology
Equipment maintenance
Amortization
$ 7,516,684 $ 7,357,235
$ 168,742 $ 162,136
24,657 33,902
214,977 214,979
Facilities:
Facilities expenses
$ 408,376
$ 411,017
Administrative:
209,183
Country Hills building
Postage and delivery
$ 11,970
$ 170549
Insurance
17,160
16,555
Professional services
36,760
74,153
General business
32,810
5,0,411
Telephone
23,806
20,222
Stationery
27,567
33,825
19,309
$ 150,073
$ 212,715
Facilities:
Facilities expenses
$
189,616
$
209,183
Country Hills building
37,380
41,982
Main utilities
151,360
143,843
Forest Heights utilities
21,338
18,137
Pioneer Park building
18,5811
19,309
Grand River Stanley Park building
5,417
3,426
$
423,692
$
435,880
Programs and publicity:
Promotional
$
26,872
$
29,960
Public programs
15,762
33,612
$
42,634
$
63,572
78
1-82
IPIVIG LLP Telephone 519-747 -G900
ChaMmd Accountants Fax 51 9-747 -8 30
115 King street South, Vd Fbor Internet vvvvw.lpmg.ca
Waterloo ON N2J 5A3
INDEPENDENT AUDITORS' REPORT
To the Directors of The Centre in the Square Inc.
We have audited the accompanying financial statements of The Centre in the Square Inc., which
comprise the financial position as at December 31 , 2012, the statements of operations, changes in net
financial assets, and cash flows for the year then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management's Responsibfity for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian public sector accounting standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsbifky
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 an audit to obtain
reasonable assurance aboutwhetherthe 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 ourjudgment. 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 thatthe audit evidence we have obtained is sufficient and appropriate to provide a basisfor
our audit opinion.
KPMG LLP, is a Ceredien lim iced lid} ility perheraho ands member firm of the KPMG
network of hdeperdentmember funs affiliated with KPMG hternetioral Cooperative
C' KPMG htemetioraI'), a AN in entity.
KPMG Ce7ade providmaervicm to KPMG LLP.
79
1-83
Page 2
Opinpn
In our opinion, the financial statements present fairly, in all material respects, the financial position of
The Centre in the Square Inc. as at December 31, 2012, and its results of operations and its cash
flows for the year then ended in accordance with Canadian public sector accounting standards.
,4YW,,- ZVO
Chartered Accountants, Licensed Public Accountants
April 16, 2013
Waterloo, Canada
80
1-84
THE CENTRE IN THE SQUARE INC.
Statement of Financial Position
December 31, 2012, with comparative information for 2011
2012 2011
Net Assets
Financial assets:
Cash
$ 3,353,370
$ 3,135,487
Due from The City of Kitchener
89,496
94,717
Funds held with The City of Kitchener (note 2)
278,725
279,886
Accounts receivable
117,354
97,363
Interest receivable
3,630
3,392
Costs to be recovered
347,483
257,185
Investments (note 4)
1,432,046
1,412,439
Total financial assets
5,622,104
5,280,469
Financial liabilities:
Accounts payable and accrued liabilities
1,373,288
1,164,079
Deferred revenue (note 5)
2,246,350
1,724,480
3,619,638
2,888,559
Net financial assets
2,002,466
2,391,910
Non - financial assets:
Tangible capital assets (note 11)
8,774,535
8,794,075
Inventories (note 3)
52,905
39,705
Prepaid expenses
190,440
90,720
9,017,880
8,924,500
Net assets
$ 11,020,346
$ 11,316,410
Accumulated Surplus
Operating fund activities (note 12)
$ -
$ -
Reserves - Capital (note 6)
327,913
576,384
Reserves - Performance Development (note 7)
461,180
514,359
Reserves - Sustainability (note 8)
-
-
Reserves - Restricted (note 9)
1,456,718
1,431,592
Invested in tangible capital assets
8,774,535
8,794,075
Accumulated surplus
$ 11,020,346
$ 11,316,410
See accompanying notes to financial statements.
81
1-85
THE CENTRE IN THE SQUARE INC.
Statement of Operations
Year ended December 31, 2012, with comparative information for 2011
Expenses:
Budget 2012
Actual 2012
Actual 2011
Direct:
(unaudited)
Revenues:
5,500,000
5,508,542
5,217,044
Performances
$ 5,686,504
$ 5,595,703
$ 5,214,435
Ticket surcharge (notes 6 and 8)
266,319
226,068
284,748
Grants from The City of Kitchener - Operating
1,371,449
1,371,449
1,420,089
Grants from The City of Kitchener - Capital
242,000
242,335
237,000
Grants from other governments - Capital
-
-
415,958
Grants from other governments - Operating
40,000
40,000
40,000
Capital donations
-
10,000
75,000
Donations
2,500
10,881
19,270
Investment income
76,000
101,508
91,231
Other
2,311,175
2,105,459
1,842,611
Gain (loss) on investments
80,000
(16,436)
27,429
Sale of assets
-
8,000
-
Total revenue
10,075,947
9,694,967
9,667,771
Expenses:
Direct:
Performances
5,500,000
5,508,542
5,217,044
Bar operations
200,000
208,768
176,413
Programme
38,500
15,110
22,017
Memberships
10,000
6,105
20
Ticket services
150,000
111,558
140,590
Financial services
5,000
2,323
2,615
Operating:
Administration
810,732
829,646
790,239
Box office
10,200
9,180
9,558
Promotion
496,511
449,969
462,274
Occupancy
743,058
689,225
675,629
Salaries and wages
3,062,554
2,956,723
2,735,583
Recoveries - performances
(1,748,875)
(1,637,104)
(1,696,952)
Amortization
600,000
621,628
607,608
Write down of tangible capital assets
25,000
28,032
112,436
Reserves expenditures
173,243
190,165
134,168
Refund to The City of Kitchener
12
1,161
9,100
Total expenses
$ 10,075,935
9,991,031
9,398,342
Excess of revenues over expenses
(expenses over revenue)
(296,064)
269,429
Accumulated surplus, beginning of year
11,316,410
11,046,981
Accumulated surplus, end of year
$ 11,020,346
$ 11,316,410
See accompanying notes to financial statements.
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1-86
THE CENTRE IN THE SQUARE INC.
Statement of Change in Net Financial Assets
Year ended December 31, 2012, with comparative information for 2011
2012 2011
Excess of revenues over expenses
(expenses over revenue) $ (296,064) $ 269,429
Acquisition of tangible capital assets (630,120) (1,147,243)
Amortization of tangible capital assets 621,628 607,608
Write -downs of tangible capital assets 28,032 112,436
(276,524) (157,770)
Net (acquisition) use of supplies inventory
Acquisition use of prepaid expenses
Decrease in net financial assets
Net financial assets, beginning of year
13,200) 12,514
(389,444)
2,391,910
(195,491)
2,587,401
Net financial assets, end of year $ 2,002,466 $ 2,391,910
See accompanying notes to financial statements.
83
1-87
THE CENTRE IN THE SQUARE INC.
Statement of Cash Flow
Year ended December 31, 2012, with comparative information for 20111
2012 2011
Operating activities
Excess of revenues over expenses
$ (296,064)
269,42'91
Items not involving cash:
Amortization
621,628
607,6018
Write down of tangible capital assets
28,1032
112,436
Change in ncn-cash operating working capital
514,014
(6,267)
Cash provided by operating activities
867,6110
983,2016
Capital activities:
Cash used to acquire tangible capital assets
(630,120)
(1,147,243,)
Investing activities.
Decrease (increase) in investments (19,607) 253,477
Increase in cash 217,883 89,440,
Cash, beginning of year
3,135,487 3,,046,047
Cash, end of year $ 3,353,370 $ 3,135,487
See accompanying notes to financial statements.
84
1-88
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements
Year ended December 31, 2012
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
judgment.
(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
9 - 100 years
Equipment
4 - 50 years
Computers
5 - 14 years
Software
3 years
Site
10 - 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.
85
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THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
1. Significant accounting policies (continued):
(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.
(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:
2012 2011
Bar stock $ 51,769 $ 35,034
Supplies 1,136 4,671
$ 52,905 $ 39,705
86
1-90
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
4. Investments:
$ 75,960
$ 142,654
Performances
1,970,898
Investments consist of
Gift certificates
56,264
52,195
Donations
33,179
Carrying value
Market
Carrying value
Market
Other
2012
2012
2011
2011
Shares
$ 947,871
$ 1,157,228
$ 994,108
$ 1,123,668
Bonds
478,811
484,489
412,022
425,697
Cash
5,364
5,364
6,309
6,309
$ 1,432,046
$ 1,647,081
$ 1,412,439
$ 1,555,674
5. Deferred revenue:
Deferred revenue consists of the following:
2012
2011
Sponsorships
$ 75,960
$ 142,654
Performances
1,970,898
1,421,393
Gift certificates
56,264
52,195
Donations
33,179
33,179
Membership
18,228
2,839
Other
91,821
72,220
$ 2,246,350
$ 1,724,480
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.
87
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THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
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 2011, The Centre's Board of Directors approved the transfer of half of the 2011 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.
During 2011, the Board of Directors directed that the remainder of this fund be used to match
grants from provincial and federal governments to fund the Infrastructure Stimulus Funding capital
improvements.
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.
10. 2012 budget:
The original budgeted figures were approved by the Board of Directors at their meeting in
September 2011 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.
88
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THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
11. Tangible capital assets:
Accumulated
Net
Accumulated
Net
Balance, amortization,
book value,
amortization,
book value,
Opening Disposals/ Write- end of beginning
beginning
end of
end of
balance Additions Transfers downs year of year
of year
Deletions Amortization year
year
Land
$ 975,300 $
-
$ - $
$ 975,300
$ -
$ 975,300
$ - $ -
$ - $
975,300
Building
8,321,215
435,859
(126,097)
8,630,977
3,652,340
4,668,875
(107,425) 243,467
3,788,382
4,842,595
Equipment
4,756,885
93,758
(67,934)
4,782,709
2,579,364
2,177,521
(75,865) 288,409
2,791,908
1,990,801
Computers
279,525
69,470
-
348,995
137,498
142,027
35,246
172,744
176,251
Software
120,824
-
5,545
126,369
120,824
-
1,848
122,672
3,697
Site
1,358,248
31,033
(19, 630)
1,369,651
550,732
807,516
(19, 630) 52,658
583,760
785,891
WIP
22,836
-
(22,836)
-
-
22,836
-
-
-
$ 15,834,833 $ 630,120 $ (230,952) $ - $ 16,234,001 $ 7,040,758 $ 8,794,075 $ (202,920) $ 621,628 $ 7,459,466 $ 8,774,535
89
1-93
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
12. Operating fund activities:
Budget Actual Actual
2012 2012 2011
Revenues:
Performances
$ 5,686,504
$ 5,595,703
$ 5,214,435
Grants from City of Kitchener
1,371,449
1,371,449
1,420,079
Grants, other Governments and Foundations
40,000
40,000
40,000
Donations
2,500
7,020
14,625
Investment income
1,000
33,033
22,126
Other
2,176, 251
2,105,160
1,841,965
Total revenue
9,277,704
9,152,365
8,553,230
Current fund expenditures:
Direct:
Performances
5,500,000
5,508,540
5,217,044
Bar operations
200,000
208,768
176,413
Programme
38,500
15,110
22,017
Memberships
10,000
6,105
20
Ticket services
5,000
2,323
2,615
Financial services
150,000
111,558
140,590
Operating:
Administration
810,732
829,646
790,239
Box office
10,200
9,180
9,558
Promotion
496,511
449,969
462,274
Occupancy
743,058
689,225
675,629
Salaries and wages
3,062,554
2,956,723
2,735,583
Recoveries - performances
(1,748,875)
(1,637,104)
(1,696,952)
Total current fund expenditures
9,277,680
9,150,043
8,535,030
Operating fund net revenues before amortization 24 2,322 18,200
Transfer from reserve funds (12) (1,161) (9,100)
Transfer to City of Kitchener (12) (1,161) (9,100)
Fund balances, end of year $ - $ - $
90
1-94
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2012
13. Schedule of reserve funds:
91
1-95
Performance
Total
Development
Capital Sustainability
Restricted
Funds
Revenue:
Donations and sundry
$
10,300 $
3,861 $
14,161
Grants from The City
of Kitchener
242,335
-
242,335
Ticket surcharge
226,068
-
226,068
Investment income
8,024
6,376
54,074
68,474
Gain (loss) on investments
-
-
(16,436)
(16,436)
Sale of assets
-
8,000
-
8,000
8,024
493,079
41,499
542,602
Expenditures:
Cost of fundraising
-
111,430
-
111,430
Professional fees
-
-
16,373
16,373
Programming grant
62,364
-
-
62,364
62,364
111,430
16,373
190,167
Excess of revenue over
expenditures (expenditures over
revenue)
(54,340)
381,649
25,126
352,435
Transfer to accumulated surplus -
tangible capital assets
-
(630,120)
-
(630,120)
Other transfers
1,161
-
-
1,161
Balance, beginning of year
514,359
576,384
1,431,592
2,522,335
Balance, end of year
$ 461,180
$ 327,913 $ $
1,456,718 $
2,245,811
91
1-95
INDEPENDENT AUDITORS' REPORT
To the Mayor and Members of Council, Inhabitants and Ratepayers of
The Corporation of the City of Kitchener
We have audited the accompanying statement of operations of The Cor ion of the City of
preparing such a financial statement, and for s
determines is necessary to enable the preparation of
material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion
conducted our audit in accordance with
Those standards require
audit to obtain reasonal
material misstatementA
An audit involves
disclosures in the
including th
whether
relev the en1
d audit procedure .
exp g an opinion
includ lusting the
of accoun timate
of the finance
i with
about
as management
t that is free from
M enfased on our audit. We
era epted auditing standards.
juirements and plan and perform the
the financial statement is free from
(areaai audit evidence about the amounts and
t. edures selected depend on our judgment,
s of material misstatement of the financial statement,
ng those risk assessments, we consider internal control
fair presentation of the financial statement in order to
opriate in the circumstances, but not for the purpose of
he effectiveness of the entity's internal control. An audit also
:)priateness of accounting policies used and the reasonableness
e by management, as well as evaluating the overall presentation
We believe that tFWaudit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
92
1-96
Opinion
In our opinion, the financial statement presents fairly, in all material respects the results of
operations of The Corporation of the City of Kitchener Gasworks Enterprise for the year
ended December 31, 2012 in accordance with Canadian public sector accounting standards
relcvan44n nrcnarinn ciinh a financial c+a+omcn4
93
1-97
GASWORKS ENTERPRISE
Statement of Operations and Accumulated Surplus
Year ended December 31, 2012
2012 2012 2011
Budget Actual Actual
(Unaudited) Ak
DELIVERY OPERATIONS
Gas delivery
Revenues 34,962,242 4 8 42,988,230
Expenses 18,800,667 6 , 22,821,885
16,161,57 1,216,2 0,166,345
Other programs
Revenues
8,
1
9,342,126
N6,1
62
Expenses
,991
643,757
60
4,020
,698,369
2,580,402
Contact Centre
Revenues
7
696,768
681,503
Expenses
715,
696,768
681,503
Excess of revenue over expenses
595
14,590
22,746,747
Accumulated Surplus - Deliv
Balance at the beginning of 91,149,210 91,149,210 84,182,105
Interest Revenue - 120,710 -
Transfer to Tax Stabi nReserve - - (2,000,000)
Transfer to Gas Ca vestme (3,278,501) (6,306,063) (6,977,331)
Transfers to City of Ki r (7,245,460) (7,245,460) (6,802,311)
80,625,249 77,718,397 68,402,463
Add exc over ses 18,265,595 23,914,590 22,746,747
Bala end of Ilk" 98,890,844 101,632,987 91,149,210
SUP ERATIONS
Gas sup
Revenues 43,556,017 35,132,756 46,150,650
Expenses 41,378,216 34,726,828 46,701,556
Excess of revenue ver expenses 2,177,801 405,928 (550,906)
Accumulated Surplus (Deficit) - Supply
Balance at beginning of the year
Add excess of revenue over expenses
2,415,760 2,415,760 2,966,666
2,177,801 405,928 (550,906)
Balance at end of period 4,593,561 2,821,688 2,415,760
94
1-98
KITCHENER GENERATION CORPORATION
Statement of Financial Position
As at December 31, 2012
Net financial debt
Non - financial assets
Tangible capital assets - net (Note 4) 4,180,532
Total non -current assets 4,180,532
Accumulated Surplus (Note 5) $ 388,170
95
1-99
KITCHENER GENERATION CORPORATION
Statement of Operations
Year Ended December 31, 2012
96
1-100
2012
2012
Budget
Revenues
Sale of Electricity $
393,000 $
415,394
Total revenues
393,000
415,394
Expenses
Maintenance
14,133
Professional services
-
3,241
Amortization
32,252
232,252
Total expenses
252,752
491626 ilk
Surplus before interest and provision for payment
in -lieu of corporate income taxes
,248
165,768
Interest expense
99,253
198,972
Deficit before provision for payments -in -lieu of
corporate income taxes
(59,005)
(33,204)
Provision for payments -in -lieu of corporat
axes
-
-
Annual deficit
$
Ift,005)
$
(33,204)
96
1-100
KITCHENER GENERATION CORPORATION
Statement of Change in Net Financial Debt
Year ended December 31, 2012
2012
Annual deficit $ (33,204)
Amortization of tangible capital assets 232,252
Acquisition of tangible capital assets ,412,784)
Change in net financial debt ,213,736)
Net financial debt, beginning of year -
Net financial debt, end of year AM (4,213,736)
97
1-101
KITCHENER GENERATION CORPORATION
Statement of Cash Flow
Year Ended December 31, 2012
2012
Operating
Annual deficit $ (33,204)
Items not involving cash
Amortization 2321252
Net change in non -cash operating working capital -
Net chance in cash from weratina activities 199.048
Cash and cash equivalents, end of
98
1-102
KITCHENER GENERATION CORPORATION
Notes to Financial Statements
Year Ended December 31, 2012
1. Incorporation
On December 9, 2011, Kitchener Generation Corporation (the Company) was incorporated
under the Business Corporation Act (Ontario). Effective January 1, 2012, he Corporation of
the City of Kitchener transferred the solar roof asset constructed o surface of the
Kitchener Operations Facility to the Company in exchange for 1 of the Company's
common shares and interest bearing debt.
2. Significant Accounting Policies
a. Basis of Accounting
The financial statements have been pre
Canadian generally accepted accounti
established by the Public Sector Acco
Chartered Accountants.
Tangible Capital Assets
Tangible capital assets are
directly attributable to acqu4
asset. The cost less residua
straight -line basis over its esti
Revenue Recognition
includes all amounts that are
ment or betterment of the
I asset is amortized on a
ears.
sale of electricity on the basis of regular
generation since the last meter reading to
itiori-bMW assets and liabilities is dependent upon future
of periodic financial statements necessarily involves the use
(imations. These have been made using careful judgments.
�r from these estimates.
2 the Company incurred an unsecured promissory note payable to
ity of Kitchener. For shareholder debt, payments are made annually
ncipal. Interest is calculated at the fixed rate of 5.01% per annum.
$198,972.
Accumulated
Cost Amortization Net Book Value
Opening balance - - -
Additions 4,412,784 - 4,412,784
Depreciation expense - 232,252 (232,252)
Disposals - - -
Ending balance 4,412,784 232,252 4,180,532
99
1-103
KITCHENER GENERATION CORPORATION
Notes to Financial Statements
Year Ended December 31, 2012
5. Accumulated Surplus
The accumulated surplus consists of the following:
2012
Share capital - common shares (Note 6) 421,374
Retained earnings Ae (33,204)
6. Share Capital
Authorized
Unlimited common shares
Issued
1,000 common shares
7. Comparative Figures
$ 388,170
operations.
100
1-104
n4PMG: LL,P Mtrp,lti Ni w Q",r V fir 14 P 8800
chartered Accountants ho, Cdr M) 14 � 8830
115 Kmq Smm hqmml wmW rArnoq.a;i
ward 4' hxm
`JU ma loo a N rw 2 I 'Aw3
To the Shareholders of Kitchener Power Corp
v"'N+e have audited the accompanying consolidated financial stateruents of Kitchener Power Coarp.,
which comprise the consolidated balance sheet as at Decermber 31, 2012, the consolidated
statermen�ts of operations and comprehensive incomnee retained earrivigs and cash flows for the year
then ended, and notes, cornprhsingi a surminary of significant accounting policies arid other
explanatory information
Marnagerr're l s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparaborn and fair presentation of these consolidated financial
statements rn accordance with Canadian generally accepted accounting principles, and for such
internal control as management determines us necessary to enable the preparation of consolidated
financial) statements that are free frown material misstatement, 'whether due to fraud or error
Auditors' l° esponsidaUdy
Our responsibility is to express an opinion on these consolidated financial statements based on otar
audit We conducted our audit in accordance with Canadian generatly 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 staterments are tree from
material misstatement.
Ann audit involves performing procedures to obtain audit evidence about the arrnouants and
disclosures in the consolidated financial statemernts. The procedures selected depend on our
judgment, rrncl uding tfne assessment of the risks of material misstatement of the
consolidated financiall statements, whether due to fraud or error. In retaking those risk assessments,
we consider internal control relevant to the entity's preparation and fair presentation of the
consolidated financial statermernts 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. Ani audit also Includes evaluating the appropriateness of accounting popucies used
and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consoliidated financial statements.
We believe that the audit evidence we have obtained is sufficient and approp6ate to provide a basis
for our audit opinion,
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101
1-105
Page 2
Opiolon
In our opinion, the consolidated financial statements present haidy, in all nvatena| respects, the
consolidated financial position of Kitchener Power Corp as at December 31 2012. and its
consolidated results of operations and its oonmo5d*tedmamh Mows for the year then ended in
accordance with Canadian generally accepted accounting principles.
Chartered Accountants. Licensed Public Accountants
8pir|5.2O13
Waterloo, Canada
102
1-106
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET
As at December 31st
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (note 4)
Inventories (note 5)
Prepaid expense
Payment -in -lieu of corporate income taxes receivable
Current portion of regulatory assets (note 18)
Total current assets
Non - current assets
Capital assets — net of accumulated amortization (note 6)
Regulatory assets (note 18)
Future income tax assets (note 19)
Total non - current assets
Total assets
See accompanying notes
103
2012 2011
$ 20,755,014 $ 23,456,329
37,972,485 37,610,347
3,162,744 3,421,943
818,210 696,284
1,468,974 453,540
906,521 2,796,689
65,083,948 68,435,132
172,564,699
152, 895, 083
13,865,077
21,536,416
6,737,762
13,287,674
193,167,538
187,719,173
$ 258,251,486 $ 256,154,305
1-107
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET (Continued)
As at December 31St
2012 2011
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (note 7) $ 24,771,203 $ 21,805,253
Current portion of long term debt 912,029 874,212
Current portion of customers and construction deposits (note 8) 7,164,341 7,649,045
Current portion of regulatory liabilities (note 18) 680,687 2,779,430
Total current liabilities 33,528,260 33,107,940
Long -term liabilities
Long -term debt (note 9) 83,932,076 84,844,106
Customer deposits (note 8) 3,873,602 3,797,881
Post - employment benefits (note 11) 5,605,316 5,466,421
Regulatory liabilities (note 18) 14,195,249 17,338,259
Total long -term liabilities 107,606,243 111,446,667
Total liabilities 141,134,503 144,554,607
Shareholders' equity
Share capital — common shares (note 12) 66,389,385 66,389,385
Retained earnings 50,727,598 45,210,313
Total shareholders' equity 117,116,983 111,599,698
Total liabilities and shareholders' equity $ 258,251,486 $ 256,154,305
See accompanying notes
104
1-108
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
As at December 31St
Retained earnings, beginning of year
Net Income
Dividends paid out (note 23)
Retained earnings, end of year
See accompanying notes
2012 2011
$ 45,210,313 $ 39,457,709
9,157,285 9,052,604
(3,640,000) (3,300,000)
$ 50,727,598 $ 45,210,313
105
1-109
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME
For the year ended December 31St
2012 2011
REVENUE
Sales revenue
Distribution services revenue $40,852,106 $38,326,403
Electric energy services (note 13) 170,345,103 163,154,684
211,197,209 201,481,087
Other revenue
Other investment income 447,628 444,625
Late payment penalties 255,787 248,288
Miscellaneous revenue (note 14) 916,999 1,005,182
1,620,414 1,698,095
Non - utility operations revenue
Energy Conservation - OPA Funding (note 15) 914,431 766,832
Total revenue 213,732,054 203,946,014
EXPENSE
Operation expense
Electric energy services (note 13)
170,345,103
163,154,684
Distribution operations and maintenance
10,048,062
7,869,812
Customer accounts
3,450,896
2,689,629
General administration
2,711,806
2,931,990
Community relations
251,912
533,979
Property and capital taxes
352,736
425,860
Amortization (note 16)
9,159,173
9,654,186
196,319,688
187, 260,140
Non - utility operation expense
Energy conservation - OPA programs (note 15)
763,301
564,037
Total expense
197,082,989
187,824,177
Income before interest and provision for
16,649,065
16,121,837
payments -in -lieu of corporate income taxes
Interest expense
5,834,702
4,764,050
Income before provision for payments -in -lieu
10,814,363
11,357,787
of corporate income taxes
Provision for payments -in -lieu of corporate income taxes (note 19)
1,657,079
2,305,183
NET INCOME
$ 9,157,284
$ 9,052,604
See accompanying notes
106
1-110
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31St
2012 2011
OPERATING ACTIVITIES
Net Income $ 9,157,284 $ 9,052,604
Add (deduct) charges to operations not requiring a current cash payment
Gain on disposal of capital assets
(86,908)
(2,998)
Amortization (note 16)
9,617,194
10,392,283
(Increase) in future income tax assets (note 19)
(132,918)
(71,579)
Increase (decrease) in non - current customer deposits (note 8)
75,721
(89,445)
Increase in post - employment benefits obligation (note 11)
138,895
85,357
Net change in non -cash operating working capital (note 17)
959,558
(3,588,921)
Cash provided by operating activities
19,728,826
15,777,301
INVESTING ACTIVITIES
Additions to capital assets
(20,502,405)
(22,909,722)
(Increase) in long -term regulatory assets I liabilities (note 18)
(2,172,358)
(131,598)
Proceeds on disposals of capital assets
89,862
12,382
Cash applied to investing activities
(22,584,901)
(23,028,938)
FINANCING ACTIVITIES
Increase in contributed capital
4,668,973
2,813,049
(Decrease) in long term debt
(874,213)
(837,963)
Dividends paid out (note 23)
(3,640,000)
(3,300,000)
Cash provided by (applied to) financing activities
154,760
(1,324,914)
Net cash 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
See accompanying notes
(2,701,315)
23,456,329
20,755,014
17,755,014
3,000,000
$ 20,755,014
(8,576,551)
32,032,880
23,456,329
12,438,822
11,017,507
$ 23,456,329
$ 5,144,320 $ 5,112,467
107
1 -111
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. INCORPORATION
On July 1, 2000, Kitchener Power Corp. [the Company] 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 were excluded from the transfer and were retained by the City and the Township.
The net assets of FibreTech (Kitchener) Inc. were subsequently transferred to Fibretech
Telecommunications Inc. 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 Networks 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.['KWHI'], a regulated distribution company, and Kitchener Energy Services
Inc.['KESI'], 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 Township of Wilmot. These municipalities are the sole shareholders of
Kitchener Power Corp.
2. SIGNIFICANT ACCOUNTING POLICIES
[I] Adoption of new accounting standards
Publicly accountable enterprises in Canada were required to adopt International Financial Reporting
Standards [ "IFRS "] in place of Canadian GAAP for annual reporting purposes for fiscal years
beginning on or after January 1, 2011. The Accounting Standards Board has granted a series of
deferrals for IFRS adoption for entities subject to rate regulation. The Company has elected to take
the optional deferral of its adoption of IFRS; therefore, it continues to prepare its consolidated
financial statements in accordance with Canadian GAAP accounting standards in Part V of the CICA
Handbook.
[II] Basis of accounting
The financial statements have been prepared by management in accordance with 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.
108
1-112
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
[III] Regulation
KVVHI is regulated by the OEB 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 that 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 future increase in revenues associated with costs that have been
deferred because it is probable that they will 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.
[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 will depend on the balance
sheet classification elected by the Company. The Company has elected the following 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, which, 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.
109
1-113
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive income— 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, 2012.
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, 2012.
[b] Inventories
Inventories 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 -down have reversed.
[c] Spare transformers and meters
Spare transformers and meters are classified as capital assets in accordance with guidance in
the CICA Handbook.
110
1-114
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
[IV] Other accounting policies (continued)
[d] Capital assets and amortization
Capital assets are recorded at cost. Costs for assets installed or erected by the Company
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:
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.
[e] 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.
[f] Contributed capital
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.
111
1-115
2012
2011
Buildings
2% -5%
2.00%
Transformer station equipment
2% -6.67%
2.50%
Distribution station equipment
2% -6.67%
3.33%
Distribution system
1.67%-4%
4.00%
Meters
4% -6.67%
4.00%
SCADA equipment
6.67 %0
6.67%
Other capital assets
10% —33%
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.
[e] 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.
[f] Contributed capital
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.
111
1-115
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
[IV] Other accounting policies (continued)
[g] 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.
[h] Payments -in -lieu of corporate income 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 [ "PILs"] to the 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 be 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.
[i] Post - employment benefits
Employee future benefits provided by KWHI 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 which 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, 2011 resulting in an
unamortized net actuarial loss of $570,483. 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.
112
1-116
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
[IV] Other accounting policies (continued)
p] Pension plan
KVVHI provides a pension plan for its employees through the Ontario Municipal Employees
Retirement System [ "OMERS "]. OMERS is a multi - employer pension plan, which 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.
[k] Revenue recognition and cost of electrical energy
KVVHI 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 when the energy is consumed.
[I] 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 Minister of
Finance.
[V] Change in estimates:
Effective January 1, 2012, the Company revised its estimates of useful lives of certain items of
property, plant and equipment and as a result changed its amortization rates. A comparative table of
amortization rates is provided in Note 2[IV] [d]. The impact of the change in 2012 was a reduction of
amortization expense of approximately $2,265,213. Further, in accordance with OEB accounting
requirements, an offsetting reduction of $2,265,213 has been recorded against distribution revenue
and an increase to regulatory liabilities. As a result, the impact on net income before PILs is nil.
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, 2012, there are no significant concentrations of credit risk with respect to any class
of financial assets.
[ii] Interest 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.
113
1-117
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE
Electric energy
Miscellaneous
Less: Allowance for doubtful accounts
Unbilled revenue receivable
Interest receivable
Related parties receivable:
Cityof Kitchener
Township of Wilmot
2012 2011
$12,163,221 $11,501,599
2,811,194 2,543,908
14,974,415 14,045,507
(250,000) (250,000)
14,724,415 13,795,507
22,473,800 23,380,400
62,106 81,353
709,885 315,287
2,279 37,800
712,164 353,087
$ 37,972,485 $ 37,610,347
Related Party Transactions
The Company conducted the following transactions with related parties during the year ended December
31, 2012. 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.
City of Kitchener— capital and maintenance of street lights
Township of Wilmot— capital and maintenance of streetlights
5. INVENTORIES
Inventories consist of:
Stores
Transformers
Thermostats for conservation programs
114
2012 2011
$ 1,775,765 $ 1,172,593
113,865 83,743
$ 1,889,630 $ 1,256,336
2012 2011
$ 2,660,732 $ 2,896,577
487,762 468,021
14,250 57,346
$ 3,162,744 $ 3,421,943
1-118
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
6. CAPITAL ASSETS —NET OF ACCUMULATED AMORTIZATION
2012
Land
Land Rights
Buildings
Transformer Station Equipment
Distribution Station Equipment
Distribution System - Conductors and devices
Distribution System - Line and network transformers
Meters
SCADA- System Supervisory Equipment
Other Capital Assets
Other Utility Plant
Construction in Progress
Less: Contributed Capital
Total
2011
Land
Land Rights
Buildings
Transformer Station Equipment
Distribution Station Equipment
Distribution System - Conductors and devices
Distribution System - Line and network transformers
Meters
SCADA- System Supervisory Equipment
Other Capital Assets
Construction in Progress
Less: Contributed Capital
Total
115
Accumulated
Cost Amortization Net Book Value
$ 3,735,257
$ -
$ 3,735,257
265,449
255,220
10,228
19,537,746
6,066,646
13,471,099
59,888,291
18,888,136
41,000,155
2,837,259
2,005,924
831,335
173,732,394
76,885,457
96,846,937
53,089,650
25,854,433
27,235,217
14,312,474
3,017,595
11,294,879
1,566,480
1,547,331
19,149
20,341,485
14,304,788
6,036,697
270,820
-
270,820
8,679,865
-
8,679,865
358,257,168
148,825,530
209,431,637
(49,206,133)
(12,339,194)
(36,866,938)
$ 309,051,035
$ 136,486,336
$ 172,564,699
Accumulated
Cost Amortization Net Book Value
$ 3,735,257
$ -
$ 3,735,257
265,449
252,568
12,881
19,513,618
5,439,167
14,074,451
59,878,130
17,378,248
42,499,882
2,853,105
1,965,929
887,176
162,690,428
74,124,121
88,566,308
49,922,477
24,998,388
24,924,089
1,924,725
488,701
1,436,024
1,566,480
1,451,404
115,075
17,714,313
12,397,806
5,316,507
4,545,881
-
4,545,881
324,609,863
138, 496,332
186,113, 531
(44,537,160)
(11,318,712)
(33,218,448)
280,072,703 127,177,620 152, 895, 083
1-119
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
r0] TiI=1: I_ 1, 10IK6]29 I`��:19101916],1a]=11ebIII
$24,771,203 $21,805,253
2012 2011
Construction deposits $ 4,470,541 $ 4,830,945
Customer deposits — current portion 2,693,800 2,818,100
$ 7,164,341 $ 7,649,045
Customer deposits — non current portion $ 3,873,602 $ 3,797,881
116
1-120
2012
2011
Independent Electricity System Operator
$14,607,622
$15,967,796
Ontario Electricity Financial Corporation (DRC)
915,425
915,933
Energy rebates payable (OCEB)
1,047,878
94,019
CDM/OPAprograms payable
1,967,544
554,624
Others
6,232,734
4,272,881
r0] TiI=1: I_ 1, 10IK6]29 I`��:19101916],1a]=11ebIII
$24,771,203 $21,805,253
2012 2011
Construction deposits $ 4,470,541 $ 4,830,945
Customer deposits — current portion 2,693,800 2,818,100
$ 7,164,341 $ 7,649,045
Customer deposits — non current portion $ 3,873,602 $ 3,797,881
116
1-120
KITCHENER POWER CORP.
Kitchener Power Corp.
X610R101II17_ 941J•[Q 0*1111 fell a11►Ar•Cy►A 1111111R]r_r04►►►140k V
9. LONG -TERM DEBT
[i] Effective August 1, 2000, KWHI incurred unsecured promissory notes payable to the City of
Kitchener and to the Township of Wilmot.
During 2010, KWHI 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 followed by a second payment of $3,000,000 on May 17, 2010.
The amounts due at the end of the year are:
Cityof Kitchener
Township of Wilmot
Ontario Infrastructure Projects Corporation
iZ�Zf►���Zfi
$ 70,997,576
$ 70,997,576
5,964,566
5,964,566
7,881,963
8,756,176
84,844,105
85,718,318
Less: Ontario Infrastructure Projects Corporation -Current Portion 912,029 874,212
$ 83,932,076 $ 84,844,106
[ii] For Shareholder Debt, interest is paid quarterly at an annual effective rate established by the OEB.
The annual effective rate for January 1, 2012 to December 31, 2012 was 5.87 %. Repayment of all
or part of the outstanding principal may be made upon eighteen months written 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:
2012 2011
Cityof Kitchener $ 4,167,558 $ 4,167,558
Township of Wilmot 350,120 350,120
Ontario Infrastructure Projects Corporation 360,896 397,336
$ 4,878,574 $ 4,915,014
10. PENSION PLAN
The cash pension costs for the year ended December 31, 2012 in the amount $1,208,406 (2011 —
$1,005,894) have been expensed during the period in which they were incurred.
117
1-121
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
11. POST - EMPLOYMENT BENEFITS
KWHI 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:
Information about KNHI's defined benefits plans is as follows
2012
2011
Discount Rate -Jan 1
4.50%
5.00%
Discount Rate - Dec 31
4.50%
4.50%
Future general salaryand wage levels increase
3.30%
3.30%
Future general inflation increase
2.00%
2.00%
Dental costs increase
5.00%
5.00%
Medical costs increase
7.63%
8.00%
Information about KNHI's defined benefits plans is as follows
118
1-122
2012
2011
Accrued Benefit Obligation
Balance, beginning of year
$4,983,834
$ 4,297,864
Current service cost
145,802
696,689
Interestcost
225,602
228,489
Benefits paid
(232,509)
(239,208)
5,122,729
4,983,834
Unamortized acturial gains
Balance, beginning of the year
482,587
1,083,200
Actuarial loss for the year
-
(570,483)
C u rrent yea r a m ortizati on
-
(30,130)
482,587
482,587
Accrued benefit liability at December 31 as determined by actuarial
valuation
$ 5,605,316
$ 5,466,421
118
1-122
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
12. SHARE CAPITAL
2012 2011
Authorized
Unlimited common shares
Issued
531,738
554,095
20,000 common shares
$66,389,385
$66,389,385
Scrap sales
13. ELECTRIC ENERGY SERVICES
147,237
Loss on Disposition of Obsolete Inventory
(173,158)
2012
2011
Revenue
2,998
Unsealing 1 reconnection charges
El ectri city reve n ue
$ 145,488,399
$ 139,564,210
Wholesale market services
9,518,031
10,268,968
Transmission services
15,275,418
13,251,712
Retailer services
63,255
69,794
$ 170,345,103
$ 163,154,684
Costs
Electricity
$ 145,488,399
$ 139,564,210
Wholesale market services
9,518,031
10,268,968
Transmission services
15,275,418
13,251,712
Retailer services
63,255
69,794
14. MISCELLANEOUS REVENUE
$ 170,345,103 $ 163,154,684
2012 2011
Pole attachment rentals, buildings and other rentals
531,738
554,095
Change of occupancy charges
154,990
152,440
Scrap sales
149,409
147,237
Loss on Disposition of Obsolete Inventory
(173,158)
-
Net gain on disposal of capital assets
86,908
2,998
Unsealing 1 reconnection charges
56,953
37,995
Accounts payable discounts taken
32,451
24,535
Return cheque charges
20,190
23,438
Sundry
57,518
62,444
$916,999 $1,005,182
15. NON - UTILITY OPERATIONS
In 2007, KWHI entered into an agreement with the Ontario Power Authority [ "OPA"] to deliver OPA
funded energy conservation and demand management [ "CDM "] programs. The OEB classifies the
revenue funding and related expense to deliver the OPA CDM programs as non - utility operations.
119
1-123
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
16. AMORTIZATION
2012 2011
Amortization - capital assets $ 9,159,173 $ 9,654,186
Various expense accounts 458,021 738,097
$ 9,617,194 $10,392,283
17. NET CHANGE IN NON -CASH OPERATING WORKING CAPITAL
2012 2011
(Increase) in accounts receivable
(362,138)
(1,796,101)
Decrease in inventories
186,385
246,992
(Increase) decrease in prepaid expense
(121,926)
130,202
(Increase) in payment -in -lieu of corporate income taxes
(1,015,434)
(79,508)
Decrease (increase) in current portion of regulatory assets
1,890,168
(500,876)
Increase (decrease) in accounts payable and accrued liabilities
2,965,950
(507,404)
Increase (decease) in current portion of customer and
construction deposits
(484,704)
1,275,973
(Decrease) in current portion of regulatory liabilities
(2,098,743)
(2,403,184)
$ 959,558
(3,633,906)
120
1-124
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
18. REGULATORY ASSETS AND 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(111)].
[i] Regulatory assets consist of the following:
Current portion regulatory assets
OEB cost assessments
OMERS pension costs
Retailer service costvariances
Retail settlement variances
Other deferred costs
Long -term portion regulatory assets
IFRS transition costs
Retailer service costvariances
Retail settlement variances
Smart meter funding and cost recovery
Recoveryof Regulatory Assets
Other deferred credits
Total reg u latory assets
[ii] Regulatory liabilities consist of the following:
Current portion of regulatory liabilities:
Retailer service costvariances
Retail settlement variances
Smart Meter OM&A
Regulatoryasset recovery (pre 2010)
Deferred PILS
Long -term portion of regulatory liabilities:
Future tax asset
Retailer service cost variances
Retail settlement variances
Regulatoryasset recovery (pre 2010)
IFRS PP &E Adjustments
Total regulatory liabilities
121
2012 2011
$ - $ 233,150
47,427
12,396
894,777 2,483,564
11,744 20,152
906,521 2,796,689
194,834
149,240
39,491
32,067
8,732,137
6,430,761
4,148,033
14,824,502
577,175
-
173,407
99,846
13,865,077 21,536,416
$ 14,771,598 $ 24,333,105
2012 2011
$ - $ 23,865
420,386 2,698,792
89,498 -
- 56,773
170,803
680,687 2,779,430
5,149,259 11,832,089
70,421
75,740
6,710,356
5,384,674
-
45,756
2,265,213
-
14,195,249
17,338,259
$ 14,875,936 $ 20,117,689
1-125
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
18. REGULATORY ASSETS AND LIABILITIES (Continued)
[iii] The following table illustrates the pro -forma effect on income before provision for payments -in -lieu o-
corporate income taxes, of the recognition of regulatory assets and liabilities:
Income before provision for payments -in -lieu of
corporate income tax
Energy related variances:
Retail settlement services
Interest on energy related variances
Non - energy related variances:
FIRS transistion costs
Special purpose charge
Retailer services
Renewable Connection OM &A
Smart meter funding and cost recovery
Smart grid capital
FIRS Transition - PP &E Adjustments
Other regulatory assets
Re g u lato ry as s et recovery
Interest 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
122
2012 2011
$10,853,963 $ 11,411,282
(1,600,301) (631,601)
(30,176) (16,169)
(1,630,477) (647,770)
2,737
(13,323)
(16,321)
(155,235)
(10,000)
2,265,213
(244,165)
664,825
2,493,731
(93,155)
316,340
(1,167)
(1,634,319)
(10,000)
273,274
143,319
(417,382)
(1,423,090)
863,254 (2,070,860)
$ 11,717,217 $ 9,340,422
1-126
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
19. CORPORATE INCOME AND CAPITAL TAXES
The provision for PILs differs from the amount that would 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
Components of income tax expense
Currenttax expense $ 1,789,997 $ 2,376,762
Future tax provision (recovery) arising from
temporary differences (132,918) (71,579)
$ 1,657,079 $ 2,305,183
[ii] Balance Sheet
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, 2012 are as follows:
2012 2011
Capital assets - differences in net book value and
undepreciated capital cost $ 3,784,725 $ 8,879,067
Reg ulatoryadjustments 1,364,534 2,958,022
Post - employment benefits 1,485,409 1,361,605
Loss carry - forwards 103,094 73,978
$ 6,737,762 $ 13,272,672
The Company has capital losses of $82,340 (2011 — $82,340) and net loss carry forwards of
approximately $389,034 (2011 — $322,186) as at December 31, 2012.
123
1-127
2012
2011
Rate reconciliation:
Income from continuing operations before income taxes
$10,814,363
$ 11,357,787
Statutory Canadian Federal and Provincial income tax rate
26.50%
28.25%
Expected taxes on income
2,865,806
3,208,575
Other permanent differences
6,603
52,038
Increase (decrease) in income taxes resulting from:
Change in tax rates on future tax assets
(81,996)
Adjustment of prior years taxes
-
(169,698)
Other current year timing differences not benefited
(940,200)
(675,232)
Other adjustments
(296,300)
(177,545)
Increased tax on investment income
103,196
67,045
Income tax expense
$ 1,657,109
$ 2,305,183
Effective tax rate
15.32%
20.30%
Components of income tax expense
Currenttax expense $ 1,789,997 $ 2,376,762
Future tax provision (recovery) arising from
temporary differences (132,918) (71,579)
$ 1,657,079 $ 2,305,183
[ii] Balance Sheet
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, 2012 are as follows:
2012 2011
Capital assets - differences in net book value and
undepreciated capital cost $ 3,784,725 $ 8,879,067
Reg ulatoryadjustments 1,364,534 2,958,022
Post - employment benefits 1,485,409 1,361,605
Loss carry - forwards 103,094 73,978
$ 6,737,762 $ 13,272,672
The Company has capital losses of $82,340 (2011 — $82,340) and net loss carry forwards of
approximately $389,034 (2011 — $322,186) as at December 31, 2012.
123
1-127
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
20. PRUDENTIAL SUPPORT OBLIGATION
KWHI purchases power from the Independent Electricity System Operator [IESO] on behalf of its
customers and retailers. The IESO 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, 2012, KWHI has posted an irrevocable standby letter of credit as
security in the amount of $35,000,000 (2011 - $29,782,438) underwritten by KWHI's principal bank. The
Company has entered into a credit facility agreement with its bank in which contains certain financial
covenants.
21. GENERAL LIABILITY INSURANCE
The Company is a member of the Municipal Electric Association Reciprocal Insurance Exchange
[ MEARIE], which 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 which the
Company was a member. To December 31, 2012, the Company has not been made aware of any
additional assessments.
22. CONTINGENT LIABILITY
Griffith et al. v. Toronto Hydro - Electric Commission et al.
This action was brought under the Class Proceedings Act, 1992. The plaintiff class was seeking $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 was certified as a class action following 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 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 KWHI did not opt out of the settlement, its share of the total settlement amount is
$271,910 which KWHI paid on June 29, 2011 to Ogilvy Renault in Trust to be disbursed to people in
need of financial assistance in Kitchener - Wilmot Hydro's service territory.
In 2010, the Company recorded the settlement as a current liability and a regulatory asset.
In February 2011, the OEB issued a generic decision in EB- 2010 -0295 allowing affected distributors to
recover the LPP amounts paid back from customers as a rate rider.
124
1-128
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
22. CONTINGENT LIABILITY (Continued)
KINHI applied for a class specific rate rider to recover the LPP amount through its 2011 rate application
(EB — 2010 — 0094) and received approval from the OEB on March 28, 2011 for a one year rate rider to
run from May 1, 2011 to April 30, 2012. In its decision, the OEB did not require a regulatory asset
account to be established for the amounts nor did it require final true up. As the amount was accrued as
a regulatory asset in 2010 (therefore not affecting net income), the amount of $271,904 was expensed in
2011.
23. DIVIDENDS
Dividends in the amount of $3,640,000 were received in 2012 from KWHI, a subsidiary of Kitchener
Power Corp (2011 — NIL)
Dividends paid out to shareholders are as follows:
City of Kitchener
Township of Wilmot
24. COMMITMENTS
2012 2011
$ 3,357,900 $ 3,044,250
282,100 255,750
$ 3,640,000 $ 3,300,000
In support of the Province of Ontario's decision to install smart meters throughout Ontario by 2010 and
pursuant to Ontario Regulation 427106, KI/VHI launched its smart meter initiative in 2008. KINHI 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, 2012, 100% deployment was completed.
In December 2009, KWHI signed a financing agreement with Ontario Infrastructure Projects Corporation
[ "OIPC"] to make financing available up to a maximum amount of $10,000,000 for its investment in smart
metering infrastructure assets. This funding was received by KWHI in 2010. The outstanding amount
owing at the end of 2012 is $7,881,963 (2011 - $8,756,176).
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 metered customer per month be included in KINHI's distribution rates
commencing May 1, 2006. This funding was increased to $1.00 per metered customer per month
effective May 1, 2009 pursuant to OEB Decision and Order of March 10, 2009. This rate rider was again
increased to $2.00 per metered customer per month effective May 1, 2011 following an OEB decision in
March 2011. Revenue was 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 expenses, are expected to be recovered through future distribution rates once the
project is completed, pursuant to the OEB's guidelines.
In 2012, following completion of the Smart Meter Initiative, the Company applied to the OEB for smart
meter cost recovery (EB -2012- 0228). The OEB's decision allowed the Company to transfer $13.4 million
of smart meter assets to its Balance Sheet and to implement rate riders effective November 1, 2012 and
May 1, 2013 to recover $1,344,805 in deferred capital and $2,047,366 in OM &A costs respectively from
its Residential and GS <50kW Customers over a one -year period.
125
1-129
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
25. EMERGING ACCOUNTING CHANGES
International Financial Reporting Standards [ "IFRS"]
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 February 2013, the Canadian Accounting Standards Board extended the deferral of mandatory
transition to IFRS for rate - regulated entities to January 1, 2013. This is the fourth such deferral granted
by the AcSB.
Some of the converged standards will be implemented in Canada during the transition period with the
remaining standards adopted at the change over date. KWHI 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.
26. COMPARATIVE FIGURES
Certain prior year comparative figures may have been restated to conform to the current year's
presentation.
126
1-130
FINANCIAL & STATISTICAL REVIEW
As at December 31 (unaudited)
1. DEMOGRAPHIC STATISTICS
Population'
Households'
Area in acres2
2. TAXABLE ASSESSMENT ($000's)
Residential and farm
Commercial and industrial
2012 2011 2010 2009 2008
(restated)
234,100
232,300
229,400
224,100
220,600
88,540
87,720
86,750
85,120
84,920
33,802
33,802
33,826A,
33,826
33,826
17, 720,136 16, 558, 715 15,4
3,040,482 2,853,553
Total
20,760,618
19,412,268 4W45,334
Final 2011: 2.08%
3. TAX RATES
1.38235
1.40674
Commercial Taxable Full
Residential and Farm Taxable Full
2
City
0.40039
015
0.44361
Region
0.62967
.64445
66709
School Boards
0.2210014
.30082
2310
0.24100
14, 399,242 13, 340, 795
2,452,923 2,373,613
Total
1.25106
Final 2011: 2.08%
1.35170
1.38235
1.40674
Commercial Taxable Full
33
2
City
76 0.799
0.86503
0.87900
0.88451
Region
lot
1.25668
.30082
1.32517
1.34382
School Boards
103
8
.77644
1.90192
2.03266
Total
.
3.94229
4.10609
4.26099
Industrial Taxable Full
City
6 0.7998
0.86503
0.94662
1.03420
Region
e:U1.2
1.25668
1.30082
1.42711
1.57124
School Boards
1.93
2.27248
2.42866
2.59655
Total
3.98648
4.43833
4.80239
5.20199
1. Source: Planning, Housin
unity Serve epartm ent, Regional Municipality of Waterloo
2. 2011 & 2012 -, e: States
nada, 2011 Census Data, 2008 through
2010 - Source:
Statistics Canada,
Cumu1atjAWWffk4WandRQ& Weighted Assessment Growth
2
Final 2010: 1.34%
Final 2011: 2.08%
5 Final 2012: 1.81%
4
4.5
4
33
2
2
1.5
1
00
-05
01 00 03 04 05 06 07 U 02 G0 -11 '12 _1 02 03 04 05 06 07 08 09 10 11 12
The 2011 tax rate increase has been restated to indicate what the tax rate increase would have been
prior to the transfer of storm water management costs to a new user rate. Without this restatement, a
decrease would be shown for 2011.
127
1-131
FINANCIAL & STATISTICAL REVIEW
As at December 31 (unaudited)
2012 2011 2010 2009 2008
($000's) (restated) (restated)
4. COLLECTION STATISTICS
Total taxes billed
Total collections
Total collections as a % of current levy
Taxes receivable, net of allowance
Total receivable as a % of current levy
5. CONSOLIDATED REVENUES
Taxation and user charges
Grants
Share of net income of Kitchener Power
Corp. and its affiliates
Other
346,614
338,414
336,801
322,122
308,330
344,966
337,067
335,952
319,833
306,122
100%
100%
100%
99%
99%
21,661
22,276
20,978
286
18,785
6%
7%
6°
6%
6%
273,446
11,772
8,448
37,424
282,682
21,766
,140
23,256
265,944
3,788
4,718
32,298
Total revenues 337,967 348, 352, 975 342,935 321,457
O. VVNQVLI LJAI CU CAr CIVJCJ
Expenses by Function
General government
1563
35,650
37,458
Protection to persons and property
4
8,691
40,695
38,367
35,182
Transportation services
29,
31,101
30,117
33,623
29,969
Environmental services
32,2
20,999
22,530
17,822
18,162
Health services
1,947
1,867
1,775
1,830
1,772
Social and family service
1,859
1,830
1,756
1,649
Recreation and cultural serve
,'
60,169
57,206
58,537
54,874
Planning and de
t
9,243
11,065
11,830
8,761
28,402
Gasworks
64,661
73,508
79,393
90,880
95,488
Total E s
277,919
273,768
272,939
287,226
302,956
Expen Object
Salaries,
and employee
efits
128,444
123,722
112,829
114,678
111,624
Materials an
es
103,261
112,620
121,543
126,000
158,192
Debenture debt i
3,889
3,543
3,275
2,975
2,663
Grants and other
3,867
3,514
3,007
2,841
2,178
Amortization
34,299
29,898
28,435
28,155
28,125
Loss /(Gain) on sale of assets
4,159
471
3,850
12,577
174
Total Expenses 277,919 273,768 272,939 287,226 302,956
7. ANNUAL SURPLUS 60,048 74,907 80,036 55,709 18,501
128
1-132
FINANCIAL & STATISTICAL REVIEW
As at December 31 (unaudited)
2012 2011 2010 2009 2008
(restated) (restated)
8. ANALYSIS OF LONG -TERM DEBT ($000's)
Gross debt issued by the municipality 111,263 98,188 81,327 72,200 63,512
Less debt recoverable from municipal
enterprises and consolidated boards 12,077 12,538 6,962 3,101 148
Less debt recoverable from other sources 13,434 3,857 4,6 5,469 6,279
Net debt to be repaid from property taxes
86,762
81,793
6
63,630
57,085
Net debt per capita ($'s)
366
352
284
259
Legal debt limit ($000's)3
294,640
313,022
15,
298,048
286,780
Interest on long -term debt as a % of
total expenditures
1.4%
0
1.2%
.0%
0.9%
9. ACCUMULATED SURPLUS ($000's)
Reserves, reserve funds and deferred
revenue - obligatory reserve funds
37,83
31,81
21,984
32,987
41,254
Unexpended capital financing
68,323
41,733
55,960
54,354
Accumulated surplus
1,093,437
1,
958,483
888,358
841,899
10. NEW CONSTRUCTION
Value of construction ($000's)
4
66,026
5,345
365,925
339,408
Number of building permits
2,4
2,664
2,580
2,960
Number of single family dwelling st
59
580
471
643
11. NET FINANCIAL ASSETS s
1 66
160,278
148,319
155,491
142,456
3. The debt limit is based on the,@Wcial Informn
Return fronWecond immediate preceding year.
$ Debt per Capita
$ Value of Construction ($OOO's)
700,000
300,000
500,000
X00,000
300,000
200,000
100,000
0
2008 2009 2010 2011 2012
129
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FINANCIAL & STATISTICAL REVIEW
As at December 31 (unaudited)
12. PRINCIPAL CORPORATE TAXPAYERS
2012 Assessment ($000's)
CF /Realty Holdings Inc.
190,014
Ontrea Inc.
183,233
Drewlo Holdings Inc.
158,299
Voisin Developments Limited
78,533
130
1-134
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Presentation Content
• Financial Statement Review
• Municipal Financial Condition
• Audit Findings Report
1-136
Background
These financial statements
combine:
—tax based operations
— enterprises
— local boards
— capital activity
— reserve fund activity
1-137
Financial Statement
Review
1-138
Statement of Financial Position —
Financial Assets
Financial assets
2012
2011
Cash and cash equivalents
$ 55,812,011 $
62,394,615
Taxes receivable
21,586,298
22,275,777
Trade and other accounts receivable
35,538,807
32,019,992
Loans receivable (Note 4)
16,677,789
7,820,988
Inventory for resale
11,033,560
13,871,309
Investments (Note 5)
7412841454
56,379,944
Investment in Kitchener Power Corp. and
its affiliates (Note 6)
179, 037, 991
173, 948, 297
Investment in Kitchener Generation
Corporation (Note 7)
4,180, 532
-
398,151,442
368, 710, 922
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Statement of Financial Position —
Non- Financial Assets
Non-financial assets
2012 2011
Tangible capital assets - net (Note 13) 929,404,766 869,949,742
Inventory of supplies 21062,088 210491446
Prepaid expenses 11403,769 1,111,167
932, 870, 623 873,110, 355
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Statement of Financial Position —
Liabilities
Liabilities
2012 2011
Accounts payable and accrued liabilities 86,753,513 74,263,690
Deferred revenue - obligatory reserve funds
(Note 7) 2,859,353 1,665,764
Deferred revenue - other 8,781,715 8,672,152
Municipal debt (Note 8) 11112621798 98,187,960
Employee future benefits (Note 10) 27,928,057 25,643,189
237, 585, 436 208, 432, 755
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Understanding Surplus
Operating Results
Operating- Tax -Based (Schedule 1) 54,375
Operating -All Enterprises (Schedules 2 - 8) 4,145,566
Net change in Reserve Funds (600,042)
Consolidation Entries
Kitchener Power Corp 5,089,694
Kitchener Generation Corporation (33,204)
Boards and BIA's (excludingTCA impacts) (235,990)
PSAB Adjustments
Tangible Capital Asset Acquisitions 101,281,115
Tangible Capital Asset Disposals (7,526,790)
Amortization expense (34,299,301)
Debt principal repayment 8,480,162
Debt proceeds (21,555,000)
Debt recoverable from 3rd party 10,400,000
Other (5,152,478)_
Annual Surplus on Statement of Operations 60,048,107
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Consolidated Revenues
Ilion-
20
)0
30
50
10
?0
Taxation Gasworks Water, Other user Grants Other
sewer & fees
storm water
12012 Budget 2012 Actual 2011 Actual
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Consolidated Expenses
lions
0
0
0
0
0
0
0
0
General Protection Transport- Environ- Recreation Other Gasworks
government to persons ation mental & cultural
& property services services services
2012 Budget M 2012 Actual �wi 2011 Actual
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Expenses by Object
debt interest
($4M)
Grants and other
$4M ($3M)
Amortization
$34M ($30M)
Loss /(Gain) on sale of
asset
$4M ($OM)
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Municipal Financial
Condition
1-146
Municipal Financial Condition
Municipal Financial Condition is a
iunicipality's ability to finance its services
n a continuing basis
refers to a City's ability to:
• Maintain required service levels
• Withstand local and regional economic
disruptions
• Meet the demands of natural growth, decline
and change
1-147
uncial Condition Assessment
Environmental 4 Factors Affecting -* Financial
Factors Financial Factors
Condition
1-148
Reserves Funds
Millions
$40
$35
$30
$25
$20
$15
$10
$5
2008 2009 2010 2011 2012
1-149
deserve Fund Categories
MMMMMMKI
Corporate
1-150
Reserve Reporting by
Category
2012 Actual 5,860,685 (6,714,147) 5,371,275 21,652,373 14,554,943 40,725,130
Minimum Reserve Target
9,428,500
-
15,000
27,224,501
29,392,500
66,060,501
Maximum Reserve Target
15,730,250
5,000,000
14,530,000
48,763,586
106,316,596
190,340,431
%of Minimum Target
62%
0%
35809%
80%
50%
62%
2011 Actual
6,228,143
(4,344,261)
4,472,169
18,783,505
11,912,438
37,051,995
Change from Prior Year
-6%
-55%
20%
15%
22%
10%
Note: Reserve total by category ($40.7M) differs from financial statements
($35M) due to:
a) Some reserves classified as deferred revenue on financial statements
• Obligatory reserves such as Federal Gas Tax
b) Consolidation of other entities
• Library, Centre in the Square
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Municipal Debt
1-152
4
3.5
3
2.5
2
1.5
1
0.5
0
Debt to Reserve Ratio
Kitchener's ratio would be 0.8 if EDIF and enterprise debt were removed.
1-153
'er Capita
1-154
Audit Findings Report
1-155
umma
1-156
Executivesummary ................................................................................... ............................... 2
Significant audit, accounting and reporting matters ............................. ............................... 3
Significant qualitative aspects of accounting policies and practices .. ............................... 5
Auditdifferences ........................................................................................ ............................... 6
Controldeficiencies ................................................................................... ............................... 7
Appendices................................................................................................. ............................... 8
1-157
���:,::"::"::":,'xecu"t'Ii'ive suia °i II °i i"
Overview
The purpose' of this Audit Findings Report is to assist you, as a member of the Audit
Committee, in your review of the results of our audit of the consolidated financial statements of
the City of Kitchener ( "City ") as at and for the year ended December 31, 2012
Status
As of the date of this report, we have completed the audit of the consolidated financial
statements, with the exception of certain remaining procedures which include:
• obtaining legal enquiry letter responses;
• obtaining signed representation letter;
• completing our discussions with the committee; and
• obtaining evidence of the approval of the financial statements
Please refer to the Appendices for our draft auditors' report. We will update you on significant
matters, if any, arising from the completion of the audit, including completion of the above
procedures.
This Audit Findings Report should not be used for any other purpose or by anyone other than Management and Council
of the City of Kitchener. 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 Report has not been prepared for, and is not intended for, and should not be used by,
any third party or for any other purpose.
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fi in 6 ficaint audit, accounting and lire it 6 n i matteirs
Matters is
Included in this report are matters we have highlighted for discussion at the upcoming audit
committee meeting. We look forward to discussing these matters and our findings with you.
• During 2011, the City implemented its Storm Water Management (SWM) utility and the
related fees were charged to property owners.
• In connection with new program, a rebate mechanism was implemented in order to
encourage property owners to manage storm water as well as reduce their costs.
• While no rebates were paid in fiscal 2011, management has accrued an amount for
expected rebates of the 2011 fees. During 2012, there were minimal rebates paid to
ratepayers.
• Management has based its accrual on a detailed analysis of the various SWM fee rebate
programs, supplemented by data and experience collected from other municipalities.
KPMG comments
• The rebate accrual is based on approximately 5% of the SWM fees for 2011 and 2012, less
amounts paid in 2012. As noted above, this was based on an analysis of the rebate
programs.
• PSAB requires that management make its best estimate of accruals where measurement
uncertainty exists. In this case, as the amount of rebates to be paid is unknown,
management is required to use all relevant information in estimating and recording the
accrual.
• We have reviewed the support for the rebate accrual at December 31, 2012 and have
concurred with management's approach to estimating the rebate accrual and the amounts
recorded in the financial statements.
• We will continue to monitor the development of the rebate programs and the accruals in
future years.
• It is expected that management will utilize the City's actual experience with the rebate
program in setting and revising its rebate accrual in future periods.
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• During the year, the City entered into a draft agreement with the Region of Waterloo (the
"Region "), whereby the Region would pay to the City approximately $5.2M in exchange for
100 parking spaces in the parking structure for the life of the parking structure.
• In addition, the City and Region would share on a pro -rata basis the net revenues
(expenses) of the parking structure.
• At December 31, 2012, approximately $3.1 M was recorded as receivable from the Region
in connection with its proportionate share of parking spaces available for use at December
31, 2012.
• In the financial statements, the amount due from the Region has been recorded as a
reduction to the parking structure asset account.
KPMG comments....
We considered whether the amounts owing from the Region (in the current year and future
years) for the parking spaces should be recorded as:
a) current period revenue;
b) deferred and recognized as revenue in future periods; or
c) as a reduction of the parking structure asset.
• While the amounts due from the Region represent an amount from another government,
they did not meet the definition of a government grant or contribution as the amounts were
not 'non - reciprocal' (i.e., the Region did get something in return). As a result, recording the
amount as current period revenue would not be appropriate.
• An argument could have been made to record the full amount of the asset in the City's
financial statements and record the amounts owing from the Region as deferred revenue.
The revenue would then be recognized in the financial statements over the life of the
agreement, which in this case, is the life of the parking structure. As discussed below, this
treatment was not determined to be the most appropriate.
• We considered whether or not the agreement with the Region represents a type of sale or
disposal of a portion of the asset. In this case, did the City transfer substantially all of the
risks and benefits of ownership of the parking spaces to the Region?
• As the Region is entitled to the parking spaces for its own use and shares on a pro -rata
share of the net revenues (expenses) of the parking structure for the life of the structure,
we concluded that substantially all of the risks and benefits had been transferred. This is
similar to a capital lease, however, in this case, the payments are all made up front. As a
result, it was determined that the most appropriate accounting treatment would be to
record the amounts due as a reduction of the asset. Furthermore, the impact of this will be
a reduction to depreciation expense in future periods.
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Sig in Iii f ii n qualitative aspects of accouiii tIii iii
policies n practices
I
Our professional standards require that we communicate our views regarding the matters below,
which represent judgments about significant qualitative aspects of accounting policies and
practices. Judgments about quality cannot be measured solely against standards or objective
criteria. These judgments are inherently those of the individual making the assessment: the
engagement partner. However, although judgments about quality are those of the engagement
partner, the views discussed below are not contrary to positions KPMG has taken.
The following are the matters we plan to discuss with you
1-161
Audit Iii ff r iii
Identification iss
Misstatements, if any, identified during the audit have been categorized as follows:
• uncorrected misstatements, including disclosures
• corrected misstatements, including disclosures
Uncorrected iss s
We have concurred with management's assertion that any uncorrected audit differences,
individually and in aggregate, are not material to the financial statements.
Corrected iss s
Management has approved of the recommended audit corrections made during the course of
our examination.
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Control de-fidencies
As your auditors, we are required to obtain an understanding of internal control over financial
reporting (ICFR) relevant to the preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances for the
purpose of expressing an opinion on the consolidated 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 understanding of ICFR was for the limited purpose described above 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.
•- -
We did not identify any control deficiencies that we determined to be significant deficiencies in
ICFR.
1-163
Appendices
1-164
1'..)raft auditors' report
To the Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener:
We have audited the accompanying financial statements of The Corporation of the City of Kitchener
( "the Entity "), which comprise the financial position as at December 31, 2012 and the statement of
operations, changes in net assets, and cash flow for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian 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 an audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, we consider internal control relevant to the Entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
1-165
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
The Corporation of the City of Kitchener as at December 31, 2012, and the results of its operations
and its cash flows for the year then ended in accordance with Canadian generally accepted
accounting principles.
DRAFT
Chartered Accountants, Licensed Public Accountants
June 24, 2013
1-166
Ihindelpendence letter
Corporation of the City of Kitchener
200 King Street West
Kitchener, ON
N2G 4G7
June 12, 2013
Dear Audit Committee Members:
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, 2012.
Professional standards specify that we communicate to you in writing, 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.
1-167
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, 2012:
Description of Service
Audit
Audit of the consolidated financial statements of the Corporation of the City of Kitchener,
including Trust Funds and Gasworks Enterprise
• Audit of the Federal Gas Tax Agreement
• Audit of the Ministry of Health Report for the Seniors Day Out Program
Tax
• Various tax advisory matters
OTHER RELATIONSHIPS
We are 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, 2012 to the
date of this letter.
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 Institute
Chartered Accountants of Ontario as of the date of this letter.
1-168
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
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,
Chartered Accountants, Licensed Public Accountants
1-169
Currerit developiry „i e in t
•
In March 2012, the PSAB issued Section PS 3041, Portfolio Investments, which revises and replaces PS
3040, Portfolio Investments. In addition, Section PS3030, Temporary Investments, has been withdrawn as
the distinction between temporary and portfolio investments has now been removed. The scope of
Section PS3041 has been expanded to include interests in pooled investment funds. The recognition and
measurement requirements of Section PS 3450, Financial Instruments, will have to be applied, other than
to the initial recognition of an investment with significant concessionary terms. Certain other terms,
requirements and definitions have also been amended to conform to Section PS 3450. This standard is
effective for years beginning on or after April 1, 2015 — for the City of Kitchener, the 2016 fiscal year.
laindciodk liiiTillf m” uimt ur °m.t
In March 2012, PSAB issued improvements to certain handbook sections. Some of the key improvements
included the following:
• Amendments to Section PS 2400, Subsequent Events, to clarify the meaning of date of completion of
financial statements.
• Section PS 2500, Basic Principles of Consolidation, has been amended to clarify that any unrealized
gain or loss attributable to de- recognition of financial assets and financial liabilities in the fair value
category due to inter - governmental sales or transfers would be eliminated from the consolidated
statement of operations.
• Section PS 2510, Additional Areas of Consolidation, to clarify that the application of the modified
equity method may require the reporting of other comprehensive income.
• Amendments were issued to Section PS 3050, Loans Receivable, to require the use of the effective
interest method when amortizing a loan discount. The requirement to apply the effective interest
method applies in the period Section PS 3450, Financial Instruments, is adopted.
• Section PS 3230, Long -term Debt, and Section PS 3390, Contractual Obligations, were amended to
clarify the interaction with the requirements of Section PS 3450, Financial Instruments.
PSAB issued amendments to Section PS2601, Foreign Currency Translation, and Section PS 3450,
Financial Instruments, to clarify the transition provisions in these standards. The transition provisions in
Section PS 2601 have been amended to clarify their application to hedging instruments for government
organizations. In addition, a new transitional provision has been added that applies to government
organizations with self- sustaining foreign operations. Section PS 3450 has been amended to clarify that
the measurement provisions are to be applied prospectively. In addition, a new transition provision has
been added that applies to government organizations with assets classified as available for sale.
1-170
rainsfers, Sectioin IIC: 441
• Sets outs recognition principles for government transfers.
• May allow deferral of transfers 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.
• 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 of taxes collected on behalf of others.
• This standard is effective for fiscal years beginning on or after April 1, 2012.
° "'iiiinair.mu� iii ulll linstruirneints, Sectioin III'° 44"'40
• 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, 2015
r iii um urrei cy u ainsm iii l4 in cLiii in III'° 4601
• 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, 2015 and must be
adopted when the new Financial Instruments standard is adopted.
iiiinair.t iii ulll tateirnein.t III'° u� ur °m °t °tiii ur °m tiii in III'° 1401
• This standard sets out the general reporting principles and standards for the disclosure of government
information.
• This standard is effective when the entity adopts PS 3450 and PS 2601.
fiiidlLi llliirt4 for Cointairnfinated Sites, tiii in III:: 3260
• 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.
1-171
In September 2012, the PSAB issued an exposure draft on Related Party Transactions. The proposals
provide guidance on the identification of related parties and on the recognition, measurement and
disclosures of transactions with related parties.
Under the proposals, related parties would include entities that control or are controlled by the entity;
entities that are under common control; entities that have shared control over, or that are subject to
shared control; and individuals that are key management personnel or close members of their family. The
proposals would permit a transaction to be recorded at the exchange amount and provide guidance as to
when the carrying value, for example, might be used as the exchange amount. The proposals would also
require that information about goods and services contributed by related parties be disclosed in the
financial statements.
Ilf u u III,')raft III °iiinairmu�iidu ur °m °tu,uumt ur °mt oincoirne oin III our °m ulllllly Restricted
The PSAB recently issued an exposure draft on Financial Instruments: Income on Externally Restricted
Assets that proposes to amend Section PS 3450, Financial Instruments, to ensure the reporting of income
on externally restricted assets that are financial instruments aligns with the requirements in Section PS
3100, Restricted Assets and Revenues. The proposed amendments clarify the accounting for gains,
losses, interest and dividends when income attributable to a financial asset is externally restricted and
addresses the accounting for adjustments associated with the transition to Section PS3450 when income
attributable to a financial asset is restricted.
III,')raft 114 u" III a iii° iii u
The PSAB issued an exposure draft, Use of Appropriations, in September 2012. The proposals aim to
improve consistency and comparability amongst similar entities. The proposed standard on accounting for
the use of appropriations would apply only to those entities that directly access funding through their
appropriations authority. Entities that receive actual transfers of monetary assets would apply existing
standards.
The proposals require that the use of appropriations would be recognized when an appropriation, supply
act or other legislation authorizes an entity to spend resources, and the reporting entity has an eligible
transaction or event under that authority. It requires that the use of appropriations should be separately
identified in the financial statements and be reported in either the statement of operations or the
statement reconciling the opening and closing accumulated surplus or deficit.
1-172
PSAB Projects Underway
The following section discusses the major projects currently with the Public Sector Accounting Board
Coiimqats for °Weld iiiur °m III', iiim iim iii III'° rforii naurm
The objective of this project is to review and amend, if necessary, the conceptual framework in Sections
PS 1000, Financial Statement Concepts, and PS 1100, Financial Statement Objectives. PSAB's Conceptual
Framework Task Force has recently issued a consultation paper that proposes an objective and primary
audience for financial reporting, the accountabilities to be reported on in financial statements, and
alternative reporting models to demonstrate them.
U114Aate of IIM r ai iii uiim o 111 o g
An exposure draft, titled Update of Terminology, was approved in June 2011 with the objective of
amending the Introduction and applicable sections with a terminology to describe public sector entities
which follow the PSA Handbook. The main features of the exposure draft included replacing references to
"government ", "public sector reporting entity ", "entity" and "reporting entity" with "public sector
entity ", where applicable, in certain standards and guidelines of the PSA Handbook and removal of
government partnerships and school boards from the definition of public sector in the Introduction to
Public Sector Accounting Standards. The responses to the exposure draft have resulted in the Board
developing a re- exposure draft proposing amendments to the Introduction to Public Sector Accounting
Standards that clarifies the definition of a government organization including whether public sector entities
(such as departments and ministries, for example) are government organizations or are part of
government. The amendments will also address whether government partnerships are within the scope of
the public sector and, if so, the appropriate basis of GAAP to be followed.
Other I: Irojects Uii,iderway
The PSAB is currently working on a number of other projects that are in various stages of advancement.
Some of the projects currently underway include asset retirement obligations; assets; fiscal sustainability;
impairment of non - financial assets, restructurings; revenues and service concession arrangements. Details
on these projects can be found on the PSAB website.
1-173
M Gs A u d it IIM
Audit quality, and the respective roles of the auditor and
audit committee, is fundamental to the integrity of
financial reporting in our capital markets.
This is why audit quality is at the core of everything we do
at KPMG. And we believe that it is not just about reaching
the right opinion, but how we reach that opinion.
To help ensure that every partner and employee
concentrates on the fundamental skills and behaviours
required to deliver an appropriate and independent
opinion, we have developed our global Audit Quality
Framework.
The framework comprises seven key drivers of audit
quality.
°III'lllie se vein Ilkey drivers of audit q usllliii°t y
Commitment to
continuous
improvement
(Performance of
9ctive and efficient
audits
Association with the
right entities
Clear standards and
robust audit tools
Recruitment,
Commitment to development and
technical excellence assignment of
and quality service appropriately
delivery qualified personnel el
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Tone at the top
Audit quality is part of our culture and
Assures you that:
our values and therefore non-
. Our culture supports our
negotiable
promise to you of excellent
Allows the right behaviours to permeate
service and a high quality
across our entire organization and each
audit — consistently
of our engagements
. You're receiving an
independent, transparent,
Association with
Ethics above all
audit opinion
the right entities
Eliminates any potential independence
. You're receiving an efficient
and conflict -of- interest issues
and high quality audit that will
Clear standards
A solid rule book
help you maintain investor
confidence in your financial
and robust audit
Rigorous internal policies and guidance
statements.
tools
that help ensure our work meets
Provides you with:
applicable professional standards,
regulatory requirements, and KPMG's
. An engagement team
handpicked for your business
standards of quality
needs – a team with relevant
Recruitment,
People who add value
professional and industry
development and
experience
assignment of
Helps us attract and retain the best
. An audit engagement team
appropriately
people and reinforces the importance of
whose qualifications evolve
qualified
developing their talents
as your business grows and
personnel
Assigns Partners' portfolios based on
changes
their specific skill sets
• An audit opinion that
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�� IIII III iii
Commitment to
The right tools for the right job
continues to meet your
technical
needs as a participant in the
excellence and
Promotes technical excellence and
capital markets
quality service
a y
quality service delivery through training
Assists you with:
delivery
and accreditation, developing business
understanding and industry knowledge,
• Assessing the effectiveness
investment in technical support,
and efficiency of the audit
development of specialist networks, and
. Performing your governance
effective consultation processes
role with confidence.
Performance of
We understand that how an audit is
effective and
conducted is as important as the final
efficient audits
result.
A code of conduct, audit delivery tools,
and internal policies and procedures that
help ensure the work performed by
engagement personnel meets applicable
professional standards, regulatory
requirements, and our standards of
quality
Commitment to
Comprehensive and effective
continuous
monitoring
improvement
We regularly solicit feedback from the
audit committees of the entities we
audit. Our robust internal quality review
program ensures the work of each
partner is reviewed every three years.
Additionally, our procedures and a
sample of our audits of listed entities are
reviewed by the Canadian Public
Accountability Board (CPAB), the
independent regulator of the
accountancy profession in Canada. The
Public Company Accounting Oversight
Board (PCAOB) in the US also conducts
an annual inspection of a sample of our
audits of SEC registrants. Finally, a
sample of other audits and reviews is
undertaken annually by the various
provincial institutes in Canada. We
consider the recommendations that
come from these reviews and
implement actions to strengthen our
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Uncertain economic forecasts and a changing regulatory environment define today's world; reliable
financial information and high quality audits have never been more essential.
We believe that high quality audits contribute directly to market confidence and we share your objectives
of credible and transparent financial reporting.
Our Audit Quality Framework is particularly relevant to Audit Committees, and we see our role in being
transparent to you as a key mechanism to support you in the execution of your responsibilities.
Our commitment to quality
The independence, judgment and professional skepticism of your auditors add value to your financial
statements, and we believe it is important to be transparent about the processes we follow to
develop a KPMG auditors' report. We want you to have absolute confidence in us and in the quality
of your audit.
Our own professional standards dictate technical requirements for reaching and communicating an
audit opinion. And we live and abide by these requirements. We invest heavily in our quality, and the
Audit Quality Framework helps ensure these investments are the right ones —that they help us
continuously drive and maximize our quality improvements. But we feel it is also important that we
communicate to you how we view and implement audit quality. The seven key drivers outlined here,
combined with the commitment of each individual in KPMG, are meant to do just that.
KPMG member firms across the world use this audit quality framework to describe, focus on and
enhance audit quality for the benefit of the entities we audit and in support of the efficacy of our
capital markets.
It is our hope that sharing our vision of what audit quality means is a significant step in building
confidence in the value of our audits.
Audit quality is fundamental to the way we work.
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