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FCS-14-047 - 2013 Audited Financial Statements
Staff Report rR finance and Corporate Services Department www.kitchener.ca REPORT TO: Audit Committee DATE OF MEETING: June 30, 2014 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 18, 2014 REPORT NO.: FCS -14 -047 SUBJECT: 2013 Audited Consolidated Financial Statements RECOMMENDATION: THAT the 2013 Audited Consolidated Financial Statements of the City of Kitchener be approved. BACKGROUND: Staff is pleased to submit the 2013 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 30. 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. (CITS), Kitchener Public Library, Belmont Improvement Area, and Kitchener Downtown Improvement Area. The 2013 year end results for the tax -based operations and the enterprises were reported to Council in March. 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 1- 1 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, 2013 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, 2013 • Audit Committee Presentation • Audit Findings Report for the year ended December 31, 2013 (KPMG) ACKNOWLEDGED BY: Dan Chapman, Deputy CAO of Finance and Corporate Services and City Treasurer 1 -2 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 17, 2014 as follows: ME Tax sluppofted sluirpIus (286,408) EinterpHse 15,,023,693 Total as presented in: March 2014 14,7a7,290 Additionai OTSfundlng (155,000) Revised operating reSWtS 14,582,290 Consolidation Kiutchener Public Library 18,598 The Centre in the Square (1,517,612) Kitchener Downtown Improvement Area 88,635 Bel mon t Ig niprove ment Area (2,509) Klotchener lPower Corp,, and &ts,Afffliates 4,250,933 Kltchenier Generaticn Corporation (57,269) 2,780,77'6 Revenues not included in o'pe rating surp'l us Development Charges, 6,1645,171 Capmta,4 Grants 6,954,734 Investment Income and Dividend from KP,C 8,326,262 Donated Assets 10,338,038 AmorVzat�on of TCA Operating Expenses i1in Capl�talU Change in ACtLja6al estimate (35,,213,393) (17,027,392) (3,757,185) ,02erating expensesjn ireserves I,2 2, „23I') (57,210,200) Surplus per Consolidated F/S 44,,2 19,572 1-3 umma mill, FBI In "t e In "t s Executivesummary ................................................................................... ............................... 2 Significant audit, accounting and reporting matters ............................. ............................... 3 Significant qualitative aspects of accounting policies and practices .. ............................... 6 Auditdifferences ........................................................................................ ............................... 7 Controldeficiencies ................................................................................... ............................... 8 Appendices................................................................................................. ............................... 9 For KPMG's audit committee resources, please visit kpma.ca /auditcommittee 1 -5 "VIII v e s u II „i iary 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, 2013 in accordance with Canadian Public Sector Accounting Standards ( "PSAB "). 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. Audit findings report Pa g e 12 1 -6 fi in 6 ficaint audit, accounting and lire it 6 n i matteirs 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. Management had commenced accruing an amount for expected rebates in 2011, which continued into 2012. During 2012 and 2013, there were minimal rebates paid to ratepayers. Management had previously based its accrual on a detailed analysis of the various SWM fee rebate programs, supplemented by data and experience collected from other municipalities. At December 31, 2013, the accrual for SWM rebates is approximately $100K, down significantly from the balance at December 31, 2012. This reflects the City's actual experience in the SWM rebates being claimed and paid and the fact that there is no retroactivity in the credit program. KPMG comments 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 will continue to monitor the development of the rebate programs and the accruals in future years. It is expected that management will continue to utilize the City's actual experience with the rebate program in setting and revising its rebate accrual in future periods. Audit findings report Pa g e 13 1 -7 During 2011, in connection with its SWM utility, fees were assessed against properties owned by school boards. During 2012, the school boards notified the City that they felt they were exempt from the charge under the provisions of the Education Act. During 2013, the City received correspondence from the Minster of Education further indicating that it was the Ministry of Education's position that under Section 58 of the Education Act, school boards were exempt from SWM fees imposed under the Municipal Act. While the City has continued to assess and bill SWM fees to the school boards, the City has provided a grant to the school boards in the amount of the total storm water fee included in the storm water portion of the monthly utility bill. This was being done for the City's record keeping purposes as, at this point, the City is not anticipating collection of the fee. As a result, there is no net revenue or net asset recorded in the financial statements for SWM fees from school boards. KPMG comments Given the uncertainty around whether the school boards are in fact exempt from the SWM charges and the ultimate collection of these accounts, KPMG concurs with management's position to record an offset to the revenue /asset of the SWM fee from school boards. Audit findings report Pa g e 14 1 -8 Schneider Creek: During 2011 and 2012 City finance department was not made aware that the Schneider Creek Channel was a Non -TCA project. Accordingly, costs associated with the project had been capitalized in 2012. In fiscal 2013 it was communicated that $501 K that had previously been recorded as Assets Under Construction, was assessed to be non - capital in nature. Management has recorded an entry to credit capital assets (reducing capital assets) and has recorded a charge to the statement of operations in fiscal 2013. In actuality, the charge to the statement of operations should have been recorded in previous periods. Current year's opening accumulated surplus is overstated by $501 K, while current year expenditures are overstated by $501 K, reflecting the write off of the items determined not to be tangible capital assets in 2013. Grand River Erosion Control: During 2012 costs were incurred with respect to erosion control. Finance was not advised that this was a non -TCA project until 2013. In 2013 Finance was advised that no segment of this project was to be capitalized and as such, management has recorded an entry of $1.4M to credit capital assets (reducing capital assets) and has recorded a charge to the statement of operations in fiscal 2013. The charge to the statement of operations should have been recorded in fiscal 2012, as opposed to fiscal 2013. Opening accumulated surplus is overstated, while current year expenditures are overstated by $1.4 million dollars reflecting the write off of the erosion work that has been determined to not be a tangible capital asset in 2013. KPMG comments KPMG concurs with management's approach to correct the above noted items. The above matter does not impact budgets, funding or reserve levels, nor is there any issue /concern about how the funds were actually spent. It is merely an accounting and reporting matter under the PSAB requirements. We encourage management to continue to place emphasis in its operations departments around the requirement for timely /accurate reporting to Finance in the areas of TCA. Audit findings report Pa g e 15 1 -9 Sig in lii 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 Audit findings report Pa g e l 1 -10 Audit Iii ff r iii .• Misstatements, if any, identified during the audit have been categorized as follows: • uncorrected misstatements, including disclosures • corrected misstatements, including disclosures Uncorrected iss 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 There were no recommended audit corrections made during the course of our examination. Audit findings report P a g e 17 1 -11 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. Audit findings report Pa g e l 1 -12 Appendices ;r • • • • . • Audit findings report Pa g e 19 1 -13 1'..)raft auditors' report INDEPENDENT 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, 2013 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. Audit findings report P a g e 110 F�EI 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, 2013, 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 Professional Accountants, Licensed Public Accountants June 30, 2014 Audit findings report P a g e 111 1 -15 Ihindelpendence letter Corporation of the City of Kitchener 200 King Street West Kitchener, ON N2G 4G7 June 30, 2014 Dear Audit Committee Members: Professional standards specify that we communicate to you in writing 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 consider relevant rules and related interpretations prescribed by the relevant professional bodies 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 Audit findings report Page 112 1 -16 PROVISION OF SERVICES The following summarizes the professional services rendered by us to the Entity (and its related entities) from January 1, 2013 up to the date of our auditors' report: Description of Professional Services 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 Professional standards require that we communicate the related safeguards that have been applied to eliminate identified threats to independence or to reduce them to an acceptable level. Although we have policies and procedures to ensure that we did not provide any prohibited services and to ensure that we have not audited our own work, we have applied the following safeguards regarding the threats to independence listed above: ® We instituted policies and procedures to prohibit us from making management decisions or assuming responsibility for such decisions. ® We obtained pre- approval of non -audit services and during this pre- approval process we discussed the nature of the engagement and other independence issues related to the services. ® We obtained management's acknowledgement of responsibility for the results of the work performed by us regarding non -audit services and we have not made any management decisions or assumed responsibility for such decisions. OTHER RELATIONSHIPS We are not aware of any other relationships between our firm and the Entity (and its related entities) that may reasonably be thought to bear on our independence from January 1, 2013 to the date of this letter. CONFIRMATION OF INDEPENDENCE We confirm that we are independent with respect to the Entity (and its related entities) within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulation from January 1, 2013 to the date of this letter. OTHER MATTERS This letter is confidential and intended solely for use by those charged with governance in carrying out and discharging their responsibilities and should not be used for any other purposes. Audit findings report P a g e 113 1 -17 KPMG shall have no responsibility for loss or damages or claims, if any, to or by any third party as this letter has not been prepared for, and is not intended for, and should not be used by, any third party or for any other purpose. Yours very truly, Audit findings report Page 114 1 -18 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. lI'ie eeoein Ilkey dr�4ers of audlii°t ql uallliii°tq Commitment to continuous improvement Performance of active and efficient audits Association with the right entities Clear standards and robust audit tools Commitment to Recruitment, development end l teclNrnicall excellence and quality service assignment of appropriately delivery qualified personnel our values and therefore non- Osupports our negotiable promise to you of excellent Allows the right behaviours to permeate Audit findings report P a g e 1 1 5 1 -19 IJIIIIIl .III iiiiiiulluullllllllllllllllllll II IIIIIIIII II�II �IIII�IIIIII� I �IIIII Tone at the top Audit quality is part of our culture and Assuat: ii7r our values and therefore non- Osupports 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 Audit findings report P a g e 1 1 5 1 -19 1111111 III III�IIIIIIIIIIIIIIIII � ��IIIII�IIIIIIIIIIII�IIII IIIIIIIIII IIII�IIIIIIIIIIIIIIIIIIIIIII ��IIIII�IIIIIIIIIIII�IIII IIIIIIIIII III�III�IIIIIIIIIIIIIIIIIIIIII�IIIIIIIIII IIIIIIIIIIIIII iii �IIIII their specific skill sets • An audit opinion that continues to meet your Commitment to The right tools for the right job needs as a participant in the technical Promotes technical excellence and capital markets excellence and quality service quality service delivery through training Assists you with: delivery and accreditation, developing business . Assessing the effectiveness understanding and industry knowledge, and efficiency of the audit investment in technical support, development of specialist networks, and • Performing your governance role with confidence. effective consultation processes 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 Audit findings report Page 116 1 -20 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. ! • • • 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. Audit findings report Page 111 1 -21 KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (" KPMG International "). KPMG member firms around the world have 145,000 professionals, in 152 countries. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such. © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( "KPMG International "), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. 1 -22 V 0 i r um M r+ � cD � V) ° o 1 -23 AW OL V � � o � 2 � C/) 0 0) C: c � c L LL Q a 1 -24 c 13 0 L V W W E •� O U � � O O E CU •� 0 U) •> +� C: C: c6 w m C U c6 O 1 -25 i/� U) L. 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We are also committed to sound financial management. We have found that balance between innovation and affordability. By exploring ideas and opportunities — and having the conviction to follow - through on decisions — Kitchener continues to position itself as a forward - Looking city that knows how to take responsible risks in its financial and community investments. Kitchener's track record of innovative Leadership and decision making is Legendary. We are only one of two Ontario municipalities that retained ownership of our gas utility. We created the $110 million Economic Development Investment Fund which has helped generate more than $1 billion in investment in the downtown since 2004. We implemented Canada's first impervious area based stormwater utility — something more and more municipalities are moving towards. Over 100 years of innovation, while always keeping firmly grounded in our roots of prudence, fiscal accountability and transparency. 4 Financial Report2012 _June20_Layout 1 14 -06 -20 1:56 PM Page 5 Parry of our held decisions were not always popular. It teak a lot of hard work to see success, a lot of conviction to stay the course, and a let of planning - visionary planning - with an eye clearly on a picture of a better Kitchener. Kitchener City Council and staff showed vision, collaboration, respect, and accountability in making these tough decisions that impact our tax base. And, with the recent launch of a new open data portal, the city is strengthening its commitment to transparency and accessibility to information. As the open data portal evolves, it will be exciting to see the connection between the community's access to information about the business of the city and how everyone can get even more involved in decision making. Talk to us, work with us — we're open! 9 Financial Report2012 _June20_Layout 1 14 -06 -20 1:56 PM Page 6 Kitchener City Council itcheiier city council is an elected body, made up of one mayor and 10 city councillors. All council members 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 Carl Zehr Scott Davey Ward 1 Councillor Paul Singh Ward 6 Councillor Councillor Berry Vrbanovic John Gazzola Ward 2 Ward 3 Councillor Bit Ioannidis Ward 7 !! 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 Financial Report2012 _June20_Layout 1 14 -06 -20 1:56 PM Page 7 Where we are s the largest municipality in Waterloo Region, l ' 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 (diver, Kitchener is the perfect destination for recreation and leisure activities, with a plethora of choices, including many parks, Trails and naturaL areas. 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. 0 n behalf of council, I am pleased to introduce the 2013 Annual Financial Report. Beyond any Legislated requirements, we at the City of Kitchener are proud to, produce reports Hke these each year demonstrating our commitmenL to openness and transparency. In 2013, staff undertook an extensive project that Looked at the principles of open government and developed a four -year action plan to move the city to a philosophy of "open by default" Beginning in 2014 a number of new initiatives will get underway that wiLL support accountability, transparency and community participation. Each year, difficult decisions must be made to deliver a balanced budget. We strive to ensure that process is open and transparent. There are few decisions that matter more than setting the financial goals that help build a better community. We know our citizens expect responsible management of all of the city's resources — including our finances. Our commitment to openness demonstrates that we, too, believe in accountability and transparency. But, council and staff shouldn't — and can't — do it alone. I encourage the members of this community to be engaged and involved, not only at budget time but every day. It matters. Talk to each other. Talk to your elected officials. Share your vision and play your part in building our city. 61�:i 501- Carl Zehr, Mayor, City of Kitchener June 30, 2014 (-1 ach year I have the honour of presenting the Annual Financial Report which details the city's financial position and demonstrates responsible accounting practices. Once again, I think we have produced an excellent report that highlights some of the great projects undertaken by the ciLy in Lhe past year, and celebrates our successes and significant achievements. I am proud of the work the people of this organization do. Not simply city workers — people. We are people who are honoured to serve this community. People who are proud of what we do. And people who know that what we do is every bit as important as how we do it. Staff and council make difficult decisions all the time in service to this great community. Making tough decisions — around budget, policy, and community priorities — and supporting those choices takes courage. We must continue making difficult decisions that help build a better community. We are proud of our tradition of innovation and industriousness; let's keep working together in that tradition to achieve our community's priorities. Jeff Willmer, City of Kitchener June 30, 2014 �l Financial Report2012 _June20_Layout 1 14 -06 -20 1:57 PM Pagel 0 y Organizational Structure HIGHLIGHTS AND MILESTONES n 2013, the City of Kitchener along with many other municipalities in Ontario experienced adverse weather activity that unexpectedly had a significant impact on many operations. The wind storm in the summer of 2013 and the December ice storm forced City crews to respond urgently to the conditions and reprioritize other bodies of work. Throughout the balance of the year, the City continued to accomplish many other significant capital projects as well as provide valued programs and services to our citizens. Major Projects The City spent approximately $70 million on capital project work in 2013. Some of the major projects include: • Infrastructure — The annual program of "core" infrastructure replacement and renewal continued in 2013. The City invested $12.6 million on full reconstruction of City streets including replacement of sanitary sewers, storm sewers, watermains, asphalt, curb and sidewalks, $2.1 million on the City's portion of Regional roads (e.g. Courtland and Weber Street), and $5.4 million on pavement rehabilitation and reconstruction. This work is funded through utilities and federal gas tax resources, rather than the property tax base. • Margaret Avenue Bridge - The bridge was closed in June of 2013 due to structural concerns noted during a routine inspection. The bridge was built in 1959 and this specific bridge design is no longer used. The demolition work was safely completed in the fall of 2013, and a new bridge is being designed in 2014. The City owns 122 bridges which are routinely inspected every two years, in accordance with legislation. 9 • Kitchener Public Library - Work continued throughout the year on Kitchener Public Library's Central Library Expansion Project. In March the new 20,000- square -foot addition at the rear of the building was completed and opened to the public. Collections and staff were moved into the new addition so that renovation work could begin on the original section of the building. The $40 million Central Library project began in 2010 and is expected to be complete in 2014. The completed library will feature over 100,000 square feet of new or renovated space, including a digital media lab and new children's area. Emerald Ash Borer (EAB) — EAB was discovered in Kitchener in 2010 and continues to rapidly spread across the City. Staff continue to implement an adaptive approach to the management of EAB to minimize the risks and financial costs by removing hazardous trees, protect part of the mature tree canopy by using chemical injections, and put a sustainable replanting plan in place. In 2013, Council approved $4.3M in the 10 year capital forecast to remove or inject ash trees along city streets and in active parkland. Staff are continuing to develop capital budget requests for additional funding for 2015 -2024 replanting and stumping programs. 10 • Civic District Parking Garage - Centrally located in the Civic District, Phase II of the underground Civic District Parking Garage opened in December 2013. With the opening of phase II, 412 parking spaces in this three -level underground parking garage accommodates parking needs for the library, Centre in the Square and our Civic District partners. The $24 million project started in 2010 in conjunction with the Central Library Expansion Project. • Light Rail - The Region's Light Rail Transit initiative, now named the ION, will have a significant impact to City of Kitchener services. City staff have been working closely with Regional staff to identify and resolve utility conflicts, and refine the route alignment. Regional and City staff have been working collaboratively to establish a cost sharing agreement regarding underground infrastructure improvements and betterments. This effort has culminated in a cost sharing agreement which is to be executed in 2014. 11 Your Kitchener Working for You In addition to the capital projects undertaken by the City in 2013, the City is proud to offer numerous public facilities, programs and services, offering value for the citizens of Kitchener. Here is just an example of the ongoing services provided by the City in 2013. Government services • 700 burials, 600 cremations at City cemeteries • 60,000 calls in the Corporate Contact Centre • 3,000 business /lottery licenses issued • 2,300 building permits issued • 14,900 citizen complaints reported to bylaw • 10,500 emergency responses from Fire Department • 52,000 citizens involved in public education put on by the Fire Department • 1,250 marriage licenses issued Recreation, leisure and culture • 5,000 aquatics program registrations per week • 40,000 visitors to Kiwanis Park • 44 affiliated sports groups with 19,000 participants • 30 neighbourhood associations with 100,000 participants • 3,290 summer playground program participants M • 280,000 attendance at the Aud and Arenas • 18,000 ice time hours • 80,000 rounds of golf • 180 events with an audience of over 190,000 at Centre In The Square • 6.1 million resources accessed at Kitchener public libraries • 600,000 customers at the Kitchener Market Infrastructure maintenance • 1,450 lane km of roads inspected and maintained • 805 km of sanitary sewer maintained • 960 km of storm sewers maintained • 1,100 km of sidewalk inspected annually with 2,800 repairs performed • 12,182 catchbasins maintained • 100 watermain breaks repaired Facilities and amenities • 143 sports fields and outdoor courts maintained • 313 km of City trails maintained • 176 facilities and structures maintained • 60,000 street trees in existence • 128 acres of cemeteries maintained 13 am pleased to present the Annual Financial Report for the City of Kitchener for the year ended December 31, 2013. The purpose of this report is to communicate to Council, residents and other linterested parties the 2013 financial results for the City of Kitchener. These results demonstrate Kitchener's continued 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. Strategic Plan - Focus on Effective and Efficient Government The key strategic priorities related to effective and efficient government cover 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 W 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. 15 Financial Report2012 _June20_Layout 1 14 -06 -20 1:57 PM Page 18 Business Plan and Budgetary Process The business planning process manages and supports the development of departmental business plans and integrated corporate business plans to outline a clear path for the organization for each term of Council. The Plan represents a unified blueprint for the full scope of work that is to be done, one that strikes a balance between our commitment to meet new expectations and respond to emerging issues, while managing within our capacity to deliver. The business planning process involves the development, communication and facilitation of a process that engages City staff, management, the Corporate Leadership Team and City Council in establishing operational priorities. The Plan includes a description of the City's 47 core services, which account for more than 90% of the operating capacity of the organization and describe the day -to -day services that the community has come to rely on. In addition to the ongoing commitment to delivering valued services to the community, the City also makes a commitment to more than 100 strategic projects that are driven by the priorities of the Strategic Plan, continuous improvement initiatives and other Council directives. Progress on projects included in the Business Plan is reported to Council and the public three times per year to demonstrate full transparency and accountability on the commitments the organization has made to the public through the Business Plan. The status updates illustrate the degree to which the organization has stayed focused on priorities, is making meaningful progress towards goals and is managing the process to successfully follow through to completion on projects that are started while responding to unanticipated demands along the way. In addition to the business planning 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 City's interactive budget website, or in person at a public delegation night. Management staff review their budgets regularly. Detailed variance reports are prepared and presented to Council three times per year at the same time as the progress reports on business planning. These reports ensure departmental accountability for financial results and are a 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 a public 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. W 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 legislated 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, reserves, 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. IVA Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 20 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 $176 million (2012 $161 million), an increase of $15 million. This balance is calculated as total financial assets Less liabilities and represents the amount available to finance future operations. The increase year over year is due to the culmination of changes in the various balance sheet accounts which are described in the paragraphs below. 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 remains consistent with 2012 at $56 million. The Consolidated Statement of Cash Flows summarizes the sources and uses of cash in both 2013 and 2012. Trade and Other Accounts Receivable Receivables increased $8.7 million in 2013 for various reasons, one being an increase in the receivable from another area municipality's portion of the new Civic District parking garage. In addition, there has been a significant increase in utilities receivable due to the cold weather experienced in Late 2013 compared to 2012. Loans Receivable Loans receivable decreased to $14 million from $17 million in 2012. The decline is primarily due to a decrease in use of the Appliance Financing Program administered by Kitchener Utilities. Details of Loans receivable are included in Note 4 of the Consolidated Financial Statements. 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 2013 to $89 million from $74 million in 2012. This increase relates primarily to the timing of funding receipts and the outgoing expenditures for capital projects. There are a few projects that have received funding for which expenditures will be made in future years. Investment in Kitchener Power Corp. & Kitchener Generation Corporation The City's investment in both Kitchener Power Corp. and its affiliates and Kitchener Generation Corporation is made up of the City's initial investment and its share of net income since acquisition Less dividends received. See Notes 6 and 7 to the Consolidated Financial Statements for further details. 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 of $85 million in 2013 is comparable to 2012. 19 Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 22 Municipal D'• Millions $98 $81 2009 2010 2011 2012 2013 0 Tax DI Enterprise ON 1 EDIF Municipal Debt l The City has three components that comprise the overall debt total. Debt has been issued to fund: l {} • a portion of the tax - supported capital program {} I • capital improvements to Enterprises, where the debt charges will be funded through user fees or external sources, such as the Parking Enterprise or the Kitchener Rangers • 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, 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. Municipal debt has increased to $112 million in 2013 from $111 million in 2012. The change in debt is a result of new debt issuance of $10.5 million offset by repayment of $9.7 million of existing debt. The new debt is mostly attributable to a major equipment purchase for Fire, Williamsburg Cemetery Phase II Development, and the 2013 component of EDIF. Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 23 2013 Net Book Value - $958 million (2012 Net Book Value - $929 Million) IIIII Land $183M ($1 Assets under construction $43M ($71M)_____ ? V Linear Assets $479M ($422N Tangible Capital Assets Buildings $176M ($180M) Leasehold Improvements $3M ($3M) III Machinery and Equipment $24M ($24M) Computer Hardware & Software $8M ($9M) mr Vehicles $14M ($13M) 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 2013, the City acquired $70 million in tangible capital assets (2012 $101 million). Amortization of assets was $37 million (2012 $34 million). Refer to Note 13 and Schedule A of the Consolidated Financial Statements for a detailed breakdown of tangible capital asset activity for 2013. The net book value of tangible capital assets at December 31, 2013 is $958 million, up from $929 million in 2012. 21 Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 24 Accumulated Surplus 2013 - $1,138 million (2012 - $1,093 Million) IIIIIIIV Other $ -15M ($ -26M) IIIIIIII Equity in KPC $183M ($179M) IIIIIIIIIIII Invested in 11111111 Equity in KGC Tangible Capital $41VI ($41VI) Assets $958M ($929 ($929 IIIIIIIIIII: Employee Future Benefits $ -31M ($ -28M) IIVU) Reserve Funds $39M ($35M) Accumulated Surplus The City's accumulated surplus for fiscal 2013 is $1.14 billion (2012 $1.09 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 reserves. W4 Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 25 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 2013 to $37 million ($35 million in 2012). 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 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. 23 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 1.69 %. 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 2013 operations was 0.32 %. A special capital levy increase of 1.07% was also added to fund the City's Economic Development Investment Fund. This marks the final year of the ten -year fund. Q! Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 27 sir 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. Natural gas volumes were up significantly this year due to the colder weather, which resulted in 2013 Gasworks revenues being $4M higher than 2012. Grants revenue decreased from 2012 due to a decrease in the amount of Federal Gas Tax revenue recognized as more work remains outstanding in 2013 on these projects compared to 2012. In addition, 2012 contained a one -time grant for construction of the Civic District Parking Garage and a sizable grant for Showcasing Water Innovation. 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 Lower in this category for 2013 compared to 2012, due to the Kitchener Memorial Auditorium expansion project in 2012, which resulted in donated assets of $10.4 million from the Kitchener Rangers Junior A Hockey Club in that year. N9 Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 28 Expenses By Function Millions DIY $50 � >, $30 %. . $20 $10 ... General Protection Transport- Environ- Recreation Other Gasworks govern- to persons ation mental & cultural ment & property services services services 2013 Budget " 2013 Actual IW 2012 Actual 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 services. 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. 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 provides greater clarity for all readers in assessing budget to actual variances. General government expenses are $1.9 million Lower in 2013 than 2012. This is primarily due to a contingent liability accrual that was booked in 2012. Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 29 Expenses By Object 2013 - $281 million (2012 - $278 Million) Debenture debt Materials and interest services $4M ($4M) $99M ($103M) Grants and other $4M ($4M) Amortization $37M ($34M) Loss /(Gain) on sale of asset $4M ($4M) Salaries, and em to ee p benefits $133M ($129M) Transportation services expenses were $3.4 million higher in 2013 due to increased amortization related to the recent construction of the Civic District Parking garage and recent road replacements and additions, as well as increased costs for winter maintenance due to the severe winter weather in 2013. Environmental Services expenses have decreased $2.6 million from 2012, mostly due to two factors that contributed to expenses in 2012, but were not required in 2013. The first is the Victoria Park Lake rehabilitation project work done in 2012, and secondly there has been less uptake than anticipated for the storm water utility credit program which resulted in less expense for 2013. In 2013, Recreation and Cultural services increased $3.4 million over 2012. This was largely a result of an increase in amortization due to 2012 additions to the Kitchener Memorial Auditorium and Kitchener Public Library. OA 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. LOOKING AHEAD Looking ahead to 2014, the City will continue to 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. Continuing to focus on building an even stronger financial position through lower debt levels and healthier reserve balances will also position the City favourably to respond to future challenges and opportunities, not just in 2014 but for the years to come. Dan Chapman, CPA,, CA, MPA Deputy CAD, Finance and Corporate Services & City Treasurer June 30, 2014 29 Financial Report2012 _June20_Layout 1 14 -06 -20 1:58 PM Page 32 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 consolidated financial statements of the Corporation of the City of Kitchener, which comprise the consolidated statement of financial position as at December 31, 2013, the consolidated statements of operations, change 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 Responsibility for the consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on ourjudgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 30 Page 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation of the City of Kitchener as at December 31, 2013, 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 Professional Accountants, Licensed Public Accountants June 30, 2014 Waterloo, Canada 31 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2013 2013 2012 Financial assets Cash and cash equivalents $ 55,826,775 $ 55,812,011 Taxes receivable 20,610,222 21,586,298 Trade and other accounts receivable 43,453,855 34,751,199 Loans receivable (Note 4) 13,837,516 16,677,789 Inventory for resale 10,739,236 11,033,560 Investments (Note 5) 88,719,532 74,284,454 Investment in Kitchener Power Corp. and 176,201,501 160,566,006 its affiliates (Note 6) 183,288,924 179,037,991 Investment in Kitchener Generation Corporation (Note 7) 3,948,281 4,180,532 420,424, 341 397, 363, 834 Liabilities Accounts payable and accrued liabilities 84,547,833 85,965,905 Deferred revenue - obligatory reserve funds (Note 9) 3,625,077 2,859,353 Deferred revenue - other 12,325,404 8,781,715 Municipal debt (Note 10) 112,039,284 111,262,798 Employee future benefits (Note 12) 31,685,242 27,928,057 244,222,840 236,797,828 Net financial assets 176,201,501 160,566,006 Non - financial assets Tangible capital assets - net (Note 13) 957,932,883 929,404,766 Inventory of supplies 2,407,285 2,062,088 Prepaid expenses 1,114,532 1,403,769 961,454, 700 932, 870, 623 Accumulated surplus $1,137,656,201 $1,093,436,629 See accompanying notes 32 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Operations Year Ended December 31, 2013 Expenses 2013 2013 2012 General government Budget 36,032,962 38,009,987 Revenues 41,476,322 41,775,579 40,571,694 Taxation $ 106,216,857 $ 106,218,573 $ 102,546,937 User fees and charges 32,123,404 29,729,557 32,290,967 Gasworks 86,568,281 87,529,916 83,262,445 Water, sewer and stormwater 46,792,773 44,611,523 46,366,094 Other 39,997,693 42,638,273 41,270,672 Grants 7,719, 751 4,100,928 11, 772, 687 Contributions of tangible capital assets 10,338,038 10,338,038 22,152,162 Investment income 7,314,387 7,822,633 7,519,550 Penalty and interest on taxes 3,300,000 3,044,161 3,318,267 Obligatory reserve funds revenue recognized 13,507,000 6,891,567 6,876,831 Share of net income of Kitchener Power Corp. and its affiliates (Note 6) 7,639,368 7,639,368 8,447,594 Share of net loss of Kitchener Generation Corporation (Note 7) - (57,269) (33,204) Other 3,749,909 4,795,674 4,466,893 Total revenues 333,144,057 325,573,385 337,966,928 Expenses General government 40,019,214 36,032,962 38,009,987 Protection to persons and property 41,476,322 41,775,579 40,571,694 Transportation services 34,294,051 32,907,678 29,507,603 Environmental services 32,123,404 29,729,557 32,290,967 Health services 1,902,692 2,155,206 1,947,206 Social and family services 2,388,707 2,639,843 2,307,043 Recreation and cultural services 63,857,853 62,907,161 59,490,303 Planning and development 9,133,349 8,600,342 9,243,370 Gasworks 65,172,130 64,605,485 64,550,648 Total expenses 290,367,722 281,353,813 277,918,821 Annual surplus 42,776,335 44,219,572 60,048,107 Accumulated surplus, beginning of year 1,093,436,629 1,093,436,629 1,033,388,522 Accumulated surplus, end of year (Note 14) $1,136,212,964 $1,137,656,201 $1,093,436,629 See accompanying notes 33 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets Year Ended December 31, 2013 Annual surplus Amortization of tangible capital assets Acquisition of tangible capital assets Loss on disposal of tangible capital assets Proceeds on disposal of tangible capital assets Transfer of tangible capital asset to Kitchener Generation Corporation Acquisition of supplies of inventories Acquisition of prepaid expenses Consumption of supplies inventory Use of prepaid expenses 2013 2013 2012 Budget $ 42, 776, 335 $ 44,219, 572 $ 60, 048,107 37,355,303 37,355,303 34,299,301 (63,792,670) (69,892,632) (101,281,115) 302,385 302,385 941,249 3,706,827 3,706,827 2,172,757 - - 4,412,784 - (5,677,191) (4,176,824) - (785,873) (835,053) - 5,331,994 4,164,182 - 1,075,110 542,451 Change in net financial assets 20,348,180 15,635,495 287,839 Net financial assets, beginning of the year 160,566,006 160,566,006 160,278,167 Net financial assets, end of the year $ 180,914,186 $ 176,201,501 $ 160,566,006 See accompanying notes 34 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Cash Flow Year Ended December 31, 2013 2013 2012 Operating Annual surplus $ 44,219,572 $ 60,048,107 Items not involving cash Amortization 37,355,303 34,299,301 Loss on disposal of tangible capital assets 302,385 941,249 Share of net income of Kitchener Power Corp. and its affiliates (7,639,368) (8,447,594) Share of net income of Kitchener Generation Corporation 57,269 33,204 Change in employee future benefits 3,757,185 2,284,868 Contributions of tangible capital assets (10,338,038) (22,152,162) Change in non -cash assets and liabilities Taxes receivable 976,076 689,479 Trade and other accounts receivable (8,702,656) (2,731,207) Loans receivables 2,840,273 (8,856,801) Inventory of supplies (345,197) (12,642) Inventory for resale 294,324 2,837,749 Prepaid expenses 289,237 (292,602) Deferred revenue - obligatory reserve funds 765,724 1,193,589 Deferred revenue - other 3,543,689 109,563 Accounts payable and accrued liabilities (1,418,072) 11,702,215 Net change in cash from operating activities 65,957,706 71,646,316 Capital Acquisition of tangible capital assets (59,554,594) (79,128,953) Proceeds on disposal of tangible capital assets 3,706,827 2,172,757 Net change in cash from capital activities (55,847,767) (76,956,196) Investing Dividends received from Kitchener Power Corp. 3,388,435 3,357,900 Debt and equity payments received from Kitchener Generation Corporation 174,982 199,048 Net acquisition of investments (14,435,078) (17,904,510) Net change in cash from investing activities (10,871,661) (14,347,562) Financing Municipal debt issued 10,515,000 21,555,000 Municipal debt repaid (9,738,514) (8,480,162) Net change in cash from financing activities 776,486 13,074,838 Net change in cash and cash equivalents 14,764 (6,582,604) Cash and cash equivalents, beginning of year 55,812,011 62,394,615 Cash and cash equivalents, end of year $ 55,826,775 $ 55,812,011 See accompanying notes 35 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 1. Summary of significant accounting policies These consolidated financial statements of The Corporation of the City of Kitchener (the "City ") have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of consolidation i. Consolidated entities These consolidated financial statements reflect the assets, liabilities, reserves, surpluses /deficits, revenues, and expenditures of those City funds and governmental functions or entities which have been determined to comprise a part of the aggregate City operations based upon control exercised by the City except for the City's government businesses which are accounted for on the modified equity basis of accounting. The following boards, municipal enterprises and utilities have been included in the consolidated financial statements: • Kitchener Public Library • Kitchener Downtown Improvement Area Board of Management • Belmont Improvement Area Board of Management • The Centre in the Square Inc. • Waterworks Enterprise • Gasworks Enterprise • Sewer Surcharge Enterprise • Storm Water Management Enterprise • Building Enterprise • Golf Enterprise • Parking Enterprise All inter - organizational and inter -fund transactions and balances have been eliminated ii. Government business enterprises Kitchener Generation Corporation and Kitchener Power Corp. and its affiliates are not consolidated but are accounted for on the modified equity basis which reflects the City of Kitchener's investment in the enterprises and its share of net income since acquisition. Under the modified equity basis, the enterprises' accounting principles are not adjusted to conform to those of the City, and inter - organizational transactions and balances are not eliminated. iii. Accounting for region and school board transactions The taxation, other revenues, expenditures, assets and liabilities, with respect to the operations of the school boards and the Regional Municipality of Waterloo, are not reflected in these consolidated financial statements. iv. Trust funds Trust funds and their related operations administered by the City are not consolidated, but are reported separately on the "Trust Funds Statement of Continuity and Balance Sheet" (see Note 3). 36 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 1. Summary of significant accounting policies (continued) b. Basis of accounting i. Accrual basis of accounting The consolidated financial statements are prepared using the accrual basis of accounting. The accrual basis of accounting recognizes revenues in the period in which the transactions or events occurred that gave rise to the revenues. Expenses are recognized in the period the goods and services are acquired and a liability is incurred or transfers are due. ii. Cash and cash equivalents Cash and cash equivalents include cash on hand and highly liquid investments with original maturity of 90 days or less as at the end of the year. iii. Trade and other accounts receivable Trade and other accounts receivable are reported net of any allowance for doubtful accounts. iv. Loans receivable Loans receivable are reported net of any allowance for doubtful accounts. Interest income is recorded as it accrues. When the value of any loan receivable is identified as impaired, an allowance is set up to offset the carrying amount and any adjustments are included in materials and services expense in the period the impairment is recognized. v. Inventory for resale Inventory for resale is valued at the lower of cost or net realizable value on an average cost basis. vi. Investments Portfolio investments are carried at cost, net of accumulated amortization on premiums and discounts. Premiums and discounts are amortized on a straight line basis over the term to maturity. Interest income is recorded as it accrues. When the value of any portfolio investment is identified as impaired, the carrying amount is adjusted to the estimated realizable amount and any adjustments are included in investment income in the period the impairment is recognized. vii. Deferred revenue Government transfers, contributions and other amounts are received from third parties pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs, in the completion of specific work or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed or the tangible capital assets are acquired. 37 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 1. Summary of significant accounting policies (continued) viii. Employee future benefits The contributions to a multi - employer, defined benefit pension plan are expensed when contributions are due. The costs of post - employment benefits are recognized when the event that obligates the City occurs. Costs include projected future income payments, health care continuation costs and fees paid to independent administrators of these plans, calculated on a present value basis. The costs of post - employment benefits are actuarially determined using the projected benefits method prorated on service and management's best estimate of retirement ages of employees, salary escalation, expected health care costs and plan investment performance. Liabilities are actuarially determined using discount rates that are consistent with the market rates of high quality debt instruments. Any gains or losses from changes in assumptions or experience are amortized over the average remaining service period for active employees. ix. Non - financial assets Non - financial assets are not available to discharge liabilities and are held for use in the provision of services. They have useful lives that extend beyond the current year and are not intended for sale in the ordinary course of operations. The change in non - financial assets during the year, together with the excess of revenues over expenses, provides the consolidated change in net financial assets for the year. a. Tangible capital assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight -line basis over their estimated useful lives as follows: Assets Amortization period Land The original cost of land is not amortized Land improvements 10 to 100 years Building & building improvements 15 to 50 years Leasehold improvements Over the useful life of the improvement or the lease term, whichever is shorter Machinery & equipment 1 to 20 years Computer hardware 3 to 10 years Computer software 1 to 10 years Linear assets 2 to 100 years Vehicles 1 to 25 years b. Contributions of tangible capital assets Tangible capital assets received as contributions are recorded at their fair value at time of receipt and are recorded as revenue. c. Leases Leases are classified as capital or operating leases. Leases which transfer substantially all the risks and benefits incidental of ownership are accounted for as capital leases. All other leases are accounted for as operating leases and the related lease payments are charged to expenses as incurred. 38 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 1. Summary of significant accounting policies (continued) d. Inventory of supplies Inventories held for consumption are recorded at the lower of cost and replacement cost. e. Works of art and cultural and historic assets Works of art and cultural and historic assets are not recorded as assets in these financial statements. x. Government transfers Government transfers are recognized in the financial statements in the period in which the events giving rise to the transfer occur, providing the transfers are authorized, any eligibility criteria have been met and reasonable estimates of the amounts can be made. Government transfers and developer contributions -in -kind related to capital acquisitions are required to be recognized as revenue in the consolidated financial statements in the period in which the tangible capital assets are acquired. A. Use of estimates Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. Actual results could differ from these estimates. 2. Operations of school boards and the Regional Municipality of Waterloo Further to Note 1 a) iii, the taxation, other revenues and requisitions for the school boards and the Regional Municipality of Waterloo are comprised of the following: School Region Total Boards Taxation and user charges $ 84,640,560 $ 205,966,983 $ 290,607,543 Share of payments in lieu of taxes 4,346 1,298,321 1,302,667 Share of linear properties 63,470 123,074 186,544 Amounts requisitioned $ 84,708,376 $ 207,388,378 $ 292,096,754 3. Trust funds Trust funds administered by the City have not been included in the Consolidated Statement of Financial Position, nor have their operations been included in the Consolidated Statement of Operations. The trust funds under administration are comprised of cemetery perpetual care and prepaid internment funds totaling $11,956,505 (2012 - $11,405,651). 39 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 4. Loans receivable Loans receivable are made up of the following: 2013 2012 Major capital improvement loans receivable $ 9,894,449 $ 10,400,000 Loans receivable with forgiveness provisions 162,200 239,242 Minor capital improvement and other loans receivable 3,780,867 6,038,547 $ 13,837,516 $ 16,677,789 Major capital improvement loans are individual loans in excess of $500,000 when issued with no forgiveness provision built into the loan. These loans have repayment terms ranging from 12 to 15 (2012 - 12 to 15 years). All major capital improvement loans are unsecured and bear interest at rates ranging from1.40% to 2.55% (2012 - 1.40% to 2.55 %). Forgivable loans are those initially offered with forgiveness provisions built into the agreement. All loans in this category are unsecured and have repayment terms of five to ten (2012 - five to ten years). The forgiveness provisions range from 15% to 100% (2012 - 15% to 100 %). The balances recorded are net of the allowance for forgiveness. Interest rates on these loans range from 0% to 8% (2012 - 0% to 891o) Minor capital improvement and other loans receivable comprise any loan receivable not fitting into the first two categories. There is a variety of terms related to these loans with payment terms ranging from six months to 25 years (2012 - six months to 25 years). The majority of these loans are secured by the asset the loan was granted to finance, but others are unsecured. The interest rates on these loans range from 0% to 12.9% (2012 - 0% to 12.9 %). 5. Investments Investments are made up of the following: 6. Investment in Kitchener Power Corp. and its Affiliates Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power Corp., a holding company, along with its wholly owned subsidiaries, including Kitchener - Wilmot Hydro Inc., was incorporated on July 1, 2000. .N 2013 2013 2012 2012 Cost Market Cost Market Value Value Guaranteed investment certificates $ 79,906,051 $ 80,566,788 $ 61,655,641 $ 62,374,715 Bonds and debentures 7,919,721 8,200,388 11,680,942 11,528,841 Common stock 893,760 1,252,788 947,871 1,157,228 $ 88,719,532 $ 90,019,964 $ 74,284,454 $ 75,060,784 6. Investment in Kitchener Power Corp. and its Affiliates Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power Corp., a holding company, along with its wholly owned subsidiaries, including Kitchener - Wilmot Hydro Inc., was incorporated on July 1, 2000. .N THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 6. Investment in Kitchener Power Corp. and its Affiliates (continued) 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. The investment is comprised of the following 7. Investment in Kitchener Generation Corporation Under the Business Corporation Act (Ontario), Kitchener Generation Corporation was incorporated on December 9, 2011. Effective January 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. 41 2013 2012 Kitchener Power Corp. common shares $ 61,244,208 $ 61,244,208 Kitchener - Wilmot Hydro Inc. long -term notes receivable 70,997,576 70,997,576 Share of net income and prior period adjustments due to changes in accounting policies since acquisition, net of dividends 51,047,140 46,796,207 $ 183,288,924 $ 179,037,991 The Kitchener - Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 5.87 %. There are no repayment terms and there is no intent to redeem the notes or the shares. The following table provides condensed financial information with respect to Kitchener Power Corp.: 2013 2012 Current assets $ 77,749,312 $ 65,083,948 Capital assets 181,051,618 172,564,699 Regulatory assets 923,358 13,865,077 Future income taxes 6,782,009 6,737,762 Total assets 266,506,297 258,251,486 Current liabilities 43,653,334 33,528,260 Long -term debt 82,980,595 83,932,076 Regulatory liabilities 8,539,337 14,195,249 Other liabilities 9,607,990 9,478,918 Total liabilities 144,781,256 141,134,503 Net assets 121,725,041 117,116,983 Results of operations Revenues 228,895,834 213,732,054 Expenses (220,614,676) (204,574,770) Net income 8,281,158 9,157,284 City's share of net income - 92.25% $ 7,639,368 $ 8,447,594 7. Investment in Kitchener Generation Corporation Under the Business Corporation Act (Ontario), Kitchener Generation Corporation was incorporated on December 9, 2011. Effective January 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. 41 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 7. Investment in Kitchener Generation Corporation (continued) The investment in Kitchener Generation Corporation is comprised of the following: 2013 2012 Kitchener Generation Corporation common shares $ 403,875 $ 421,374 Kitchener Generation Corporation long -term notes receivable 3,634,879 3,792,362 Share of net income and prior period adjustments due to changes in accounting policies since acquisition, net of dividends (90,473) (33,204) $ 3,948,281 $ 4,180,532 The notes receivable are unsecured and bear interest at the rate of 5.01 %. To the extent that Kitchener Generation Corporation has positive annual cash flows after any dividend payment, the cash will be returned to the City as repayment of the outstanding debt and return of capital. The proportion to which they contribute is 90% debt, 10% equity. The following table provides condensed financial information with respect to Kitchener Generation Corporation: City's share of net loss -100% $ (57,269) $ (33,204) 8. Insurance pool Liabilities include an amount of $5,652,303 (2012 - $6,053,290) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool and administered by the City on behalf of the Pool's members. The members entered an agreement in 1998 to purchase property damage and public liability insurance on a group basis and share a retained level of risk. The members pay an actuarially determined annual levy to fund insurance, prefund expected losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductible and any losses above a predetermined total in any year. The City's share of Pool levies is 23.55 % (2012 - 24.34 %) and its share of the Pool surplus as at May 31, 2013 was $1,131,779 (2012 - $1,341,433). The City's share of the Pool surplus has not been included in the Consolidated Statement of Financial Position. 42 2013 2012 Current assets $ 40,718 $ 14,396 Capital assets 3,948,280 4,180,532 Total assets 3,988,998 4,194,928 Current liabilities 0 14,396 Long -term debt 3,634,878 3,792,362 Total liabilities 3,634,878 3,806,758 Net assets 354,120 388,170 Results of operations Revenues 379,880 415,394 Expenses (437,149) (448,598) Netloss (57,269) (33,204) City's share of net loss -100% $ (57,269) $ (33,204) 8. Insurance pool Liabilities include an amount of $5,652,303 (2012 - $6,053,290) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool and administered by the City on behalf of the Pool's members. The members entered an agreement in 1998 to purchase property damage and public liability insurance on a group basis and share a retained level of risk. The members pay an actuarially determined annual levy to fund insurance, prefund expected losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductible and any losses above a predetermined total in any year. The City's share of Pool levies is 23.55 % (2012 - 24.34 %) and its share of the Pool surplus as at May 31, 2013 was $1,131,779 (2012 - $1,341,433). The City's share of the Pool surplus has not been included in the Consolidated Statement of Financial Position. 42 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 9. Obligatory deferred revenue 2013 2012 Recreational land 3,625,077 2,859,353 The continuity of deferred revenue is as follows: 10. Municipal debt The City has assumed responsibility for the payment of principal and interest charges on certain long -term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $112,039,284 (2012 - $ 111,262,798). The annual principal repayments are: 2014 2013 2012 Balance, beginning of year $ 2,859,353 $ 1,665,764 Interest earned 74,484 80,177 Other revenue 1,338,483 1,285,632 Contributions used (647,243) (172,220) Balance, end of year $ 3,625,077 $ 2,859,353 10. Municipal debt The City has assumed responsibility for the payment of principal and interest charges on certain long -term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $112,039,284 (2012 - $ 111,262,798). The annual principal repayments are: 2014 $ 10, 712, 243 2015 10,477,385 2016 10, 793, 352 2017 10,918,256 2018 10,118,151 2019 and thereafter 59,019,897 $ 112,039,284 The annual principal and interest payments required to service the long -term debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing. The long -term liabilities carry interest rates ranging from 1.25% to 6.40% (2012 — 1.35% to 5.4591o). Interest charges for 2013 relating to municipal debt totaled $3,940,774 (2012 - $3,888,957). 11. Pension plan The City makes contributions to the Ontario Municipal Employees Retirement System (OMERS), which is a multi - employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Employee contributions are matched by the City. Contributions were required on account of current service in 2013 amounting to $9,253,959 (2012 - $8,152,534). 43 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 12. Employee future benefits The estimated liability for employee future benefits is comprised of the following: 2013 2012 Sick leave benefit plan $ 14,344,962 $ 13,044,324 Post - employment benefits 12,056,880 10,557,733 Future payments required to WSIB 5,283,400 4,326,000 $ 31,685,242 $ 27,928,057 a. Sick leave Under the sick leave benefit plan, unused sick leave can accumulate and certain employees may become entitled to cash payments when they leave the City's employment. The expense for the current year was $2,508,519 (2012 - $2,475,094) and is comprised of the following items: Total expenses related to sick leave benefits $ 2,508,519 $ 2,475,094 The actuarial valuation of the future liability for sick leave assumes a discount rate of 4.50% (2012 — 3.75 %). The last actuarial valuation for this liability was completed at December 31, 2011, with an actuarial update provided to the end of the current year. As at December 31, 2013, the unamortized actuarial losses were $5,858,495 (2012 — $8,026,802) and are amortized over 12.0 to 13.0 years (2012 — 10.5 to 13.0 years). The amount of benefits paid during the year were $1,207,881 (2012- $2,129,090). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,355,187 (2012 - $4,486,300). Anticipated undiscounted payments to employees who are eligible to retire are 2014 2013 2012 Current period benefit cost 947,844 $ 917,398 Amortization of actuarial losses 757,612 757,612 Sick leave benefit expense 1,705,456 1,675,010 Sick leave benefit interest expense 803,063 800,084 Total expenses related to sick leave benefits $ 2,508,519 $ 2,475,094 The actuarial valuation of the future liability for sick leave assumes a discount rate of 4.50% (2012 — 3.75 %). The last actuarial valuation for this liability was completed at December 31, 2011, with an actuarial update provided to the end of the current year. As at December 31, 2013, the unamortized actuarial losses were $5,858,495 (2012 — $8,026,802) and are amortized over 12.0 to 13.0 years (2012 — 10.5 to 13.0 years). The amount of benefits paid during the year were $1,207,881 (2012- $2,129,090). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,355,187 (2012 - $4,486,300). Anticipated undiscounted payments to employees who are eligible to retire are 2014 $ 2,013,968 2015 781,009 2016 873,935 2017 855,970 2018 1,073,970 2019 and thereafter 12,682,327 $ 18,281,179 .. THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 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 $2,092,008 (2012 - $2,041,995) and is comprised of the following items: 2013 2012 Current period benefit cost $ 774,910 $ 746,901 Amortization of actuarial losses 691,831 691,831 Post - employment benefit expense 1,466,741 1,438,732 Post - employment benefit interest expense 625,267 603,263 Total expenses related to post - employment benefits $ 2,092,008 $ 2,041,995 The actuarial valuation of the future liability for post - retirement benefits assumes a discount rate of 4.50% (2012 — 3.7591o) and inflation rates for benefit premiums of 4.0% to 7.8 % (2012 — 4% to 8 %). As at December 31, 2013, the unamortized actuarial losses were $3,497,281 (2012 — $5,637,570) and are amortized over 10 to 13 years (2012 — 10 to 13 years). The amount of benefits paid during the year were $592,861 (2012 - $989,931). The last actuarial valuation for this liability was completed at December 31, 2011, with an actuarial update provided to the end of the current year. The City holds no reserve in accumulated surplus to meet this liability. c. WSIB The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf of the City as a Schedule 2 employer. The expense for the current year was $1,700,900 (2012 - $1,669,500) and is comprised of the following items: 2013 2012 Current period benefit cost $ 1,168,300 $ 1,161,300 Amortization of actuarial losses 261,500 261,500 WSIB benefit expense 1,429,800 1,422,800 WSIB benefit interest expense 271,100 246,700 Total expenses related to WSIB benefits $ 1,700,900 $ 1,669,500 The actuarial valuation of the future liability for WSIB assumes a discount rate of 4.50% (2012 — 3.7591o). The last actuarial valuation for this liability was completed at December 31, 2010, with an actuarial update provided to the end of the current year. As at December 31, 2013, the unamortized actuarial losses were $1,823,700 (2012 — $2,107,100) and are amortized over 10 years (2012 — 10 years). The amount of benefits paid during the year were $743,500 (2012 - $782,700). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $1,044,060 (2012 - $908,428). 45 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 13. Tangible capital assets See Schedule A Assets under construction having a value of $42,750,017 (2012 - $70,869,342) have not been amortized. Amortization of these assets will commence when the asset is put into service. Contributed tangible capital assets of $10,338,038 (2012- $22,152,162) have been recognized at fair market value at the date of contribution. The write -down of tangible capital assets during the year was $2,682,590 (2012 — $nil). 14. Accumulated surplus The accumulated surplus consists of individual fund surpluses/ (deficits) and reserve funds as follows: $1,137,656,201 $1,093,436,629 15. Contingent liabilities a. The City has 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, 2013 was 4 %). b. Legal actions have 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. 2013 2012 Surplus: Invested in tangible capital assets $ 957,932,883 $ 929,404,766 Other (13,047,750) (26,231,630) Equity in Kitchener Power Corp. and its affiliates 183,288,924 179,037,991 Equity in Kitchener Generation Corporation 3,948,281 4,180,532 Unfunded Employee future benefits (31,685,242) (27,928,057) Total surplus 1,100,437,096 1,058,463,602 Reserve funds set aside for specific purpose by Council for: Capital 21,373, 368 11, 319, 648 Stabilization 14,221,719 16,823,278 Program specific 3,428,819 5,371,276 Corporate 4,974,217 5,860,683 Development charges (7,115,239) (6,714,147) Kitchener Public Library 186,308 37,000 Kitchener Downtown Business Improvement Area 25,641 29,478 The Centre in the Square Inc. 124,272 2,245,811 Total reserve funds 37,219,105 34,973,027 $1,137,656,201 $1,093,436,629 15. Contingent liabilities a. The City has 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, 2013 was 4 %). b. Legal actions have 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. THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 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 classification of activities provided, consistent with the Consolidated Statement of Operations and provincially legislated requirements. For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The accounting policies used in these segments are consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 1. See Schedule B 17. Budget figures The budget figures reflected in these consolidated statements are those approved by Council at a meeting on January 17, 2013. Budget figures have been translated to reflect Public Sector Accounting Board standards. 18. Comparative figures Certain of the prior year's comparative figures have been restated to conform to the current year's presentation. 19. Adoption of new accounting policies On January 1, 2013, the City adopted Public Sector Accounting Standards ( "PS ") 3410 - Government Transfers and 3510 - Tax Revenue. PS 3410 was applied prospectively upon adoption while PS 3510 was applied retroactively as required by the Public Sector Accounting Handbook. Under PS 3410, government transfers should be recognized as revenue when the transfer is authorized and eligibility criteria are met. Under PS 3510, tax revenues collected on behalf of others would be considered a flow- through arrangement and would not be recognized as tax revenue by the City. In accordance with the provisions of these new standards, no adjustments were required to the consolidated financial statements. 47 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 Schedule A — Tangible Capital Assets 48 General Infrastructure Land Leasehold Machinery & Computer Computer Linear Assets under Land improvements Buildings improvements equipment software hardware Vehicles Land Buildings assets construction Total Cost Balance, beginning ofyear $42,201,772 $47,393,872 $200,795,752 $ 3,054,251 $ 54,194,040 $20,336,754 $5,907,625 $30,644,484 $137,848,804 $66,468,269 $ 685,152,012 $70,869,342 $1,364,866,977 Additions 391,918 3,124,662 7,486,054 - 3,773,508 610,579 865,291 2,043,555 4,790,711 - 42,683,276 4,123,078 69,892,632 Transfers (239,914) 121,617 88 - (183,672) - - - ;556,895 239,914 - 31,747,475 (32,242,403) - Disposals (1,850,493) (444,566) (3,304,207) - (719,675) (241,246) (713,795)! (1,464,155) (220,753) (269,373) (361,762) - (9,590,025) Balance, end ofyear 40,503,283 50,195,585 204,977,687 3,054,251 57,064,201 20,706,087 6,059,121 ' 31,780,779. 142,658,676 66,198,896 759,221,001 42,750,017 1,425,169,584 Accumulated Amortization Balance, beginning ofyear - (20,719,978) (80,594,242) (452,272) (29,978,808) (14,617,150) (2,376,437) (16,988,968) - (6,334,056) (263,400,300) - (435,462,211) Disposals - 262,836 408,450 - 672,975 239,446 713,795 1,157,953 - 268,975 1,856,383 - 5,580,813 Amortization expense - (1,835,365) (6,440,769) (71,196) (3,738,270) (1,251,107) (1,035,503) (2,137,726) - (2,123,902) (18,721,465) - (37,355,303) Balance, an of year (22,292,507) (86,626,561) (523,468) (33,044,103) (15,628,811) (2,698,145) (17,968,741) (8,188,983) (280,265,382) (467,236,701) Net bookvalue, end ofyear 40,503,283 27,903,078 118,351,126 2,530,783 24,020,098 5,077,276 3,360,976 13,812,038 142,658,676 58,009,913 478,955,619 42,750,017 957,932,883 Net book value, beginning ofyear $42,201,772 $26,673,894 $120,201,510 $ 2,601,979 $ 24;215,232 $ 5,719,604 $3,531,188 $ 13,655,516 $137,848,804 $60,134,213 $ 421,751,712 $70,869,342 $ 929,404,766 48 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 Schedule 8 - Segmented Information Year ended December 31, 2013 Social and Recreation Protection Transportation Environmental Health Family and Cultural Planning and General Services Services Services Services Services Services Development Gasworks Government Total Revenues Taxation $ 31,820,381 $ 13,954,798 $ 1,504,665 $ 168,326 $ 1,256,397 $ 33,945,158 $ 5,239,814 $ - $ 18,329,034 $ 106,218,573 User fees and charges 7,305,579 7,833,927 44,611,523 1,441,052 481,711 ` 20,412,670 2,732,562 87,529,916 2,430,772 174,779,712 Grants - 2,337,894 243,545 - 659,328 "'! 793,861 - - 66,300 4,100,928 Investment income 113,717 7,518 149,576 313,022 2,800 164,278 1,154 285,489 6,785,079 7,822,633 Penalty and interest on taxes - - - - - - - - 3,044,161 3,044,161 Obligatory reserve funds revenue recognized - 1,987,565 2,024,238 - - 2,280,697 504,372 2,730 91,965 6,891,567 Share of net income in Kitchener Pow erCorp. - - - - - - - - 7,639,368 7,639,368 Share of net income in Kitchener Generation Corporation - - - - - - - - (57,269) (57,269) Asset donations - 7,733,976 2,278,451 5,643 - 162,516 145,846 11,606 - 10,338,038 Other 405,247 153,794 737,569: 48,823 98,175 1,621,526 247,807 278,471 1,204,262 4,795,674 Total revenue 39,644,924 34,009,472 51,549,567 1,976,866 2,498,411 59,380,706 8,871,555 88,108,212 39,533,672 325,573,385 Expenses Salaries, wages and benefits 35,626,986 10,776,737 8,755,293 _1,356,255 1,908,765 34,317,868 5,306,164 5,403,462 30,012,178 133,463,708 Materials and services 2,919,453 7,404,599 5,689,369 448,400 517,358 16,322,393 1,833,243 50,385,894 13,197,871 98,718,580 Debenture debt interest 208,142 929,079. 94,256.' ii' 2,027 49,524 763,494 907,729 - 986,523 3,940,774 Internal charges and recoveries 1,682,770 1,581,582 5,084,673 169,113 55,548 1,809,434 979,767 2,628,284 (13,991,171) - Grantsandother - 6,944 433,534 - 9,000 2,723,831 677,647 - 28,050 3,879,006 Amortization 1,202,137 10,904,919 6,144,590 127,616 89,586 6,725,755 632,880 6,020,361 5,507,459 37,355,303 Loss /(gain) on sale of assets 136,091 1,303,818 3,527,842 51,795 10,062 244,386 (1,737,088) 167,484 292,052 3,996,442 Total expenses 41,775,579 32,907,678 29,729,557 2,155,206 2,639,843 62,907,161 8,600,342 64,605,485 36,032,962 281,353,813 Net surplus /(deficit) $ (2,130,655) $ 1,101,794 $ 21,820,010 $ (178,340) $ (141,432) $ (3,526,455) $ 271,213 $ 23,502,727 $ 3,500,710 $ 44,219,572 49 THE CORPORATION OF THE CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2013 Schedule 8 - Segmented Information (continued) 50 Social and Recreation Year ended December 31, 2012 Protection Transportation Environmental Health Family and Cultural Planning and General Services Services Services Services Services Services Development Gasworks Government Total Revenues Taxation $ 31,334,692 $ 13,398,912 $ 569,611 $ 133,150 $ 1,283831 $ - :'34,847,421 $ 4,632,160 $ - $ 16,347,160 $ 102,546,937 User fees and charges 7,091,511 6,709,319 46,366,094 1,503,573 301,620 20821,646 2,406,644 83,262,445 2,436,359 170,899,211 Grants - 9,039,329 1,319,942 - 655,996 682,,976 - - 74,444 11,772,687 Investment income 224,701 (20,441) 542,722 306,053 3,915 127572.:. (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 Pow er 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.:.. - - 12,054,999 - 9,938 - 22,152,162 Other 396,546 55,615 1,067,725 55,443 7,854 875,587 36,256 1,352,124 619,743 4,466,893 Total revenue 39,047,450 40,968,943 54 079,260 1,998,219 2,253,216 69,985,269 7,076,897 84,810,486 37,747,188 337,966,928 Expenses Salaries, w ages and benefits 34,150,924 9,870 486 7,869,192 1,185,432 1,732,924 33,547,796 4,942,440 5,367,517 29,776,977 128,443,688 Materials and services 3,121,995 6,514,485 9,944,009 '381,159 380,546 15,700,821 1,629,003 50,710,602 14,877,696 103,260,316 Debenture debt interest 223,118 1,029,731 99,977 870 55,308 756,276 962,992 - 760,686 3,888,958 Internal charges and recoveries 1,641,367 994,390 5,074,954 165,262 53,770 1,780,406 943,307 2,676,796 (13,330,252) - Grants and other 63 6,828 837,302 7 8,650 2,285,571 665,753 - 63,077 3,867,251 Amortization 1,221,616 9,603,467 '.5,932,172 106,175 75,845 5,784,032 641,615 5,696,755 5,237,624 34,299,301 Loss / (gain) on sale of assets 212,611 1,488,216 2,533,361 108,301 - (364,599) (541,740) 98,978 624,179 4,159,307 Total expenses 40,571,694 29,507,603 32,290,967 1,947,206 2,307,043 59,490,303 9,243,370 64,550,648 38,009,987 277,918,821 Net surplus /(deficit) $ (1,524,244) $ 11,461,340 $ 21,788,293 $ 51,013 $ (53,827) $ 10,494,966 $ (2,166,473) $ 20,259,838 $ (262,799) $ 60,048,107 50 INDEPENDENT AUDITORS' REPORT Trust Funds To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener We have audited the accompanying financial statements of the Trust Funds of the Corporation of the City of Kitchener, which comprise the statement of financial position as at December 31, 2013, the statements of operations, change 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 Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on 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 that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 51 Page 2 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, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants June 30, 2014 Waterloo, Canada 52 TRUST FUNDS Balance Sheet Year Ended December 31, 2013 2013 2012 Assets Accounts receivable $ 125,205 $ 174,292 Interest receivable 69,812 59,151 Investments (Note 2) Short-term 2,217,039 2,303,011 Long -term 9,546,549 8,871,297 11,958, 605 11, 407, 751 Liabilities Accounts payable 2,100 2,100 Fund Balance 11,956,505 11,405,651 $ 11,958,605 $ 11,407,751 See accompanying notes 53 TRUST FUNDS Statement of Continuity Year Ended December 31, 2013 See accompanying notes 54 2013 2012 Capital Receipts Perpetual care Interest earned Other $ 296,319 $ 456,112 109,773 340,897 442,211 137,128 862,204 920,236 Expenditures Transfer to cemeteries operations 311,350 303,364 311,350 303,364 Net change in fund 550,854 616,872 Balance, beginning of year 11,405,651 10,788,779 Balance, end of the year $ 11,956,505 $ 11,405,651 See accompanying notes 54 TRUST FUNDS Notes to Financial Statements Year Ended December 31, 2013 Summary of Significant Accounting Policies The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles for local government as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. The significant accounting policies are summarized below. Basis of Accounting Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes receipts as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. Investments The long -term investments of $9,546,549 (2012 - $8,871,297) reported on the Balance Sheet at cost, have a market value of $9,827,681 (2012 - $9,003,835). 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. 55 TRUST FUNDS Schedule of Continuity by Fund Year Ended December 31, 2013 56 C11 N C d LL �3 CO Perpetual Care Mount Hope Cemetery $ 584,538 $ 900 $ 22,902: '$ 850 $ 22,902 $ - $ 586,288 Woodland Cemetery 4,448,531 96,397 176,149 >d 9,950 176,149 - 4,554,878 Bridgeport Cemetery 142,513 1,448 5,614 - 5,614 - 143,961 Williamsburg Cemetery 2,022,070 197,574 82,485 15,563 82,485 - 2,235,207 St. Peter's Cemetery 489,445 - 19,175 950 19,175 - 490,395 Cemetery Trusts F.E. Teremain 15,550 - 609 - 609 - 15,550 Florence V. Cober 8,783 - 344 - 344 - 8,783 L.F. Glick 20,664 - 809 - 809 - 20,664 Edna Atherton 1,331 - 52 - 52 - 1,331 George Wright Estate 42,614 - 1,668 - 1,668 - 42,614 E. L. Goetz 1,357 - 53 - 53 - 1,357 E. Weiderhold 38,065 - 1,490 - 1,490 - 38,065 Prepaid Interments 3,590,190 - 144,762 82,460 - - 3,817,412 $ 11,405,651 $ 296,319 $ 456,112 $ 109,773 $ 311,350 $ - $ 11,956,505 56 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, 2013, the statements of operations, change 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 Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on 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 that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 57 Page 2 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, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants June 30, 2014 Waterloo, Canada 58 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position As at December 31, 2013 Financial assets Cash Accounts receivable 2013 2012 $ 13,827 $ 11,823 764 - 14,581 11,823 Financial liabilities Accounts payable 9,619 5,009 Net financial assets 6,062 6,814 Non - financial assets Tangible capital assets 3,061 4,393 Prepaid expenses 686 - 3,636 4,393 Net assets 8,698 11,207 Accumulated surplus Accumulated net re\/enue 6,647 6,814 Invested in tangible capital assets 3,061 4,393 Total accumulated surplus $ 8,698 $ 11,207 See accompanying notes 59 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year Ended December 31, 2013 See accompanying notes .91 2013 2012 Revenue Assessments $ 25,000 $ 25,171 Other revenue 8,488 1,695 33,488 26,866 Expenses Streetscaping 2,671 2,811 Audit 1,808 1,752 Summer maintenance 4,916 4,817 Insurance 670 1,239 Winter maintenance 20,497 10,784 Advertising 2,527 2,335 Miscellaneous 1,566 2,837 Amortization 1,342 1,099 35,997 27,674 Net deficit for year (2,509) (808) Accumulated surplus, beginning of year 11,207 12,015 Accumulated surplus, end of year $ 8,698 $ 11,207 See accompanying notes .91 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Change in Net Financial Assets As at December 31, 2013 2013 2012 Net deficit for year $ (2,609) $ (808) Acquisition of tangible capital assets - - Amortization of tangible capital assets 1,342 1,099 Acquisition of prepaid expenses (686) Change in net financial assets (1,762) 291 Net financial assets, beginning of year 6,814 6,523 Net financial assets, end of year $ 6,062 $ 6,814 See accompanying notes 61 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2013 Summary of Significant Accounting Policies The financial statements of the Belmont Improvement Area Board of Management are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment. The following is a summary of the significant accounting policies followed in the preparation of these financial statements 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 are amortized on a straight -line basis over their estimated useful lives as follows: Assets Amortization period Equipment 5 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 Revenues and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. 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. .% KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Telephone 519 - 747 -8800 Fax 519 - 747 -8830 Internet www.kpmg.ca INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of Kitchener Downtown Improvement Area Board of Management, which comprise the statement of financial position as at December 31, 2013, 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 for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform 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. KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( "KPMG International'), a Swiss entity. KPMG Canada provides services to KPMG LLP. 63 Page 2 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kitchener Downtown Improvement Area Board of Management as at December 31, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. kAwG 1.cP Chartered Professional Accountants, Licensed Public Accountants March 18, 2014 Waterloo, Canada KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position Year ended December 31, 2013, with comparative information for 2012 Net financial assets 147,277 62,081 Non - Financial Assets Tangible capital assets (note 6) 26,786 23,347 Net assets $ 174,063 $ 85,428 Accumulated Surplus Reserve for future assessment write -offs $ 25,641 $ 29,478 Accumulated net revenue 121,636 32,603 Invested in tangible capital assets 26,786 23,347 Total accumulated surplus $ 174,063 $ 85,428 65 2013 2012 Financial Assets Cash $ 77,000 $ 14,635 Term deposits (note 4) 65,709 65,321 Accounts receivable 39,118 36,230 Due from the City of Kitchener (note 4) 10,141 - Prepaid expenses 1,720 5,279 193,688 121,465 Financial Liabilities Accounts payable and accrued charges 46,411 48,210 Due to the City of Kitchener (note 4) - 11,174 46,411 59,384 Net financial assets 147,277 62,081 Non - Financial Assets Tangible capital assets (note 6) 26,786 23,347 Net assets $ 174,063 $ 85,428 Accumulated Surplus Reserve for future assessment write -offs $ 25,641 $ 29,478 Accumulated net revenue 121,636 32,603 Invested in tangible capital assets 26,786 23,347 Total accumulated surplus $ 174,063 $ 85,428 65 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year ended December 31, 2013, with comparative information for 2012 Budget Actual Actual 2013 2013 2012 Revenue Assessments $ 658,000 $ 683,979 $ 650,000 Interest 200 388 1,235 Special events income 50,000 44,400 43,408 Other income 11,000 10,502 23,648 719,200 739,269 718,291 Expenses: Promotions and advertising 274,000 255,075 276,729 Salaries and wages 264,000 260,710 247,996 Administration 73,043 65,846 61,228 Meetings and seminars 15,000 10,252 13,517 Safety and beautification 50,100 26,249 36,549 Member relations 34,500 22,857 61,144 Amortization 8,154 5,808 5,520 Net revenue before other items $ 403 92,472 15,608 Net assessment write -offs (note 4) 3,837 11,174 Net revenue (expenses) 88,635 4,434 Accumulated surplus, beginning of year 85,428 80,994 Accumulated surplus, end of year $ 174,063 $ 85,428 See accompanying notes to financial statements. . ^, KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Changes and Net Financial Assets Year ended December 31, 2013, with comparative information for 2012 See accompanying notes to financial statements. RYA 2013 2012 Net revenue $ 88,635 $ 4,434 Acquisition of tangible capital assets (9,247) (7,140) Amortization of tangible capital assets 5,808 5,520 Change in net financial assets 85,196 2,814 Net financial assets, beginning of year 62,081 59,267 Net financial assets, end of year $ 147,277 $ 62,081 See accompanying notes to financial statements. RYA KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2013 1. Summary of significant accounting policies: Kitchener Downtown Improvement Area Board of Management ( "the Board ") is established for the main purpose of revitalizing the Central Business District of the City of Kitchener. It is designated as a Business Improvement Area (BIA) through the Ontario Municipal Act and a City of Kitchener by -law enacted in 1977. 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 (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 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. .: KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, page 2 Year ended December 31, 2013 2. Term deposits: The term deposits consist of the following: Principal $55,434 $10,275 3. Commitments: Maturity September 13, 2013 January 3, 2014 Rate 0.70% 0.80% During 2012, 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 on June 30, 2016. The Board is committed to the following minimum payments under the agreement: 2013 $ 33,089 2014 33,906 2015 34,723 2016 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 $3,837 (2012 - $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. We KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2013 6. 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 Computers $ 7,096 $ 1,486 $ $ $ 8,582 $ 5,905 $ 1,191 $ $ 1,118 $ 7,023 $ 1,559 Furniture 27,445 7,761 35,206 7,787 19,658 4,190 11,977 23,229 Leasehold improvements 31498 - 3,498 1,000 2,498 500 1,500 1,998 $ 38,039 $ 9,247 $ $ $ 47,286 $ 14,692 $ 23,347 $ $ 5,808 $ 20,500 $ 26,786 70 LUL KPMG LLP Chartered Accountants 115 King Street South, 2nd floor Waterloo Ontario N2J 5A3 Canada Telephone (519) 747 -8800 Fax (519) 747 -8830 Internet www.kpmg.ca INDEPENDENT AUDITORS' REPORT To the members of the Kitchener Public Library Board We have audited the accompanying financial statements of the Kitchener Public Library, which comprise the statement of financial position as at December 31, 2013 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. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( "KPMG International'), a Swiss entity. KPMG Canada provides services to KPMG LLP. 71 Page 2 Basis for Qualified Opinion In common with many public library boards, the Kitchener Public Library derives revenue from fines, rentals, partnerships, photocopying and other miscellaneous revenues, the completeness of which is not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was limited to the amounts recorded in the records of the entity and we were not able to determine whether any adjustments might be necessary to contributions, excess of revenues over expenses, current assets and net financial assets. Qualified Opinion In our opinion, except for the possible effects on the financial statements of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Kitchener Public Library as at December 31, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants April 16, 2014 Waterloo, Canada 72 KITCHENER PUBLIC LIBRARY Statement of Financial Position December 31, 2013, with comparative information for 2012 2013 2012 Assets Cash $ 1,708,472 $ 1,293,830 Accounts receivable 60,339 54,285 Due from City of Kitchener 93,720 93,546 1,862,531 1,441,661 Financial Liabilities Accounts payable and accrued liabilities 770,107 628,189 Deferred revenue (note 2) 906,116 776,239 1,676,223 1,404,428 Net financial assets 186,308 37,233 Non - Financial Assets Tangible capital assets (note 3) 5,103,092 5,233,569 $ 5,289,400 $ 5,270,802 Accumulated Surplus General $ - $ 233 Invested in tangible capital assets 5,103,092 5,233,569 Reserves 186,308 37,000 $ 5,289,400 $ 5,270,802 See accompanying notes to financial statements. 73 KITCHENER PUBLIC LIBRARY Statement of Operations and Changes in Net Assets Year ended December 31, 2013, with comparative information for 2012 Revenues: Grants: Province of Ontario City of Kitchener: 286,755 $ 286,755 Operating 9,453,379 9,055,142 Capital and special (note 4) 581,904 319,771 Special grants (note 5) 36,754 20,807 Fines 193,149 237,670 Interest and miscellaneous 30,800 33,861 Partnerships 22,802 22,802 Room rental 5,493 6,661 Photocopy 19,350 20,413 10,630,386 10,003,882 Expenses Personnel costs (Schedule 1) 7,516,362 7,516,684 Resource materials 1,516,602 1,497,885 Equipment (Schedule 2) 468,670 408,376 Administrative(Schedule 3) 203,830 150,073 Facilities costs (Schedule 4) 428,021 423,692 Processing /bindery 109,393 110,116 Programs and publicity (Schedule 5) 67,010 42,634 General library equipment 9,495 17,382 Expenditures related to capital and special (note 4) 255,651 83,543 Required expenditures related to (note 5) 36,754 20,807 10,611,788 10,271,192 Net revenue (deficit) 18,598 (267,310) Accumulated net revenue, beginning of year 5,270,802 5,538,112 Accumulated net revenue, end of year $ 5,289,400 $ 5,270,802 See accompanying notes to financial statements. 74 KITCHENER PUBLIC LIBRARY Statement of Changes in Net Financial Assets Year ended December 31, 2013, with comparative information for 2012 Excess (deficiency) of revenue over expenditures $ 18,598 $ (267,310) Acquisition of tangible capital assets (1,259,641) (1,122,815) Amortization of tangible capital assets 1,390,118 1,427,554 Change in net financial assets Net financial assets (debt), beginning of year 149,075 37,233 37,429 (196) Net financial assets, end of year $ 186,308 $ 37,233 See accompanying notes to financial statements. 75 KITCHENER PUBLIC LIBRARY Notes to Financial Statements Year ended December 31, 2013 Kitchener Public Library (the "Board ") was incorporated as a not - for - profit organization, without share capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City ") and is dependent on the City for a significant portion of its operating and capital funding. The Board contributes to the community as a resource and a gateway with sources of information and works of imagination. The financial statements of the Board are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments, as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. The following is a summary of the significant accounting policies followed in the preparation of these financial statements. 1. Significant accounting policies: (a) Accrual basis of accounting: The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. (b) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land are amortized on a straight - line basis over their estimated useful lives as follows: Furniture, fixtures and equipment Specialty and other equipment Computer Books and audio visual resources 2. 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. 76 Notes to Financial Statements (continued) Year ended December 31, 2013 3. Tangible capital assets: Accumulated Net book Accumulated Net book Balance, amortization, value, amortization, value Opening end of beginning of beginning of end of end of 2013 balance Additions year year year Amortization year year Books and audio visual resources $ 14,315,647 $ 1,002,105 $ 15,317,752 $ 10,140,285 $ 4,175,362 $ 1,167,030 $ 11,307,315 $ 4,010,437 Computer 1,446,912 133,726 1,580,638 818,834 628,078 167,780 986,614 594,024 Furniture fixtures and equipment 732,750 123,810 856,560 332,359 400,391 49,356 381,715 474,845 Other equipment and vehicle 95,306 - 95,306 65,568 29,738 5,952 71,520 23,786 $ 16,590,615 $ 1,259,641 $ 17,850,256 $ 11,357,046 $ 5,233,569 $ 1,390,118 $ 12,747,164 $ 5,103,092 77 KITCHENER PUBLIC LIBRARY Notes to Financial Statements (continued) Year ended December 31. 2013 3. Tangible capital assets (December 31, 2012): $ 15,467,800 $ - $ 1,122,815 $ 16,590,615 $ 9,929,492 $ 5,538,308 $ 1,427,554 $ 11,357,046 $ 5,233,569 78 Accumulated Net book Accumulated Net book Balance, amortization, value, amortization, value, Opening Re- end of beginning of beginning of end of end of 2012 balance classification Additions year year year Amortization year year 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 $ 4,175,362 Computer 1,279,410 6,090 161,412 1,446,912 650,683 628,727 159,794 810,477 636,435 Furniture fixtures and equipment 702,647 - 30,103 732,750 283,127 419,520 49,232 332,359 400,391 Other equipment and vehicle 101,396 (6,090) - 95,306 67,974 33,422 5,951 73,925 21,381 $ 15,467,800 $ - $ 1,122,815 $ 16,590,615 $ 9,929,492 $ 5,538,308 $ 1,427,554 $ 11,357,046 $ 5,233,569 78 KITCHENER PUBLIC LIBRARY Notes to Financial Statements (continued) Year ended December 31, 2013 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 2013 included $85,500 for general renovations, maintenance and upgrading of existing facilities, $183,525 for communication infrastructure and technology upgrades, $25,000 for KPL Accessibility Fund and $25,000 for Forest Heights branch HVAC unit. The portion of these grants and previous year grants that are included in revenue in 2013, is $581,805 (2012 - $319,771). 5. Special grants: In 2013, the Board received various special non - recurring grants and donations totaling $171,123 (2012 - $137,040). The portion of these grants and previous year special grants that are included in revenue in 2013, is $36,754 (2012 - $20,807). The remainder is included in deferred revenue. 6. Pension plan: The Board makes contributions to the Ontario Municipal Employees Retirement Systems (OMERS), which is a multi - employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rate of pay. During the year, the Board incurred expenses equal to $542,917 (2012 - $517,867) for current service on behalf of its staff. 79 KITCHENER PUBLIC LIBRARY Notes to Financial Statements (continued) Year ended December 31, 2013 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 $17,347 (2012 - $11,609) 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. :E KITCHENER PUBLIC LIBRARY Schedule of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses Year ended December 31, 2013, with comparative information for 2012 Equipment: Technology Equipment maintenance Amortization Administrative $ 227,735 $ 168,742 17,847 24,657 223,088 214,977 $ 468,670 $ 408,376 Postage and delivery 2013 2012 Personnel: 11,970 Insurance Salaries $ 6,137,390 $ 6,208,582 Health benefits 362,826 345,520 Pension benefits 784,232 760,451 Employment insurance 131,231 126,507 WSIB 22,772 23,686 Sick leave reserve 25,000 25,000 Staff training 52,911 26,938 29,888 $ 7,516,362 $ 7,516,684 Equipment: Technology Equipment maintenance Amortization Administrative $ 227,735 $ 168,742 17,847 24,657 223,088 214,977 $ 468,670 $ 408,376 Postage and delivery $ 11,539 $ 11,970 Insurance 17,501 17,160 Professional services 69,124 36,760 General business 52,796 32,810 Telephone 22,982 23,806 Stationery 29,888 27,567 $ 203,830 $ 150,073 Facilities: Facilities expenses $ 254,000 $ 189,616 Country Hills building 38,088 37,380 Main utilities 87,861 151,360 Forest Heights utilities 22,307 21,338 Pioneer Park building 20,993 18,581 Grand River Stanley Park building 4,772 5,417 $ 428,021 $ 423,692 81 KITCHENER PUBLIC LIBRARY Schedule 5 - Programs and publicity Year ended December 31, 2013, with comparative information for 2012 Programs and publicity: Promotional Public programs 82 2013 2012 $ 24,979 $ 26,872 42,031 15,762 $ 67,010 $ 42,634 KPMG LLP 115 King Street South 2r)d Floors Waterloo ON N2J 5A3 Telephone (519) 747 8800 Fax (510) 747 -8830 Internet www.kpmg.ca 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 statement of financial position as at December 31, 2013, 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 Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an op1 mon 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. 14111MG I_LP is a Canadian lim it, d liability p�irtni:n:,hip and a rn¢arnber firm of th,) 144 "MG no tw(rri< art indrrpr ndunt — bei fii— ,;affiI atud with IS4 IVIG Inturnational C,rru1 er,;ativm C v1 IVIG Intern, tin I) a (ISwiss entity. ISI 11AG G, an ada riovidus burvicub to 1<P11AC711..f.::'. 83 1,' UM i Page 2 Opinion 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, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. �I Chartered Professional Accountants, Licensed Public Accountants April 9, 2014 Waterloo, Canada THE CENTRE IN THE SQUARE INC. Statement of Financial Position December 31, 2013, with comparative information for 2012 2013 2012 Net Assets Financial assets: $ 9,502,734 $ 11,020,346 Cash $ 1,765,324 $ 3,353,370 Due from The City of Kitchener 9,238 89,496 Funds held with The City of Kitchener (note 2) - 278,725 Accounts receivable 12,463 117,354 Interest receivable 3,033 3,630 Costs to be recovered 142,893 347,483 Investments (note 4) 1,514,792 1,432,046 Total financial assets 3,447,743 5,622,104 Financial liabilities: Accounts payable and accrued liabilities 1,716,907 1,373,288 Deferred revenue (note 5) 1,810,640 2,246,350 3,527,547 3,619,638 Net (debt) financial assets (79,804) 2,002,466 Non - financial assets: Tangible capital assets (note 10) 9,378,462 8,774,535 Inventories (note 3) 65,247 52,905 Prepaid expenses 138,829 190,440 9,582,538 9,017,880 Net assets $ 9,502,734 $ 11,020,346 Accumulated Surplus Operating fund activities (note 11) $ - $ - Reserves - Capital (notes 6 and 12) _ 327,913 Reserves - Performance Development (notes 7 and 12) - 461,180 Reserves - Restricted (notes 8 and 12) 124,272 1,456,718 Invested in tangible capital assets 9,378,462 8,774,535 Accumulated surplus $ 9,502,734 $ 11,020,346 85 THE CENTRE IN THE SQUARE INC. Statement of Operations Year ended December 31, 2013, with comparative information for 2012 Expenses: Budget 2013 Actual 2013 Actual 2012 Revenues: Performances $ 5,570,862 $ 6,159,468 $ 6,961,310 Rent - Kitchener - Waterloo Symphony 104,780 98,065 94,615 Capital reserve fund surcharge (note 6) 335,594 282,356 226,068 Grants from The City of Kitchener- Operating 1,394,772 1,400,000 1,371,449 Grants from The City of Kitchener - Capital 246,000 246,031 242,335 Grants from other governments - Operating 40,000 39,275 40,000 Capital asset donations - 109,640 10,000 Donations 2,500 4,292 11,179 Investment income 28,713 89,320 101,508 Sponsorships and memberships 127,000 101,901 123,566 Rent - Kitchener - Waterloo Art Gallery 91,918 92,528 90,116 Other 51,583 35,387 16,785 Gain (loss) on investments - 45,499 (16,436) Gain (loss) on sale of assets 10,000 - 8,000 Total revenue 8,003,722 8,703,762 9,280,495 Expenses: Direct: Performances 4,313,081 5,459,377 5,614,049 Operating: Administration 475,270 571,733 445,854 Marketing 279,320 291,981 115,242 Occupancy 648,500 683,470 668,540 Salaries and wages 3,096,200 3,029,072 3,070,549 Recoveries - performances (1,170,437) (1,126,448) (1,178,661) Amortization 700,000 744,642 621,628 Write down of tangible capital assets - 88,008 28,032 Reserves expenditures (note 12) 338,000 479,539 190,165 Refund to The City of Kitchener - - 1,161 Total expenses 8,679,934 10,221,374 9,576,559 Excess of expenses over revenue (676,212) (1,517,612) (296,064) Accumulated surplus, beginning of year 11,020,346 11,020,346 11,316,410 Accumulated surplus, end of year $ 10,344,134 $ 9,502,734 $ 11,020,346 See accompanying notes to financial statements. 22 THE CENTRE IN THE SQUARE INC. Statement of Change in Net Financial Assets Year ended December 31, 2013, with comparative information for 2012 See accompanying notes to financial statements. 87 2013 2012 Excess of expenses over revenue $ (1,517,612) $ (296,064) Acquisition of tangible capital assets (1,436,577) (630,120) Amortization of tangible capital assets 744,642 621,628 Write -downs of tangible capital assets 88,008 28,032 (2,121,539) (276,524) Net acquisition use of supplies inventory (12,342) (13,200) Acquisition use of prepaid expenses 51,611 (99,720) 39,269 (112,920) Decrease in net financial assets (2,082,270) (389,444) Net financial assets, beginning of year 2,002,466 2,391,910 Net financial (debt) assets, end of year $ (79,804) $ 2,002,466 See accompanying notes to financial statements. 87 THE CENTRE IN THE SQUARE INC. Statement of Cash Flow Year ended December 31, 2013, with comparative information for 2012 2013 2012 Operating activities: Excess of expenses over revenue Items not involving cash: Amortization Write down of tangible capital assets Change in non -cash operating working capital Cash (used) provided by operating activities Capital activities: Cash used to acquire tangible capital assets Investing activities: Increase in investments Increase (decrease) in cash Cash, beginning of year $ (1,517,612) $ (296,064) 744,642 621,628 88,008 28,032 607,239 514,014 (77,723) 867,610 (1,427,577) (630,120) (82,746) (19,607) (1,588,046) 217,883 3,353,370 3,135,487 Cash, end of year $ 1,765,324 $ 3,353,370 See accompanying notes to financial statements. THE CENTRE IN THE SQUARE INC. Notes to Financial Statements Year ended December 31, 2013 The mission of The Centre in the Square Inc. ( "The Centre "), is to create memorable experiences. It is incorporated as a 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 governed by a 14 member Board and receives an operating grant from the City of Kitchener ( "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. 29 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 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 by the City represent cash held in a pooled fund on behalf of the Centre. 3. Inventories: Inventories consist of the following: 2013 2012 Bar stock $ 61,234 $ 51,769 Supplies 4,013 1,136 $ 65,247 $ 52,905 99 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 4. Investments: Investments consist of: 6. Capital Reserve Fund Surcharge: The Capital Reserve Fund represents the collection of a surcharge from sale of tickets. 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, replacements and major maintenance projects. 91 Carrying value Market Carrying value Market 2013 2013 2012 2012 Shares $ 893,760 $ 1,252,788 $ 947,871 $ 1,157,228 Bonds 609,651 606,709 478,811 484,489 Cash 11,381 11,381 5,364 5,364 $ 1,514,792 $ 1,870,878 $ 1,432,046 $ 1,647,081 5. Deferred revenue: Deferred revenue consists of the following: 2013 2012 Sponsorships $ 53,358 $ 75,960 Performances 1,646,644 1,970,898 Gift certificates 48,264 56,264 Donations 14,228 33,179 Membership 4,914 18,228 Other 43,232 91,821 $ 1,810,640 $ 2,246,350 6. Capital Reserve Fund Surcharge: The Capital Reserve Fund represents the collection of a surcharge from sale of tickets. 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, replacements and major maintenance projects. 91 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 7. Performance Development Reserve Fund: 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 2013, The Centre's Board of Directors approved the transfer of the remaining funds from the Performance Development Reserve Fund ($468,960) to the Operating Fund to fund the operating deficit. 8. 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. In 2013, the Centre's Board of Directors approved transfers out of the Restricted Fund for major capital asset projects ($632,070) and to the Operating Fund ($487,674) to fund the operating deficit. 9. 2013 Budget: The original budgeted figures were approved by the Board of Directors at their meeting in November, 2012 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. 92 CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 10. Tangible capital assets: 93 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 8,630,978 238,399 (133,615) 8,735,762 3,788,382 4,842,596 (85,696) 244,126 3,946,812 4,788,950 Equipment 4,782,707 633,935 (49,832) 5,366,810 2,791,907 1,990,800 (44,648) 333,157 3,080,416 2,286,394 Computers 348,996 11,580 360,576 172,744 176,252 _ 39,265 212,009 148,567 Software 126,369 143,512 (119,756) 150,125 122,673 3,696 (119,756) 49,686 52,603 97,522 Site 1,369,651 409,151 (48,052) 1,730,750 583,759 785,892 (13,146) 78,408 649,021 1,081,729 $ 16,234,001 $ 1,436,577 $ (351,255) $ $ 17,319,323 $ 7,459,465 $ 8,774,536 $ (263,246) $ 744,642 $ 7,940,861 $ 9,378,462 93 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 11. Operating fund activities: Budget Actual Actual 2013 2013 2012 Revenues: Performances $ 5,570,862 $ 6,159,468 $ 6,961,310 Rent - Kitchener - Waterloo Symphony 104,780 98,065 94,615 Grants from City of Kitchener 1,394,772 1,400,000 1,371,449 Grants, other Governments and Foundations 40,000 39,275 40,000 Donations 2,500 1,268 7,020 Investment income 20,000 24,659 33,034 Sponsorships and memberships 130,000 101,901 123,566 Rent - Kitchener - Waterloo Art Gallery 91,918 92,528 90,116 Other 51,856 35,387 16,785 Total revenue 71406,688 7,952,551 8,737,895 Current fund expenditures: Direct: Performances 4,313,081 5,459,377 5,614,049 Operating: Administration 475,270 571,733 445,854 Marketing 279,320 291,981 115,242 Occupancy 648,500 683,470 668,540 Salaries and wages 3,096,200 3,029,072 3,070,549 Recoveries - performances (1,170,437) (1,126,448) (1,178,661) Total current fund expenditures 7,641,934 8,909,185 8,735,573 Operating fund net revenues before amortization Transfer from reserve funds Transfer to City of Kitchener (235,246) (956,634) 2,322 235,246 956,634 (1,161) (1,161) Fund balances, end of year $ - $ - $ - ., THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2013 12. Schedule of reserve funds: Excess of revenue over expenditures (expenditures over revenue) 7,780 476,595 _ (212,703) 271,672 Transfer to accumulated surplus - tangible capital assets - (1,436,578) - _ (1,436,578) Other transfers (468,960) 632,070 (1,119,743) - (956,633) Balance, beginning of year 461,180 327,913 - 1,456,718 2,245,811 Balance, end of year $ - $ - $ - $ 124,272 $ 124,272 99 Performance Total Development Capital Sustainability Restricted Funds Revenue: Donations and sundry $ - $ 109,640 $ - $ 3,024 $ 112,664 Grants from The City of Kitchener _ 246,030 _ _ 246,030 Capital reserve fund surcharge _ 282,356 _ _ 282,356 Investment income 7,780 1,482 _ 55,400 64,662 Gain on investments _ _ _ 45,499 45,499 7,780 639,508 - 103,923 751,211 Expenditures: Cost of fundraising - 162,913 _ _ 162,913 Professional fees - - - 17,249 17,249 Restructuring costs - - - 299,377 299,377 - 162,913 - 316,626 479,539 Excess of revenue over expenditures (expenditures over revenue) 7,780 476,595 _ (212,703) 271,672 Transfer to accumulated surplus - tangible capital assets - (1,436,578) - _ (1,436,578) Other transfers (468,960) 632,070 (1,119,743) - (956,633) Balance, beginning of year 461,180 327,913 - 1,456,718 2,245,811 Balance, end of year $ - $ - $ - $ 124,272 $ 124,272 99 - IM 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 Corporation of the City of Kitchener Gasworks Enterprise for the year ended December 31, 2013 ( "the financial statement "). Management's Responsibility for the Financial Statement Management is responsible for the preparation and fair presentation of this financial statement in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement, and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on ourjudgment, including the assessment of the risks of material misstatement of the financial statement, 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 statement 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 statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. a. Page 2 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, 2013 in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement. Chartered Professional Accountants, Licensed Public Accountants June 30, 2014 Waterloo, Canada NOM THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE Statement of Operations and Accumulated Surplus Year ended December 31, 2013 TRANSPORTATION OPERATIONS Gas transportation Revenues 2013 2013 2012 6,269,361 Budget Excess of revenue over expenses 4,536,165 DELIVERY OPERATIONS Accumulated Surplus -Transportation Gas delivery - - - Less One time transfer - Final Transportation Benefit Revenues 33,217,604 32,645,865 44,177,248 Expenses 16,626,168 15,900,630 22,961,027 16,591,436 16,745,235 21,216,221 Other programs (Customer Service, Rental Water Heaters & Financing) Revenues 9,142,802 10,231,083 9,342,126 Expenses 6,685,428 7,283,809 6,643,757 2,457,374 2,947,274 2,698,369 Dispatch Revenues 713,856 713,379 696,768 Expenses 713,856 713,379 696,768 Excess of revenue over expenses 19,048,810 19,692,509 23,914,590 Accumulated Surplus - Delivery Balance, beginning of year 101,632,987 101,632,987 91,149,210 Interest Revenue 106,946 120,624 120,710 Transfer to Gas Investment Reserve (13,000,000) (13,000,000) (6,306,063) Dividend Transfer to City - - (7,245,460) Add excess of revenue over expenses 20,636,608 19,692,509 23,914,590 Balance, end of year 109,376,541 108,446,120 101,632,987 SUPPLY OPERATIONS Gas supply Revenues 35,252,917 35,576,067 35,132,756 Expenses 34,121,834 36,803,590 34,726,828 Excess of revenue over expenses 1,131,083 (1,227,523) 405,928 Accumulated Surplus -Supply Balance, beginning of year 2,821,688 2,821,688 2,415,760 Interest Revenue (Expense) 89,119 44,292 - Add excess of revenue over expenses 1,131,083 (1,227,523) 405,928 Balance, end of year 4,041,890 1,638,457 2,821,688 TRANSPORTATION OPERATIONS Gas transportation Revenues 10, 805,526 11,116,164 - Expenses 6,269,361 5,795,159 - Excess of revenue over expenses 4,536,165 5,321,005 - Accumulated Surplus -Transportation Balance, beginning of year - - - Less One time transfer - Final Transportation Benefit - 4,300,000 Add excess of revenue over expenses 4,536,165 5,321,005 - Balance, end of year 4,536,165 1,021,005 - :: MANAGEMENT REPORT Management's Responsibility for Financial Reporting The accompanying financial statements of Kitchener Generation Corporation are the responsibility of management and have been prepared in accordance with Canadian public sector accounting standards. The significant accounting policies followed by Kitchener Generation Corporation are described in the Significant Accounting Policies contained in Note 2 of the financial statements. The preparation of financial statements necessarily involves the use of estimates based on management's judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. The financial statements have been prepared within reasonable limits of materiality and in light of information available up to June 30, 2014. Management maintained a system of internal controls designed to provide reasonable assurance that the assets were safeguarded and that reliable information was available on a timely basis. The system included formal policies and procedures and an organizational structure that provided for the appropriate delegation of authority and segregation of responsibilities. MOO On behalf of management, Dan Chapman Deputy CAO, Finance & Corporate Services and City Treasurer June 30, 2014 Kitchener, Canada a• KITCHENER GENERATION CORPORATION Statement of Financial Position As at December 31, 2013 See accompanying notes 100 2013 2012 Financial assets Due from The Corporation of the City of Kitchener $ - $ 5,646 Accounts receivable 40,718 8,750 40,718 14,396 Liabilities Due to The Corporation of the City of Kitchener 40,718 - Accounts payable and accrued liabilities - 14,396 Long -term debt (Note 3) 3,634,878 3,792,362 3,676,696 3,806,758 Net financial debt (3,634,878) (3,792,362) Non - financial assets Tangible capital assets - net (Note 4) 3,948,280 4,180,532 Total non -current assets 3,948,280 4,180,532 Accumulated Surplus (Note 6) $ 313,402 $ 388,170 See accompanying notes 100 KITCHENER GENERATION CORPORATION Statement of Operations Year Ended December 31, 2013 2013 2013 2012 Budget Revenues Sale of Electricity $ 393,000 $ 379,880 $ 415,394 Total revenues 393,000 379,880 415,394 Expenses Maintenance 20,000 11,100 14,133 Professional services 2,400 3,800 3,241 Amortization 232,262 232,262 232,252 Total expenses 264,662 247,162 249,626 Surplus before interest and provision for payments -in -lieu of corporate income taxes 138,348 132,728 165,768 Interest expense 189,997 189,997 198,972 Deficit before provision for payments -in -lieu of corporate income taxes (61,649) (67,269) (33,204) Provision for payments -in -lieu of corporate income taxes - - - Annual deficit $ (61,649) $ (67,269) $ (33,204) See accompanying notes 101 KITCHENER GENERATION CORPORATION Statement of Change in Net Financial Debt Year ended December 31, 2013 2013 2012 Annual deficit $ (67,269) $ (33,204) Change in share capital (17,499) 421,374 Amortization of tangible capital assets 232,262 232,252 Acquisition of tangible capital assets - (4,412,784) Change in net financial debt 167,484 (3,792,362) Net financial debt, beginning of year (3,792,362) - Net financial debt, end of year $ (3,634,878) $ (3,792,362) See accompanying notes 102 KITCHENER GENERATION CORPORATION Statement of Cash Flow Year Ended December 31, 2013 See accompanying notes 103 2013 2012 Operating Annual deficit $ (67,269) $ (33,204) Items not involving cash Amortization 232,262 232,252 Net change in cash from operating activities 174,983 199,048 Investing Acquisition of tangible capital assets - (4,412,784) Net change in cash from investing activities - (4,412,784) Financing Change in contributed capital Change in long -term debt (17,499) (167,484) 421,374 3,792,362 Net change in cash from financing activities (174,983) 4,213,736 Net change in cash and cash equivalents Cash and cash equivalents, beginning of year - - - - Cash and cash equivalents, end of year $ - $ - See accompanying notes 103 KITCHENER GENERATION CORPORATION Notes to Financial Statements Year Ended December 31, 2013 1. Incorporation On December 9, 2011, Kitchener Generation Corporation (the Company) was incorporated under the Business Corporation Act (Ontario). Effective January 1, 2012, The Corporation of the City of Kitchener transferred the solar roof asset constructed on the surface of the Kitchener Operations Facility to the Company in exchange for 100% of the Company's common shares and interest bearing debt. 2. Significant Accounting Policies a) Basis of Accounting The financial statements 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. b) Tangible Capital Assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital asset is amortized on a straight -line basis over its estimated useful life of nineteen years. c) Revenue Recognition The Company records revenue from the sale of electricity on the basis of regular meter readings and estimates of energy generation since the last meter reading to the end of the year. d) Use of Estimates Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. Actual results could differ from these estimates. 3. Long -Term Debt Effective January 1, 2012 the Company incurred an unsecured promissory note payable to The Corporation of the City of Kitchener. For shareholder debt, payments are made annually including interest and principal. Interest is calculated at the fixed rate of 5.01% per annum. Interest paid in 2013 was $189,997 (2012 - $198,972). 4. Tangible Capital Assets Accumulated Cost Amortization Net Book Value Opening balance $ 4,412,784 $ (232,262) $ 4,180,632 Additions - - - Depreciation expense (232,262) (232,262) Disposals - - - Ending balance 4,412,784 (464,604) 3,948,280 104 KITCHENER GENERATION CORPORATION Notes to Financial Statements Year Ended December 31, 2013 5. Accumulated Surplus The accumulated surplus consists of the following: 2013 2012 Share capital - common shares (Note 6) 403,875 $ 421,374 Retained earnings (90,473) (33,204) $ 313,402 $ 388,170 6. Share Capital Authorized Unlimited common shares Issued 1,000 common shares 105 KITCHENER POWER CORP. MANAGEMENT REPORT December 31, 2013 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Kitchener Power Corp. are the responsibility of management and have been prepared in accordance with accounting principles generally accepted in Canada. The significant accounting policies followed by the Company are described in note 2 of the notes section to the consolidated financial statements. The preparation of the consolidated financial statements necessarily involves the use of estimates based on management's best judgement, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. The consolidated financial statements have been prepared in light of information available up to February 28, 2014. Management maintains appropriate systems of internal control designed to provide reasonable assurance that the Company's assets were safeguarded and financial records are relevant and reliable. The system includes formal corporate -wide policies and procedures, and an organizational structure that provides for the appropriate delegation of authority and segregation of responsibilities. On behalf of management, Jerry Van Ooteghem, P.Eng. President & C.E.O. Margaret Nanninga, > BA, CGA Vice - President Finance 106 KPMG LLP Chartered Accountants 115 King Street South, 2nd floor Waterloo Ontario N2J 5A3 Canada Telephone (519) 747 -8800 Fax (519) 747 -8830 Internet www.kpmg.ca INDEPENDENT AUDITORS' REPORT To the Shareholders of Kitchener Power Corp. We have audited the accompanying financial statements of Kitchener Power Corp., which comprise the balance sheet as at December 31, 2013, the statements of operations and comprehensive income, retained earnings and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 14111MG i_LP is a Canadian Ilnmt¢ad liability partni n:,hip and a rn, rnber'fiirm of th,) 144 "MG no tw(rI, of indupundunt m✓mbe!r firms aftili,atud with ISI IVI<'� InPe�rnational C(rol ✓i,�ativm ( KI "11AC;'� Int rn " ti o na I ') a ;miiss entity. *I I1AG Can 2t,( r i(rvid e's -rvi CU,s to lKI I1A G II..I'.::'. 107 ww r Page 2 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kitchener Power Corp. as at December 31, 2013, and its results of operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants, Licensed Public Accountants March 30, 2014 Waterloo, Canada 108 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 109 2013 2012 $ 12,858,553 $ 20,755,014 46,957,396 37,972,485 3,134,303 3,162,744 897,009 818,210 683,877 1,468,974 11912 17A ana G7i 77,749,312 65,083,948 181,051,618 923,358 A 7R7 nna 122 7GF OAG $ 266,506,297 172,564,699 13,865,077 6,737,762 193,167,538 $258,251,486 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED BALANCE SHEET (Continued) As at December 31St LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities (note 7) Current portion of long term debt Current portion of customers and construction deposits (note 8) Current portion of regulatory liabilities (note 18) Total current liabilities Long -term liabilities Long -term debt (note 9) Customer deposits (note 8) Post - employment benefits (note 11) Regulatory liabilities (note 18) Total long -term liabilities Total liabilities Shareholders' equity Share capital — common shares (note 12) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity See accompanying notes Approved by the Board of Directors 2013 2012 $ 26,406,688 $ 24,771,203 951,481 912,029 4,225,272 7,164,341 43,653,334 33,528,260 82,980,595 3,836,508 5,771,482 83,932,076 3,873,602 5,605,316 iu1,lel'uzc 1U1,0VO,ZL+0 66,389,385 66,389,385 121,725,041 117,116,983 $ 266,506,297 $ 258,251,486 Xvr, M ,� J. Van Ooteghem, President & C.E.O. / Director 110 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 111 2013 2012 $ 50,727,598 $ 45,210,313 8,281,158 9,157,285 (3,673,100) (3,640,000) 55,335.656 $ 50,727,598 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME For the year ended December 31St 2013 2012 REVENUE Sales revenue Distribution services revenue $ 38,220,116 $ 40,852,106 Electric energy services (note 13) 187,434,193 170,345,103 Other revenue 187,434,193 170,345,103 Other investment income 420,551 447,628 Late payment penalties 241,341 255,787 Miscellaneous revenue (note 14) 1,088,063 916,999 Community relations 1,749,955 1,620,414 Non - utility operations revenue 332,999 352,736 Energy Conservation - OPA Funding (note 15) 1,491,570 914,431 Total revenue 228,895,834 213,732,054 EXPENSE Operation expense Electric energy services (note 13) 187,434,193 170,345,103 Distribution operations and maintenance 10,450,740 10,048,062 Customer accounts 3,039,398 3,450,896 General administration 2,693,543 2,711,806 Community relations 245,479 251,912 Property and capital taxes 332,999 352,736 Amortization (note 16) 8,502,226 9,159,173 212, 698, 578 196, 319, 688 Non - utility operation expense Energy conservation - OPA programs (note 15) 1,537,637 763,301 Total expense 214,236,215 197,082,989 Income before interest and provision for 14,659,619 16,649,065 payments -in -lieu of corporate income taxes Interest expense 5,173,690 5,834,702 Income before provision for payments -in -lieu 9,485,929 10,814,363 of corporate income taxes Provision for payments -in -lieu of corporate income taxes (note 19) 1,204,771 1,657,079 NET INCOME $ 8,281,158 $ 9,157,284 See accompanying notes 112 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31St 2013 2012 OPERATING ACTIVITIES Net Income $ 8,281,158 $ 9,157,284 Add (deduct) charges to operations not requiring a current cash payment Gain on disposal of capital assets (82,757) (86,908) Amortization (note 16) 9,021,798 9,617,194 (Increase) in future income taxes (note 19) (44,655) (132,918) Increase (decrease) in non - current customer deposits (note 8) (37,095) 75,721 Increase in post - employment benefits obligation (note 11) 166,166 138,895 Net change in non -cash operating working capital (note 17) (11,459,167) 959.558 Cash provided by operating activities 5,845,448 19.728.826 INVESTING ACTIVITIES Additions to capital assets (20,085,547) (20,502,405) Decrease (increase) in long -term regulatory assets / liabilities (note 18) 51968,723 (2,172,358) Proceeds on disposals of capital assets 86,528 89.862 Cash applied to investing activities (14,030,296) (22.584.901) RNANCING ACTIVITIES Increase in contributed capital 4,873,516 4,668,973 (Decrease) in long term debt (912,029) (874,213) Dividends paid out (note 22) (3,673,100) (3,640,000) Cash provided by financing activities 288,387 154.760 Net cash applied during the year (7,896,461) (2,701,315) Cash and cash equivalents, beginning of year 20,755,014 23.456.329 Cash and cash equivalents, end of year $12,858,553 20.755.014 Cash and cash equivalents represented by: Cash 12,858,553 17,755,014 Cash equivalents - 3.000.000 $12,858,553 $ 20,755,014 Supplemental cash flow information Interest paid $5,036,431 $ 5,144,320 See accompanying notes 113 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 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. [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. 114 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS [III] Regulation KWHI 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. 115 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS t4w-i 0112 d ► ! . , , ' • 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, 2013. 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, 2013. [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. 116 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS [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: Buildings 2%-5% Trans former station equipment 2%-6.67% Distribution station equipment 2%-6.67% Distribution system 1.67%-4% Meters 4%-6.67% SCADA equipment 6.67% Other capital assets 10%-33% 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. 117 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS UW- 1Im►IIaro m► kre «619111►kI1►[H1974 Is] I *T14r-M =, - e1j [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. 118 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS [IV] Other accounting policies (continued) 0] Pension plan KWHI 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 KWHI 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 2013 was a reduction of amortization expense of approximately $2,925,915 (2012 - $2,265,213). Further, in accordance with OEB accounting requirements, an offsetting reduction of $2,925,915 (2012 - $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. ��3:7��7��:7E;' isle1► 1�1�1►/ e1►[�3 /e1�1►E;'��:i�J��il�►��'i [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, 2013, 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. 119 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS w eT 61 6191 a► III & 1 1.1 x a a Viii -. 11 q Electric energy Miscellaneous Less: Allowance for doubtful accounts Unbilled revenue receivable Interest receivable Related parties receivable: City of Kitchener Township of Wilmot 2013 2012 $ 14,226,942 $ 12,163,221 (250,000) (250,000) 16,806,321 14,724,415 3U,UZ4,4U/ 22,413,t5UU 37,474 62,106 88,867 709,885 327 2,279 89,194 712,164 $ 46,957,396 $ 37,972,485 Related Party Transactions The Company conducted the following transactions with related parties during the year ended December 31, 2013. 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. 2013 2012 City of Kitchener — capital and maintenance of street lights $ 1,520,138 $ 1,775,765 Township of Wilmot — capital and maintenance of street lights 12,054 113,865 $ 1,532,192 $ 1,889,630 5. INVENTORIES Inventories consist of: Stores Transformers Conservation programs inventory 120 2013 $2,282,489 657,588 194,226 $3,134,303 2012 $2,660,732 487,762 14,250 $3,162,744 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS e• e e ► • e u e eu•: e •► 2013 Cost Accumulated Amortization Net Book Value Land $ 3,735,257 $ - $ 3,735,257 Land Rights 265,449 257,873 7,576 Buildings 26,368,763 6,852,373 19,516,390 Transformer Station Equipment 62,560,429 20,336,071 42,224,358 Distribution Station Equipment 2,930,969 2,005,202 925,767 Distribution System - Conductors and devices 185,445,409 79,895,043 105,550,366 Distribution System - Line and network transformers 55,053,765 26,688,890 28,364,875 Meters 14,711,639 3,780,444 10,931,195 SCADA - System Supervisory Equipment 1,566,480 1,551,390 15,090 Other Capital Assets 20,246,460 13,637,078 6,609,382 Construction in Progress 3,766,910 - 3,766,910 376,651,530 155,004,364 221,647,166 Less: Contributed Capital (54,079,649) (13,484,101) (40,595,548) Total 322 571 881 $ 141,520,263 $ 181,051,618 Accumulated 2012 Cost Amortization Net Book Value Land $ 3,735,257 $ - $ 3,735,257 Land Rights 265,449 255,220 10,228 Buildings 19,537,746 6,066,646 13,471,099 Transformer Station Equipment 59,888,291 18,888,136 41,000,155 Distribution Station Equipment 2,837,259 2,005,924 831,335 Distribution System - Conductors and devices 173,732,394 76,885,457 96,846,937 Distribution System - Line and network transformers 53,089,650 25,854,433 27,235,217 Meters 14,312,474 3,017,595 11,294,879 SCADA - System Supervisory Equipment 1,566,480 1,547,331 19,149 Other Capital Assets 20,341,485 14,304,788 6,036,697 Other Utility Plant 270,820 - 270,820 Construction in Progress 8,679,865 - 8,679,865 358,257,168 148,825,530 209,431,637 Less: Contributed Capital (49,206,133) (12,339,194) (36,866,938) Total 309.051.035 136.486.336 $ 172,564,699 121 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS e • ► •e e: e►�e � e: Independent Electricity System Operator Ontario Electricity Financial Corporation (DRC) Energy rebates payable (OCEB) CDM /OPA programs payable Others Ito] ii I MI.-Oil ►1X6191 0 . •► 1 •• Construction deposits Customer deposits — current portion Customer deposits — non current portion 122 2013 2012 $ 17,779,519 $ 14,607,622 909,183 915,425 1,245,361 1,047,878 1,564,784 1,967,544 4,907,840 6,232,734 $ 26,406,688 $ 24,771,203 2013 2012 $ 1,591,272 $ 4,470,541 2,634,000 2,693,800 $ 4,225,272 $ 7,164,341 $ 3,836,508 $ 3,873,602 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS [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: 2013 2012 City of Kitchener $ 70,997,576 $ 70,997,576 Township of Wilmot 5,964,566 5,964,566 Ontario Infrastructure Projects Corporation 6,969,934 7,881,963 t33,931,U76 M,M4,1U5 Less: Ontario Infrastructure Projects Corporation - Current Portion 951,481 912,029 $ 82,980,595 $ 83,932,076 [ii] For Shareholder Debt, interest is paid quarterly at an annual effective rate established by the OEB. The annual effective rate for January 1, 2013 to December 31, 2013 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: City of Kitchener Township of Wilmot Ontario Infrastructure Projects Corporation 2013 2012 $ 4,167,558 $ 4,167,558 350,120 350,120 323.901 360.896 $ 4,841,579 $ 4,878,574 The cash pension costs for the year ended December 31, 2013 in the amount $1,384,654 (2012 — $1,208,406) have been expensed during the period in which they were incurred. 123 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 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 KWHI's defined benefits plans is as follows: 2013 2012 Discount Rate - Jan 1 4.50% 4.50% Discount Rate - Dec 31 4.50% 4.50% Future general salary and 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% 7.63% Information about KWHI's defined benefits plans is as follows: 124 2013 2012 Accrued Benefit Obligation Balance, beginning of year $ 5,122,729 $ 4,983,834 Current service cost 152,363 145,802 Interest cost 232,112 225,602 Benefits paid (218,309) (232,509) 5,288,895 5,122,729 Unamortized actuarial gains Balance, beginning of the year 482,587 482,587 Accrued benefit liability at December 31 as determined by actuarial valuation 5.771.48 5.605.316 124 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 12. SHARE CAPITAL 2013 2012 Authorized Unlimited common shares Issued 20,000 common shares $ 66,389,385 66.389.385 13. ELECTRIC ENERGY SERVICES 2013 2012 Revenue Electricity revenue $ 161,062,781 $ 145,488,399 Wholesale market services 9,615,261 9,518,031 Transmission services 16,139,521 15,275,418 Smart Meter Entity Charge 565,602 - Retailer services 51,028 187.434.193 63,255 Costs 170.345.103 Electricity $ 161,062,781 $ 145,488,399 Wholesale market services 9,615,261 9,518,031 Transmission services 16,139,521 15,275,418 Smart Meter Entity Charge 565,602 - Retailer services 51,028 63,255 187.434.193 170.345.103 14. MISCELLANEOUS REVENUE 2013 2012 Pole attachment rentals, buildings and other rentals 514,690 531,738 Change of occupancy charges 150,770 154,990 Scrap sales 152,197 149,409 Loss on Disposition of Obsolete Inventory - (173,158) Net gain on disposal of capital assets 62,757 86,908 Unsealing / reconnection charges 64,515 56,953 Accounts payable discounts taken 33,624 32,451 Return cheque charges 19,904 20,190 Sundry 89,606 57,518 916 999 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. 125 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 126 2013 2012 Amortization $ 8,502,226 $ 9,159,173 Various expense accounts 519,572 $ 9,021,798 458,021 9.617.194 17. NET CHANGE IN NON -CASH OPERATING WORKING CAPITAL 2013 2012 (Increase) in accounts receivable $ (8,984,911) $ (362,138) Decrease in inventories (954,523) 186,385 (Increase) in prepaid expense (78,799) (121,926) Decrease (increase) in payment -in -lieu of corporate income taxes 785,097 (1,015,434) (Increase) decrease in current portion of regulated liabilities (12,311,653) 1,890,168 Increase in accounts payable and accrued liabilities 1,635,485 2,965,950 (Decrease) in current portion of customer and construction deposits (2,939,069) (484,704) Increase (decrease) in current portion of regulatory liabilities 11,389,206 (2,098,743) $ (11,459,167) $ 959,558 126 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 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 IFRS transition costs Lost WIP Smart meter funding and cost recovery Retailer service cost variances Retail settlement variances Other deferred costs Long -term portion regulatory assets IFRS transition costs Lost WIP Retailer service cost variances Retail settlement variances Smart meter funding and cost recovery Recovery of Regulatory Assets Other deferred credits Total regulatory assets [ii] Regulatory liabilities consist of the following: Current portion regulatory liabilities Retailer service cost variances Retail settlement variances Smart Meter OM &A IFRS PP &E Adjustments Deferred PILS Long -term portion of regulatory liabilities: Future tax asset Other deferred debits Retailer service cost variances Retail settlement variances IFRS PP &E Adjustments Total regulatory liabilities 127 2013 2012 $ 197,646 $ - 765,071 - 2,830,541 - 40,052 - 8,858,101 894,777 526,763 11,744 13,218,174 906,521 - 194,834 21,145 - 16,504 39,491 698,898 8,732,137 - 4,148,033 99,081 577,175 87,730 173,406 0711 1198 111 S2Rr, n 7 7 $14,141,532 $14,771,598 2013 2012 6,807,358 420,386 - 89,498 5,191,128 - - 170,803 12,069,893 680,687 5,148,851 116,071 3,274,415 5,149,259 70,421 6,710,356 0,0.5U, 5.5 / "I 4, "I y5,L4J $20,609,230 $14,875,936 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS [iii] The following table illustrates the pro -forma effect on income before provision for payments -in -lieu of corporate income taxes, of the recognition of regulatory assets and liabilities: 2013 2012 Income before provision for payments -in -lieu of corporate income tax $ 9,527,728 $ 10,853,963 Energy related variances Retail settlement services 2,570,463 (1,600,301) Smart Meter Entity Charge (52,296) - Interest on energy related variances (24,462) (30,176) 2,493,705 (1,630,477) Non - energy related variances: FIRS transition costs - 2,737 Lost WIP (765,071) - Retailer services (16,394) (13,323) Renewable Connection OM &A (34,450) (16,321) Smart meter funding and cost recovery 1,227,994 (155,235) Smart grid capital 20,000 (10,000) FIRS Transition - PP &E Adjustments 2,925,915 2,265,213 Regulatory as set recovery - (244,165) Interest on non - energy related variances (27,222) 664,825 3,330,772 2,493,731 Incremental effect on income 5,824,477 863,254 Income before provision for payments -in -lieu of corporate income taxes without recognition of regulatory assets and liabilities 15,352,205 11.717.217 128 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS LMOL91 ► wol u 1111 - ►I d' d d 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 Income tax expense Effective tax rate 12.70% 15.32% Components of income tax expense: Current tax expense $ 1,249,426 $ 1,789,997 Future tax (recovery) arising from temporary differences (44,655) (132,918) 1.204.771 $ 1,657,079 [ii] Balance Sheet Future income taxes reflect the 2013 2012 Rate reconciliation: 31, 2013 are as follows: Income from continuing operations before income taxes $ 9,485,929 $ 10,814,363 Statutory Canadian Federal and Provincial income tax rate 26.50% 26.50% Expected taxes on income 2,513,771 2,865,806 Other permanent differences (73,180) 6,603 Increase (decrease) in income taxes resulting from: $ 6,782,009 $ 6,737,762 Change in tax rates on future tax assets - (81,996) Other current year timing differences not benefited (1,156,730) (940,200) Other adjustments (176,020) (296,330) Increased tax on investment income 96.930 103,196 Income tax expense Effective tax rate 12.70% 15.32% Components of income tax expense: Current tax expense $ 1,249,426 $ 1,789,997 Future tax (recovery) arising from temporary differences (44,655) (132,918) 1.204.771 $ 1,657,079 [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, 2013 are as follows: 2013 2012 Capital assets - differences in net book value and undepreciated capital cost $ 3,784,405 $ 3,784,725 Regulatory adjustments 1,364,446 1,364,534 Post - employment benefits 1,529,443 1,485,409 Loss carry- forwards 103,715 103,094 $ 6,782,009 $ 6,737,762 The Company has capital losses of $82,340 (2012 — $82,340) and net loss carry forwards of approximately $364,131 (2012 — $389,034) as at December 31, 2013. 129 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 1 • . I ► d •�; •: d •► 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, 2013, KWHI has posted an irrevocable standby letter of credit as security in the amount of $35,000,000 (2012 - $35,000,000) underwritten by KWHI's principal bank. The Company has entered into a credit facility agreement with its bank in which contains certain financial covenants. ami3 MI ► IM ail 04 /e1 :314kya1► [an ail ► Is] � 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, 2013, the Company has not been made aware of any additional assessments. Dividends in the amount of $3,673,100 were received in 2013 from KWHI, a subsidiary of Kitchener Power Corp (2012 — $3,640,000) Dividends paid out to shareholders are as follows: City of Kitchener Township of Wilmot 23. COMMITMENTS 2013 2012 $3,388,450 $3,357,900 284,650 282,100 3.673.100 3.640.000 In support of the Province of Ontario's decision to install smart meters throughout Ontario by 2010 and pursuant to Ontario Regulation 427/06, KWHI launched its smart meter initiative in 2008. KWHI 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 KWHI`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. 130 KITCHENER POWER CORP. Kitchener Power Corp. CONSOLIDATED NOTES TO FINANCIAL STATEMENTS 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, 2015. This is the fourth such deferral granted by the AcSB. The International Accounting Standards Board ( "IASB ") has approved IFRS 14 Regulatory Deferral Accounts in January 2014. This standard provides specific guidance on accounting for the effects of rate regulation and permits first -time adopters of IFRS to continue using previous GAAP to account for regulatory deferral account balances while the IASB completes its comprehensive project in this area. Adoption of this standard is optional for entities eligible to use it. Deferral account balances and movements in the balances will be required to be presented as separate line items on the face of the financial statements distinguished from assets, liabilities, income and expenses that are recognized in accordance with other IFRSs. Extensive disclosures will be required to enable users of the financial statements to understand the features and nature of and risks associated with rate regulation and the effect of rate regulation on the entity's financial position, performance and cash flows. Some of the converged standards will be implemented in Canada during the transition period with the remaining standards adopted at the changeover 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. •u•e :e : Certain prior year comparative figures may have been restated to conform to the current year's presentation. 131 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 2013 2012 2011 2010 2009 1. DEMOGRAPHIC STATISTICS Population' 234,000 234,100 232,300 229,400 224,100 Households' 88,765 88,540 87,720 86,750 85,120 Area in acres2 33,802 33,802 33,802 33,826 33,826 2. TAXABLE ASSESSMENT ($000's) Residential and farm 21,314,131 17,720,136 16,558,715 15,415,724 14,399,242 Commercial and industrial 3,273,998 3,040,482 2,853,553 2,629,617 2,452,923 Total 24,588,129 20,760,618 19,412,268 18,045,341 16,852,165 3. TAX RATES Residential and Farm Taxable Full City 0.39217 0.40039 0.41015 0.44361 0.45077 Region 0.62784 0.62967 0.64445 0.66709 0.67958 School Boards 0.21200 0.22100 0.23100 0.24100 0.25200 Total 1.23201 1.25106 1.28560 1.35170 1.38235 Commercial Taxable Full City 0.76474 0.78076 0.79980 0.86503 0.87900 Region 1.22429 1.22785 1.25668 1.30082 1.32517 School Boards 1.49000 1.49000 1.66538 1.77644 1.90192 Total 3.47903 3.49861 3.72186 3.94229 4.10609 Industrial Taxable Full City 0.76474 0.78076 0.79980 0.86503 0.94662 Region 1.22429 1.22785 1.25668 1.30082 1.42711 School Boards 1.59000 1.59000 1.93000 2.27248 2.42866 Total 3.57903 3.59861 3.98648 4.43833 4.80239 1. Source: Planning, Housing and Community Services Department, Regional Municipality of Waterloo 2. 2011 through 2013 - Source: Statistics Canada, 2011 Census Data, 2009 through 2010 - Source: Statistics Canada, 2006 Census Data Cumulative Tax Rate & CPI i % Final 2011:2.08% 40 5 Final 2012:1.81% 30 4 Final 2013: 1.69% 3 20 a.. ..............u.,.,.........,,. 1 0 0 03 04 05 06 07 08 09 10 11 12 13 -1 03 04 05 06 07 08 09 10 11 12 13 Year Year 4 City Tax Rate ( %) *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. 132 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) ($000's) 2013 2012 2011 2010 2009 (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 Obligatory fund revenue recognized 359,385 346,514 338,414 336,801 322,122 359,339 344,955 337,067 335,952 319,833 100% 100% 100% 100% 99% 20,648 21,661 22,276 20,978 20,286 6% 6% 7% 6% 6% 280,998 273,446 282,682 277,140 275,099 4,101 11,772 21,766 23,256 24,228 7,639 8,448 8,351 7,522 4,238 25,943 37,424 25,948 27,217 27,384 6,892 6,877 9,928 17,840 11,986 Total revenues 325,573 337,967 348,675 352,975 342,935 6. CONSOLIDATED EXPENSES Expenses by Function General government 36,033 38,010 34,509 27,563 35,650 Protection to persons and property 41,776 40,572 38,691 40,695 38,367 Transportation services 32,908 29,508 31,101 30,117 33,623 Environmental services 29,730 32,291 20,999 22,530 17,822 Health services 2,155 1,947 1,867 1,775 1,830 Social and family services 2,640 2,307 1,859 1,830 1,756 Recreation and cultural services 62,907 59,490 60,169 57,206 58,537 Planning and development 8,600 9,243 11,065 11,830 8,761 Gasworks 64,605 64,551 73,508 79,393 90,880 Total Expenses 281,354 277,919 273,768 272,939 287,226 Expenses by Object Salaries, wages and employee benefits 133,464 128,444 123,722 112,829 114,678 Materials and services 98,719 103,261 112,620 121,543 126,000 Debenture debt interest 3,941 3,889 3,543 3,275 2,975 Grants and other 3,879 3,867 3,514 3,007 2,841 Amortization 37,355 34,299 29,898 28,435 28,155 Loss /(Gain) on sale of assets 3,996 4,159 471 3,850 12,577 Total Expenses 281,354 277,919 273,768 272,939 287,226 7. ANNUAL SURPLUS 44,220 60,048 74,907 80,036 55,709 133 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 2013 2012 2011 2010 2009 (restated) 8. ANALYSIS OF LONG -TERM DEBT ($000's) 40,844 37,832 31,813 21,984 32,987 Gross debt issued by the municipality 112,039 111,263 98,188 81,327 72,200 Less debt recoverable from municipal 1,137,656 1,093,437 1,033,389 958,483 888,358 enterprises and consolidated boards 11,607 12,077 12,538 6,962 3,101 Less debt recoverable from other sources 12,292 13,434 3,857 4,663 5,469 Net debt to be repaid from property taxes 88,140 85,752 81,793 69,702 63,630 Net debt per capita ($'s) 377 366 352 304 284 Legal debt limit ($000's)3 305,717 294,540 313,022 315,365 298,048 Interest on long -term debt as a % of total expenditures 1.4% 1.4% 1.3% 1.2% 1.0% 9. ACCUMULATED SURPLUS ($000's) Reserves, reserve funds and deferred revenue - obligatory reserve funds 40,844 37,832 31,813 21,984 32,987 Unexpended capital financing 83,448 68,323 65,886 41,733 55,960 Accumulated surplus 1,137,656 1,093,437 1,033,389 958,483 888,358 10. NEW CONSTRUCTION Value of construction ($000's) 331,491 418,227 666,026 495,345 365,925 Number of building permits 2,307 2,420 2,458 2,664 2,580 Number of single family dwelling starts 348 396 590 580 471 11. NET FINANCIAL ASSETS ($000's) 176,202 160,566 160,278 148,319 155,491 3. The debt limit is based on the Financial Information Return from the second immediate preceding year 134 New Construction 2009 2010 2011 2012 2013 Year FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 12. PRINCIPAL CORPORATE TAXPAYERS 2013 Assessment ($000's) CF /Realty Holdings Inc 191,355 Ontrea Inc 184,269 Drewlo Holdings Inc 168,285 Voisin Developments Limited 75,074 Morguard Nar (Ontario) Corporation 72,319 Kingswood Drive Kitchener GP Inc 67,871 Kitchener Housing Inc 60,234 Homestead Land Holdings Limited 59,324 Stamm Investments Limited 50,501 Steeves & Rozema Enterprises Limited 42,867 7550332 Canada Inc 41,113 CP Reit Ontario Properties Limited 40,446 The INCC Corp 38,802 Activa Holdings Inc 36,204 Gresham Ontario Inc 35,314 135