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HomeMy WebLinkAboutFIN-2021-17 - 2020 Consolidated Financial StatementsStaff Report Financial Services Denartr7ent REPORT TO: Audit Committee DATE OF MEETING: June 28, 2021 www. kitchener ca SUBMITTED BY: Brisbane, Sheri, Manager Financial Reporting and Analysis, 519-741-2200 ext. 7349 PREPARED BY: Brisbane, Sheri, Manager Financial Reporting and Analysis, 519-741-2200 ext. 7349 WARD(S) INVOLVED: All DATE OF REPORT: June 21, 2021 REPORT NO.: FIN -2021-17 SUBJECT: 2020 Audited Consolidated Financial Statements RECOMMENDATION: That the 2020 Audited Consolidated Financial Statements of the City of Kitchener be approved. REPORT HIGHLIGHTS: • The purpose of this report is to present the City of Kitchener's Consolidated financial statements for the year ended December 31, 2020. • The key finding of this report is that the independent auditors have provided a clean audit opinion on the Corporation of the City of Kitchener's consolidated financial statements as at December 31, 2020 and for the year then ended. • There are no financial implications associated with this report. • Community engagement included having this report posted to the City's website with the agenda in advance of the committee meeting. • This report supports the delivery of core services. BACKGROUND: Staff is pleased to submit the 2020 Audited Consolidated Financial Statements of the City of Kitchener. A presentation of financial highlights for the year will be given at the Audit Committee meeting on June 28, 2021. Representatives of the City's external auditors will also be in attendance to discuss the Audit Findings Report. REPORT: The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. These financial statements are prepared on a full accrual basis and combine the results of the tax -based operations, enterprises, local boards, capital activity, and reserve fund activities. Local boards include The Centre in the Square Inc., Kitchener Public Library, Belmont *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 2 Improvement Area, and Kitchener Downtown Improvement Area. The 2020 year-end results for the tax -based operations and the enterprises were provided to Council in March. Please see Appendix A to this report for a reconciliation between the non -consolidated figures provided in March and the Audited Consolidated Financial Statements. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: Capital Budget — The recommendation has no impact on the Capital Budget. Operating Budget — The recommendation has no impact on the Operating Budget. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. PREVIOUS REPORTS/AUTHORITIES: • FIN -20-059 External Audit Planning Report for Fiscal Year 2020 APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services ATTACHMENTS: • Appendix A —Annual Surplus Reconciliation • City of Kitchener Financial Report for the Year Ended December 31, 2020 • Audit Committee Presentation • Audit Findings Report for the year ended December 31, 2020 (KPMG) 3 Appendix A — Annual Surplus Reconciliation Year-end results were provided previously in report FIN -2021-7 included on the March 22, 2021 Council Agenda. The annual surplus presented in the Audited Consolidated Financial Statements reconciles to the City of Kitchener year-end results as follows: Year Ended Dec 31, Year Ended Dec 31, 2020 2019 Tax supported surplus (deficit) (5,060,544) 766,454 Enterprise surplus (deficit) 6,063,746 11,028,472 Total operating surplus 1,023,202 11,794,926 Consolidation 37,241,902. 30,427,434 Kitchener Public Library 481,900 (348,000) The Centre in the Square 4A}405 917,379 Kitchener Downtown Improvement Area 3 8, 046 (72,161) Belmont Improve ment Are a 15,986 (2,359) Kitchener Power Corp. and its Aff iliate s 9,629,978 9,361,531 Kitchener Generation Corporation 61,402. 30,716 various PSAR adjustments 10,271,717 9,887,106 Revenues not included in operating surplus Reserve fund revenue 37,241,902. 30,427,434 Contributed assets 19,856}345 23,892,013 Gain (loss) on sale oftangible capital assets 2,056,720 (3,055,126) Other capital revenue 6,427,517 7,614,232 65,582,484 58,878,554 Items in operating surplus, not in consolidated statements 98,393,787 89,627,424 Net transfers to capital and reserves 90,419,006 77,606,310 various PSAR adjustments 5,982,429 4,179,223 96,401,435 81,785,533 CDIC expenses not included i n ope rati ng surplus Amortization of tangible capital assets (49,392,246) (50,393,275) Other capital expenses (17,885,884) (18,731,059) Change in actuarial estimate foremployee future benefits (2,772,793) (2,438,603) Reserve fund expenses (4}834}128) (1,155,757) (74}885,050) (72,718,694) Annual surplus per Consolidated Ff5 98,393,787 89,627,424 21 Prepared by: FINANCIAL PLANNING & REPORTING DIVISION Financial Services Department Kitchener, Ontario, Canada we are As the largest municipality in Waterloo Region, Kitchener is situated in the heart of Southwestern Ontario, close to major highways - including Canada's super highway, 401 - that easily connects to London and the Greater Toronto Area. Situated on the Grand River, Kitchener is the perfect destination for recreation and leisure activities, with a plethora of choices, including many parks, trails and natural areas. Downtown Kitchener is the heart of the arts and culture scene for Waterloo Region. Festivals and special events provide the opportunity to experience a variety of activities and cultural events, in celebration of our great diversity. Table of Contents Introductory Section Message from the Mayor City Council Organizational Structure Message from the City Treasurer Financial Governance Financial Sectior Financial Statement Discussion & Analysis Consolidated Financial Statements Trust Funds Belmont Improvement Area Board of Management Kitchener Downtown Improvement Area Board of Management Kitchener Public Library The Centre in the Square Inc. Gasworks Enterprise Kitchener Generation Corporation Kitchener Power Corp. Statistical Section Financial and Statistical Review 2 3 4 5 7 10 22 50 57 65 76 90 105 109 116 157 7 Of- r "), I � I Message from the Mayor 2020 was a year like no other. The COVID-19 pandemic evolved quickly and unexpectedly, disrupting our community's normal way of life, and forcing us to reimagine our routines. Kitchener took decisive action early for the health and safety of our citizens, but our resilience has been defined by our joint actions as a caring family of communities within the region. While responding to the pandemic locally to ensure the well-being of residents and taking steps to build back better, the City of Kitchener remained a strong steward of public funds and continued to deliver important programs, services and projects that propel our vision for being an innovative and inclusive city. On behalf of Kitchener City Council, I am pleased to present the 2020 Annual Financial Report. We are proud to continue our commitment to transparency and sharing our financial position with the community. Last year, we made investments that advanced the City's strategic priorities including the development of a protected cycling network, making enhancements in customer service, improving the reliability of our water infrastructure, approving the Housing for All strategy to address affordable housing challenges, and delivering climate action that helped the City mark a 27 per cent reduction in greenhouse gas emissions since 2010. In addition, we provided timely relief programs for residents and businesses amidst the COVID-19 pandemic including the Early Economic Support Plan, helping small businesses adapt online with Digital Main Street and driving new economic development with Make It Kitchener 2.0. Our abilities to respond, were partially made possible by the Safe Restart funding contributions from the Government of Canada and the Province of Ontario. 2020 showed us how important it is for us to remain agile and flexible to respond to the emerging needs of community. Every decision, and every investment was made with Kitchener citizens in mind. As we continue the journey towards our city's recovery, I'm both humbled and proud of the strength of our city's leadership and the resilience of our community's spirit. Together, we're building a community that everyone in Kitchener can be proud of. Kitchener City Council r� MAYOR Berry Vrbanovic WARD 1 Councillor WARD 2 Councillor WARD 3 Councillor WARD 4 Councillor Scott Davey Dave Schnider John Gazzola Christine Michaud WARD 5 Councillor Kelly Galloway-Sealock WARD 6 Councillor WARD 7 Councillor WARD 8 Councillor WARD 9 Councillor Paul Singh Bill loannidis Margaret Johnston Debbie Chapman WARD 10 Councillor Sarah Marsh 9 0 Dan Chapman, CAO Michael ay Victoria Raab Justin Readman Jonathan Lautenbach Denise McGoldrick General Manager and Deputy CAO General Manager General Manager Chief Financial Officer General Manager Corporate Bylaw Enforcement Communications & Building Accounting Facilities Manages Division Marketing Division Division Dvision Division Corporate Customer Equity, Anti -Racism & Economic Asset Management & Indigenous Initiatives Business Solutions Fleet Division ■ Service Division ■ Division ■Development Division ■ Division Gas and Water . Human Resources Engineering . Financial Planning . Utilities Fire Division Division Division Division Division Neighbourhood Programs &Services Legal Services Planning Division Division Division Procurement ■ Division Operations - Roads & . Traffic Division Sport Division IN Legislated Services Transportation Revenue '� Parks & Cemeteries M Division Services Division Ill Division Division Technology . Sanitary and Innovation & Services Stormwater Utilities Division Division 4r i1w �- - ra _T7 IT pit Message from the City Treasurer Reflecting on This Past Year This past year was a year unlike any other in recent history. On March 11, 2020, a global pandemic was declared by the World Health Organization as COVID-19 started spreading rapidly in communities around the world. It's been an unprecedented event that continues to disrupt our daily lives. Over the past year, the pandemic has also had an impact on the programs and services that the city was able to provide to the residents of Kitchener. The pandemic not only represented a major public health crisis for the world, but it has also created one of the most significant financial challenges that we have faced in modern times. Many individuals and businesses in Kitchener have felt the financial impacts of the pandemic, and the city also faced similar challenges. The impacts of the pandemic can be seen through the city's 2020 Financial Statements, reflected in the differences for various line items when comparing to the previous year. One of the most significant impacts in 2020 was a shortfall in user fee revenue due to the closure of facilities and cancellation of programs and events, both of which were necessary to help stop the spread of COVID-19. Although the city experienced significant shortfalls in revenue, the federal and provincial government provided operating funding for municipalities through the Safe Restart Agreement. The city was facing a significant deficit prior to receiving this funding and would have had to fully utilize stabilization reserves to cover the impacts had it not been received. This funding addressed 11 i 1► i a I` all of the city's 2020 pandemic related impacts, allowing the city to maintain a strong financial position heading into 2021. Even though it has been a challenging year, I am still pleased to present the Annual Financial Report for the City of Kitchener for the year ended December 31, 2020. This report communicates the 2020 financial results for the City of Kitchener to council, residents, and other interested parties. The Financial Governance section that follows confirms Kitchener's commitment to sound financial management and fiscal prudence, even through times of extreme financial pressure. Looking Forward With the pandemic's effects expected to continue into 2021 and beyond, additional funding has been provided from the federal and provincial government to help address continued financial pressures faced by municipalities. This funding, along with the city's continued cost mitigation measures, will help to reduce the overall financial impact and future projected deficits. Kitchener has always had a strong reputation for financial stability, and we expect to demonstrate this strength even through this most challenging period. We will come through this together and make every effort to build an even better Kitchener. Jonathan Lautenbach, CPA, CGA Chief Financial Officer & City Treasurer June 28, 2021 �rr 12 Financial Governance 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 established a system of internal controls 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. FOCUS ON EFFECTIVE AND EFFICIENT GOVERNMENT IN STRATEGIC PLANNING At the beginning of each new four-year term of council, the City of Kitchener develops a strategic plan to advance the vision, mission and goals for Kitchener. Shaping the vision for Kitchener's future into a strategic plan started with listening to the community. Kitchener residents, council members and local organizations were asked where efforts should be focused to make Kitchener an even more innovative, caring and vibrant city. Five clear goals provide focus and 25 action statements set a blueprint for success. This will ensure that staff focus on the priorities that matter most to citizens. Below is a summary of the 2019-2022 plan: Great Customer Our goal: Increase people's satisfaction, trust and engagement with the Service city by providing friendly, easy and convenient services. People -Friendly Our goal: Transform how people move through the city by making the Transportation transportation network safe, convenient, comfortable, and connected. Environmental Leadership Our goal: mitigating resources. Achieve a healthy and livable community by proactively and adapting to climate change and by conserving natural Caring Community Our goal: Enhance people's sense of belonging and connection by providing welcoming community spaces and programs; better engaging, serving and supporting our diverse populations and helping to make housing affordable. Vibrant Economy Our goal: Build a vibrant city by making strategic investments to support job creation, economic prosperity, thriving arts and culture, and great places to live. The city is committed to being accountable to the community it serves. The 2019-2022 Strategic Plan contains measurable, specific actions and a timeline for completion. Our long-term financial plan, budgets and annual business plans are aligned to implement the Strategic Plan. The city measures and reports on its progress to council and the public throughout the life of this plan. 13 BUSINESS PLANNING AND BUDGET PROCESS Providing the important services our community relies on takes proper planning and hard work. Our business plan sets this course of action, guiding the work that must be accomplished during this term of city council so we're able to meet the needs of our residents, fulfill the commitments made to the community through our strategic plan, and respond to emerging issues in a sustainable, affordable way. Developed in collaboration with city council, staff from all city departments and incorporating Compass Kitchener's recommendations for improvement, our business plan maps out how we must use the resources available to deliver value to the community. The plan guides us toward achieving our strategic priorities, as well as maintaining and improving our core services. The business plan and the budget are developed in parallel to ensure the allocation of resources are aligned with the planned work of the organization. In addition to the business planning process, City Council approves the annual budget, made up of three parts: operating, capital and reserves. City Council and staff are committed to striking a healthy balance between offering valued services and programs to residents, making strategic investments in community priorities, and keeping property taxes at a reasonable rate. 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 by phone, letter, email, social media, 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. These reports ensure departmental accountability for financial results and are a key tool to allow management to respond to financial pressures during the year. During 2019, Council approved the city's first ever Long -Term Financial Plan. The 2020-2029 Long -Term Financial Plan entitled Our City, Our Plan, Our Future highlights the city's strong financial position and identifies emerging challenges and trends that will be important to address as we work to ensure the city can maintain this position over time. The plan provides insight into the city's financial governance framework, bringing together and highlighting the city's financial policies and practices. With a strong reputation for financial stability, Kitchener will strive to be financially Responsible, Flexible and Sustainable. Guided by these principles, the Long -Term Financial Plan will continue to build on the city's current financial strength and ensure that the city is well positioned both now, and in the future, to meet the needs of a growing community. The recommended actions included in this plan are intended to be implemented over the term of Council. It is expected that this plan will be updated every term of Council to identify new actions that may be needed to continue to move the city forward in a financially responsible, flexible, and sustainable way. 14 INTERNAL AUDIT Internal Audit is a corporate wide service including both assurance services (i.e. independent assessment of operations) and consulting services (i.e. facilitation and advice). Objectives are to ensure operations are as effective and efficient as possible, controls are adequate to protect assets and there is compliance with legislation and procedures. Services also include assistance with Lean management and risk management. 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 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. 15 ��rrr +rrl nrr ilii rill -,dw r 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 Chartered Professional Accountants of Canada. 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 and 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, revenue, and expenditures of city funds and governmental functions or entities. These functions and entities comprise a part of the combined 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. 16 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 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. 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 $270 million, an increase of $16 million from 2019. 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 changes in the various balance sheet accounts which are described in the paragraphs below. Of note, many municipalities maintain a net financial liability balance as their liabilities exceed their financial assets. The fact that the city has a positive net financial asset balance and that it has grown or maintained this balance over the last number of years demonstrates the city's strong financial position. Millions $350 $300 $250 $200 $150 $100 $50 $222 $254 $270 2016 2017 2018 2019 2020 Cash and cash equivalents The city's cash position is closely managed and remains adequate along with short-term investments to meet ongoing cash requirements. The cash position has increased to $140 million from $75 million in 2019. The Consolidated Statement of Cash Flows summarizes the sources and uses of cash in both 2020 and 2019. The increase in cash represents a shift from investments to maintain liquidity due to the unknowns associated with the ongoing pandemic. Interest rates at yearend were also very low so there was little incentive to move the funds out of the city's bank account. 17 Taxes receivable Taxes receivable increased only slightly at the end of 2020 and the percentage increase was in line with the increase in taxes billed. 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2016 2017 2018 2019 2020 Investments The City of Kitchener invests in a manner that provides the highest return while protecting and preserving capital, maintains liquidity to meet the daily cash flow demands and conforms to all legislation governing the investment of public funds. There was a notable decrease in investments at the end of 2020 to $130 million from $182 million at the end of 2019. As certain investments matured, the city kept the funds in cash. The rates on investments were not favourable at the end of 2020 and having cash on hand was important to be able to respond to changing needs throughout the pandemic. 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 7 and 8 to the Consolidated Financial Statements for further details. UK Accounts payable and accrued liabilities Accounts payable and accrued liabilities represents the amount of money owed to others for services or goods the city has received. The balance at the end of 2020 decreased to $106 million from $114 million at the end of 2019. This relates to a onetime multi -million -dollar amount owed to the Region of Waterloo for work they had done on the city's behalf in 2019 that the city did not pay until 2020. Deferred revenue — obligatory reserve funds There is a legislated requirement to defer specific funding until those funds have been spent on eligible projects. The increase in deferred revenue — obligatory reserve funds to $61 million from $46 million in 2019 is primarily due to higher amounts of development charges and building permit revenue collected in the year and the fact that the city deferred work on a variety of capital projects in 2020 to help prevent potential cash flow issues during the pandemic. See Note 10 to the financial statements which provides greater detail regarding activity in both years. Deferred Revenue — Other Certain user fees and charges are collected for which the related services have yet to be performed and are recorded under the classification Deferred revenue - other. This amount has decreased by $5 million to $20 million in 2020 and relates to funds contributed by developers in 2019 to move up the timing of capital projects. A large portion of these funds were returned to these developers in 2020, some of which was through a reduction in the amount of development charges collected from them in 2020. Municipal debt The city has three components that comprise the overall debt total. Debt has been issued to fund: • a portion of the tax -supported capital program • capital improvements to Enterprises, where the debt charges will be funded through user fees or external sources, such as the Parking Enterprise or the Kitchener Rangers • the Economic Development Investment Fund (EDIF) 19 Millions $100 .r $85 $75 $78 $71 yT- $43 $50 $37 $25 I $17 $16 t__" I $18 $18 $0 2016 2017 2018 $64 $63 2019 2020 Tax Enterprise EDIF The city must comply with annual debt and financial obligations limits as outlined in Ontario Regulation 403/02. The Province provides the city with an Annual Repayment Limit that caps overall debt charges to 25% of the city's own source revenues. To demonstrate a responsible approach to debt management, the City has established its own debt limits as follows: • Tax supported debt charges will be limited to 10% of the city's own source revenues • Rate supported debt charges will be limited to 10% of the city's rate supported revenues • Capital Pool debt charges will not increase by more than 5% annually 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. EDIF investments have had a remarkably 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 decreased to $63 million from $64 million in 2019. The change in debt is a result of new debt issuance of $9.6 million offset by repayment of $10.8 million of existing debt. 20 Employee future benefits Total employee future benefits include liabilities for future sick leave costs, post-retirement benefits and future Workplace Safety and Insurance Board (WSIB) payments. The liability has increased from $51 million in 2019 to $54 million in 2020. The increase relates to rising cost of benefits and additional coverages introduced by WSIB as well as a decrease in the interest rate used. 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 ranging from 2 to 100 years. During 2020, the city acquired $135 million in tangible capital assets (2019 - $116 million). Amortization of assets was $52 million (2019 - $50 million). Refer to Note 14 and Schedule A of the Consolidated Financial Statements for a detailed breakdown of tangible capital asset activity for 2020 and 2019. The net book value of tangible capital assets at December 31, 2020 is $1.32 billion, up from $1.24 billion in 2019. ■ Linear Assets Vehicles $17M ($16h Computer Hardware Softwa re $20M ($21N Lea Behold I mp rove rn $2M ($2M) . Machineryand Equipment ■ Buildings $26M ($26M) $173M ($174M) Assets u nd er co nstruction $54M ($66M) La nd $210M ($200M) Lana improvements $52M ($42M) 21 Accumulated surplus The city's accumulated surplus for fiscal 2020 was $1.60 billion (2019 - $1.50 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. Reserve funds Reserve funds are included as part of accumulated surplus and these balances are disclosed in Note 15 to the financial statements. Reserve fund balances have increased during 2020 to $99 million (2019 - $85 million). Under the authority of the Municipal Act, the city and certain of its consolidated entities have established reserve funds 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 or the Boards of the consolidated entities are responsible for exercising discretion with respect to the use of reserve funds, subject to the terms of their respective policies, as well as statutory and legal requirements. Council's reserve policy contains guiding principles to ensure the reserves continue to support the financial goals and serve the highest priority needs of the city and its citizens. RESERVE FUNDJ" Millions $120 $100 $80 $60 $40 $20 2016 2017 2018 2019 2020 22 CONSOLIDATED STATEMENT OF OPERATIONS The Consolidated Statement of Operations reports the revenue collected by the city, the cost of providing municipal services and the resulting annual surplus/deficit. In 2020, overall assessment growth was 1.58%. 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 2020 operations was 2.09%. Millions $160 $140 $120 $100 $80 $60 $40 $20 Taxation Gasworks Water, Other user fees Grants Other sewer & storm water 2020 Budget a 2020 2019 Revenue Revenue is received from the following sources: taxation; user fees from gasworks, water, sewer, storm water and other; grants and other. Kitchener is one of only two municipalities in Ontario that own and operate a natural gas utility. Gasworks revenue was $4 million lower than in 2019 which is attributable to less gas usage by customers as 2020 was a warmer year than 2019. Water, sewer & storm water revenue was $10 million greater than in 2019 due to the approved increases in the user fee rates charged for these services in addition to greater water consumption by the city's customers. The increased consumption explains why revenue has exceeded budget by $6 million. 23 Other user fees were considerably less than budget and prior year as a result the COVID-19 global pandemic. The revenue of the Centre in the Square alone was $7.4 million lower than in 2019 due to physical distancing requirements and provincially mandated orders limiting gatherings. The city also saw significant reductions in parking revenue, recreational programming registration fees, and a variety of facility rental charges. To assist municipal governments with the financial stresses related to lost revenue and additional costs caused by the pandemic, the federal and provincial governments transferred more than $13 million in Safe Restart Grant funding to the city. The city earned additional Federal Gas Tax grant funds in 2020 as it was able to spend more of the additional funds the federal government transferred in 2019. These funds had to be deferred until they were spent on eligible projects. The city has started work on projects that fall under the Disaster Mitigation and Adaptation Fund and will receive funds related to this from senior levels of government over the next decade. The `Other' category in the Revenue by Type chart above includes contribution of tangible capital assets, investment income, penalties and interest on taxes, development charge revenue recognized, and share of net income of Kitchener Power Corp. and Kitchener Generation Corporation. Revenue in this category was lower in 2020 compared to 2019 primarily due to lower amounts of contributed assets to the city and lower amounts of development charges earned. The timing of asset contributions is not something the city controls. Development charge revenue can only be earned when work on designated growth projects has been completed. Many capital projects were postponed to future years in order to help limit cash flow challenges that the city may have faced as a result of the pandemic. 24 Millions $120 $100 $80 $60 $40 $20 General Protection Transport- Environ- Recreation Other Gasworks government services ation mental & cultural services services services im 2020 Budget aw 2020 2019 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 legislated requirements. As is common with most Ontario municipalities, the City of Kitchener does not budget for amortization of tangible capital assets or gains and losses on disposal of assets. However, to provide a more meaningful comparison to actuals, the Council -approved budget has 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 were less than budget and 2019 as a result of the pandemic. The city experienced utility savings as many of the city's facilities were closed at various times throughout the year due to provincial pandemic restrictions put in place to help curb the transfer of the virus. The city undertook cost saving measures wherever feasible to help limit the financial impacts resulting from the pandemic. 25 Additional costs incurred as a direct result of the pandemic, regardless of which function they related to were included in Protection services function in accordance with recommendations from the province. Some examples of these costs were additional personal protective equipment and accommodations to various facilities such as hand sanitizer stations and signage. Transportation services expenses were $7 million lower than 2019 in part due to reduced discretionary spending and also because the prior year figure included a large expense due to the LED light replacement project in that year. This project is reducing current electricity costs with the higher efficiency LED bulbs. Winter maintenance expenses in 2020 were lower than 2019 due to the high costs of treating the city roads during the various freezing rain events of 2019. Environmental services expenses were $4 million higher than in 2019 as a result of the increased rates for water and sewage treatment being charged by the Region of Waterloo and because amortization of linear assets had increased due to greater tangible capital asset additions in recent years. Recreation and cultural services expenses were $15 million lower in 2020 than in 2019 and were $17 million less than budget due to the fact that many programs were suspended or had to run at much lower capacity to allow for adequate physical distancing to prevent the spread of the virus. Facilities were closed at specific times throughout the year in line with provincial pandemic response measures and projects were put on hold. The `Other' category in the Expenses by Function chart includes Health services, Social and family services, and Planning and development. As in other areas, there were savings compared to budget and prior year due to the pandemic. Gasworks expenses were $3 million less than in 2019 and $2 million less than budget primarily due to the lower commodity price and consumption being lower than planned as the 2020 year was slightly warmer than normal. 26 • Materials and services $149M ($162M) Debenture debt interest $2M ($3M) • Grants and other $4M ($4M) • Amortization $52M ($49M) Loss/(Gain) on sale of assets $1M ($5M) a ri es, wa ges and iployee benefits 157M ($164M) 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. 27 1"� KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants a Ratepayers of the Corporation of the City of Kitchener Opinion We have audited the consolidated financial statements of the Corporation of the City of Kitchener (the Entity), which comprise: • the consolidated statement of the financial position as at December 31, 2020 • the consolidated statement of o ons for the year then ended • the consolidated statement of change in net financial assets for the year then ended • the consolidated statement of cash flows for the year then ended • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "consolidated financial statements"). In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2020, and its consolidated results of operations, its changes in consolidated net financial assets, and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Consolidated Financial Statements" section of our auditors' report. 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. W 1"� Page 2 We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the 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. In preparing the consolidated financialsta nts, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do Those charged with nance responsible for overseeing the Entity's financial reporting proces Auditors' Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. 29 1"� Page 3 We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of manage*nt's use of the going concern basis of s accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 30 1"� Page 4 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. DRAFT Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada June 28, 2021 tt%�N 31 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2020 2020 2019 Financial assets Cash and cash equivalents $ 140,456,509 $ 74,923,101 Taxes receivable (Note 2) 22,376,508 21,596,640 Trade and other accounts receivable (Note 2) 34,441,122 35,133,433 Loans receivable (Note 5) 6,289,834 6,454,776 Inventory for resale 13,698,269 12,758,338 Investments (Note 6) 129,817,073 182,496,579 Investment in Kitchener Power Corp. and its affiliates (Note 7) 224,960,021 219,188,143 Investment in Kitchener Generation Corporation (Note 8) 2,316,914 2,549,166 Tangible capital assets (Note 14) 574,356,250 555,100,176 Liabilities Accounts payable and accrued liabilities 106,127,746 113,948,709 Deferred revenue - obligatory reserve funds (Note 10) 60,677,659 45,529,467 Deferred revenue - other 20,263,897 25,669,211 Municipal debt (Note 11) 62,739,124 63,993,013 Employee future benefits Note 13 54,261,751 51,488,958 304,070,177 300,629,358 Net financial assets IL 270,286,073 254,470,818 Non-financial assets Tangible capital assets (Note 14) 1,324,000,850 1,241,636,238 Inventory of supplies 3,518,415 3,414,528 Prepaid expenses 1,865,594 1,755,561 1,329,384,859 1,246,806,327 Accumulated surplus Note 15 $ 1,599,670,932 $ 1,501,277,145 The accompanying notes are of these consolidated financial statements. 32 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Operations For the Year Ended December 31, 2020 The accompanying notes are an integral part of these consolidated financial statements. 33 2020 2020 2019 Budget Revenue Taxation $ 135,598,281 $ 135,010,285 $ 130,528,229 User fees and charges Gasworks 77,350,891 77,964,599 81,973,614 Water, sewer and storm water 129,830,793 136,073,048 126,055,779 Other 49,984,886 29,520,236 58,393,112 Grants 16,749,762 31,767,318 15,309,825 Contributions of tangible capital assets 19,856,345 19,856,345 23,892,012 Investment income 9,276,831 r 7,936,940 11,232,605 Penalties and interest on taxes 3,286,520 2,925,246 3,429,802 Development charge revenue recognized 13,225,825 `- 9,582,100 12,174,473 Share of net income of Kitchener Power Corp. and its affiliates (Note 7) ,450,818 ,629,978 9,361,530 Share of net income of Kitchener Generation Corporation (Note 8) - 61,402 30,716 Other 1,555,613 2,215,377 4,421,363 Total revenue 467,166,565 462,542,874 476,803,060 Expenses General government 36,170,290 33,744,592 37,087,611 Protection services 52,910,882 55,408,373 51,360,579 Transportation services 41,695,214 38,266,483 45,832,625 Environmental services 98,640,171 98,325,470 94,518,477 Health services 2,974,048 2,315,444 2,813,822 Social and family service 2,691,212 2,322,018 2,865,035 Recreation and cultural servic s 81,060,645 64,481,190 79,448,840 Planning and development 11,837,671 12,608,810 13,670,257 Gasworks 58,313,337 56,676,707 59,578,390 Total expenses 386,293,470 364,149,087 387,175,636 Annual surplus 80,873,095 98,393,787 89,627,424 Accumulated surplus, beginning of year 1,501,277,145 1,501,277,145 1,411,649,721 Accumulated surplus, end of year (Note 15) $ 1,582,150,240 $ 1,599,670,932 $ 1,501,277,145 The accompanying notes are an integral part of these consolidated financial statements. 33 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets For the Year Ended December 31, 2020 2020 2020 2019 Budget Annual surplus $ 80,873,095 $ 98,393,787 $ 89,627,424 Amortization of tangible capital assets 51,792,737 51,792,737 49,546,311 Acquisition of tangible capital assets (95,555,879) (135,189,619) (116,282,859) Loss (gain) on disposals of tangible capital assets (233,773) (233,773) 9,080,685 Proceeds on disposal of tangible capital assets 1,266,043 1,266,043 1,503,355 Acquisition of inventory of supplies - (6,692,694) (6,918,776) Acquisition of prepaid expenses - (887,281) (1,480,151) Consumption of inventory of supplies - 6,588,807 6,592,238 Use of prepaid expenses - 777,248 1,003,742 Change in net financial assets 38,142,223 15,815,255 32,671,969 Net financial assets, beginning of year 254,470,818 254,470,818 221,798,849 Net financial assets, end of year $ 292,613,041 $ 270,286,073 $ 254,470,818 The accompanying notes are an integral part of these consolidated financial statements. 34 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Cash Flow For the Year Ended December 31, 2020 Operating Annual surplus Items not involving cash Amortization Loss (gain) on disposals of tangible capital assets Share of net income of Kitchener Power Corp. and its affiliates Share of net income of Kitchener Generation Corporation Change in employee future benefits Contributions of tangible capital assets Change in non-cash assets and liabilities Taxes receivable Trade and other accounts receivable Loans receivables Inventory of supplies Inventory for resale Prepaid expenses Deferred revenue - obligatory reserve funds 2020 2019 $ 98,393,787 $ 89,627,424 51,792,737 49,546,311 (233,773) 9,080,685 (9,629,978) (9,361,530) (61,402) (30,716) 2,772,793 2,438,603 (19,856,345) (23,892,012) (779,868) (2,663,466) 692,311 2,404,988 164,942 926,958 (103,887) (326,538) (939,931) (4,535,882) (110,033) (476,409) 15,148,192 10,587,320 Deferred revenue - other (5,405,314) 2,154,487 Accounts payable and accrued liabilities (7,820,963) 406,890 Net change in cash from operating activities 124,023,268 125,887,113 Investing Dividends received from Kitchener Power Corp. 3,858,100 3,721,401 Debt and equity payments received from Kitchener Generation Corporation 293,654 267,053 Net disposal of investments 52,679,506 3,060 Net change in cash from investing activities 56,831,260 3,991,514 Financing Municipal debt issued 9,554,000 4,087,000 Municipal debt repaid (10,807,889) (11,272,884) Net change in cash from financing activities (1,253,889) (7,185,884) Capital Acquisition of tangible capital assets (115,333,274) (92,390,847) Proceeds on disposal of tangible capital assets 1,266,043 1,503,355 Net change in cash from capital activities (114,067,231) (90,887,492) Net change in cash and cash equivalents 65,533,408 31,805,251 Cash and cash equivalents, beginning of year 74,923,101 43,117,850 Cash and cash equivalents, end of year $ 140,456,509 $ 74,923,101 The accompanying notes are an integral part of these consolidated financial statements. 35 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 On June 9, 1912 the village of Berlin was officially designated a city. The Corporation of the City of Kitchener (the "City") was created in 1916 when Berlin changed its name to Kitchener. The City operates as a lower tier government in the Province of Ontario, Canada. The City provides municipal services such as fire protection, public works, gas distribution, urban planning, recreation and cultural services and other general government services. 1. Summary of significant accounting policies These consolidated financial statements of 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 Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of consolidation 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 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 revenue, 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. 36 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies (continued) a. Basis of consolidation (continued) 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 4). b. Basis of accounting 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 when an external transfis due. ii. Cash and cash equivalents Cash and cash equivalents include cash d and liquid investments with original maturity of 90 days or less as at the end of the year. iii. Trade and other accounts receivable T 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. 37 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) 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. A requirement of the Public Sector Accounting Board of the Chartered Professional Accountants of Canada is that obligatory reserves be reported as deferred revenue. Obligatory reserves include development charges, recreational lands, building permits and gas tax funding. In addition, certain user charges and fees are collected for which the related services have yet to be performed. These are recorded under the classification Deferred revenue - other. Revenue is recognized in the period when the related expenses are incurred, services performed or the tangible capital assets are acquired. viii. Employee future benefits The contributions to a multi-employer, defined benefit pension plan are expensed when contributions are due. The costs of post-retirement 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-retirement 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 discouno 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. Contaminated sites Contaminated sites are defined as the result of contamination being introduced into air, soil, water or sediment of a chemical, organic, or radioactive material or live organism that exceeds an environment standard. This Standard relates to sites that are not in productive use and sites in productive use where an unexpected event resulted in contamination. As of December 31, 2020, no liability is recorded on the Consolidated Statement of Financial Position. x. 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. THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) x. Non-financial assets (continued) 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 Buildings & building improvements 15 to 50 yrs Leasehold improvements Over the useful life of the improvement or the lease term, whichever is shorter Machinery & equipment 1 to 20 years Computer hardware 5 years Computer software 5 to 10 years Linear assets 5 to 100 years Vehicles 5 to 16 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 recorded as expenses when incurred. 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. 39 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) xi. Revenue recognition Revenues are recognized in the period in which the transactions or events occurred that gave rise to the revenues. All revenues are recorded on an accrual basis, except when the accruals cannot be determined with a reasonable degree of certainty or when their estimation is impracticable. Government transfers are recognized as revenues when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recorded as deferred revenue when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement of operations as the stipulation liabilities are settled. 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 the purchase of tangible capital asset. 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 expensest�� services performed, or the tangible assets are acquired. Tax revenue is recognized when it is authorized and in the period for which the tax is levied. Tax revenue reported relates to property taxes. xii. Use of estimates The preparation of the finance ments uires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. These estimates and assumptions, including employee future benefits payable, legal claims provisions, liability for contaminated sites, the valuation of tangible capital assets and their related useful lives and amortization are based on management's best information and judgment and may differ significantly from future actual results. 2. Taxes and accounts receivable Taxes receivable are reported net of a valuation allowance of $8,569,879 (2019 - $7,950,561). Trade and other accounts receivable are reported net of a valuation allowance of $1,373,767 (2019 - $1,187,117). M THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 3. 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 $ 93,392,753 $ 281,725,628 $ 375,118,381 Share of payments in lieu of taxes 559 3,034,203 3,034,762 Share of linear properties 61,563 125,291 186,854 Amounts requisitioned $ 93,454,875 $ 284,885,122 $ 378,339,997 4. 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 interment funds totalling $16,786,440 (2019 - $16,119,407). 5. Loans receivable Loans receivable are made up of the following: 2020 2019 Major capital improvement loans receivable $ 6,062,000 $ 6,153,137 Loans receivable with forgiveness provisions 25,396 25,396 Minor capital improvement and other loans receivable 202,438 276,243 $ 6,289,834 $ 6,454,776 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 10 to 12 years (2019 - 10 to 12 years). All major capital improvement loans are unsecured and bear interest at rates ranging from 1.32% to 1.58% (2019 - 1.53% to 1.9596). 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 5 years (2019 - 5 years). The forgiveness provisions range from 15% to 15% (2019 - 15% to 1596). The balances recorded are net of the allowance for forgiveness. Interest rates on these loans range from 8% to 8% (2019 - 8% to 896). 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 1 to 5 years (2019 - 6 months to 20 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 0.0% to 0.0% (2019 - 0.0% to 12.9%). 41 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 6. Investments Investments are made up of the following: 2020 2020 2019 2019 Cost Market Cost Market Value Value Guaranteed investment certificates $ 116,027,115 $ 116,641,471 $ 172,290,253 $ 174,439,738 Bonds and debentures 13,502,281 13,713,173 9,927,502 9,946,128 Shares 287.677 482.693 278.824 450.887 $ 129,817,073 $ 130,837,337 $ 182,496,579 $ 184,836,753 7. 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, incl udji Kitchener -Wilmot Hydro Inc., was incorporated on July 1, 2000. On August 1, 2000, under by-laws passed by the City and trrg—Mwnship 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: 2020 2019 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 92,718,237 86,946,359 $ 224,960,021 $ 219,188,143 The Kitchener -Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 3.23% (2019 - 4.8896). There are no repayment terms and there is no intent to redeem the notes or the shares. 42 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 7. Investment in Kitchener Power Corp. and its Affiliates (continued) The following table provides condensed financial information with respect to Kitchener Power Corp.: 2020 2019 Current assets $ 56,044,000 $ 62,901,000 Non-current assets 276,709,000 261,429,000 Regulatory assets 19,661,000 9,400,000 Total assets 352,414,000 333,730,000 Current liabilities 47,790,000 40,994,000 Long-term debt 76,963,000 76,963,000 Regulatory liabilities 4,496,000 3,842,000 Other liabilities _ 55,944,000 50,967,000 Total liabilities 185,193,000 172,766,000 Net assets 167,221,000 160,964,000 Results of operations Revenues 293,231,000 254,597,000 Expenses (282,792,000) (244,449,000) Net income 10,439,000 10,148,000 City's share of net income - 92.25% $ 9,629,978 $ 9,361,530 8. Investment in Kitchener Generation Corporation Under the provincial government's Business Corporation Act, 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. The investment in Kitchener Generation Corporation is comprised of the following: 2020 2019 Kitchener Generation Corporation common shares $ 232,444 $ 261,809 Kitchener Generation Corporation long-term notes receivable 2,091,995 2,356,284 Share of net income since acquisition, net of dividends (7,525) (68,927) $ 2,316,914 $ 2,549,166 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. 43 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 8. Investment in Kitchener Generation Corporation (continued) The following table provides condensed financial information with respect to Kitchener Generation Corporation: 2020 2019 Current assets $ 10,746 $ 8,448 Capital assets 2,322,516 2,554,768 Total assets 2,333,262 2,563,216 Current liabilities 16,348 14,050 Long-term debt _ 2,091,995 2,356,284 Total liabilities Net assets Results of operations Revenues Expenses Net income Citv's share of net income -100% 9. Insurance pool 2,108,343 2,370,334 224,919 192,882 414,384 396,078 (352,982) (365,362 61,402 30,716 61,402 $ 30,716 Liabilities include an amount of $11,585,331 (2019W$10,330,324) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool (the "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 24.38% (2019 - 24.0596) and its share of the Pool surplus as at May 31, 2020 was $2,088,790 (2019 - $2,020,873). The City's share of the Pool surplus has not been included in the Consolidated Statement of Financial Position. 10. Deferred revenue -obligatory reserve funds Obligatory deferred revenue is comprised of the following: 2020 2019 Development charges $ 35,029,877 $ 20,330,610 Federal gas tax 6,302,509 10,135,140 Building 13,818,330 12,484,064 Recreational land 5,526,943 2,579,653 $ 60,677,659 $ 45,529,467 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 10. Deferred revenue - obligatory reserve funds (continued) The continuity of obligatory deferred revenue is as follows: Development Federal gas Recreational charges tax Building land Total Balance, January 1, 2020 $ 20,330,610 $ 10,135,140 $ 12,484,064 $ 2,579,653 $ 45,529,467 Collections 24,281,367 7,075,077 1,186,275 2,917,044 35,459,763 Interest earned - 92,729 198,872 44,872 336,473 Deferred revenue recognized (9,582,100) (11,000,437) (50,881) (14,626) (20,648,044) Balance, December 31, 2020 35,029,877 6,302,509 13,818,330 5,526,943 60,677,659 Balance, January 1, 2019 15,860,990 4,796,771 7,705,113 6,579,273 34,942,147 Collections 16,644,093 14,185,313 4,580,252 2,232,956 37,642,614 Interest earned - 79,007 198,699 27,488 305,194 Deferred revenue recognized (12,174,473) (8,925,951) - (6,260,064) (27,360,488) Balance, December 31, 2019 $ 20,330,610 $ 10,135,140 $ 12,484,064 $ 2,579,653 $ 45,529,467 11. Municipal debt X'610 The City has assumed responsibility for the payment of principal and interest charges on certain long-term debt issued by other municipalities. At t endf the year, the outstanding principal amount of this liability is $62,739,124 (2019 - $63,993,013). The annual principal repayments are' 2021 $ 10,845,850 2022N1 12,955,325 2023 7,716,327 2024 6,863,268 2025 7,231,372 2026 and thereafter 17,126,982 $ 62,739,124 The annual principal and interest payments required to service the municipal debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing. The municipal debt carries interest rates ranging from 0.45% to 6.40% (2019 - 1.45% to 5.4096). Interest charges for 2020 relating to municipal debt totalled $2,286,127 (2019 - $2,612,914). 45 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 12. 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 2020 amounting to $11,469,111 (2019 - $11,301,959). The latest available report for the OMERS plan was as at December 31, 2020. At that time the plan reported a $3.2 billion actuarial deficit, based on actuarial liabilities of $113.1 billion and actuarial assets of $109.8 billion. Ongoing adequacy of the current contribution rates will need to be monitored and may lead to increased future funding requirements. As at December 31, 2020, the City has no obligation under the past service provisions of the OMERS agreement. 13. Employee future benefits The estimated liability for employee future benefits is comprised of the following: 2020 2019 Sick leave benefit plan $ 21,261,308 $ 20,634,016 Post-retirement benefits 22,662,843 21,096,542 Future payments to WSIB 10,337,600 9,758,400 $ 54,261,751 $ 51,488,958 Significant actuarial assumptions Workplace Safety Insurance Sick Leave & Post - Board Retirement Benefits 2020 2019 2020 2019 Discount rate 2.25 3.00 2.25 3.00 Salary growth assumptions 3.00 3.00 3.00 3.00 CPI increase assumptions 2.00 2.50 2.50 2.50 Health care initial trend rate n/a n/a 5.90 8.00 Health care ultimate trend rate n/a n/a 4.50 5.00 Dental care initial trend rate n/a n/a 4.00 4.00 Dental care ultimate trend rate n/a n/a 4.00 4.00 M THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 13. Employee future benefits (continued) a. Sick leave benefit plan 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 amount of benefits paid during the year were $1,831,663 (2019 - $1,460,889). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,432,999 (2019 - $4,210,025). Anticipated undiscounted payments to employees who are eligible to retire are: 2021 $ 3,379,814 2022 822,481 2023 1,087,140 2024 1,190,091 2025 1,064,426 2026 and thereafter 7,280,484 The actuarial valuation of the future liability fc 3.0096). The last actuarial valuation for this liability The actuarial expense for the currr was following items: A 1 leave assumes a discount rate of 2.25% (2019 - mpleted at December 31, 2020. 955 (2019 - $2,483,618) and is comprised of the 2020 2019 Current period benefit cost $ 1,244,705 $ 1,123,601 Amortization of actuarial losse 568,042 577,255 Sick leave benefit expense 1,812,747 1,700,856 Sick leave benefit interest expense 646,208 782,762 Total expenses related to sick leave benefits $ 2,458,955 $ 2,483,618 As at December 31, 2020, the unamortized actuarial losses were $713,059 (2019 - $577,427) and are amortized over 11 to 13 years (2019 - 11 to 13 years). 47 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 13. 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 amount of benefits paid during the year were $1,168,498 (2019 - $1,243,528). The City holds no reserve to meet this liability. The actuarial valuation of the future liability for post-retirement benefits assumes a discount rate of 2.25% (2019 - 3.00%) and inflation rates for benefit premiums of 3.0% to 4.5% (2019 - 4.0% to 8.096). The last actuarial valuation for this liability was completed at December 31, 2020. The actuarial expense for the year was $2,734,799 (2019 - $2,47 02) and is comprised of the following items: 2020 2019 Current period benefit cost $ 1,219,537 $ 1,048,409 Amortization of actuarial losses 766,915 597,949 Post-retirement benefit expense 1,986,452 1,646,358 Post-retirement benefit interest ex ense 748,347 831,544 Total expenses related topost-retirement benefitslk J7777 $ 2,734,799 $ 2,477,902 As at December 31, 2020, the unamortized actuar amortized over 11 to 13 years (2019 - 11 to 13 years). c. WSIB losses were $626,736 (2019 - $3,213,052) and are The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf of the City as a Schedule 2 employer. The amount of benefits paid during the year were $1,872,600 (2019 - $1,650,800). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $3,607,523 (2019 - $2,610,604). The actuarial valuation of the future liability for WSIB assumes a discount rate of 2.25% (2019 - 3.0096). The last actuarial valuation for this liability was completed at December 31, 2019. The actuarial expense for the current year was $2,451,800 (2019 - $1,832,300) and is comprised of the following items: 2020 2019 Current period benefit cost $ 926,100 $ 1,169,700 Amortization of actuarial losses 960,200 261,700 WSIB benefit expense 1,886,300 1,431,400 WSIB benefit interest expense 565,500 400,900 Total expenses related to WSIB benefits $ 2,451,800 $ 1,832,300 As at December 31, 2020, the unamortized actuarial losses were $1,059,300 (2019 - $9,103,300) and are amortized over 12 years (2019 - 11 years). THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 14. Tangible capital assets The continuity schedule of tangible capital assets is presented in Schedule A. Assets under construction having a value of $53,677,804 (2019 - $65,929,958) have not been amortized. Amortization of these assets will commence when the assets are put into service. Contributed tangible capital assets of $19,856,345 (2019 - $23,892,012) have been recognized at fair market value at the date of contribution. The contributed assets include land right of way as well as developer created linear assets such as water, sanitary, storm, and road assets. The write-down of tangible capital assets during the year was $36,275 (2019 - $3,073,424). The amount of interest capitalized was $nil (2019 - $nil). 15. Accumulated surplus The accumulated surplus consists of individual fund surpluses/(deficits) and reserve funds as follows: Surplus: Invested in tangible capital assets Other Equity in Kitchener Power Corp. and its affiliates Equity in Kitchener Generation Corporation Employee future benefits (unfunded}, 2020 2019 $1,324,000,850 $1,241,636,238 4,099,661 4,647,888 224,960,021 219,188,143 2,316,914 2,549,166 154.261.7511 (51.488.958 Total surplus 1,501,115,695 1,416,532,477 Reserve funds set aside for specific purposes by Council for: Capital 35,604,598 31,274,244 Stabilization 39,039,907 29,203,988 Program specific 9,884,795 13,253,425 Corporate 11,091,825 8,413,588 95,621,125 82,145,245 Reserve funds set aside for specific purposes by consolidated entities: Kitchener Public Library 942,293 381,460 Kitchener Downtown Improvement Area Board of Management 50,000 50,000 The Centre in the Square Inc. 1,941,819 2,167,963 2,934,112 2,599,423 Total reserve funds 98,555,237 84,744,668 Accumulated surplus $1,599,670,932 $1,501,277,145 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 16. Contingent liabilities 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. 17. 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 presented in Schedule B 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 con.sisten th those followed in the preparation of the consolidated financial statements as disclosed in Note 1. 18. Budget figures V The budget figures reflected in these consolidated statements are those approved by Council at a meeting on January 20, 2020. Budget figures have been translated to reflect Public Sector Accounting Board standards. 19. Comparative figures Certain of the prior year's corn ar figures have been reclassified to conform to the current year's presentation. 20. Impact of COVID-19 pandemic: On March 11, 2020, the World Health Organization declared the Coronavirus Disease of 2019 (COVID-19) outbreak a pandemic. This has resulted in significant financial, market and societal impacts in Canada and around the world. a. Current year transactions: At the time of approval of these financial statements, the City has experienced the following in relation to the pandemic: • Reduced revenue due to mandatory facility closures, event cancellations and reduced capacity in programs that continued • Decreased demand for parking at City run parking facilities as many people were forced to work from home • Reduced investment income as interest rates were lowered globally to help stabilize economic conditions • Increased investment in technology infrastructure to support mandatory work from home measures • Increased Personal Protective Equipment (PPE) costs for staff who are not able to effectively work from home 50 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2020 20. Impact of COVID-19 pandemic: (continued) a. Current year transactions: (continued) The following actions were undertaken to mitigate some of the negative implications of the pandemic: • Transitioned hundreds of non-essential staff to Infectious Disease Emergency Leave (IDEL) on a temporary basis to offset reduced revenues • Deferred certain capital projects to address potential cash flow concerns • Received additional grant revenue as the Federal and Provincial governments introduced transfer payments to municipalities to help them deal with the financial implications of the pandemic b. Subsequent events related to COVID-19: Financial statements are required to be adjusted for events occurring between the date of the financial statements and the date of the auditors' report which provide additional evidence relating to conditions that existed as at year end. Management completed this assessment and did not identify any such adjustment. The ultimate duration and magnitude of the COVID-19 pandemic's impact on the City's operations and financial position is not known at this time. There remains uncertainty over the resumption of in-person activities and services for the upcoming year. These impacts could include a decline in future cash flows, changes to the value of assets and liabilities, and the use of accumulated surplus to sustain operations. An estimate of the financial effect of the pandemic on the City is not able at thime. ik 1W 51 THE CORPORATION OF THE CITY OF KITCHENER Schedule A - Tangible Capital Assets For the Year Ended December 31, 2020 52 General Infrastructure Land Land Buildings Leasehold Machinery & Computer Computer Vehicles Land Buildings Linear Assets Assets Under Total Improvements Improvements Equipment Software Hardware Construction Cost Balance, beginning of year $ 40,314,696 $ 60,309,180 $ 254,773,723 $ 3,054,251 $ 48,412,719 $ 34,345,451 $ 8,846,402 $ 28,250,488 $ 159,514,712 $ 67,244,632 $1,019,443,633 $ 65,929,991 $1,790,439,878 dditions 8,735,486 3,330,448 4,010,963 - 4,694,959 778,965 2,265,012 2,906,564 1,666,078 232,165 61,975,990 44,592,989 135,189,619 Transfers 3,699 10,228,987 4,549,795 - 232,640 - - (3,699) - 41,833,721 (56,845,143) Disposals 1,736 2,661,168 284,536 3,362,106 492,356 803510 1626954 21530 11,380,617 20,634,513 Balance, end of year 49,052,145 71,207,447 263,049,945 3,054,251 49,745,572 34,864,700 10,307,904 29,530,098 161,155,561 67,476,797 1,111,872,727 53,677,837 1,904,994,984 ccumulated amortization IL Balance, beginning of year (18,596,365) (127,163,359) (949,645) (23,021,861) (17,733,481) (4,465,795) (11,826,178) (21,000,509) (324,046,447) (548,803,640 Disposals 2,171,063 252,075 - 3,239,118 492,356 803,510 1,513,066 - 11,131,055 19,602,243 mortization expense 2,863,395 7,235,642 60,132) (4,215,324) (2585687) (1,490,011) (2,377,061 2,164,457 28,801,028 51,792,737 Balance, end of year 19,288,697 134,146,926 1,009,777 23 998,067) (19,826,812) (5152296 12,690,173 23,164,966 341,716,420 580,994,134 Net book value, end lR5 of year 49,052,145 51,918,750 128,903,019 2,044,474 25,747,505 037 888 5,155,608 16,839,925 1 161,155,561 44,311,831 770,156,307 53,677,837 1,324,000,850 Net book value, IV -beginning of year $ 40,314,696 $ 41,712,815 $127,610,364 $ 2,104,606 $ 25,390,858 $ 16,611,970 $ 4,380,607 $ 16,424,310 $159,514,712 $ 46,244,123 $ 695,397,186 $ 65,929,991 $1,241,636,238 52 THE CORPORATION OF THE CITY OF KITCHENER Schedule A - Tangible Capital Assets (Continued) For the Year Ended December 31, 2019 v� 53 General Infrastructure Land Land Buildings Leasehold Machinery & Computer Computer Vehicles Land Buildings Linear Assets Assets Under Total Improvements Improvements Equipment Software Hardware Construction Cost Balance, beginning of year $ 43,159,033 $ 52,733,665 $ 252,551,466 $ 3,054,251 $ 47,423,184 $ 33,025,867 $ 8,674,902 $ 28,214,478 $ 150,658,880 $ 67,159,013 $ 972,568,510 $ 45,131,973 $1,704,355,222 dditions 3,434,971 5,444,628 2,288,311 - 4,672,931 1,025,211 1,018,436 1,905,083 9,153,608 85,619 44,682,698 42,571,363 116,282,859 Transfers - 2,414,919 129,902 - 666,606 2,025 - - - 18,552,563 (21,766,015) Disposals 6,279,308 284,032 195,956 3,683,396 372,233 (848,961) 1869 073 (297,776) 16,360,138 7,330 30,198,203 Balance, end of year 40,314,696 60,309,180 254,773,723 3,054,251 48,412,719 34,345,451 8,846 402 28,250,488 159 514 712 67,244,632 1,019,443,633 65,929,991 1,790,439,878 ccumulated amortization Balance, beginning of year (16,510,079) (119,981,752) (878,948) (22,315,512) (15,672,587) (3,835,067) (11,146,961) (18,837,863) (309,692,723) (518,871,492 Disposals 284,032 56,555 - 3,450,673 372,233 848,371 1,738,238 - 12,864,061 19,614,163 mortizationexpense 2,370,318 7,238,162 70,697 4,157,022 2433,127 1,479,099 2417455 2,162,646 27,217,785 49,546,311 Balance, end of year 18,596,365 127,163,359 949,645) (23,021,861) (17733481) (4,465,795) (11,826,178 21,000,509 324,046,447 548,803,640 Net book value, end of year 40,314,696 41,712,815 127,610,364 2,104,606 25,390,858 16,611,970 4,380,607 16,424,310 159,514,712 46,244,123 695,397,186 65,929,991 1,241,636,238 Net book value, beginning of year $ 43,159,033 $ 36,223,586 $ 132,569,714 $ 2,175,303 $ 25,107,672 $ 17,353,280 $ 4,839,835 $ 17,067,517 $ 150,658,880 $ 48,321,150 $ 662,875,787 $ 45,131,973 $1,185,483,730 v� 53 THE CORPORATION OF THE CITY OF KITCHENER Schedule B - Segmented Information For the Year Ended December 31, 2020 54 General Protection Transportation Environmental Health Social and Recreation Planning and Gasworks Total Government Services Services Services Services Family and Cultural Development Services Services Revenue Taxation $ 20,408,657 $ 39,659,620 $ 18,240,111 $ 1,559,145 $ 284,950 $ 1,576,267 $ 45,303,697 $ 7,977,838 $ - $ 135,010,285 User fees and charges 1,556,252 9,769,595 5,185,211 135,997,387 2,052,063 119,626 8,277,841 2,635,309 77,964,599 243,557,883 Grants 12,529,786 58,683 9,591,846 3,550,804 21,250 756,999 4,541,901 135,477 580,572 31,767,318 Investment income 6,516,076 145,929 97,113 368,108 269,463 2,819 92,825 214,057 230,550 7,936,940 Penalties and interest on taxes 2,925,246 - - - - - - - - 2,925,246 Development charge revenue recognized 1,654,222 (21,513) 1,066,237 6,540,364 88,932 253,858 9,582,100 Share of net income of Kitchener Power Corp. and its affiliates 9,629,978 - - - - 9,629,978 Share of net income of Kitchener Generation Corporation 61,402 - - - - 61,402 Contributions of tangible capital assets - - 3,687,060 10,431,016 - - 390,021 5,348,248 19,856,345 Other 445,155 268,034 249,280 10 8,197 61,317 783,349 116,680 182,876 2,215,377 Total revenue 55,726,774 49,880,348 38,11 158,547,3 2,635,923 2,517,028 59,478,566 16,681,467 78,958,597 462,542,874 Operating expenses Salaries, wages and employee benefits 37,320,769 46,210,751 12,494,1 „ 226,459 1,337,401 1,727,314 33,686,149 6,255,036 6,162,816 156,420,861 Materials 15,582,856 4,928,009- ,632,354 66,707,038 350,959 353,604 14,133,708 2,340,414 37,223,829 149,252,771 Municipal debt interest 195,692 122,158 46,715 14,774 33,783 1,111,080 461,925 2,286,127 Interfunctional and program support (25,461,470) 2,638,386 48,850 8,489,303 435,607 56,914 4,229,044 1,276,645 5,086,721 - External transfers 117,507 8,292 8,184 495,510 - 105,000 1,725,247 1,965,245 31,370 4,456,355 mortization of tangible capital assets 6,399,646 1,512,647 14,410,944 11,407,212 159,569 79,186 9,416,670 359,624 8,047,239 51,792,737 Loss (gain)on disposals of tangible capital assets (410,408) (11,870) 125,270 14,826 1,875 - 179,292 50,079 124,732 59,764 otal expenses 33 744,592 55,408,373 38,266,483 98,325,470 2,315,444 2,322,018 64,481,190 12,608,810 56,676,707 364,149,087 nnualsurplus $ 21,982,182 $ 5528,025 $ 149625 $ 60,221,843 $ 320,479 $ 195,010 $ 5,002,624 $ 4,072,657 $ 22,281,890 $ 98,393,787 54 THE CORPORATION OF THE CITY OF KITCHENER Schedule B - Segmented Information (Continued) For the Year Ended December 31, 2019 55 General Protection Transportation Environmental Health Social and Recreation Planning and Gasworks Total Government Services Services Services Services Family and Cultural Development Services Services Revenue Taxation $ 20,621,082 $ 38,369,826 $ 17,301,419 $ 1,537,925 $ 276,914 $ 1,419,782 $ 43,021,829 $ 7,979,452 $ - $ 130,528,229 User fees and charges 1,711,821 10,867,745 8,367,647 126,055,879 1,897,871 497,096 31,022,423 4,028,409 81,973,614 266,422,505 Grants 294,066 12,489 9,458,754 786,684 11,199 763,421 3,866,330 116,882 - 15,309,825 Investment income 9,389,705 214,580 123,024 343,579 316,639 3,428 198,888 322,006 320,756 11,232,605 Penalties and interest on taxes 3,429,802 - - - - - - - - 3,429,802 Development charge revenue recognized 1,163,760 10,955 1,183,016 5,163,000 4,535,657 118,085 12,174,473 Share of net income of Kitchener Power Corp. and its affiliates 9,361,530 - - - - - 9,361,530 Share of net income of Kitchener Generation Corporation 30,716 - - - - 30,716 Contributions of tangible capital assets - 1,527,325 11,509,909 8,808,484 1,399,886 - 646,408 23,892,012 Other 585,178 198,674 240,093 2,009,377 6 450 20,191 1,019,019 162,647 179,734 4,421,363 Total revenue 46,587,660 51,201,594 48,1 144,704,928 2,509,073 2,703,918 85,064,032 12,727,481 83,120,512 476,803,060 Operating expenses Salaries, wages and employee benefits 36,685,667 42,818,113 14,001, 1,277,237 1,616,009 2,143,660 43,193,895 6,776,860 5,556,537 164,069,605 Materials 18,974,685 4,328,789' 368,213 64,254,633 517,847 572,144 19,882,600 2,706,390 42,139,967 161,745,268 Municipal debt interest 414,629 135,516 19,005 25,621 30,748 7,394 1,007,125 572,876 - 2,612,914 Interfunctional and program support (24,490,650) 2,499,855 67,710 7,610,502 480,263 66,753 4,533,091 1,291,237 4,041,239 - External transfers 152,677 - 17,670 475,127 - 700 1,628,879 1,882,189 30,907 4,188,149 rtization of tangible capital assets 6,390,563 1,3 14,144,161 10,748,372 165,238 74,384 8,750,849 478,102 7,445,876 49,546,311 oss (gain)on disposals of tangible capital assets(1,039,960) 229,54 4 914 239 126,985 3,717 - 452,401 37,397 363,864 5,013,389 Imo otal expenses 37 087,611 51,360,5793 45,832,625 94,518,477 2,813,822 2,865,035 79,448,840 13,670,257 59,578,390 387,175,636 nnual surplus $ 9,500,049 $ 158,985 $ 2,351,237 $ 50,186,451 $ 304,749 $ 161,117 $ 5,615,192 $ 942,776 $ 23,542,122 $ 89,627,424 55 KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener Opinion /* We have audited the financial statementsTrust Funds of the Corporation of the City of Kitchener (the Entity), which comprise: • the balance sheet as at December 31 • the statement of continuity fort r then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter re ed to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the balance sheet of the Entity as at December 31, 2020, and the statement of continuity for.ththen ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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. 56 1"� Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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 e rro r. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are respc Ie for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. 57 1"� Page 3 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overaa presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transac ' s and events in a manner that achieves fair presentation. • Communicate those charged with governance regarding, among other matters, the planned scop and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. DRAFT Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada June 28, 2021 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Balance Sheet As at December 31, 2020 2020 2019 Assets Accounts receivable $ 58,299 $ 60,934 Interest receivable 170,577 117,999 Loans receivable (Note 2) 524,842 575,000 Investments (Note 3) Short-term 520,828 4,423,669 Long-term 15,511,894 10,941,805 16,786,440 16,119,407 Fund Balance 0 $16,786,440 $16,119,407 The accompanying notes are an integral part of these financial s ments. 59 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Statement of Continuity For the Year Ended December 31, 2020 Receipts Perpetual care Interest earned 2020 2019 $ 434,431 $ 334,501 434,240 485,578 Other 65,617 184,536 934,288 1,004,615 Expenditures Transfer to cemeteries operations 267,255 313,722 267,255 313,722 Net change in fund 667,033 690,893 Balance, beginning of year 16,119,407 15,428,514 Balance, end of year $ 16,786,440 $ 16,119,407 The accompanying notes are an integral part of these financial statements. 0 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Notes to the Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles for local government as recommended by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The significant accounting policies are summarized below. a. Basis of Accounting Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes receipts as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. 2. Loans receivable During 2019, under authorization of the Bereavement Authority of Ontario, the Woodland Cemetery Perpetual Care Trust issued a loan to the Corporation of the City of Kitchener in the amount of $575,000. The loan bears interest at 3% and will be repaid over ten years beginning i ebruary 2020. 3. Investments The long-term investments of $15,511,894 (2019 - $10,941,805) reported on the Balance Sheet at cost, have a market value of $16,183,064 (2019 - $11,488,46JL. 4. Statement of Cash Flow A separate statement of cash flow is not presented, since cash flow from operating, investing and financing activities are readily apparent from the other financial statements. 61 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Schedule of Continuity by Fund For the Year Ended December 31, 2020 Balance Balance December 31, Perpetual Care Interest Earned Other Receipts Transfer Interest Disbursements December 31, 2019 Funds to Cemeteries 2020 Perpetual care Mount Hope Cemetery $ 597,216 $ 2,069 $ 15,725 $ 650 $ 15,725 $ $ 599,935 Woodland Cemetery 5,253,020 125,913 143,138 10,050 125,889 5,406,232 Bridgeport Cemetery 161,767 5,514 4,296 700 4,296 167,981 Williamsburg Cemetery 3,870,868 300,660 104,947 15,100 104,947 4,186,628 St. Peter's Cemetery 495,538 275 13,024 250 13,024 496,063 Cemetery Trusts F. E. Tremain 15,660 -9 - 409 15,660 Florence V. Cober 8,783 V231 231 8,783 L. F. Glick 20,664 3 543 20,664 Edna Atherton 1,331 35 35 1,331 George Wright Estate 42,614 1,120 1,120 42,614 E. L. Goetz 1,357 36 36 1,357 E. Weiderhold 38,065 1,000 - 1,000 38,065 Prepaid Interments 5,612,63 - 149,736 38,867 - 5,801,237 $ 16,119 $ jff434,431 434,240 $ 65,617 $ 267,266 $ $ 16,786,440 62 1"� KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Members of the Belmont Improvement Area Board of Management Opinion We have audited the financial statements of Belmont Improvement Area Board of Management (the Entity), which comprise: • the statement of financial position t December 31, 2020 • the statement of rev and es and accumulated surplus for the year then ended • the statement a hanges in net financial assets for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2020, and its results of operations, and its changes in net financial assets for the year then ended in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. 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 1"� Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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 e rro r. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. M 1"� Page 3 • The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. DRAFT Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada June 28, 2021 65 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position As at December 31, 2020 Financial assets Cash 2020 2019 $ 16,757 $ 1,679 Financial liabilities Accounts payable and accrued liabilities 8,355 12,148 Net financial assets (liabilities) 8,402 (10,469) Non-financial assets Tangible capital assets 46,588 49,551 Prepaid expenses 918 841 47,506 50,392 Net assets 55,908 39,923 Accumulated Surplus Accumulated net revenue (deficit) Invested in tangible capital assets Total accumulated surplus The accompanying notes are an integral part of these financial statements. 9,320 $ 55,908 $ (9,628) 19,551 39.923 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus For the Year Ended December 31, 2020 2020 2019 Revenue Assessments $ 40,616 $ 40,753 Grants 12,850 - Other revenue 2,336 7,586 55,802 48,339 Expenses Streetscaping 1,081 4,767 Audit 1,808 1,808 Summer maintenance 147 11,646 Insurance 1,895 1,741 Winter maintenance 14,370 18,083 Advertising 10,581 5,282 Miscellaneous 5,616 5,068 Amortization 4,319 2,303 39,817 Net surplus (deficit) for year - 15,985 (2,359) Accumulated surplus, beginning of year 39,923 42,282 Accumulated surplus, end of year $ 55,908 $ 39,923 The accompanying notes are an integral part of these financial statements. 67 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Change in Net Financial Assets For the Year Ended December 31, 2020 Net surplus (deficit) for year Acquisition of tangible capital assets Amortization of tangible capital assets 2020 2019 15,985 $ (2,359) (1,356) (50,286) 4,319 2,303 Acquisition of prepaid expenses (77) (66) Change in net financial assets 18,871 (50,408) Net financial assets, beginning of year (10,469) 39,939 Net financial assets (liabilities), end of year $ 8,402 $ (10,469) The accompanying notes are an integral part of these financial stateme BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2020 1. Summary of significant accounting policies The financial statements of the Belmont Improvement Area Board of Management are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful 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 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 Equipment 5 to 15 years Computer Hardware 2 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 r are recorded as revenue. ributions are recorded at their fair value at time of receipt and b) Accrual basis of accounting Revenue and expense a "` reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenue as it becomes available and measurable; expenses 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. BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2020 2. Tangible capital assets Machinery & Computer Equipment Hardware Total Cost Balance, beginning of year $ 59,523 $ - $ 59,523 Additions - 1,356 1,356 Balance, end of year 59,523 1,356 60,879 Accumulated amortization Balance, beginning of year (9,972) - (9,972) Disposals - - - Amortization expense (3,979) (339) (4,318) Balance, end of year 13,951 (339) (14,290) Net book value, end of year 45,572 1,017 46,589 Net book value, beqinninq of vear A11111% $ 49,551 $ - $ 49,551 3. Statement of cash flow Pr A separate statement of cash fl:! . of presented, since cash flow from operating, investing and financing activities are readily apparent from the other financial statements. 70 191911,1 MIN KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT Opinion We have audited the financial statements of Kitchener Downtown Improvement Area Board of Management (the "Entity"), which comprise: • the statement of financial position as at December 31, 2020 • the statement of revenue and expenses and accumulated surplus for the year then ended • the statement of changes in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2020, and its results of operations, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. 71 Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 72 Page 3 • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada May 26, 2021 73 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position - Year ended December 31, 2020, with comparative information for 2019 Financial Assets Cash Term deposits (note 2) Accounts receivable Prepaid expenses Financial Liabilities 2020 2019 $ 429,461 $ 263,352 114,921 113,712 38,463 75,426 9,8211 10,817 592,666 463,307 Accounts payable and accrued charges 251,073 92,683 Due to the City of Kitchener (,note 4 i 107:997 184:.312 359,070 276,995 Net financial assets 233,596 186,312 Non -Financial Assets Tangible capital assets (note 5), 21,450 30,688 Net assets $ 255,046 $ 217,000 Accumulated Surplus Reserve for rate stabilization S 50,000 5 50,000 Accumulated net revenue 183,596 136,312 Invested in tangible capital assets 21,450 30,688 Impact of COVID-19 (note 7) Total accumulated surplus 255,046 217.000 See accompanying notes to financial statements. On �half of the Board: Director Director 74 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year ended December 31, 2020, with comparative information for 2019 1,389,000 1,396,106 1,405,418 Expenses Promotions and advertising Budget Actual Actual Salaries, wages and benefits 2020 2020 2019 Administration (note 6) 87,818 106,604 Revenue: 600 1,371 7,920 Assessments $ 1,379,000 $ 1,379,000 $ 1,379,000 Interest - 1,250 833 Other income 10,000 15,856 25,585 1,389,000 1,396,106 1,405,418 Expenses Promotions and advertising 311,000 311,786 435,582 Salaries, wages and benefits 342,702 362,005 406,341 Administration 114,198 87,818 106,604 Meetings and seminars 600 1,371 7,920 Safety and beautification 100,000 76,882 241,594 Member relations 375,500 297,585 11,153 Amortization - 12,616 14,175 Downtown Improvement Project - - 29,241 Queen Street Project 100,000 100,000 100,000 1,344,000 1,250,063 1,352,610 Net revenue before other items 45,000 146,043 52,808 Net assessment write-offs (note 4) 45,000 107,997 84,312 Annual surplus (deficit) - 38,046 (31,504) Accumulated surplus, beginning of year 217,000 217,000 248,504 Accumulated surplus, end of year $ 217,000 $ 255,046 $ 217,000 See accompanying notes to financial statements. 75 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Changes in Net Financial Assets Year ended December 31, 2020, with comparative information for 2019 See accompanying notes to financial statements 76 2020 2019 Annual surplus (deficit) $ 38,046 $ (31,504) Acquisition of tangible capital assets (3,378) (609) Amortization of tangible capital assets 12,616 14,175 Change in net financial assets 47,284 (17,938) Net financial assets, beginning of year 186,312 204,250 Net financial assets, end of year $ 233,596 $ 186,312 See accompanying notes to financial statements 76 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Cash Flows Year ended December 31, 2020, with comparative information for 2019 Investing activities: Acquisition of tangible capital assets (3,378) (609) Purchase of investments (1,209) (826) Cash used in investing activities (4,587) (1,435) Increase in cash Cash, beginning of year 166,109 263,352 11,388 251,964 Cash, end of year $ 429,461 $ 263,352 See accompanying notes to financial statements. 77 2020 2019 Cash provided by (used in): Operating activities: Annual surplus (deficit) $ 38,046 $ (31,504) Item not involving cash: Amortization 12,616 14,175 Changes in non-cash assets and liabilities: Accounts receivable 36,963 (45,204) Prepaid expenses 996 (4,418) Accounts payable and accrued liabilities 158,390 (29,520) Due to the City of Kitchener (76,315) 109,294 Cash from operating activities 170,696 12,823 Investing activities: Acquisition of tangible capital assets (3,378) (609) Purchase of investments (1,209) (826) Cash used in investing activities (4,587) (1,435) Increase in cash Cash, beginning of year 166,109 263,352 11,388 251,964 Cash, end of year $ 429,461 $ 263,352 See accompanying notes to financial statements. 77 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2020 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 Chartered Professional Accountants of Canada. 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 Furniture and fixtures Leasehold improvements Event equipment 4 years 7 years 7 years 10 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, continued Year ended December 31, 2020 1. Summary of significant accounting policies (continued): (c) Revenue recognition: Revenues are recognized as follows: The Board Assessment revenue is recorded on an annual basis using the proportionate share of the total number of businesses for the year and an annually established rate per business. Revenue is recognized when assessed. Other revenues are recorded upon sale of goods or provision of service when collection is reasonably assured. 2. Term deposits: The term deposits consist of the following: Principal Maturity Rate $ 10,908 May 5, 2021 0.20% 51,622 March 30, 2022 0.20% 52,391 April 14, 2021 0.30% 3. Commitments: During 2016, the Board executed a new lease agreement. The lease expires on June 30, 2021. The Board is committed to the following minimum payments under the agreement: 2021 $ 17,769 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 $107,997 (2019 - $84,312). 79 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2020 5. Tangible capital assets: Computers Furniture Leasehold improvements Event equipment Opening Disposals/ balance Additions Transfers $ 27,148 $ 3,378 $ $ 67,005 - 3,498 48,175 Accumulated Net amortization, book value, end of end of Deletions Amortization year year $ 1,419 $ 27,191 $ 3,335 4,452 60,631 6,374 3,498 3,498 - - 3,498 48,175 29,689 18,486 6,745 36,434 11,741 $ 145,826 $ 3,378 $ - $ - $ 149,204 $ 115,138 $ 30,688 $ - $ 12,616 $ 127,754 $ 21,450 Accumulated Net Balance, amortization, book value, Write- end of beginning beginning downs year of year of year $ 30,526 $ 25,772 $ 1,376 $ 67,005 56,179 10,826 Accumulated Net amortization, book value, end of end of Deletions Amortization year year $ 1,419 $ 27,191 $ 3,335 4,452 60,631 6,374 3,498 3,498 - - 3,498 48,175 29,689 18,486 6,745 36,434 11,741 $ 145,826 $ 3,378 $ - $ - $ 149,204 $ 115,138 $ 30,688 $ - $ 12,616 $ 127,754 $ 21,450 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2020 6. Budget figures: The budget figures shown in the financial statements were approved by the Board of Kitchener Downtown Improvement Area Board of Management at a meeting on November 27, 2019. 7. Impact of COVID-19 pandemic: On March 11, 2020, the World Health Organization declared the Coronavirus (COVID-19) outbreak a pandemic. This has resulted in significant financial, market and societal impacts in Canada and around the world. During the year, the Board has experienced the following in relation to the pandemic: — Mandatory working from home requirements for those able to do so The situation is evolving and the ultimate duration and magnitude of the impact on the economy is not known at this time. The outbreak has not had any material impacts on the operation of the Board to date, and management does not expect any material impacts given the nature and scope of the business, and management will continue to actively monitor the situation. 01 KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the members of Kitchener Public Library Opinion We have audited the financial statements of Kitchener Public Library (the Entity), which comprise: • the statement of financial position as at December 31, 2020 • the statement of operations and changes in accumulated surplus for the year then ended • the statement of changes in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2020, and its results of operations, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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. © 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 82 Page 2 In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. j I 181A1fj1M1n Page 3 • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. klAW-6� Z400 Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada March 17, 2021 01 KITCHENER PUBLIC LIBRARY Statement of Financial Position December 31, 2020, with comparative information for 2019 Financial assets Cash Accounts receivable Due from City of Kitchener Investments Endowment investments Total financial assets Financial liabilities Accounts payable and accrued liabilities Due to Early Literacy Alliance of Waterloo Region Deferred revenue Net financial assets 2020 $ 1,896,092 313,171 137,924 50,000 100,000 2019 $ 1,174,596 165,351 116,781 50,000 100,000 2,497,187 1,606,728 758,751 483,797 300,000 — 404,781 641,506 1,463,532 1,125,303 1,033,655 481,425 Non-financial assets Tangible capital assets (note 2) 5,285,676 5,364,961 Prepaid expenses 8,955 — 5,294,631 5,364,961 Impact of COVID-19 pandemic (note 8) Accumulated surplus (note 6) $ 6,328,286 $ 5,846,386 See accompanying notes to financial statements. On behalf of the Board: Director Director KITCHENER PUBLIC LIBRARY Statement of Operations and Accumulated Surplus Year ended December 31, 2020, with comparative information for 2019 Revenues: Grants: The City of Kitchener - Operating The City of Kitchener - Capital and special (note 3) The City of Kitchener - special (note 4) Province of Ontario Fines Interest and miscellaneous Photocopy Room rental Partnerships Budget 2020 Actual 2020 Actual 2019 $ 11,249,620 $ 11,297,620 $ 11,039,863 - 505,315 771,687 - 54,473 542,226 286,755 306,980 306,980 206,000 59,180 206,613 35,649 330,890 59,237 43,000 18,695 45,665 60,000 7,876 35,428 55,000 50,032 29,401 Total revenue 11,936,024 12,631,061 13,037,100 Expenses Personnel costs (schedule 1) 9,150,900 8,078,108 8,922,094 Resource materials 1,207,900 1,514,742 1,459,024 Facilities costs (schedule 4) 795,800 896,012 852,639 Equipment (schedule 2) 366,500 862,586 706,897 Required expenditures related to special grants (note 4) - 54,473 562,451 Expenditures related to capital and special (note 3) - 310,944 475,048 Administrative (schedule 3) 217,574 216,674 209,470 Processing/bindery 111,000 92,553 118,887 Programs and publicity (schedule 5) 76,500 63,914 72,763 General library equipment 9,850 59,155 5,827 Total expenses 11,936,024 12,149,161 13,385,100 Excess (deficiency) of expenses over revenue - 481,900 (348,000) Accumulated surplus, beginning of year 5,846,386 5,846,386 6,194,386 Accumulated surplus, end of year $ 5,846,386 $ 6,328,286 $ 5,846,386 See accompanying notes to financial statements. KITCHENER PUBLIC LIBRARY Statement of Change in Net Financial Assets Year ended December 31, 2020, with comparative information for 2019 See accompanying notes to financial statements. 2020 2019 Excess (deficiency) of expenses over revenue $ 481,900 $ (348,000) Acquisition of tangible capital assets (1,275,551) (1,084,430) Amortization of tangible capital assets 1,354,836 1,432,468 561,185 38 Change in prepaid expenses (8,955) — Change in net financial assets 552,230 38 Net financial assets, beginning of year 481,425 481,387 Net financial assets, end of year $ 1,033,655 $ 481,425 See accompanying notes to financial statements. KITCHENER PUBLIC LIBRARY Statement of Cash Flows Year ended December 31, 2020, with comparative information for 2019 2020 2019 Operating activities Excess (deficiency) of expenses over revenue $ 481,900 $ (348,000) Item not involving cash: Amortization of tangible capital assets 1,354,836 1,432,468 Changes in non-cash operating working capital Accounts receivable (147,820) (47,503) Prepaid expenses (8,955) — Due from City of Kitchener (21,143) 164,850 Accounts payable and accrued liabilities 274,954 (382,621) Due to Early Literacy Alliance of Waterloo Region 300,000 — Deferred revenue (236,725) (258,694) Cash provided by operating activities 1,997,047 560,500 Capital activities: Cash used to acquire tangible capital assets (1,275,551) (1,084,430) Increase (decrease) in cash 721,496 (523,930) Cash, beginning of year 1,174,596 1,698,526 Cash, end of year $ 1,896,092 $ 1,174,596 See accompanying notes to financial statements. :: KITCHENER PUBLIC LIBRARY Notes to Financial Statements Year ended December 31, 2020 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. 1. Significant accounting policies: 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 Chartered Professional Accountants of Canada. 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. (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) Revenue recognition: Revenues are recognized in the period in which the transactions or events occurred that gave rise to the revenues. All revenues are recorded on an accrual basis, except when the accruals cannot be determined with a reasonable degree of certainty or when their estimation is impracticable. Government transfers are recognized as revenues when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recorded as deferred revenue when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement of operations as the stipulation liabilities are settled. 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 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 assets are acquired. KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2020 1. Significant accounting policies (continued): (c) Investments: Investments consist of bonds and are recorded at amortized cost. Discounts and premiums arising on the purchase of these investments are amortized over the term of the investments. When there has been a loss in value that is other than a temporary decline in value, the respective investment is written down to recognize the loss. (d) Endowment investments: Endowment investments received are recorded as financial assets which have the principal restricted for use. Income earned on the endowment is used for the purpose specified by the donor. Any unspent funds earned during the year are deferred for future use. (e) 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 Furniture, fixtures and equipment 10 - 30 years Other equipment and vehicle 8 years Computers 3 - 10 years Books and audio visual equipment 2 - 10 years (f) Deferred revenue: Deferred revenue represents unspent funds subject to external restrictions as to how the funds are disbursed. These amounts are subsequently included in revenue when the related expenditures are made. a KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2020 2. Tangible capital assets: Books and audio Furniture, fixtures Other equipment 2020 visual resources Computers and equipment and vehicle Total Cost Balance, beginning of year $ 8,110,180 $ 2,684,395 $ 2,085,656 $ 108,462 $ 12,988,693 Additions 686,278 494,909 38,142 56,222 1,275,551 Disposals (1,166,230) (106,194) (2,400) — (1,274,824) Balance, end year 7,630,228 3,073,110 2,121,398 164,684 12,989,420 Accumulated amortization Balance, beginning of year 4,696,182 Amortization 934,962 Disposals (1,166,230) Balance, end of year 1,952,973 905,695 68,882 7,623,732 274,054 145,307 513 1,354,836 (106,194) (2,400) — (1,274,824) 4,464,914 2,120,833 1,048,602 69,395 7,703,744 Net book value, end of year $ 3,165,314 $ 952,277 $ 1,072,796 $ 95,289 $ 5,285,676 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2020 2. Tangible capital assets (continued): Books and audio Furniture, fixtures Other equipment 2019 visual resources Computers and equipment and vehicle Total Cost Balance, beginning of year $ 8,459,103 $ 2,565,456 $ 2,045,157 $ 70,806 $ 13,140,522 Additions 819,351 164,847 62,576 37,656 1,084,430 Disposals (1,168,274) (45,908) (22,077) — (1,236,259) Balance, end year 8,110,180 2,684,395 2,085,656 108,462 12,988,693 Accumulated amortization Balance, beginning of year 4,854,990 1,718,820 785,565 68,148 7,427,523 Amortization 1,009,466 280,061 142,207 734 1,432,468 Disposals (1,168,274) (45,908) (22,077) — (1,236,259) Balance, end of year 4,696,182 1,952,973 905,695 68,882 7,623,732 Net book value, end of year $ 3,413,998 $ 731,422 $ 1,179,961 $ 39,580 $ 5,364,961 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2020 3. 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 2020 included $98,000 (2019 - $96,000) for general renovations, maintenance and upgrading of existing facilities, $345,644 (2019 - $290,251) for communication infrastructure and technology upgrades, $28,560 (2019 - $28,000) for KPL Accessibility Fund, $nil for the library automation system (2019 - $200,000), $111,100 for resources, furniture and equipment (2019 - $nil) and $954,000 (2019 - $4,508,159) for the southwest community library. The portion of these grants and previous year grants that are included in revenue in 2020 is $505,315 (2019 - $771,687). 4. Special grants: As directed by the funding agency or terms of any applicable agreements, expenditures are made to finance, in whole or in part, capital items, replacements and maintenance projects. In 2020, the Board received various special non-recurring grants and donations totaling $124,579 (2019 - $410,689). The portion of these grants and previous year special grants that are included in revenue in 2020 is $54,473 (2019 - $542,226). The remainder is included in deferred revenue. 5. 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 $599,262 (2019 - $618,799) for current service on behalf of its staff. The latest available report for the OMERS plan was as at December 31, 2019. At that time the plan reported a $3.4 billion actuarial deficit, based on actuarial liabilities of $106.4 billion and actuarial assets of $103.0 billion. Ongoing adequacy of the current contribution rates will need to be monitored and may lead to increased future funding requirements. As at December 31, 2019, the Board has no obligation under the past service provisions of the OMERS agreement. 93 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2020 6. Accumulated surplus: The accumulated surplus consists of surplus and reserve funds as follows: Invested in tangible capital assets Endowment investments Reserves set aside by the Board 2020 2019 $ 5,285,676 $ 5,364,761 100,000 100,000 Capital fund 344,460 344,460 HR fund 37,000 37,000 Inclusion fund 253,000 — Improvement fund 307,833 — Total reserves 942,293 381,460 Surplus 7. Comparative information: 317 165 $ 6,328,286 $ 5,846,386 The financial statements have been reclassified, where applicable, to conform to the presentation used in the current year. The changes do not affect prior year accumulated surplus. 8. Impact of COVID-19 pandemic: On March 11, 2020, the World Health Organization declared the Coronavirus COVID-19 (COVID- 19) outbreak a pandemic. This has resulted in significant financial, market and societal impacts in Canada and around the world. (a) Current year transactions: At the time of approval of these financial statements, the Board has experienced the following in relation to the pandemic: limiting in-person activities affecting room rental, photocopying and fines; and investment in infrastructure to support mandatory working from home requirements for those able to do so. Financial statements are required to be adjusted for events occurring between the date of the financial statements and the date of the auditors' report which provide additional evidence relating to conditions that existed as at year end. Management completed this assessment and did not identify any such adjustment. (b) Subsequent events related to COVID-19: The ultimate duration and magnitude of the COVID-19 pandemic's impact on the Board's operations and financial position is not known at this time. There remains uncertainty over the resumption of in-person activities and services for the upcoming year. These impacts could include a decline in future cash flows, changes to the value of assets and liabilities, and the use of accumulated surplus to sustain operations. An estimate of the financial effect of the pandemic on the Board is not practicable at this time. 01 KITCHENER PUBLIC LIBRARY Schedules of Expenses Year ended December 31, 2020, with comparative information for 2019 Schedule 3 - Administrative General business $ 44,683 2020 Stationery 2019 Schedule 1 - Personnel Professional services 77,210 50,507 Insurance Salaries $ 6,527,373 $ 7,296,398 Pension benefits 5,850 875,506 916,484 Health benefits 428,386 $ 209,470 441,813 Employment insurance 115,830 136,883 Sick leave reserve 70,000 70,000 Staff training 44,097 37,387 WSIB 16,916 23,129 $ 8,078,108 $ 8,922,094 Schedule 2 - Equipment Amortization $ 419,874 $ 423,002 Technology 435,351 269,618 Equipment maintenance 7,361 14,277 $ 862,586 $ 706,897 Schedule 3 - Administrative General business $ 44,683 $ 61,254 Stationery 52,225 55,857 Professional services 77,210 50,507 Insurance 19,988 19,596 Telephone 16,718 15,439 Postage and delivery 5,850 6,817 $ 896,012 $ 852,639 $ 216,674 $ 209,470 Schedule 4 - Facilities Facilities expenses $ 572,142 $ 488,384 Main utilities 236,437 264,002 Country Hills building 50,076 54,174 Forest Heights utilities 25,457 22,959 Pioneer Park building 11,773 22,525 Grand River Stanley Park building 127 595 $ 896,012 $ 852,639 Schedule 5 - Programs and Publicity Promotional $ 30,831 $ 44,697 Public programs 33,083 28,066 $ 63,914 $ 72,763 95 1131"rij, min KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Directors of The Centre In The Square Inc. Opinion We have audited the financial statements of The Centre In The Square Inc. (The Centre), which comprise: • the statement of financial position as at December 31, 2020 • the statement of operations for the year then ended • the statement of change in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of The Centre as at December 31, 2020, and its results of operations, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of The Centre in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. © 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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. In preparing the financial statements, management is responsible for assessing the Centre's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Centre or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing The Centre's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 97 Page 3 • Obtain an understanding of internal control relevant to the audit 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 Centre's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on The Centre's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Centre to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. ,rIPwG «P Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada March 17, 2021 THE CENTRE IN THE SQUARE INC. Statement of Financial Position December 31, 2020, with comparative information for 2019 Financial liabilities: Accounts payable and accrued liabilities 442,118 1,541,044 Deferred revenue (note 4) 718,750 2,103,261 1,160,868 3,644,305 Net financial assets 2020 2019 Net Assets Financial assets: 13,298,098 13,027,549 Cash $ 1,323,322 $ 3,463,348 Due from City of Kitchener 47,410 151,853 Accounts receivable (note 2) 65,464 209,396 Interest receivable 1,696 2,218 Costs to be recovered 75,700 197,541 Investments (note 3) 1,403,623 1,436,372 Total financial assets 2,917,215 5,460,728 Financial liabilities: Accounts payable and accrued liabilities 442,118 1,541,044 Deferred revenue (note 4) 718,750 2,103,261 1,160,868 3,644,305 Net financial assets 1,756,347 1,816,423 Non-financial assets: Tangible capital assets (note 5) 13,298,098 13,027,549 Inventories (note 6) 57,568 80,329 Prepaid expenses 127,904 271,211 13,483,570 13,379,089 Net assets $ 15,239,917 $ 15,195,512 Accumulated Surplus Operating fund activities (note 7) $ - $ - Reserves - Capital (notes 8 and 12) 1,128,872 1,362,582 Reserves - Performance Development (note 9) - - Reserves - Sustainability (notes 9 and 12) 201,271 199,068 Reserves - Restricted (notes 10 and 12) 611,676 606,313 Invested in tangible capital assets 13,298,098 13,027,549 Impact of COVID-19 pandemic (note 13) Accumulated surplus $ 15,239,917 $ 15,195,512 See accompanying notes to financial statements. On behalf of the Board: Director Director THE CENTRE IN THE SQUARE INC. Statement of Operations Year ended December 31, 2020, with comparative information for 2019 Excess of revenue over expenses 935,108 44,405 917,379 Accumulated surplus, beginning of year 15,195,512 15,195,512 14,278,133 Accumulated surplus, end of year $ 16,130,620 $ 15,239,917 $ 15,195,512 See accompanying notes to financial statements. 100 Budget 2020 Actual 2020 Actual 2019 (note 14) Revenues: Performances $ 6,165,915 $ 1,208,630 $ 4,859,040 Rent - Kitchener -Waterloo Symphony 102,485 173,325 203,210 Capital reserve fund surcharge (note 8) 316,800 113,260 432,917 Grants from City of Kitchener - Operating 2,000,000 2,000,000 2,000,000 Grants from City of Kitchener - Capital 1,560,492 618,177 925,984 Grants from other governments - Operating 45,000 739,223 45,000 Grants from other governments - Capital - - 248,127 Donations 2,000 17,697 26,727 Investment income 67,500 58,495 118,746 Sponsorships and memberships 142,722 55,529 74,901 Rent - Kitchener -Waterloo Art Gallery 101,100 103,020 101,100 Lottery revenue - 2,885 7,493 Other 198,000 200,437 677,274 Gain (loss) on investments - (11,659) 21,321 Total revenue 10,702,014 5,279,019 9,741,840 Expenses: Direct: Performances 5,068,400 866,456 3,425,292 Unrecoverable performance costs - 189,749 - Operating: Administration 530,000 351,999 553,187 Marketing 105,000 36,418 100,406 Lottery expenses - 2,751 7,348 Occupancy 850,000 554,614 778,781 Salaries and wages 2,837,484 2,326,070 3,419,955 Recoveries - performances (593,978) (212,501) (641,297) Amortization 800,000 1,028,720 934,191 Write down of tangible capital assets 150,000 36,275 190,865 Reserves expenditures (note 12) 20,000 54,063 55,733 Total expenses 9,766,906 5,234,614 8,824,461 Excess of revenue over expenses 935,108 44,405 917,379 Accumulated surplus, beginning of year 15,195,512 15,195,512 14,278,133 Accumulated surplus, end of year $ 16,130,620 $ 15,239,917 $ 15,195,512 See accompanying notes to financial statements. 100 THE CENTRE IN THE SQUARE INC. Statement of Change in Net Financial Assets Year ended December 31, 2020, with comparative information for 2019 See accompanying notes to financial statements. 101 2020 2019 Excess of revenue over expenses $ 44,405 $ 917,379 Acquisition of tangible capital assets (1,335,544) (1,530,159) Amortization of tangible capital assets 1,028,720 934,191 Write-down of tangible capital assets 36,275 190,865 (226,144) 512,276 Net use of inventories 22,761 1,539 Net use (acquisition) of prepaid expenses 143,307 (21,075) 166,068 (19,536) Increase (decrease) in net financial assets (60,076) 492,740 Net financial assets, beginning of year 1,816,423 1,323,683 Net financial assets, end of year $ 1,756,347 $ 1,816,423 See accompanying notes to financial statements. 101 THE CENTRE IN THE SQUARE INC. Statement of Cash Flows Year ended December 31, 2020, with comparative information for 2019 2020 2019 Operating activities Excess of revenue over expenses $ 44,405 $ 917,379 Items not involving cash: Amortization 1,028,720 934,191 Write down of tangible capital assets 36,275 190,865 Change in non-cash operating working capital (1,946,631) (1,791,794) Cash provided by (used in) operating activities (837,231) 250,641 Capital activities Cash used to acquire tangible capital assets (1,335,544) (1,530,159) Investing activities: Investments 32,749 (46,667) Decrease in cash (2,140,026) (1,326,185) Cash, beginning of year 3,463,348 4,789,533 Cash, end of year $ 1,323,322 $ 3,463,348 See accompanying notes to financial statements. 102 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements Year ended December 31, 2020 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 Board of Directors 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 established by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. 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, is amortized on a straight- line basis over their estimated useful lives as follows: Asset Rate Buildings 5 - 100 years Equipment 4 - 50 years Computers 3 - 10 years Software 3 years Site 2 - 50 years (b) Accrual basis of accounting: The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. (c) Inventories: Bar stock inventories are valued at the most recent replacement cost. Supplies inventories are valued at the lower of cost and net realizable value on a first -in, first -out basis. Net realizable value is defined as replacement cost. 103 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 1. Significant accounting policies (continued): (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) 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. Accounts receivable: Performances $ 630,444 $ 1,991,661 2020 2019 Accounts receivable Sponsorships 28,705 $ 282,475 $ 209,396 Allowance for doubtful accounts 39,618 Membership (217,011) - $ 65,464 $ 209,396 3. Investments: Investments consist of: Carrying value Market Carrying value Market 2020 2020 2019 2019 Cash $ 26,481 $ 26,481 $ 11,793 $ 11,793 GICs 752,873 752,873 788,417 788,417 Bonds 336,592 343,354 357,338 358,257 Shares 287,677 482,693 278,824 450,887 $ 1,403,623 $ 1,605,401 $ 1,436,372 $ 1,609,354 4. Deferred revenue: Deferred revenue consists of the following: 2020 2019 Performances $ 630,444 $ 1,991,661 Gift certificates 53,911 45,701 Sponsorships 28,705 19,116 Other 5,367 39,618 Membership 323 7,165 $ 718,750 $ 2,103,261 104 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 5. Tangible capital assets: Accumulated amortization, - 5,179,497 4,351,628 202,943 25,421 845,547 - 10,605,036 end of year Net book value, end ofyear $ 975,300 $ 8,057,687 $ 2,792,163 $ 13,873 $ 24,579 $ 1,034,584 $ 399,912 $ 13,298,098 Work in 2020 Land Buildings Equipment Computers Software Site Progress Total Cost Balance, beginning of year $ 975,300 $ 12,827,961 $ 6,742,672 $ 206,052 $ 154,781 $ 1,790,229 $ 412,704 $ 23,109,699 Additions - 308,828 500,742 10,764 10,855 104,443 399,912 1,335,544 Disposals - (284,536) (99,623) - (141,649) (16,301) - (542,109) Transfers - 384,931 - - 26,013 1,760 (412,704) - Cost, end year 975,300 13,237,184 7,143,791 216,816 50,000 1,880,131 399,912 23,903,134 Accumulated amortization Balance, beginning of year - 4,924,994 4,052,803 174,511 154,781 775,061 - 10,082,150 Amortization - 506,578 394,634 28,432 12,289 86,787 - 1,028,720 Disposals - (252,075) (95,809) - (141,649) (16,301) - (505,834) Accumulated amortization, - 5,179,497 4,351,628 202,943 25,421 845,547 - 10,605,036 end of year Net book value, end ofyear $ 975,300 $ 8,057,687 $ 2,792,163 $ 13,873 $ 24,579 $ 1,034,584 $ 399,912 $ 13,298,098 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 5. Tangible capital assets (continued): Work in 2019 Land Buildings Equipment Computers Software Site Progress Total Cost 4,519,508 3,818,491 204,358 154,781 703,789 - 9,400,927 Amortization - Balance, beginning 360,528 29,149 - 82,473 - 934,191 Disposals - (56,555) of year $ 975,300 $ 12,081,401 $ 6,694,213 $ 245,548 $ 154,781 $ 1,731,398 $ 140,732 $ 22,023,373 Additions - 812,614 218,219 20,090 - 70,032 409,204 1,530,159 Disposals - (195,956) (169,760) (59,586) - (11,201) (7,330) (443,833) Transfers - 129,902 - - - - (129,902) - Cost, end year 975,300 12,827,961 6,742,672 206,052 154,781 1,790,229 412,704 23,109,699 Accumulated amortization Balance, beginning of year - 4,519,508 3,818,491 204,358 154,781 703,789 - 9,400,927 Amortization - 462,041 360,528 29,149 - 82,473 - 934,191 Disposals - (56,555) (126,216) (58,996) - (11,201) - (252,968) Accumulated amortization, - 4,924,994 4,052,803 174,511 154,781 775,061 - 10,082,150 end of year Net book value, end of year $ 975,300 $ 7,902,967 $ 2,689,869 $ 31,541 $ - $ 1,015,168 $ 412,704 $ 13,027,549 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 6. Inventories: Inventories consist of the following: 2020 2019 Bar stock $ 55,388 $ 75,175 Supplies 2,180 5,154 $ 57,568 $ 80,329 7. Operating fund activities: Budget Actual Actual 2019 2020 2020 (note 14) Revenues: Performances $ 6,165,915 $ 1,208,630 $ 4,859,040 Rent - Kitchener -Waterloo Symphony 102,485 173,325 203,210 Grants from City of Kitchener 2,000,000 2,000,000 2,000,000 Grants, other governments 45,000 739,223 45,000 Donations - 15,474 24,329 Investment income 42,000 21,149 74,797 Sponsorships and memberships 142,722 55,529 74,901 Rent - Kitchener -Waterloo Art Gallery 101,100 103,020 101,100 Lottery revenue - 2,885 7,493 Other 198,000 200,437 677,274 Total revenue 8,797,222 4,519,672 8,067,144 Current fund expenditures: Direct: Performances 5,068,400 866,456 3,425,292 Unrecoverable performance costs - 189,749 - Operating: Administration 530,000 351,999 553,187 Marketing 105,000 36,418 100,406 Lottery expenses - 2,751 7,348 Occupancy 850,000 554,614 778,781 Salaries and wages 2,837,484 2,326070 3,419,955 Recoveries - performances (593,978) (212,501) (641,297) Total current fund expenditures 8,796,906 4,115,556 7,643,672 Operating fund net revenues before amortization 316 404,116 423,472 Transfer to reserve funds (316) (404,116) (423,472) Transfer to City of Kitchener - - - Fund balances, end of year $ - $ - $ - 107 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 8. Capital Reserve Fund Surcharge: The Capital Reserve Fund represents the collection of a surcharge from the 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. In 2020, the Centre's Board of Directors approved transfers out of the Capital Reserve Fund for major capital asset projects of $1,335,544 (2019 - $1,530,159). 9. Performance Development and Sustainability Reserve Funds: At the direction of the Board of Directors, transfers are made to and from the Performance Development and Sustainability Reserve Funds, equal to one-half of the annual operating net revenue. In 2020, The Centre's Board of Directors approved the transfer of the funds to the Performance Development and Sustainability Reserve Funds of $nil (2019 - $nil) from the operating fund. 10. 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. 11. 2020 budget: The original budgeted figures were approved by the Board of Directors at their meeting on August 18, 2020 and included certain expenses and offsetting recoveries on a net basis. IM THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 12. Schedule of reserve funds: Expenses Professional fees Performance Development Capital Sustainability Restricted Total Funds Revenue: - 27,261 - - 27,261 Donations and sundry $ - $ - $ - $ 2,223 $ 2,223 Grants from City - 44,061 - 10,002 54,063 of Kitchener - 618,177 - - 618,177 Ticket surcharge - 113,260 - - 113,260 Investment income - 10,342 2,203 24,801 37,346 Loss on investments - - - (11,659) (11,659) Total revenue - 741,779 2,203 15,365 759,347 Expenses Professional fees - - - 10,002 10,002 Costs to be recovered - 27,261 - - 27,261 Capital costs - 16,800 - - 16,800 Total expenses - 44,061 - 10,002 54,063 Excess of revenue over expenses - 697,718 2,203 5,363 705,284 Transfer to accumulated surplus - tangible capital assets - (1,335,544) - - (1,335,544) Other transfers - 404,116 - - 404,116 Balance, beginning of year - 1,362,582 199,068 606,313 2,167,963 Balance, end of year $ - $ 1,128,872 $ 201,271 $ 611,676 $ 1,941,819 109 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2020 13. Impact of COVID-19 pandemic: On March 11, 2020, the World Health Organization declared the Coronavirus COVI D-19 (COVI D- 19) outbreak a pandemic. This has resulted in significant financial, market and societal impacts in Canada and around the world. (a) Current year transactions: At the time of approval of these financial statements, the Centre has experienced the following in relation to the pandemic: • postponement or cancellation of events starting March 14, 2020 • closure of all facilities from March 24, 2020 to the public based on public health recommendations; and • temporary layoff of non-essential employees Financial statements are required to be adjusted for events occurring between the date of the financial statements and the date of the auditors' report which provide additional evidence relating to conditions that existed as at year end. Management completed this assessment and did not identify any such adjustment. For the year ended December 31, 2020 there was $734,223 in Canadian Emergency Wage Subsidy recorded in Grants from other governments — Operating. (b) Subsequent events related to COVID-19 The ultimate duration and magnitude of the COVID-19 pandemic's impact on the Centre's operations and financial position are not known at this time. There remains uncertainty over the resumption of performances and services for the 2021 year. These impacts could include a decline in future cash flows, changes to the value of assets and liabilities, and the use of accumulated surplus to sustain operations. An estimate of the financial effect of the pandemic on the Centre is not practicable at this time. 14. Change in accounting practice: Management revised the accounting for third party promoter charges during the year. The change resulted in a reduction of performance revenues, performance expenditures and recoveries, with no impact to the excess of revenue over expenditures or accumulated surplus. Corresponding adjustments to the comparative information in the statement of operations in these financial statements have been made from the amount previously presented. 110 1"� KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener Opinion We have audited the financial atements he Corporation of the City of Kitchener Gasworks Enterprise (the Entity), which goprise: • the statement of operations and accumulated surplus for the year ended December 31, 2020 (Hereinafter referred to as the "financial statements"). In our opin]j6,the accompanying financial statements presents fairly, in all material respects, the statement of operations and accumulated surplus for the year ended December 31, 2020 in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 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. 111 1"� Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the 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 e rro r. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to, ase operations, Chas no realistic alternative but to do so. Those charged with governance are res ible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a auditors' report that includes our opinion. Reasonabe assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. 112 1"� Page 3 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. DRAFT Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada June 28, 2021 113 THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE Statement of Operations and Accumulated Surplus For the Year Ended December 31, 2020 2020 2020 2019 Budget DELIVERY OPERATIONS Gas delivery Revenue $ 38,389,274 $ 40,256,973 $ 45,468,737 Expenses 22,381,325 22,209,045 19,658,364 Excess of expenses over revenue 16,007,949 18,047,928 25,810,373 Other programs 9,225,901 21,840,998 29,397,447 (Customer service, Rental water heaters & Financing) I 3,419,298 4,819,584 Revenue 10,807,482: 11,277,813 10,766,759 Expenses 7,589,530 7,484,743 7,179,685 Transfer to gas investment reserve 3.217.952 3.793.070 3.587.074 Dispatch Revenue 657,526 620,898 612,528 Expenses 657,526 620,898 612,528 Excess of expenses over revenue (387,153) 765,706 (1,525,667) Excess of revenue over expenses 9,225,901 21,840,998 29,397,447 Accumulated surplus - Delivery 3,419,298 3,419,298 4,819,584 Balance, beginning of year 177,700,742 177,700,742 162,822,657 Interest revenue 149,657 92,358 120,749 Transfer to gas investment reserve (14,932,914) (14,932,914) (14,640,111) Add excess of revenue over ex ense 19,225,901 21,840,998 29,397,447 Balance, end of year 182,143,386 184,701,184 177,700,742 SUPPLY OPERATIONS Revenue 28,689,685 27,955,741 31,175,062 Expenses 29,076,838 27,190,035 32,700,729 Excess of expenses over revenue (387,153) 765,706 (1,525,667) Accumulated surplus - Supply Balance, beginning of year 3,419,298 3,419,298 4,819,584 Interest revenue 54,896 54,896 125,381 Less excess of expenses over revenue (387,153) 765,706 (1,525,667) Balance, end of year 3,087,041 4,239,900 3,419,298 114 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 accoun9 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 28, 2021. Management maintained a system of internal controls designed to provi*easonable 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. KITCHENER GENERATION On behalf of management, Jonathan Lautenbach, CPA Chief Financial Officer and Ci June 28, 2021 Kitchener, Canada 115 KITCHENER GENERATION CORPORATION Statement of Financial Position As at December 31, 2020 (Unaudited) 2020 2019 Financial assets Accounts receivable $ 10,746 $ 8,448 10.746 8.448 Liabilities Due to The Corporation of the City of Kitchener 16,348 14,050 Long-term debt (Note 3) 2,091,995 2,356,284 2,108,343 2,370,334 Net financial debt (2,097,597) (2,361,886) Non-financial assets Tangible capital assets (Note 4) 2,322,516 2,554,768 Total non-current assets 2,322,516 2,554,768 Accumulated surplus (Note 5) $ 224,919 $ 192,882 The accompanying notes are an integral part of these financial s ments. 116 KITCHENER GENERATION CORPORATION Statement of Operations For the Year Ended December 31, 2020 (Unaudited) 2020 2020 2019 Budget Revenue Sale of electricity $ 385,000 $ 414,384 $ 396,078 Total revenue 385.000 414.384 396.078 Expenses Maintenance 35,019 2,680 3,019 Amortization 232,252 232,252 232,252 Total expenses 267,271 234,932 235,271 Surplus before interest and provision for payments -in -lieu of corporate income taxes 117,729 179,452 160,807 Interest expense 118,050 118,050 130,091 Surplus/(deficit) before provision for payments -in - lieu of corporate income taxes (321) 61,402 30,716 Provision for payments -in -lieu of corporate income taxes Annual surplus/(deficit) $ (321) $ 61,402 $ 30,716 The accompanying notes are an integral part of these financial statements. 117 KITCHENER GENERATION CORPORATION Statement of Change in Net Financial Debt For the Year Ended December 31, 2020 (Unaudited) Annual surplus 2020 2019 61,402 $ 30,716 Change in share capital (29,365) (26,705) Amortization of tangible capital assets 232,252 232,252 Change in net financial debt 264,289 236,263 Net financial debt, beginning of year (2,361,886) (2,598,149) Net financial debt, end of year $ (2,097,597) $ (2,361,886) The accompanying notes are an integral part of these financial statements. 118 KITCHENER GENERATION CORPORATION Statement of Cash Flow For the Year Ended December 31, 2020 (Unaudited) 2020 2019 Operating Annual surplus $ 61,402 $ 30,716 Items not involving cash Amortization 232,252 232,252 Change in non-cash assets and liabilities Trade and other accounts receivable (2,298) (1,419) Accounts payable and accrued liabilities 2,298 5,503 Net change in cash from operating activities 293,654 267,052 Financing Change in contributed capital (29,365) (26,705) Change in long-term debt (264,289) 240,347 Net change in cash from financing activities 293,654 (267,052) Net change in cash and cash equivalents - - Cash and cash equivalents, beginning of year - - Cash and cash eauivalents. end of vear $ - $ - N._ The accompanying notes are an integral part of these financ 119 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2020 (Unaudited) 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. Summary of 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 Chartered Professional Accountants of Canada. 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. 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 2020 amounted to $118,050 (2019 - $130,091). 4. Tangible capital assets Opening balance Additions Amortization expense Accumulated Net Book Cost Amortization Value $ 4,412,784 $ (1,858,016) $ 2,554,768 (232,252) (232,252) Disposals - - - Ending balance $ 4,412,784 $ (2,090,268) $ 2,322,516 120 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2020 (Unaudited) 5. Accumulated surplus The accumulated surplus consists of the following: 2020 2019 Share capital - common shares (Note 6) $ 232,444 $ 261,809 Retained earnings (7,525) (68,927) $ 224,919 $ 192,882 6. Share capital Authorized Unlimited common shares Issued 1,000 common shares 121 191,111 M11 KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Shareholders of Kitchener Power Corp. Opinion We have audited the consolidated financial statements of Kitchener Power Corp. (the Entity), which comprise: • the consolidated statement of financial position as at December 31, 2020 • the consolidated statement of comprehensive income for the year then ended • the consolidated statement of changes in equity for the year then ended • the consolidated statement of cash flows for the year then ended • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial Statements" section of our auditors' report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. © 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 122 191,111 mil Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), 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. In preparing the consolidated financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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. 123 191,111 mil Page 3 • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. k�aW46�- Z400 Chartered Professional Accountants, Licensed Public Accountants Waterloo, Canada March 26, 2021 124 KITCHENER POWER CORP. Consolidated Statement of Financial Position As at December 31, 2020, with comparative information for 2019 (Expressed in thousands of dollars) Assets Current assets Cas h Accounts receivable Unbilled revenue Inventory Prepaid expenses Income taxes receivable Total current assets Non-current assets: Property, plant and equipment Intangible assets Deferred tax assets Investment in subsidiaries and associates Total non-current assets Total assets Note 2020 2019 4 $ 6,861 $ 13,940 5 15,709 17,511 29,865 27,648 6 2,458 2,324 1,146 1,347 5 131 56,044 62,901 7 275,014 259,864 8 646 629 9 211 173 838 763 276,709 261,429 332,753 324,330 Regulatory deferral account debit balances 10 19,661 9,400 Deferred taxes associated with regulatory accounts - - Total assets and regulatory assets $ 352,414 $ 333,730 125 KITCHENER POWER CORP. Consolidated Statement of Financial Position Year ended December 31, 2020, with comparative information for 2019 (Expressed in thousands of dollars) Shareholder's equity: Share capital - common shares Retained earnings Accumulated other comprehensive loss Total sha re holde r's e qu ity 14 66,389 Note 2020 2019 Liabilities and Shareholder's Equity 167,221 160,964 Current liabilities: Accounts payable and accrued liabilities $ 37,744 $ 30,060 Income taxes payable 32 9 Current portion of long-term debt 11 - 607 Current portion customer deposits 13 8,945 9,366 Current portion of deferred revenue 1,069 952 Total current liabilities 47,790 40,994 Non-current liabilities: Long-term debt 11 76,963 76,963 Employee future benefits 12 5,937 5,858 Long-term customer deposits 13 5,833 6,188 Deferred revenue 39,759 36,385 Deferred tax liablilty 9 4,415 2,536 Total non-current liabilities 132,907 127,930 Total liabilities 180,697 168,924 Shareholder's equity: Share capital - common shares Retained earnings Accumulated other comprehensive loss Total sha re holde r's e qu ity 14 66,389 66,389 101,452 95,195 (620) (620) 167,221 160,964 Total liabilities and shareholder's equity 347,918 329,888 Regulatory deferral account credit balances 10 2,276 2,307 Deferred taxes associated with regulatory accounts 2,220 1,535 Impact of COVID-19 pandemic 26 Total equity, liabilities and shareholder's equity $ 352,414 $ 333,730 The accompanying notes are an integral part of these financial statements. On behalf of the Board: , 1 Director Director 126 KITCHENER POWER CORP. Consolidated Statement of Comprehensive Income Year ended December 31, 2020, with comparative information for 2019 (Expressed in thousands of dollars) Expenses Operations and maintenance Note 2020 2019 Energy sales $ 239,962 $ 206,409 Cost of energy sold 245,909 207,393 Amortization (5,947) (984) Other operating revenue 32,282 30,049 Distribution sales 42,690 38,285 Other income 15 2,873 2,867 Net operating revenue 39,616 40,168 Expenses Operations and maintenance 11,405 11,684 Customer services 5,313 4,474 Administration 5,542 4,341 Amortization 10,022 9,550 Net movement in regulatory deferral account balances 32,282 30,049 Other Energy conservation program revenue (727) (1,676) Energy conservation program expense 713 1,676 Net energy conservation programs (14) - Finance income 16 (132) (433) Finance charges 16 2,981 4,119 Net finance costs 2,849 3,686 Income before income taxes 4,499 6,433 Income tax expense 9 907 870 Income for the year before movements in regulatory deferral account balances 3,592 5,563 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 10 6,847 4,927 Income for the year and net movements in regulatory deferral account balances 10,439 10,490 Other comprehensive loss 12 - (342) Total comprehensive income for the year $ 10,439 $ 10,148 The accompanying notes are an integral part of these financial statements 127 KITCHENER POWER CORP. Consolidated Statement of Changes in Equity Year ended December 31, 2020, with comparative information for 2019 (Expressed in thousands of dollars) The accompanying notes are an integral part of these financial statements. 128 Accumulated Share capital other Retained Total comprehensive earnings income (loss) Balance at January 1, 2019 $ 66,389 $ (278) $ 88,739 $ 154,850 Net income before other comprehensive income (loss) - - 10,490 10,490 Other comprehensive income (loss) (342) - (342) Dividends - - (4,034) (4,034) Balance at December 31, 2019 66,389 (620) 95,195 160,964 Net income before other comprehensive income (loss) - - 10,439 10,439 Other comprehensive income (loss) - - Dividends - - (4,182) (4,182) Balance at December 31, 2020 $ 66,389 $ (620) $ 101,452 $ 167,221 The accompanying notes are an integral part of these financial statements. 128 KITCHENER POWER CORP. Consolidated Statement of Cash Flows Year ended December 31, 2020, with comparative information for 2019 (Expressed in thousands of dollars) The accompanying notes are an integral part of these financial statements. 129 2020 2019 Cash flows from operating activities. Total comprehensive income for the year $ 10,439 $ 10,148 Adjustments to reconcile net income to cash provided by (used in) operations: Amortization 10,752 10,251 Amortization of deferred revenue (1,016) (908) Gain on disposal of property, plant and equipment (149) (36) Income tax expense 907 870 Income taxes paid (816) (1,360) Increase decrease in employee future benefits 77 551 20,194 19,516 Change in non-cash operating working capital: Accounts receivable 1,802 1,029 Unbilled revenue (2,216) (5,526) Inventory (134) (375) Prepaid expenses 201 (302) Other current assets - - Accounts payable and accrued liabilities 7,683 7,410 Other current liabilities (303) 1,339 Change in regulatory assets (10,261) (2,038) Change in regulatory liabilities 654 (4,468) Change in deferred tax 1,900 489 Net cash from operating activities 19,520 17,074 Cash flows from investing activities: Proceeds on disposals of property, plant and equipment 151 40 Purchase of property, plant and equipment (25,536) (24,487) Purchase of intangible assets (385) (315) Net cash used in investing activities (25,770) (24,762) Cash flows from financing activities: Net change in customer deposits (355) 52 Investments in subsidiaries and associates (75) 204 Dividends paid out (4,182) (4,034) Change in contributed capital received 4,390 4,383 Repayment of long-term debt (607) (1,176) Net cash from financing activities (829) (571) Change in cash and cash equivalents (7,079) (8,259) Cash and cash equivalents, beginning of year 13,940 22,199 Cash and cash equivalents, end of year $ 6,861 $ 13,940 The accompanying notes are an integral part of these financial statements. 129 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 1. Reporting entity: Kitchener Power Corp. (the "Corporation") is a holding company for the affiliate companies, Kitchener -Wilmot Hydro Inc. and Kitchener Energy Services Inc., and is itself wholly owned by the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot. The Corporation oversees the operations of Kitchener -Wilmot Hydro Inc., a regulated distribution company, and Kitchener Energy Services Inc., an unregulated retail services company. The Corporation also owns 33% of Grand River Energy Solutions Corp. (GRE), a generation and renewable energy solutions company. It is located in the City of Kitchener. The address of the Corporation's registered office is 301 Victoria Street South, Kitchener, Ontario, Canada. The financial statements are for the Corporation as at and for the year ended December 31, 2020 2. Basis of presentation: (a) Statement of compliance: The Corporation's financial statements have been prepared in accordance with International Financial Reporting Standards ("I FRS"). The financial statements were approved by the Board of Directors on March 26, 2021. (b) Basis of measurement: The financial statements have been prepared on the historical cost basis except for the following: (i) Where held, financial instruments at fair value through profit or loss (ii) Contributed assets are initially measured at fair value. The methods used to measure fair values are discussed further in note 22. (c) Functional and presentation currency: These financial statements are presented in Canadian dollars, which is the Corporation's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. 130 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (d) Use of estimates and judgments: The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in these financial statements is included in the following notes: i) Note 3(b) — Determination of the performance obligation for contributions from customers and the related amortization period ii) Note 7 — Property, plant and equipment iii) Note 9 — Deferred tax assets iv) Note 12 — Employee future benefits v) Note 17 — Commitments and contingencies (e) Rate regulation: The Corporation is regulated by the Ontario Energy Board ("OEB"), under the authority granted by the Ontario Energy Board Act, 1998. Among other things, the OEB has the power and responsibility to approve or set rates for the transmission and distribution of electricity, providing continued rate protection for electricity consumers in Ontario, and ensuring that transmission and distribution companies fulfill obligations to connect and service customers. The OEB may also prescribe license requirements and conditions of service to local distribution companies ("LDCs"), such as the Corporation, which may include, among other things, record keeping, regulatory accounting principles, separation of accounts for distinct businesses, and filing and process requirements for rate setting purposes. Rate setting: Distribution revenue and electricity rates The OEB sets electricity prices for low-volume consumers twice each year based on an estimate of how much it will cost to supply the province with electricity for the next year. All low volume customers without a contract with an energy retailer are charged the OEB mandated rate for electricity. If a customer (regardless of volume) has a retailer agreement, then retailer rates are charged instead. All remaining consumers pay the market price for electricity. The 131 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (e) Rate regulation (continued): Corporation is billed for the cost of the electricity that its customers use and passes this cost on to the customer at cost without a mark-up. For the distribution revenue included in electricity sales, the Corporation files a "Cost of Service" ("COS") rate application with the OEB every four years where rates are determined through a review of the forecasted annual amount of operating and capital expenses, debt and shareholder's equity required to support the Corporation's business. The Corporation estimates electricity usage and the costs to service each customer class to determine the appropriate rates to be charged to each customer class. The COS application is reviewed by the OEB and intervenors and rates are approved based upon this review, including any revisions resulting from that review. In the intervening years, an Incentive Rate Mechanism application ("IRM") is filed. An IRM application results in a formulaic adjustment to distribution rates that were set under the last COS application. The previous year's rates are adjusted for the annual change in the Gross Domestic Product Implicit Price Inflator for Final Domestic Demand ("GDP IPI -FDD") net of a productivity factor and a "stretch factor" determined by the relative efficiency of an electricity distributor As a licensed distributor, the Corporation is responsible for billing customers for electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties. The Corporation is required, pursuant to regulation, to remit such amounts to these third parties, irrespective of whether the Corporation ultimately collects these amounts from customers. The Corporation filed a COS application on April 30, 2019 for rates effective January 1, 2020 to December 31, 2020. Electricity rates were impacted by the COVID-19 pandemic, distribution rates were unaffected, which has been discussed further in Note 26. (f) Investments Investments in subsidiary companies, associates and other long-term investments are accounted for by the equity method. Dividends received are recorded as a reduction of the carrying value of these investments. 132 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies: The accounting policies set out below have been applied consistently in all years presented in these financial statements unless otherwise indicated. (a) Financial instruments: At initial recognition, the Company measures its financial assets at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Subsequent measurement of the financial asset depends on the classification determined on initial recognition. Financial assets are classified as either amortized cost, fair value through other comprehensive income or fair value through profit or loss, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are not reclassified subsequent to their initial recognition, unless the Company changes its business model for managing financial assets. Financial liabilities are initially measured at fair value, net of transaction costs incurred. They are subsequently carried at amortized cost using the effective interest rate method; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as an adjustment to interest expense over the period of the borrowings. The Corporation has not entered into derivative instruments. Hedge accounting has not been used in the preparation of these financial statements. Cash equivalents include short-term investments with maturities of three months or less when purchased. (b) Revenue recognition: Sale and distribution of electricity The performance obligations for the sale and distribution of electricity are recognized over time using an output method to measure the satisfaction of the performance obligation. The value of the electricity services transferred to the customer is determined on the basis of cyclical meter readings plus estimated customer usage since the last meter reading date to the end of the year and represents the amount that the Corporation has the right to bill. Revenue includes the cost of electricity supplied, distribution, and any other regulatory charges. The related cost of power is recorded on the basis of power used. For customer billings related to electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties, the Corporation has determined that it is acting as a principal for these electricity charges and, therefore, has presented electricity revenue on a gross basis. 133 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (b) Revenue recognition (continued): Capital contributions Developers are required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. The developer is not a customer and therefore the contributions are scoped out of IFRS 15 Revenue from Contracts with Customers. Cash contributions, received from developers are recorded as deferred revenue. When an asset other than cash is received as a capital contribution, the asset is initially recognized at its fair value, with a corresponding amount recognized as deferred revenue. The deferred revenue, which represents the Corporation's obligation to continue to provide the customers access to the supply of electricity, is amortized to income on a straight-line basis over the useful life of the related asset. Certain customers are also required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. These contributions fall within the scope of IFRS 15 Revenue from Contracts with Customers. The contributions are received to obtain a connection to the distribution system in order receive ongoing access to electricity. The Corporation has concluded that the performance obligation is the supply of electricity over the life of the relationship with the customer which is satisfied over time as the customer receives and consumes the electricity. Revenue is recognized on a straight-line basis over the useful life of the related asset. Other revenue Revenue earned from the provision of services is recognized as the service is rendered. Government grants and the related performance incentive payments under CDM programs are recognized as revenue in the year when there is reasonable assurance that the program conditions have been satisfied and the payment will be received. (c) Inventory: Inventory, comprising material and supplies, the majority of which is consumed by the Corporation in the provision of its services, is valued at the lower of cost and net realizable value, with cost being determined on a weighted average cost basis, and includes expenditures incurred in acquiring the material and supplies and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. (d) Property, plant and equipment: Items of property, plant and equipment ("PP&E") used in rate -regulated activities and acquired prior to January 1, 2015 are measured at deemed cost established on the transition date, less accumulated depreciation. All other items of PP&E are measured at cost, or, where the item is transferred from customers, its fair value, less accumulated depreciation. Consistent with IFRS 1, the Corporation elected to use the carrying amount as previously 134 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (d) Property, plant and equipment (continued): determined under Canadian GAAP as the deemed cost at January 1, 2015, the transition date to IFRS. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self -constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to a working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on the disposal of an item of PP&E are determined by comparing the proceeds from disposal, if any, with the carrying amount of the item of PP&E and are recognized net within other income in profit or loss. Major spare parts and standby equipment are recognized as items of PP&E. The cost of replacing a part of an item of property, plant and equipment is recognized in the net book value of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation and its cost can be measured reliably. In this event, the replaced part of property, plant and equipment is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. Depreciation is calculated over the depreciable amount and is recognized in profit or loss on a straight-line basis over the estimated useful life of each part or component of an item of property, plant and equipment. The depreciable amount is cost. Land is not depreciated. Construction -in -progress assets are not amortized until the projects are complete and in service. The estimated useful lives are as follows: Buildings 20-50 years Transformer station equipment 15-50 years Distribution station equipment 15-50 years Distribution system 25-60 years Meters 15-25 years SCADA equipment 15 years Other capital assets 3-10 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. 135 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (e) Intangible assets (continued): (i) Computer software: Computer software that is acquired or developed by the Corporation, including software that is not integral to the functionality of equipment purchased which has finite useful lives, is measured at cost less accumulated amortization and accumulated impairment losses. (ii) Land rights: Payments to obtain rights to access land ("land rights") are classified as intangible assets. These include payments made for easements, right of access and right of use over land for which the Corporation does not hold title. Land rights are measured at cost less accumulated amortization and accumulated impairment losses. (iii) Amortization: Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives are: Computer software 3-10 years Land rights 100 years Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. (f) Impairment: (i) Financial assets: A loss allowance for expected credit losses on financial assets measured at amortized cost is recognized at the reporting date. The loss allowance is measured at an amount equal to the lifetime expected credit losses for the asset. 136 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (f) Impairment (continued): (ii) Non-financial assets: The carrying amounts of the Corporation's non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash -generating unit"). The recoverable amount of an asset or cash -generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset or its cash -generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss in respect of goodwill is not reversed. For assets other than goodwill, impairment recognized in prior periods is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (g) Provisions: A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. 137 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (h) Regulatory deferral accounts: Regulatory deferral account debit balances represent costs incurred in excess of amounts billed to the customer at OEB approved rates. These amounts have been accumulated and deferred in anticipation of their future recovery in electricity distribution rates. Regulatory deferral account credit balances represent amounts billed to the customer at OEB approved rates in excess of costs incurred by the Corporation. Regulatory deferral account debit balances are recognized if it is probable that future billings in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate -making purposes. The offsetting amount is recognized in profit and loss. The debit balance is reduced by the amount of customer billings as electricity is delivered to the customer and the customer is billed at rates approved by the OEB for the recovery of the capitalized costs. Regulatory deferral account credit balances are recognized if it is probable that future billings in an amount at least equal to the credit balance will be reduced as a result of rate -making activities. The offsetting amount is recognized in profit and loss. The credit balance is reduced by the amounts returned to customers as electricity is delivered to the customer at rates approved by the OEB for the return of the regulatory account credit balance The probability of recovery or repayment of the regulatory account balances are assessed annually based upon the likelihood that the OEB will approve the change in rates to recover or repay the balance. Any resulting impairment loss is recognized in profit and loss in the year incurred. Regulatory deferral accounts attract interest at OEB prescribed rates. With the exception of Pension and OEB Forecast Accrual accounts (OPEBs), the rates from January to June 2020 were 2.18%, and July to December 2020 were 0.57%. Prior year rates from January to March 2019 were 2.45%, April to December 2019 were 2.18%. In 2020, OPEBs were 2.88% for the period January to March, 2.48% for the period April to September and 2.03% for period October to December. In 2019, OPEBs were 3.82% for the period January to March, 3.39% for the period April — June and 2.88% for the period July to December. 138 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (i) Employee future benefits: (i) Pension plan: The Corporation provides a pension plan for all its full-time employees through 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 and public utilities. 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. To the extent that the Fund finds itself in an under -funded position, additional contribution rates may be assessed to participating employers and members. OMERS is a defined benefit plan. However, as OMERS does not segregate its pension asset and liability information by individual employers, there is insufficient information available to enable the Corporation to directly account for the plan. Consequently, the plan has been accounted for as a defined contribution plan. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in net income when they are due. (ii) Post -employment benefits, other than pension: The Corporation provides some of its retired employees with life insurance and medical benefits beyond those provided by government sponsored plans. The cost of these benefits is expensed as earned by employees through employment service. The accrued benefit obligations and the current service costs are actuarially determined by applying the projected unit credit method and reflect management's best estimate of certain underlying assumptions. Actuarial gains and losses arising from defined benefit plans are recognized immediately in other comprehensive income and reported in retained earnings. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in net income on a straight-line basis over the average period until the benefits become vested. In circumstances where the benefits vest immediately, the expense is recognized immediately in net income. 139 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): 0) Deferred revenue and assets transferred from customers: Certain customers and developers are required to contribute towards the capital cost of construction in order to provide ongoing service. When an asset is received as a capital contribution, the asset is initially recognized at its fair value, with the corresponding amount recognized as deferred revenue. Deferred revenue represents the Corporation's obligation to continue to provide customers access to the supply of electricity, and is amortized to income on a straight-line basis over the economic useful life of the acquired or contributed asset, which represents the period of ongoing service to the customer. (k) Leased assets: This policy is effective for periods before January 1, 2019. Refer to Note 24 for the change in accounting policy to IFRS 16. Leases, where the terms cause the Corporation to assume substantially all the risks and rewards of ownership, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases are classified as operating leases and the leased assets are not recognized on the Corporation's balance sheet. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. (1) Finance income and finance costs: Finance income is recognized as it accrues in profit or loss, using the effective interest method. Finance income comprises interest earned on cash and cash equivalents and on regulatory assets. Finance charges comprise interest expense on borrowings, finance lease obligations, regulatory liabilities and unwinding of the discount on provisions and impairment losses on financial assets. Finance costs are recognized as an expense unless they are capitalized as part of the cost of qualifying assets. 140 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (m) Income taxes: The income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case, it is recognized in equity. The Corporation is currently exempt from taxes under the Income Tax Act (Canada) and the Ontario Corporations Tax Act (collectively the "Tax Acts"). Under the Electricity Act, 1998, the Corporation makes payments in lieu of corporate taxes to the Ontario Electricity Financial Corporation ("OEFC"). These payments are calculated in accordance with the rules for computing taxable 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. Prior to October 1, 2001, the Corporation was not subject to income or capital taxes. Payments in lieu of taxes are referred to as income taxes. Current tax is the tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the balance sheet method. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, as well as for tax losses available to be carried forward to future years that are likely to be realized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates, at the reporting date, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. 141 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 4. Cash: 2020 2019 Cash $ 6,861 $ 13,940 5. Accounts receivable: 2020 2019 Customer and other trade receivables $ 15,667 $ 17,397 Trade receivables from related parties 42 114 $ 15,709 $ 17,511 6. Inventory: The amount of inventory consumed by the Corporation and recognized as an expense during 2020 was $279 (2019 - $363). 7. Property, plant and equipment: (a) Cost or deemed cost: 142 Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2020 $ 24,729 $ 260,009 $ 12,976 $ 5,487 $ 303,201 Additions 1,709 17,846 5,631 350 25,536 Transfers - - - - - Disposals/Retirements (5) (62) (1,182) - (1,249) Balance at December 31, 2020 $ 26,433 $ 277,793 $ 17,425 $ 5,837 $ 327,488 Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2019 $ 24,463 $ 242,418 $ 8,850 $ 3,622 $ 279,353 Additions 279 17,723 4,614 1,865 24,481 Transfers - - - - - Disposals/Retirements (13) (132) (488) - (633) Balance at December 31, 2019 $ 24,729 $ 260,009 $ 12,976 $ 5,487 $ 303,201 142 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued) (b) Accumulated depreciation: Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2020 $ 2,718 $ 37,766 $ 2,853 $ - $ 43,337 Depreciation charge 716 8,317 1,351 - 10,384 Disposals/Retirements (5) (62) (1,180) - (1,247) Balance at December 31, 2020 $ 3,429 $ 46,021 $ 3,024 $ - $ 52,474 Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2019 $ 2,053 $ 30,012 $ 2,059 $ - $ 34,124 Depreciation charge 678 7,886 1,282 - 9,846 Disposals/Retirements (13) (132) (488) - (633) Balance at December 31, 2019 $ 2,718 $ 37,766 $ 2,853 $ - $ 43,337 (c) Carrying amounts: Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total At December 31, 2020 $ 23,004 $ 231,772 $ 14,401 $ 5,837 $ 275,014 At December 31, 2019 $ 22,011 $ 222,243 $ 10,123 $ 5,487 $ 259,864 (d) Leased plant and equipment: The Corporation does not have leases for plant or equipment. (e) Security: At December 31, 2020, the Corporation had zero properties subject to a general security agreement. (f) Borrowing costs: During the year, borrowing costs of $nil (2019 - $nil) were capitalized as part of the cost of property, plant and equipment. 143 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): Computer Land (g) Allocation of depreciation and amortization: Software Rights Total The depreciation of property, plant and equipment and the amortization of intangible assets has been allocated to profit or loss as follows: Additions 385 - Operations Customer Disposals Energy - and services Administration conservation Other Total maintenance expense $ 2,802 $ 8 $ expense Additions expense - expense Additions 4 - December 31, 2020: Balance at December 31, 2019 $ 3,119 $ 8 $ Depreciation of property, plant and equipment $ 717 $ 6 $ $ 7 $ 9,654 $ 10,384 Amortization of intangible assets - 368 368 $ 717 $ 6 $ $ 7 $ 10,022 $ 10,752 Operations Customer Energy and services Administration conservation Other Total maintenance expense expense expense expense December 31, 2019: Depreciation of property, plant and equipment $ 688 $ 6 $ $ 7 $ 9,145 $ 9,846 Amortization of intangible assets - 405 405 $ 688 $ 6 $ $ 7 $ 9,550 $ 10,251 8. Intangible assets: (a) Cost or deemed cost 144 Computer Land Software Rights Total Balance at January 1, 2020 $ 3,120 $ 8 $ 3,128 Additions 385 - 385 Disposals - - - Balance at December 31, 2020 $ 3,505 $ 8 $ 3,513 Balance at January 1, 2019 $ 2,802 $ 8 $ 2,810 Additions 321 - 321 Additions 4 - 4 Balance at December 31, 2019 $ 3,119 $ 8 $ 3,127 144 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 8. Intangible assets (continued): (b) Accumulated amortization: Computer Land Software Rights Total Balance at January 1, 2020 $ 2,491 $ 8 $ 2,499 Additions 368 - 368 Balance at December 31, 2020 $ 2,859 $ 8 $ 2,867 Balance at January 1, 2019 $ 2,086 $ 8 $ 2,094 Additions 404 - 404 Balance at December 31, 2019 $ 2,490 $ 8 $ 2,498 (c) Carrying amounts: Computer Land Software Rights Total At December 31, 2020 $ 646 $ - $ 646 At December 31, 2019 $ 629 $ - $ 629 145 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 9. Income tax expense: Current tax expense: 2020 2019 Current period Adjustment for prior periods $ 1,297 (332) $ 1,138 (194) $ 965 $ 944 Deferred tax expense: 2020 2019 Original & reversal of temporary differences Recognition of previously unrecognized tax losses $ (21) (38) $ (47) (26) $ (59) $ (73) Reconciliation of effective tax rate: 2020 2019 Total comprehensive income for the year Total income tax expense $ 10,715 907 $ 10,148 870 Comprehensive income before income taxes 11,622 11,018 Income tax using the Corporation's statutory tax rate of 26.5% Temporary differences not benefitted Under (over) provided in prior periods 3,080 (1,841) (332) 2,920 (1,856) (194) $ 907 $ 870 Significant components of the Corporation's deferred tax balances are as follows: 2020 2019 Deferred tax assets (liabilities): Plant and equipment Non -vested sick leave Employee benefits $ (16,989) 168 1,573 $ (14,168) 168 1,552 Intangible assets 7 7 LOSS calTy-folwai'd Ontario refundable tax credits n,,farrarl tar 10ahilit�4 204 14 d 41 ri 166 18 7 S.11A Deferred revenue - contributed capital 10,819 9,894 $ 211 $ 173 146 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 10. Regulatory deferral account balance: The following is a reconciliation of the carrying amount for each class of regulatory deferral account balances: Remaining recovery/ Balances reversal arising in the Recovery/ period Total amount related to regulatory deferral account debit balances $ 9,400 $ 6,869 $ 3,545 $ (153) $ 19,661 Remaining recovery/ Balances reversal arising in the Recovery/ period 2019 period Reversal Other 2020 (years) Regulatory deferral account debit balances (817) Group 1 deferred accounts 1,057 975 (160) (152) 1,720 Note 1 Group 1 deferred accounts $ 1,239 $ 2,202 $ 5,428 $ (153) $ 8,716 Note 1, Note 3 Regulatory asset recovery account 630 285 (141) - 774 Note 1 Smart meter recovery 13 - (13) - Deferred tax asset 5,790 2,585 - 8,375 Note 2 LRAM 837 1,728 (837) 1,728 1 Other 891 69 (892) 68 Total amount related to regulatory deferral account debit balances $ 9,400 $ 6,869 $ 3,545 $ (153) $ 19,661 Remaining recovery/ Balances reversal arising in the Recovery/ period Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances Less movement related to the balance sheet Deferred income tax Deferred revenue Amounts moved to property, plant, equipment Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement 2020 2019 10,292 2019 period Reversal Other 2020 (years) Regulatory deferral account credit balances (933) (860) (817) Group 1 deferred accounts 1,057 975 (160) (152) 1,720 Note 1 Regulatory asset recovery account - - - - - Note 1 Deferred tax liability - - - - Note 2 Other 1,250 2 (696) - 556 Total amount related to regulatory deferral account credit balances 2,307 977 (856) (152) 2,276 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances Less movement related to the balance sheet Deferred income tax Deferred revenue Amounts moved to property, plant, equipment Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement 2020 2019 10,292 6,677 (2,585) (933) (860) (817) 6,847 4,927 147 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 10. Regulatory deferral account balance (continued): Note 1 KWHI expects to be approved for collection of these amounts in its 2021 filing for 2022 rates. Note 2 KWHI has not sought approval for the disposition of this amount as changes in underlying assumptions may reduce the amounts recorded in the account. KWHI may seek refunds in the future. Note 3 In December 2020, KWHI was informed that beginning June 2015 charges for one delivery point were not included in the monthly power bill. KWHI has accrued a payable of $6 million, offset by a regulatory asset. These monies are expected to begin being collected through a Board approved rate rider in 2022. Note 4 COVID-19 Emergency Deferral The COVID-19 emergency deferral account comprises of five sub -accounts established to track incremental costs and lost revenues related to the COVID-19 pandemic: (i) Billing and System Changes as a Result of the Emergency Order Regarding Time -of -Use Pricing, (ii) Lost Revenues Arising from the COVID-19 Emergency, (iii) Other Incremental Costs, (iv) Foregone Revenues from Postponing Rate Implementation, and (v) Bad Debt. On December 16, 2020, the OEB Staff released their proposal on the COVID-19 deferral accounts which introduces certain criteria to that may need to be satisfied for amounts to be eligible for recovery. Based on this information, management believes there is high uncertainty in regards to the recoverability of costs and lost revenues related to government and OEB customer relief actions, and therefore a low probability of recovery. Costs directly related to the implementation of safety measures as a result of the COVID-19 pandemic were tracked. $69k has been recorded in the COVID-19 Emergency Deferral Account as at December 31, 2020. M KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 11. Long-term debt: Effective August 1, 2000, the Corporation incurred unsecured promissory notes payable to the City of Kitchener and the Township of Wilmot, and have an interest rate of 3.23% per annum. Interest is payable in quarterly installments, in arrears, on March 316t, June 30th, September 30th and December 316t. In 2019 the interest rate was 4.88%. Effective February 1, 2010, the Corporation incurred a ten year senior unsecured debenture payable to Ontario Infrastructure Projects Corporation. An initial payment of $7,000 was received February 1, 2010, followed by a second payment of $3,000 on May 17, 2010. The debenture had an interest rate of 4.28%, and interest was payable in equal semi-annual installments, in arrears, on May 17th and November 17th each year commencing November 17, 2010. The debenture was paid off in in 2020 in accordance with the payment schedule. 2020 2019 Senior unsecured debentures: City of Kitchener $ 70,998 $ 70,998 Township of Wilmot 5,965 5,965 Ontario Infrastructure Projects Corporation - 607 Senior unsecured debentures, net proceeds $ 76,963 $ 77,570 Less: current portion of long-term debt $ - $ (607) Total long-term debt $ 76,963 $ 76,963 12. Employee future benefits: The Corporation pays certain medical and life insurance benefits on behalf of some of its retired employees. The Corporation recognizes these post-retirement costs in the period in which employees' services were rendered. The accrued benefit liability at December 31, 2020 of $5,937 was based on an actuarial valuation completed in 2020 using a discount rate of 3.1% (3.1% in 2019). 149 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 12. Employee future benefits (continued): Changes in the present value of the defined benefit unfunded obligation and the accrued benefit liability: 2020 2019 Defined benefit obligation, beginning of year $ 5,858 $ 5,305 Current service cost 192 160 Interest cost 178 202 Benefits paid during the year (291) (274) Actuarial loss recognized in other - 465 comprehensive income Accrued benefit liability, end of year $ 5,937 $ 5,858 Components of net benefit expense recognized are as follows: 2020 2019 Current service cost $ 192 $ 160 Interest cost 178 202 Net benefit expense recognized $ 370 $ 362 Actuarial losses recognized in other comprehensive income: 2020 2019 Cumulative amount at January 1 $ (620) $ (278) Recognized during the year - (342) Cumulative amount at December 31 $ (620) $ (620) 150 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The significant actuarial assumptions used in the valuation are as follows (weighted average): 2020 2019 Accrued benefit obligation: Discount rate 3.1% 3.1% Benefit cost for the year: Age Withdrawal rate 18-29 3.50% 3.50% 30-34 2.00% 2.00% 35-39 1.7% 1.7% 40-49 1.3% 1.3% 50-54 1.0% 1.0% Assumed health care cost trend rates: Initial health care cost trend rate Health 4.4% 4.2% Dental 4.7% 4.5% The approximate effect on the accrued benefit obligation of the entire plan and the estimated net benefit expense of the entire plan if the health care trend rate assumption was increased or decreased by 1 %, and all other assumptions were held constant, is as follows: Benefit Periodic Obligation Benefit Cost 1 % increase in health care trend rate $ 215 $ 22 1% decrease in health care trend rate $ (193) $ (19) Historical Information Amounts for the current and previous year, for the entire plan, are as follows: 2020 2019 Defined benefit obligation $ 5,937 $ 5,858 Experience adjustments $ - $ (342) 151 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The main actuarial assumptions utilized for the valuation are as follows: General inflation - future general inflation levels, as measured by the changes in the Consumer Price Index, were assumed at 2% in 2020, and thereafter (2019 - 2%). Discount (interest) rate - the discount rate used to determine the present value of future liabilities and the expense for the year ended December 31, 2020, was 3.1% (2019 - 3.1 %). Salary levels - future general salary and wage levels were assumed to increase at 3.3% (2019 - 3.3%) per annum. Medical costs - medical costs were assumed to be 4.4% for 2020, (2019 - 4.5%) increasing annually to 4.9% in 2022. Dental costs - dental costs were assumed to be 4.7% for 2020 increasing annually to 5.1 % in 2022. 13. Customer and IESO deposits: Customer deposits represent cash deposits from electricity distribution customers and retailers, as well as construction deposits. Deposits from electricity distribution customers are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Corporation in accordance with policies set out by the OEB or upon termination of their electricity distribution service. Construction deposits represent cash prepayments for the estimated cost of capital projects recoverable from customers and developers. Upon completion of the capital project, these deposits are transferred to deferred revenue. The Corporation delivers conservation and demand management programs for its customers on behalf of the IESO. Prepayments received from the IESO have been recorded and will be transferred to revenue as programs are delivered and the revenue is earned. The deposits comprise: 2020 2019 Customer deposits $ 6,424 $ 7,414 Construction deposits 7,196 6,982 IESO deposit for energy conservation programs 1,158 1,158 Total customer and IESO deposits $ 14,778 $ 15,554 152 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 14. Share capital: 2020 2019 Authorized: Unlimited number of common shares Issued: 20,000 common shares $ 66,389 $ 66,389 Dividends: The holders of the common shares are entitled to receive dividends as declared from time to time. The Corporation paid aggregate dividends in the year on common shares of $4,182 (2019 - $4,034). 15. Other operating revenue: Other income comprises: 153 2020 2019 Specific service charges $ 1,875 $ 1,844 Deferred revenue 1,016 908 Scrap sales 101 190 Net gain on disposal of capital assets 149 36 Retailer services 48 44 Sundry (316) (155) Total other income $ 2,873 $ 2,867 16. Finance income and expense: 2020 2019 Interest income on bank deposits $ 132 $ 433 Finance income 132 433 Interest expense on long-term debt 2,496 3,816 Interest expense on short-term debt 271 - Interest expense on BMO Letter of Credit 123 122 Interest expense on deposits 91 170 Other - 11 2,981 4,119 Net finance costs recognized in profit or loss $ 2,849 $ 3,686 153 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 17. Commitments and contingencies: Contractual Obligations There are no contractual obligations General From time to time, the Corporation is involved in various litigation matters arising in the ordinary course of its business. The Corporation has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Corporation's financial position, results of operations or its ability to carry on any of its business activities. General Liability Insurance: The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange (MEARIE). MEARIE is a pooling of public liability insurance risks of many of the LDCs in Ontario. All members of the pool are subjected to assessment for losses experienced by the pool for the years in which they were members, on a pro -rata basis based on the total of their respective service revenues. As at December 31, 2020, no assessments have been made. 18. Guarantees: Kitchener Power Corp. is the guarantor for a line of credit issued by the Canadian Imperial Bank of Commerce on behalf of Grand River Energy Solutions Corp (GRE Corp). GRE Corp is one third owned by each of Kitchener Power Corp., Waterloo North Hydro Holding Corporation and Cambridge & North Dumfries Energy Plus Inc.; each of which has guaranteed a maximum of $6 million in the event of default by GRE Corp. This increased from $3 million to $6 million on April 1, 2020. 19. Pension agreement: The Corporation provides a pension plan for its employees through OMERS. The plan is a multi- employer, contributory defined pension plan with equal contributions by the employer and its employees. In 2020, the Corporation made employer contributions of $1,723 to OMERS (2019 - $1,661). The Corporation's net benefit expense has been allocated as follows: a) $449 (2019 - $459) capitalized as part of property, plant and equipment; b) $1,274 (2019 - $1,202) charged to net income. The Corporation estimates that a contribution of $1,739 to OMERS will be made during the next fiscal year. 154 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 20. Employee benefits: 2020 2019 Salaries, wages and benefits $ 19,684 $ 19,022 CPP and EI remittances 732 722 Contributions to OMERS 1,723 1,661 Expenses related to defined benefit plans 370 361 $ 22,509 $ 21,766 21. Related party transactions: (a) Parent and ultimate controlling party: The Corporation is wholly-owned by the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot. The City and the Township produce financial statements that are available for public use. (b) Entity with significant influence: The Corporation of the City of Kitchener exercises significant influence over the Corporation through its 92.25% ownership interest in the Corporation. (c) Key management personnel: The key management personnel of the Corporation have been defined as members of its board of directors and executive management team members, and is summarized below. 2020 2019 Directors' fees $ 67 $ 58 Salaries and other short-term benefits 1,061 993 Post employment benefits 19 18 Other long-term benefits (OMERS) 90 84 $ 1,237 $ 1,153 (d) Transactions with parent: During the year the Corporation paid management and business development services to its parent in the amount of $nil (2019 - $nil) (e) Transactions with entity with significant influence: In the ordinary course of business, the Corporation delivers electricity to the Corporation of the City of Kitchener. Electricity is billed to the City of Kitchener at prices and under terms approved by the OEB. 155 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 21. Related party transactions (continued): (f) Transactions with ultimate parent (the City of Kitchener) In 2020, the Corporation had the following significant transactions with its ultimate parent, a government entity: • Construction, contracted through Kitchener Wilmot Hydro Inc. • Streetlight maintenance services contracted through Kitchener Energy Services Inc. 22. Financial instruments and risk management: Fair value disclosure Cash and cash equivalents are measured at fair value. The carrying values of receivables, and accounts payable and accrued charges approximate fair value because of the short maturity of these instruments. The carrying value of the customer deposits approximates fair value because the amounts are payable on demand. The fair value of the long-term debt (senior unsecured debentures issued by the shareholders (City of Kitchener and Township of Wilmot) approximates the carrying value due to the short term nature of the loan. The fair value of the long-term debt (senior unsecured debentures) issued by Ontario Infrastructure Projects Corporation at December 31, 2020 is zero (2019 - $607). The final loan balance was paid in full in 2020. The fair value prior to 2020 was calculated based on the present value of future principal and interest cash flows, discounted at the current rate of interest at the reporting date. The interest rate used to calculate fair value at was 4.28%. Financial risks The Corporation understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Corporation's exposure to a variety of risks such as credit risk, interest rate risk, and liquidity risk, as well as related mitigation strategies are discussed below. (a) Credit risk: Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Corporation, such as accounts receivable, expose it to credit risk. The Corporation earns its revenue from a broad base of customers located in the City of Kitchener and the Township of Wilmot. As of December 31, 2020, two customers accounted for more than 1% of total accounts receivable, totaling $341 (or 2.2%) out of a total accounts receivable of $15,709. 156 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 22. Financial instruments and risk management (continued): (a) Credit risk (continued): The carrying amount of accounts receivable is reduced through the use of an allowance for impairment and the amount of the related impairment loss is recognized in net income. Subsequent recoveries of receivables previously provisioned are credited to net income. The balance of the allowance for impairment at December 31, 2020 is $500 (2019 - $250). The allowance was increased due to an expected increase in Covid-19 related bad debt. An impairment loss of $793 (2019 - $44) was recognized during the year. This included a significant loss of $385 as a result of the bankruptcy of a single customer in 2020, in addition to a general increase due to the pandemic lockdowns. The future impact of the pandemic remains uncertain. The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2020, approximately $314 (2019 - $245) is considered 60 days past due. The Corporation has over 99 thousand customers, the majority of whom are residential. Credit risk is managed through collection of security deposits from customers in accordance with directions provided by the OEB. As at December 31, 2020, the Corporation holds security deposits in the amount of $14,800 (2019 - $15,600). (b) Market risk: Market risks primarily refer to the risk of loss resulting from changes in commodity prices, foreign exchange rates, and interest rates. The Corporation currently does not have any material commodity or foreign exchange risk. The Corporation is exposed to fluctuations in interest rates as the regulated rate of return for the Corporation's distribution business is derived using a complex formulaic approach which is in part based on the forecast for long- term Government of Canada bond yields. This rate of return is approved by the OEB as part of the approval of distribution rates. A 1 % increase in the interest rate at December 31, 2020 would have increased interest expense on the long-term debt by $nil (2019 - $6), assuming all other variables remain constant. A 1 % decrease in the interest rate would have an equal but opposite effect. (c) Liquidity risk: The Corporation monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Corporation's objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Corporation has access to a $35,000 credit facility and monitors cash balances daily to ensure that a sufficient level of liquidity is on hand to meet financial commitments as they come due. As at December 31, 2020, no amounts had been drawn under Bank of Montreal credit facility (2019 - $nil). The Corporation also has a bilateral facility for $35,000 (the "LC" facility) for the purpose of issuing letters of credit mainly to support the prudential requirements of the IESO, of which $35,000 has been drawn and posted with the IESO (2019 - $35,000). The majority of accounts payable, as reported on the balance sheet, are due within 30 days. 157 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 22. Financial instruments and risk management (continued): (c) Liquidity risk (continued): The Company's currently available liquidity is also expected to be sufficient to address any reasonably foreseeable impacts that the COVID-19 pandemic may have on the Company's cash requirements. (d) Capital disclosures: The main objectives of the Corporation, when managing capital, are to ensure ongoing access to funding to maintain and improve the electricity distribution system, compliance with covenants related to its credit facilities, prudent management of its capital structure with regard for recoveries of financing charges permitted by the OEB on its regulated electricity distribution business, and to deliver the appropriate financial returns. The Corporation's definition of capital includes shareholder's equity and long-term debt. As at December 31, 2020, shareholder's equity amounts to $167,496 (2019 - $160,964) and long- term debt amounts to $76,963 (2019 - $76,963). 23. Revenue from Contracts with Customers The Corporation generates revenue primarily from the sale and distribution of electricity to its customers. Other sources of revenue include performance incentive payments under CDM programs. 158 2020 2019 Revenue from Contracts with Customers $ 284,230 $ 246,092 Other Revenue: CDM programs 727 1,676 Other 1,426 1,901 Total $ 286,383 $ 249,669 In the following table, revenue from contracts with customers is disaggregated by type of customer. 2020 2019 Residential $ 127,780 $ 93,701 Commercial 153,515 149,386 Large Users 1,346 1,448 Other 1,589 1,557 Total Revenue $ 284,230 $ 246,092 158 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 24. Change in Accounting Policy The International Accounting Standards Board (IASB) has issued the following Standards, Interpretations and Amendments to Standards that were adopted by the Company effective January 1, 2020: • Amendments to Hedge Accounting Requirements - IBOR Reform and its Effects on Financial Reporting (Phase 1) • Amendments to References to the Conceptual Framework in IFRS Standards • Definition of a Business (Amendments to IFRS 3) • Definition of Material (Amendments to IAS 1 and IAS 8) • Covid-19-Related Rent Concessions (Amendment to IFRS 16) The amendments and clarifications did not have an impact on the financial statements. 25. Future accounting pronouncements: At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Company and it is still to be determined if any will have a material impact on the Company's financial statements. (a) Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16) On May 14, 2020, the IASB issued Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16). The amendments clarify that proceeds from selling items before the related item of Property, Plant and Equipment is available for use should be recognized in profit or loss, together with the cost of producing those items. The amendments are effective for annual periods beginning on or after January 1, 2022. Early adoption is permitted. (b) Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) On May 14, 2020, the IASB issued Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37). This amendment clarifies which costs are included as a cost of fulfilling a contract when determining whether a contract is onerous. The amendments are effective for annual periods beginning on or after January 1, 2022 and apply to contracts existing at the date when the amendments are first applied. Early adoption is permitted. 159 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 25. Future accounting pronouncements (continued): (c) Annual Improvements to IFRS Standards 2018 -2020 On May 14, 2020, the IASB issued Annual Improvements to IFRS Standards 2018 -2020. The amendments are effective for annual periods beginning on or after January 1, 2022. Early adoption is permitted. I FRS 9 Financial Instruments Clarifies which fees are included for the purpose of performing the '10 per cent test' for derecognition of financial liabilities. I FRS 16 Leases Removes the illustration of payments from the lessor relating to leasehold improvements. The impact of adoption of these improvements is not expected to have an impact on the business. (d) Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and I FRS 16) On August 27, 2020, the IASB finalized its response to the ongoing reform of inter -bank offered rates and other interest rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments are effective for annual periods beginning on or after January 1, 2021. Earlier application is permitted. The impact of adoption of these amendments is not expected to have an impact on the business. 26. Impact of COVID-19 pandemic: On March 11, 2020, the World Health Organization declared that the COVID-19 outbreak was a global pandemic. On March 17, 2020, the Ontario Government declared a State of Emergency pursuant to the Emergency Management and Civil Protection Act. The Ontario Government renewed the declaration, as required by the legislation, until July 24, 2020. During the State of Emergency, the Ontario Government issued emergency orders under the legislation and extended them as required by the legislation. On July 24, 2020, the Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 came into effect, bringing the declared State of Emergency to an end. The Reopening Ontario Act also enabled the Ontario Government to extend, amend, and revoke the remaining emergency orders in order to facilitate a flexible response to the ongoing COVID-19 risks. 160 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 26. Impact of COVID-19 pandemic (continued): On March 19, 2020, the OEB extended the ban on disconnecting residential customers to July 31, 2020, in light of the COVID-19 pandemic. For the same reason, at the same time, the OEB also banned the disconnection of other low volume customers (as defined in the OEB Act) prior to July 31, 2020. In addition, the Corporation extended its ban on disconnecting residential and low volume customers until the transition back into the OEB's annual recurring winter disconnection ban on November 15, 2020. On March 24, 2020, the Ontario Government issued an emergency order setting TOU rates for on - peak, mid -peak, and off-peak at 10.1 cents per kWh, which prior to the emergency order was the TOU off-peak rate. That emergency order was effective through May 7, 2020. On May 6, 2020, the Ontario Government issued an emergency order extending those TOU rates through May 31, 2020. On May 30, 2020, the Ontario Government announced the COVID19 Recovery Rate, setting a fixed TOU electricity price at 12.8 cents per kWh, 24 hours a day, seven days a week, effective June 1, 2020 until October 31, 2020. On October 13, 2020, the OEB announced new TOU rates for on - peak, mid -peak, and off-peak, that once again vary according to when electricity is used, effective November 1, 2020. There was no impact to net income to the Corporation. On March 25, 2020, the OEB established a deferral account for regulatory balances to record the costs of changes to billing systems resulting from the Ontario Government's TOU emergency order, other incremental costs and lost revenues associated with the COVID-19 pandemic. On May 14, 2020, the OEB launched a consultation process to inform its decision-making with respect to how the account will operate, including eligibility requirements, and the process and timing for the disposition. On December 16, 2020, OEB staff issued a proposal with respect to the deferral account and related consultation [note 8]. On August 20, 2020, the Ontario Government amended O. Reg. 95/05 Classes of Consumers and Determination of Rates. Accordingly, customers on the RPP have the choice to pay TOU rates or tiered rates, effective November 1, 2020. By default, RPP customers will pay TOU rates. RPP customers who choose to pay tiered rates will pay a lower rate for consumption below a monthly threshold, and a higher rate for consumption above that threshold. The tiered rates and the threshold are set by the OEB twice per year, at the same time as the OEB sets TOU rates. There was no impact to net income to the Corporation. On December 15, 2020, the OEB announced new RPP TOU and tiered rates to reflect a decrease in supply cost resulting from the Ontario Government's decision to remove certain renewable generation costs from the global adjustment and funding them directly through the tax base. The reduction was accompanied by a corresponding reduction to the Ontario Electricity Rebate. There was no net income impact to the Corporation. 161 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2020 (Expressed in thousands of dollars) 26. Impact of COVID-19 pandemic (continued): On December 22, 2020, the Ontario Government amended O. Reg. 95/05 Classes of Consumers and Determination of Rates, setting both the TOU rates for on -peak, mid -peak, and off-peak and tiered rates at the TOU off-peak rate of 8.5 cents per kWh. That regulatory amendment was effective through January 28, 2021, and most recently extended until February 22, 2021. On February 23, 2021, residential and small business customers resumed paying TOU and tiered pricing under the RPP at prices that were set by the OEB on December 15, 2020. There was no net income impact to the Corporation. 162 THE CORPORATION OF THE CITY OF KITCHENER FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 2020 2019 2018 2017 2016 1. DEMOGRAPHIC STATISTICS 1.09960 1.11084 1.12975 1.15259 1.16901 Population' 262,220 261,610 255,070 252,520 246,700 Households' 100,440 98,820 97,830 96,720 94,170 Area in acres 33,797 33,797 33,797 33,797 33,802 2. TAXABLE ASSESSMENT ($000's) 1.26000 1.29000 1.34000 1.39000 1.40000 Residential and farm 27,436,306 26,184,498 24,878,827 23,639,290 22,414,567 Commercial and industrial 4,316,742 4,087,831 3,740,833 3,525,281 3,390,259 Total 31,761,047 30,272,329 28,619,660 27,164,571 25,804,826 3. TAX RATES 1.17216 1.16964 1.17984 1.19237 1.19650 Residential and Farm Taxable Full 1.26000 1.29000 1.34000 1.39000 1.50000 City 0.34640 0.35002 0.35470 0.36212 0.36742 Region 0.60110 0.59982 0.60505 0.61147 0.61359 School Boards 0.16300 0.16100 0.17000 0.17900 0.18800 Total 1.09960 1.11084 1.12975 1.15259 1.16901 Commercial Taxable Full City 0.67362 0.68255 0.69166 0.70613 0.71647 Region 1.17216 1.16964 1.17984 1.19237 1.19650 School Boards 1.26000 1.29000 1.34000 1.39000 1.40000 Total 3.09667 3.14219 3.21150 3.28850 3.31297 Industrial Taxable Full City 0.67362 0.68255 0.69166 0.70613 0.71647 Region 1.17216 1.16964 1.17984 1.19237 1.19650 School Boards 1.26000 1.29000 1.34000 1.39000 1.50000 Total 3.09667 3.14219 3.21150 3.28850 3.41297 1. Source: Planning, Housing and Community Services Department, Regional Municipality of Waterloo 2. Source: Statistics Canada, 2016 Census Data (2017 to 2020); 2011 Census Data (2016) Weighted Assessment Growth 5 4 Final 2018: 1.59% Final 2019: 2.53% 3 1 Final 2020: 1.58% 2 1 0 11 12 13 14 15 16 17 18 19 20 Year Cumulative Tax Rate & CPI 20 15 10 5 0 11 12 13 14 15 16 17 18 19 20 Year -City Tax Rate (%) -Ontario CPI (%) 163 THE CORPORATION OF THE CITY OF KITCHENER FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) ($000's) 2020 2019 2018 2017 2016 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 REVENUE 452,817 439,831 423,032 406,605 394,020 453,047 436,211 422,659 405,060 389,608 100% 99% 100% 100% 99% 22,377 21,597 18,933 16,878 20,598 5% 5% 4% 4% 5% Taxation and user charges3 378,568 396,951 381,356 367,621 339,203 Grants 31,767 15,310 13,516 12,908 5,830 Share of net income of Kitchener Power 38,266 45,833 39,164 37,805 35,100 Corp. and its affiliates 9,630 9,362 10,104 9,348 9,593 Development charge revenue recognized 9,582 12,174 10,294 7,303 10,388 Other 32,996 43,006 34,857 15,852 21,097 Total revenue 462,543 476,803 450,127 413,032 386,111 6. CONSOLIDATED EXPENSES Expenses by Function General government 33,745 37,088 36,262 39,436 38,932 Protection services 55,408 51,360 49,751 47,268 45,291 Transportation services 38,266 45,833 39,164 37,805 35,100 Environmental services3 98,326 94,518 88,316 80,380 76,317 Health services 2,315 2,814 2,694 2,296 2,257 Social and family services 2,322 2,865 2,797 2,662 2,722 Recreation and cultural services 64,481 79,449 76,236 69,847 68,496 Planning and development 12,609 13,670 11,479 13,123 13,160 Gasworks 56,677 59,578 67,610 67,386 52,184 Total Expenses 364,149 387,175 374,309 360,203 334,459 Expenses by Object Salaries, wages and employee benefits 156,421 164,070 158,659 151,980 147,224 Materials and services3 149,253 161,745 162,538 152,371 138,301 Debenture debt interest 2,286 2,613 2,881 3,180 3,534 Grants and other 4,456 4,188 6,186 5,295 4,214 Amortization 51,793 49,546 47,876 46,188 42,658 Loss/(Gain) on sale of assets (60) 5,013 (3,830) 1,189 (1,472) Total Expenses 364,149 387,175 374,310 360,203 334,459 7. ANNUAL SURPLUS 98,394 89,628 75,817 52,829 51,652 3. Water purchases and wastewater treatment surcharge had previously been netted against user charges. In 2018 this process was changed to present the gross revenue and expenses. 2016 to 2017 figures have been restated to match the current year presentation. 164 THE CORPORATION OF THE CITY OF KITCHENER FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 2020 2019 2018 2017 2016 8. ANALYSIS OF LONG-TERM DEBT ($000's) Gross debt issued by the municipality 62,739 63,993 71,179 77,889 84,859 Less debt recoverable from municipal enterprises and consolidated boards 7,922 8,498 9,056 9,596 10,121 Less debt recoverable from other sources 5,151 5,870 6,571 7,252 8,587 Net debt to be repaid from property taxes 49,666 49,625 55,552 61,041 66,151 Net debt per capita ($'s) 189 190 218 242 268 Repayment of principal & interest ($000's) 13,094 13,886 13,903 14,589 14,592 Annual repayment limit ($000's)4 85,330 80,148 73,789 71,777 72,327 Interest on long-term debt as a % of total expenditures 0.6% 0.7% 0.8% 1.0% 1.2% 9. ACCUMULATED SURPLUS ($000's) Reserves, reserve funds and deferred revenue - obligatory reserve funds 159,233 130,274 104,780 98,754 88,097 Unexpended capital financing 103,250 99,856 99,849 118,172 108,099 Accumulated surplus 1,599,671 1,501,277 1,411,650 1,335,832 1,283,004 10. NEW CONSTRUCTION Value of construction ($000's) 1,048,527 1,046,476 566,135 498,220 739,739 Number of building permits 2,670 2,975 2,624 2,503 3,158 Number of single family dwelling starts 559 345 303 300 840 11. NET FINANCIAL ASSETS ($000's) 270,286 254,471 221,799 220,788 214,048 4. The debt limit is based on the Financial Information Return from the second immediate preceding year $ Debt Per Capita 400 300 200 100 2016 2017 2018 2019 2020 Year ■ Tax Supported ■ Non -Tax Supported New Construction 1,200 £shit ;0 2016 2017 2018 2019 ___2� Yeah 165 THE CORPORATION OF THE CITY OF KITCHENER FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 12. PRINCIPAL CORPORATE TAXPAYERS 2020 Taxable Assessment Value ($000's) DREWLO HOLDINGS INC 372,720 CF/REALTY HOLDINGS INC 271,773 ONTREA INC. 249,782 EUROPRO (KITCHENER) GP INC 125,081 HOMESTEAD LAND HOLDINGS LIMITED 115,106 ONTARIO MINISTER OF ENERGY & INFRASTRUCTURE 93,467 ACTIVA HOLDINGS INC 88,419 VOISIN DEVELOPMENTS LIMITED 86,538 THE INCC CORP 84,647 GF 200 OLD CARRIAGE DRIVE LTD 78,900 MORGUARD NAR (ONTARIO) HOLDINGS LIMITED 71,057 KITCHENER HOUSING INC 69,431 CATALYST 137 KITCHENER INC 65,491 STAMM INVESTMENTS LIMITED 63,651 BOARDWALK REIT PROPERTIES HOLDINGS LTD 63,582 166 FINANCIAL REPORT • 2020 Audited Financial Statements For the year ended December 31, 2020 1 .: • Financial Highlights — Fiscal 2020 • Understanding the Financial Statements • Key Financial Indicators • Audit Findings Report (presented by KPMG audit team) 169 On March 11, 2020 the World Health Organization declared the Coronavirus Disease of 2019 (COVID-19) a global pandemic. — Reduced user fee revenue due to mandatory facility closures, event cancellations and lower capacity in programs that were able to continue and decreased demand for parking at city facilities as many people were forced to work from home — Reduced investment income as interest rates were lowered globally to help stabilize economic conditions — Increased investment in technology infrastructure to support mandatory work from home measures — Additional Personal Protective Equipment (PPE) costs for staff who were not able to effectively work from home — Shift to cash and cash equivalents from investments as there were concerns over cash flows early in the pandemic 170 The Federal and Provincial governments transferred funds to municipal governments through the Safe Restart program to reduce the impacts of the pandemic — Grant revenue is greater than in recent years — Reserves have increased since only a portion of the funding was spent in 2020 The City implemented various cost savings measures to help alleviate the pressures of the reduced revenue and additional costs associated with the pandemic — Transitioned hundreds of staff to Infectious Disease Emergency Leave on a temporary basis — Deferred certain capital projects to address potential cash flow concerns — Utility costs were lower due to facilities being closed during mandated shut -downs throughout the year — Discretionary spending (expenditures that can be lowered on a short-term basis) was limited wherever possible 171 Consolidated Include operating, capital and reserves Reported in compliance with Public Sector Accounting standards 172 Year Ended Dec 31, Year Ended Dec 31, 2020 2019 Tax supported surplus (deficit) (5,060,544) 766,454 E rterpr?se surp ]us (d eficti 6,093,746 11,028,472 Total operating su rplus x,023,202 11,794,926 Consolidation Kitchener Pul; "c Library 481,900 (348,000) The tenxre'nthe Square 44,405 917,379 Kitchener DowrtownImp rovemerntArea 38,046 (72,151) Bamorft mprovemertArea 55,985 (2,359) Kitchener PowerCorp. and tsAffiliates 9,629,978 9,361,531 Kitchener Generation Corporaten 65,402 34,716 ldettransfersto capta and reserves 50,271,717 9,887,106 Revenues not included in operating surplus Reserve fund revenue 37,241,902 30,427,434 Contributed assets 19,856,345 23,892,013 Gain ( ID ss on sae of tang L e cap to assets 2,056,720 (3,055,126) Other cap'ta revenue 6,427,517 7,614,232 65,582484 58,878,554 fterrrsinoperating surplus, not in consolidated statements ldettransfersto capta and reserves 90,419,006 77,606,310 VarioLis PSAB adjustments 5,982,429 4,179,223 96,40x,435 81,785,533 COK expenses not included in operating surplus Arno rt,at'cno`tangLecaptaassets (49,392.245) (50,393,275) Other cap'ta expenses (17,3B5,3M) (18,731,059) Change'nactuarial estinate forempioyeefuturebenefits (2,772,793) (2,438,6D3) Reserve ;-Indeq.,enses (4,834,128) (1,155,757) (74,885,050) (72,718,694) Ail nualsurpIusperCon sol idatedF{S 98,.393,782' 89,627,424 173 `AXES RECEIVABLE TO TAXES LEVIED -his ratio is a strong indicator of the strength of a local economy and the ability of residents to pay their annual taxes. Credit Rating agencies consider Iver 8% a negative factor. -ALCULATION calculated as taxes receivable (FIR Sch 72 line 0290 column 91 divided )y total taxes levied (FIR Sch 22 line 9990 column 15) for the municipality. TREND ANALYSIS TAXES RECEIVABLE TO TAXES LEVIED 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% LO% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2014 2020 _COK Ratio -Recommended Max -ONSIDERATIONS f this percentage increases over time, it may indicate a decline in the municipality's economic health. COMPARISON WITH PEERS TAXES RECEIVABLE TO TAXES LEVIED 9.0% Brampton 8.096 Burlington 7.0% � Cambridge 6.0% Kitchener 5.096 — � St Catherines 4.0% Vaughan 3.0% � Waterloo 2.0% Whitby 1.0% I — — — Average -comparator group 0.0% Recommended Max 2017 2018 2019 174 IESERVES TO EXPENSES Jnder the authority of the Municipal Act, the City and certain of its consolidated entities have established reserve funds to ensure future liabilities can be met, :apital assets are properly maintained and sufficient financial flexibility exists to respond to economic cycles or unanticipated financial requirements. This financial ndicator provides an indication of how much money is set aside for future needs/contingencies. The Ministry of Municipal Affairs and Housing has recommended hat municipalities in Ontario maintain a minimum of 20% of municipal expenses in reserves and reserve funds. CALCULATION Calculated as total reserves and reserve funds (FIR Sch 60 line 9934 columns 2 Sr 3) divided by total expenses (FIR Sch 40 line 9910 column 11 } for the municipality. TREND ANALYSIS RESERVES TO EXPENSES 36.096 25.0% 20.OX 15_C96 10.096 5.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 —COK Ratio —Rxommended Minimum :ONSIDERATIONS .och reserve and reserve fund was set up to fund specific activities. Reserves vould not be combined and used to fund general expenditures. The Financial -idicrator Review provided by the Ministry of Municipal Affairs and Housing has ated the City's risk as Moderate in this area. COMPARISON' WITH PEERS RESERVES TO EXPENSES ea.o9s � Brampton 70:0% � Budngton 60.0% � Catntridge 50.096 — � Kitdmener 40 0% � St Ca3kemiin- — V—gh— 30.0% - � Waterloo 20.0% � Wliimy 10.0% - _I_ - _ _ •A—age-comparators 0.0% —Recommended Fr d— 2017 2018 2019 175 )EBT CHARGES TO OWN SOURCE REVENUES his financial indicator provides an indication as to the City's overall indebtedness by calculating the percentage of revenues used to fund long term debt ervicing costs. The City's ability to issue additional debt may be limited if debt servicing costs on existing debt are excessively high. The annual debt and inancial obligation limit for municipalities is determined under Ontario Regulation 403/02: debt and financial obligation limits and is set as 25%. Credit rating igencies consider that principal and interest should be below 106 of Own Source Revenues. 'ALCULATION '.alculated in accordance with annual debt repayment limit as found in IR Schedule 51. TREND ANALYSIS DEBT CHARGES TO OWN SOURCE REVENUES 12.06%6 10.0096 8)0%6 6)096 1)096 2)096 ©00% 2011 2{112 2013 2611 2715 2016 2017 2618 2019 2028 -CCKRath -nEmrmL-rPcedma¢ 'ONSIDERATIONS =very municipality and Council will have a different appetite for debt. COMPARISON WITH PEERS DEET CHARGES TO OWN SOURCE REVENUES 12.696 � Brampton (ni I far 2oit & 2017 100%Burlington . � Cambridge B.o%. � Kitch ener St Cathelnes uaughan S:o96 _ � W�eriaa 2.0% 20 h rag oam mit A - Average - mmparatrlrgmup r up Remmrrended Mac 2617 2618 2019 176 :APITAL ASSET CONSUMPTION RATIO 'his ratio shows the value of the tangible capital assets that have been consumed. This ratio seeks to highlight the aged condition of the assets and the Dotential asset replacement needs. The Ministry of municipal Affairs and Housing considers a ratio of 25% or under to be relatively new; 26%-50% to be moderately new; 51%-75% to be moderately old and over 75% to be old. -ALCULATION lalculated as total accumulated amortization (FIR Sch 51 line 9910 -olumn 10) divided by total cost of capital assets (FIR Sch 51 line 9910 -olumn 6) for the municipality. TREND ANALYSIS 50-C% - 40.076 319_[176 21.076 10.0% ASSET CONSUMPTION RATIO 2011 2017 2033 2014 21815 201E 2017 2918 2014 7070 —COK Ratio —Madeat* new range -ONSIDERATIONS % higher ratio may indicate significant replacement needs. However, if assets ire renewed and replaced in accordance with an asset management plan a sigh ratio should not be a cause for concern. COMPARISON WITH PEERS 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 50% 0.0% 7017 ASSET CONSUMPTION RATIO � Brampton � Rudingtran � Cambridge � Kitchener r � St Cathednes � Vaughan � Waterloo llllllll� whiffiy — — _Average - ccrnparators 2018 7019 - Modeat* new range 177 )EBT TO RESERVE RATIO his indicator provides a measure for financial prudence by comparing total debt to the total reserve balances. Generally, the benchmark suggested by :relit rating agencies for this ratio is 1:1 or in other wards, debt should not exceed total reserve and reserve fund balances. A 1:1 ratio reflects that for every Jchllar of debt there is a dollar of reserves. :ALOULATION calculated as all outstanding debt (FIR Sch 74A line 9910 column 1 ) l'luided by discretionary reserves (FIR Sch 60 line 9930 column 2). Nott ,,eserves excludes obligatory reserves. TREND ANALYSIS DEBT TO RESERVE RATIO �s4 X04 ISO 2.00 '.50 1.40 4.S0 240 2011 2012 24113 2614 2015 2015 2417 2018 2079 2020 -COK Ratio -E:d EDIF -Elenchmark 'ONSIDERATIONS his ratio can be improved by either increasing reserve balances or by reducinc Overall debt levels. Most debt has a fixed repayment term so municipalities often would not have the ability to pay down debt even if they held the funds o do so. COMPARISON WITH PEERS DEBT TO RESERVE RATIO 2.S Brampton 2.4 Burlington Cambridge 1.S Kitdhener St Cath e n nes 7.0 Vaughan Waterloo C.5 Whitby ( ni I for years shown) —Average- comparator group Bendtmark 2017 2018 2075 178 INANCIAL ASSETS TO LIABILITIES his financial indicator provides an assessment of the City's solvency. It compares financial assets (things like cash, investments and accounts receivable) to the City's abilities (things like accounts payable, deferred revenue and municipal debt). Love levels for this ratio indicate limited resources available to meet challenges such is increases to costs or decreases in revenue. A ratio of 1 to 1 ensures that there are enough financial assets to cover off all of the municipality's liabilities. CALCULATION Calculated as a municipality's total financial assets (FIR Sch 70 line 9930 column 11 divided by its total liabilities (FIR Sch 70 fine 9940 column 1 j. TREND ANALYSIS FINANCIAL ASSETS TO LIABILFF IES 2.00 1.80 1.60 1.40 120 1.00 0.80 0.60 0.40 020 2011 2012. 2013 2014 2015 20 L6 2017 2018 2019 2420 -COK Ratio -Mirimum Target CONSIDERATIONS Financial assets may include investments in government business enterprises, which are not likely to be converted to cash in the short term. Liabilities may include costs that will not be repaid for a number of years and may not require being paid at once, but rather over a period of many years (eg. post employment benefits). COMPARISON WITH PEERS FINANCIAL ASSETS TO LIABILMES 2417 2418 2019 Brampton i Bud ington Cambridge Kitdh n St Cathe ri n m Vaughan Wate rlo'a t Whitby Average- iomparamrgrovp Minimum Target 179 KPMG will now present their audit findings 1 : M The Corporation o the City of Kitchener r, r it • • • 0,+*' Ise ��01 � Ise �,.rr so t 0 alse to 1 C rue , a alse il 1 ORI p � alsealse.rued -a bac' he fieb' ft 5.425 Audit Findings Report I ' for the year ended s.a a ifier December 31, 2020 6i ob-mod4f. ` } �w exactly two objects; th. Chartered Professional Accountants, Licensed Public Accountants Prepared May 11 2021 for the Audit Committee meeting on June 28, 2021 is not 34389, 3 6 +56.4 5.5 • Table of ContentS EXECUTIVE SUMMARY AUDIT RISKS AND RESULTS AUDIT APPROACH TECHNOLOGY IN THE AUDIT FINANCIAL STATEMENT PRESENTATION AND DISCLOSURE UNCORRECTED DIFFERENCES AND CORRECTED ADJUSTMENTS APPENDICES APPENDIX 1: OTHER REQUIRED COMMUNICATIONS APPENDIX 2: AUDIT QUALITY AND RISK MANAGEMENT 182 1 2 10 11 12 13 14 15 16 Executive summary Purpose of this report' 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 as at and for the year ended December 31, 2020. This Audit Findings Report builds on the Audit Plan we presented to the Audit Committee. There have been significant changes in 2020 which impacted financial reporting, the Entity's internal control over financial reporting and our audit: • COVID-19 pandemic — see paaes 4-5 As of May 11, 2021, we have completed the audit of the consolidated financial statements, with the exception of certain remaining procedures, which include amongst others: — Completing our discussions with the Audit Committee — Obtaining evidence of the Council's approval of the financial statements — Obtaining a signed management representation letter — Receipt of legal letters We will update the Audit Committee, and not solely the Chair, on significant matters, if any, arising from the completion of the audit, including the completion of the above procedures. Our auditors' report will be dated upon the completion of any remaining procedures. There have been no initial selections of, or changes to, significant accounting policies and practices to bring to your attention. We concur with management's assertion that any uncorrected audit differences, individually and in aggregate, are not material to the financial statements. We did not identify any control deficiencies that we determined to be significant deficiencies in internal control over financial reporting. There have been no significant changes regarding our audit from the Audit Planning Report previously presented to you. This Audit Findings Report should not be used for any other purpose or by anyone other than the audit committee. 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. 183 What'S new IIS 2020 — We considered impacts to financial reporting due to COVID 19 pandemic and the increased disclosures needed in the financial statements as a result of the significant judgements. — In areas of the financial statements where estimates involved significant judgements, we evaluated whether the method, assumptions and Company's financial data used by management to derive the accounting estimates, and their related financial statement disclosures were still appropriate per the reporting impacts relevant financial reporting framework given the changed economic conditions and increased estimation uncertainty. – See page 8 under Audit Risk and Results. — The areas of the financial statements most affected included: o Government grants recorded as part of the Safe Restart Funding programs — As part of our risk assessment we examined the financial reporting risks, including fraud risks, given possible new pressures on management or new opportunities to commit fraud given changes in the Entity's internal controls over financial reporting. Company's internal — As a result of the Entity's remote working environment, it was necessary to assess the impact to the Entity's internal controls. control over financial reporting o In areas of the audit where we are evaluating controls, we obtained an understanding of any changes to processes and controls during the year to assess if there was a need to change the extent of testing. No changes were noted that had a significant impact on the scope of audit work. — We considered impacts to financial reporting on both the determination and the re -assessment of materiality for the audit of the financial Materiality statements. — No adjustment to materiality was considered necessary. 1 i0 — We performed a more thorough risk assessment specifically targeted at the impacts of the COVID 19 pandemic, including an assessment of Risk Assessment fraud risk factors (i.e., conditions or events that may be indicative of an incentive/pressure to commit fraud, opportunities to commit fraud, rationalizations of committing fraud). — We used virtual work rooms, video conferencing, and internally shared team sites to collaborate in real-time, both amongst the audit team as well as with management. Working remotely — We increased our professional skepticism when evaluating electronic evidence received and performed additional procedures to validate the authenticity and reliability of electronic information used as audit evidence. — The managers and partner were actively involved in determining the impact that the COVID-19 pandemic had on the audit (as discussed Direction and above), including the impact on the Company's financial reporting and changes in the Company's internal control over financial reporting. Supervision of the audit — Managers and partner implemented new supervision processes to deal with working in a remote environment, and our audit approach allowed us to manage the audit using meaningful milestones and frequent touch points. 185 CAS 540, Auditing — The new standard was applied on all estimates within the financial statements that had a risk of material misstatement due to estimation Accounting Estimates uncertainty and not just "key estimates", "critical accounting estimates", or "estimates with significant risk". and Related Disclosures — The granularity and complexity of the new standard along with our interpretation of the application of that standard necessitated more planning and discussion and increased involvement of more senior members of the engagement team. — We performed more granular risk assessments based on the elements making up each accounting estimate such as the method, the assumptions used, the data used and the application of the method. We considered the potential for management bias. We assessed the degree of uncertainty, complexity, and subjectivity involved in making each accounting estimate to determine the level of audit response; the higher the level of response, the more persuasive the audit evidence was needed. — See page 8 under Audit Risk and Results for estimates that related to significant risk or other areas of focus, which are a subset of all the estimates subject to the new standard. 1 i • Audit Asks and results We highlight our significant findings in respect of significant financial reporting risks as identified in our discussion with you in the Audit Plan, as well as any additional significant risks identified. Significant Risk Fraud Risk from Revenue Recognition Fraud risk from revenue recognition This is a presumed fraud risk. Not Applicable However, the audit team has rebutted this presumption due to the following reasons: — The presumed fraud risk is ordinarily associated with for-profit enterprises — The majority of revenue is calculated based on MPAC data, approved utility rates and user fees, and from government grants, and is not subject to complexity or judgement at the reporting level; and KPMG does not believe that the use of inappropriate cut-off would be utilized to perpetrate fraud 187 Audit Asks and results Significant Risk Fraud risk from management override of controls Fraud risk from management override of controls This is a presumed fraud risk. We have not identified any specific additional risks of management override relating to this audit. As the risk is not rebuttable, our audit methodology incorporates the required procedures in professional standards to address this risk. These procedures include testing of journal entries and other adjustments, performing a retrospective review of estimates and evaluating the business rationale of significant unusual transactions. KPMG performed various substantive based procedures examining journal entries that were being posted to the general ledger. Journal entries were selected using various criteria to identify journal entries that could possibly be related to override activities. No issues were identified in our testing performed. Audit Asks and results Significant findings from the audit regarding other areas of focus are as follows: Other area of focus Obligatory Reserve Funds Revenue and Deferred Revenue Obligatory Reserve Funds, Revenue and Deferred Revenue — Tested controls around the recording of revenues/cash receipts Revenue recognized from the Development Charge Reserve Fund is subject to judgement as capital projects must be development in nature — Obtained management's continuity schedule for deferred development charges and ensured the spreadsheet was accurate Vouched a sample of development charges collected from developers during the current fiscal year — Performed substantive testing over amounts being recognized as revenue by ensuring the expenditure meets the criteria as a "growth -related" project. KPMG did not find any issues through our testing. Audit risks and results Significant findings from the audit regarding other areas of focus are as follows: 4 Other area of focus Post -employment benefits Post -employment benefits - Estimates and judgements used by management - Complexity of the accounting guidance — Communicated with management's actuarial specialists — Confirmed that management's process for identification and making accounting estimates is consistent with the prior year. — Assessed the reasonableness of assumptions used — Tested the appropriateness of the underlying data, including employee populations Assessed the discount rate used in calculating the employee future benefits in 2020 of 2.25%, and considered whether it is reasonable, and consistent with similar term borrowing rates — Ensured the note disclosure was complete and accurate based on actuary reports. — We relied upon the work of the City's expert, Mondelis Actuarial (Actuarial Consultant) in our audit of the accounts and disclosures. KPMG did not find any issues identified through our audit procedures. We believe management's process for identifying critical accounting estimates is considered adequate. 190 Audit Asks and results Significant findings from the audit regarding other areas of focus are as follows: Other area of focus Tangible Capital Assets (TCA) Tangible Capital Assets (TCA) - Significance of the account balances - Risk of error in inappropriately recognizing costs as either capital or operating — Employed a substantive test of details approach, vouching samples of additions and retirements in fiscal 2020 — Reviewed expense accounts to ensure that items related to tangible capital assets were not inappropriately expensed — Recalculated amortization expense KPMG did not find any issues identified through our audit procedures. 191 Audit xvoacn Investments and related income — Confirmation of details with investment managers Taxation Revenue — Performed a substantive analytical procedure using MPAC data and budgeted tax rates. User Fees and Service Charge — Analytical procedures were performed comparing current year's revenues on a disaggregated basis to the current year budget Revenue and the prior year, adjusting for known changes in assumptions. Expenses — Performed substantive procedures to test the existence and accuracy of expenses. — Tested the completeness, existence, and accuracy of yearend accruals, most notably those that contain areas of estimate or judgment. Government Transfers — Reviewed agreements to ensure proper revenue recognition criteria were followed Ensured the transfers were authorized and all eligibility criteria and any stipulations were met. — Performed test of details on significant transfers. KPMG did not find any issues through our audit procedures on the above noted areas of focus 192 TechMogy IIS the audit As previously communicated in our Audit Planning Report, we have utilized technology to enhance the quality and effectiveness of the audit. OAreas of the audit where Technology and D&A routines were used Tool Polur results and insights Data Extraction Our KAAP tool was utilized to facilitate a direct extraction of all journal entries from the SAP system at the City. This tool was successful in & Analytics Tools extracting the large data from the system so we could efficiently test journal entries 193 Financial statement presentation and disclosure The presentation and disclosure of the financial statements are, in all material respects, in accordance with the City's relevant financial reporting framework. Misstatements, including omissions, if any, related to disclosure or presentation items are in the management representation letter. We also highlight the following: Form, arrangement, and content of the financial statements Application of accounting pronouncements issued but not yet effective The form, arrangement and content of the financial statements are appropriate for the size, scope and industry segment of the City. No concerns at this time regarding future implementation. 194 Uncoiiected diffeiences and Corrected AdIustments Differences and adjustments include disclosure differences and adjustments. Professional standards require that we request of management and the Audit Committee that all identified differences be corrected. We have already made this request of management. Uncorrected differences We concur with management's representation that the differences are not material to the financial statements. Accordingly, the differences have no effect on our auditors' report. uorrecteo adjustments The management representation letter includes all adjustments identified as a result of the audit, communicated to management and subsequently corrected in the financial statements. 195 Amendices Content i Appendix 1: Required communications u; �l r' � • Appendix 2: Audit Quality and Risk Management / -< 1 - Appendix I other Re�Uiied Communications In accordance with professional standards, there are a number of communications that are required during the course of and upon completion of our audit. These include: The conclusion of our audit is set out in our draft auditors' report attached to the draft financial statements Audit Quality (AQ) is at the core of everything we do at KPMG. Appendix 2 provides more information on AQ. In accordance with professional standards, a copy of the management representation letter is provided to the Audit Committee. Management has provided you with a copy of the representation letter for the audit of the financial statements. 197 Appendix 2 Audit Quality and Risk Management KPMG maintains a system of quality control designed to reflect our drive and determination to deliver independent, unbiased advice and opinions, and also meet the requirements of Canadian professional standards. Quality control is fundamental to our business and is the responsibility of every partner and employee. The following diagram summarizes the key elements of our quality control system. What do we mean by audit quality? Audit Quality (AQ) is at the core of everything we do at KPMG. We believe that it is not just about reaching the right opinion, but how we reach that opinion. We define `audit quality' as being the outcome when audits are: — Executed consistently, in line with the requirements and intent of applicable professional standards within a strong system of quality controls and — All of our related activities are undertaken in an environment of the utmost level of objectivity, independence, ethics, and integrity. Our AQ Framework summarises how we deliver AQ. Visit our Audit Quality Resources page for more information including access to our Audit Quality and Transparency report. •M 10 =TIS u dye errorgid.. ju�r " I f YrPDFI x ; W50 Orror= - F0. 1 rror_O' 2 TM C kpmq.ca/audit inVa@ I 34389.3-6 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 174,000 professionals, in 155 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. © 2021 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. KPMG