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HomeMy WebLinkAboutAudit Agenda - 2023-06-26Audit Committee Agenda Monday, June 26, 2023,6:00 p.m. - 7:00 p.m. Council Chambers - Hybrid City of Kitchener 200 King Street W, Kitchener, ON N2G 4G7 People interested in participating in this meeting can register online using the delegation registration form at www.kitchener.ca/delegation or via email at delegation(a_kitchener.ca. Please refer to the delegation section on the agenda below for registration in-person and electronic participation deadlines. Written comments received will be circulated prior to the meeting and will form part of the public record. The meeting live -stream and archived videos are available at www. kitchener.ca/watchnow. *Accessible formats and communication supports are available upon request. If you require assistance to take part in a city meeting or event, please call 519-741-2345 or TTY 1-866-969-9994.* Chair: Mayor B. Vrbanovic Pages 1. Commencement 2. Disclosure of Pecuniary Interest and the General Nature Thereof Members of Council and members of the City's local boards/committees are required to file a written statement when they have a conflict of interest. If a conflict is declared please visit www.kitchener.ca/conflict to submit your written form. 3. Delegations 3.1 Item 4.1 - Matt Betik and Courtney Cheal, KPMG 4. Discussion Items 4.1 Audit Consolidated Financial Statements, FIN -2023-259 3 5. Status Updates 5.1 2nd Quarter Audit Status Report, CAO -2023-284 6. Adjournment Mariah Black Committee Administrator 238 Page 2 of 264 PREPARED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-741- 2200 ext. 7895 WARD(S) INVOLVED: All DATE OF REPORT: June 20, 2023 REPORT NO.: FIN -2023-259 SUBJECT: 2022 Audited Consolidated Financial Statements RECOMMENDATION: That the 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener be approved. REPORT HIGHLIGHTS: • The purpose of this report is to present the Corporation of the City of Kitchener's consolidated financial statements for the year ended December 31, 2022. • The key finding of this report is that the independent auditors have completed the audit of the consolidated financial statements, with the exception of certain remaining outstanding procedures as noted in the Audit Findings Report. The auditors have provided a draft Independent Auditor's Report expressing an unqualified audit opinion based on their completed procedures to date. • 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 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener. A presentation of financial highlights for the year will be given at the Audit Committee meeting on June 26, 2023. 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 *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 3 of 264 Staff Report Tc Il.,ISI°°'R Financial Services Department www.kitchener.ca REPORT TO: Audit Committee DATE OF MEETING: June 26, 2023 SUBMITTED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-741- 2200 ext. 7895 PREPARED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-741- 2200 ext. 7895 WARD(S) INVOLVED: All DATE OF REPORT: June 20, 2023 REPORT NO.: FIN -2023-259 SUBJECT: 2022 Audited Consolidated Financial Statements RECOMMENDATION: That the 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener be approved. REPORT HIGHLIGHTS: • The purpose of this report is to present the Corporation of the City of Kitchener's consolidated financial statements for the year ended December 31, 2022. • The key finding of this report is that the independent auditors have completed the audit of the consolidated financial statements, with the exception of certain remaining outstanding procedures as noted in the Audit Findings Report. The auditors have provided a draft Independent Auditor's Report expressing an unqualified audit opinion based on their completed procedures to date. • 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 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener. A presentation of financial highlights for the year will be given at the Audit Committee meeting on June 26, 2023. 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 *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 3 of 264 include The Centre in the Square Inc., Kitchener Public Library, Belmont Improvement Area, and Kitchener Downtown Improvement Area. The 2022 year-end results for the tax -based operations and the enterprises were provided to Council in March. Please see Attachment 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 -2022-520 External Audit Planning Report for Fiscal Year 2022 APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services ATTACHMENTS: • Attachment A —Annual Surplus Reconciliation • Attachment B —City of Kitchener Financial Report Excerpts (including the Audited Consolidated Financial Statements) for the year ended December 31, 2022 • Attachment C —Audit Committee Presentation • Attachment D —Audit Findings Report for the year ended December 31, 2022 (KPMG) Page 4 of 264 Reconciliation of Operating Surplus to Consolidated Annual Surplus Year Ended Dec 31, Year Ended Dec 31, Revenues not included in operating surplus Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates 2022 2021 Tax supported surplus (deficit) 11234,927 (4,651,262) Enterprise surplus (deficit) 69037,951 3,258,158 Total operating surplus (deficit) 7,272,878 (1,393,104) Consolidation 10,1353022 9,301,408 Belmont Improvement Area (43668) 75222 Kitchener Downtown Improvement Area 913733 773,160 Kitchener Public Library (3483497) (199,715) The Centre in the Square 2,731,674 (105,580) Kitchener Generation Corporation 49,318 641114 Enova Energy Corporation 10,870,521 10,327,388 Amortization of tangible capital assets 139390,081 10,866,589 Revenues not included in operating surplus Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates 7132883452 - Reserve fund revenue 4337493511 42,290,841 Contributions of tangible capital assets 2031573534 23,914,606 Gain (loss) on sale of tangible capital assets (137979776) (102,564) Other capital revenue 10,1353022 9,301,408 143,5323743 75,404,291 Items in operating surplus, not in consolidated statements Net transfers to capital and reserves 9237303228 89,251,020 Various PSAB adjustments 319753051 45438,141 9637053279 93,689,161 COK expenses not included in operating surplus Amortization of tangible capital assets (5430983524) (53,172,804) Other capital expenses (2136263744) (17,977,556) Change in actuarial estimate for employee future benefits (415,195) 26,656 Reserve fund expenses (41128,026) (1,915,486) (8032683490) (73,039,191) Annual surplus per consolidated financial statements 180,632,491 105,527,746 Page 5 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener, ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 Opinion • the consolidated s • the consolidat instate • the consolidated • and s to t ac ting polici (Herein af ferred M of o ,,'°tions for the year then ended ha in net financial assets for the year then ended ent of cash flows for the year then ended ted financial statements, including a summary of significant s the "consolidated financial statements"). In our opinion, th , Fbccompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2022, 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 "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our auditor's report. KIIL°IllNAIII ��� I...° aii,i ��..0 hark) Ill�rr� iof,,,:���i�d III���r�WuV°��� 14 ���wut�ners�r pig ��:��rl�,l rut1111��r��nlP�r������r ��iurun�n ����rl U�1111l , IIIA � Ilr �.:3 g o w,i)r g ��l ruui a cini li��)III uin ii� p e �u1�.evut r lrllrfl�l. iler 5i rrru aIl„° h�,!�:Iited ���h rte"ratJon� al ,a rrqi�fl..r.�'u.is h corurupar„ uHrunu11��..�d .!�� ��i��rVe. ry:rru r :r IV's n:r,r.n a, W 10: h Page 6 of 264 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 resentation of the consolidated financial statements in accordance with Cana � public foi accounting standards and for such internal control as managem determines ecessary to enable the preparation of consolidated financial st ntllllllllllll�t are freem material misstatement, whether due to fraud or error. In preparing the consolidated cial sta ents, management is responsible for assessing the Entity's ability to a g concern, disclosing as applicable, matters related to going concern a oing concern basis of accounting unless management either i liq e the Entity or to cease operations, or has no realistic alternative eod o Those charged wit16 1 responsible for overseeing the Entity's financial reporting pr ,,,, Audit s Resp "bilies for the Audit of the Consolidated Financial Statem s 1 Our objective§RWto 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 auditor's 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. Page 7 of 264 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 collusi �,,,,n, forgery, intentional omissions, misrepresentations, or the override of internal con Obtain an understanding of internal controli� 44 to the audit in order to design audit procedures that are appropriate in tl p,circums s, but not for the purpose of ma use the En to cease to continue as a going concern. Evaluatov °'I presentation, structure and content of the consolidated financial statements, ding 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. Page 8 of 264 g11PnaLTMAIALIMA 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. Page 9 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2022 2022 2021 Financial assets 4P1111111010 Cash and cash equivalents $ 113,0659078 $ 1117256,413 Taxes receivable (Note 2) 25,0769645 227423,158 Trade and other accounts receivable (Note 2) 751530,531 52,8367081 Loans receivable (Note 5) 5,994,236 61126,258 Inventory for resale 9,956,554 1377281401 Investments (Note 6) 229,381,003 21970491058 Investment in Enova Energy Corporation (Note 7) 306,970,957 23172411809 Investment in Kitchener Generation Corporation Note 8 118589014 27090,266 767.833.018 658.751.444 Liabilities 4P1111111010 Accounts payable and accrued liabilities 132,650,726 1092127,802 Deferred revenue -obligatory reserve funds (Note 10) 21750,528 83,114,403 Deferred revenue -other Illu ' 71908,681 4277221904 Municipal debt (Note 11) � IIIIII���������IIIIIIII 57,724,950 597962,275 Employee future benefits Note 13 ��� 541650,290 54,235,095 355,6859175 3497162,479 Net financial assets 412,1479843 3097588,965 Non-financial assets Tangible capital assets (Note 14) Inventory of supplies Prepaid expenses Accumulated surplus (N 114671695,615 3,689,246 2,298,465 1,473,683,326 $ 1.885.831.169 The accompanying notes are an ral t of these consolidated financial statements. 1738976347219 3,999,201 1,976,293 1, 395, 609, 713 $ 1770571987678 Page 10 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Operations For the Year Ended December 31, 2022 Revenue Taxation User fees and charges Gasworks Water, sewer and storm water Other Government transfers Contributions of tangible capital assets Investment income Penalties and interest on taxes Development charge revenue recognized Share of net income of Enova Energy Corporation (Note 7) Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates (Note 7) Share of net income of Kitchener Generation Corporation (Note 8) Other Total revenue���������J������e 2022 2022 2021 Budget $ 143,9659701 $ 14457469539 $ 13779491,043 86,122,269 135115281,005 43,950,692 27,999,550 20,157,534 7,650,4E 31348 15,21 13 95,397,822 1431,6361,140 41,389,583 25,852,681 20,157,534 10,290,584 4,087,007 27,600,867 79,217,208 13872711884 30, 682,192 25,443,264 237 914, 606 6,577,291 31783,814 21,836,143 Expenses Generalovernment°° g � Dll 46,132,803 38,310,563 34,604,817 Protection services 56,706,841 5614431,685 5674411084 Transportation services 44,1 70,722 4257231,395 39,002,183 Environmental services 106,373,86E 10515461,179 997840,274 Health services IN 21652,111 2,811,452 37842,758 Social and family services 21866,525 216139823 27234,620 Recreation and cultural service 81,882,46E 82,0589805 697607,865 Planning and development 1656399323 1852479365 1177771,358 Gasworks 6732461,826 715255,005 5923257103 Total expenses 424,671,485 420,010,272 376,6761062 Annual surplus 1441,820,556 180,632,491 10575271746 Accumulated surplus, beginning of year 11705,198,678 11705,198,678 1759976707932 Accumulated surplus, end of year (Note 15) $ 11850,019,234 $ 1,885,831,169 $ 177057198,678 The accompanying notes are an integral part of these consolidated financial statements. Page 11 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets For the Year Ended December 31, 2022 2022 2022 2021 Budget Annual surplus $ 144,8209556 $ 180,6329491 $ 1057527,746 Amortization of tangible capital assets 56,6289375 56,6289375 557588,593 Acquisition of tangible capital assets (991302,508) (135,277,969) (122,2387702) Gain on disposals of tangible capital assets (39905,892) (39905,892) (900,085) Proceeds on disposal of tangible capital assets 4,494,090 4,494,090 179161825 Acquisition of inventory of supplies - (89140,732) (77155,383) Acquisition of prepaid expenses - (1,827,271) (1,906,707) Consumption of inventory of supplies - 814509687 67674,597 Use of prepaid expenses 115059099 17796,008 Change in net financial assets 102,734 102,5589878 397302,892 Net financial assets, beginning of ear 30 9,5 , 65 3091588,965 270,286,073 Net financial assets, end of year $ 41 23,586 $q%412,147,843 $ 309,588,965 The accompanying notes are an integral part of these con sol id' ,,, ,fli�,�(I� Y°racial statements. Page 12 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Cash Flow For the Year Ended December 31, 2022 es °aaoa0000GOGOGOGG0���0� hener Generation Corporation 118,292,884 15478797647 61429,825 2022 2021 Operating 10,331,945) (89,231,985 Annual surplus $ 180,6325491 $ 1057527,746 Items not involving cash 11808,665 (29,200,096) Amortization of tangible capital assets 563628,375 55,588,593 Gain on disposals of tangible capital assets (3,905,892) (9005085) Share of net income of Enova Energy Corporation (10,870,521) (1073271388) Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates (719288,452) - Share of net income of Kitchener Generation Corporation (49,318) (64,114) Change in employee future benefits 4159195 (26,656) Contributions of tangible capital assets (209157,534) (23)9141606) Change in non-cash assets and liabilities Taxes receivable (29653,487) (46,650) Trade and other accounts receivable (229694,450) (17,3215420) Loans receivables 132,022 1631576 Inventory for resale � Q��� �3,771,847 (30,132) Inventory of supplies 309,955 (480,786) Prepaid expenses (322,172) (110,699) Accounts payable and accrued liabilities ���llllli, 23,522,923 17926,517 Deferred revenue -obligatory reserve funds o (363,875) 227436,744 Deferred revenue -other 149814,223 2274591007 es °aaoa0000GOGOGOGG0���0� hener Generation Corporation 118,292,884 15478797647 61429,825 470451600 281, 570 2901762 10,331,945) (89,231,985 (396209550) (84,8955623 Financing I IV Municipal debt issued 11,4909000 87069,000 Municipal debt repaid (13,727,325) (10,845,849) Net change in cash from financing activities (2,237,325) (2,7765849) Capital Acquisition of tangible capital assets (115,120,434) (987324,096) Proceeds on disposal of tangible capital assets 41494,090 179161825 Net change in cash from capital activities (110,626,344) (96,4071271) Net change in cash and cash equivalents 11808,665 (29,200,096) Cash and cash equivalents, beginning of year 11112569413 14074561509 Cash and cash equivalents, end of year $ 1133065,078 $ 1117256,413 The accompanying notes are an integral part of these consolidated financial statements. Page 13 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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 financi I statements: a. Basis of consolidation i. Consolidated entities These consolidated financial statements reflect ass ts, liabilititw, reserves, surpluses/deficits, revenues, and expenditures of those City funds ove ental functions or entities which have been determined to comprise a part of the aggregate Cit ions based upon control exercised by the City except for the City's government busines s which ccounted for on the modified equity basis of accounting. The following boards, mu terpn and utilities have been included in the consolidated financial statements: • Kitchener Public Library • Kitchener Downtown Impro rea rd of Management • Belmont Improvement A oar f Man ment • The Centre in the Squ C. • Waterworks Enterprise Gasworks Enter • Sewer Surch Enter • Storm Wat nagemen terprise • Building Enter • Golf Enterprise • Parking Enterprise All inter -organizational and inter -fund transactions and balances have been eliminated. ii. Government business enterprises Enova Energy Corporation and Kitchener Generation Corporation 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. Page 14 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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 (see Note 4). b. Basis of accounting i. Accrual basis of accounting The consolidated financial statements are prepared using th crual basis of accounting. The accrual th basis of accounting recognizes revenues in the period in transactions or events occurred that i t Ak gave rise to the revenues. Expenses are recognized n ,h perio goods and services are acquired and a liability is incurred or when an external transfer i ��"e ii. Cash and cash equivalents UP111" Cash and cash equivalents include cash on hand an liquid investments with original maturity of 90 days or less as at the end of the year. 4111 iii. Trade and other accounts receivable Trade and other accounts recej e repo of any allowance for doubtful accounts. iv. Loans receivable Loans receivable are ne ny allowance for doubtful accounts. Interest income is recorded as it accrues. When value ny receivable is identified as impaired, an allowance is set up to offset the carryi mount an ny a justments are included in materials and services expense in the period the impair is recogn d. v. Inventory for resa 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. Page 15 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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, the Canada Community -Building Fund, building permits, and recr ional land. In addition, certain user charges and fees are collected for which the related servi ave yet to be performed. These are recorded under the classification Deferred revenue - other. a is recognized in the period when the related expenses are incurred, services performed or the t gible ital assets are acquired. viii. Employee future benefits The contributions to a multi-employer, defined ben n plan are expensed when contributions are due. The costs of post-retirement benefits are re ized when the event that obligates the City occurs. Costs include projected future inc ment alth care continuation costs and fees paid to independent administrators of these plans, Ic n a sent value basis. 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. Page 16 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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 Amortizat' eriod Land Land Improvements Buildings & building improvements Leasehold improvements Machinery & equipment Computer hardware Computer software Linear assets Vehicles 1 to 1" ars to '° ears 5 to 100 years 5 to 16 vears Page 17 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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 stipulaXreve 'rise to an obligation that meets the definition of a liability. Transfers are recorded as deferredhen transfer stipulations give rise to a liability. Transfer revenue is recognized in the statemetions as the stipulation liabilities are settled. Government transfers, contributions and other am�Js are reNco�!ct rom third parties pursuant to legislation, regulation, or agreement and may onl use in th of certain programs, in the completion of specific work, or the purchase of t 'ble al asset. In addition, certain user charges and fees are collected for which the related services et to be performed. Revenue is recognized in the period when the related expenses a incurred, ices performed, or the tangible assets are acquired. �i�rl, Ill�ii� Tax revenue is recognized when it is author q��i 1ii1"°'°i period for which the tax is levied. Tax revenue r�, reported relates xii. Use of esti 2. Taxes and accounts receivable jement to make estimates and assumptions disclosure of contingent assets and liabilities counts of revenues and expenses during the oyee future benefits payable, legal claims ingible capital assets and their related useful information and judgment and may differ Taxes receivable are reported net of a valuation allowance of $10,071,810 (2021 - $9,321,997). Trade and other accounts receivable are reported net of a valuation allowance of $1,531,662 (2021 - $1,283,294). Page 18 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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: 4. Trust funds Trust funds administered by the City have not been incl in the olidated Statement of Financial Position, nor have their operations been included in the olidat d Statern of Operations. The trust funds under administration are comprised of cemetery p tualoFf�e and prepaid interment funds totalling $1813131775 (2021 - $17,616,272). 5. Loans receivable Loans receivable are made up of the following: 2022 2021 Major capital improvement loans r a $ 5,832,783 $ 51929,891 Loans receivable with forgiv ro ns 25,396 25,396 Minor capital improveme d o oa ceivable 136,057 170,971 Illp", $ 5,9949236 $ 67126,258_ d Major capital improvemeEn ns are ividual loans in excess of $500,000 when issued with no forgiveness provision built into the loan. J)W ns have repayment terms ranging from 10 to 12 years (2021 - 10 to 12 years). All major capital improro nt loans are unsecured and bear interest at rates ranging from 1.32% to 4.10% (2021 - 1.32% to 2.95%). 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 (2021 - 5 years). The forgiveness provisions are 15% (2021 - 15%). The balances recorded are net of the allowance for forgiveness. Interest rates on these loans are 8% (2021 - 8%). 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 (2021 - I to 5 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 are 0% (2021 - 0%). Page 19 of 264 School Region Total Boards Taxation and user charges $ 80,3317067 $ 301 ,602,371 $ 3817933,438 Share of payments in lieu of taxes 559 3,2727976 3,273,535 Share of linear properties 45,038 125,279 170,317 Amounts requisitioned $ 80,3 64 $ 305,000,626 $ 385,377,290_ 4. Trust funds Trust funds administered by the City have not been incl in the olidated Statement of Financial Position, nor have their operations been included in the olidat d Statern of Operations. The trust funds under administration are comprised of cemetery p tualoFf�e and prepaid interment funds totalling $1813131775 (2021 - $17,616,272). 5. Loans receivable Loans receivable are made up of the following: 2022 2021 Major capital improvement loans r a $ 5,832,783 $ 51929,891 Loans receivable with forgiv ro ns 25,396 25,396 Minor capital improveme d o oa ceivable 136,057 170,971 Illp", $ 5,9949236 $ 67126,258_ d Major capital improvemeEn ns are ividual loans in excess of $500,000 when issued with no forgiveness provision built into the loan. J)W ns have repayment terms ranging from 10 to 12 years (2021 - 10 to 12 years). All major capital improro nt loans are unsecured and bear interest at rates ranging from 1.32% to 4.10% (2021 - 1.32% to 2.95%). 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 (2021 - 5 years). The forgiveness provisions are 15% (2021 - 15%). The balances recorded are net of the allowance for forgiveness. Interest rates on these loans are 8% (2021 - 8%). 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 (2021 - I to 5 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 are 0% (2021 - 0%). Page 19 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 6. Investments Investments are made up of the following: 2022 2022 2021 2021 Cost Market Cost Market Value Value Guaranteed investment certificates $ 19957955915 $ 202,0885102 $ 186,525,161 $ 1887613,269 Bonds and debentures 299177,482 2597337632 32,2421655 317993,486 Shares 407,606 5567284 281,242 564,401 $ 229,381,003 $ 228132&18 $ 219,049,058 $ 2217171,156 7. Investment in Enova Energy Corporation Under the provincial government's Electricity Competition (Bill 35ower Corp. ("KPC"), a holding company, along with its wholly owned subsidiar' inclu ing NiKitch -Wilmot Hydro Inc. CKWHI"), was incorporated on July 1, 2000. ���1 Dpi On August 1, 2000, under by-laws passed by the City and t ownship of Wilmot ("Wilmot"), the net assets of the former Hydro -Electric Commission of Kitch ilmot transferred to the new corporation. The City took back a 92.25% share in the common shar er er Corp. and a 92.25% share in long-term notes payable by the affiliates for the assets tran re "'surplus property assets and cash funds were excluded from the transfer and turned overtathe C „rr Wilmot. Mergers of the holdinc local distribution comp the City, Wilmot, the C Mergers, Amalgamatic February 4, 2022 and NorthHydro Holding Corporation ("WNHC"), and the °Hydro Inc. ("WNHI") were approved by the Councils of )f Woolwich, and the Township of Wellesley in 2021. A no application was filed with the Ontario Energy Board on The merger of KPC a NHC clo onSeptember 1, 2022 and the new holding company continues as Enova Energy Corporatio corInE amalgamated under the laws of Ontario. The City obtained a 53.39% share of the common share nergy Corporation and the long-term notes payable were re -issued at the same amount and rates. of the transaction, the City recorded a gain of $71288,452 on dilution from its prior interest in KPC. Imly following, KWHI and WNHI legally amalgamated on September 1, 2022 and the new local distribution company continues as Enova Power Corp., a corporation amalgamated under the laws of Ontario. Enova Power Corp. is 100% owned by Enova Energy Corporation. The City's investment in Enova Energy Corporation (2021 - KPC) is comprised of the following: 2022 2021 Common shares $ 17411835807 $ 617244,208 Long-term notes receivable 7099979576 7079971576 Share of net income and prior period adjustments due to changes in accounting policies since acquisition, net of dividends 619789,574 99,000,025 $ 306,970,957 $ 231,241,809 The Enova Energy Corporation notes are unsecured and bear interest at the rate of 3.23% (2021 - 3.23%). There are no repayment terms and there is no intent to redeem the notes or the shares. Page 20 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 7. Investment in Enova Energy Corporation (continued) $ 93,352,000 The continuity of the City's investment in Enova Energy Corporation (2021 - KPC) for the year ended December 311 2022 is as follows: 73115091,000 29178241,000 2022 Balance, beginning of year $ 231,241,809 Share of net income of Kitchener Power Corp. and its affiliates for the period 876,7331000 from January 1, 2022 to August 31, 2022 6,306,210 Dividends received from Kitchener Power Corp. from January 1, 2022 to 427578)000 August 31, 2022 67429,825 Balance, September 1, 2022 767963,000 231,118,194 Gain on dilution from prior interest in Kitchener Power Corp. and ' s 71,2889452 Share of net income of Enova Energy Corporation for the peri , rom 647813,000 September 1, 2022 to December 31, 2022 433,429,000 4,564,311 Dividends received from Enova Energy Corporation fro ptem 17 2022 to December 31, 2022 - Balance, end of year $ 306,9701957 2021 Balance, beginning of year $ 2247960,021 Share of net income for year 10,3277388 1��J Dividends received during ear � �� 410451,600 Balance, end of year $ 23172411809 The following table proconden fin*ial information with respect to Enova Energy Corporation (2021 - KPC) for its fiscal 2022�ir: 2022 2021 Financial position Current assets $ 93,352,000 $ 4612631,000 Non-current assets 73115091,000 29178241,000 Regulatory assets 51,872,000 2573961000 Total assets 876,7331000 3637483,000 Current liabilities 71,051,000 427578)000 Long-term debt 228,630,000 767963,000 Regulatory liabilities 1497179000 475431000 Other liabilities 11910311,000 647813,000 Total liabilities 433,429,000 188,8977000 Net assets $ 4431304,000 $ 17415861,000 Page 21 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 7. Investment in Enova Energy Corporation (continued) Page 22 of 264 For the For the period period January 1, September 1, 2022 to 2022 to August 31, December 31, 2022 2022 2021 Results of operations Revenues $ 18396957000 $ 155,2085000 $ 2577588,000 Expenses17698 1000 146,6595000 246,3931000 Net income 6,000 8,549,000 11,195,000 City's share of net income - 53.39% 2021 - 92.25% $*j?l0$ 4,564,311 $ 10,327,388 8. Investment in Kitchener Generation Corporation Under the provincial governments Business Corp n Kitchener Generation Corporation was incorporated on December 9, 2011. Effective January 1, 2012, the City transferred t roof a constructed on the surface of the Kitchener Operations Facility to Kitchener Generation Co ra ge for 100% of its common shares and interest bearing debt. iii%%%exc The investment in Kitchener Generati ation comprised of the following: III 2022 2021 Common shares $ 1851,801 $ 2091027 Long-term notes receiv 1,672,213 178811239 Share of net income si ac uisition et of dividends - - $ 1,858,014 $ 27090,266 The notes receivable are un d and bear interest at the rate of 5.01 %. To the extent that Kitchener Generation Corporation has posi a 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. Page 22 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 8. Investment in Kitchener Generation Corporation (continued) The continuity of the City's investment in Kitchener Generation Corporation is as follows: 2022 2021 Balance, beginning of year $ 2,090,266 $ 21316,914 Share of net income for year 49,318 641114 Dividends received during year (493318) (56,589) Return of capital (233226) (23,417) Repayment of outstanding debt 2093026 210,756 Balance, end of year $ 1,858,014 $ 2,090,266 The following table provides condensed financial information wit Financial position Current assets Capital assets Total assets Current liabilities Long-term debt Total liabilities Net assets Results of operations P1° Revenues $ 3869220 $ 4011175 Expenses (336,902) (337,061) Net income 49,318 647114 City's share of net income - 100% $ 49,318 $ 641114 o Kitchener Generation Corporation: VIII 2022 2021 11,478 $ 1,858,012 1,869,490 11,476 1,672,213 1,683,689 185,801 $ 2022 7,676 2,090,264 27 097, 940 7,674 1,881,239 1,888,913 209,027 2021 Page 23 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 9. Insurance pool Accounts payable and accrued liabilities include an amount of $12,733,568 (2021 - $10,581,610) 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 26.19% (2021 - 23.02%) and its share of the Pool's cumulative surplus as at May 31, 2022 was $1,644,228 (2021 - $1,805,325). The City's share o e Pool's cumulative surplus has not been included in the Consolidated Statement of Financial Position. 10. Deferred revenue - obligatory reserve funds 40, Al�IDi Obligatory deferred revenue is comprised of the following: Development charges Canada Community -Building Fund Building Recreational land The continuity of obligatory deferre N, Canada Community- lopment Building charges Fund 2022 2021 $ 45,8335994 $ 467022,757 10, 881, 638 127 773, 507 13, 703, 780 147 657, 882 1253319116 97660,257 $ 829750,528 $ 83,114,403 Recreational Building land Total Balance, January 1, 2022 461022,757 $ 12,773,507 $ 14,657,882 $ 956609257 $ 8351145403 Collections 2750033435 753965672 117615269 21896,115 395057,491 Interest earned 408,670 775324 2949048 189,588 969,630 Deferred revenue recognized (275600,868) (95365,865) (3,0091419) (414,844) (409390,996) Balance, December 31, 2022 45,833,994 10,881,638 13,7039780 12,331,116 82,7501528 Balance, January 1, 2021 3570297877 673027509 1378187330 575267943 6076777659 Collections 3278297023 1475077301 7047789 471281995 5271707108 nterest earned - 897115 1447637 875161 3207913 Deferred revenue recognized (2178367143) (871257418) (97874) (82,842) (3070541277) Balance, December 31, 2021 $ 4670227757 $ 1277737507 $ 14,6577882 $ 91660,257 $ 8371141403 Page 24 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 11. Municipal debt The City has assumed responsibility for the payment of principal and interest charges on certain long-term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $57,7247950 (2021 - $593,9623,275). The annual principal repayments are: 2023 $ 9,483,327 2024 8,6629268 2025 930699372 2026 838305468 2027 53815,174 2028 and thereafter 1538643341 $ 57,724,950 The annual principal and interest payments required to be municipal debt are within the annual debt repayment limit prescribed by the Ontario Ministry,,,,,of Municip fairs and Housing. The latest available repo the O S plan was as at December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit, df�' ctuarial liabilities of $130.3 billion and actuarial assets of $123.6 billion. Ongoing adequacy of the curre tribution rates will need to be monitored and may lead to increased future funding requirements. As at December 31, 2022, 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: 2022 2021 Sick leave benefit plan $ 2190489254 $ 207869,210 Post-retirement benefits 245344,236 237658,385 Future payments to WSIB 9,257,800 917077500 $ 54,650,290 $ 541235,095 Page 25 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) $ 3,4739703 Significant actuarial assumptions 916,480 2025 Workplace Safety Insurance Sick Leave & Post - 2026 Board Retirement Benefits 2027 2022 2021 2022 2021 Discount rate 5.00 2•75 5.00 2.75 Salary growth assumptions N/A N/A 3.00 3.00 CPI increase assumptions 2.50 2.00 2.50 2.50 Health care initial trend rate N/A N/A 5.90 5.90 Health care ultimate trend rate N/ N/A 4.50 4.50 Dental care initial trend rate Wq /A 4.00 4.00 Dental care ultimate trend rate N/A 4.00 4.00 a. Sick leave benefit plan Under the sick leave benefit plan, unused sic ve can inulate and certain employees may become entitled to cash payments when they leave the me he amount of benefits paid during the year were $1,953,862 (2021 - $2,550,997). A reserve fund to provide for this liabili uded ccumulated surplus, in the amount of $6,473,313 (2021 - $63,332,903). Anticipated undiscounted paymen em re eligible to retire are: 2023 $ 3,4739703 2024 r 916,480 2025 990,076 2026 830,231 2027 788,047 2028 and thereafter 51129,171 $ 1291279708 The actuarial valuation of the future liability for sick leave assumes a discount rate of 5.00% (2021 - 2. 75%). The last actuarial valuation for this liability was completed at December 31, 2020. Page 26 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) a. Sick leave benefit plan (continued) The actuarial expense for the current year was $2,132,906 (2021 - $2,158,899) and is comprised of the following items: 2022 2021 Current period benefit cost $ 112863234 $ 17324,175 Amortization of actuarial losses 2765463 339,204 Sick leave benefit expense 40111110 1,562,697 17663,379 Sick leave benefit interest expense 5709209 4952520 Total expenses related to sick leave benefits $ 2,132,906 $ 2,158,899 As at December 31, 2022, the unamortized actuarial gains (I s) were 11247 (2021 - $443,601) and are amortized over 11 to 13 years (2021 - 11 to 13 years). b. Post-retirement benefits The City pays certain health, dental and life ins enefits ehalf of its retired employees up to the age of 65 if they have at least ten years of service wi h he ount of benefits paid during the year were $171851801 (2021 - $1, 257, 388). The City holds no reserve to meet thi The actuarial valuation of the fu (2021 - 2.75%) and inflation rates actuarial valuation for this liabiti�tw»»»»>was The actuarial expense ostlbtirement benefits assumes a discount rate of 5.00% ms of 4.0% to 5.9% (2021 - 4.0% to 5.9%. The last leted at December 31, 2020. 652 (2021 - $2,252,930) and is comprised of the following items: Current period benefit cost' Nr' $ 191269425 $ 17199,344 Amortization of actuarial losses 113,028 516,731 Post-retirement benefit expense 11239,453 1,7167075 Post-retirement benefit interest expense 6321199 5361855 Total expenses related to post-retirement benefits $ 11871,652 $ 27252,930 As at December 31, 2022, the unamortized actuarial gains (losses) were $6,059,480 (2021 - $1,202,863) and are amortized over 11 to 13 years (2021 - 11 to 13 years). Page 27 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) c. WSIB The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf of the City as a Schedule 2 employer. The amount of benefits paid during the year were $2,465,700 (2021 - $2,366, 600). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,248,311 (2021 - $4, 789, 4 70) . The actuarial valuation of the future liability for WSIB assumes a discount rate of 5.00% (2021 - 2.75%). The last actuarial valuation for this liability was completed at December 31, 2„2. The actuarial expense for the current year was $2,016,000 (202 $1,736,500) and is comprised of the following items: Current period benefit cost Amortization of actuarial losses WSIB benefit expense WSIB benefit interest expense Total exDenses related to WSIB benefits 2022 2021 $ 996,400 $ 9121400 702,300 5731800 1,698,700 174861200 317,300 250,300 $ 290169000 $ 1,736,500 As at December 31, 2022, the una "r""'J' ctua losses were $2,296,900 (2021 - $2.,066,000) and are amortized over 12 years (2021 - 12 rs). The write-down of tangible capital assets during the year was $nil (2021 - $nil). The amount of interest capitalized was $nil (2021 - $nil). Page 28 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 15. Accumulated surplus The accumulated surplus consists of individual fund surpluses/(deficits) and reserve funds as follows: 2022 2021 Surplus: Invested in tangible capital assets $1,467,695,615 $1738976347219 Other 341773,543 1878151880 Investment in Enova Energy Corporation 306,970,957 2317241,809 Investment in Kitchener Generation Corporation 11858,014 27090,266 Employee future benefits unfunded 5496509290 5452351095 Total surplus 1.756.647.839 1.587.547.079 Reserve funds set aside for specific purposes by Cou"'il"for: Capital Stabilization 0 0 Program specific Corporate Reserve funds set aside for specifi entities: Kitchener Public Library Kitchener Downtown Improvement A The Centre in the Square es b ,,'onsoIidated 61, 688, 848 38, 734, 604 11,890,075 14,366,049 126.679.576 1111111W��"�� 584,339 and of Management 50,000 j,,,,,,,,, 11869,415 53, 324, 641 37,986,430 10, 059, 829 13, 631, 628 115.002.528 735,262 501000 178637809 'A 215035754 27649,071 Total reserve funds Ir 129,1839330 1177651,599 Accumulated surplus 16. Contingent liabilities $1,885,8319169 $11705,198,678 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. Page 29 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 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 consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 1. 18. Budget figures The budget figures reflected in these consolidated financial aft menNre' ose approved by Council at a meeting on December 13, 2021. Budget figures have been slated to PublicSector Accounting Board standards. ��������IIIII Illllllllllllllllllllllllllu� 19. Comparative figures III Certain of the prior year's comparative figur been lassified to conform to the current year's presentation. 11 Ilu� 20. 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In our o cc anying financial statements present fairly, in all material respec e balanc eet the Entity as at December 31, 2022, and the statement of continuit the year en ended in accordance with Canadian public sector accounting standards. Basis for Opir'ion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's 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. .III c , .gu m �. u � n III�� �uiV. IIIui II,., wWuV:' u a , w cull �� a ut a 114 a Illus r� � � u�: Ill 11 �..,,ry k b fl � u inr� bi )ni �� ii . ep vi . erit uxlliernser lumm� �llIlu����� ��dm,. i 11�RNAG urutierradona� Ill,1� V�d^1���11��le irnuli� l 'i�1��� gmuaurrle III �B�n:��,ehA1 iD n dc''a sp� Page 35 of 264 1,9 1 91, M',a 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, managem is responsible for assessing the Entity's ability to continue as a going concern, � �di �s� s applicable, matters related to going concern and using the going concern b acco gunless management either intends to liquidate the Entity or to cease `rations, or ha realistic alternative but to do so. G% Those charged with governance are res ,� le for overseeing the Entity's financial reporting n p g p rocess. Auditor's Responsibilities of the Financial Statements Our objectives are t "tain r sona l assurance about whether the financial statements as a whole are fir r���JJJJ rom r l;;tr�rr statement, whether due to fraud or error, and to issue an Auditor's rep "t includes our opinion. Reason T assura is ugh level of assurance, but is not a guarantee that an audit conduc accorda with Canadian generally accepted auditing standards will always detect a m I mis ement when it exists. kk FF Misstatements c 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. Page 36 of 264 1,9 1 91, M',a 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 mad management. • Conclude on the appropriateness of manage se of the going concern basis of accounting and, based on the audit eviden tai n whether a material uncertainty exists related to events or conditions t FlRmay casts ' icant doubt on the Entity's ability to continue as a going con If w (conclude' at a material uncertainty exists, we are required to draw ti our Auditor's report to the related disclosures in the financial statement if such disclosures are inadequate, to modify our opinion. Our con are b on the audit evidence obtained up to the date of our Auditor's rep Ho ut e events or conditions may cause the Entity to cease to co e as a conc n. • Evaluate the ov ff pre tatio tructure and content of the financial statements, including the clos ether the financial statements represent the underlying trans a and eve s in a manner that achieves fair presentation. • Com cate th charged with governance regarding, among other matters, j jjj th nned scop nd t ","Charged of the audit and significant audit findings, including any signi `t deficien 11 sin internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada DRAFT Page 37 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Balance Sheet As at December 31, 2022 2022 2021 Assets Accounts receivable $ 36,485 $ 47,141 Interest receivable 131,586 1401846 Loans receivable (Note 2) 419,968 4731180 Investments (Note 3) Short-term 2,8659512 175281320 Long-term 14,860,224 157426,785 ............. .. /////////,///)/),�,r°° 18,313,775 17,616,272------------- Fund Balance The accompanying notes are an integral part of these financial s ents. pill� $189313,775 $17,616,272 Page 38 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Statement of Continuity For the Year Ended December 31, 2022 The accompanying notes are an integral part of these financia1RWg1 # ' "nts. Page 39 of 264 2022 2021 Receipts Perpetual care funds $ 4611298 $ 559,284 Interest earned 428,059 4211771 Other 721115 1111157 9611472 170921212 Expenditures Transfer to cemeteries op erations 263,969 262,380 263,969 262,380 Net chan a in fund 6979503 829,832 Balance'beginning of year////// 17,616 272 16,786,440 Balance end of year $G////% 18,313,775 17,616,272 ax The accompanying notes are an integral part of these financia1RWg1 # ' "nts. Page 39 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Notes to the Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies 2. 3. These financial statements of the Corporation of the City of Kitchener Trust Funds have been prepared in accordance with Canadian generally accepted accounting principles for public sector entities 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 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 meas ' ble; expenditures are recognized as they are incurred and measurable as a result of receipt of good services and the creation of a legal obligation to pay. Loans receivable During2019 under authorization of the Bereavement A rit of ntario th�° oodland Cemetery Perpetual rY p Y �N Care Trust issued a loan to the Corporation of the City /1the ��°n the amount of $575,000. The loan bears interest at 3% and will be repaid over ten years beginning i� ary 2020. Investments The long-term investm market value of $14,4: 4. Statement of cash flo A separate statement activities are readily ap ported on the Balance Sheet at cost, have a )ws from operating, investing, and financing Page 40 of 264 0 Z LL FM FM W Z W 2 V FM LLO FM V W Z LL 0 H LL N Z N OFM� M V 0 O D O �W v wFm �� L Vi LL 7i s= d d N L N a O r N O M O MqT r I` 0 0 0 O CO W O r O W W M r 0 W O I` CO Cn O I` r O I` W M W M O W [I-- 14' `14' N r r 00 O CO O r N r CO W M O I` I` O o r N qT M 00 r -- to W W r O 11 r I M O O (6 00 6F). O O W O 0 0 M I` r r 0 ' CD to to O Iq M N ' M C 0 00 M 0 M 0 M N r r r r r r r 64% CD to On M N 094. 109- (D O O O O ' ' ' ' ' ' ' O _O CO 00 M M W) III ti f` 00 M N � M T- I I` O O 0 0 M ti 0 O 0 cn001, O d~" f N S M 00 M 00 000 O � M ""f �G� cr" 00 co N W O O O M 0) O Iq d' r � rCSF M 6f)- q'T it CO T- M O M ti (D 00 O I` r O W W M r O W 0 O Cn M I` Imo- O I` W M W M O 0 N O cr O W O 00 O � N � 00 N W OO CLO Tm W� N M O W O qqT (D f` 6f)- 69 = o L>l L>l LL o � U U c ° -o E CU N C- M o = = o i _ 0 70 70 c 70 co co o o� _ w o c m a 2� m V �i —U- -j w CD w w r NT N r J,g I AJP� I M, I !I KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Members of the Belmont Improvement and of Management Opinion We have audited the financial S-1 T Belmont Improvement Area Management (the Entity), which compris • the statement of financial",""',sat ber 31, 2022 211 • the statement of revenue a . year then ende • the statem f cha es in n • and notes to 14 ac c �� ���lll ici (Her fter refer °ancial s n' nd accumulated surplus for the nancial assets for the year then ended ments, including a summary of significant to 60he "financial statements"). Board of In our on, accompanying financial statements present fairly, in all material respects, t� � ' cial position of the Entity as at December 31 2022 and its results of p 1�p Y , operations, an 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's 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. KRN� G III U�"11 ain ontaido, ,3W,.ANmb :: uid mmm�� ��u n[oe Il::uu m ii.A Vl u,�:, II����� Im�� I ll�u������:�� orlii w:� iniiz ���d'on �� :: uindli� , �,�����w m��°ent urs iii.: r er Iluuurns .,:fi k,: ' ., lu m umll..muwn.mll.a mm ..m ....mrmtmull. �., r Il. um . �u U ern ain Illuur mmll. IIS II11AG Canada Ilru au"m � r° m t h IIIA R\A III.... Page 42 of 264 1,9 1 91, M',a 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 necess to enable the preparation of financial statements that are free from material mi ement, whether due to fraud or error. In preparing the financial statements, ma cement is onsible for assessing the Entity's ability to continue as a going con ,disclosing as licable, matters related to going concern and using the going conc basi � accounting unless management either intends to liquidate the Entity or to cease ons, or has no realistic alternative but to do so. Those charged with governanc re ib for overseeing the Entity's financial reporting process. Auditor's Resp Our objectives e as a whol issue a ditor's r Reasonabl ursa conducted in a detect a material e Audit of the Financial Statements le assurance about whether the financial statements aterial misstatement, whether due to fraud or error, and to cludes our opinion. n pis a high level of assurance, but is not a guarantee that an audit 'ice with Canadian generally accepted auditing standards will always isstatement 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. Page 43 of 264 1,9 1 91, M',a 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 f, accounting estimates and related disclosures mad Mfr° management. • Conclude on the appropriateness of manage % se of the going concern basis of accounting and based on the audit eviden a Main J hether a material uncertainty exists related to events or conditions may cast s cant doubt on the Entity's Y � 1�ii� Y abilityto continue as a going con If w conclude hat a material uncertainty exists, we are required to draw a ,/ tiff n our Auditor's report to the related disclosures in the financial statements if such disclosures are inadequate, to ���f l� modify our opinion. Our con �gre b on the audit evidence obtained up to the date of our Auditor's re o� Ho ;°' t e events or conditions may cause the Entity to cease to co,rJ e as a, concern. • Evaluate the ov I pre tatio tructure and content of the financial statements, including the clos `ether the financial statements represent the underlying transa and even s in a manner that achieves fair presentation. • Com ��l "'irate°°°"''11, th°641 charged with governance regarding, among other matters, th nned scop nd tiro of the audit and significant audit findings, including an J� p� g 9 g g Y signi l�yl deficient s in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada DRAFT Page 44 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position As at December 31, 2022 The accompanying notes are an integralj# tt of tl�fffia fins"al statements. Page 45 of 264 2022 2021 Financial assets Cash $ 18,491 $ 19,992 Accounts receivable - 61025 18,491 261017 Financial liabilities Accounts payable and accrued liabilities 12,254 71000 Net financial assets liabilities 69237 19,017 Non-financial assets Tangible capital assets (Note 2) 51,030 43,057 Prepaid expenses 11195 11056 52,225 441113 Net assets AM, 58,462 631130 Accumulated Surplus Accumulated net revenue (deficit) 7,432 201073 Invested in tangible capital assets 51,030 43,057 Total accumulated surplus $ 58,462 $ 63,130 The accompanying notes are an integralj# tt of tl�fffia fins"al statements. Page 45 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus For the Year Ended December 31, 2022 The accompanying notes are an integre%Fart oft e fins I statements. Page 46 of 264 2022 2021 Revenue Assessments $ 41,890 $ 40,670 Grants - 181000 Other revenue 48,938 51840 90,828 641510 Expenses Streetscaping 39,552 15,277 Audit 19808 1,808 Insurance 31117 21129 Winter maintenance 271758 16,127 Advertising Miscellaneous 91599 127485 81280 51028 Amortization 51382 41434 95,496 571288 Net surplus (deficit) for year (49668) 7,222 Accumulated surplus, beginning of year 639130 55,908 Accumulated surplus, end of year $ 58,462 $ 63,130 The accompanying notes are an integre%Fart oft e fins I statements. Page 46 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Change in Net Financial Assets For the Year Ended December 31, 2022 2022 2021 Net surplus (deficit) for year $ (41668) $ 71222 Acquisition of tangible capital assets (13,355) (903) Amortization of tangible capital assets 5,382 41434 Acquisition of prepaid expenses (139) (138) Change in net financial assets (12,780) 101615 Net financial assets, beginning of year 19,017 81402 Net financial assets (liabilities). end of vear $ 6.237 $ 19.017 The accompanying notes are an integral part of these financial stateme Page 47 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies The financial statements of the Belmont Improvement Area Board of Management (the "Board") 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) Accrual basis of accounting The financial statements are prepared using the accrual basis f accounting. The accrual basis of accounting recognizes revenues in the period in which the tran ons or events occurred that gave rise to the revenues. Expenses are recognized in the period t ods and services are acquired and a liability is incurred. b) Tangible capital assets Tangible capital assets are recorded at cost whi ll clud II amoun that are directly attributable to acquisition, construction, development or betterm of IM, asset. The cost less residual value of the tangible capital assets is amortized on a straight-line over their estimated useful lives as follows: Assets iz117bn Period Machinery &equipment to 1 years Computer hardware / 2 years Tangible capital assets rece f/ as�a II l181 P11 l�re recorded at their fair value at time of receipt and are recorded as revenue. c) Use of estimates The preparation"; ` he financial' tatements requires management to make estimates and assumptions that affect the repo / amount f assets and liabilities, the disclosure of contingent assets and liabilities at the date of the fin t J I st ents and the reported amounts of revenues and expenses during the year. These estimates ssum tions including the valuation of tangible capital assets and their Y �� p� g g p related useful lives and a ortization are based on management's best information and judgment and may differ significantly from future actual results. Page 48 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2022 2. Tangible capital assets Cost Balance, beginning of year Additions Balance, end of year Accumulated amortization Balance, beginning of year Disposals Amortization expense Balance, end of year Net book value, end of year Net book value. beainnina of vear Machinery & Computer Equipment Hardware Total 60,426 $ 13 355 ,i ,,,. 15356 $ 611782 13,355 3. Related party transactions During the year the Board IJra I support fees of $25,000 (2021 - $5,650) to the Corporation of the City of Kitchener, its utli con g .These are included in streetscaping expenses on the Statement of Revenue and Expen and Accu ate urplus. 4. Statement of cash flow PIP A separate statement of cash is not presented, since cash flows from operating, investing and financing activities are readily apparent from the other financial statements. Page 49 of 264 IIIIIIII,,3,781 19356 75,137 (179 (1,017) (18,725) (59043) (339) (59382) (22,751) (13356) (243107) 51,030 - 51 ,030 $ 423718 $ 339 $ 433057 3. Related party transactions During the year the Board IJra I support fees of $25,000 (2021 - $5,650) to the Corporation of the City of Kitchener, its utli con g .These are included in streetscaping expenses on the Statement of Revenue and Expen and Accu ate urplus. 4. Statement of cash flow PIP A separate statement of cash is not presented, since cash flows from operating, investing and financing activities are readily apparent from the other financial statements. Page 49 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S 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, 2022 • 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, 2022, 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's 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. u FVR J I I P", aul Owrud au k'i uuuuuu:;d Hu.Nhoyr j,ar�d,uucrslu>I�p -uuud mcnb,°u i uum_ u,ll tl. ur:°, q PXIG iflk,j�j u ur uIIu belt, Cuuuuis uPN"���i� .�uutl.�,u�u11a� o 11 fl uuri)II/ rlI Efu1c,g11du 1up u11Iv 11a 11�c(I1fby uuan'tIII I' 11c. p F NI G Cau o acLiIp u'ci Ii d ca p ;� P IIVI IG I I P. Page 50 of 264 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. Auditor's 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 auditor's 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. Page 51 of 264 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 auditor's 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 auditor's 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. Z4P Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada May 24, 2023 Page 52 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position Year ended December 31, 2022, with comparative information for 2021 2022 2021 Financial Assets Cash $ 6427649 $ 3467072 Term deposits (note 2) 1167537 1157670 Accounts receivable 777853 4067075 Prepaid expenses 177249 87120 8547288 8757937 Financial Liabilities Accounts payable and accrued charges 4377303 4287758 Due to the City of Kitchener (note 4) 217606 297972 4587909 4587730 Net financial assets 3957379 4177207 Non -Financial Assets Tangible capital assets (note 5) 7247560 6107999 Net assets $ 171197939 $ 170287206 Accumulated Surplus Reserve for rate stabilization $ 507000 $ 507000 Accumulated net revenue 3457379 3677207 Invested in tangible capital assets 7247560 6107999 Total accumulated surplus $ 171197939 $ 170287206 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 53 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 Budget Actual Actual 2022 2022 2021 (note 7) Revenue: Assessments $ 173797000 $ 173797000 $ 173797000 Interest — 867 749 Other income (note 6) 957000 817669 3727885 174747000 174617536 177527634 Expenses: Promotions and advertising 7597000 6397669 3807610 Salaries, wages and benefits 417,500 4287782 3987447 Administration 106,500 1111435 901670 Meetings and seminars 41000 41428 183 Safety and beautification 977000 867453 827276 Member relations 109000 89339 71388 Amortization — 69,091 44,904 173947000 173487197 170047478 Net revenue before other items 807000 1137339 7487156 Net assessment write-offs (note 4) 457000 217606 297972 Annual surplus 357000 917733 7187184 Accumulated surplus, beginning of year 170287206 170287206 3107022 Accumulated surplus, end of year $ 170637206 $ 171197939 $ 170287206 See accompanying notes to financial statements. Page 54 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Changes in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements. Page 55 of 264 2022 2021 Annual surplus $ 917733 $ 7187184 Acquisition of tangible capital assets (1827652) (6347453) Amortization of tangible capital assets 697091 447904 Change in net financial assets (217828) 1287635 Net financial assets, beginning of year 4177207 2887572 Net financial assets, end of year $ 3957379 $ 4177207 See accompanying notes to financial statements. Page 55 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 2022 2021 Cash provided by (used in): Operating activities: Annual surplus $ 917733 $ 7187184 Item not involving cash: Amortization 697091 447904 Changes in non-cash assets and liabilities: Accounts receivable 3287222 (3737684) Prepaid expenses (97129) 17701 Accounts payable and accrued liabilities 87545 2387733 Due to the City of Kitchener (89366) (789025) Cash from operating activities 4807096 5517813 Investing activities: Acquisition of tangible capital assets (1827652) (6347453) Purchase of investments (867) (749) Cash used in investing activities (1837519) (6357202) Increase (decrease) in cash 2967577 (837389) Cash, beginning of year 3467072 4297461 Cash, end of year $ 6427649 $ 3467072 See accompanying notes to financial statements. Page 56 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2022 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 4 years Furniture and fixtures 7 years Leasehold improvements 7 years Event equipment 10 years Patio equipment 5 - 12 years Structures 5 years Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue. (b) Accrual basis of accounting: 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. Page 57 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2022 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 $ 11,062 April 17, 2023 3.25% 52,295 March 20, 2023 1.20% 53,180 March 17, 2023 4.00% 3. Commitments: The Board executed a new lease agreement effective January 1, 2023. The lease expires on December 31, 2027. The Board is committed to the following minimum payments under the agreement: 2023 $ 48,395 2024 547990 2025 587304 2026 64, 325 2027 69,327 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 $ 21,606 (2021 - $29,972). Page 58 of 264 FM z LU 50LU c9 Q Z 50Q LL O D a 0 m a W FMa z LU 50LU O am 50 z 070 Z C O 0 U N N � O N .. C'7 li C6 N WU) -0 Z W70 (6 � LL CU Vo 70 FM Ca Z >- N m m V ic Z 2-0 N ti 00 I LO (D co N Co LO O O ~ O 9- 69- 70 a) C O (� ti O� � N ti CU 0 � ti O cu N O co CO CD M 00 ";T P- 00 CD U O U E Q co bg O Nt O' I Ill- co ti +� co LO O O) Nt O N � � E 0 0 N N C6 t OI co M O O M >.0) O o N N lqi 00 00 N LO 0-0 60- } 0) N u c O '- co ti m � co � co N O CO O co N '� O E - N N � co � O co N U O -0 Qco to N O"C: U') m LO O 00 LO Ir -ti ";I -N co rl- 7 >1 co co CO co t, CD M 00 ;T O m O N m 6� C: o I I I I I I I I I I I I C� O� 0-M c� o� 60- I I I m I O T - C6 60- C U co CD U-) O m LO ti m co ti O O O I LO co m N co ti CD M 00 ;TN- N O N O CO N � N � N E 70 0 N > O c N 0 4 U O > c U w 0- w co CO co ti NT N O LO KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2022 6. Government grants: Included in other income is a transfer of $ 20,219 received from City of Kitchener. 7. 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 September 28, 2021. 1,:RVIG Ll P, aul Oum'urlici Hinked Habd�tl.y and mc,tnber Cirri w'fliio �:P'VlGgVcdxd � 'TVIIN 11 111,11111, I ininked a 1"willi"fliC, 1-,Ugh�dll I'MrIllpan"I'll/ hImIlwd by 11i (-`aunda pron/Wcs ser vwc,,; wi G,CFVIG I I P. Page 60 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S 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, 2022 • 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, 2022, and its results of operations and changes in accumulated surplus, 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's 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. ','11 ., (i i •, r i ����m, p ^" .. IIP �" r i, roe r r �n I rig '� 'dig .� ., I.,: ���Wi. K ` I N, 'r�. �, ..; ° , II II��(3 III � , �..rur ������rr���..ru�na,..r Illuuu�nu�..'� � Illuk.,�rll�mhull�.,� Il���..rupm�..0 �Ilm�ull� �::����.� ur���...�utnll��...w Ilnu��m ���h ��hm�.;� II ��Nm�,�� ����Ill����i���r� ���m����:��murm�u ��m��m���r�u �:.rll uur���h���rm,�.��r.m�� „ 1 ., ��� 9 r., rM 1 III 'mll :�1� '. SI I � . .. it �'. � ., r 'p r :,'. it ,� I , a r � ���m �I �I r 9 Ii'n i� .Lee W w. urmm r,rmmll-� r Ilnu rums �rll':fi uated w0th a III ., Ilhnter�rmafi riam Ill..mrmrmull, �„ :r Ilru m ..mt uru!1� h u ��o mllo�. my IlHnni d II gi mM::�u rruL� �. �� Ilm, m�11 m� �:minad :a II".1u 0�rm� hes �� ndi"c n, to IIIA Rlm m III.... Page 61 of 264 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. Auditor's 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 auditor's 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. Page 62 of 264 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 auditor's 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 auditor's 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 Kitchener, Canada March 15, 2023 Page 63 of 264 KITCHENER PUBLIC LIBRARY Statement of Financial Position December 31, 2022, with comparative information for 2021 Financial assets 2022 2021 Cash $ 27 021, 464 $ 119567322 Accounts receivable 1617972 1533690 Due from City of Kitchener 83,078 1957142 Investments (note 2) 507000 503000 Endowment investments (note 2) 1007000 100,000 Total financial assets 2,4167514 274551154 Financial liabilities Accounts payable and accrued liabilities 5697728 6697058 Due to Early Literacy Alliance of Waterloo Region 6487637 566,950 Deferred revenue (note 4) 5137810 4023384 117327175 176389392 Net financial assets 6847339 8167762 Non-financial assets Tangible capital assets (note 3) 5,0957735 572937309 Prepaid expenses - 187500 530957735 573117809 Accumulated surplus (note 8) $ 57807074 $ 67128,571 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 64 of 264 KITCHENER PUBLIC LIBRARY Statement of Operations and Changes in Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements. Page 65 of 264 Budget Actual Acutal 2022 2022 2021 Revenues: Grants: The City of Kitchener - Operating $ 11,558,934 $ 11,558,934 $ 11,410,596 The City of Kitchener- Capital and special (note 5) - 450,352 6841727 The City of Kitchener - special (note 6) - 707069 211571 Province of Ontario 306,980 306,980 306,980 Interest and miscellaneous 40,000 80,600 171163 Rentals 105,000 79,565 18,122 Partnerships 55,000 56,568 53,079 Photocopy 437000 40,667 14,745 Lost and damaged fees 30,000 21,926 13,871 Total revenue 127138,914 127665,661 127301854 Expenses: Personnel costs (schedule 1) 94731197 91140,995 878027392 Resource materials 17207,900 17440,563 1,453,870 Equipment (schedule 2) 366,500 953,851 901,830 Facilities costs (schedule 3) 788,917 837,328 859,892 Administrative (schedule 4) 225,900 268519 248,878 Expenditures related to capital and special (note 5) - 181,390 2887674 Required expenditures related to special grants (note 6) - 70,069 2117571 Programs and publicity (schedule 5) 76,500 68,496 72,196 Processing/bindery 90,000 44,342 79,240 General library equipment 10,000 89605 12,026 Total expenses 127238,914 137014,158 12,9307569 Deficiency of revenue over expenses (100,000) (348,497) (199,715) Accumulated surplus, beginning of year 63128,571 6,328,286 Accumulated surplus, end of year $ 51780,074 $ 6,128,571 See accompanying notes to financial statements. Page 65 of 264 KITCHENER PUBLIC LIBRARY Statement of Change in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements. Page 66 of 264 2022 2021 Deficiency of revenue over expenses $ (348,497) $ (199715) Acquisition of tangible capital assets (1,202,805) (13388,350) Amortization of tangible capital assets 174003379 11380,717 (150) 923) (207, 348) Change in prepaid expenses 18,500 (97545) Change in net financial assets (132,423) (216,893) Net financial assets, beginning of year 816,762 13033,655 Net financial assets, end of year $ 6843339 $ 816762 See accompanying notes to financial statements. Page 66 of 264 KITCHENER PUBLIC LIBRARY Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 Operating activities: Deficiency of revenue over expenses Item not involving cash: Amortization of tangible capital assets Changes in non-cash operating working capital Accounts receivable Prepaid expenses Due from City of Kitchener Accounts payable and accrued liabilities Due to Early Literacy Alliance of Waterloo Region Deferred revenue Cash provided by operating activities Capital activities: Cash used to acquire tangible capital assets Increase in cash Cash, beginning of year 2022 2021 $ (348,497) $ (199,715) 1,400, 379 11380,717 (87282) 1707363 187500 (97545) 1123064 (577218) (997330) (89,693) 817687 2667950 1113426 (137279) 1,267,947 (112027805) 1,448,580 (173887350) 65,142 60,230 11956,322 11896,092 Cash, end of year $ 2,0213464 $ 11956,322 See accompanying notes to financial statements. Page 67 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements Year ended December 31, 2022 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. The following is a summary of the significant accounting policies followed in the preparation of these financial statements. (a) Basis of accounting: The Board follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay. (b) Revenue recognition: 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. (c) Investments and investment income: 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. Investment income is reported as revenue in the period earned. Page 68 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (d) Endowment investments and income: Endowment investments received are recorded as financial assets which have the principal restricted for use. 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. 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) 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. (f) Employee future benefits: The costs of multi-employer defined contribution pension plan benefits, such as the Ontario Municipal Employees Retirement System ("OMERS") pensions, are the employer's contributions due to the plan in the period. (g) Non-financial assets: Non financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year. (h) 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 Other equipment and vehicle Computers Books and audio visual resources 10 - 30 years 8 years 3- 10 years 2- 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. Page 69 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (i) Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant estimates include assumptions used in estimating provisions for accrued liabilities and useful lives of tangible capital assets. Actual results could differ from these estimates. 2. Investments: 2022 2021 Cost Market Value Cost Market Value nvestments: Guaranteed Investment Certificate $ 50,000 $ 507494 Endowment Investments: Guaranteed Investment Certificate 1007000 100,997 $ 50, 000 100,000 $ 507000 1007000 Page 70 of 264 J 70 V� J O U N � N O D w N a E N Co 4-0 N W (6 N Z N LU c6 0 ZLL �_ Cll O 70 � Cll Ik N O Irti m 0- LO M a)O� N 00�� 00 C6 N 00 Cfl ,:1- 0') C'7 CO CO I` O � N 0) It ti O C) 00 U) I`OLO � tiOLO � O) ON(N O I`NtN CY) O 60- f CO ' CO 00 N ' O CO _N O•V LO NN 0000 co 0-) N 00 �> N N ~ 00 0- � N C: " m N � Eft 6F} co O M O M CN N a CND CO -1--i co co I` m � � r- 00 x 0- r..: 6 cyi Ni L6 C6 M (6 r-: `~ N It It :3CN CN N O N O N N 70 'E C LL i COMA 00 O 00 00 O I` � N M I` 00 co �N00 C3� -I`00 M m :3 PI: M 00 CO Ni 00 O� E M C M m O U N M N N M N N N e04 U). 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C= >1 C= O4.0 N a) RS Cr) > C: Ca 7- U O cin U U cin U 0 ♦, +� O C O N (� D- (a V O Q- - O m.� ca v m E.� ai O NN 0 00 Q 0 cn a o0 Q 0 00 z N O N ti O m 0- KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 4. Deferred revenue: The deferred revenues, reported on the statement of financial position, are made up of the following: 5. 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 2022 included $101,959 (2021 - $99,960) for general renovations, maintenance and upgrading of existing facilities, $334,070 (2021 - $327,517) for communication infrastructure and technology upgrades, $29,714 (2021 - $29,131) for KPL Accessibility Fund, $58,367 for resources, furniture and equipment (2021 - $57,222) and $Nil (2021 - $4,739,897) for the southwest community library. The portion of these grants and previous year grants that are included in revenue in 2022 is $4507352 (2021 - $684,727). 6. 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 2022, the Board received various special non-recurring grants and donations totaling $163,628 (2021 - $197,139). The portion of these grants and previous year special grants that are included in revenue in 2022 is $70,069 (2021 - $211,571). The remainder is included in deferred revenue. Page 73 of 264 2022 2021 Deferred capital grants Other $ 479,825 337985 $ 3627861 397523 Total deferred revenue $ 5137810 $ 4027384 Continuity of deferred capital grants is as follows: 2022 2021 Balance, beginning of year Investing in infrastructure grant Contributions used $ 3627861 1687873 (517909) $ 3777292 1977139 (2117570) Balance, end of year $ 4797825 $ 3627861 5. 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 2022 included $101,959 (2021 - $99,960) for general renovations, maintenance and upgrading of existing facilities, $334,070 (2021 - $327,517) for communication infrastructure and technology upgrades, $29,714 (2021 - $29,131) for KPL Accessibility Fund, $58,367 for resources, furniture and equipment (2021 - $57,222) and $Nil (2021 - $4,739,897) for the southwest community library. The portion of these grants and previous year grants that are included in revenue in 2022 is $4507352 (2021 - $684,727). 6. 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 2022, the Board received various special non-recurring grants and donations totaling $163,628 (2021 - $197,139). The portion of these grants and previous year special grants that are included in revenue in 2022 is $70,069 (2021 - $211,571). The remainder is included in deferred revenue. Page 73 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 7. 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 $606,721 (2021 - $607,866) for current service on behalf of its staff. The latest available report for the OMERS plan was as at December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit, based on actuarial liabilities of $128.8 billion and actuarial assets of $122.1 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, 20227 the Board has no obligation under the past service provisions of the OMERS agreement. 8. Accumulated surplus: The accumulated surplus consists of surplus and reserve funds as follows: Page 74 of 264 2022 2021 Invested in tangible capital assets $ 5,0957735 $ 572933309 Endowment investments 1007000 1001000 Reserves set aside by the Board: Capital fund 3447460 3447460 HR fund 377000 377000 Inclusion fund 677876 199,361 Improvement fund 1357003 1547441 Total reserves 5847339 7357262 Accumulated surplus — unrestricted — — Accumulated surplus $ 5, 780, 074 $ 67128)571_ Page 74 of 264 KITCHENER PUBLIC LIBRARY Schedules of Expenses Year ended December 31, 2022, with comparative information for 2021 Schedule 1 -Personnel 2022 2021 Salaries $ 71328,934 $ 7,069,060 Pension benefits 960,071 930,365 Health benefits 5683800 468,940 Employment insurance 1383159 130,852 Sick leave reserve 70,000 70,000 Staff training 56, 990 114536 WS I B 18,041 18,639 $ 9,140, 995 $ 8, 802, 392 Schedule 2 - Equipment Amortization $ 5297451 $ 4873610 Technology 4071008 405,353 Equipment maintenance 177392 8,867 $ 9537851 $ 901, 830 Schedule 3 - Facilities Facilities expenses $ 5167625 $ 516,310 Main utilities 236,339 2289337 Country Hills building 445639 499357 Forest Heights utilities 27,681 37,272 Pioneer Park building 11,304 19,018 Grand River Stanley Park building 740 91598 $ 837,328 $ 859,892 Schedule 4 - Administrative Professional services $ 1059327 $ 99,521 General business 679036 60,771 Stationery 499075 407365 Telephone 21,053 211495 Insurance 20,796 20,389 Postage and delivery 5,232 67337 $ 268,519 $ 248,878 Schedule 5 - Programs and Publicity Promotional $ 36,541 $ 439005 Public programs 31,955 29,191 $ 68,496 $ 72,196 Page 75 of 264 llfl -1 At IAL 1 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE 1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S 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, 2022 • 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 Centre as at December 31, 2022, and its results of operations and changes in accumulated surplus, 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's 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. (. :� (" , � II III � III � ry �..ull� � ����ull�. .. � � ..I µ,. n , a u�m u u � a N.,:����u � u u � IIIA ���,�,�,�:�'�u! �u�u I � �uI a �I anid � uru�� „, a �I �� .�u a u�u� uI �I�.p. � � � �'���� I� ���w � � I �I �::::�u I m II�,p;�:m u�nl a �.:����� ��u � ���.., a u�u � �'���I, w�uld� � u�ul ill 'h, ,. ,.,� "^r ::,:^ � il':' W.. ��.� li .� �i II I ",�, III m";; tl ����I �i':' III " ... "n.11 , „', r" r p i:',s rill �. it �I�� � W "I :::: �'h III ,. .I. l! � iI a •�':::: il' .,.� 1 �� �1i. u u u l � .0 II ulnnl E �, Ilium u p III . nm uu w,l� a mu II Y M„p wZ:u I� Ilnllllia SII IIS �� � Page 76 of 264 IIS �m II�� ��. ry � �.;� u="m,.� � p;.� IIS a II�I'Ih�m� � �I.:lo� "a�;^ �h�rm ��.�II� �� �'II�1 IIIA �.I� II�'�� � ry III.... �...I° 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. Auditor's 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 auditor's 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. Page 77 of 264 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 auditor's 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 auditor's 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. n Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada April 20, 2023 Page 78 of 264 THE CENTRE IN THE SQUARE INC. Statement of Financial Position December 31, 2022, with comparative information for 2021 Net Assets Financial assets: Cash Due from City of Kitchener Accounts receivable (note 2) Interest receivable Costs to be recovered Investments (note 3) 2022 2021 $ 37352,049 $ 318503581 — 48,488 179927751 3581470 3,965 27254 165,235 1227105 15277054 174201930 Total financial assets 71041,054 57802,828 Financial liabilities: Accounts payable and accrued liabilities 2,8177533 175377203 Due to City of Kitchener 2313407 — Deferred revenue (note 4) 213937412 27719,131 51442,352 47256,334 Net financial assets 11598702 15461494 Non-financial assets: Tangible capital assets (note 5) 157636,326 13,270,528 Inventories (note 6) 74,673 831706 Prepaid expenses 1963040 2337609 15, 907, 039 13, 587, 843 Net assets $ 17, 505, 741 $ 15,134, 337 Accumulated Surplus Operating fund activities (note 7) $ — $ — Reserves - Performance Development (note 10) — — Reserves - Capital (note 10) 935,502 1,032,161 Reserves - Sustainability (note 10) 2053213 2025230 Reserves - Restricted (note 10) 7289700 6293418 Invested in tangible capital assets 15,6363326 133270,528 Accumulated surplus $ 17,505,741 $ 151134,337 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 79 of 264 THE CENTRE IN THE SQUARE INC. Statement of Operations and Changes in Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 Expenses: Budget 2022 Actual 2022 Actual 2021 Direct: (note 9) Revenues: 1,097,814 2,1007203 6747535 Performances $ 23466,424 $ 23559,785 $ 771,978 Rent - Kitchener -Waterloo Symphony 2241150 2043700 71,625 Capital reserve fund surcharge (note 10) 3899400 2679818 459147 Grants from City of Kitchener - Operating 230009000 210009000 210003000 Grants from City of Kitchener - Capital 744,931 19238,851 602,908 Grants from other 7657000 7067610 4727700 governments - Operating (note 11) - 459,804 7007971 Grants from other governments - Capital 1,6227454 1,8011926 160,202 Donations 8,000 42,113 157223 Investment income 20,500 112,687 35,828 Sponsorships and memberships 148,293 63,423 26,799 Rent - Kitchener -Waterloo Art Gallery 1075222 1079222 105,120 Lottery revenue - 7,421 42,951 Other 1929000 4909618 177,779 Gain on sale of investments - 829435 23026 Total revenue 71923,374 91438,803 477583557 Expenses: Direct: Performances 1,097,814 2,1007203 6747535 Recovery of performance costs - - (27126) Operating: Administration 6247354 575,081 4287517 Marketing 1057000 64,733 519611 Lottery expenses - 71796 417568 Occupancy 7657000 7067610 4727700 Salaries and wages 2,411,866 27522,922 2,1167580 Sponsorship - 287118 57415 Amortization 1,270,000 1,055,000 985,732 Loss on disposal and write-down of tangible capital assets 50,000 87709 507108 Reserves expenditures (recovery) (note 10) 55,000 (1,773) 39,497 Total expenses 6, 379, 034 710677399 47864Y137 Excess (deficiency) of revenue over expenses 175447340 273717404 (105,580) Accumulated surplus, beginning of year 15,1347337 15,134,337 157239,917 Accumulated surplus, end of year 16,6787677 $ 175057741 $ 157134,337 See accompanying notes to financial statements. Page 80 of 264 THE CENTRE IN THE SQUARE INC. Statement of Changes in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 2022 2021 Excess (deficiency) of revenue over expenses $ 2,3717404 $ (105,580) Acquisition of tangible capital assets (314327107) (130087270) Amortization of tangible capital assets 110551000 9857732 Write-down of tangible capital assets — 503108 Loss on sale of tangible capital assets 83709 — 5, 606 (78, 010) Net use (acquisition) of inventories 9,033 (26,138) Net use (acquisition) of prepaid expenses 37,569 (105,705) 46, 602 (131, 843) Increase (decrease) in net financial assets 52,208 (2097853) Net financial assets, beginning of year 115467494 177563347 Net financial assets, end of year $ 175981702 $ 175467494 See accompanying notes to financial statements. Page 81 of 264 THE CENTRE IN THE SQUARE INC. Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 2022 Operating activities: Excess (deficiency) of revenue over expenses $ 233717404 Items not involving cash: Amortization 130557000 Loss on sale of tangible capital assets 83709 Write-down of tangible capital assets — Change in non-cash operating working capital (398,014) Cash provided by operating activities 370377099 Capital activities: Cash used to acquire tangible capital assets (33432,107) Cash proceeds on sale of tangible capital assets 27600 Cash used in capital activities (314293507) Investing activities: Cash used in purchasing of investments (106,124) Increase (decrease) in cash Cash, beginning of year (498,532) 338507581 2021 $ (1057 580 ) 9853732 50,108 27622,576 37 552, 836 (17008,270) (130087270) (17,307) 2,527,259 17323,322 Cash, end of year $ 37352,049 $ 338507581 See accompanying notes to financial statements. Page 82 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements Year ended December 31, 2022 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. (a) Basis of accounting: The Centre follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay. (b) Revenue recognition: 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. 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. (c) 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. (d) Employee future benefits: The costs of multi-employer defined contribution pension plan benefits, such as the Ontario Municipal Employees Retirement System ("OMERS") pensions, are the employer's contributions due to the plan in the period. Page 83 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (e) Non-financial assets: Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year. (i) 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 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. (ii) 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. (f) Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant estimates include assumptions used in estimating provisions for accrued liabilities and useful lives of tangible capital assets. Actual results could differ from these estimates. Page 84 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 2. Accounts receivable: 2022 2021 Accounts receivable $ 119927751 $ 2133739 Canada Emergency Wage Subsidy receivable — 1447731 Allowance for doubtful accounts — — $ 1, 992, 751 $ 3581470 3. Investments: Investments consist of: Carrying value Market Carrying value Market 2022 2022 2021 2021 Cash $ 19,212 $ 19,212 $ 28,735 $ 287735 Guaranteed Investment Certificates 7687350 7687350 7567185 756,185 Fixed income 4607951 4327205 3547768 3537727 Equities 278541 434,206 2817242 5647401 $ 175277054 $ 17 653, 973 $ 1,420, 930 $ 137037048 4. Deferred revenue: Deferred revenue consists of the following: 2022 2021 Performances $ 270593807 $ 234967475 Gift certificates 983233 893560 Sponsorships 537311 50,756 Other 1717966 807483 Membership 107095 17857 $ 27393,412 $ 2, 719,131 Page 85 of 264 U Z W a U W O U N N C O Z Er M W 4-0Fm C/) E a) c6 a) Z W co � �_ LL N O_0 LU W 4-0 Q) a� co Ho z ic MS4 iv CP C U, Tr Y E C c 4- c a E c E Ll c R N O N I ti M LO M M ti R-zl- lc:i M N o� I lit M co C0 M C0 O r LO M M M O N I I I ti 00 00 r LO 1 0000 ,'I- LO Ni ti Iql- O7 r M 00 r LO 00 N OO C0 M rn c0 I O CO M I` r` M Oi 07 r M ti r O LO r r O (Y r CC) 00 t -- 05 `O Ln 00 ui NONI` 00 r 1 N 7- O I I I co LO 07 .C: U) U) UQ) � U)Q) >, O C +r 0 to u� D O :aa- C:0 co -.D) co tem Qom O 0D 0 V- LO rOO LO CY) LO Lfi V) 00 U) N V- qqT O .� N r ti rn Ln Ln M O N M N r Ir - U') Ln 00 I` (C) I` 00 N I` 00 O 00 LO (D � 00 00 r N Ln CO NNr- M M r O Ln M N M 00 1 I` M 00 I` O M I` M N N N ti C: O O m (0 I` 00 1 ti CY) I` O Ln N Ln O C0 N r� M �NN 0000 I` NNS N 00 P- LOLOr r Lid C) I I I M LO 07 N M O O Ir - co co 0o O M N N_ Ln N 00 Ln ti 00 co O L O O L6 UD co I N co CC) cor ti rn Ln LO M LO O ti N M co C.0 O co N m O O (Ni 00 r N ti ti r O co 60- 0 co LO O a O N_ *t O O E .� N M .O 70 C: O O m a) E 0 o 0 O 0- V O C) am Qo N M O O Ir - co co 0o O M N N_ Ln N 00 Ln ti 00 co O L O O L6 UD co I N co CC) cor ti rn Ln LO M LO O ti N M co C.0 O co N m O O (Ni 00 r N ti ti r O co 60- 0 co LO O U Z W a U _0 N W .� 0 Fm U N � N C O Z E C'7 W 0 L n/ 0 N 1■1� Cf) Fm C6 N Z W co �_ LL N O_0 LU W U L co Ho z ic R c c u — v � a 0 c MS4 iv CP c U, T E c c 4- c Q E c E Ll Z a Tml C M OI*-- CD 00 N CC) O O jLO (3)0V - M N V-- O � m 1 1 of 00 00 O Ln o I L I O Ln Ln CO 00 LO V-- 00 M 00 c0 1 c0 N N N T--- M CC) 00 0)o l M CC) M ti 00mqqt1` T- T- O N f` CC) M O cM T--- 0 1` N CO SCM M .C: .O C: U O 7 U) D 0 7� vm Q�It N CY) M � I` O f` Ln LO O 00 LO p 1` (C) 0Y � O N C)lqt I I I Ln O I` Lo CN LO 0) ti Ln o 00 ,:1-00 00 00 LO � 0) Ln Ln N 00 It � "Im N Ln � Lf N U It N Ir- 0) M N 'Cl- 0-) 1 00 N I` (C) O N N N 00 00 p,-- 0) 0) N M 0F) I� 00 M O Ln 00 M M M ..� r�-- 0')(D CY) ,:I- CYI) (. 0) N O O� C0 N 00 r__- M V- Ln C) O I I I Lfi O N_ E O L C: L O N 0 0 U V Ca O 0-2 L) am Q� v N co m O co N 07 O r-- 4 4 O N Ln 00 Ln O N M V- 60- V - 0 (D LO 00 0 CC) O O 07 N N 00 ti M It CN CY) lqtN 0 CC) N 00 O O THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 6. Inventories: 2,100, 203 6747535 — Inventories consist of the following: (2)126) 624,354 575, 081 428,517 105,000 2022 2021 Bar stock $ 721798 $ 827782 Supplies 4727700 11875 924 2,116, 580 $ 74, 673 $ 837706 7. Operating fund activities: Budget Actual Actual 2022 2022 2021 Revenues: Performances $ 2,3103664 $ 2,5593785 $ 771,978 Rent - Kitchener -Waterloo Symphony 2241150 204700 711625 Grants from City of Kitchener 210003000 2,0001000 27000,000 Grants, other governments — 4591804 700,971 Donations 61000 39449 12,961 Investment income 16,000 71,743 67560 Sponsorships and memberships 1487293 63,423 261799 Rent - Kitchener -Waterloo Art Gallery 1071222 107,222 1051120 Lottery revenue — 77421 42,951 Other 1921000 490, 618 1777779 Total revenue Expenditures: Direct: Performances Unrecoverable performance costs Operating: Administration Marketing Lottery expenses Occupancy Salaries and wages Sponsorship 5, 004, 329 6, 004,165 379167744 1, 097, 814 2,100, 203 6747535 — — (2)126) 624,354 575, 081 428,517 105,000 641733 51,61 1 — 7, 796 41568 765, 000 706, 610 4727700 2, 411, 866 2, 522, 922 2,116, 580 — 287118 5,415 Total expenditures 530041034 6, 005,463 33 788, 800 Operating fund net revenues (deficiency) before amortization 295 (11298) 127,944 Transfer from (to) reserve funds (note 10) (295) 649 (127,944) Transfer from City of Kitchener — 649 — Fund balances, end of year $ — $ — $ — Page 88 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 8. Economic dependence: The Centre is economically dependent on the City of Kitchener during the pandemic to provide sufficient funds to continue operations and capital projects. 9. 2022 budget: The original budgeted figures were approved by the Board of Directors at their meeting on August 21, 2021 and included certain expenses and offsetting recoveries on a net basis. 10. Schedule of reserve funds: (a) Performance Development Reserve Fund: The Centre has an agreement with the City, whereby The Centre's annual operating net revenue is shared equally between the City and The Centre. At the direction of the Board of Directors, transfers are made to and from the Performance Development reserve funds. (b) Capital Reserve Fund: 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 2022, The Centre's Board of Directors approved transfers out of the Capital Reserve Fund for major capital asset projects of $3,432,107 (2021 - $1,008,270). (c) Sustainability Reserve Fund: Revenues from the Sustainability Reserve Fund come from fundraising contributions. At the direction of the Board of Directors, funds are allocated for specific capital projects and programming initiatives. (d) 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. Page 89 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 10. Schedule of reserve funds (continued): Performance Total Development Capital Sustainability Restricted Funds Revenue: Donations and sundry $ — — $ — $ 27664 $ 27664 Grants from City of Kitchener — 15238,202 — — 17238,202 Grants, other governments and foundations — 17801,926 — — 17801,926 Ticket surcharge — 2671818 — — 2677818 Investment income — 127135 31632 25,177 401944 Gain on investments — — — 827435 827435 Total revenue — 31320,081 31632 110,276 37433,989 Expenses: Professional fees — — — 107994 107994 Capital costs (recovery) — (12,767) — — (127767) (127767) — 107994 (17773) Recovery of loss on disposal of capital assets — (27600) — — (27600) Total expenses — (15,367) — 103994 (47373) Excess of revenue over expenses — 373357448 3,632 99,282 3,4387362 Balance, beginning of year — 110321161 2027230 6297418 178637809 Transfer to accumulated surplus - tangible capital assets (note 10 (b)) — (31432,107) — — (3)432,107) Transfer to operating (note 7) — — (649) — (649) Balance, end of year $ — $ 935,502 $ 205,213 $ 728,700 $ 11869,415 11. COVID-19 funding: During the year, The Centre received $276,072 in Tourism and Hospitality Recovery Program subsidy, $83,732 in Canada Recovery Hiring Program and these amounts are recorded in the statement of operations under Grants from other governments - Operating (2021 - $700,971 in Canada Emergency Wage Subsidy). Page 90 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 12. Pension agreements: The Centre belongs to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of the members of its staff. This plan specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Because OMERS is a multi-employer pension plan, any pension plan surpluses or deficits are the joint responsibility of Ontario municipal organizations and their employees. As a result, The Centre does not recognize any share of the OMERS pension surplus or deficit. The latest available report for the OMERS plan was December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit (2021 - $3.1 billion actuarial deficit), based on actuarial liabilities of $128.8 billion (2021 - $119.3 billion) and actuarial assets of $122.1 billion (2021 - $116.2 billion). Ongoing adequacy of the current contribution rates will need to be monitored and may lead to increased future funding requirements. The 2022 employer portion of OMERS pension contributions was $163,271 (2021 - $124,413). 13. Comparative information: 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 excess of revenue over expenses. Page 91 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Mayor and Members of Council, Inhabi the City of Kitchener 111111411 Opinion We have audited the stateme ended December 31, 2022 c Enterprise (the Entity) (Hereinaf In our opinion, the respects, the stat December 31, 2 ; relevant to pr, p,@,rin( Basi tepayers of The Corporation of and accumulated surplus for the year �of the City of Kitchener Gasworks t e financial statement ). 'hancial statement presents fairly, in all material and accumulated surplus for the year ended th Canadianublic sector accounting standards p g statement. We condu o audit in accordance with Canadian generally accepted auditing standards.sponsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's 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. IMJII III AG ai m � u�u� �� � w n�,�� III����uiV�� ���� III��.�V:�ulllu�'�,� Il���u�u��w���"null�� �::��u�.� u�ut��. ���Ilu�w�: llluirum� gall ������. III � II����� &�4ll ougaunui .aIluoni dl ubdprude,rut ulluru w .ilV . I coru1�,11 1 'm �l w luemu Illu��� I a ���, In° li I��l� Ill fl i a airiada IIpi rcr,111 de s serns ili c s IL) Ili A Page 92 of 264 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, manage's responsible for assessing the Entity's ability to continue as a going concern, osiapplicable matters related to going concern and using the going concasis of a G nting unless management either intends to liquidate the Entity or ase o erations, % as no realistic alternative but to do so. Those charged with governanc are resp le for overseeing the Entity's financial Irl reporting p g p rocess. Auditor's Respon Our objectives statements as a and to issueegzai, Reas°� conduct", f always det it of the Financial Statements in rea° fable assurance about whether the financial aterial misstatement whether due to fraud or error, port that includes our opinion. is a high level of assurance, but is not a guarantee that an audit ce with Canadian generally accepted auditing standards will al 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. Page 93 of 264 g11PnaLYMAIALIMA 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 ma IIIIImanagement. • Conclude on the appropriateness of manage f se of the going concern basis of accountingand based on the audit evade obtain hether a material uncertainty � ,� Y exists related to events or conditions may cast si /i t, ' ant doubt on the Entity s abilityto continue as a going con. If ,conclude hat a material uncertainty g g �% Y exists, we are required to draw a ` �'in our Auditor's report to the related disclosures in the financial atements� if such disclosures are inadequate, to modify our opinion. Our con f re ba ,on the audit evidence obtained up to the date of our Auditor's repo ���I Ho �� lure events or conditions may cause the Entit Y to cease to co as a' orf concern. • Evaluate the o IImtatio re tructure and content of the financial statements p �+ including the Jl' los ��////' �������������������„ hether the financial statements represent the underlyin nsa and events in a manner that achieves fair presentation. • Com ��'icate ,if th �c,har ed with governance regarding,among other matters the ` ` ned scop jnd timing of the audit and significant audit findings, including any si nifi f deficie s in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada 11111:7_1aI Page 94 of 264 THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE Statement of Operations and Accumulated Surplus For the Year Ended December 31, 2022 2022 2022 2021 Budget DELIVERY OPERATIONS Gas delivery Revenue $ 41,290,695 $ 43,591,449 $ 3974221933 Expenses 23,334,805 24,269,576 2271151361 17,955,890 19,321,873 17,307, 572 Other programs (Customer service, rental water heaters &financing) Revenue 11,595 12,2839189 1127831442 Expense,, 8,3 19 814839798 77601,985 9,246 31799,391 4,1817457 Dispatch Revenue ,859 7121234 6061280 Expenses 791859 7121234 6061280 Excess of revenue over expenses ,136 23,1219264 217489,029 Accumulated surplus -Delivery Balance, beginning of year 191,004,746 191,004,746 184,701,184 Interest revenue 34,527 84,521 467104 Transfer to gas investment reserve fff(1595369202) (15,536,202) (15,231,571) Excess of revenue over eye 21,175,136 23,121,264 2174891029 Balance, end of year 196,678,207 198,674,329 19170041746 SUPPLY OPERATIONS /� �% G% r����� 33 792 932 40,3209864 28 546 577 Revenue ////////////////G�i, Expenses 3555349597 3759569435 297232,320 Excess/(deficiency) of revenue over expenses (1,741,665) 25364,429 (6855743) Accumulated surplus - Supply Balance, beginning of year 3,598,854 3,598,854 472391900 Interest revenue 34,313 75,336 441697 Excess/(deficiency) of revenue over expenses (1,741,665) 2,3641429 (685,743) Balance, end of year $ 11891,502 $ 61038,619 $ 37598,854 Page 95 of 264 MANAGEMENT REPORT Management's Responsibility for Financial Reporting The accompanying financial statements of Kitchener Generation Corporation are the responsibility of management and have been prepared in accordance with Canadian public sector accounting standards. The significant accounting policies followed by Kitchener Generation Corporation are described in the Significant Accounting Policies contained in Note 2 of the financial statements. The preparation of financial statements necessarily involves the use of estimates based on management's judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. The financial statements have been prepared within reasonable limits of materiality and in light of information available up to June 26, 2023. Management maintained a system of internal controls designed to pro the assets were safeguarded and that reliable information was system included formal policies and procedures and an organiza appropriate delegation of authority and segregation of res onsies. KITCHENER GENERATION CORPORATION On behalf of management, Jonathan Lautenbach, CPA, CGA Chief Financial Officer and City Tr June 26, 2023 Kitchener, Canada reasonable assurance that able on a timely basis. The structure that provided for the Page 96 of 264 KITCHENER GENERATION CORPORATION Statement of Financial Position As at December 31, 2022 (Unaudited) 2022 2021 Financial assets Accounts receivable $ 119478 $ 71676 111478 77676 Liabilities Due to the Corporation of the City of Kitchener 111476 71674 Long-term debt (Note 3) 1,672,213 178811239 11683,689 17888,913 Net financial debt /% (19672,211) (1,881,237) Non-financial assets Tangible capital assets (Note 4 118589012 27090,264 1,858,012 210907264 Shareholder's equity Note 5 185,801 209 027 The accompanying notes are an integral part of these financial ""',dents. Page 97 of 264 KITCHENER GENERATION CORPORATION Statement of Operations For the Year Ended December 31, 2022 (Unaudited) 2022 2022 2021 Budget Revenue Sale of electricity $ 385,000 $ 386,220 $ 401,175 Total revenue 385,000 386,220 4011175 Expenses Maintenance 20,000 10,400 - Amortization of tangible capital assets 232,252 232,252 2321252 Total expenses 2523252 2429652 232,252 Surplus before interest and provision for payments - in -lieu of corporate income taxes 132 - 1439568 168,923 Interest expense x,250 � 941250 104,809 Surplus before provision for payments -in -lieu of corporate income taxes for payments -in -lieu of corporate income / 38,498 FROProvision .. / 49,318 641114 taxes - - - Annual surplus The accompanying notes are an integral part of these fi $ ;x,498 $ 49,318 $ 641114 stat"'tb'ents. Page 98 of 264 KITCHENER GENERATION CORPORATION Statement of Change in Net Financial Debt For the Year Ended December 31, 2022 (Unaudited) 2022 2021 Annual surplus $ 499318 $ 641114 Change in share capital (23,226) (23,417) Dividends (49,318) (56,589) Amortization of tangible capital assets 2321252 2321252 Change in net financial debt 209,026 2161360 Net financial debt, beginning of year (1,881,237) (27097,597) Net financial debt, end of year $ (11672,211) $ (1)881,237) The accompanying notes are an integral part of [hese financial statements. ............ Page 99 of 264 KITCHENER GENERATION CORPORATION Statement of Cash Flow For the Year Ended December 31, 2022 (Unaudited) 2022 2021 Operating Annual surplus $ 499318 $ 64,114 Items not involving cash (49,318) (56,589) Amortization of tangible capital assets 2321252 2321252 Change in non-cash assets and liabilities Trade and other accounts receivable (39802) 31070 Accounts payable and accrued liabilities 3,802 (81674) Net chanae in cash from oaeratina activities %i%% 281.570 290.762 Financing Change in share capital Change in long-term debt Dividends paid Net change in cash from financing activities Net change in cash and cash equivalentc. Cash and cash equivalents, beginning of ye Cash and cash equivalents end of near ar The accompanying notes are an integral pa fin dial statements. (23,226) (23,417) (209,026) (2105756) (49,318) (56,589) (281.570) (290.762) Page 100 of 264 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2022 (Unaudited) 1. 2. 3. Incorporation On December 9, 2011 Kitchener Generation Corporation (the Company) was incorporated under the Business Corporations 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. Summary of significant accounting policies These financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles for public sector entities s established by the Public Sector Accounting Board of the Chartered Professional Accountants of Can The following is a summary of the T significant accounting policies followed in the preparation of these firs,% ial statements: a. Basis of accounting Tangible capital assets are recorded at cost �h amounts that are directly attributable to acquisition, construction, development or„ 4,e er ,,,,;,,,the asset. The cost less residual value of the solar roof asset is amortized on a straight-line b "" �"""" ' its es0' ted useful life of nineteen years. c. Revenue recognition The Company records revenue le of elecfricity on the basis of regular meter readings and estimates AA/d/d/sT ��������i of energy generation sincelle, ding to the end of the year. d. Use of estimates The preparation of the fifi��ial stat/J'ents requires management to make estimates and assumptions that affect the reported amounts as "' and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statement the reported amounts of revenues and expenses during the year. These W.estimates and assumptions, incling the valuation oftongible 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. Long-term debt Effective January 1, 2012 the Company issued an unsecured promissory note payable to the Corporation of the City of Kitchener. Payments are made annually including interest and principal. Interest is calculated at the fixed rate of 5.01 % per annum. Interest paid in 2022 amounted to $94,250 (2021 - $104,809). Page 101 of 264 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2022 (Unaudited) 4. Tangible capital assets Accumulated Net Book Cost Amortization Value Opening balance $ 41412,784 $ (2,3229520) $ 2,0901264 Additions - - - Amortization - (232,252) (232,252) Disposals - - - Endina balance 5. Shareholder's equity Shareholder's equity consists of the following: Share capital - common shares (Note 6) Retained earnings 6. Share capital Authorized Unliitd mecommon share Issued 1,000 common shares $ 41784 $ (295545772) $ 138589012 2022 2021 $ 1859801 $ 209,027 $ 1859801 $ 2091027 Page 102 of 264 MA P KPMG LLP 120 Victoria Street South 6th Floor Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITOR'S 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 statementof financial position as at August 31, 2022 • the consolidated statement of comprehensive income for the period January 1, 2022 to August 31, 2022 • the consolidated statement of changes in equity for the period January 1, 2022 to August 3132022 • the consolidated statement of cash flows for the period January 1, 2022 to August 31, 2022 • 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 August 31, 2022, and its consolidated financial performance and its consolidated cash flows for the period January 1, 2022 to August 31, 2022 in accordance with International Financial Reporting Standards (I FRS). 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's 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. a ur i Ontario Ill a ur urs a lf. d Ill a4Vo a 111 u t yur urs r urs ll w ���� ur Ill urr m"n� ,!�.AU Ihiii,� OI o, IP S1411 cirgainuzafloin U1 a ungde� Ilie� n de� in� t ...p "1 .��� wrwiubwfiS :� iled n ,ii i �itoa or/,�Ito IIII, shi I ��.��� i�v.i � � Page 103 of 264 �����: SA P 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. Auditor's 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 auditor's 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. Page 104 of 264 MA P 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 auditor's 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 auditor's 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. Z4P 1,111111111 111��Ijjjj Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada December 20, 2022 Page 105 of 264 KITCHENER POWER CORP. Consolidated Statement of Financial Position As at August 31, 2022, with comparative information for 2021 (Expressed in thousands of dollars) Assets Current assets Cash 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 Note 2022 2021 4 $ - $ 6,079 5 207687 217287 177707 147705 6 37493 37080 930 17082 727 30 43, 544 461263 7 2877778 279Y444 8 10, 556 11,185 9 315 302 849 893 299, 498 2917824 Total assets 343,042 338,087 Regulatory deferral account debit balances 10 297768 25,396 Total assets and regulatory assets $ 372,810 $ 363,483 Page 106 of 264 KITCHENER POWER CORP. Consolidated Statement of Financial Position As at August 31, 2022, with comparative information for 2021 (Expressed in thousands of dollars) Non-current liabilities: Long-term debt Note 2022 2021 Liabilities and Shareholder's Equity Long-term customer deposits 13 57443 Current liabilities: Long-term portion of lease liabilities 17 552 556 Short term indebtedness $ 3,033 $ - Accounts payable and accrued liabilities 8,675 29,336 327821 Dividend payable 2,400 - Current portion of lease liabilities 77 42 42 Current portion customer deposits 13 10,687 8,530 Current portion of deferred revenue 1,257 11185 Total current liabilities 465755 427578 Non-current liabilities: Long-term debt 11 76,963 76,963 Employee future benefits 12 67068 67012 Long-term customer deposits 13 57443 57675 Long-term portion of lease liabilities 17 552 556 Deferred revenue 46,144 447451 Deferred tax liablilty 9 9,478 8,675 Total non-current liabilities 144,648 1427332 Total liabilities 1917403 1847910 Shareholder's equity: Share capital - common shares Retained earnings Accumulated other comprehensive loss Total shareholder's equity 14 66,389 667389 108,127 108,261 (620) (620) 173, 896 174, 030 Total liabilities and shareholder's equity 3657299 3587940 Regulatory deferral account credit balances 10 37430 779 Deferred taxes associated with regulatory accounts 47081 37764 Total equity, liabilities and shareholder's equity $ 372,810 $ 3631483 Lupo, Ciii Nig Tim Martin, /ice -Chair Page 107 of 264 KITCHENER POWER CORP. Consolidated Statement of Comprehensive Income For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) Note 2022 2021 Energy sales $ 145,100 $ 2059727 Cost of energy sold 149,500 2083472 (4,400) (2, 745) Other operating revenue Distribution sales 347658 45,033 Other income 15 2, 248 3,319 Net operating revenue 32,506 45,607 Expenses: Operations and maintenance 83598 113552 Customer services 43503 53674 Administration 4,108 61452 Amortization 81001 107977 Income before income taxes 57744 8,467 Income tax recovery 9 (35) (520) Income for the period before movements in regulatory deferral account balances 57779 81987 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 10 1, 057 2, 208 Income for the year and net movements in regulatory deferral account balances 67836 117195 Total comprehensive income for the period $ 63836 $ 113195 The accompanying notes are an integral part of these financial statements. Page 108 of 264 257210 341655 Other Energy conservation program revenue (591) (1,262) Energy conservation program expense 340 11277 Net energy conservation programs (251) 15 Finance income 16 (41) (39) Finance charges 16 17844 21509 Net finance costs 17803 2,470 Income before income taxes 57744 8,467 Income tax recovery 9 (35) (520) Income for the period before movements in regulatory deferral account balances 57779 81987 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 10 1, 057 2, 208 Income for the year and net movements in regulatory deferral account balances 67836 117195 Total comprehensive income for the period $ 63836 $ 113195 The accompanying notes are an integral part of these financial statements. Page 108 of 264 KITCHENER POWER CORP. Consolidated Statement of Changes in Equity For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) Net income before other comprehensive income (loss) - - 6,836 6,836 Dividends - - (6,970) (6,970) Balance at August 31, 2022 $ 66,389 $ (620) $ 108,127 $ 173,896 The accompanying notes are an integral part of these financial statements. Page 109 of 264 Accumulated Share capital other Retained Total comprehensive earnings income (loss) Balance at January 1, 2021 $ 66,389 $ (620) $ 101,452 $ 1671221 Net income before other comprehensive income (loss, - - 111195 11)195 Dividends - - (4,386) (4,386) Balance at December 31, 2021 66,389 (620) 108,261 174,030 Net income before other comprehensive income (loss) - - 6,836 6,836 Dividends - - (6,970) (6,970) Balance at August 31, 2022 $ 66,389 $ (620) $ 108,127 $ 173,896 The accompanying notes are an integral part of these financial statements. Page 109 of 264 KITCHENER POWER CORP. Consolidated Statement of Cash Flows For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) Change in non-cash operating working capital: Accounts receivable 2022 2021 Cash flows from operating activities: (3,002) 15,159 Total comprehensive income for the period $ 6,836 $ 11,195 Adjustments to reconcile net income to cash provided by (used in) operations: 152 64 Amortization 81510 11, 690 Amortization of deferred revenue (826) (1,140) Gain on disposal of property, plant and equipment (56) (51) Income tax expense (35) (520) I ncome taxes paid (750) 353 Interest on Lease Liability 24 24 Income from subsidiaries and associates 44 (55) Increase decrease in employee future benefits 56 75 13,803 21,571 Change in non-cash operating working capital: Accounts receivable 600 (5,580) Unbilled revenue (3,002) 15,159 1 nventory (413) (622) Prepaid expenses 152 64 Accounts payable and accrued liabilities (3,485) (4,923) Other current liabilities 2,229 (299) Change in regulatory debit balances (4,372) (5,735) Change in regulatory credit balances 2,968 47 Change in deferred tax 878 4,282 Net cash from operating activities 91358 23,964 Cash flows from investing activities: Proceeds on disposals of property, plant and equipment 57 370 Purchase of property, plant and equipment (15,977) (22,644) Purchase of intangible assets (239) (3,733) Net cash used in investing activities (16,159) (26,007) Cash flows from financing activities: Net change in Short term indebtedness 3, 033 - Net change in customer deposits (232) (158) Dividends paid out (4,570) (4,386) Change in contributed capital received 2,519 5,832 Payment of lease liability (28) (27) Net cash from financing activities 722 1,261 Change in cash and cash equivalents (6,079) (782) Cash and cash equivalents, beginning of period 65079 6,861 Cash and cash equivalents, end of period $ - $ 6,079 The accompanying notes are an integral part of these financial statements. Page 110 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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 period ended August 31, 2022. On January 12, 2022, the Corporation entered into a Merger Participation Agreement ("MPA") with: the Corporation of the City of Kitchener ("Kitchener"); the Corporation of the Township of Wilmot ("Wilmot"); the Corporation of the City of Waterloo ("Waterloo"); the Corporation of the Township of Woolwich ("Woolwich"); the Corporation of the Township of Wellesley ("Wellesley"); Kitchener - Wilmot Hydro Inc.,("KWHI"); Kitchener Energy Services Inc.("KESI"); Waterloo North Hydro Inc. ("WNH"); Waterloo North Holding Corporation ("WNHC"): and Alliance Metering Solutions ("AMS"). WNHC is the parent company of WNH and AMS. The MPA provided the terms and conditions under which the Corporation and WNHC would amalgamate (the "MergeCo Amalgamation"), followed immediately by the amalgamation of the KWHI and WNH ("LDC Amalgamation"). The LDC Amalgamation was subject to the approval of the Ontario Energy Board ("OEB") based on a Mergers, Acquisitions, Amalgamations and Divestitures Application ("MAADs Application") process. The MAADs Application included a request for OEB approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued a Decision and Order approving the LDC Amalgamation. The MergeCo Amalgamation occurred on August 31, 2022 (the "closing date") and the Corporation continues as Enova Energy Corporation, a corporation amalgamated under the laws of Ontario. On August 31, 2022, immediately following the MergeCo Amalgamation, the KWHI and WNH legally amalgamated and continues as Enova Power Corp., a corporation amalgamated under the laws of Ontario. 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 Enova Energy Corporation Board of Directors on December 16, 2022. Page 111 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (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 23. (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. (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 period 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 18 — 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, Page 112 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (e) Rate regulation (continued): 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 once 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 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. The GDP IPI -FDD for 2022 is 3.3%, the Corporation's productivity factor is 0% and the stretch factor is 0.15%, resulting in a net adjustment of 3.15% to the previous year's rates. Page 113 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (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. 3. Significant accounting policies: The accounting policies set out below have been applied consistently in all periods 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 period 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. Page 114 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (b) Revenue recognition (continued): 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. 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 I FRS 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 to 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 period when there is reasonable assurance that the program conditions have been satisfied and the payment will be received. (c) I nventory: 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. Page 115 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (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 determined under Canadian GAAP as the deemed cost at January 1, 2015, the transition date to I FRS. 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 Page 116 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (d) Property, plant and equipment (continued): Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. (e) Intangible assets (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. Page 117 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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. Page 118 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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 period incurred. Regulatory deferral accounts attract interest at OEB prescribed rates. With the exception of the regulatory deferral account for Pension and Other Post -Employment benefits (OPEBs), the rate for 2022 was 0.57% for January to March, 1.02% for the period April to June and 2.2% for July and August. Prior year rates from January to December 2021 were 0.57%. In 2022, the interest rates for the regulatory OPEBs account were 2.72% for the period January to March, and 3.31 % for the period April to June and 4.66% for July and August. In 2021, the interest rates for the regulatory OPEBs account were 2.03% for the period January to March, and 2.29% for the period April to December. Page 119 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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. Page 120 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (j) 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: At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation assess whether: (a) The contract involves the use of an identified asset — this may be specified explicitly or implicitly and should be physically distinct or represent substantially all the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; (b) The Corporation has the right to obtain substantially all the economic benefits from the use of the asset throughout the period of use; and (c) The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either the Corporation has the right to operate the asset, or the Corporation designed the asset in a way that predetermines how and for what purpose it will be used. The Corporation recognizes a right -of -use asset and a lease liability at the lease commencement date. The right -of -use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is locate, less any lease incentives received. The right -of -use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right -of -use asset or the end of the lease term. The estimated useful life of a right -of -use asset is determined on the same basis as those for property, plant and equipment. In addition, the right -of -use asset is periodically reduced by impairment losses, if any, and adjusted for certain re -measurements of the lease liability. Page 121 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (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. (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 period, 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 periods 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 period that includes the date of enactment or substantive enactment. Page 122 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 4. Cash: 2022 2021 Cash $ - $ 61079 5. Accounts receivable: 2022 2021 Customer and other trade receivables $ 20,467 $ 217027 Trade receivables from related parties 220 260 $ 207687 $ 217287 6. Inventory: The amount of inventories consumed by the Corporation and recognized as an expense during 2022 was $321 (2021 - $373). 7. Property, plant and equipment: (a) Cost or deemed cost: Page 123 of 264 Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2022 $ 28,440 $ 300,102 $ 71436 $ 2754 $ 601 $ 3395333 Additions 128 23240 310 13,299 - 15,977 Transfers 7 11,345 342 (11, 694) - - Disposals/Retirements - - (277) - - (277) Balance at August 31, 2022 $ 28,575 $ 313,687 $ 7,811 $ 4,359 $ 601 $ 355,033 Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2021 $ 26,433 $ 277,793 $ 91992 $ 5, 837 $ - $ 320,055 Additions 1,380 2,316 1,099 17,849 601 23,245 Transfers 692 19,982 28 (20, 702) - - Disposals/Retirements (65) 11 (3,683) (230) - (3,967) Balance at December 31, 2021 $ 28,440 $ 300,102 $ 77436 $ 27754 $ 601 $ 3397333 Page 123 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): (b) Accumulated depreciation: Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2022 $ 4,122 $ 54,850 $ 897 $ - $ 20 $ 59,889 Depreciation charge 513 61167 942 - 20 75642 Disposals/Retirements - - (276) - - (276) Balance at August 31, 2022 $ 4,635 $ 61,017 $ 1,563 $ - $ 40 $ 675255 Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2021 $ 3,429 $ 46,021 $ 3,024 $ - $ - $ 521474 Depreciation charge 758 81818 15467 - 20 11,063 Disposals/Retirements (65) 11 (3,594) - - (3,648) Balance at December 31, 2021 $ 4,122 $ 54,850 $ 897 $ - $ 20 $ 59,889 (c) Carrying amounts: Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total At August 31, 2022 $ 23,940 $ 252,670 $ 6,248 $ 4,359 $ 561 $ 2875778 At December 31, 2021 $ 24,318 $ 245,252 $ 6,539 $ 27754 $ 581 $ 279,444 (d) Leased plant and equipment: In May 2021, the Corporation entered into a lease agreement with Grand River Energy Solutions Corp., an associated company, for the construction and lease of solar PV roof -top equipment located at the Corporation's registered office. A right -of -use asset and corresponding lease liability of $601 were recorded. (e) Security: At August 31, 2022, the Corporation had zero properties subject to a general security agreement. (f) Borrowing costs: During the period, borrowing costs of $ nil (2021 - $ nil) were capitalized as part of the cost of property, plant and equipment. Page 124 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): (g) Allocation of depreciation and amortization: The depreciation of property, plant and equipment and the amortization of intangible assets has been allocated to profit or loss as follows: Operations and Customer General and Energy maintenance services administration Conservation expense expense expense expense Other Total August 31, 2022: Depreciation of property, plant and equipment $ 503 $ 4 $ 2 $ - $ 7,133 $ 7,642 Amortization of intangible assets - - - - 868 868 $ 503 $ 4 $ 2 $ - $ 8,001 $ 8,510 December 31, 2021: Depreciation of property, plant and equipment $ 702 $ 9 $ - $ 2 $ 10,350 $ 11,063 Amortization of intangible assets - - - - 627 627 $ 702 $ 9 $ - $ 2 $ 10,977 $ 11,690 8. Intangible assets: (a) Cost or deemed cost: Computer Software Land Rights Total Balance at January 1, 2022 $ 115838 $ 8 $ 11,846 Additions 239 - 239 Disposals (15) - (15) Balance at August 31, 2022 $ 125062 $ 8 $ 127070 Balance at January 1, 2021 $ 10,938 $ 8 $ 107946 Additions 3,733 - 37733 Disposals (2, 833) - (2, 833) Balance at December 31, 2021 $ 115838 $ 8 $ 117846 Included within Computer Software is $272 (2021 - $250) of intangible assets under development. Page 125 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 8. Intangible assets (continued): (b) Accumulated amortization: Computer Software Land Rights Total Balance at January 1, 2022 $ 653 $ 8 $ 661 Additions 868 - 868 Disposals (15) - (15) Balance at August 31, 2022 $ 11506 $ 8 $ 1, 514 Balance at January 1, 2021 $ 21859 $ 8 $ 21867 Additions 627 - 627 Disposals (2) 833) - (2) 833) Balance at December 31, 2021 $ 653 $ 8 $ 661 (c) Carrying amounts: Computer Software Land Rights Total At August 31, 2022 $ 10, 556 $ - $ 10, 556 At December 31, 2021 $ 111185 $ - $ 11,185 Page 126 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 9. Income tax expense: Current tax expense: 2022 2021 Current period $ 95 $ 291 Adjustment for prior periods (42) (700) $ 53 $ (409) Deferred tax expense: 2022 2021 Original & reversal of temporary differences $ (76) $ (20) Recognition of previously unrecognized tax losses (12) (91) $ (88) $ (111) Reconciliation of effective tax rate: 2022 2021 Total comprehensive income for the period $ 65836 $ 119195 Total income tax expense (35) (520) Comprehensive income before income taxes 65801 105675 Income tax using the Corporation's statutory tax rate of 26.5% 1, 802 2, 829 Temporary differences not benefitted (1)794) (2,649) Under (over) provided in prior periods (43) (700) $ (35) $ (520) Significant components of the Corporation's deferred tax balances are as follows: 2022 2021 Deferred tax assets (liabilities): Property, plant and equipment $ (23, 880) $ (22, 536) Non -vested sick leave 182 168 Employee future benefits 15608 15593 Intangible assets 11 7 Loss carry -forward 307 295 Ontario refundable tax credits 48 6 Deferred revenue - contributed capital 125561 12, 094 $ (95163) $ (8, 373) Page 127 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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: Balances Remaining arising in the Recovery/ recovery/ reversal 2021 period Reversal Other 2022 period (years) Regulatory deferral account debit balances Group 1 deferred accounts $ 9,430 $ 52461 $ (3,985) $ 25 $ 101931 Note 1, Note 3 Regulatory asset recovery account 822 (1,579) 4,060 - 3,303 Note 1 Deferred tax asset 14,201 1,198 - - 15,399 Note 2 LRAM 874 - (874) - - 1 Year Other 69 66 - - 135 1 Year Total amount related to regulatory deferral account debit balances $ 25,396 $ 5,146 $ (799) $ 25 $ 29,768 Balances Remaining arising in the Recovery/ recovery/ reversal 2021 period Reversal Other 2022 period (years) Regulatory deferral account credit balances Group 1 deferred accounts $ 220 $ 680 $ 1,942 $ 26 $ 2,868 Note 1 Other 559 3 - - 562 3 Year Total amount related to regulatory deferral account credit balances $ 779 $ 683 $ 11942 $ 26 $ 31430 2022 2021 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances $ 1,722 $ 7,232 Less movement related to the balance sheet Deferred income tax (1,198) (5,826) Deferred revenue 533 802 Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement $ 17057 $ 27208 Note 1 KWHI has been approved for collection of these amounts in its 2021 filing for 2022 rates. Page 128 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 10. Regulatory deferral account balance (continued): 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 were not included in the monthly power bill for one delivery point for Transmission Network Charges. KWHI accrued a payable of $6 million in 2020, offset by a regulatory asset. These monies were collected through an OEB approved rate rider through August 2022. 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 31St, June 30th, September 30th and December 31 St 2022 2021 Senior unsecured debentures: City of Kitchener $ 70,998 $ 707998 Township of Wilmot 57965 57965 Senior unsecured debentures, net proceeds $ 767963 $ 767963 Less: current portion of long-term debt $ - $ - 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 August 31, 2022 of $6,068 was based on an actuarial valuation completed in 2020 using a discount rate of 3.1% (3.1 % in 2021). Page 129 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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: 2022 2021 Defined benefit obligation, beginning of period $ 67012 $ 57937 Current service cost 136 191 Interest cost 131 180 Benefits paid during the period (211) (296) Actuarial loss recognized in other - - comprehensive income Accrued benefit liability, end of period $ 67068 $ 67012 Components of net benefit expense recognized are as follows: Page 130 of 264 2022 2021 Current service cost Interest cost $ 136 $ 131 191 180 Net benefit expense recognized $ 267 $ 371 Actuarial losses recognized in other comprehensive income: 2022 2021 Cumulative amount at January 1 Recognized during the period (net of tax) $ (620) $ - (620) - Cumulative amount at the end of period $ (620) $ (620) Page 130 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The significant actuarial assumptions used in the valuation are as follows (weighted average): Page 131 of 264 2022 2021 Accrued benefit obligation: Discount rate 3.1% 3.1% Benefit cost for the period: 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 4.9% 4.7% Dental 5.1% 4.9% 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 $ 219 $ 27 1 % decrease in health care trend rate $ (197) $ (15) Page 131 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (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 2022, and thereafter (2021 - 2%). Discount (interest) rate - the discount rate used to determine the present value of future liabilities and the expense for the period ended August 31, 2022, was 3.1% (2021 — 3.1 %). Salary levels - future general salary and wage levels were assumed to increase at 3.3% (2021 - 3.3%) per annum. Medical costs - medical costs were assumed to be 4.7% for 2022 (4.4% for 2021). Dental costs - dental costs were assumed to be 4.9% for 2022 (4.7% for 2021). 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 I ESO. Prepayments received from the I ESO have been recorded and will be transferred to revenue as programs are delivered and the revenue is earned. The deposits comprise: 2022 2021 Customer deposits $ 57530 $ 57623 Construction deposits 97442 77424 ESO deposit for energy conservation programs 1,158 17158 Total customer deposits $ 16,130 $ 147205 Page 132 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 14. Share capital: 2022 2021 Authorized: Unlimited number of common shares ssued: 20,000 common shares $ 667389 $ 667389 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 period common shares of $4,570 (2021 - $43386). A further $2,400 was declared but not paid. 15. Other operating revenue: Other income comprises: Page 133 of 264 2022 2021 Specific service charges $ 11074 $ 17748 Deferred revenue 826 1,140 Scrap sales 206 187 Net gain on disposal of capital assets 56 51 Non -Utility operation 17 4 Retailer services 27 39 Sundry 42 150 Total other income $ 23248 $ 31319 16. Finance income and expense: 2022 2021 Interest income on bank deposits $ 41 $ 39 Finance income 41 39 Interest expense on long-term debt 13658 21472 Interest expense (recovery) on short-term debt 41 (256) Interest expense on BMO Letter of Credit 81 123 Interest expense on deposits 40 35 Interest expense on capital lease 24 24 Other - 111 11844 2, 509 Net finance costs recognized in profit or loss $ 13803 $ 2,470 Page 133 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 17. Lease Liabilities: The Corporation has entered into a lease agreement for solar PV roof -top equipment representing right - of -use assets (note 7). The right -of -use assets are recognized at the present value of the minimum lease payments, plus any extensions estimated to be exercised, with the corresponding equivalent lease liability recognized. The Corporation has determined the lease terms based on all available information as at the reporting date. August 31, December 31, Maturity Analysis - contractual undiscounted cash flows 2022 2021 Less than one year $ 42 $ 42 one - five years 233 228 More than five years 766 799 Total undiscounted lease liabilities at period end $ 1,041 $ 11069 Interest included on the liabilities included in the statement of financial position at August 31, 2022 $ (447) $ (471) Lease Liabilities - current 42 42 Lease Liabilties - non-current $ 552 $ 556 18. Commitments and contingencies: Contractual Obligations KWHI entered into a lease agreement with Grand River Energy Solutions Corp for a rooftop solar PV system (see note 17 for details). 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 August 31, 2022, no assessments have been made. Page 134 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 19. 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 Grandbridge Corporation.; each of which has guaranteed a maximum of $6 million in the event of default by GRE Corp. 20. 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 2022, the Corporation made employer contributions of $1,118 to OMERS (2021 - $1,681). The Corporation's net benefit expense has been allocated as follows: (a) $294 (2021 - $439) capitalized as part of property, plant and equipment; (b) $824 (2021 - $1,242) charged to net income. The Corporation estimates that a contribution of $nil to OMERS will be made during the next fiscal year. 21. Employee benefits: 2022 2021 Salaries, wages and benefits $ 137484 $ 197657 CPP and EI remittances 756 782 Contributions to OMERS 11118 17681 Expenses related to employee future benefit plans 267 371 $ 159625 $ 227491 22. 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. Page 135 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 22. Related party transactions(continued): (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. 2022 2021 Directors' fees $ 48 $ 93 Salaries and other short-term benefits 898 11106 Employe future benefits 17 20 Other long-term benefits (OMERS) 71 91 $ 11034 $ 17310 (d) Transactions with parent: During the year the Corporation paid management and business development services to its parent in the amount of $ nil (2021 - $ 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. (f) Transactions with ultimate parent (the City of Kitchener) In 2022, 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. 23. 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. 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 Page 136 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 23. Financial instruments and risk management (continued): 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 August 31, 2022, no customers accounted for more than 1 % of total accounts receivable, $20,687. 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 August 31, 2022 is $500 (2021 - $250). An impairment loss of $257 (2021 gain of $127) was recognized during the year. This is due to an increase of the allowance for bad debt to $500 from $250. The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At August 31, 2022, approximately $1,069 (2021 - $112) is considered 60 days past due. The Corporation has over 100 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 August 31, 2022, the Corporation holds security deposits in the amount of $5,530 (December 31, 2021 - $5,623). (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. The Corporation does not hold any long-term debt that is subject to market rates. Consequently a 1 % increase or decrease in the interest rate at August 31, 2022 would have no financial impact. (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 Page 137 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 23. Financial instruments and risk management (continued): (c) Liquidity risk (continued): that a sufficient level of liquidity is on hand to meet financial commitments as they come due. As at August 31, 2022, $3,564 had been drawn under Bank of Montreal credit facility (2021 - $ 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 (2021 - $35,000). The majority of accounts payable, as reported on the balance sheet, are due within 30 days. (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 August 31, 2022, shareholder's equity amounts to $173,896 (2021 - $174,030) and long-term debt amounts to $76,963 (2021 - $767963). 24. 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. 2022 2021 Revenue from Contracts with Customers $ 180,534 $ 2527110 Other Revenue: CDM programs 591 17262 Other 11513 21011 Total $ 182,638 $ 255,383 Page 138 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 24. Revenue from Contracts with Customers (continued): In the following table, revenue from contracts with customers is disaggregated by type of customer. 25. 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 Corporation effective January 1, 2022: (a) Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) (b) Onerous Contracts — Costs of Fulfilling a Contract (Amendments to IAS 37) (c) Annual Improvements to IFRS Standards 2018-2020 (d) Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 26. 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) Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. Page 139 of 264 2022 2021 Residential $ 785936 $ 1115252 Commercial 995161 1375661 Large Users 15323 15565 Other 11114 13632 Total Revenue $ 1805534 $ 2525110 25. 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 Corporation effective January 1, 2022: (a) Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) (b) Onerous Contracts — Costs of Fulfilling a Contract (Amendments to IAS 37) (c) Annual Improvements to IFRS Standards 2018-2020 (d) Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 26. 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) Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. Page 139 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 26. Future accounting pronouncements (continued): (b) Definition of Accounting Estimate (Amendments to IAS 8) On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. (C) Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes. On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. Page 140 of 264 llfl V -1 Aff, IAL 1 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Shareholders of Enova Energy Corporation Opinion We have audited the consolidated financial statements of Enova Energy Corporation (the Entity), which comprise: • the consolidated statement of financial position as at December 31, 2022 • the consolidated statement of comprehensive income for the period September 1, 2022 to December 31, 2022 • the consolidated statement of changes in equity for the period September 1, 2022 to December 31, 2022 • the consolidated statement of cash flows for the period September 1, 2022 to December 3132022 • 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 at December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the period September 17 2022 to December 31, 2022 in accordance with International Financial Reporting Standards (I FRS). 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 "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's 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. NA n III ari n. r llai `o Rhin ni"ted hatoTb p n l� � n l aired d u u n�;n� Il �.. a Ilnu � � od' � I III fl W gIbb �� civ, m:: a mu .....,n �� n a .:SII uu I� �I;�pi w m�. eri �. ��. q " �. rM ii SII "V il.,'.,� a . ""� •� . ..1 it w r 'ii +���.. il..h p il,.,.� �W r 9 i,. i'"'�h".. "��„"� urrrr,,.,n'n llx�.. Ilnu a all ulllu n .d rnrn b III ., Illu�l .. n l.n n� Ill.ui►nt u a „ ..n Il n� ��.� .. II u�1l '111' a n�ill�nai n.,� Illn� nu II4., I i.�. u,. a V.� � �� IIN, n�11 n� �: � iin ad :i IIp o lm � Ie s �� u���di c� to IIIA RIS n III.... Page 141 of 264 V -Al A' A,2W A 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 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. Auditor's 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 auditor's 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. Page 142 of 264 The risk of not detecting omaterial misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control. m Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumetanues, but not for the purpose of expressing anopinion onthe effectiveness ofthe Entity's internal control. m Evaluate the appropriateness ofaccounting policies used and the reasonableness of accounting estimates and related disclosures made bvmanagement. m Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence ob1ained, whether material uncertainty exists related toevents orconditions that may cast significant doubt unthe 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 auditor's 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 auditor's report. However, future events or conditions may cause the Entity to cease to continue aeagoing concern. m Evaluate the overall presentotion, structure and content of the Dnonoio| obs±emenba, including the disclosures, and whether the financial statements represent the underlying transactions and events inamanner that achieves fair presentation. m Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit Undinge, including any significant deficiencies in internal control that we identify during our audit. m 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. VVe are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. awz:� 14P Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada Page 143 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Financial Position As at December 31, 2022 (Expressed in thousands of dollars) December 31, Note 2022 ASSETS Current Cash $ 151189 Accounts receivable 5 345660 Unbilled revenue 33,366 1 nventori es 73655 Prepaid expenses 21371 Current portion of lease receivables 111 Total current assets $ 93,352 Non-current assets Derivative asset Property, plant and equipment ntangible assets Goodwill Long term portion of lease receivables Deferred tax asset Investments in subsidiaries YA 6 570,164 7 181571 3 1401077 11255 528 322 Total non-current assets $ 731,509 Total assets 824,861 Regulatory deferral account debit balances 9 511872 Total assets and regulatory deferral account debit balances $ 876,733 Page 144 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Financial Position As at December 31, 2022 (Expressed in thousands of dollars) Note December 31, 2022 LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 495918 Current portion of lease liabilities 17 97 Income tax payable 11685 Current portion of deferred revenue 23214 Dividends payable 14 51056 Current portion of customer deposits 13 12,081 Total current liabilities $ 71,051 Long-term Long-term debt 10 117,598 Notes payable to shareholder 11 110, 254 Long term portion of customer deposits 13 81634 Long term portion of lease liabilities 17 778 Deferred revenue 793177 Employee future benefits 12 73703 Deferred tax liability 8 23,517 Total long-term liabilities $ 347,661 Total liabilities 418,712 Shareholders' equity Share capital 14 326,248 Retained earnings 1141465 Accumulated other comprehensive income (loss) 12 11591 Non -controlling interest 13000 Total shareholders' equity $ 4433304 Total liabilities and shareholders' equity $ 862,016 Regulatory deferral account credit balances 9 67072 Deferred taxes associated with regulatory accounts 9 87645 Total equity, liabilities and regulatory deferral account credit balances $ 8765733 The accompanying notes are an integral part of these financial statements. On behalf of the Board: Rosa Lupo, Chair Tim Martin, Vice -Chair Page 145 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Comprehensive Income For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) Note 2022 REVENUES Energy sales 15 $ 1145666 Cost of energy sold 1177918 (3,252) Other operating revenue Distribution revenue 15 305483 Other income 15 25554 Net operating revenue $ 2%785 EXPENSES Operations and maintenance 65693 Customer services 3,057 Administration 45106 Amortization 6 73804 215660 Other Energy conservation program revenue (21791) Energy conservation program expense 27801 Net energy conservation programs 10 Finance income 16 (183) Finance charges 16 31085 Unrealized gain on derivative (953) Net finance costs 1,949 Income before income taxes $ 69166 Income tax expense 8 11195 Income for the period before movements in regulatory deferral account balances and OCI $ 4,971 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 9 11518 Other comprehensive income, net of taxes 12 25211 Non -controlling interest (151) Net comprehensive income for the period $ 89549 The accompanying notes are an integral part of these financial statements. Page 146 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Changes in Equity For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) Balance at December 31, 2022 $ 326,248 $ 11000 $ 11591 $ 114,465 $ 4433304 The accompanying notes are an integral part of these financial statements. Page 147 of 264 Accumulated Non- Other Share Controlling Comprehensive Retained Note Capital Interest Income (loss) Earnings Total Balance at September 1, 2022 $ 66,389 $ - $ (620) $ 108,127 $ 173,896 Shares issued related to acquisition 3 259,859 849 - - 2609708 Net income and net movement in regulatory balances - - 27211 61338 89549 Non -controlling interest 151 151 Balance at December 31, 2022 $ 326,248 $ 11000 $ 11591 $ 114,465 $ 4433304 The accompanying notes are an integral part of these financial statements. Page 147 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Cash Flows For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) Note 2022 OPERATING ACTIVITIES Net income $ 81549 Add (deduct) charges to operations not requiring a current (1, 882) cash payment: 110,000 Amortization 6 81456 Amortization of deferred revenue (730) Gain on disposal of property, plant and equipment 15 (37) Income tax expense 8 11195 Interest expense on lease liabilities 12 ncome taxes paid (440) Change in non -controlling interest 151 Decrease in employee future benefits liability 12 (21933) Unrealized gain on derivatives (953) Recognition of unrealized gain on derivatives (287) 12,983 Net change in non-cash operating working capital Accounts receivable 61522 Unbilled revenue 31123 1 nventories 13460 Prepaid expenses (601) Deferred tax asset 604 Accounts payable and accrued liabilities (41794) Deferred tax liability (364) Regulatory deferral account debit balances 21451 Regulatory deferral account credit balances (2, 894) Cash provided by operating activities $ 18,490 INVESTING ACTIVITIES Purchase of property, plant and equipment 6 (18,562) Purchase of intangible assets 7 (146) Proceeds on disposal of property, plant and equipment 37 Cash used in investing activities $ (185671) FINANCING ACTIVITIES Proceeds on settlement of derivatives 61135 Net change in customer deposits (1, 882) Increase in long-term debt 10 110,000 Repayment of long-term debt (89,557) Capital contributions received 31408 Payment of interest on lease liability (12) Payment of lease liability (net of receipts) (28) Cash provided by financing activities $ 28,064 Net cash provided (used) during period 27,883 Cash and cash equivalents, beginning of period (12,694) Cash and cash equivalents, end of period $ 15,189 The accompanying notes are an integral part of these financial statements. Page 148 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 1. Reporting Entity Enova Energy Corporation ("the Corporation") is wholly owned by the Cities of Kitchener and Waterloo, and the Townships of Wellesley, Wilmot and Woolwich. The Corporation oversees the operations of Enova Power Corp. ("EPC"), a regulated distribution company, and Kitchener Energy Services Inc. ("KESI"), an unregulated retail services company, and Alliance Metering Solutions Inc. CAMS"), a submetering service provider. The Corporation also owns 66.7% of Grand River Energy Solutions Corp. ("GRE"), a generation and renewable energy solutions company, and 30.47% of Eyedro Green Solutions Inc. ("Eyedro"), a privately owned company with a focus on affordable energy products. The Corporation is located in the Regional Municipality of Waterloo. The address of the Corporation's registered head office is 301 Victoria Street South, Kitchener, Ontario, Canada. The financial statements are for the Corporation as at and for the period ended December 31, 2022. Legal Amalgamation On January 12, 2022, the Corporation entered into a Merger Participation Agreement ("MPA") with Kitchener; Wilmot; Waterloo; Woolwich; Wellesley; Kitchener Power Corp. ("KPC"); Kitchener Energy Services Inc. ("KESI"); Kitchener -Wilmot Hydro Inc. CKWHI"); Waterloo North Hydro Inc. ("WNHI"); Waterloo North Holding Company ("WNHC"); and AMS. KPC was the parent company of KWHI and KESI. WNHC was the parent company of WHNI and AMS. For accounting purposes, former KPC was deemed the acquirer under the Amalgamation Transaction. Consequently, the opening balances in these statements are the balances of former KPC as at September 1, 2022. The MPA provided the terms and conditions under which WNHC and KPC would amalgamate (the "MergeCo Amalgamation"), followed immediately by the amalgamation of the WNHI and KWHI ("LDC Amalgamation"). The LDC Amalgamation was subject to the approval of the OEB based on a Mergers, Acquisitions, Amalgamations and Divestitures Application ("MAADs Application") process. The MAADs Application included a request for Ontario Energy Board ("OEB") approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued a Decision and Order approving the LDC Amalgamation. The MergeCo Amalgamation occurred on September 1, 2022 (the "closing date") and the parent corporation continues as Enova Energy Corporation, a corporation amalgamated under the laws of Ontario. On September 1, 2022, immediately following the MergeCo Amalgamation, WNHI legally amalgamated with KWHI and continues as EPC, a corporation amalgamated under the laws of Ontario. Page 149 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 2. Basis of Presentation (a) Statement of compliance The Corporation's financial statements have been prepared following International Financial Reporting Standards ("IFRS"). The financial statements were approved by the Board of Directors of the Corporation on April 28, 2023. (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, including those held for trading, are measured at fair value. (ii) Contributed assets are initially measured at fair value. The methods used to measure fair values are discussed further in note 23. (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. (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 period in which the estimates are revised and in any future periods affected. Information about judgments made 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 4(c) — Revenue Recognition — determination of the performance obligation for contributions from customers and the related amortization period (ii) Note 4(e) — Capital assets (Property, plant and equipment) (iii) Note 12 — Employee future benefits (iv) Note 18 — Commitments and contingencies Page 150 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 2. Basis of Presentation (continued) (e) Rate regulation The Corporation is regulated by the 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 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 For the distribution revenue included in electricity sales, the Corporation files a "Cost of Service" ("COS") rate application with the OEB every five 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 interveners. Rates are approved based on this review including any required revisions. In the intervening years, an Incentive Rate Mechanism application ("IRM") is filed. An IRM application results in a formulaic adjustment to distribution rates 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 "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, under regulation, to remit such amounts to these third parties, irrespective of whether the Corporation ultimately collects these amounts from customers. In February 2022, KWH I and WN H I filed a Mergers, Acquisitions, Amalgamations and Divestitures ("MAADs") application (the "MAADs Application") with the OEB under the Handbook to Electricity Distributor and Transmitter Consolidation (the "MAADs Handbook") seeking approval for the Amalgamation Transaction. The MAADs Application included a request for OEB approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued its Decision and Order in respect of the MAADs Application. The OEB granted the requested approvals and also approved a rebasing deferral period of 10 years, under which the Corporation will operate individual "rate zones" (based on the continuing rates and underlying cost structures of the predecessor LDCs). Page 151 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 3. Basis of Presentation (continued) (e) Rate regulation (continued) As provided within the OEB Report of the Board: Rate -Making Associated with Distributor Consolidation, the rate zones of the Corporation will continue on the Price Cap IR method. At its option, Enova Energy Corporation is permitted to apply for (a) inflationary increases to rates, adjusted for an efficiency factor; and (b) ICM rate adjustments that provide financing and recovery of incremental discrete capital projects. The predecessor utilities to the Corporation filed separate applications for the approval of electricity distribution rates as follows: • KWHI filed an annual Cost of Service Application with the OEB on April 30, 2019 for distribution rates effective January 1, 2020 to December 31, 2020. • WNHI filed an annual Cost of Service Application with the OEB on June 30, 2020 for distribution rates effective January 1, 2021 to December 31, 2021. The predecessor utilities to the Corporation filed separate applications for electricity distribution rates effective January 1, 2023, with decisions as follows: • KWHI — On December 8, 2022, Enova — KWHI rate zone received approval for IRM rates effective January 1, 2023. The distribution rates will be increased by 3.55%. • WNHI — On December 8, 2022, Enova — WNHI rate zone received approval for IRM rates effective January 1, 2023. The distribution rates will be increased by 3.40%. Electricity rates The OEB sets electricity prices for low-volume consumers 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 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 markup. Page 152 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Business Combination On September 1, 2022, KPC amalgamated with WNHC to form the Corporation. Under the Amalgamation Transaction, shares of the former KPC and WNHC were exchanged for the voting common shares of the Corporation. The Amalgamation Transaction has been recognized as a business combination following FIRS 3, Business Combinations using the acquisition method with the former KPC deemed as the acquirer based on its relative size compared to that of the former WNHC. These financial statements include the net fair value of the assets of former WNHC as at September 1, 2022; and the net assets of the former KPC at its carrying amounts at September 1, 2022. The aggregate purchase price was $259,859 for 2,000 common shares and 218,132 Class A special shares which were immediately converted to 42,120 common shares in the amalgamated company. The acquired value of WNHC's Investment in subsidiaries and associates is inclusive of $140,077 of goodwill associated to the amalgamation of WN H I and KWH I . The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of amalgamation: Page 153 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 3. Business Combination (continued) Accounts receivable Unbilled revenue Inventories Prepaid expenses Derivative asset Property, plant and equipment Intangible assets Deferred tax assets Investment in subsidiaries and associates Regulatory deferral account debit balances Short term bank indebtedness Accounts payable and accrued liabilities Income tax payable Dividends payable Current portion of customer deposits Long-term debt Notes payable to shareholder Long term portion of customer deposits Deferred revenue Employee future benefits Deferred tax liability Regulatory deferral account credit balances Deferred taxes associated with regulatory accounts Goodwill WNHC Acquired Value 6 20, 264 18782 51622 837 5, 848 267, 421 4,711 197 1,172 24, 555 (10,529) (25)234) (1,427) (2, 656) (3,271) (89,410) (33)292) (3)196) (31) 312) (4)568) (14) 484 ) (5, 536) (4, 712) $ 11%782 140,077 Total purchase price $ 259,859 The valuation technique used for the purchase of WNHC was the discounted cash flow ("DCF") approach. Under the DCF approach, the expected future cash flows are discounted to their present value equivalent using appropriate market-based risk-adjusted rates of return. The fair market value of WNHC was determined using a discounted cash flows method with an implied valuation multiple of 1.53x regulated rate base. Consideration of implied multiples of recent transactions in the industry was used and the 1.53x was determined to be comparable. The business enterprise value was then adjusted by redundant assets and debt/debt equivalents to arrive at the fair market value of assets. The difference between this fair market value and the net book value of assets as of September 1, 2022 determined goodwill. Page 154 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies The accounting policies set out below have been applied consistently in all periods presented in these financial statements, except where otherwise described in Note 24 — Changes in Accounting Policies. (a) Basis of Consolidation These consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries: (i) EPC; (ii) KESI; and (iii) AMS, as well as its controlling interest in GRE. The Corporation's investment in Eyedro is accounted for in the consolidated financial statements using the equity method of accounting. Subsidiaries are entities controlled by the Corporation. The financial statements of the subsidiaries are included in these consolidated financial statements from the date on which control commences until the date on which control ceases. Associates are investments over which the Corporation has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee. Equity accounting involves recording the investment in associates initially at cost, and adjusting the carrying value of the investment from the date of acquisition based on the Corporation's share of the profit or loss of the associates included in the consolidated income statement. All significant inter -company accounts and transactions have been eliminated. (b) Financial instruments At initial recognition, the Corporation measures its financial assets at fair value. 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 are included in the initial measurement. 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 after their initial recognition unless the Corporation changes its business model for managing financial assets. Derivative assets are always classified as fair value through profit or loss on inception. 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. Page 155 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (c) 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 based on cyclical meter readings plus estimated customer usage from the last meter reading date to the end of the period and represents the amount that the Corporation has the right to bill. Revenue includes the cost of electricity supply, distribution, and any other regulatory charges. The related cost of power is recorded based on 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. Capital contributions Developers are required to contribute towards the capital cost of construction of distribution assets to provide ongoing service. The developer is not a customer and therefore the contributions are scoped out of I FRS 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 to provide ongoing service. These contributions fall within the scope of I FRS 15 Revenue from Contracts with Customers. The contributions are received to obtain a connection to the distribution system to 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 period when there is reasonable assurance that the program conditions have been satisfied and the payment will be received. Page 156 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (c) Revenue Recognition (continued) Solar Generation Revenue is principally produced from the generation of solar electricity which is sold to the Ontario Energy Market through the Independent Electricity System Operator ("IESO"). The performance obligation for the sale of electricity is satisfied when the electricity is delivered to the Ontario Energy Grid administered by the IESO. The value of the electricity sold to the customer is determined based on the meter readings at the rate designated in the contract with the customer. (d) Inventory Inventories consist of repair parts, supplies, and materials held for future capital expansion and are valued at lower of weighted average cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. (e) Property, Plant and Equipment Cost in items of property, plant and equipment ("PP&E") used in rate—regulated activities and acquired before January 1, 2014 are measured at deemed cost established on the transaction 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 I FRS 1, the Corporation elected to use the carrying amount as previously determined under Canadian GAAP as the deemed cost at January 1, 2014, 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. Borrowing costs on qualifying assets are capitalized as part of the cost of the asset based upon the actual cost of debt incurred on the Corporation's borrowings. Qualifying assets are considered to be those that take over 12 months to construct. When parts of an item of PP&E have different useful lives, they are accounted for and depreciated as separate items (major components) of PP&E. 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 PP&E 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 PP&E is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of PP&E are recognized in profit or loss as incurred. Page 157 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (e) Property, Plant and Equipment (continued) Depreciation is calculated on the cost basis of the asset 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 PP&E. Land and land rights are not depreciated. Construction -in -progress assets are not depreciated until the projects are complete and in service. The estimated useful lives are as follows: Buildings 20-50 years Transformer and substation equipment 15-50 years Supervisory control and data acquisition (SCADA) equipment 15 years Distribution system 25-60 years Meters 15-25 years General equipment 3-10 years Solar equipment 15-20 years Right -of -use assets 15-20 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. Page 158 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (f) Intangible assets (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. (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 and are not amortized. 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 Solar contracts and permits 15-20 years Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. (g) Goodwill Goodwill arising on the acquisition of subsidiaries or on amalgamation is measured at cost and not amortized. Page 159 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (h) Impairment (i) Financial assets measured at amortized cost: 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. (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. Goodwill and intangible assets with indefinite lives are tested; annually for impairment; and when circumstances indicate that the carrying value may be impaired. For impairment testing, assets are grouped 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"). Goodwill acquired in a business combination is allocated to groups of cash -generating units ("CGUs") that are expected to benefit from the synergies of the combination. 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 an asset's carrying amount or CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses relating to CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs and then to reduce the carrying amounts of the other assets in the CGUs on a pro - rata basis. 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. Goodwill arising on the acquisition of subsidiaries is measured at cost and is not amortized. Goodwill is tested annually for impairment. Page 160 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (i) 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. (j) Regulatory deferral accounts Regulatory deferral account debit balances represent costs incurred over 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 over 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 is assessed annually based on 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 period incurred. Regulatory deferral accounts attract interest at OEB-prescribed rates. With the exception of the regulatory deferral account for Pension and Other Future benefits ("OPEBs"), from September 1, 2022 to September 30, 2022 the rate was 2.20%. From October 1, 2022 to December 31, 2022 the rate was 3.87%. The interest rates for the regulatory OPEB account were as follows: from September 1, 2022 to September 30, 2022 the rate was 4.66%. From October 1, 2022 to December 31, 2022 the rate was 5.01%. Page 161 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (k) Employee future benefits (i) Pension Plan The Corporation provides a pension plan for its employees through the Ontario Municipal Employees Retirement System ("OMERS"). OMERS is a multi-employer pension plan which operates as the Ontario Municipal Employees Retirement Fund ("the Fund") and provides pensions for employees of Ontario municipalities, local boards, public utilities, and school boards. To the extent that the Fund finds itself in an underfunded position, additional contribution rates may be assessed to participating employers and members. 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 (note 20). The Corporation recognizes the expense related to this plan as contributions are made. (ii) Future Benefits, other than pension Future benefits provided by the Corporation include health, dental, and life insurance benefits. These plans provide benefits for some of its retired employees. Future benefit expense is recognized in the period in which the employees render the services. Future benefits are recorded on an accrual basis. The accrued benefit obligations and current service cost are calculated using the projected benefits method pro -rated on service and based on assumptions that reflect management's best estimate. The current service cost for a period is equal to the actuarial present value of benefits attributed to employees' services rendered in the period. Gains and losses are recognized in the current period. Actuarial gains and losses arising from defined benefit plans are recognized immediately in other comprehensive income and reported in retained earnings. The future health, dental, and life insurance benefits were provided to retired employees of KWHI and WNHI as separate entities and as such, are not identical offerings. These plans have been maintained in their original offerings. (I) Deferred revenue and assets transferred from customers Certain customers and developers are required to contribute towards the capital cost of construction 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. Page 162 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (m) Leased assets At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation assesses whether: (i) The contract involves the use of an identified asset — this may be specified explicitly or implicitly and should be physically distinct or represent substantially all the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; (ii) The Corporation has the right to obtain substantially all the economic benefits from the use of the asset throughout the period of use; and (iii) The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either the Corporation has the right to operate the asset, or the Corporation designed the asset in a way that predetermines how and for what purpose it will be used. The Corporation recognizes a right -of -use asset and a lease liability at the lease commencement date. The right -of -use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is located, less any lease incentives received. The right -of -use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right -of -use asset or the end of the lease term. The estimated useful life of a right -of -use asset is determined on the same basis as those for property, plant and equipment. In addition, the right -of -use asset is periodically reduced by impairment losses, if any, and adjusted for certain re -measurements of the lease liability. (n) Interest income and interest costs Interest income is recognized as it accrues in profit or loss, using the effective interest method. Interest income comprises interest earned on cash and cash equivalents, and on regulatory assets. Interest costs comprise interest expense on borrowings, finance lease obligations, customer deposits and regulatory liabilities, and unwinding of the discount on provisions and impairment losses on financial assets. Interest costs are recognized as an expense unless they are capitalized as part of the cost of qualifying assets. Page 163 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (o) Corporate 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 current tax-exempt status of the Corporation under the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) reflects the fact that the Corporation is wholly owned by municipalities. This tax-exempt status might be lost in a number of circumstances, including if the shareholder (municipalities) ceases to own 90% or more of the shares or capital of the Corporation, or if a non- government entity has rights immediately or in the future, either absolutely or contingently, to acquire more than 10% of the shares of the Corporation. Commencing October 1, 2001, the Corporation is required, under the Electricity Act, 1998, to make payments in lieu of corporate taxes to the Ontario Electricity Financial Company. These payments are calculated under the rules for computing income and other relevant amounts contained in the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the Electricity Act, 1998 and related regulations. As a result of becoming subject to payments in lieu of corporate income taxes ("PILs"), the Corporation's taxation period was deemed to have ended immediately beforehand and a new taxation period was deemed to have commenced immediately thereafter. The Corporation was therefore deemed to have disposed of each of its assets at its then fair market value and to have reacquired such assets at that same amount for purposes of computing its future income subject to PILs. For purposes of certain provisions, the Corporation was deemed to be a new company and, as a result, tax credits or tax losses not previously utilized by the Corporation would not be available to it after the change in tax status. Essentially, the Corporation was taxed as though it had a "fresh start" at the time of its change in tax status. Current tax is the tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods. 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 periods that are likely to be realized. Deferred tax assets and liabilities are measured using enacted or substantively enacted rates, at the reporting date, expected to apply to taxable income in the periods 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 period that includes the date of enactment or substantive enactment. Page 164 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (p) Business combinations The Corporation accounts for business combinations using the acquisition method when control is transferred to the Corporation. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts are generally recognized in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re -measured and settlement is accounted for within equity. Otherwise, other contingent consideration is re -measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. 5. Accounts Receivable December 31, 2022 Trade receivables $ 28,273 1 ESO receivable 2, 962 Miscellaneous receivables 41107 Allowance for bad debt (800) Other 118 Total Accounts Receivable $ 34,660 6. Property, Plant and Equipment (a) Cost or deemed cost Page 165 of 264 Distribution Equipment Land & Building Other Fixed Assets Construction in Progress Right -of -use assets Total Balance at September 1, 2022 $ 313,687 $ 28,575 $ 7,811 $ 4,359 $ 601 $ 3553033 Acquired value - WNHC 229,420 241674 67399 61928 - 2673421 Acquired control - GRE - - 3,295 - 889 43184 Additions 205323 230 1,499 (3,490) - 183562 Remeasurement - - - - (73) (73) Disposals / retirements (513) (10) (909) - - (11432) Balance at December 31, 2022 $ 562,917 $ 53,469 $ 18,095 $ 71797 $ 15417 $ 643,695 Page 165 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 6. Property, Plant and Equipment (continued) (b) Accumulated depreciation (d) Security At December 31, 2022, the Corporation had zero properties subject to a general security agreement. (e) Borrowing costs During the period, borrowing costs of $nil were capitalized as part of the cost of property, plant and equipment. (fi) Allocation of depreciation and amortization The depreciation of property, plant and equipment and the amortization of intangible assets have been allocated to profit or loss as follows: Distribution Land & Other Fixed Construction Right -of -use maintenance services Equipment Building Assets in Progress Assets Total Balance at September 1, 2022 $ 61,017 $ 4,635 $ 1,563 $ - $ 40 $ 675255 Depreciation charge 5,944 538 1,192 - 34 71708 Disposals / retirements (513) (10) (909) - - (11432) Balance at December 31, 2022 $ 66,448 $ 51163 $ 1,846 $ - $ 74 $ 73,531 (c) Carrying amounts Distribution Land & Other Fixed Construction Right -of -use Equipment Building Assets in Progress Assets Total At December 31, 2022 $ 496,469 $ 481306 $ 165249 $ 77797 $ 1, 343 $ 5701164 (d) Security At December 31, 2022, the Corporation had zero properties subject to a general security agreement. (e) Borrowing costs During the period, borrowing costs of $nil were capitalized as part of the cost of property, plant and equipment. (fi) Allocation of depreciation and amortization The depreciation of property, plant and equipment and the amortization of intangible assets have been allocated to profit or loss as follows: Page 166 of 264 Operations and Customer General and Energy maintenance services administration conservation expense expense expense expense Amortization Total December 31, 2022: Depreciation of property, plant $ 640 $ 1 $ 11 $ - $ 7,056 $ 79708 and equipment Amortization of intangible assets - - - - 748 748 $ 640 $ 1 $ 11 $ - $ 79804 $ 89456 Page 166 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 7. Intangible Assets and Goodwill (a) Cost or deemed cost Computer Land FIT Work in Software Rights Contracts Progress Total Balance at September 1, 2022 $ 12, 062 $ 8 $ - $ - $ 12,070 Acquired value - WNHC 27394 17199 - 11118 4,711 Acquired control - GRE - - 31906 - 31906 Additions 253 39 - (146) 146 Disposals / retirements (185) - - - (185) Balance at December 31, 2022 $ 14,524 $ 1,246 $ 3,906 $ 972 $ 20,648 (b) Accumulated amortization Computer Land FIT Software Rights Contracts Total Balance at September 1, 2022 $ 1, 506 $ 8 $ - $ 15514 Amortization charge 641 - 107 748 Disposal/retirements (185) - (185) Balance at December 31, 2022 $ 13962 $ 8 $ 107 $ 21077 (c) Carrying amounts Computer Land FIT Work in Software Rights Contracts Progress Total At December 31, 2022 $ 125562 $ 1, 238 $ 31799 $ 972 $ 18,571 Page 167 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 8. Income Tax Expense 2022 Current period $ 1,268 Adjustment for prior periods 156 Deferred (229) Income tax expense $ 19195 Reconciliation of effective tax rate: 2022 Net comprehensive income for the period $ 8,549 Income tax expense 1,195 Income from operations before income taxes $ 9,744 Statutory Canadian federal and provincial income tax rate 26.50% Expected taxes on income $ 29582 Changes in income taxes resulting from: Permanent differences 6 Other temporary differences (1,598) Adjustment for prior periods 205 $ (1, 387) Income tax expense $ 11195 Significant components of the Corporation's deferred tax balances are as fol I ows : December 31, 2022 Deferred tax assets (liabilities): Plant and equipment $ (48)572) Deferred revenue 21, 569 Employee future benefits 25041 Non -vested sick leave 340 Unrealized gain on derivatives (157) Allowance for doubtful accounts 212 Other 1,050 $ (23, 517) Regulatory deferred tax asset $ 32,624 Deferred taxes associated with regulatory accounts (8)645) Page 168 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 8. Income Tax Expense (continued) In 2022, the legacy WNHI entity underwent a PILs audit from the Ministry of Finance (the "Ministry") for the taxation years of 2017 and 2018. The audit resulted in two significant adjustments. The following items were previously accrued as uncertain tax treatments and remain so at December 31, 2022: CCA classification of meters The Ministry disagreed with WNHI's assessment that these assets should be reported under Class 8 and made an adjustment to move the assets to Class 47. This is a similar adjustment that was made to taxations years 2013 to 2016 which were audited in previous periods. WNHI made an accrual in fiscal year 2021 to accrue future adjustments for the years 2017 to 2020. The accrual for unaudited years has been recorded in income taxes payable as a contingent liability. WNHI issued a joint court appeal with KWHI to overrule the decision with other distributors in Ontario who had similar adjustments made. The appeal remains unresolved as of the date of these statements. Disallowed interest expense to the parent company The Ministry determined that the amount of interest paid during 2017 and 2018 to WNHC exceeded a reasonable amount. Therefore, the Ministry adjusted the interest expense allowable to the OEB- deemed rate that was applicable during the period of 4.54%. WNHI appealed the decision through a Notice of Objection which remains unresolved as of the date of these statements. An amount anticipated to be disallowed in future audits for the taxation years of 2019 to 2022 has been recorded in income taxes payable as an uncertain tax treatment. Page 169 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 9. Regulatory Deferral Account Balance The following is a reconciliation of the carrying amount for each class of regulatory deferral account balances: Balances Transfer Recovery/ 2022 arising in the between Recovery / 2022 reversal Opening Acquired period accounts reversal Ending period (years) Regulatory deferral account debit balances Group 1 accounts $ 107931 $ 6,727 $ (4) $ 510 $ - $ 18,164 Note 1 Regulatory asset recovery accounl 3,303 (56) - - (2,469) 778 Note 1 Deferred tax asset 15,398 171785 (559) - - 32,624 Note 2 Other regulated accounts 136 99 71 - - 306 Note 3 Total amount related to regulatory deferral account $ 29,768 $ 24,555 $ (492) $ 510 $ (21469) $ 51,872 debit balances Balances Transfer Recovery/ 2022 arising in the between Recovery / 2022 reversal Opening Acquired period accounts reversal Ending period (years) Regulatory deferral account credit balances Group 1 accounts $ 208 $ 5,534 $ (3,408) $ 510 $ - $ 5,504 Note 1 Other regulated accounts 562 2 4 568 Note 3 Total amount related to regulatory deferral account $ 31430 $ 51536 $ (3,404) $ 510 $ - $ 6,072 credit balances 2022 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances $ 443 Less movement related to the balance sheet Deferred income tax 559 Deferred revenue 516 Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement $ 19518 Note 1: The Corporation has been approved for collection of these amounts in its 2022 filings for 2023 rates. Note 2: The Corporation has not sought approval for the disposition of this amount as changes in underlying assumptions may reduce the amounts recorded in the account. Enova may seek refunds in the future. Note 3: In December 2020, the legacy KWHI entity was informed that beginning June 2015 charges were not included in the monthly power bill for one delivery point for Transmission Network Charges. KWHI accrued a payable of $6 million in 2020, offset by a regulatory asset. These monies were collected through an OEB-approved rate rider through December 2022. Page 170 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 10. Long -Term Debt On October 27, 2022, Enova Energy Corporation entered into a credit agreement with Bank of Montreal ("BMO") whereby all outstanding credit facilities previously provided by CIBC were transferred to BMO. This included an operating line of credit for legacy WNHI ($15,000) as well as the consolidated long-term debt and related swap. As a result, the debt was re -issued under BMO and the swap agreement was terminated on November 2, 2022. The value of the terminated swap, less applicable fees, was $6,135. The BMO credit facility is for a total of $200,000 of which the Corporation borrowed $110,000 in long- term debt from BMO with no defined repayment terms. The full balance is variable-rate and has not been hedged with any derivatives. In March 2021, the Corporation entered into an amended Credit Facility Agreement ("Credit Facility") with a Canadian Chartered Bank. The Credit Facility is a demand revolving credit facility, which provides funding for: (i) up to $11,700 for capital expenditures; and (ii) $1,800 US for interest rate hedging. Loans advanced under the credit facility are amortized on a mortgage style basis over a period which sit he lesser of: (a) 20 years; or (b) the length of the revenue contract underlying the asset. Interest on the loan(s) are at Prime or Bankers acceptances plus 1 %. As of December 31, 2022, the Corporation had the following loans outstanding under the Credit Facility: Swap Monthly Bank loans Rate Payments Term 2022 Term loan 1 4.205% $ 30.00 August 15, 2035 $ 35365 Term loan 2 3.845% $ 18.00 December 21, 2034 $ 15922 Term loan 3 2.510% $ 11.00 July 31, 2040 $ 13759 Term loan 4 2.365% $ 4.00 July 31, 2035 $ 552 $ 7,598 The aggregate amount of expected principal repayments required under the Credit Facility are as follows: 2023 $ 453 2024 470 2025 487 2026 505 2027 526 Thereafter 51157 $ 71598 Page 171 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 10. Long -Term Debt (continued) Interest rate swaps The Corporation has entered into interest swap agreements with a Canadian chartered bank for the purpose of eliminating the risk of fluctuating interest rates and removing the economic impact of interest rate volatility on its debt. The swap instruments result in the Corporation receiving interest at the 30 -day banker' acceptance floating rate and require the Corporation to pay the fixed rate in the swap instrument. The term of each individual swap instrument matches the amortization period of the corresponding bank loan although, each instrument can be terminated in 30 days, due to the Credit Facility being a demand revolving bank loan. The swaps have a put provision whereby on the five-year anniversary of each swap, either party can unilaterally elect to terminate the contract requiring a cash payment upon settlement based on the fair value of the swap instrument on that date. IFRS requires the Corporation to determine and record the fair value of its interest rate swap agreements in the Statement of Financial Position, with changes in fair values being recorded in unrealized gains (losses) from interest rate swaps in the Statement of Comprehensive Income (Loss). As a result, the Corporation has recorded interest rate swap assets of $592 and recognized a corresponding unrealized gain on interest rate swaps of $953. There is no impact on current PILs. Over the term of the debt, the non-cash charges and assets are expected to reverse into income. Page 172 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 11. Notes Payable to Shareholder 2022 Senior unsecured debentures: City of Kitchener $ 70,998 City of Waterloo 271404 Township of Woolwich 31355 Township of Wilmot 51965 Township of Wellesley 21532 Total shareholder debt $ 1103254 Note (a) Effective August 1, 2000, KWHI incurred unsecured promissory notes payable to the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot, which have an interest rate of 3.23% per annum. Interest is payable in quarterly installments, in arrears, on March 31, June 30, September 30, and December 31. On September 1, 2022, these notes payable were re -issued at the same amount and rates under Enova Energy Corporation Note (b) The former WNHC held senior and junior long-term notes payable with its legacy shareholders. The notes were amalgamated and replaced with a single note for each shareholder as of September 1, 2022 with the same terms, including interest rate payable, as the notes to the City of Kitchener and the Township of Wilmot. Page 173 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 12. Employee Future Benefits The Corporation pays certain medical and life insurance benefits on behalf of some of its retired employees. These benefits are provided through group -defined benefit plans. There are two defined benefit plans for the retirees of the legacy companies. A full actuarial valuation of the plans was performed as at December 31, 2022. The Corporation recognizes these post-retirement costs in the period in which employees' services were rendered. The accrued benefit liability at December 31, 2022 is $7,703 and includes both legacy plans. Changes in the present value of the aggregate defined benefit unfunded obligation and the aggregate accrued benefit liability are as follows: 2022 Accrued benefit obligation Balance, beginning of period $ 10,637 Current service cost 134 Interest cost 130 Benefits Paid (189) Actuarial gains recognized in other comprehensive income (3, 009) Accrued benefit liability, end of period $ 77703 Components of net benefit expense recognized are a follows: 2022 Current service cost $ 134 Interest cost 130 Net benefit expense recognized $ 264 Actuarial losses recognized in other comprehensive income 2022 Cumulative amount at September 1 $ (620) Recognized during the period (net of tax) 23211 Net benefit expense recognized $ 11591 Page 174 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 12. Employee Future Benefits (continued) The significant actuarial assumptions used in the valuation are as follows (weighted 2022 General inflation: Changes in the Consumer Price Index 3.00% Accrued obligation: Discount rate 5.05% Salary increases 4.00% Benefit cost for the period: Arc ee Withdrawal rate 18-29 2.75% 30-34 2.20% 35-39 1.65% 40-49 1.40% 50-54 1.20% Assumed health care cost trend rates: Initial health care cost trend rate Health 4.70% Dental 4.90% 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: 1% increase in trend rate 1% decrease in trend rate 2022 $ 375 (320) Page 175 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 13. Customer Deposits 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 under 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. Customer deposits comprise: 2022 Current Customer deposits $ 11731 Contruction deposits 10,150 Performance bond 200 $ 12,081 Long-term ESO deposit for energy conservation programs 15158 Customer deposits - long-term 77476 $ 81634. Page 176 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 14. Share Capital Authorized Unlimited Common shares Unlimited Class A special shares Unlimited Class B special shares Issued 100,000 Common shares $ 326,248 10,000 Class A special shares - 10, 000 Class B common shares 120,000 Total Shares $ 3269248 Common shares are issued as follows: • 53,390 are issued to the Corporation of the City of Kitchener • 30,830 shares are issued to the Corporation of the City of Waterloo • 8,510 shares are issued to the Corporation of the Township of Woolwich • 4,490 shares are issued to the Corporation of the Township of Wilmot • 2,780 shares are issued to the Corporation of the Township of Wellesley Class A special shares are issued as follows: • 9,225 shares are issued to the Corporation of the City of Kitchener • 775 shares are issued to the Corporation of the Township of Wilmot Class B special shares are issued as follows: • 7,320 shares are issued to the Corporation of the City of Waterloo • 2,020 shares are issued to the Corporation of the Township of Woolwich • 660 shares are issued to the Corporation of the Township of Wellesley Special shares were issued as part of the Amalgamation Transaction on September 1, 2022 to effect post -closing adjustments provided for in corresponding agreements. As of December 31, 2022, the redemption value has not been set. Dividends The holders of the common shares are entitled to receive dividends as declared from time to time. No dividends were declared or paid during the period. The Corporation has $5,056 in dividends payable carried forward from prior periods. Page 177 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 15. Revenue 2022 Revenue from contracts with customers $ 145,149 Other revenue Specific service charges 843 Deferred revenue 730 Scrap sales 100 Net gain on disposal of capital assets 37 Non -Utility operations 338 Retailer services 13 Sundry 206 Net realized gain on derivatives 287 Total other revenue $ 27554 Total revenues $ 147,703 In the following table, revenue from contracts with customers is disaggregated by type of customer. 2022 Residential $ 58,419 Commercial 80,470 Large users 37898 Other 27362 $ 145,149 Page 178 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 16. Interest Income and Expense 17. Lease Liabilities The Corporation has entered into a lease agreement for solar PV roof -top equipment representing right -of -use assets (note 6). The right -of -use assets are recognized at the present value of the minimum lease payments, plus any extensions estimated to be exercised, with the corresponding equivalent lease liability recognized. The Corporation has determined the lease terms based on all available information as at the reporting date. Maturitv analysis - contractual undiscounted cash flows 2022 Less than one year $ 97 One - five years 490 More than five years 570 Total undiscounted lease liabilities at period end $ 11157 Interest included on the liabilities included in the statement of financial position at December 31, 2022 (282) Lease Liabilities - current $ 97 Lease Liabilities - non-current $ 778 Page 179 of 264 2022 Interest income on bank deposits $ (183) $ (183) Interest on shareholder debt 13188 Interest expense on long term debt 11677 Interest expense on short tem debt 27 nterest expense on BMO letter of credit 51 Interest expense on deposits 130 Interest expense on capital lease 12 $3,085 Net interest cost $ 2,902 17. Lease Liabilities The Corporation has entered into a lease agreement for solar PV roof -top equipment representing right -of -use assets (note 6). The right -of -use assets are recognized at the present value of the minimum lease payments, plus any extensions estimated to be exercised, with the corresponding equivalent lease liability recognized. The Corporation has determined the lease terms based on all available information as at the reporting date. Maturitv analysis - contractual undiscounted cash flows 2022 Less than one year $ 97 One - five years 490 More than five years 570 Total undiscounted lease liabilities at period end $ 11157 Interest included on the liabilities included in the statement of financial position at December 31, 2022 (282) Lease Liabilities - current $ 97 Lease Liabilities - non-current $ 778 Page 179 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 18. Commitments and Contingencies 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 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 periods in which they were members, on a pro -rata basis based on the total of their respective service revenues. As at December 31, 2022, no assessments have been made. 19. Guarantees Guarantees do not apply to the Corporation. 20. 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. From September 1, 2022 to December 31, 2022, the Corporation made employer contributions of $969 to OMERS. The Corporation's net benefit expense has been allocated as follows: (a) $291 capitalized as part of labour in PP&E and (b) $678 recorded as an expense against net income. 21. Employee Benefits 2022 Salary, wages and benefits $ 11,399 CPP and EI remittances 142 Contributions to OMERS 969 Expenses related to employee future benefits 264 $ 121774 Page 180 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 22. Related Party Transactions (a) Parent and ultimate controlling party The Corporation is wholly owned by the Cities of Kitchener and Waterloo, and the Townships of Wilmot, Wellesley and Woolwich. The Cities and the Townships produce financial statements that are available for public use. (b) Entity with significant influence The Cities of Kitchener and Waterloo control and exercise significant influence over the Corporation through their indirect ownership interest in the Corporation of 53.4% and 30.8% respectively. (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 are summarized below: 2022 D i rectors' fees $ 70 Executive compensation and benefits 683 $ 753 (d) Transactions with entities with significant influence In the ordinary course of business, the Corporation may issue dividends to the shareholders. (e) Transactions with ultimate shareholders (the Cities and Townships) In 2022 the Corporation had the following significant transactions with its ultimate shareholders, all of which are government entities: The Corporation delivers electricity to the Cities of Kitchener and Waterloo and the Townships of Wellesley, Wilmot and Woolwich and its related organizations throughout the period for their electricity needs. Electricity delivery charges are at prices and under terms approved by the OEB. The Corporation also provides the following services to the Cities of Kitchener and Waterloo and the Townships of Wellesley, Wilmot and Woolwich: • streetlight maintenance services • streetlight construction services For the City of Kitchener and the Township of Wilmot, these services are contracted through Kitchener Energy Services Inc. The Corporation conducted transactions with related parties during the period ended December 31, 2022. These transactions are in the normal course of operations and are measured at fair value. Page 181 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 23. Financial Instruments and Risk Management Fair value disclosure Cash and cash equivalents are measured at fair value. The carrying value of receivables, unbilled energy receivable, accounts payable, and accrued charges approximate fair value due to the short maturity of these instruments. The carrying value of the customer deposits approximates fair value since the amounts are payable on demand. The Corporation's activities provide for a variety of risks, particularly credit risk, market risk, and liquidity risk. The fair value of the long-term debt approximates its carrying value due to the short maturity and/or the variable interest rates. 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 Cities of Kitchener and Waterloo, and the Townships of Wellesley, Wilmot and Woolwich. No single customer accounts for a balance over 3.26% of total accounts receivable. 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 expected credit losses at December 31, 2022 is $800. The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2022, approximately $1,627 is considered 60 days past due. The Corporation has over 157,000 customers, the majority of whom are residential. Credit risk is managed through collection of security deposits from customers under directions provided by the OEB. As at December 31, 2022, the Corporation holds security deposits in the amount of $9,206. Page 182 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 23. Financial Instruments and Risk Management (continued) (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. The Corporation's long-term debt as of December 31, 2022 is at a variable interest rate. (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 $45M 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, 2022, $nil had been drawn under BMO's $45M operating credit facility. In 2022 the Corporation was assigned an Issuer Rate of A, Stable, from DBRS Limited. The Corporation's financial risk profile is reasonable with key metrics supporting the "A" rating. The Corporation also has a bilateral facility for $35,000 (the "LC" facility) to issue letters of credit mainly to support the prudential requirements of the IESO of which the $35,000 has been drawn and posted with the I ESO. The majority of accounts payable, as reported on the balance sheet, are due within 30 days. (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, 2022, shareholder's equity amounts to $443,304 and long-term debt including shareholder debt amounts to $227,852. Page 183 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 24. Changes in Accounting Policies The International Accounting Standards Board (IASB) has issued the following Standards, Interpretations and Amendments to Standards that were adopted by the Corporation effective January 1, 2022: i. Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) ii. Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) iii. Annual Improvements to IFRS Standards 2018-2020 iv. Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 25. Future Changes in Accounting Policy and Disclosures 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 Corporation and it is still to be determined if any will have a material impact on the Corporation's financial statements. i. Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. ii. Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to I FRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. Page 184 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 25. Future Changes in Accounting Policy and Disclosures (continued) iii. Definition of Accounting Estimate (Amendments to IAS 8) On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. 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However, opportunities for improvement have been identified. • There are no financial implications. • Community engagement included this report posted to the city's website with the agenda in advance of the council / committee meeting. • This report supports the delivery of core services. EXECUTIVE SUMMARY: The following report provides a summary of the Internal Audit assurance and consulting services completed during the period of April to June 2023. The table below shows the audits contained in this report. Assurance work is in progress on the following topics: • Accounting controls Consulting work is in progress on the following reviews: • Training Documentation - process review The results of the petty cash and float controls audit show that cash floats are generally well protected by being stored in safes or point of sale machines. Throughout the pandemic there *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 238 of 264 was a lot of staff turnover with limited cross -training provided on proper reconciliation procedures which led to some areas with incorrect (over or short) float balances. However, staff are now all aware of the proper procedures and will endeavor to ensure cash is reconciled regularly. The implementation of SAP Concur has greatly decreased this risk as petty cash is only used in a few instances. With the exception of a large discrepancy in the Parking float, all other variances were very small and there are no suspicions of theft. The Parking float shortage is likely due to funds located in the parking machines, which will be reconciled as the new parking system is implemented. In June 2022 a new online facility booking inquiry form and risk assessment process were launched. The original intent of implementing this process was to facilitate an automated risk assessment process to ensure no stakeholders were left out of the process, and that input could be sought earlier in the booking process in order to mitigate safety and financial risk to the corporation.The results of the facility booking and risk assessment program review indicate that the new online inquiry form and risk assessment process for events at City facilities have generally had a neutral to positive impact on staff and customers, however, more can be done to fine-tune the program to be even more effective. Moving the facility booking process online through the form and webpage information is a positive and required step for customer satisfaction in today's digital environment. However, improvements can be made to the original solution to streamline the process and provide a better customer experience. The risk assessment process requires some analysis to refine which groups truly need to be involved to mitigate risk. This first iteration of a solution to solve the problem identified by Public Safety Canada stands as a solid foundation to build upon with further continuous improvement. BACKGROUND: The overarching goal of internal audit is to protect the City's assets and interests. This includes, but is not limited to, protecting the long-term health of the organization, its financial and physical assets, its reputation, its ability to perform critical services and the safety and well-being of employees and citizens. Internal Audit provides assurance and consulting services in accordance with the International Standards for the Professional Practice of Internal Auditing (Standards), IIA 2012. These services are independent, objective activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. • Assurance services provide an objective assessment of evidence to provide an independent opinion or conclusions regarding an entity, operation, function, process, system, or other subject matter. • Consulting services are advisory in nature and are generally performed at the specific request of an engagement client. When performing consulting services, the internal auditor should maintain objectivity and not assume management responsibility. Audit topics are selected independently by the Internal Auditor and approved by Audit Committee on an annual basis. Audit results are brought back to Audit Committee in reports such as this on a quarterly basis as completed. Page 239 of 264 REPORT: 1. Petty Cash and Floats — Controls Audit Completed: June 12, 2023 Background: Employees are empowered to purchase goods and services on behalf of the City of Kitchener to perform their jobs. For purchases <$3000 they can do so through using a corporate VISA card if they have one, or by using their own funds and being reimbursed through SAP Concur. In rare cases, employees without access to SAP are able to use petty cash (for <$100). Prior to the implementation of SAP Concur in 2020, payments were made through cheque requisition. With the implementation of SAP Concur for employee expenses in 2020, most locations no longer have a need to have a petty cash float as all staff who have an employee email account must use Concur to be reimbursed. Most areas still retain a change float for their point of sale (POS) machines which are topped up from sales prior to making revenue deposits, with any over or under variances being noted on the deposit. Throughout the pandemic there was a lot of staff turnover with limited cross -training provided on proper procedures. Reports of theft or missing funds increased, and it was found that controls were lacking in some areas. Audit Objectives: The objective of this review is to physically confirm that petty cash and float balances are correct and that the cash is adequately protected from theft. A secondary objective is to test any petty cash vouchers and associated backup / receipts to ensure compliance with policy. Scope and Methodology: This audit included the following activities: • Unannounced physical count of petty cash and float balances for twenty-nine locations • Review of safe procedures and controls • Testing vouchers and backup (if any) against the following criteria: o Voucher was authorized by the appropriate person, and the custodian and person receiving the cash signed in the appropriate spot on the voucher o Business reason for the expense was provided o No alcohol or tobacco was purchased o No personal items / loans / cashing of personal cheques o Original receipts attached Findings: Petty Cash There are only four petty cash floats remaining at City locations. They are used for the following reasons: Page 240 of 264 • KOF — to reimburse staff for doctor's notes for those outside staff without a City email address • Parking — 5t" floor City Hall — to provide refunds for transponder deposits; note that this will no longer be required when the new parking system is installed which does not require a transponder nor a deposit • Market — to purchase program supplies (groceries) from market vendors that only accept cash, and to reimburse vendors for market dollar vouchers • The Aud — to reimburse expenses for temporary or part-time event staff without a City email address There were no issues with the KOF and Aud petty cash floats. Both were properly secured and balanced to the correct total. The Market and Parking petty cash floats had more cash than expected. It is expected that these floats will be balanced the next time they are topped up. Two of the Parking petty cash vouchers did not have receipts, none had an authorized signature, and the balance had not been reconciled in several months. Staff were instructed to ensure it is now balanced monthly going forward and that all vouchers have receipts attached. As noted above, this will no longer be required when the new parking system is implemented. Floats There are thirty-one change floats across twenty-six locations. All floats were locked in a safe or POS machine with the exception of one float which was left in an unlocked drawer. Twenty- one floats balanced, four were short money and six had excess money. Except for two parking floats, the other discrepancies were small dollars. The parking floats were short by a total of $14,694.88. While staff were regularly counting the floats and recording the denominations, they were unaware that this should balance to a particular number and were thus not indicating any over / short in their deposits. In addition, it is suspected that a substantial portion of the shortage is within the parking machines and may balance. There is evidence from previous audits that this is the case. Once the implementation of the new parking system is complete, staff will work to determine how much float is in the machines and develop a process to reconcile to the float total on a regular basis, monthly at a minimum. Staff will report back to the Auditor in July when that has been completed. There were various changes to the float custodians, approvers and amounts noted and shared with Finance staff. Three floats were also deemed to no longer be required and will be returned to Finance. Actions: The following actions have been or will be taken to address issues noted above: • Accounting has been informed to make all required custodian, approver, and amount updates to their main list. Page 241 of 264 • Accounting will ensure the three floats that are no longer needed are deposited properly. • Procedures have been changed to ensure all floats are secured at all times. • Parking will work to reconcile their floats and petty cash and establish a monthly reconciliation process going forward. Conclusion: The results of this audit show that cash floats are generally well protected. There were no large discrepancies (except for Parking) or suspicions of theft. Throughout the pandemic there was a lot of staff turnover with limited cross -training provided on proper procedures. However, staff are now all aware of the proper procedures and will endeavor to ensure cash is reconciled regularly. The implementation of SAP Concur has greatly decreased this risk as petty cash is only used in a few instances. This audit will continue to be part of the rotating list of standard controls and compliance audits. 2. Facility Booking and Risk Assessment — Program Review Completed: June 85 2023 Background In June 2022 a new online facility booking inquiry form and risk assessment process were launched. The original intent of implementing this process was to facilitate an automated risk assessment process to ensure no stakeholders were left out of the process, and that input could be sought earlier in the booking process in order to mitigate safety and financial risk to the corporation. At the time Council requested a follow-up report at the end of the year. After six months of use staff and customers were surveyed to determine the effectiveness and impact of the new process and tools and identify further areas for improvement. In addition, program data was collected and analyzed. The following is a summary of the responses, data, and related recommendations which have been shared with staff responsible for the process. Review Objectives The overall goal of this review is to assess the effectiveness and impact of the new facility booking and risk assessment process and to identify further areas for improvement. Scope The following areas are within scope for this review: • Staff and customer feedback related to the new process and tools after approximately 6 months of use • Recommendations for further improvements The following is out of scope: • Implementation of recommendations Page 242 of 264 Methodology The following activities were completed as part of this review: • Survey of internal facility host staff • Survey of internal risk assessors • Survey of technical support staff • Customer experience surveys for customers using the online inquiry form between January 19 and February 16, 2023 • Review of booking data to date Findings Booking Data and Volumes Since inception in June 2022 until March 2023, there have been 2184 facility booking inquiry forms submitted. Of those 48% or 1055 have not resulted in a booking. The remaining 52% or 1129 were in various stages of completion, while 415 events were booked or completed. In terms of type of events and preferred venues, the majority of inquiries are for birthday parties at community centres. Council was specifically interested in knowing how many Indigenous events were booked and had received the new fee waiver. The data showed that there were two Indigenous events booked through the new form, one of which is complete, and one is in progress. There were also six ongoing Indigenous groups with seventy-five individual bookings which were set up prior to the inquiry form implementation. The total fee waiver of all Indigenous bookings in 2022 was $18,908. Risk Assessment Analysis Data from the risk assessment tool was analyzed to determine the effectiveness of the process. There have been 474 events that were directed to one or more risk assessors (City staff in various roles), depending on the attributes of the event, resulting in 949 risk assessment requests in total. Risk assessors have the ability to mark the assessment as complete or indicate that it is not applicable, meaning it may have been sent to them in error and system adjustments may be required. Comments should be input for either response and they are required to respond within two business days. If the inquiry form is cancelled by the event host prior to completion, then the status will change to cancelled. A blank status indicates that the risk assessor took no action. The data shows that only 14% of total assessments were completed, while 44% had no response. This may be because the majority of risk assessment requests are directed to Custodial, and Parks & Cemeteries staff, in order to schedule staff to clean the area before or after the event, and don't require a risk assessment. There is an opportunity to streamline the process further to notify these staff in some other manner rather than involving them in the risk assessment process. Page 243 of 264 A review of the comments provided by staff risk assessors shows 31 % had comments. Of those comments, a small amount provided instructions or required actions to be taken. The rest of the comments simply indicated that no action was required, which is also a helpful confirmation to the event host. There may be opportunities to streamline to eliminate some of these requests if they truly are not required though. The time from receipt of the risk assessment request until submission of the comment was also calculated based on time stamps on the records. The average response time was 1.5 days. Event Hosts The majority of staff feel the online intake form is an improvement, mainly because it collects most of the required information all in one spot, which decreases much of the time going back and forth with the customer to gather the information. There were several recommendations for improvements to the form which included the addition of fields to gather more information, formatting changes, and better instructions. CSD Administration staff should consider these suggestions and work with staff to update the form where feasible. Adding facility booking information to the City website has been only moderately successful in decreasing inquiries regarding pricing and room capacities. The largest problem seems to be confusion around costs in addition to the hourly room rental price. Revised wording should be considered as well as adding pictures of all rooms and the ability to see room availability. The website information has driven more bookings in some areas. For example, inquiries and confirmed bookings for the Williamsburg Dedication Centre has increased since implementation of the website. 47% of facility hosts feel that risk assessors are not responding in a timely manner, causing staff to either wait, spend time following up, or putting the corporation at risk by not waiting for the risk assessment. As noted above, the data shows that the average response time is 1.5 days, however. This process should be revisited with the risk assessor group to see what is impeding the assessors who are taking more than the 2 -day limit and which risk assessments are truly needed. However, the majority of event hosts do find the comments provided by risk assessors to be helpful. About half of the staff feel that this new process has both decreased lead time for the customer and decreased the amount of staff time spent on rentals. However, there is an equal amount who feel this is more cumbersome and time consuming. Improvements to the process are required to streamline the staff processing time while still providing the required data to the risk assessors. Risk Assessors Most risk assessors indicated they are able to complete their assessments very quickly, which is supported by the data. There does not appear to be as much benefit to the risk assessors as was originally intended. Although it does automate the process and ensure all risk assessors are in the loop, several have not received any requests yet, and the majority of requests are low risk, resulting in no feedback from the risk assessors. Page 244 of 264 Technical Support Staff Feedback Staff who support the use of the inquiry form, webpage, and risk assessment tool felt that having a single form for all facility types was beneficial for the customer and that the risk assessment tool was simple to maintain. They noted, however, that the online form is becoming prohibitively difficult to maintain due to its complexity and have recommended alternative software to explore for future iterations of this program. Customer Feedback Customer feedback was gathered through the Customer Satisfaction Program from January 19 — February 16, 2023. After submitting the online inquiry form customers were prompted to fill out a separate survey about their facility booking experience. 76% of customers felt the form was easy or very easy to fill out. 77% of repeat customers found the form easier than the previous process of phoning or emailing their preferred venue(s). Overall, 73% were satisfied or very satisfied with the process. Areas for improvement include faster response times by staff, showing pictures of venues and current availability on the webpage, and clarifying how to book ice time. Recommendations The results of this review indicate that the process and tools have generally had a neutral to positive impact on staff and customers, however, more can be done to fine-tune the program to be even more effective. The online form is a positive change from the previous process from both staff and customer perspectives and could be modified further to be more effective. The web page has not had as much impact as hoped but could be improved by adding more information including venue availability. The risk assessment process is seen as time consuming but does provide some benefit in automatically including all the relevant stakeholders It is recommended that the CSD Manager, Service Coordination and Improvement complete the following: • Consider the suggestions for improvement to the website to ensure the information for the public is as clear as possible. • Consider the suggestions for improvement to streamline the form and make it easier to fill out for customers. • Meet with risk assessors to determine if there are some which can be removed from the workflow if this is not providing value. • Review the criteria for sending the risk assessments to each risk assessor to determine if changes are required. • Meet with event hosts to review their concerns and how/ if they will be addressed. Brainstorm ideas for possible exemptions from the risk assessment process, i.e., are there types of events which are low risk and could be removed from the workflow such as birthday parties at community centres. • Explore with Technology Innovation and Services (TIS) staff / Activenet staff the possibility of adding a calendar with available times to the website. (This was explored previously but was not possible at the time but may be viable now). • Work with TIS staff to explore alternative software for housing the form and data (Dataverse /Power Platform), including requesting budget to support this. Page 245 of 264 Conclusion Moving the facility booking process online through the form and webpage information is a positive and required step for customer satisfaction in today's digital environment. However, improvements can be made to the original solution to streamline the process and provide a better customer experience. The risk assessment process requires some analysis to fine tune which groups truly need to be involved to mitigate risk. This first iteration of a solution to solve the problem identified by Public Safety Canada stands as a solid foundation to build upon with further continuous improvement. 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. 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