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Home My WebLink AboutAudit Agenda - 2017-06-261 KITCHENER Office of the City Clerk Kitchener City Hall 200 King St.W. - 2"d Floor Kitchener ON N2G 4G7 Audit Committee Agenda Monday, June 26, 2017 1:30 - 3:30 p.m. Council Chamber Page 1 Chair — Mayor B. Vrbanovic Delegations Pursuant to Council's Procedural By-law, delegations are permitted to address the Committee for a maximum of 5 minutes. • Item 1 — Matt Betik, KPMG Discussion Items 1. FCS -17-051 - 2016 Audited Financial Statements (60 min) Status Reports 2. FCS -17-009 - 2nd Quarter Audit Status Report (40 min) Jeff Bunn Committee Administrator ** 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 1866-969-9994 ** Staff Report I R Finance and Corporate Services Department wm kitcheneua REPORT TO: Audit Committee DATE OF MEETING: June 26, 2017 SUBMITTED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services and City Treasurer, 519-741-2200 ext 7347 PREPARED BY: Sheri Brisbane, Supervisor of Financial Reporting, 519-741-2200 ext 7349 WARD(S) INVOLVED: All DATE OF REPORT: June 19, 2017 REPORT NO.: FCS -17-051 SUBJECT: 2016 Audited Consolidated Financial Statements RECOMMENDATION: THAT the 2016 Audited Consolidated Financial Statements of the City of Kitchener be approved. BACKGROUND: Staff is pleased to submit the 2016 Audited Consolidated Financial Statements of the City of Kitchener. A presentation of financial statement highlights will be given at the Audit Committee meeting on June 26. Representatives of the City's external auditors will also be in attendance to discuss the Audit Findings Report. REPORT: The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. These financial statements are prepared on a full accrual basis and combine the results of the tax -based operations, enterprises, local boards, capital activity, and reserve fund activities. Local boards include The Centre in the Square Inc., Kitchener Public Library, Belmont Improvement Area, and Kitchener Downtown Improvement Area. The 2016 year end results for the tax -based operations and the enterprises were reported to Council in March. Please see Appendix A to this report for a reconciliation between the non -consolidated figures presented in March and the Audited Consolidated Financial Statements. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: The recommendation of this report supports the achievement of the city's strategic vision through the delivery of core service. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 1-1 FINANCIAL IMPLICATIONS: None COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. The audited financial statements will be posted on the City website and notice will be provided to all residents through one of the widely distributed local newspapers in accordance with Section 295 (1) of the Municipal Act, 2001. ATTACHMENTS: • City of Kitchener Financial Report for the Year Ended December 31, 2016 • Audit Committee Presentation • Audit Findings Report for the year ended December 31, 2016 (KPMG) ACKNOWLEDGED BY: Dan Chapman, Deputy CAO of Finance and Corporate Services and City Treasurer 1-2 Appendix A — Annual Surplus Reconciliation The annual surplus presented in the Audited Consolidated Financial Statements reconciles to the City of Kitchener year-end results provided to Finance & Corporate Services Committee on March 20, 2017 as follows: Year Ended Dec 31, 2016 Tax supported surplus (deficit) 940,672 Enterprise surplus 2,417,317 Total operating surplus as presented in March 3,357,989 Consolidation Kitchener Public Library 13,911 The Centre in the Square 174,382 Kitchener Downtown Improvement Area (69,361) Belmont Improvement Area 7,195 Kitchener Power Corporation and its Affiliates 5,525,130 Kitchener Generation Corporation 24,480 5,675,737 Revenues not included in operating surplus Development charge revenue recognized 10,388,476 Investment income and dividend from Kitchener Power Corporation 7,649,406 Other reserve fund revenue 6,296,383 Donated assets 4,404,349 Other capital revenue 11,270,960 40, 009, 574 Expenses included in Operating surplus, not in consolidated statements Net transfers to capital and reserves 60,854,974 Various PSAB adjustments 7,704,001 68,558,975 Expenses not included in Operating surplus Amortization of tangible capital assets (40,612,167) Expenses in capital (17,770,535) Change in actuarial estimate for employee future benefits (3,928,057) Expenses in reserve funds (3,639,317) (65,950,076) Surplus per Consolidated F/S 51,652,199 1-3 ro V c Co L.L El 1-4 W 0 N W r -I c� L V O 4) LL p 1-4 1-5 W a� O i +J o a� Ln V V L.L Ca � L.L Q 1-5 1-6 � L L p E a --j hL V (UWSJ N N N V O • �, (Uro V a--+ (U C6 N O N •— N V . —C6 V cn Q 0 te a-+ u VO Q � ca O +-+ — V t�A N 1-6 01 00 cn n LM M M U s_ fB v c SV N Q) SZ fB a V) N dA C N 0- 0 H rl Nr -1 Lm O rl 00 LD 01 M 01 M M r -I r -I iM-I n W ^ N r -I LM _R N ro fB h 3 CL L 4% M (v M n = OO C C O � c L6 00 cn ke a U � -� � W M a4-1 N CV tZ Lrf O P- LD -;i O C c > > 'a (9 O C: -0 O -Cc: cv s_ O > v c 'a v on N U CN f V fB U E u C SV C N C ++ O +., c: C: — O f1 Qj � S C GJ N +- s N V)i CO 3 r- O0 —I E N U s N a-+ s 4-1 N O > � � tv O + oC o S O Q s_ 1 0 N s Ln E U U NQ) s - = C % �1 4—j O U vi 3 CL N L Q) 3 ul i bA N C V) ++ GJ N E GJ w C Q tB O tv C+J -v Q GJ U _ -0 o v O h N ul O V) d u c h 4- O. 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Situated on the Grand River, Kitchener is the perfect destination for recreation and leisure activities, with a plethora of choices, including many parks, trails and natural areas. Downtown Kitchener is the heart of the arts and culture scene for Waterloo Region. Festivals and special events provide the opportunity to experience a variety of activities and cultural events, in celebration of our great diversity. Introductory Section Message from the Mayor Kitchener City Council Organizational Structure Message from the City Treasurer Financial Section Consolidated Financial Statements Trust Funds Belmont Improvement Area Board of Management Kitchener Downtown Improvement Area Board of Management Kitchener Public Library The Centre in the Square Inc. Gasworks Enterprise Kitchener Generation Corporation Kitchener Power Corporation Statistical Section Financial and Statistical Review Contents 2 3 4 5 23 46 52 58 67 79 91 94 101 138 2016 KITC!ER FIN NCIJER4 1.4, 2 1 M. an'%&A - _ w 9 Message from the Mayor On behalf of city council, I am pleased to introduce the 2016 Annual Financial Report. Last year, City of Kitchener staff and council worked really hard on a number of initiatives that kept the priorities of our strategic plan — and therefore, our citizens — front and centre. We made difficult decisions in order to deliver a balanced budget. As we look ahead to crafting our next strategic plan, our commitment to accountability, transparency and community participation ensures our city is a place where every resident can make a good living, and live a meaningful life. Our city is an inspiring and exciting place to be. It is thriving. We work hard to make sure it thrives, aided in no small way by our bold approach to economic development — Make It Kitchener — and through our new Neighbourhood Strategy, where the city supports residents who are working together to take the lead in creating great places and connecting people. We actively advocate with other orders of government to make sure the momentum created by Make It Kitchener continues. One of the ways we did this was to set up a Waterloo Region Day in Ottawa last November, where local municipal leaders and other stakeholders in our community met with the prime minister, governor general, government ministers and staff to find ways to deliver on our priorities. The Government Finance Officers' Association (GFOA) awarded our accounting division the Canadian Award for Financial Reporting for their 2015 financial report. Open communication, two-way citizen engagement and transparency in governance are hallmarks of the ways our staff do business. Beyond any legislated requirements, we at the City of Kitchener are proud to produce reports like these each year, demonstrating our commitment to openness and transparency. This report provides a financial perspective on how we met the challenge of making big things happen in 2016. 1-35 Kitchener City Council MAYOR Berry Vrbanovic WARD 1 Councillor WARD 2 Councillor WARD 3 Councillor WARD 4 Councillor WARD 5 Councillor Scott Davey Dave Schnider John Gazzola Yvonne Fernandes Kelly Galloway -Sea lock i WARD 6 Councillor WARD 7 Councillor WARD 8 Councillor WARD 9 Councillor WARD 10 Councillor Paul Singh Bil loannidis Zyg Janecki Frank Etherington Sarah Marsh 2016 KITC JR FIN NCIJE6 3 f WARD 1 Councillor WARD 2 Councillor WARD 3 Councillor WARD 4 Councillor WARD 5 Councillor Scott Davey Dave Schnider John Gazzola Yvonne Fernandes Kelly Galloway -Sea lock i WARD 6 Councillor WARD 7 Councillor WARD 8 Councillor WARD 9 Councillor WARD 10 Councillor Paul Singh Bil loannidis Zyg Janecki Frank Etherington Sarah Marsh 2016 KITC JR FIN NCIJE6 3 OFFICE OF THE CHIEF ADMINISTRATIVE OFFICER Jeff Willmer: Chief Administrative Officer > Corporate Communications and Marketing > Corporate Customer Service > Economic Development > Office of the Mayor and Council > Project Integration and Coordination > Strategy and Business Planning FINANCE & CORPORATE SERVICES Dan Chapman: Deputy CAO Accounting > Financial Planning > Human Resources > Information Technology > Legal Services > Legislated Services > Revenue > SAP Business Solutions > Supply Services 4 INFRASTRUCTURE SERVICES Cynthia Fletcher, Justin Readman: Interim Executive Directors > Asset Management > Engineering > Facilities Management > Fleet > Operations - Roads and Traffic > Operations - Environmental Services > Transportation Services > Utilities COMMUNITY SERVICES Michael May: Deputy CAO > Building > Bylaw Enforcement > Community Programs and Services > Sport and Cemeteries > Fire > Planning -on 1-37 Message from the City Treasurer I am pleased to present the Annual Financial Report for the City of Kitchener for the year ended December 31, 2016. This report communicates the 2016 financial results for the City of Kitchener to council, residents and other interested parties. These results demonstrate Kitchener's continued sound financial management and fiscal prudence. FINANCIAL MANAGEMENT The financial statements and related information contained in this annual report are the responsibility of the management team of the City of Kitchener. Management has instituted a system of internal controls intended to safeguard assets and to provide accurate, timely and complete financial information for both internal decision-making and external reporting. The City has the following foundations in place to ensure appropriate financial controls and accountability are maintained, and to take a proactive approach to identify and address financial challenges. 1-38 FOCUS ON EFFECTIVE AND EFFICIENT GOVERNMENT IN STRATEGIC PLANNING At the beginning of each new four-year term of council, the City of Kitchener develops a strategic plan to advance the vision, mission and goals for Kitchener. The 2015-2018 strategic plan was developed in collaboration with extensive community input. The plan is designed to ensure that over time, the public funds the City is entrusted to manage on behalf of citizens are allocated to top public priorities, invested effectively and spent efficiently. Simply stated, the strategic plan serves as the community's roadmap to take us from where we are today to where we want to go in the coming years. 1-39 ,s •e r ay FOCUS ON EFFECTIVE AND EFFICIENT GOVERNMENT IN STRATEGIC PLANNING At the beginning of each new four-year term of council, the City of Kitchener develops a strategic plan to advance the vision, mission and goals for Kitchener. The 2015-2018 strategic plan was developed in collaboration with extensive community input. The plan is designed to ensure that over time, the public funds the City is entrusted to manage on behalf of citizens are allocated to top public priorities, invested effectively and spent efficiently. Simply stated, the strategic plan serves as the community's roadmap to take us from where we are today to where we want to go in the coming years. 1-39 The 2015-2018 plan includes five key strategic priorities: Open Government 7 We will be transparent and accountable to citizens, providing easy access to information, a great customer service experience, and meaningful opportunities to participate in the democratic process. Strong & Resilient We will work within a collaborative network of city -builders to create a Economy dynamic and prosperous Kitchener that is rich with employment opportunities and successful business ventures that can grow and thrive within the broader global economy. Safe & Thriving Neighbourhoods We will work with community partners to create complete, connected, safe and walkable neighbourhoods with a range of housing options. We will encourage people to come together, interact with one another and build relationships through inclusive programs, services, events and great public gathering places. Sustainable We will have well planned, managed and cost effective infrastructure Environment & systems that support long-term community needs for services, Infrastructure harnessing the benefits of nature through green infrastructure programs to create a healthy urban environment. Effective & Efficient We will deliver quality public services that meet the day-to-day needs of the City Services community in a reliable and affordable way, made possible through technology, innovation, employee engagement and a sound long-term financial plan. 1-40 BUSINESS PLANNING AND BUDGET PROCESS Business planning The purpose of the business planning process is to manage and support the strategic plan to guide the medium-term course of the corporation. This involves the development, communication and facilitation of a process that engages council, the corporate leadership team, management and staff in establishing operational priorities that: are driven by the objectives of the strategic plan, meet the expectations of the community, respond to emerging issues in a sustainable and affordable way. With this plan, the organization as a whole will be able to make progress on its strategic priorities, as well as maintain and continuously improve the city's core services. The business plan is updated annually and is comprised of a brief overview of each department. It contains a profile of the city's 44 core services delivered by those departments, service trends and future challenges, and a listing of project commitments by division identifying the primary link back to the strategic plan. The City implemented a comprehensive performance measurement framework to monitor and report on key results on an annual basis. In 2016, the City reported on 37 performance measures related to 10 different core services and has started collecting performance data for 13 additional core services that will be reported in 2017. F�AFI Budget process In addition to the business planning process city council approves the annual budget, made up of three parts: operating, capital and reserves. The City of Kitchener is charged with responsibly managing and investing the tax dollars and user fees its residents pay to meet the needs of the community and ensure all of the strategic priorities are addressed. City Council and staff are committed to striking a healthy balance between offering valued services and programs to residents, making strategic investments in community priorities, and keeping property taxes at a reasonable rate. To provide transparency in the budget process, budget information is posted on the city's website and budget meetings are held in a public forum. Citizens are able to provide their input through a number of channels, including by phone, letter, email, social media, or in person at a public delegation night. Management staff review their budgets regularly. Detailed variance reports are prepared and presented to council three times per year, at the end of April, August and December. These reports ensure departmental accountability for financial results and are a key tool to allow management to respond to financial pressures during the year. External audit As required by the Municipal Act, city council has appointed a public accounting firm, KPMG LLP, to express an independent audit opinion on management's consolidated financial statements. Their reports to the members of council, inhabitants and ratepayers of the Corporation of the City of Kitchener accompany the various financial statements in the financial section of this report. Audit committee The audited consolidated financial statements are presented to the audit committee for approval. The committee provides a focal point for communications between council, the external auditor, the internal auditor and management, and facilitates an impartial, objective and independent review of management practices through the internal and external audit functions. 1-42 FINANCIAL STATEMENT DISCUSSION AND ANALYSIS The City of Kitchener's consolidated financial statements have been prepared in accordance with reporting standards set by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. KPMG LLP have audited the financial statements and provided the accompanying auditors' report. The financial statements and auditors' report satisfy a legislated reporting requirement as set out in the Municipal Act of Ontario. The following financial statement discussion and analysis has been prepared by management and should be read in conjunction with the audited consolidated financial statements and financial and statistical review. There are four required financial statements: - statement of financial position; - statement of operations; - statement of change in net financial assets, and - statement of cash flow. The consolidated financial statements reflect the assets, liabilities, reserves, surpluses/deficits, revenue, and expenditures of city funds and governmental functions or entities. These functions and entities comprise a part of the combined city operations based upon control exercised by the city. The exception is the city's government business enterprises, which are accounted for on the modified equity basis of accounting. References to the "City' below include all activity for the consolidated entity. 1-43 CONSOLIDATED STATEMENT OF FINANCIAL POSITION The Consolidated Statement of Financial Position highlights four key figures that together describe the financial position of a government: 1) cash resources, 2) net financial asset position, 3) non-financial assets that are normally held for service provision such as tangible capital assets, and 4) accumulated surplus (deficit). The statement is used to evaluate the City's ability to meet its financial obligations and commitments. The City's net financial asset balance is $214 million (2015 - $194 million), an increase of $20 million. This balance is calculated as total financial assets less liabilities and represents the amount available to finance future operations. The increase year over year is due to the culmination of changes in the various balance sheet accounts which are described in the paragraphs below. Millions $250 $200 $1,5'0 $100 $214 $187 $194 $1�1 2012 2013 2014 2015 2016 Cash and cash equivalents The City's cash position is closely managed and remains adequate along with short-term investments to meet ongoing cash requirements. The cash position has increased to $39 million from $27 million in 2015 as certain large monthly payments were made after yearend in 2016 but prior to yearend in 2015. The Consolidated Statement of Cash Flows summarizes the sources and uses of cash in both 2016 and 2015. Trade and other accounts receivable The amount in Trade and other accounts receivable has decreased to $29 million from $34 million in 2015. This is due primarily to the settlement of a significant receivable that was outstanding in 2015. Investments It is the policy of the City of Kitchener to invest public funds in a manner that provides the highest investment return while protecting and preserving capital, maintaining liquidity to meet the daily cash flow demands and to conform to all legislation governing the investment of public funds. The balance in investments grew in 2016 to $158 million from $139 million in 2015. This increase relates primarily to funding received for specific capital projects that had not been fully spent. Investment in Kitchener Power Corporation & Kitchener Generation Corporation The City's investment in both Kitchener Power Corporation and its affiliates and Kitchener Generation Corporation is made up of the City's initial investment and its share of net income since acquisition less dividends received. See Notes 6 and 7 to the Consolidated Financial Statements for further details. Deferred revenue — obligatory reserve funds The increase in deferred revenue — obligatory reserve funds is due to funding received for specific capital projects that has not been spent in the year. Please see Note 9 to the financial statements which provides greater detail regarding activity in 2016 compared to 2015. Municipal Debt The City has three components that comprise the overall debt total. Debt has been issued to fund: • a portion of the tax -supported capital program • capital improvements to Enterprises, where the debt charges will be funded through user fees or external sources, such as the Parking Enterprise or the Kitchener Rangers • the Economic Development Investment Fund (EDIF) 1-45 Millions $125 $100 $75 M 0 2012 2013 2014 2015 2016 ■Tax ■Erderprise ❑EDIF The City's capital investment philosophy ensures that any increases in debt charges from one year to the next do not exceed assessment growth (excluding the impact of the debt associated with EDIF). As well, the overall contribution from the tax base through taxes and debt charges will not increase more than assessment growth plus inflation from one year to the next. This philosophy has ensured that the impact on the taxpayer does not exceed inflation and that the City must prioritize projects to fit the funding available. The City created EDIF in 2004 as a $110 million commitment to invest in catalyst projects to strengthen the local economy and stimulate urban development in Downtown Kitchener. The fund has provided dollars for major strategic investment projects including the University of Waterloo School of Pharmacy, Communitech Hub, and King Street streetscaping. EDIF investments have had a remarkable positive impact on the City, increasing the City's recognition as a location for innovation, entrepreneurship, and a sought-after urban lifestyle. Municipal debt has decreased to $85 million from $94 million in 2015. The change in debt is a result of new debt issuance of $2.4 million offset by repayment of $11.1 million of existing debt. Debt is expected to decrease for the next number of years as the ten year EDIF program continues to be paid down. 1-46 $111 $112 $103 $61 $63 $66 $55 85 $54 Al 2012 2013 2014 2015 2016 ■Tax ■Erderprise ❑EDIF The City's capital investment philosophy ensures that any increases in debt charges from one year to the next do not exceed assessment growth (excluding the impact of the debt associated with EDIF). As well, the overall contribution from the tax base through taxes and debt charges will not increase more than assessment growth plus inflation from one year to the next. This philosophy has ensured that the impact on the taxpayer does not exceed inflation and that the City must prioritize projects to fit the funding available. The City created EDIF in 2004 as a $110 million commitment to invest in catalyst projects to strengthen the local economy and stimulate urban development in Downtown Kitchener. The fund has provided dollars for major strategic investment projects including the University of Waterloo School of Pharmacy, Communitech Hub, and King Street streetscaping. EDIF investments have had a remarkable positive impact on the City, increasing the City's recognition as a location for innovation, entrepreneurship, and a sought-after urban lifestyle. Municipal debt has decreased to $85 million from $94 million in 2015. The change in debt is a result of new debt issuance of $2.4 million offset by repayment of $11.1 million of existing debt. Debt is expected to decrease for the next number of years as the ten year EDIF program continues to be paid down. 1-46 ■ Land s19(}M ($188M) — Assets under constructiv $19M ($51M) Tangible Capital Assets ■ Land Improvement s29M ($2811) Buildings 5185M (81891M) ■ Leasehold Improvements 52M (52M) ■ Machineryand Equipment $24M (S251M) ■ Computer Hardware & Software $26M (57M) ft Vehicles $14M (8141M) LinearAssets $576M (5529M) Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight-line basis over their estimated useful lives ranging from 2 to 100 years. During 2016, the City acquired $75 million in tangible capital assets (2015 - $91 million). Amortization of assets was $43 million (2015 - $40 million). Refer to Note 13 and Schedule A of the Consolidated Financial Statements for a detailed breakdown of tangible capital asset activity for 2016. The net book value of tangible capital assets at December 31, 2016 is $1.07 billion, up from $1.03 billion in 2015. Accumulated Surplus ■ Invested in Tangible Capital Assets $1,065M ($1,033M) ■ Other $1M ($-14M) ■ Equity in KPC $201M ($196M) ■ Equity in KGC $3M ($3M) ■ Employee Future Benefits $-42iM ($-38M) ■ Reserve Funds $55M ($51M) The City's accumulated surplus for fiscal 2016 is $1.28 billion (2015 - $1.23 billion). The accumulated surplus reflects the resources that have been built over time at the City and the balance includes items such as tangible capital assets, equity in Kitchener Power Corporation and Kitchener Generation Corporation and various reserves. 1-48 Millions $60 $50 $40 $30 $20 $10 $55 $51 $41 $35 $37 2012 2013 2014 2015 2016 Reserve Funds Reserve funds are included as part of accumulated surplus and these balances are disclosed in Note 14 to the financial statements. Reserve fund balances have increased during 2016 to $55 million (2015 - $51 million). Under the authority of the Municipal Act, the City has established reserve funds to set aside funds to be used for future purposes. Reserve funds are established to ensure future liabilities can be met, capital assets are properly maintained and sufficient financial flexibility exists to respond to economic cycles or unanticipated financial requirements. Council is responsible for exercising discretion with respect to the use of reserve funds, subject to the terms of Council policy, as well as statutory and legal requirements. The reserve policy contains guiding principles to ensure the reserves continue to support the financial goals and serve the highest priority needs of the City and its citizens. 1-49 CONSOLIDATED STATEMENT OF OPERATIONS The Consolidated Statement of Operations reports the revenue collected by the City, the cost of providing municipal services and the resulting annual surplus/deficit. This year, overall assessment growth was 1.29%. While this new assessment creates revenue for the City, there is also a cost to provide services to new development. In addition, cost increases in excess of inflation, public demand for new services and unreliable revenue sources all place significant pressure on the City budget. The tax rate increase for 2016 operations was 1.46%. 1-50 Millions $120 5100 S S0 $ 60 $40 — $20 5- Taxation Gasworks Water, Otheruser fees Grants Other sewer & storm water rr 2016 Budget o 2016 Actual 612015 Actual Revenue Revenue is received from the following sources: taxation; user fees from gasworks, water, sewer, storm water and other; grants and other. Kitchener is one of only two municipalities in Ontario that own and operate a natural gas utility. Gasworks revenue is $14M lower than 2015 due to lower supply rates charged to customers as planned and decreased usage due to milder temperatures experienced in 2016. It is less than budget due to the decreased usage. Water, sewer & storm water revenue is $10M greater than in 2015 due to the approved increases in the user fee rates charged for these services. Grant revenue is less than budget and prior year due to the deferral of unspent Federal Gas Tax funds. These funds will be spent in future years on eligible capital projects. The 'Other' category in the chart above includes contribution of tangible capital assets, investment income, penalties and interest on taxes, obligatory reserve funds revenue recognized, and share of net income of Kitchener Power Corporation and Kitchener Generation Corporation. Revenue is lower in this category for 2016 compared to 2015, due to significantly smaller amounts of contributed assets to the City. 1-51 IIians $70 $60 $50 $40 $30 $ 20 $10 General Protection Transport- Enviran- Recreation Other Gaswarks government services atian mental & cultural services services services 0 2016 Budget 0 2016 Actual V 2015 Actual Expenses The City of Kitchener is a diversified government institution and provides a wide range of services to its citizens including fire, roads, water, sewer, natural gas, libraries, and community services. Schedule B of the Consolidated Financial Statements breaks the expenses into major functional activities, consistent with provincially -legislated requirements. As is common with most Ontario municipalities, the City of Kitchener does not budget for amortization of tangible capital assets or gains and losses on disposal of assets. In order that the actual results may be compared to budget in a meaningful way, the Council -approved budgets have been adjusted to include amortization expense and other accounting adjustments mandated by the Public Sector Accounting Board to express the financial statements on an accrual basis. This provides greater clarity for all readers in assessing budget to actual variances. General government expenses are $7.6 million higher in 2016 than 2015. This is primarily due to a large gain on disposal of land that offset the 2015 expenses. The lower Gasworks expenses compared to 2015 and budget relates to lower costs associated with purchasing natural gas due to lower commodity prices and the milder temperatures experienced in 2016. 1-52 ■ Materials and services 592M (598M} �+ Debenture debt interest S4M (S4M) ■ Grants and other 84M (S3M) ■ Amortization 843M (546M) w Lass/(Gain) on sale of asset -81M (S -21M) Salaries, wages and employee benefits 8147M (5142M) CONSOLIDATED STATEMENT OF CHANGE IN NET FINANCIAL ASSETS The Statement of Change in Net Financial Assets explains the difference between a municipality's surplus or deficit for the reporting year and its change in net financial assets in the same reporting year. This statement provides for the reporting of the acquisition of tangible capital assets and other significant items that impact the difference between the annual surplus/deficit and the change in net financial assets. CONSOLIDATED STATEMENT OF CASH FLOW The statement of cash flows reports changes in cash and cash equivalents resulting from operations, capital, investing and financing activities and shows how the City financed its activities during the year and met its cash requirements. 1-53 CANADIAN AWARD FOR FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Canadian Award for Financial Reporting to the City of Kitchener for its annual financial report for the fiscal year ended December 31, 2015. The Canadian Award for Financial Reporting program was established to encourage municipal governments throughout Canada to publish high quality financial reports and to provide peer recognition and technical guidance for officials preparing these reports. In order to be awarded a Canadian Award for Financial Reporting, a government unit must publish an easily readable and efficiently organized annual financial report, whose contents conform to program standards. Such reports should go beyond the minimum requirements of generally accepted accounting principles and demonstrate an effort to clearly communicate the municipal government's financial picture, enhance an understanding of financial reporting by municipal governments, and address user needs. A Canadian Award for Financial Reporting is valid for a period of one year only. We believe our current report continues to conform to the Canadian Award for Financial Reporting program requirements. LOOKING AHEAD Looking ahead to 2017, the City will continue to balance community priorities with affordable property tax rates and user fees. The in-depth business planning and budgeting processes help the City to manage these healthy pressures and make the right decisions between strategic investments and affordable tax rates for our citizens. Continuing to focus on building an even stronger financial position through lower debt levels and healthier reserve balances will allow the City to be resilient and flexible in responding to growth and change, not just in 2017 but for the years to come. Dan Chapman, CPA, CA, MPA Deputy CAO, Finance and Corporate Services & City Treasurer June 26, 2017 1-54 Government Finance Officers Association Canadian Award for Financial Reporting Presented to City of Kitchener Ontario For its Annual Financial Report for the Year Ended December 31, 2415 Executive Director/CEO 1-55 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener We have audited the accompanying consolidated financial statements of the Corporation of the City of Kitchener, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of operations, change in net financial assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 1-56 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation of the City of Kitchener as at December 31, 2016, and its consolidated results of operations and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants June 26, 2017 Waterloo, Canada 1-57 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2016 2016 2015 (Restated Note 19) Financial assets Cash and cash equivalents $ 38,577,079 $ 26,731,623 Taxes receivable 20,598,155 19,616,794 Trade and other accounts receivable 28,851,877 34,138,663 Loans receivable (Note 4) 9,070,598 10,311,403 Inventory for resale 8,914,964 9,752,764 Investments (Note 5) 158,360,514 139,030,212 Investment in Kitchener Power Corporation and its affiliates (Note 6) 201,721,655 196,196,525 Investment in Kitchener Generation Corporation Note 7 3,251,490 3,483,759 ,mor469,346,332 439,261,743 Liabilities Accounts payable and accrued liabilities 75,794,240 72,312,929 Deferred revenue - obligatory reserve funds (Note 9) 38,400,547 26,265,531 Deferred revenue - other 14,005,912 14,377,402 Municipal debt (Note 10) 84,859,304 93,535,658 Employee future benefits Note 12 42,238,419 38,310,362 255,298,422 244,801,882 Net financial assets 214,047,910 194,459,861 Non-financial assets Tangible capital assets (Note 13) Inventory of supplies Prepaid expenses Accumulated surplus See accompanying notes 1,065,060,311 1,033,009,510 2,568,188 2,608,281 1,327,158 1,273,716 1,068,955,657 1,036,891,507 $ 1,283,003,567 $ 1,231,351,368 1-58 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Operations For the Year Ended December 31, 2016 2016 2016 2015 Budget (Restated Note 19) Revenue Taxation $ 116,095,329 $ 116,674,911 $ 113,610,395 User fees and charges 46,034,452 45,291,230 44,727,876 Gasworks 80,176,875 74,320,186 88,530,770 Water, sewer and storm water 55,049,109 55,173,590 45,064,711 Other 42,722,772 46,728,761 43,008,956 Grants 10,136,075 5,830,399 10,012,836 Contributions of tangible capital assets 4,404,34 4,404,349 12,459,464 Investment income 6,295,1 7,518,318 7,175,465 Penalties and interest on taxes 3,099,26 3,250,779 3,282,870 Development charge revenue recognized 1 0,169 10,388,476 11,044,439 Share of net income of Kitchener Power Corporation 43,684,723 51,652,199 62,485,339 and its affiliates (Note 6) 78 9,593,078 10,120,748 Share of net income of Kitchener Generation <3,77 $ 1,283,003,567 $ 1,231,351,368 Corporation (Note 7) - 24,480 8,529 Other t%mhh 5,899,048 2,874,721 Total revenue IL 191 339,806,375 347,193,904 Expenses General government 39,544,414 38,931,568 31,272,756 Protection services 46,034,452 45,291,230 44,727,876 Transportation services 35,771,346 35,100,204 34,566,319 Environmental services 30,632,889 30,012,049 29,194,029 Health services 2,158,806 2,257,225 2,244,858 Social and family service 2,489,661 2,722,141 2,752,404 Recreation and cultural serve 68,288,152 68,495,718 68,644,751 Planning and development 12,642,310 13,160,042 12,059,970 Gasworks 66,885,438 52,183,999 59,245,602 Total expenses 304,447,468 288,154,176 284,708,565 Annual surplus 43,684,723 51,652,199 62,485,339 Accumulated surplus, beginning of year 1,231,351,368 1,231,351,368 1,168,866,029 Accumulated surplus, end of year (Note 14) $ 1,275,036,091 $ 1,283,003,567 $ 1,231,351,368 See accompanying notes 1-59 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets For the Year Ended December 31, 2016 See accompanying notes 1-60 2016 2016 2015 Budget (Restated Note 19) Annual surplus $ 43,684,723 $ 51,652,199 $ 62,485,339 Amortization of tangible capital assets 42,657,709 42,657,709 40,273,778 Acquisition of tangible capital assets (73,293,540) (75,104,330) (91,158,022) Gain on disposals of tangible capital assets (1,812,732) (1,812,732) (5,364,831) Proceeds on disposal of tangible capital assets 2,208,552 2,208,552 8,182,407 Acquisition of supplies of inventories - (5,828,681) (5,961,928) Acquisition of prepaid expenses - (428,135) (972,985) Consumption of supplies inventory 4# 5,868,774 5,972,447 Use of prepaid expenses 374,693 995,043 Change in net financial assets 13,4 12 19,588,049 14,451,248 Net financial assets, beginning of year 1 59,861 194,459,861 180,008,613 Net financial assets, end of year $ 7,9073 $ 214,047,910 $ 194,459,861 See accompanying notes 1-60 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Cash Flow For the Year Ended December 31, 2016 Prepaid expenses 2016 2015 (Restated Note 19) Operating 12,135,016 11,515,328 Annual surplus $ 51,652,199 $ 62,485,339 Items not involving cash 3,481,309 (1,643,955) Amortization 42,657,709 40,273,778 Gain on disposal of tangible capital assets (1,812,732) (5,364,831) Share of net income of Kitchener Power Corporation and its affiliates (9,593,078) (10,120,748) Share of net income of Kitchener Generation Corporation (24,480) (8,529) Change in employee future benefits 3,928,057 3,459,068 Contributions of tangible capital assets (4,404,349) (12,459,464) Change in non-cash assets and liabilities Taxes receivable (981,361) 3,089,347 Trade and other accounts receivable 5,286,786 6,347,086 Loans receivables 1,240,805 1,716,447 Inventory of supplies 40,093 10,519 Inventory for resale 837,800 1,615,803 Prepaid expenses (53,442) 22,058 Deferred revenue - obligatory reserve funds 12,135,016 11,515,328 Deferred revenue - other (371,490) (372,663) Accounts payable and accrued liabilities 3,481,309 (1,643,955) Net change in cash from operating activities 104,018,842 100,564,583 Investing Dividends received from Kitchener Power Corporation 4,067,948 3,935,100 Debt and equity payments received from Kitchener Generation Corporation 256,749 240,798 Net acquisition of investments (19,330,302) (37,584,092) Net change in cash from investing activities (15,005,605) (33,408,194) Financing Municipal debt issued 2,381,000 1,166,000 Municipal debt repaid (11,057,352) (10,629,382) Net change in cash from financing activities (8,676,352) (9,463,382) Capital Acquisition of tangible capital assets (70,699,981) (78,698,558) Proceeds on disposal of tangible capital assets 2,208,552 8,182,407 Net change in cash from capital activities (68,491,429) (70,516,151) Net change in cash and cash equivalents 11,845,456 (12,823,144) Cash and cash equivalents, beginning of year 26,731,623 39,554,767 Cash and cash equivalents, end of year $ 38,577,079 $ 26,731,623 See accompanying notes 1-61 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 1. Summary of significant accounting policies These consolidated financial statements of The Corporation of the City of Kitchener (the "City") have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of consolidation Consolidated entities These consolidated financial statements reflect the assets, liabilities, reserves, surpluses/deficits, revenues, and expenditures of those City funds and governmental functions or entities which have been determined to comprise a part of the aggregate City operations based upon control exercised by the City except for the City's government businesses which are accounted for on the modified equity basis of accounting. The following boards, municipal enterprises and utilities have been included in the consolidated financial statements: • Kitchener Public Library • Kitchener Downtown Improvement Area Board of Management • Belmont Improvement Area Board of Management • The Centre in the Square Inc. • Waterworks Enterprise • Gasworks Enterprise • Sewer Surcharge Enterpris • Storm Water Managemen nter e • Building Enterprise • Golf Enterprise • Parking Enterprise All inter -organizational and int nd transactions and balances have been eliminated. ii. Government business en prises Kitchener Generation Corporation and Kitchener Power Corporation and its affiliates are not consolidated but are accounted for on the modified equity basis which reflects the City of Kitchener's investment in the enterprises and its share of net income since acquisition. Under the modified equity basis, the enterprises' accounting principles are not adjusted to conform to those of the City, and inter -organizational transactions and balances are not eliminated. iii. Accounting for region and school board transactions The taxation, other revenue, expenditures, assets and liabilities, with respect to the operations of the school boards and the Regional Municipality of Waterloo, are not reflected in these consolidated financial statements. iv. Trust funds Trust funds and their related operations administered by the City are not consolidated, but are reported separately on the "Trust Funds Statement of Continuity and Balance Sheet" (see Note 3). 1-62 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 1. Summary of significant accounting policies (continued) b. Basis of accounting i. Accrual basis of accounting The consolidated financial statements are prepared using the accrual basis of accounting. The accrual basis of accounting recognizes revenues in the period in which the transactions or events occurred that gave rise to the revenues. Expenses are recognized in the period the goods and services are acquired and a liability is incurred or transfers are due. ii. Cash and cash equivalents Cash and cash equivalents include cash on hand and highly liquid investments with original maturity of 90 days or less as at the end of the year. iii. Trade and other accounts receivable Trade and other accounts receivable are reported net of any allowance for doubtful accounts. iv. Loans receivable Loans receivable are reported net of any allowance for doubtful accounts. Interest income is recorded as it accrues. When the value of any loan receivable is identified as impaired, an allowance is set up to offset the carrying amount and any adjustments are included in materials and services expense in the period the impairment is recognized. v. Inventory for resale Inventory for resale is valued at the lower of cost or net realizable value on an average cost basis. vi. Investments Portfolio investments are carried at cost, net of accumulated amortization on premiums and discounts. Premiums and discounts are amortized on a straight line basis over the term to maturity. Interest income is recorded as it accrues. When the value of any portfolio investment is identified as impaired, the carrying amount is adjusted to the estimated realizable amount and any adjustments are included in investment income in the period the impairment is recognized. vii. Deferred revenue Government transfers, contributions and other amounts are received from third parties pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs, in the completion of specific work or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed or the tangible capital assets are acquired. viii. Employee future benefits The contributions to a multi-employer, defined benefit pension plan are expensed when contributions are due. The costs of post-retirement benefits are recognized when the event that obligates the City occurs. Costs include projected future income payments, health care continuation costs and fees paid to independent administrators of these plans, calculated on a present value basis. 1-63 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) viii. Employee future benefits (continued) The costs of post-retirement benefits are actuarially determined using the projected benefits method prorated on service and management's best estimate of retirement ages of employees, salary escalation, expected health care costs and plan investment performance. Liabilities are actuarially determined using discount rates that are consistent with the market rates of high quality debt instruments. Any gains or losses from changes in assumptions or experience are amortized over the average remaining service period for active employees. ix. Contaminated Sites Contaminated sites are defined as the result of contam sediment of a chemical, organic, or radioactive maters standard. This Standard relates to sites that are not ir�Fc an unexpected event resulted in contamination. on the statement x. Non-financial assets ing introduced in air, soil, water or &ism that exceeds an environment id sites in productive use where 20'1W, there was no liability recorded 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. T ange in non-financial assets during the year, together with the excess of revenues over expen Mdes the consolidated change in net financial assets for the year. a. Tangible capital a s Tangible capital assets ar rded at cost which includes all amounts that are directly attributable to acquisition, constructs lopment or betterment of the asset. The cost less residual value of the tangible capital asses a ized on a straight-line basis over their estimated useful lives as follows: Assets Amortization Period Land Land Improvements Buildings & building improvements Leasehold improvement Machinery & equipment Computer hardware Computer software Linear assets The original cost of land is not amortized 15 to 100 years 15 to 50 years Over the useful life of the improvement or the lease term, whichever is shorter 3to20years 5 years 2 to 10 years 6 to 100 years Vehicles 5 to 16 years b. Contributions of tangible capital assets Tangible capital assets received as contributions are recorded at their fair value at time of receipt and are recorded as revenue. 1-64 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 1 2 Summary of significant accounting policies (continued) b. Basis of accounting (continued) x. Non-financial assets (continued) c. Leases Leases are classified as capital or operating leases. Leases which transfer substantially all the risks and benefits incidental of ownership are accounted for as capital leases. All other leases are accounted for as operating leases and the related lease payments are charged to expenses as incurred. d. Inventory of supplies Inventories held for consumption are recorded at the Ir of cost and replacement cost. e. Works of art and cultural and historic assets 1% Works of art and cultural and historic ass are not recor d as assets in these financial statements. xi. Government transfers Government transfers are recognized in the fin rise to the transfer occur, providing the transfer: reasonable estimates of the amounts can be mu... . in the period in which the events giving any eligibility criteria have been met and Government transfers and developer contributions -in-kind related to capital acquisitions are required to be recognized as revenue in the consolidated financial statements in the period in which the tangible capital assets are acquired. xii. Use of estimates Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. Actual results could differ from these estimates. Operations of school boards and the Regional Municipality of Waterloo Further to Note 1 a) iii, the taxation, other revenues and requisitions for the school boards and the Regional Municipality of Waterloo are comprised of the following: School Region Total Boards Taxation and user charges $ 87,885,248 $ 232,833,484 $ 320,718,732 Share of payments in lieu of taxes 592 2,447,908 2,448,500 Share of linear properties 63,432 125,040 188,472 Amounts requisitioned $ 87,949,272 $ 235,406,432 $ 323,355,704 1-65 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 3. Trust funds Trust funds administered by the City have not been included in the Consolidated Statement of Financial Position, nor have their operations been included in the Consolidated Statement of Operations. The trust funds under administration are comprised of cemetery perpetual care and prepaid interment funds totalling $14,029,550 (2015 - $13,273,757). 4. Loans receivable Loans receivable are made up of the following: Major capital improvement loans receivable Loans receivable with forgiveness provisions 2016 2015 $ 8,126,151 $ 8,732,179 55,745 77,791 Minor capital improvement and other loans receivable 888,702 1,501,433 $ 9,070,598 $ 10,311,403 Major capital improvement loans are individual loans provision built into the loan. These loans have re ay years) . All major capital improvement loans ar 1.95% (2015 - 1.53% to 1.75%) . Forgivable loans are those initially offered with forgll category are unsecured and have repayment terms provisions range from 8% to 50% (2015 - 15% to 1 forgiveness. Interest rates on these loans range*& in excess of $500,000 when issued with no forgiveness nent terms ranging from 10 to 12 years (2015 - 10 to 12 u� red an*ar interest at rates ranging from 1.53% to ;s pro-�fsions built into the agreement. All loans in this to 10 years (2015 - 5 to 10 years) . The forgiveness . The balances recorded are net of the allowance for to 8% (2015 - 0% to 896). Minor capital improvement and other loans receivable comprise any loan receivable not fitting into the first two categories. There is a variety of terms related to these loans with payment terms ranging from 6 months to 25 years (2015 - 6 months to 25 years) . The majority of these loans are secured by the asset the loan was granted to finance, but others are unsecured. The interest rates on these loans range from 0.0% to 12.9% (2015-0.0%to 12.9%). 5. Investments Investments are made up of the following: 2016 2016 2015 2015 Cost Market Cost Market Value Value Guaranteed investment certificates $ 150,124,084 $ 151,937,572 $ 134,235,069 $ 137,151,429 Bonds and debentures 7,949,154 8,180,459 4,510,654 4,715,394 Common stock 287,276 468,924 284,489 421,867 $ 158,360,514 $ 160,586,955 $ 139,030,212 $ 142,288,690 1-66 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 6. Investment in Kitchener Power Corporation and its Affiliates Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power Corporation, a holding company, along with its wholly owned subsidiaries, including Kitchener -Wilmot Hydro Inc., was incorporated on July 1, 2000. On August 1, 2000, under by-laws passed by the City and the Township of Wilmot, the net assets of the former Hydro -Electric Commission of Kitchener -Wilmot were transferred to the new corporation. The City took back a 92.25% share in the common shares of Kitchener Power Corporation and a 92.25% share in long-term notes payable by the affiliates for the assets transferred. Certain surplus property assets and cash funds were excluded from the transfer and turned over to the City and the Township. The investment is comprised of the following Results of operations Revenues 277,930,000 250,525,000 Expenses (267,531,000) (239,554,000) Net income 10,399,000 10,971,000 City's share of net income - 92.25% $ 9,593,078 $ 10,120,748 1-67 2016 2015 Kitchener Power Corporation common shares $ 61,244,208 $ 61,244,208 Kitchener -Wilmot Hydro Inc. long-term notes receivable 70,997,576 70,997,576 Share of net income and prior period adjustments duet ang accounting policies since acquisition, net of dividends 69,479,871 63,954,741 $ 201,721,655 $ 196,196,525 The Kitchener -Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 4.88% (2015 - 4.8896). There are no repayment terms and there is no intent to redeem the notes or the shares. The following table provides condensed financial information with respect to Kitchener Power Corporation: 2016 2015 Current assets $ 75,614,000 $ 74,720,000 Non-current assets 225,417,000 208,638,000 Regulatory assets 4,487,000 4,923,000 Deferred taxes 141,000 280,000 Total assets 305,659,000 288,561,000 Current liabilities 39,059,000 38,904,000 Long-term debt 79,872,000 80,952,000 Regulatory liabilities 10,320,000 6,908,000 Other liabilities 34,378,000 25,756,000 Total liabilities 163,629,000 152,520,000 Net assets 142,030,000 136,041,000 Results of operations Revenues 277,930,000 250,525,000 Expenses (267,531,000) (239,554,000) Net income 10,399,000 10,971,000 City's share of net income - 92.25% $ 9,593,078 $ 10,120,748 1-67 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 7. Investment in Kitchener Generation Corporation Under the Business Corporation Act (Ontario), Kitchener Generation Corporation was incorporated on December 9, 2011. Effective January 1, 2012, the City transferred the solar roof asset constructed on the surface of the Kitchener Operations Facility to Kitchener Generation Corporation in exchange for 100% of its common shares and interest bearing debt. The investment in Kitchener Generation Corporation is comprised of the following: 2016 2015 Kitchener Generation Corporation common shares $ 336,837 $ 362,513 Kitchener Generation Corporation long-term notes receivable 3,031,534 3,262,609 Share of net income since acquisition, net of dividends 116,881 (141,363) $ 3.251.490 $ 3,483,759 The notes receivable are unsecured and bear intereNaividend a of 5.01%. To the extent that Kitchener Generation Corporation has positive annual cash flows payment, the cash will be returned to the City as repayment of the outstanding debt and retuThe proportion to which they contribute is 90% debt, 10% equity. j The following table provides condensed financial information witP►respect to Kitchener Generation Corporation: 2016 2015 Current assets $ 4,883 $ 6,035 Capital assets 3,251,524 3,483,776 Total assets 3,256,407 3,489,811 Current liabilities 4,916 6,051 Long-term debt 3,031,535 3,262,609 Total liabilities (3,036,451) 3,268,660 Net assets 219,956 221,151 Results of operations Revenues 433,797 416,888 Expenses (409,317) (408,359) Net income 24,480 8,529 City's share of net income - 100% $ 24,480 $ 8,529 1-68 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 8. Insurance pool Liabilities include an amount of $4,746,320 (2015 - $4,829,612) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool and administered by the City on behalf of the Pool's members. The members entered an agreement in 1998 to purchase property damage and public liability insurance on a group basis and share a retained level of risk. The members pay an actuarially determined annual levy to fund insurance, prefund expected losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductible and any losses above a predetermined total in any year. The City's share of Pool levies is 25.72 % (2015 - 24.99%) and its share of the Pool surplus as at May 31, 2016 was $1,066,337 (2015 - $1,079,627). The City's share of the Pool surplus has not been included in the Consolidated Statement of Financial Position. 9. Deferred revenue - obligatory reserve funds Obligatory deferred revenue is comprised of the following: 2016 2015 (Restated Note 19) Development charges $ 16,552,083 $ 10,405,624 Federal gas tax 5,749,009 3,404,675 Building 8,736,758 6,252,773 Recreational land 7,362,697 6,202,459 $ 38,400,547 $ 26,265,531 The continuity of obligatory deferred revenue is as follows: Development Federal gas Recreatonal charges tax Building land Total Balance, January 1, 2016 $ 10,405,624 $ 3,404,675 $ 6,252,773 $ 6,202,459 $ 26,265,531 Collections 16,534,936 6,662,949 2,404,533 1,076,914 26,679,332 Interest earned - 18,208 92,452 92,569 203,229 Contributions used (10,388,477) (4,336,823) (13,000) (9,245) (14,747,545) Balance, December 31, 2016 16,552,083 5,749,009 8,736,758 7,362,697 38,400,547 Balance, January 1, 2015 10,102,225 5,569,262 5,235,033 4,689,980 25,596,500 Collections 11,347,837 6,345,666 949,398 1,467,357 20,110,258 Interest earned - 13,651 77,343 68,143 159,137 Contributions used (11,044,438) (8,523,904) (9,001) (23,021) (19,600,364) Balance, December 31, 2015 $ 10,405,624 $ 3,404,675 $ 6,252,773 $ 6,202,459 $ 26,265,531 1-69 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 10. Municipal debt The City has assumed responsibility for the payment of principal and interest charges on certain long-term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $84,859,304 (2015 - $93,535,658). The annual principal repayments are: 2017 $ 11,409,256 2018 10,617,151 2019 10,479,884 2020 9,628,731 2021 8,717,187 2022 and thereafter 34,007,095 $ 84,859,304 The annual principal and interest payments required to service he long-term debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing. The long-term liabilities carry interest rates ranging from 1.15% to 5.75% (2015 — 1.05% to 5.7096). Interest charges for 2016 relating to municipal debt totalled $3,534,339 (2015 - $3,869,098). 11. Pension plan 1 The City makes contributions to the Ontario Municipal Employees Retirement System (OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Employee contributions are matchjj&0by the City. Contributions were required on account of current service in 2016 amounting to $10,095, (2015 - $10,093,752). 12. Employee future benefits The estimated liability for emploqWfuture benefits is comprised of the following: 2016 2015 Sick leave benefit plan $ 17,714,432 $ 16,331,940 Post-retirement benefits 16,387,087 14,873,522 Future payments to WSIB 8,136,900 7,104,900 $ 42,238,419 $ 38,310,362 1-70 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 12. Employee future benefits (continued) a. Sick leave benefit plan Under the sick leave benefit plan, unused sick leave can accumulate and certain employees may become entitled to cash payments when they leave the City's employment. The amount of benefits paid during the year were $1,273,695 (2015 - $1,467,875). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,287,741 (2015 - $5,259,154). Anticipated undiscounted payments to employees who are eligible to retire are: 2017 $ 2,168,437 2018 783,547 2019 1,000,314 2020 1,234,453 2021 1,145,034 2022 and thereafter 10,780,624 INC $ 17,112,409 The actuarial valuation of the future Iia 3.5096). The last actuarial valuation for this The expense for the current year wak$2, ve assumes a discount rate of 3.50% (2015 — leted at December 31, 2014. $2,509,722) and is comprised of the following items: 2016 2015 Current period benefit cost ® $ 1,091,144 $ 1,054,245 Amortization of plan improvements - (220,795) Amortization of actuarial losses 795,085 922,896 Sick leave benefit expense 1,886,229 1,756,346 Sick leave benefit interest expense 769,957 753,376 Total expenses related to sick leave benefits $ 2,656,186 $ 2,509,722 As at December 31, 2016, the unamortized actuarial losses were $4,417,435 (2015 — $5,212,520) and are amortized over 10 to 13 years (2015 — 12 to 13 years). 1-71 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 12. Employee future benefits (continued) b. Post-retirement benefits The City pays certain health, dental and life insurance benefits on behalf of its retired employees up to the age of 65 if they have at least ten years of service with the City. The amount of benefits paid during the year were $1,101,539 (2015 - $1,118,127). The City holds no reserve in accumulated surplus to meet this liability. The actuarial valuation of the future liability for post-retirement benefits assumes a discount rate of 3.75% (2015 — 3.7596) and inflation rates for benefit premiums of 4.0% to 7.4% (2015 — 4.0% to 7.496). The last actuarial valuation for this liability was completed at December 31, 2014,& The expense for the year was $2,615,104 (2015 - $2,695,148) and iiffmprised of the following items Current period benefit cost $ 1,093,831 $ 1,067,521 Amortization of actuarial losses 739,764 873,787 Post-retirement benefit expense 1,833,595 1,941,308 Post-retirement benefit interest expense 781,509 753,840 Total expenses related to post-retirement benefit $ 2,615,104 $ 2,695,148 As at December 31, 2016, the unamortized acts amortized over 11 to 13 years (2015 — 10 to 13 ye c. WSIB The Workplace Safety and I the City as a Schedule ?� $695,800). A reserve fund to provi - $1,314,025). were $4,683,875 (2015 — $5,423,639) and are urance Board (WSIB) administers injured worker benefits payments on behalf of iployer. The amount of benefits paid during the year were $668,600 (2015 - this The actuarial valuation of the last actuarial valuation for this is included in accumulated surplus, in the amount of $1,463,983 (2015 Pliability for WSIB assumes a discount rate of 3.25% (2015 — 3.5096). The ity was completed at December 31, 2014. The expense for the current year was $1,700,600 (2015 - $1,536,000) and is comprised of the following items: 2016 2015 Current period benefit cost $ 1,216,100 $ 1,147,600 Amortization of actuarial losses 186,700 127,200 WSIB benefit expense 1,402,800 1,274,800 WSIB benefit interest expense 297,800 261,200 Total expenses related to WSIB benefits $ 1,700,600 $ 1,536,000 As at December 31, 2016, the unamortized actuarial losses were $525,300 (2015 - $522,400) and are amortized over 13 years (2015 — 13 years). 1-72 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 13. Tangible capital assets The continuity schedule of tangible capital assets is presented in schedule A. Assets under construction having a value of $18,719,217 (2015 - $50,839,697) have not been amortized. Amortization of these assets will commence when the assets are put into service. Contributed tangible capital assets of $4,404,349 (2015 - $12,459,464) have been recognized at fair market value at the date of contribution. The contributed assets include land right of way as well as developer created linear assets such as water, sanitary, storm, and road assets. The write-down of tangible capital assets during the year was $nil (2015 — $nil). The amount of interest capitalized was $nil (2015 - $nil). 14. Accumulated surplus The accumulated surplus consists of individual fund surpluseieficits) and reserve funds as follows: 2016 2015 (Restated Note 19) Surplus: _'qW Invested in tangible capital assets $1,065,060,311 $1,033,009,510 Other 518,199 (13,843,612) Equity in Kitchener Power Corporation and its tes� 201,721,655 196,196,525 Equity in Kitchener Generation Corporation 3,251,490 3,483,759 Employee future benefits (unfunded) (42,238,419) (38,310,362) Total surplus 1,228,313,236 1,180,535,820 Reserve funds set aside for specific purposes by Council for: Capital 28,793,325 27,126,300 Stabilization 6,212,167 5,556,200 Program specific 10,422,750 9,651,464 Corporate 7,500,643 7,132,266 52.928.885 49.466.230 Reserve funds set aside for specific purposes by consolidated entities: Kitchener Public Library 381,336 381,264 Kitchener Downtown Business Improvement Area 50,000 50,000 The Centre in the Square Inc. 1,330,110 918,054 1,761,446 1,349,318 Total reserve funds 54,690,331 50,815,548 Accumulated surplus $1,283,003,567 $1,231,351,368 1-73 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 15. Contingent liabilities a. The City has extended a line of credit not to exceed $2,000,000 to Kitchener Housing Inc. Interest is charged on the outstanding balance at bank prime plus 1 % (rate as at December 31, 2016 was 3.70%). b. Legal actions have been undertaken against the City relating to a number of contract disputes and other matters. The outcome of these actions is not presently determinable. It is management's opinion that the City's insurance will adequately cover any potential liability arising from these contract disputes and other matters. Should any liability be determined and not covered by insurance it will be recognized in the period when it is determined. 16. Segmented information The City of Kitchener is a diversified municipal government institution that provides a wide range of services to its citizens, including fire, roads, water, sewer, storm sewer, gasworks, libraries, and community services. Segmented information has been prepared by major functional classification of activities provided, consistent with the Consolidated Statement of Operations and provincially legislated requirements. For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The accounting policies used in these segments are consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 1. See Schedule B 17. Budget figures The budget figures reflected in these consolidated statements are those approved by Council at a meeting on January 18, 2016. Budget figures have been translated to reflect Public Sector Accounting Board standards. 18. Comparative figures Certain of the prior year's parativ ures have been restated to conform to the current year's presentation. 19. Restatement of prior period s The City has made an adjustment to the accounting treatment of capital projects that have received obligatory reserve fund revenue. This change relates to deferring the recognition of development charge and other obligatory reserve fund revenue until the original funds are spent, instead of when the funds are transferred to the capital project. As a result, the Consolidated Statement of Financial Position as at December 31, 2015 is being restated as follows: • Deferred revenue — obligatory was increased by $21,977,853 of which $9,813,733 was reclassified from Deferred revenue — other (to present all obligatory reserve fund deferred revenue consistently); • Deferred revenue — other was decreased by $9,813,733 to present all obligatory reserve fund deferred revenue consistently on the Consolidated Statement of Financial Position; and • Accumulated surplus was decreased by $12,163,915. THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2016 19. Restatement of prior period figures (continued) The Consolidated Statement of Operations for the year ended December 31, 2015 is being restated as follows: Total revenue was decreased by $4,781,022 (Other user fees and charges increased by $17,685, Grant revenue decreased by $3,222, Investment income decreased by $2,830, Development charge revenue earned decreased by $4,283,157, and Other revenue decreased by $509,498); and Accumulated surplus, beginning of 2015 was decreased by $7,382,895. 1-75 w W Z W 2 U F- Y LL 0} F— L) W 2 F- LL0 Z 0 F - Q 0 0 U W F- ^�1 W N N I m }I w (� N U� W L 1-76 R wO ' f` 00 In f` 0 f` O y0 f` co w co w O N F w co w O M O 00 f� r 00 f� O O M O In �O� f0 O N f0 a O O 00 In r N U) r N w In co w f- N N co N Lo w co �3 �3 0) 0 a) N O f` r a) C a 7 ` f0 f� N ci m r - N N m f0 ci N M a)M co N 0) 00 � r r r 00 N Of0 to 00 00 O to p yU a V N N N f` 00 M N M 00 In O f0 r M 00 It NIn a 1p O M f0 N a w Cl) N In a) W In Cl) d Cl) *MLq N a L O0 N L 7 N LO � N r r N 0000 -e N f` N f.1 i J V3 00 N In 1n V3 y N O) LO0 ' N fC M O f0 f� f0 i r Or Cl) Cl) LO 1n LO Oro M a a O a a O 1n M O Cl) N r f- L NM_ LO 1n N O O m w w N N N w w Lo Lo V3 V3 Ow f0 a O J L f0 In O 1p 00 a� 00 a� 00 a� f0 In : co 1n a) 00 00 CN r N 1- V3 V3 N O' U f- N f` 00 00 a)fC fl �_ � a) fl fl f` f0 N f0 mM 00 O W N 00 0) h O In 00 00 N M I O w r N O f� 1n In 00 1n N r M 00 N M N N V3 V3 y w fl ' a) f0 00 f- 3 It t- f` N 00 W N 1n a) r- N r- W N f- N04 1n 04 t- E O R Cl1n a O f0 a) N 1n 1n W f0 N f0 00 M W N f- M M Cl) 613 613 `y a) f` W O N f0 O in M N It It 00 It N f0 W It W. 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U R ` Q R U O > YYa) O Eo L ww/E a°O ) C C .- 6 o. Na) H -0 CL o O a) E E m C L0�`m U O C L U U R O ow. N R 0 a N N a U U O O O 0) X0) p O X R 0) H 7 O N C C O O 0 R N C O O O 0) R -O C 3 O w w E 2 .2 4>1 rn E°�° �_ O H E p O O Q N C R N R O N R w R O E r 0) R d d > R N C > O C 0) R y R O R R 0) N > 0) 0) L L U OL- p Q N R p .0. X E p p O F O U) J O W J F 1-78 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener We have audited the accompanying financial statements of the Trust Funds of the Corporation of the City of Kitchener, which comprise the balance sheet as at December 31, 2016 and the statement of continuity for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1-79 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the balance sheet of the Trust Funds of the Corporation of the City of Kitchener as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants June 26, 2017 Waterloo, Canada 1-80 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Balance Sheet As at December 31, 2016 2016 2015 Assets Accounts receivable $ 257,387 $ 186,438 Interest 86,971 65,235 Investments (Note 2) Short-term 2,832,603 4,960,568 Long-term 10,852,589 8,063,115 14,029,550 13,275,356 Liabilities Accounts payable and accrued liabilities A- 1,600 Fund Balance 14,029,550 13,273,756 10 '4W $14,029,550 $13,275,356 See accompanying notes 1-81 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Statement of Continuity For the Year Ended December 31, 2016 2016 2015 Receipts Perpetual care $ 419,451 $ 359,833 Interest earned 416,093 400,469 Other 194,913 220,254 1,030,457 980,556 Expenditures Transfer to cemeteries operations 274,663 267,013 274,663 267,013 Net change in fund AOL 755,794 713,543 Balance, beginning of year 13,273,756 12,560,213 Balance, end of year OF $ ,14,029,550 $ 13,273,756 See accompanying notes 1-82 CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Notes to the Financial Statements For the Year Ended December 31, 2016 1. Summary of significant accounting policies The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles for local government as recommended by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The significant accounting policies are summarized below. a. Basis of Accounting Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes receipts as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or serviced the creation of a legal obligation to pay. 2. Investments The long-term investments of $10,852,589 (2015 - $8, market value of $11,508,917 (2015- $8,735,981). 3. Statement of Cash Flow A separate statement of cash flow is not presented, since activities are readily apparent from the other financial staterr Balance Sheet at cost, have a from operating, investing and financing 1-83 I Z LL ♦F— v / N� I.V F— w W Z W 2 U F - LL 0} F— U w L� �04 N LL 0>i M Z 0�'� 00 Q U o W 0 A L U cn L° a N C. a) t 0 -4 N O CO T h O M CO 4 M O le T M T M N T r M n T -e N 69 CO O -4 -4 co O r T CO -4 CO h le M M r e CO r 69 O O O M O O O M h 0 n � r 69 CO O -4 -4 co O r T CO -4 a CO r r M W O N W C r N le Cl) C n 04 M O �D e N co M r r r 4 N co M r r r e O M h W 0 �D C O N l Cl) u 69 M CO m COO O h W M M RLL CO N CO CGO 7 — N G) .� E Q L �O '0)CL N t 2 N a) aJ ~ a L a) a) O Ur Q -O a) N N Q' 3 O -p - a v, r - -4 -4 M C R L N CMO N T N CO cD r L O L M h N N m— T CO -4 n T M n — cD le V le N a) 0 69 M W O N W C r N le Cl) C n 04 M O �D e N co M r r r 4 N co M r r r e O M h W 0 �D C O N l Cl) u 1-84 EE a) LU U E E U E R a) a) a) L c O U c r o V a) U C) 21 U :3 R O 0 N .� E i �O '0)CL N t 2 N a) aJ ~ U a) _ . C Ur L a) a) O Ur Q -O a) N N Q' 3 O -p - a N E W N C O J N O O L O L -p a) a 3:m` in U LL LL W o Lu Lu 1-84 INDEPENDENT AUDITORS' REPORT To the Members of the Belmont Improvement Area Board of Management We have audited the accompanying financial statements of the Belmont Improvement Area Board of Management, which comprise the statement of financial position as at December 31, 2016, the statements of revenue and expenses and accumulated surplus and change in net financial assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1-85 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Belmont Improvement Area Board of Management as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants June 26, 2017 Waterloo, Canada 1-86 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position As at December 31, 2016 Financial assets Cash Accounts receivable 2016 2015 $ 40,781 $ 31,212 - 375 40,781 31,587 Financial liabilities Accounts payable and accrued liabilities 7,764 3,536 Net financial assets 33,017 28,051 Non-financial assets Tangible capital assets (Note 2) 2,823 611 Prepaid expenses 664 646 3,487 1,257 Net assets 36,504 29,308 Accumulated Surplus Accumulated net revenue 33,681 28,697 Invested in tangible capital assetstill 2,823 611 Total accumulated surplus $ 36,504 $ 29,308 See accompanying notes 1-87 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus For the Year Ended December 31, 2016 2016 2015 Revenue Assessments $ 40,671 $ 39,334 Other revenue 1,508 5,872 42.179 45.206 Expenses Streetscaping 2,320 3,925 Audit 1,808 1,808 Summer maintenance 5,267 5,040 Insurance 1,407 1,350 Winter maintenance 19,070 14,576 Advertising Miscellaneous Amortization 489 3,699 923 3,374 1,574 1,220 34,983 32,867 Net surplus (deficit) for year Accumulated surplus, beginning of year 7,196 29,308 12,339 16,969 Accumulated surplus, end of year _IL A $ 36,504 $ 29,308 See accompanying notes BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Change in Net Financial Assets For the Year Ended December 31, 2016 2016 2015 Net surplus for year $ 7,197 $ 12,339 Acquisition of tangible capital assets (3,135) - Amortization of tangible capital assets 923 1,220 Acquisition of prepaid expenses (19) (33) Change in net financial assets 4,966 13,526 Net financial assets, beginning of year 28,051 14,525 Net financial assets, end of year $ 33,017 $ 28,051 See accompanying notes r*1 1-89 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2016 1. Summary of significant accounting policies The financial statements of the Belmont Improvement Area Board of Management are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a) Tangible capital assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight-line basis over their estimated useful lives as follows: Assets Amortization Period Equipment 5 Years Annual amortization is charged in they f acquisition and in the year of disposal. Assets under construction are not amortized until the ass s av for productive use. Tangible capital assets received tributi re recorded at their fair value at time of receipt and are recorded as revenue. b) Accrual basis of accountin Revenue and expenses are reporte on the accrual basis of accounting. The accrual basis of accounting recognizes revenue as it becomes available and measurable; expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. 2. Tangible Capital Assets Opening balance Additions Amortization expense Accumulated Net Book Cost Amortization Value $ 6,102 $ (5,491) $ 611 3,135 - 3,135 - (923) 923 Disposals - - Ending balance $ 9,237 $ (6,414) $ 2,823 3. Statement of cash flow A separate statement of cash flow is not presented, since cash flow from operating, investing and financing activities are readily apparent from the other financial statements. 1-90 KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of Kitchener Downtown Improvement Area Board of Management, which comprise the statement of financial position as at December 31, 2016, the statements of revenue and expenses and accumulated surplus and changes in net financial assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP. 1-91 An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kitchener Downtown Improvement Area Board of Management as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. &AW'6� ZVO Chartered Professional Accountants, Licensed Public Accountants April 26, 2017 Waterloo, Canada 1-92 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position Year ended December 31, 2016, with comparative information for 2015 Financial Liabilities Accounts payable and accrued charges 111,033 74,738 Due to the City of Kitchener (note 4) 46,560 37,360 157,593 112,098 Net financial assets 68,356 143,546 Non -Financial Assets Tangible capital assets (note 5) 2016 2015 Financial Assets $ 145,908 $ 215,269 Cash $ 84,423 $ 2,863 Term deposits (note 2) 111,594 217,029 Accounts receivable 23,065 32,435 Prepaid expenses 6,867 3,317 Total accumulated surplus 225,949 255,644 Financial Liabilities Accounts payable and accrued charges 111,033 74,738 Due to the City of Kitchener (note 4) 46,560 37,360 157,593 112,098 Net financial assets 68,356 143,546 Non -Financial Assets Tangible capital assets (note 5) 77,552 71,723 Net assets $ 145,908 $ 215,269 Accumulated Surplus Reserve for rate stabilization $ 50,000 $ 50,000 Accumulated net revenue 18,356 93,546 Invested in tangible capital assets 77,552 71,723 Total accumulated surplus $ 145,908 $ 215,269 See'r ccompanying notes to financial statements. On befalf of the Board: Director Director 1-93 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year ended December 31, 2016, with comparative information for 2015 See accompanying notes to financial statements. 1-94 Budget Actual Actual 2016 2016 2015 Revenue: Assessments $ 1,081,831 $ 1,081,831 $ 950,000 Interest - 1,195 768 Special events income - - 5,500 Other income 72,000 93,733 29,562 1,153,831 1,176,759 985,830 Expenses: Promotions and advertising 463,000 437,375 372,961 Salaries, wages and benefits 450,906 476,065 372,701 Administration 84,425 115,547 94,401 Meetings and seminars 4,500 7,696 11,686 Safety and beautification 149,000 136,265 64,158 Member relations 15,000 7,439 13,900 Amortization 10,000 19,173 14,942 1,176,831 1,199,560 944,749 Net revenue (expense) before other items (23,000) (22,801) 41,081 Net assessment write-offs (note 4) 34,000 46,560 37,360 Net revenue (expense) (57,000) (69,361) 3,721 Accumulated surplus, beginning of year 215,269 215,269 211,548 Accumulated surplus, end of year $ 158,269 $ 145,908 $ 215,269 See accompanying notes to financial statements. 1-94 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Changes in Net Financial Assets Year ended December 31, 2016, with comparative information for 2015 Net revenue (expense) Acquisition of tangible capital assets Amortization of tangible capital assets 2016 2015 $ (69,361) $ 3,721 (25,002) (53,836) 19,173 14,942 Change in net financial assets (75,190) (35,173) Net financial assets, beginning of year 143,546 178,719 Net financial assets, end of year $ 68,356 $ 143,546 See accompanying notes to financial statements. 1-95 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Cash Flows Year ended December 31, 2016, with comparative information for 2015 2016 2015 Cash provided by (used in): Operating activities: Net revenue (expense) $ (69,361) $ 3,721 Item not involving cash: Amortization 19,173 14,942 Changes in non-cash assets and liabilities: Accounts receivable 9,370 10,476 Prepaid expenses (3,550) (330) Accounts payable and accrued liabilities 36,295 (18,910) Due to/from City of Kitchener 9,200 15,162 Cash from operating activities 1,127 25,061 Investing activities: Acquisition of tangible capital assets (25,002) (53,836) Redemption (purchase) of investments 105,435 (150,767) Cash used in investing activities 80,433 (204,603) Increase (decrease) in cash Cash, beginning of year 81,560 (179,542) 2,863 182,405 Cash, end of year $ 84,423 $ 2,863 See accompanying notes to financial statements. 1-96 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2016 1. Summary of significant accounting policies: Kitchener Downtown Improvement Area Board of Management (the "Board") is established for the main purpose of revitalizing the Central Business District of the City of Kitchener. It is designated as a Business Improvement Area (BIA) through the Ontario Municipal Act and a City of Kitchener by-law enacted in 1977. The financial statements of the Board are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments, as recommended by the Public Sector Accounting Board (PSAB) of the Canadian Professional Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment. (a) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land and landfill sites, are amortized on a straight-line basis over their estimated useful lives as follows: Asset Useful Life - Years Computers Furniture and fixtures Leasehold improvements Event equipment 4 years 7 years 7 years 10 years Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue. (b) Accrual basis of accounting: The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. 1-97 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, page 2 Year ended December 31, 2016 2. Term deposits: The term deposits consist of the following: Principal Maturity Rate $ 50,580 March 1, 2017 0.58% 10,578 March 18, 2017 0.50% 50,250 March 26, 2017 0.40% 3. Commitments: During 2016, the Board executed a new lease agreement. The lease expires on June 30, 2021. The Board is committed to the following minimum payments under the agreement: 2017 2018 2019 2020 2021 4. City of Kitchener: 35,538 35,538 35,538 35,538 35,538 The Board receives assessment income from the City of Kitchener for its operations. During the year, assessment write-offs were incurred for $46,560 (2015 - $37,360). The 2015 amount was paid to the City of Kitchener in 2016. 1-98 F— Z 5W G W 0 Q Z 5Q G LL 0 N� Ii Q 00 W Q W LQ r Z 5W G W 00 w /1 G Z 0-0 N 7 Z O UcoN— Q a) CD N N E— �/ O M —co N W- -0 Z W U N COLL 0 C U(2) o -a HN L CU Y z °' N NN O (0 � N V 00 O) C) N Z2-0 O T L(7 V I— j(O m 00 Y coO O G) NO (0 co CD LO .� 'O T (O (h LO 00 C) C) LO V N N (O m C7 O) E Z) O U E (» Q O ('7 00 C) LO N V LO O) N_ E O E Q CO .5 N 0 G) co 00 00 V 00 (N7 � LN > 'p) V LO O O N V Y O N -0 � Ef) 'O 'O) 1— O) C) (h N .0 (O C) C) (6 a= C T C7 L(7 L(7 EN_ O � N N 0-0 U E 6q Q m N O (0 'O LO O) O) I— (7 V (6 ('7 (O ('7 00 N (O V CO EA O O EA U i O U) O C O Q ~EA O LO O) 00 C !P 0 V O (O - (6 L C Q EA 0) a) � N 'E C C) (O V C) N O C7 LC) 0 -0 Ln v (A U) c aa) E -0 N N N p > �o E E U ii _ -i W 1-99 Jvlrmlfl� KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the members of the Kitchener Public Library Board We have audited the accompanying financial statements of the Kitchener Public Library, which comprise the statement of financial position as at December 31, 2016 and the statements of revenues, expenses and accumulated net revenue, cash flows and changes in net financial assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP. 1-100 KPMG Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kitchener Public Library as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. kl�awG ZcP Chartered Professional Accountants, Licensed Public Accountants April 19, 2017 Waterloo, Canada 1-101 KITCHENER PUBLIC LIBRARY Statement of Financial Position December 31, 2016, with comparative information for 2015 Assets Cash Accounts receivable Investments Due from Citv of Kitchener Financial Liabilities 2016 2015 $ 1,266,477 $ 1,199,220 72,757 125,787 50,000 - 168,419 266,734 1,557,653 1,591,741 Accounts payable and accrued liabilities 490,457 577,009 Deferred revenue (note 2) 685,860 633,468 1,176,317 1,210,477 Net financial assets Non -Financial Assets Tangible capital assets 381,336 381,264 6,363,535 6,349,696 $ 6,744,871 $ 6,730,960 Accumulated Surplus Invested in tangible capital assets 6,363,535 6,349,696 Reserves 381,336 381,264 $ 6,744,871 $ 6,730,960 See accompanying notes to financial statements. On behalf of the Board: Director Director 1-102 KITCHENER PUBLIC LIBRARY Statement of Operations and Changes in Net Assets Year ended December 31, 2016, with comparative figures for 2015 2016 Budget 2016 2015 Revenues 8,508,675 8,499,175 8,338,803 Grants: 1,215,906 1,488,435 1,491,980 Province of Ontario $ 286,755 $ 286,755 $ 286,755 City of Kitchener: 174,854 188,987 178,949 Operating 10,423,548 10,423,548 10,269,505 Capital and special (note 4) - 1,068,083 1,194,200 Special grants (note 5) - 128,250 671,141 Fines 210,000 227,772 216,404 Interest and miscellaneous 30,000 25,797 31,738 Partnerships 27,132 27,377 27,133 Room rental 25,000 33,896 23,407 Photocopy 30,000 35,949 30,869 special grants (note 5) 11,032,435 12,257,427 12,751,152 Expenses Personnel costs (Schedule 1) 8,508,675 8,499,175 8,338,803 Resource materials 1,215,906 1,488,435 1,491,980 Equipment (Schedule 2) 243,850 619,634 621,045 Administrative(Schedule 3) 174,854 188,987 178,949 Facilities costs (Schedule 4) 714,600 727,277 676,221 Processing/bindery 118,200 118,469 117,757 Programs and publicity (Schedule 5) 51,500 54,217 44,873 General library equipment 4,850 5,914 2,074 Expenditures related to capital and special (note 4) - 413,158 565,049 Required expenditures related to special grants (note 5) - 128,250 671,141 11,032,435 12,243,516 12,707,892 Net revenue - 13,911 43,260 Accumulated net revenue, beginning of year 6,730,960 6,687,700 Accumulated net revenue, end of year $ 6,744,871 $ 6,730,960 See accompanying notes to financial statements. 1-103 KITCHENER PUBLIC LIBRARY Statement of Cash Flows Year ended December 31, 2016, with comparative figures for 2015 2016 2015 Operating activities Net revenue $ 13,911 $ 43,260 Item not involving cash: Amortization 1,525,955 1,521,193 Change in non-cash operating working capital Accounts receivable 53,030 (12,083) Due from City of Kitchener 98,315 (102,135) Accounts payable and accrued liabilities (86,552) 24,974 Deferred revenue 52,392 (303,325) Cash flows from operating activities 1,657,051 1,171,884 Capital activities Acquisition of tangible capital assets (1,539,794) (1,564,448) Investing activities: Investments (50,000) - Increase in cash 67,257 (392,564) Cash, beginning of year 1,199,220 1,591,784 Cash, end of year $ 1,266,477 $ 1,199,220 1-104 KITCHENER PUBLIC LIBRARY Statement of Changes in Net Financial Assets Year ended December 31, 2016, with comparative figures for 2015 See accompanying notes to financial statements. 1-105 2016 2015 Excess of revenue over expenses $ 13,911 $ 43,260 Acquisition of tangible capital assets (1,539,794) (1,564,448) Amortization of tangible capital assets 1,525,955 1,521,193 Change in net financial assets 72 5 Net financial assets, beginning of year 381,264 381,259 Net financial assets, end of year $ 381,336 $ 381,264 See accompanying notes to financial statements. 1-105 KITCHENER PUBLIC LIBRARY Notes to Financial Statements Year ended December 31, 2016 Kitchener Public Library (the "Board") was incorporated as a not-for-profit organization, without share capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City") and is dependent on the City for a significant portion of its operating and capital funding. The Board contributes to the community as a resource and a gateway with sources of information and works of imagination. The financial statements of the Board are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments, as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. The following is a summary of the significant accounting policies followed in the preparation of these financial statements. 1. Significant accounting policies: (a) Accrual basis of accounting: The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. (b) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land are amortized on a straight-line basis over their estimated useful lives as follows: Furniture, fixtures and equipment Specialty and other equipment Computer Books and audio visual resources 2. Deferred revenue: 10 - 30 years 8 years 3 - 10 years 2 - 10 years Deferred revenue represents the annual Board's approval of the appropriation of unspent funds, and are subject to external restrictions as to how the funds are disbursed. These appropriations are included in required expenses and are subsequently charged directly to operations when spent. 1-106 (iiNN Q p M� W 7 � O J 0 mC.)CD � ^� N +N EN oM 00 00 W U) (O Z (u U WcoQ a) � V VLL 0 0 C � L r N (2) � ~ Y Z Co >- vi (iiNN ND ` p I -N > 0) O) 00 00 (O > 0) 00 O V Z 00 O) V (h N Z (3 00 (f) (1) (1) ) C O (6 r- r- V ) C O (6 V ONO r- N j, ((O O>1 jp .0 1 00 I� 00 (C N = c 0) 00 O (O EN O N O E N O N E N 0) m (0 O E N N N O (O V (f) U E N � U 0 N Q O V -T ER Q (u V-) N (fl O) O (f) N V (O O O (6 I- 0) (f) N m (0 (0 (f) O U) N 00 (O 00 U) O (O N (f) (O W cl O (fes N Q (CL Q ER ER ER O '1� O V U) N N O '� ((O N N N 0) (h 0) (O V (h Il- N O N (14 N 0 O) (`") U) N N V (D N V U) 0 E E Q Q ER ER ER C O (6 VOO r- N N NN0 0) N 00 O (O (!) O 0) I� V N C N C E N LO N N O (D V N I- O E E �C O) O O) O) I- (h I— =; N U E . a) (fl U E 0) Q N -0 Q N -0 V -T ER V-) U O 0) O O O O V U 0 0) m V O C � >, (O (O 00 N C (C (O 00 N O N 00 00 O mN O O r- V O m O O m m N 0000 O O) N N (h 0) N ER ER ER N (fl O) O (f) N V (O O O (6 U) I- N 0) 00 (f) (O N 00 m U) (0 O (0 (O (f) N O (f) cl (O (CL W Q O (fes N Q EFT EFT EFT ' ' m (1) r- O 00 (O O) N N r- (Y)O 00 N 1- Q O V (!) Q 69 69 QEY cu C (O (O 00 N C 00 0)cu (h U_ O O in (h O r- N U_ O O (O W LO O) O Oo O v O r- Oo 69 69 69 m m N N > (o m > (o m o U) O U) m N x E c Q m N E Q a`) a) E a a) M a`) a) E a N 7 7 Q 0) U N 7 Q 0) U tl) O O N O- E '7 a O t t O N N O O N E E a 0) t 0) m U LL O > m U LL O > 1-107 KITCHENER PUBLIC LIBRARY Notes to Financial Statements (continued) Year ended December 31, 2016 4. Capital and special grants: Each year, the City approves capital and special grants for the Board to purchase specific capital items. The capital grants approved for 2016 included $91,035 for general renovations, maintenance and upgrading of existing facilities, $273,891 for communication infrastructure and technology upgrades and $27,000 for KPL Accessibility Fund. The portion of these grants and previous year grants that are included in revenue in 2016, is $890,916 (2015 - $888,204). 5. Special grants: In 2016, the Board received various special non-recurring grants and donations totaling $182,235 (2015 - $376,342). The portion of these grants and previous year special grants that are included in revenue in 2016, is $128,250 (2015 - $671,141). The remainder is included in deferred revenue. 6. Pension plan: The Board makes contributions to the Ontario Municipal Employees Retirement Systems (OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rate of pay. During the year, the Board incurred expenses equal to $596,969 (2015 - $584,793) for current service on behalf of its staff. 1-108 KITCHENER PUBLIC LIBRARY Notes to Financial Statements (continued) Year ended December 31, 2016 7. Related party transactions: The Kitchener Public Library Foundation (the "Foundation") was an independent organization which raised funds to support the development of the Kitchener Public Library. During 2016, the Foundation donated $nil (2015 - $221,632) to the Board to fund various projects. In 2015 the Foundation ceased operations and all assets were transferred to the Kitchener Public Library. 1-109 KITCHENER PUBLIC LIBRARY Schedules of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses Year ended December 31, 2016, with comparative information for 2015 1-110 2016 2015 Schedule 1 - Personnel Personnel: Salaries $ 6,893,901 $ 6,778,894 Health benefits 450,786 427,731 Pension benefits 878,295 857,727 Employment insurance 151,142 146,774 WSIB 22,710 23,094 Sick leave reserve 66,000 66,000 Staff training 36,341 38,583 $ 8,499,175 $ 8,338,803 Schedule 2 - Equipment Equipment: Technology $ 198,069 $ 208,376 Equipment maintenance 16,117 26,142 Amortization 405,448 386,527 $ 619,634 $ 621,045 Schedule 3 - Administrative Administrative: Postage and delivery $ 7,294 $ 8,621 Insurance 18,466 18,204 Professional services 43,867 49,209 General business 49,096 40,188 Telephone 24,776 24,253 Stationery 45,488 38,474 $ 188,987 $ 178,949 Schedule 4 - Facilities Facilities: Facilities expenses $ 370,296 $ 362,857 Country Hills building 45,055 41,684 Main utilities 262,870 221,937 Forest Heights utilities 20,174 24,248 Pioneer Park building 25,111 22,313 Grand River Stanley Park building 3,771 3,182 $ 727,277 $ 676,221 1-110 KITCHENER PUBLIC LIBRARY Schedule 5 - Programs and Publicity Year ended December 31, 2016, with comparative information for 2015 Programs and publicity: Promotional Public programs 2016 2015 $ 27,687 $ 26,616 26,530 18,257 $ 54,217 $ 44,873 1911R, mil KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITORS' REPORT To the Directors of The Centre In The Square Inc. We have audited the accompanying financial statements of The Centre In The Square Inc., which comprise the statement of financial position as at December 31, 2016, the statements of operations, changes in net financial assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International" ), a Swiss entity. KPMG Canada provides services to KPMG LLP. 1-112 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of The Centre In The Square Inc. as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants March 22, 2017 Waterloo, Canada 1-113 THE CENTRE IN THE SQUARE INC. Statement of Financial Position December 31, 2016, with comparative information for 2015 Net financial assets 1,052,240 702,670 Non-financial assets Tangible capital assets (note 4) 2016 2015 Net Assets 51,494 48,558 Financial assets: 226,376 166,826 Cash $ 3,885,724 $ 3,625,529 Due (to) from The City of Kitchener (42,392) 122,910 Accounts receivable 163,118 57,582 Interest receivable 1,242 743 Costs to be recovered 162,429 160,419 Investments (note 2) 1,311,384 545,476 Total financial assets 5,481,505 4,512,659 Financial liabilities: 501,977 493,524 Accounts payable and accrued liabilities 1,287,942 1,031,677 Deferred revenue (note 3) 3,141,323 2,778,312 4,429,265 3,809,989 Net financial assets 1,052,240 702,670 Non-financial assets Tangible capital assets (note 4) 8,283,205 8,520,879 Inventories (note 5) 51,494 48,558 Prepaid expenses 226,376 166,826 8,561,075 8,736,263 Net assets $ 9,613,315 $ 9,438,933 Accumulated Surplus Operating fund activities (note 6) $ - $ - Reserves - Capital (notes 7 and 11) 765,447 424,530 Reserves - Performance Development (note 8) - - Reserves - Sustainability (notes 8 and 11) 62,686 - Reserves - Restricted (notes 9 and 11) 501,977 493,524 Invested in tangible capital assets 8,283,205 8,520,879 Accumulated surplus $ 9,613,315 $ 9,438,933 See accompanying notes to financial statements. On behalf of the Board: Director Director F�11IEIAI THE CENTRE IN THE SQUARE INC. Statement of Operations Year ended December 31, 2016, with comparative information for 2015 Revenues: Performances Rent - Kitchener -Waterloo Symphony Capital reserve fund surcharge (note 7) Grants from The City of Kitchener - Operating Grants from The City of Kitchener - Capital Grants from other governments - Operating Grants from other governments - Capital Donations Investment income Sponsorships and memberships Rent - Kitchener -Waterloo Art Gallery Lottery revenue Other Gain on investments (Loss) gain on sale of assets Portion of operating (gain) loss for The City of Kitchener Total revenue Budget 2016 Actual 2016 Actual 2015 $ 6,313,821 $ 6,613,377 $ 5,772,441 95,000 105,855 92,015 360,000 309,753 264,082 2,000,000 2,000,000 1,400, 000 1,949,420 219,294 510,810 42,300 21,150 - 2,088,461 121,365 - 3,621 15,619 5,731 65,960 52,660 48,652 97,444 104,117 121,255 95,520 95,520 93,648 - 6,942 - 132,878 134,282 145,625 - 3,565 40,230 - (32,975) 630 - (62,060) 119,098 13,244,425 9,708,464 8,614,217 Expenses: Direct: Performances 5,509,400 5,806,354 4,631,017 Operating: Administration 425,000 398,848 397,933 Marketing 100,000 174,263 128,814 Lottery expenses - 6,942 - Occupancy 879,000 706,418 631,623 Salaries and wages 2,450,932 2,905,787 3,008,331 Recoveries - performances (559,197) (1,004,214) (916,367) Amortization 700,000 500,302 687,986 Write down of tangible capital assets 612,500 30,062 30,976 Reserves expenditures (recoveries) (note 11) 15,000 9,320 9,197 Total expenses 10,132,635 9,534,082 8,609,510 Excess of revenue over expenses 3,111,790 174,382 4,707 Accumulated surplus, beginning of year 9,438,933 9,438,933 9,434,226 Accumulated surplus, end of year $ 12,550,723 $ 9,613,315 $ 9,438,933 See accompanying notes to financial statements. 1-115 THE CENTRE IN THE SQUARE INC. Statement of Change in Net Financial Assets Year ended December 31, 2016, with comparative information for 2015 See accompanying notes to financial statements 2016 2015 Excess of expenses over revenue $ 174,382 $ 4,707 Acquisition of tangible capital assets (292,690) (348,703) Amortization of tangible capital assets 500,302 687,986 Write-downs of tangible capital assets 30,062 30,976 412,056 374,966 Net acquisition use of supplies inventory (2,936) 1,103 Acquisition use of prepaid expenses (59,550) 41,454 (62,486) 42,557 Increase in net financial assets 349,570 417,523 Net financial assets, beginning of year 702,670 285,147 Net financial assets, end of year $ 1,052,240 $ 702,670 See accompanying notes to financial statements THE CENTRE IN THE SQUARE INC. Statement of Cash Flows Year ended December 31, 2016, with comparative information for 2015 2016 2015 Operating activities Excess of expenses over revenue $ 174,382 $ 4,707 Items not involving cash: Amortization 500,302 687,986 Write down of tangible capital assets 30,062 30,976 Change in non-cash operating working capital 614,047 1,150,648 Cash (used) provided by operating activities 1,318,793 1,874,317 Capital activities Cash used to acquire tangible capital assets (292,690) (348,703) Investing activities: Investments (765,908) (45,849) Increase in cash 260,195 1,479,765 Cash, beginning of year 3,625,529 2,145,764 Cash, end of year $ 3,885,724 $ 3,625,529 See accompanying notes to financial statements. 1-117 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements Year ended December 31, 2016 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 recommended by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment. (a) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land, are amortized on a straight- line basis over their estimated useful lives as follows: Asset Rate Building 9 - 100 years Equipment 4 - 50 years Computers 5 - 14 years Software 3 years Site 10 - 50 years (b) Accrual basis of accounting: The accrual basis of accounting, recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. (c) Inventories: Bar stock inventories are valued at the most recent replacement cost. Supplies inventories are valued at the lower of cost and net realizable value on a first -in, first -out basis. Net realizable value is defined as replacement cost. 1-118 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2016 1. Significant accounting policies (continued): (d) Investments: Investments are recorded at the lower of cost or market value on a fund portfolio basis. Interest income and all expenses are fully accrued. (e) Deferred revenue: Performance revenue is recognized when the show occurs. Deferred gift certificate revenue is an estimate based upon gift certificate sales during the period from July 1 to December 31 of the current year. 2. Investments: Investments consist of: Carrying value Market Carrying value Market 2016 2016 2015 2015 Shares $ 287,276 $ 468,924 $ 284,489 $ 421,866 Bonds 214,344 214,202 249,555 249,101 Cash 54,068 54,068 11,432 11,432 GIC 755,696 755,696 - - 4,784 4,276 $ 1,311,384 $ 1,492,890 $ 545,476 $ 682,399 3. Deferred revenue: Deferred revenue consists of the following: 2016 2015 Sponsorships $ 23,750 $ 50,149 Performances 1,985,048 1,642,400 Gift certificates 46,069 47,178 Membership 2,897 11,783 Other 1,078,775 1,022,526 Lottery 4,784 4,276 $ 3,141,323 $ 2,778,312 1-119 V Z N Zc N _ (2)_ E LU M N N c N ri U Zco U N W (o D C V LL W O N N L Co Z i -0 C O m 0-0N m T- > � N N E O O E Q O C O N_ O E Q O C O N D > C Yp) O O N 0-0 O m O O Q O 0 O C O 0 Q O) N C O E C 0-0 O (0 c 00 O O 1 (0 O 00 1— cl v- L0 v_ , v Ln 1— 00 Ln 0') co - I— (0 N 1— L0 V O V 00 00 LO 0) 0') (0 00 N co 0') EA 00 L0 EA O N 00 O 0') N LO N 00 V O N_ O 0 000 L0 I— L0 L0 C (0 O m L0 N O (0 (0 I� V C6 EA co (h N co V 00 LO i L0 co I— O c7 ('7 (0 O 0) ('7 0 I— 0 00 V L0 N (0 N � EA L0 O) 00 (0 00 L(7 (A c O L0 (0 m 00 0) O N O O O (7 co O 00 0') 0') 0')- L6 O L0 ('7 L0 V I— LO 00 LO 00 0') (0 00 N co 0') 00 L0 EA N 00 N V co L0 O) V co N I— V 0') LO (0 O C7 ('7 LO co (0 L(OD 0 co (h (A c O L0 co (0 0) 0) O N O I— V co co LO 00 V 00 co L0 N N O L0 I— I— 00 LO 0 O) V L0 N co (0 00 L0 EA O) N (7 N I� I— O 00 (A I— V O 1- (0 0') N 00 V O 0 (0 (0 (� N (A O ('7 V L0 0) LO O LO I— 0) V (0 ('7 0 M 00 V L0 L0 ('7 I— L0 O 0) V V N (0 00 LO EA Ln O N (7 00 N 00 EA 00 00 O N 00 EA N O cl O O LO EA N CD O (0 O N EA 0') 1- 00 O N Ln 00 EA LO 00 00 (0 N V 00 EA N O N V O CD- 1— co 1— EA V = 1-120 c O N N O) c Q o c- ` 5 5 E °? co W U co Cl) Ln O N (7 00 N 00 EA 00 00 O N 00 EA N O cl O O LO EA N CD O (0 O N EA 0') 1- 00 O N Ln 00 EA LO 00 00 (0 N V 00 EA N O N V O CD- 1— co 1— EA V = 1-120 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2016 5. Inventories: Inventories consist of the following: 2016 2015 Bar stock $ 50,610 $ 47,540 Supplies 884 1,018 $ 51,494 $ 48,558 6. Operating fund activities: Budget Actual Actual 2016 2016 2015 Revenues: Performances $ 6,313,821 $ 6,613,377 $ 5,772,441 Rent - Kitchener -Waterloo Symphony 95,000 105,855 92,015 Grants from City of Kitchener 2,000,000 2,000,000 1,400,000 Grants, other Governments and Foundations 42,300 21,150 - Donations - 13,403 3,520 Investment income 25,960 23,872 14,652 Sponsorships and memberships 97,444 104,117 121,255 Rent - Kitchener -Waterloo Art Gallery 95,520 95,520 93,648 Lottery revenue - 6,942 Other 132,878 134,282 145,625 Total revenue 8,802,923 9,118,518 7,643,156 Current fund expenditures: Direct: Performances 5,509,400 5,806,354 4,631,017 Operating: Administration 425,000 398,848 397,933 Marketing 100,000 174,263 128,814 Lottery expenses - 6,942 - Occupancy 879,000 706,418 631,624 Salaries and wages 2,450,932 2,905,787 3,008,331 Recoveries - performances (559,197) (1,004,214) (916,367) Total current fund expenditures 8,805,135 8,994,398 7,881,352 Operating fund net revenues before amortization (2,212) 124,120 (238,196) Transfer (to) from reserve funds 2,212 (62,060) 119,098 Transfer (to) from the City of Kitchener - (62,060) 119,098 Fund balances, end of year $ - $ - $ - 1-121 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2016 7. Capital Reserve Fund Surcharge: The Capital Reserve Fund represents the collection of a surcharge from sale of tickets. At the direction of the Board of Directors, expenditures from the Capital Reserve Fund are made to finance, in whole or in part, major capital items, replacements and major maintenance projects. In 2016, the Centre's Board of Directors approved transfers out of the Capital Reserve Fund for major capital asset projects ($292,690). 8. Performance Development and Sustainability Reserve Funds: At the direction of the Board of Directors, transfers are made to and from the Performance Development Reserve and Sustainability Funds, equal to one-half of the annual operating net revenue. In 2016, The Centre's Board of Directors approved the transfer of the funds to the Sustainability Fund of $62,686 from the operating fund. 9. Restricted Fund: The Restricted Fund was set up by the Board of Directors of The Centre in 2000 by a transfer of investments from the Sustainability Reserve Fund in accordance with the Restricted Fund Policy. Income from this fund is to be used for capital requirements, special projects and/or new programming initiatives that help further The Centre's mandate. 10. 2016 budget: The original budgeted figures were approved by the Board of Directors at their meeting in August 2015 and included certain expenses and offsetting recoveries on a net basis. For purposes of presentation in these financial statements, these items have been shown as gross amounts. 1-122 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2016 11. Schedule of reserve funds: Balance, end of year $ - $ 765,447 $ 62,686 $ 501,977 $ 1,330,110 1-123 Performance Total Development Capital Sustainability Restricted Funds Revenue: Donations and sundry $ - $ - $ - $ 2,216 $ 2,216 Grants from The City of Kitchener 2016 - 219,294 - - 219,294 Grants from the other governments - 121,365 - - 121,365 Ticket surcharge - 309,753 - - 309,753 Investment income 626 16,170 - 11,992 28,788 Gain on investments - - - 3,565 3,565 Loss on sale of assets - (32,975) - - (32,975) Total Revenue 626 633,607 - 17,773 652,006 Expenses: Professional fees - - - 9,320 9,320 Excess of revenue over expenses 626 633,607 - 8,453 642,686 Transfer to accumulated surplus - tangible capital assets - (292,690) - - (292,690) Other transfers (626) - 62,686 - 62,060 Balance, beginning of year - 424,530 - 493,524 918,054 Balance, end of year $ - $ 765,447 $ 62,686 $ 501,977 $ 1,330,110 1-123 INDEPENDENT AUDITORS' REPORT To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener We have audited the accompanying statement of operations and accumulated surplus of The Corporation of the City of Kitchener Gasworks Enterprise for the year ended December 31, 2016 ("the financial statement"). Management's Responsibility for the Financial Statement Management is responsible for the preparation and fair presentation of this financial statement in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement, and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statement. 1-124 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statement presents fairly, in all material respects the results of operations and accumulated surplus of The Corporation of the City of Kitchener Gasworks Enterprise for the year ended December 31, 2016 in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement. Chartered Professional Accountants, Licensed Public Accountants June 26, 2017 Waterloo, Canada 1-125 THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE Statement of Operations and Accumulated Surplus For the Year Ended December 31, 2016 Other programs 2016 2016 2015 (Customer Service, Rental Water Heaters & Financing) Budget 8,947,187 1,464,077 DELIVERY OPERATIONS 9,239,347 9,993,685 9,844,557 Gas delivery 6,701,775 6,505,337 6,717,169 Revenue $ 37,377,363 $ 42,881,159 $ 35,925,514 Expenses 17,400,328 19,514,058 17,155,633 Revenue 19,977,035 23,367,101 18,769,881 Other programs 8,895,360 7,255,795 6,248,325 (Customer Service, Rental Water Heaters & Financing) 8,947,187 8,947,187 1,464,077 Revenue 9,239,347 9,993,685 9,844,557 Expenses 6,701,775 6,505,337 6,717,169 Balance, end of year 2,537,572 3,488,349 3,127,388 Dispatch 7,882 (737) 17,105 Revenue 600,591 509,821 480,610 Expenses 00,591 509,821 480,610 Excess of revenue over expenses Accumulated Surplus - Delivery Balance, beginning of year Interest Revenue Transfer to Gas Investment Reserve Add excess of revenue over expenses ce, end of year SUPPLY OPERATIONS Gas supply Revenue Expenses 14,607 26,855,450 21,897,269 128;979,948 128,979,948 1 1,305 1,138 (13,795,704) (13,795,704) 22,514,607 26,855,450 120,526,554 81,325 (13,525,200) 21,897,269 23,790,527 19,830,224 35,710,151 29,457,209 20,571,543 28,248,619 Excess of revenue over expenses Is (5,666,682) (741,319) 7,461,532 Accumulated Surplus - Supply 8,895,360 7,255,795 6,248,325 Balance, beginning of year 8,947,187 8,947,187 1,464,077 Interest Revenue 92,541 132,588 21,578 Add excess of revenue over expenses (5,666,682) (741,319) 7,461,532 Balance, end of year 3,373,046 8,338,456 8,947,187 TRANSPORTATION OPERATIONS Gas transportation Revenue 8,895,360 7,255,795 6,248,325 Expenses 8,695,461 8,033,563 7,475,726 Excess of revenue over expenses 199,899 (777,768) (1,227,401) Accumulated Surplus -Transportation Balance, beginning of year (49,745) (49,745) 1,160,551 Interest Revenue 7,882 (737) 17,105 Add excess of revenue over expenses 199,899 (777,768) (1,227,401) Balance, end of year $ 158,036 $ (828,250) $ (49,745) 1-126 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 25, 2017. Management maintained a system of internal controls designed to provide reasonable assurance that the assets were safeguarded and that reliable information was available on a timely basis. The system included formal policies and procedures and an organizational structure that provided for the appropriate delegation of authority and segregation of responsibilities. KITCHENER GENERATION CORPORATION On behalf of management, )1Q'�W14�OA4^_ Dan Chapman Deputy CAO, Finance & Corporate Services and City Treasurer June 26, 2017 Kitchener, Canada 1-127 KITCHENER GENERATION CORPORATION Statement of Financial Position As at December 31, 2016 (Unaudited) 2016 2015 Financial assets Accounts receivable $ 4,883 $ 6,035 4.883 6.035 Liabilities Due to The Corporation of the City of Kitchener 4,916 6,051 Long-term debt (Note 3) 3,031,535 3,262,609 3,036,451 3,268,660 Net financial debt (3,031,568) (3,262,625) Non-financial assets Tangible capital assets (Note 4) 3,251,524 3,483,776 Total non-current assets 3,251,524 3,483,776 Accumulated surplus (Note 5) $ 219,956 $ 221,151 See accompanying notes 1-128 KITCHENER GENERATION CORPORATION Statement of Operations For the Year Ended December 31, 2016 (Unaudited) 2016 2016 2015 Budget Revenue Sale of electricity $ 415,000 $ 433,797 $ 416,888 Total revenue 415.000 433.797 416.888 Expenses Maintenance 19,000 13,608 1,793 Amortization 232,252 232,252 232,252 Total expenses 251,252 245,860 234,045 Surplus before interest and provision for payments - in -lieu of corporate income taxes 163,748 187,937 182,843 Interest expense 163,457 163,457 174,314 Surplus before provision for payments -in -lieu of corporate income taxes 291 24,480 8,529 Provision for payments -in -lieu of corporate income taxes Annual surplus $ 291 $ 24,480 $ 8,529 See accompanying notes 1-129 KITCHENER GENERATION CORPORATION Statement of Change in Net Financial Debt For the Year Ended December 31, 2016 (Unaudited) Annual surplus 2016 2015 $ 24,480 $ 8,529 Change in share capital (25,675) (24,079) Amortization of tangible capital assets 232,252 232,252 Change in net financial debt 231,057 216,702 Net financial debt, beginning of year (3,262,625) (3,479,327) Net financial debt, end of year $ (3,031,568) $ (3,262,625) See accompanying notes 1-130 KITCHENER GENERATION CORPORATION Statement of Cash Flow For the Year Ended December 31, 2016 (Unaudited) 2016 2015 Operating Annual surplus $ 24,480 $ 8,529 Items not involving cash Amortization 232,252 232,252 Change in non-cash assets and liabilities Trade and other accounts receivable 1,152 21,598 Accounts oavable and accrued liabilities 11.1351 (21.582) Net change in cash from operating activities 256,749 240,797 Financing Change in contributed capital (25,675) (24,079) Change in long-term debt (231,074) (216,718) Net change in cash from financing activities (256,749) (240,797) Net change in cash and cash equivalents - - Cash and cash equivalents, beginning of year - - Cash and cash equivalents, end of year $ - $ - See accompanying notes 1-131 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2016 (Unaudited) 1. Incorporation On December 9, 2011 Kitchener Generation Corporation (the Company) was incorporated under the Business Corporation Act (Ontario). Effective January 1, 2012, The Corporation of the City of Kitchener transferred the solar roof asset constructed on the surface of the Kitchener Operations Facility to the Company in exchange for 100% of the Company's common shares and interest bearing debt. 2. Summary of significant accounting policies a. Basis of accounting The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. b. Tangible capital assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital asset is amortized on a straight-line basis over its estimated useful life of nineteen years. Revenue recognition The Company records revenue from the sale of electricity on the basis of regular meter readings and estimates of energy generation since the last meter reading to the end of the year. d. Use of estimates Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. Actual results could differ from these estimates. 3. Long-term debt Effective January 1, 2012 the Company incurred an unsecured promissory note payable to The Corporation of the City of Kitchener. For shareholder debt, payments are made annually including interest and principal. Interest is calculated at the fixed rate of 5.01 % per annum. Interest paid in 2016 amounted to $163,457 (2015 - $174,314). 4. Tangible capital assets Opening balance Additions Amortization expense Accumulated Net Book Cost Amortization Value $ 4,412,784 $ (929,008) $ 3,483,776 (232,252) (232,252) Disposals - - - Ending balance $ 4,412,784 $ (1,161,260) $ 3,251,524 1-132 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2016 (Unaudited) 5. Accumulated surplus The accumulated surplus consists of the following: 2016 2015 Share capital - common shares (Note 6) $ 336,837 $ 362,513 Retained earnings (116,881) (141,362) $ 219,956 $ 221,151 6. Share capital Authorized Unlimited common shares Issued 1,000 common shares 1-133 KPM�� INDEPENDENT AUDITORS' REPORT To the Shareholders of Kitchener Power Corporation We have audited the accompanying consolidated financial statements of Kitchener Power Corporation, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1-134 Page 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Kitchener Power Corporation as at December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants March 24, 2017 Waterloo, Canada 1-135 KITCHENER POWER CORPORATION Consolidated Statement of Financial Position As at December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars) Assets Current assets Cash Accounts receivable Unbilled revenue Inventory Prepaid expenses Total current assets Non-current assets: Property, plant and equipment Intangible assets Deferred tax assets Investment in subsidiaries and associates Total non-current assets Total assets Note December 31, December 31, 2016 2015 4 $ 20,448 $ 20,634 5 23,764 23,738 27,589 25,789 6 2,864 3,545 949 1,014 75,614 74,720 7 222,159 205,412 8 1,174 864 9 2,015 2,362 69 - 225,417 208,638 301,031 283,358 Regulatory deferral account debit balances 10 4,487 4,923 Deferred taxes associated with regulatory accounts 141 280 Total assets and regulatory assets $ 305,659 $ 288,561 1-136 KITCHENER POWER CORPORATION Consolidated Statement of Financial Position Year ended December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars) Non-current liabilities: Long-term debt Note December 31, 2016 December 31, 2015 Liabilities and Shareholders' Equity Long-term customer deposits 13 5,571 Current liabilities: Deferred revenue 23,772 15,538 Accounts payable and accrued liabilities $ 28,608 $ 28,576 Income taxes payable 145,612 195 366 Current portion of long-term debt 11 1,080 1,036 Current portion customer deposits 13 8,592 8,549 Current portion of deferred revenue 584 377 Total current liabilities 39,059 38,904 Non-current liabilities: Long-term debt 11 79,872 80,952 Employee future benefits 12 5,035 4,900 Long-term customer deposits 13 5,571 5,318 Deferred revenue 23,772 15,538 Total non-current liabilities 114,250 106,708 Total liabilities 153,309 145,612 Shareholders' equity: Share capital - common shares 14 66,389 66,389 Retained earnings 75,641 69,652 Total shareholders' equity 142,030 136,041 Total liabilities and shareholders' equity 295,339 281,653 Regulatory deferral account credit balances 10 10,320 6,908 Total a uity, liabilitiesand shareholders' equity $ 305,659 $ 288,561 The accompanying notes are an integral part of these financial statements. n behalf of the Board: Director :=-�', � �� Director 1-137 KITCHENER POWER CORPORATION Consolidated Statement of Comprehensive Income Year ended December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars) Note 2016 2015 Energy sales $ 232,647 $ 210,496 Cost of energy sold 228,633 205,624 4,014 4,872 Other operating revenue Distribution sales 40,600 36,295 Other income 15 2,006 1,912 Net operating revenue 46,620 43,079 Expenses: Operations and maintenance Customer services Other 9,174 8,980 4,415 3,717 Administration 4,133 4,051 Amortization 8,721 7,417 26,443 24,165 Energy conservation - IESO program revenue (2,443) (1,618) Energy conservation - IESO program expense 2,443 1,441 Net energy conservation - IESO programs - (177) Finance income 16 (234) (204) Finance charges 16 4,145 4,189 Net finance costs 3,911 3,985 Income before income taxes 16,266 15,106 Income tax expense 9 1,999 1,848 Income for the year before movements in regulatory deferral account balances 14,267 13,258 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 10 (3,868) (2,287) Total comprehensive income for the year $ 10,399 $ 10,971 The accompanying notes are an integral part of these financial statements. 1-138 KITCHENER POWER CORPORATION Consolidated Statement of Changes in Equity Year ended December 31, 2016, with comparative information for 2015 (In thousands of Canadian dollars) Net income Other comprehensive income Dividends 10,399 4.41 10,399 (4.410 Balance at December 31, 2016 $ 66,389 $ (245) $ 75,886 $ 142,030 The accompanying notes are an integral part of these financial statements. 1-139 Accumulated Share capital other Retained Total comprehensive earnings income (loss) Balance at January 1, 2015 $ 66,389 $ (245) $ 63,192 $ 129,336 Net income 10,971 10,971 Other comprehensive income - - - Dividends (4,266) (4,266) Balance at December 31, 2015 66,389 (245) 69,897 136,041 Net income Other comprehensive income Dividends 10,399 4.41 10,399 (4.410 Balance at December 31, 2016 $ 66,389 $ (245) $ 75,886 $ 142,030 The accompanying notes are an integral part of these financial statements. 1-139 KITCHENER POWER CORPORATION Consolidated Statement of Cash Flows Year ended December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars) 2016 2015 Cash flows from operating activities: Total comprehensive income for the year $ 10,399 $ 10,971 Adjustments to reconcile net income to cash provided by (used in) operations: Amortization 9,411 8,087 Amortization of deferred revenue (480) (271) Gain on disposal of property, plant and equipment (54) (43) Income tax expense 1,999 1,848 Income taxes paid (2,209) (1,495) Increase decrease in employee future benefits 135 136 19,201 19,233 Change in non-cash operating working capital: Accounts receivable (26) (1,730) Unbilled revenue (1,800) 3,393 Inventory 681 (408) Prepaid expenses 66 71 Accounts payable and accrued liabilities 32 (329) Other current liabilities 294 1,650 Change in regulatory assets 436 2,002 Change in regulatory liabilities 3,935 (316) Net cash from operating activities 22,819 23,566 Cash flows from investing activities: Proceeds on disposals of property, plant and equipment 72 66 Purchase of property, plant and equipment (25,776) (20,875) Purchase of intangible assets (710) (544) Net cash from investing activities (26,414) (21,353) Cash flows from financing activities: Net change in customer deposits 253 1,245 Investments in subsidiaries and associates (69) Dividends paid out (4,410) (4,266) Change in contributed capital received 8,715 9,428 Repayment of long-term debt (1,080) (1,036) Net cash from financing activities 3,409 5,371 Change in cash and cash equivalents (186) 7,584 Cash and cash equivalents, beginning of year 20,634 13,050 Cash and cash equivalents, end of year $ 20,448 $ 20,634 The accompanying notes are an integral part of these financial statements. 1-140 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 1. Reporting entity: Kitchener Power Corporation (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 GRE Corp., a generation and renewable energy solutions company. It is located in the City of Kitchener. The address of the Corporation's registered office is 301 Victoria Street South, Kitchener, Ontario, Canada. The financial statements are for the Corporation as at and for the year ended December 31, 2016 2. Basis of presentation: (a) Statement of compliance: The Corporation's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial statements were approved by the Board of Directors on March 24, 2017. (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 22. (c) Functional and presentation currency: These financial statements are presented in Canadian dollars, which is the Corporation's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. F�1EIAFI KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (d) Use of estimates and judgments: The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in these financial statements is included in the following notes: i) Note 7 — Property, plant and equipment ii) Note 9 — Deferred tax assets iii) Note 12 — Employee future benefits iv) Note 17 — Commitments and contingencies (e) Rate regulation The Corporation is regulated by the Ontario Energy Board ("OEB"), under the authority granted by the Ontario Energy Board Act, 1998. Among other things, the OEB has the power and responsibility to approve or set rates forthe transmission and distribution of electricity, providing continued rate protection for electricity consumers in Ontario, and ensuring that transmission and distribution companies fulfill obligations to connect and service customers. The OEB may also prescribe license requirements and conditions of service to local distribution companies ("LDCs"), such as the Corporation, which may include, among other things, record keeping, regulatory accounting principles, separation of accounts for distinct businesses, and filing and process requirements for rate setting purposes. The Corporation is required to bill customers for the debt retirement charge set by the province. The Corporation may file to recover uncollected debt retirement charges from Ontario Electricity Financial Corporation ("OEFC") once each year Rate setting: Distribution revenue and electricity rates The OEB sets electricity prices for low-volume consumers twice each year based on an estimate of how much it will cost to supply the province with electricity for the next year. All low volume customers without a contract with an energy retailer are charged the OEB mandated rate for electricity. If a customer (regardless of volume) has a retailer agreement, then retailer rates are charged instead. All remaining consumers pay the market price for electricity. The 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. 1-142 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (e) Rate regulation (continued): Forthe 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 last filed a COS application on June 21, 2013 for rates effective January 1, 2015 to December 31, 2015. The GDP IPI -FDD for 2016 is 2.1 %, the Corporation's productivity factor is 0% and the stretch factor is 0.15%, resulting in a net adjustment of 1.95% to the previous year's rates. (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 years presented in these financial statements unless otherwise indicated. 1-143 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (a) Financial instruments: All financial assets are classified as loans and receivables and all financial liabilities are classified as other liabilities. These financial instruments are recognized initially at fair value plus any directly attributable transaction costs. Subsequently, they are measured at amortized cost using the effective interest method less any impairment for the financial assets as described in note 3(f). The Corporation does not enter 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: Electricity sales: Electricity sales are recognized as the electricity is delivered to customers and includes the amounts billed to customers for electricity, including the cost of electricity supplied, distribution, and any other regulatory charges. Electricity revenue is recorded on the basis of regular meter readings and estimated customer usage since the last meter reading date to the end of the year. The related cost of power is recorded on the basis of power used. For customer billings related to electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties, the Corporation has determined that it is acting as a principal for these electricity charges and, therefore, has presented electricity revenue on a gross basis. Customer billings for debt retirement charges are recorded on a net basis as the Corporation is acting as an agent for this revenue stream. F�IEIALI KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (b) Revenue recognition (continued): Revenue from contracts with customers: Certain customers and developers are required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. Cash contributions are initially 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 economic useful life of the constructed or contributed asset, which represents the period of ongoing service to the customer. Rendering of services: Revenue earned from the provision of services is recognized as the service is rendered. Government grants Incentive payments to which the Corporation is entitled from the Independent Electricity System Operator ("IESO") are recognized as revenue in the period when they are determined by the IESO and the amount is communicated to the Corporation. (c) Inventory: Inventory, comprising material and supplies, the majority of which is consumed by the Corporation in the provision of its services, is valued at the lower of cost and net realizable value, with cost being determined on a weighted average cost basis, and includes expenditures incurred in acquiring the material and supplies and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. (d) Property, plant and equipment: Items of property, plant and equipment ("PP&E") used in rate -regulated activities and acquired prior to January 1, 2015 are measured at deemed cost established on the transition date, less accumulated depreciation. All other items of PP&E are measured at cost, or, where the item is transferred from customers, its fair value, less accumulated depreciation. Consistent with IFRS 1, the Corporation elected to use the carrying amount as previously determined under Canadian GAAP as the deemed cost at January 1, 2015, the transition date to IFRS. 1-145 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (d) Property, plant and equipment (continued): 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 20-60 years Transformer station equipment 16-60 years Distribution station equipment 16-60 years Distribution system 26-60 years Meters 16-26 years SCADA equipment 16 years Other capital assets 3-10 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. (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. 1-146 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (e) Intangible assets (continued): (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 3-5 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 financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its current carrying amount (using prevailing interest rates), and the present value of the estimated future cash flows discounted at the original effective interest rate. Interest on the impaired assets continues to be recognized through the unwinding of the discount. All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss. F�IEIAfJ KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (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. 1-148 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (h) Regulatory deferral accounts: Regulatory deferral account debit balances represent costs incurred in excess of amounts billed to the customer at OEB approved rates. These amounts have been accumulated and deferred in anticipation of their future recovery in electricity distribution rates. Regulatory deferral account credit balances represent amounts billed to the customer at OEB approved rates in excess of costs incurred by the Corporation. Regulatory deferral account debit balances are recognized if it is probable that future billings in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate -making purposes. The offsetting amount is recognized in profit and loss. The debit balance is reduced by the amount of customer billings as electricity is delivered to the customer and the customer is billed at rates approved by the OEB for the recovery of the capitalized costs. Regulatory deferral account credit balances are recognized if it is probable that future billings in an amount at least equal to the credit balance will be reduced as a result of rate -making activities. The offsetting amount is recognized in profit and loss. The credit balance is reduced by the amounts returned to customers as electricity is delivered to the customer at rates approved by the OEB for the return of the regulatory account credit balance. The probability of recovery or repayment of the regulatory account balances are assessed annually based upon the likelihood that the OEB will approve the change in rates to recover or repay the balance. Any resulting impairment loss is recognized in profit and loss in the year incurred. Regulatory deferral accounts attract interest at OEB prescribed rates. The rates from January to December 2016 were 1.1 % (2015 — 1.1 %). 1-149 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (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 forthe 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. 1-150 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): Q) 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: Leases, where the terms cause the Corporation to assume substantially all the risks and rewards of ownership, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. All other leases are classified as operating leases and the leased assets are not recognized on the Corporation's balance sheet. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. (1) Finance income and finance costs: Finance income is recognized as it accrues in profit or loss, using the effective interest method. Finance income comprises interest earned on cash and cash equivalents and on regulatory assets. Finance charges comprise interest expense on borrowings, finance lease obligations, regulatory liabilities and unwinding of the discount on provisions and impairment losses on financial assets. Finance costs are recognized as an expense unless they are capitalized as part of the cost of qualifying assets. 1-151 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (m) Income taxes: The income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case, it is recognized in equity. The Corporation is currently exempt from taxes under the Income Tax Act (Canada) and the Ontario Corporations Tax Act (collectively the "Tax Acts"). Under the Electricity Act, 1998, the Corporation makes payments in lieu of corporate taxes to the Ontario Electricity Financial Corporation ("OEFC"). These payments are calculated in accordance with the rules for computing taxable income and taxable capital and other relevant amounts contained in the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the Electricity Act, 1998, and related regulations. Prior to October 1, 2001, the Corporation was not subject to income or capital taxes. Payments in lieu of taxes are referred to as income taxes. Current tax is the tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the balance sheet method. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, as well as for tax losses available to be carried forward to future years that are likely to be realized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates, at the reporting date, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. 1-152 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 4. Cash: December 31, December 31, 2016 2015 Cash $ 20,448 $ 20,634 5. Accounts receivable: December 31, December 31, 2016 2015 Customer and other trade receivables 23,695 23,465 Trade receivables from related parties $ 69 $ 273 $ 23,764 $ 23,738 6. Inventory: The amount of inventories consumed by the Corporation and recognized as an expense during 2016 was $275 (2015 - $389). 1-153 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 7. Property, plant and equipment: (a) Cost or deemed cost: Land and Distribution Otherfixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2016 $ 23,880 $ 181,825 $ 6,280 $ 4,672 $ 216,657 Additions 222 22,176 1,150 2,228 25,776 Transfers - - - - - Disposals/Retirements 1,496 499 703 - 2,698 Balance at December 31, 2016 $ 22,606 $ 203,502 $ 6,727 $ 6,900 $ 239,735 Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2015 $ 24,056 $ 163,069 $ 6,375 $ 5,172 $ 198,672 Additions 88 20,368 1,042 (499) 20,999 Transfers (124) - - - (124) Disposals/Retirements 139 1,613 1,136 - 2,888 Balance at December 31, 2015 $ 23,881 $ 181,824 $ 6,281 $ 4,673 $ 216,659 (b) Accumulated depreciation: Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2016 $ 1,501 $ 9,223 $ 522 $ - $ 11,246 Depreciation charge 824 6,978 1,209 - 9,011 Disposals/Retirements 1,496 500 685 - 2,681 Balance at December 31, 2016 $ 829 $ 15,701 $ 1,046 $ - $ 17,576 Land and Distribution Other fixed Construction - buildings equipment assets in -progress Total Balance at January 1, 2015 $ 821 $ 5,157 $ 425 $ - $ 6,403 Depreciation charge 820 5,674 1,215 - 7,709 Disposals/Retirements 139 1,608 1,118 - 2,865 Balance at December 31, 2015 $ 1,502 $ 9,223 $ 522 $ - $ 11,247 1-154 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued) : (c) Carrying amounts: Land and Distribution Otherfixed Construction - buildings equipment assets in -progress Total At December 31, 2016 $ 21,777 $ 187,800 $ 5,681 $ 6,901 $ 222,159 At December 31, 2015 $ 22,379 $ 172,601 $ 5,759 $ 4,673 $ 205,412 (d) Leased plant and machinery: The Corporation does not have leases for equipment. (e) Security: At December 31, 2016, the Corporation had zero properties subject to a general security agreement. (f) Borrowing costs: During the year, borrowing costs of nil (2015 - nil) were capitalized as part of the cost of property, plant and equipment. 1-155 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): Computer Software Land Rights (g) Allocation of depreciation and amortization: Total Balance at January 1, 2016 Additions $ 1,680 710 The depreciation of property, plant and equipment and the amortization of intangible assets has been allocated to profit or loss as follows: $ 2,390 $ 8 Operations 2,398 Balance at January 1, 2015 Additions $ 1,136 544 and Customer 8 - Energy 1,144 544 Balance at December 31, 2015 maintenance services Administration conservation 8 $ expense expense expense expense Other Total December 31, 2016: Depreciation of property, plant and equipment $ 677 $ 6 $ - $ 7 $ 8,311 $ 9,001 Amortization of intangible assets - - - - 410 410 $ 677 $ 6 $ - $ 7 $ 8,721 $ 9,411 December 31, 2015: Depreciation of property, plant and equipment $ 658 $ 4 $ 1 $ 7 $ 7,039 $ 7,709 Amortization of intangible assets - - - - 378 378 $ 658 $ 4 $ 1 $ 7 $ 7,417 $ 8,087 8. Intangible assets: (a) Cost or deemed cost: 1-156 Computer Software Land Rights Total Balance at January 1, 2016 Additions $ 1,680 710 $ 8 - $ 1,688 710 Balance at December 31, 2016 $ 2,390 $ 8 $ 2,398 Balance at January 1, 2015 Additions $ 1,136 544 $ 8 - $ 1,144 544 Balance at December 31, 2015 $ 1,680 $ 8 $ 1,688 1-156 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 8. Intangible assets(continued): (b) Accumulated amortization: Computer Land Software Rights Total Balance at January 1, 2016 $ 819 $ 5 $ 824 Additions in 2016 398 2 400 Balance at December 31, 2016 $ 1,217 $ 7 $ 1,224 Balance at January 1, 2015 $ 444 $ 3 $ 447 Additions in 2015 374 3 377 Balance at December 31, 2015 $ 818 $ 6 $ 824 (c) Carrying amounts: Computer Land Software Rights Total At December 31, 2016 $ 1,173 $ 1 $ 1,174 At December 31, 2015 $ 862 $ 2 $ 864 9. Income tax expense: Current tax expense: December 31, December 31, 2016 2015 Current period $ 2,029 $ 1,848 Adjustment for prior periods 9 46 $ 2,038 $ 1,894 1-157 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 9. Income tax expense (continued): Deferred tax expense: December 31, December 31, 2016 2015 Original & reversal of temporary differences $ (36) $ (36) Recognition of previously unrecognized tax losses (3) (10) $ (39) $ (46) Reconciliation of effective tax rate: Significant components of the Corporation's deferred tax balances are as follows: Deferred tax assets (liabilities): Plant and equipment Non -vested sick leave Employee benefits Intangible assets Loss carry -forward Deferred revenue - contributed capital 2016 2015 $ (6,063) $ 2016 2015 Profit for the period $ 10,399 $ 10,971 Total income tax expense 1,999 1,848 Profit excluding income tax 12,398 12,819 Income tax using the Corporation's statutory tax rate of 26.5% 3,286 3,397 Temporary differences not benefitted (1,296) (1,595) Under (over) provided in prior periods 9 46 $ 1,999 $ 1,848 Significant components of the Corporation's deferred tax balances are as follows: Deferred tax assets (liabilities): Plant and equipment Non -vested sick leave Employee benefits Intangible assets Loss carry -forward Deferred revenue - contributed capital 2016 2015 $ (6,063) $ (3,441) 167 167 1,334 1,298 7 7 116 114 6,454 4,217.00 $ 2,015 $ 2,362 1-158 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 10. Regulatory deferral account balance: The following is a reconciliation of the carrying amount for each class of regulatory deferral account balances: Remaining recovery/ Balances reversal arising in Recovery/ period 2015 the period Reversal Other 2016 (vears) Regulatory deferral account debit balances Group 1 deferred accounts $ 3,505 $ (143) $ - $ - $ 3,362 Note 1 Regulatory asset reco\tery account 686 (474) 613 - 825 Note 1 Smart meter reco\tery 13 - - - 13 3 LRAM 575 - (575) - - 1 Other 144 143 - - 287 3 Total amount related to regulatory deferral account debit balances $ 4,923 $ (474) $ 38 $ - $ 4,487 Remaining recovery/ Balances reversal arising in Recovery/ period 2015 the period Reversal Other 2016 (years) Regulatory deferral account credit balances Group 1 deferred accounts $ 5,533 $ 3,909 $ - $ - $ 9,442 Note 1 Deferred tax liability 1,056 (523) - - 533 Note 2 Other 319 26 - - 345 3 Total amount related to regulatory deferral account credit balances $ 6,908 $ 3,412 $ - $ - $ 10,320 2016 2015 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances $ (3,847) $ 870 Less movement related to the balance sheet Deferred income tax (523) (2,556) Deferred re\tenue 502 (575) Amounts moved to property, plant, equipment - (26) Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement $ (3,868) $ (2,287) 1-159 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 10. Regulatory deferral account balance (continued): Note 1 The Corporation expects to be approved for the collection of these amounts in its 2017 filing for 2018 rates. Note 2 The Corporation has not sought approval for the disposition of this amount as these amounts as changes in underlying assumptions may reduce the amounts recorded in the account. The Corporation may see refunds in the future. 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 4.88% per annum. Interest is payable in quarterly installments, in arrears, on March 31St, June 30th, September 30th and December 31 st Effective February 1, 2010, the Corporation incurred a ten year senior unsecured debenture payable to Ontario Infrastructure Projects Corporation. An initial payable of $7,000 was received February 1, 2010, followed by a second payment of $3 million on May 17, 2010. The debenture has an interest rate of 4.28%, and interest is payable in equal semi-annual installments, in arrears, on May 17th and November 17th each year commencing November 17, 2010 until maturity. 2016 2015 Senior unsecured debentures: City of Kitchener $ 70,998 $ 70,998 Township of Wilmot 5,965 5,965 Ontario Infrastructure Projects Corporation 3,989 5,025 Senior unsecured debentures, net proceeds $ 80,952 $ 81,988 Less: current portion of long-term debt $ (1,080) $ (1,036) Total long-term debt $ 79,872 $ 80,952 12. Employee future benefits: The Corporation pays certain medical and life insurance benefits on behalf of some of its retired employees. The Corporation recognizes these post-retirement costs in the period in which employees' services were rendered. The accrued benefit liability at December 31, 2016 of $5,035 was based on an actuarial valuation completed in 2015 using a discount rate of 3.95%. 1-160 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (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: 1-161 2016 2015 Defined benefit obligation, beginning of year $ 4,900 $ 4,764 Current service cost 156 150 Interest cost 188 184 Benefits paid during the year (209) (198) Actuarial loss recognized in other - - comprehensive income Accrued benefit liability, end of year $ 5,035 $ 4,900 Components of net benefit expense recognized are as follows: December 31, December 31, 2016 2015 Current service cost $ 157 $ 150 Interest cost 188 184 Net benefit expense recognized $ 345 $ 334 Actuarial losses recognized in other comprehensive income: 2016 2015 Cumulative amount at January 1 - - Recognized during the year - - Cumulative amount at December 31 - Net benefit expense recognized $ - $ - 1-161 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The significant actuarial assumptions used in the valuation are as follows (weighted average): 2016 2015 Accrued benefit obligation: Discount rate 4.5% 4.5% Benefit cost for the year: Age Withdrawal rate 18-29 2.75% 2.75% 30-34 2.25% 2.25% 35-39 2.0% 2.0% 40-54 1.5% 1.5% Assumed health care cost trend rates Initial health care cost trend rate Health 6.4% 6.7% Dental 4.6% 4.6% 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 $ 185 $ 23 1 % decrease in health care trend rate $ (162) $ (20) Historical Information Amounts for the current and previous year, for the entire plan, are as follows: 2016 2015 Defined benefit obligation $ 5,035 $ 4,900 Experience adjustments $ - $ - 1-162 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (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 2016, and thereafter (2015 - 2%). Discount (interest) rate - the discount rate used to determine the present value of future liabilities and the expense for the year ended December 31, 2016, was 4.5% (2015 — 4.5%). Salary levels - future general salary and wage levels were assumed to increase at 3.3% (2015 - 3.3%) per annum. Medical costs - medical costs were assumed to increase 6.7% for 2015, 6.4% for 2016, and 6.1 % thereafter. Dental costs - dental costs were assumed to increase 4.6% for 2015, 4.6% for 2016, and 4.6% thereafter. 13. Customer and IESO deposits: Customer deposits represent cash deposits from electricity distribution customers and retailers, as well as construction deposits. Deposits from electricity distribution customers are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Corporation in accordance with policies set out by the OEB or upon termination of their electricity distribution service. Construction deposits represent cash prepayments for the estimated cost of capital projects recoverable from customers and developers. Upon completion of the capital project, these deposits are transferred to deferred revenue. The Corporation delivers conservation and demand management programs for its customers on behalf of the IESO. Prepayments received from the IESO have been recorded and will be transferred to revenue as programs are delivered and the revenue is earned. The deposits comprise 2016 2015 Customer deposits $ 7,546 $ 6,986 Construction deposits 5,459 5,723 IESO deposit for energy conservation programs 1,158 1,158 Total customer deposits $ 14,163 $ 13,867 1-163 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 14. Share capital: 2016 2015 Authorized: Unlimited number of common shares Issued: 20,000 common shares $ 66,389 $ 66,389 Dividends: The holders of the common shares are entitled to receive dividends as declared from time to time. The Corporation paid aggregate dividends in the year on common shares of $4,410 (2015 - $4,266). 15. Other operating revenue: Other income comprises: 2016 2015 Specific service charges $ 1,223 $ 1,247 Deferred revenue 480 271 Scrap sales 170 243 Net gain on disposal of capital assets 54 43 Retailer services 39 44 Sundry 40 64 Total other income $ 2,006 $ 1,912 16. Finance income and expense: [note excludes finance income and expense on regulatory accounts] 1-164 2016 2015 Interest income on bank deposits $ 234 $ 204 Finance income 234 204 Interest expense on long-term debt 3,957 3,999 Interest expense on BMO Letter of Credit 123 120 Interest expense on deposits 58 67 Other 7 3 4,145 4,189 Net finance costs recognized in profit or loss $ 3,911 $ 3,985 1-164 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 17. Commitments and contingencies: Contractual Obligations There are no contractual obligations. General From time to time, the Corporation is involved in various litigation matters arising in the ordinary course of its business. The Corporation has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Corporation's financial position, results of operations or its ability to carry on any of its business activities. General Liability Insurance: The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange (MEARIE). MEARIE is a pooling of public liability insurance risks of many of the LDCs in Ontario. All members of the pool are subjected to assessment for losses experienced by the pool for the years in which they were members, on a pro -rata basis based on the total of their respective service revenues. As at December 31, 2016, no assessments have been made. 18. Guarantees: Guarantees are not applicable to the Corporation. 19. Pension agreement: The Corporation provides a pension plan for its employees through OMERS. The plan is a multi- employer, contributory defined pension plan with equal contributions by the employer and its employees. In 2016, the Corporation made employer contributions of $1,500 to OMERS (2015 - $1,500). The Corporation's net benefit expense has been allocated as follows: a. $400 (2015 - $400) capitalized as part of property, plant and equipment; b. $1,100 (2015- $1,100) charged to net income. The Corporation estimates that a contribution of $1,500 to OMERS will be made during the next fiscal year 20. Employee benefits: Salaries, wages and benefits CPP and EI remittances Contributions to OMERS 2016 2015 $ 18,356 $ 17,257 724 675 1,528 1,493 Expenses related to defined benefit plans 345 334 $ 20,953 $ 19,759 1-165 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 21. Related party transactions: (a) Parent and ultimate controlling party: The Corporation is wholly-owned by the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot. The City and the Township produce financial statements that are available for public use. (b) Entity with significant influence: The Corporation of the City of Kitchener exercises significant influence over the Corporation through its 92.25% ownership interest in the Corporation. (c) Key management personnel: The key management personnel of the Corporation have been defined as members of its board of directors and executive management team members, and is summarized below. 2016 2015 Directors' fees $ 104 $ 101 Salaries and other short-term benefits 981 1,088 Post employment benefits 18 20 Other long-term benefits (OMERS) 79 91 $ 1,182 $ 1,300 (d) Transactions with parent: During the year the Corporation paid management and business development services to its parent in the amount of nil (2015 - 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 2016, the Corporation had the following significant transactions with its ultimate parent, a government entity: • construction • streetlight maintenance services 1-166 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 22. Financial instruments and risk management: Fair value disclosure Cash and cash equivalents are measured at fair value. The carrying values of receivables, and accounts payable and accrued charges approximate fair value because of the short maturity of these instruments. The carrying value of the customer deposits approximates fair value because the amounts are payable on demand. The fair value of the long term debt (senior unsecured debentures issued by the shareholders (City of Kitchener and Township of Wilmot) approximates the carrying value due to the short term nature of the loan. The fair value of the long term debt (senior unsecured debentures) issued by Ontario Infrastructure Projects Corporation at December 31, 2016 is $4,000 (2015 - $5,000). The fair value is calculated based on the present value of future principal and interest cash flows, discounted at the current rate of interest at the reporting date. The interest rate used to calculate fair value at December 31, 2016 was 4.28% (2015 — 4.28%). Financial risks The Corporation understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Corporation's exposure to a variety of risks such as credit risk, interest rate risk, and liquidity risk, as well as related mitigation strategies are discussed below. (a) Credit risk: Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Corporation, such as accounts receivable, expose it to credit risk. The Corporation earns its revenue from a broad base of customers located in the City of Kitchener and the Township of Wilmot. No single customer accounts for a balance in excess of 1 % 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 impairment at December 31, 2016 is $250 (2015 - $250). An impairment loss of $129 (2015 - $147) was recognized during the year. 1-167 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 22. Financial instruments and risk management (continued): (a) Credit risk (continued): The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2016, approximately $178 (2015 - $80) is considered 60 days past due. The Corporation has over 94 thousand customers, the majority of whom are residential. Credit risk is managed through collection of security deposits from customers in accordance with directions provided by the OEB. As at December 31, 2016, the Corporation holds security deposits in the amount of $14,200 (2015 - $13,900). (b) Market risk: Market risks primarily refer to the risk of loss resulting from changes in commodity prices, foreign exchange rates, and interest rates. The Corporation currently does not have any material commodity or foreign exchange risk. The Corporation is exposed to fluctuations in interest rates as the regulated rate of return for the Corporation's distribution business is derived using a complex formulaic approach which is in part based on the forecast for long- term Government of Canada bond yields. This rate of return is approved by the OEB as part of the approval of distribution rates. A 1% increase in the interest rate at December 31, 2016 would have increased interest expense on the long-term debt by $ 80 (2015 - $80), assuming all other variables remain constant. A 1 % decrease in the interest rate would have an equal but opposite effect. (c) Liquidity risk: The Corporation monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Corporation's objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Corporation has access to a $5,000 credit facility and monitors cash balances daily to ensure that a sufficient level of liquidity is on hand to meet financial commitments as they come due. As at December 31, 2016, no amounts had been drawn under BMO Bank of Montreal credit facility (2015, $0). 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 (2015 - $35,000). The majority of accounts payable, as reported on the balance sheet, are due within 30 days. 1-168 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 22. Financial instruments and risk management (continued): (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, 2016, shareholder's equity amounts to $142,030 (2015 - $136,041) and long- term debt amounts to $79,872 (2015 - $80,952). 23. Future accounting pronouncements The Company is evaluating the adoption of the following new and revised standards along with any subsequent amendments. Revenue Recognition The IASB has issued IFRS 15 Revenue from Contracts with Customers ("IFRS 15"). IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue and various interpretations and establishes principles regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. The standard requires entities to recognize revenue for the transfer of goods or services to customers measured at the amounts an entity expects to be entitled to in exchange for those goods or services. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Corporation is assessing the impact of IFRS 15 on its results of operations, financial position and disclosures. Financial Instruments In July 2015, the IASB issued a new standard, IFRS 9 Financial Instruments, which will replace IAS 39 Financial Instruments: Recognition and Measurement. The replacement of IAS 39 is a multi -phase project with the objective of improving and simplifying the reporting for financial instruments. The issuance of IFRS 9 is part of the first phase of this project. IFRS 9 is effective for periods beginning on or after January 1, 2018 and must be applied retrospectively. The Corporation is assessing the impact of IFRS 9 on its results of operations, financial position, and disclosures. Property, Plant and Equipment and Intangible Assets In May 2015, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38 Intangible Assets, which are effective for years beginning on or after January 1, 2016. The amendments clarify when revenue -based depreciation methods are permitted. The Corporation does not expect this to have an impact. 1-169 KITCHENER POWER CORPORATION - CONSOLIDATED Notes to Financial Statements Year ended December 31, 2016 (Expressed in thousands of dollars) 23. Future accounting pronouncements (continued): Leases In January 2016, the IASB issued IFRS 16 to establish principles for the recognition, measurement, presentation and disclosures of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. IFRS 16 replaces IAS17 and it is effective for annual periods beginning on or after January 1, 2019. The Corporation is assessing the impact of IFRS 16 on its results of operations, financial position and disclosures. 1-170 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 1. Source: Planning, Housing and Community Services Department, Regional Municipality of Waterloo 2. Source: Statistics Canada. 2016 Census Data Weighted Assessment Growth Cumulative Tax Rate & CPI Final 2016:1.29% 30 Final 2015:1.51% Final 2014:1.31% 25 % 20 5 4 15 3 1 10 2 5 0 0 06 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16 Year Year City Tax Rate (%) Ontario CPI (%) The 2011 tax rate increase has been restated to indicate what the tax rate increase would have been prior to the transfer of storm water management costs to a new user rate. Without this restatement, a decrease would have shown for 2011. 1-171 2016 2015 2014 2013 2012 1. DEMOGRAPHIC STATISTICS Population 246,700 239,900 236,500 234,000 234,100 Households' 94,170 92,050 90,560 88,765 88,540 Area in acres2 33,802 33,802 33,802 33,802 33,802 2. TAXABLE ASSESSMENT ($000's) Residential and farm 22,414,567 22,010,705 21,596,614 21,314,131 17,720,136 Commercial and industrial 3,390,259 3,399,805 3,359,143 3,273,998 3,040,482 Total 25,804,826 25, 410, 510 24, 955, 757 24, 588,129 20, 760, 618 3. TAX RATES Residential and Farm Taxable Full City 0.36742 0.37488 0.38135 0.39217 0.40039 Region 0.61359 0.61489 0.61875 0.62784 0.62967 School Boards 0.18800 0.19500 0.20300 0.21200 0.22100 Total 1.16901 1.18477 1.20310 1.23201 1.25106 Commercial Taxable Full City 0.71647 0.73101 0.74363 0.76474 0.78076 Region 1.19650 1.19903 1.20656 1.22429 1.22785 School Boards 1.40000 1.43000 1.46000 1.49000 1.49000 Total 3.31297 3.36004 3.41019 3.47903 3.49861 Industrial Taxable Full City 0.71647 0.73101 0.74363 0.76474 0.78076 Region 1.19650 1.19903 1.20656 1.22429 1.22785 School Boards 1.50000 1.53000 1.56000 1.59000 1.59000 Total 3.41297 3.46004 3.51019 3.57903 3.59861 1. Source: Planning, Housing and Community Services Department, Regional Municipality of Waterloo 2. Source: Statistics Canada. 2016 Census Data Weighted Assessment Growth Cumulative Tax Rate & CPI Final 2016:1.29% 30 Final 2015:1.51% Final 2014:1.31% 25 % 20 5 4 15 3 1 10 2 5 0 0 06 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16 Year Year City Tax Rate (%) Ontario CPI (%) The 2011 tax rate increase has been restated to indicate what the tax rate increase would have been prior to the transfer of storm water management costs to a new user rate. Without this restatement, a decrease would have shown for 2011. 1-171 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 2016 2015 2014 2013 2012 ($000's) (Restated) 4. COLLECTION STATISTICS Total taxes billed Total collections Total collections as a % of current levy Taxes receivable, net of allowance Total receivable as a % of current levy 5. CONSOLIDATED REVENUE 394,020 379,110 368,577 359,385 346,514 389,608 382,899 365,882 359,339 344,955 99% 101% 99% 100% 100% 20,698 19,617 22,706 20,610 21,586 5% 5% 6% 6% 6% Taxation and user charges 292,898 290,215 291,714 280,998 273,446 Grants 5,830 10,013 6,991 4,101 11,772 Share of net income of Kitchener Power 35,100 34,566 35,328 32,908 29,508 Corporation and its affiliates 9,593 10,121 9,793 7,639 8,448 Development charge revenue recognized 10,388 11,044 8,076 6,892 6,877 Other 21,097 25,801 21,020 25,943 37,424 Total revenue 339,806 347,194 337,595 325,573 337,967 6. CONSOLIDATED EXPENSES Expenses by Function General government 38,932 31,273 37,797 36,033 38,010 Protection services 45,291 44,728 42,727 41,776 40,572 Transportation services 35,100 34,566 35,328 32,908 29,508 Environmental services 30,012 29,194 28,332 29,730 32,291 Health services 2,257 2,245 2,144 2,155 1,947 Social and family services 2,722 2,752 2,609 2,640 2,307 Recreation and cultural services 68,496 68,645 66,141 62,907 59,490 Planning and development 13,160 12,060 13,100 8,600 9,243 Gasworks 52,184 59,246 70,824 64,605 64,551 Total Expenses 288,154 284,709 299,002 281,354 277,919 Expenses by Object Salaries, wages and employee benefits 147,224 141,941 138,259 133,464 128,444 Materials and services 91,996 97,908 110,106 98,719 103,261 Debenture debt interest 3,534 3,869 3,740 3,941 3,889 Grants and other 4,214 3,031 4,192 3,879 3,867 Amortization 42,658 40,274 39,646 37,355 34,299 Loss/(Gain) on sale of assets (1,472) (2,314) 3,059 3,996 4,159 Total Expenses 288,154 284,709 299,002 281,354 277,919 7. ANNUAL SURPLUS 51,652 62,485 38,593 44,219 60,048 1-172 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 3. The debt limit is based on the Financial Information Return from the second immediate preceding year Debt Per Capita 500 400 300 200 100 0 ;7 2012 2013 2014 2015 2016 Year ■ Tax Supported ■ Non -Tax Supported New Construction ($000's) 800,000 600,000 400,000 200,000 0 2012 2013 2014 2015 2016 Year 1-173 2016 2015 2014 2013 2012 (Restated) 8. ANALYSIS OF LONG-TERM DEBT ($000's) Gross debt issued by the municipality 84,869 93,536 102,999 112,039 111,263 Less debt recoverable from municipal enterprises and consolidated boards 10,121 10,629 11,125 11,607 12,077 Less debt recoverable from other sources 8,687 9,870 11,105 12,292 13,434 Net debt to be repaid from property taxes 66,161 73,037 80,770 88,140 85,752 Net debt per capita ($'s) 268 304 342 377 366 Legal debt limit ($000's)3 296,666 288,323 281,852 305,717 294,540 Interest on long-term debt as a % of total expenditures 1.2% 1.4% 1.3% 1.4% 1.4% 9. ACCUMULATED SURPLUS ($000's) Reserve funds including discretionary & obligatory reserve funds 66,340 59,616 47,982 40,844 44,547 Unexpended capital financing 108,099 94,927 85,939 83,448 68,323 Accumulated surplus 1,283,004 1,231,351 1,176,249 1,137,656 1,093,437 10. NEW CONSTRUCTION Value of construction ($000's) 739,739 565,081 573,063 331,491 418,227 Number of building permits 3,168 2,749 2,559 2,307 2,420 Number of single family dwelling starts 840 614 504 348 396 11. NET FINANCIAL ASSETS ($000's) 214,048 194,460 187,392 176,202 160,566 3. The debt limit is based on the Financial Information Return from the second immediate preceding year Debt Per Capita 500 400 300 200 100 0 ;7 2012 2013 2014 2015 2016 Year ■ Tax Supported ■ Non -Tax Supported New Construction ($000's) 800,000 600,000 400,000 200,000 0 2012 2013 2014 2015 2016 Year 1-173 FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited) 12. PRINCIPAL CORPORATE TAXPAYERS 2016 Taxable Assessment Value ($000's) DREWLO HOLDINGS INC 301,450 CF/REALTY HOLDINGS INC 218,778 ONTREA INC. 210,777 ONTARIO MINISTER OF ENERGY & INFRASTRUCTURE 81,757 VOISIN DEVELOPMENTS LIMITED 77,931 EUROPRO (KITCHENER) GP INC 74,656 MORGUARD NAR (ONTARIO) HOLDINGS LIMITED 73,253 KITCHENER HOUSING INC 67,167 HOMESTEAD LAND HOLDINGS LIMITED 66,312 THE INCC CORP 63,792 STAMM INVESTMENTS LIMITED 59,731 ACTIVA HOLDINGS INC 51,029 7550332 CANADA INC 49,254 STEEVES & ROZEMA ENTERPRISES LIMITED 47,811 KINGSWOOD DRIVE KITCHENER GP INC 46,252 F�VIIZAI 1 KiTcFT-NER FINANCIAL REPORT • 2016 � Staff Report ITc� [�T� R Finance and Corporate Services Department wm kitchenerca REPORT TO: Audit Committee DATE OF MEETING: June 26, 2017 SUBMITTED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361 PREPARED BY: Corina Tasker, Internal Auditor, 519-741-2200 ext. 7361 WARD(S) INVOLVED: All DATE OF REPORT: June 9, 2017 REPORT NO.: FCS -17-009 SUBJECT: 2nd Quarter Audit Status Report RECOMMENDATION: No recommendation required. The following information is being provided as an update and assurance on internal audit matters, in accordance with the Audit Committee Terms of Reference. BACKGROUND: The following report provides a summary of the Internal Audit activities completed during the period of April 2017 to June 2017. The chart below shows the audits contained in this report. Division / Topic Scope Aggregates Cost / benefit analysis Stores — Tool Crib Physical inventory Corporate Contact Centre & Dispatch Status update Community Services Administration Status update The following items are currently in progress and will be brought forward at a future audit committee meeting: Revenue comprehensive audit *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 2-1 REPORT: 1. Aggregates — Cost/Benefit Analysis Complete: June 5, 2017 Background Information: Objective The timing of this review was driven by the decision to cease the concrete and asphalt crushing / recycling operation at Battler Yard as this location was chosen as the new snow storage and disposal facility (SSDF). All aggregates were moved from Battler Yard to the Kitchener Operations Facility (KOF) to make room for construction to begin for SSDF and as such a decision must be made whether to allocate space at the KOF yard to the recycling operation or whether to pursue other options for handling these scrap materials and sourcing product to be used in City projects. The purpose of this analysis is to examine the cost/benefit of various aggregate handling options in order to recommend a sustainable and efficient process going forward. Scope This review focuses on the disposal of scrap concrete and asphalt and supply of concrete product for City projects. It does not include any other types of stockpiled materials such as top soil or other landscaping materials or excess soils. Methodology The following activities were performed as part of this review: • Literature review of relevant internal and external documents including past reports to Council regarding aggregate recycling operations • Consultation with staff and internal stakeholders (including Fleet, Supply Services, Council, DCAO's/CAO, Operations— Roads and Traffic, Kitchener Utilities, and Engineering) • Risk assessment — to identify and rate the likelihood and impact of risks affecting the service • Benchmarking related to service delivery models • Identification and cost/benefit analysis of aggregate handling options Findings: Definitions According to the "Aggregate Recycling Ontario Best Practices Guide 2015", aggregate is granular material used in construction as defined in OPSS 1010. The product can be natural, manufactured or recycled. Reclaimed Concrete Material (RCM) is material that is removed or processed old hydraulic cement concrete. Reclaimed Asphalt Pavement (RAP) is a processed hot mix asphalt material that is recovered by partial or full depth removal. 2-2 For the City, the term `aggregate' typically refers to crushed concrete materials, and/or crushed asphalt materials. As part of the City's core services related to right of way maintenance and gas and water works, staff use aggregates. They also generate material that can be transformed into recycled aggregates (concrete or asphalt) by crushing the scrap materials. City projects generate scrap concrete, asphalt and other debris Concrete and asphalt can be sorted, crushed and turned into recycled aggregate Recycled aggregates can then be used in a variety of other City projects Sources of Aggregates The majority of concrete material is generated through the following activities: • removing sidewalks for replacement • removing concrete curbs as a result of curb repair, sewer, and watermain/gas repairs • removing concrete pads from playgrounds In new subdivisions the driveway aprons are now concrete instead of asphalt. This will generate additional scrap concrete material in the future if these aprons need to be removed during any maintenance work. Asphalt material is generated through the following activities: • utility cuts made to repair watermain breaks and to install water/gas services • catch basin and manhole repairs • sewer repairs • road repairs • sidewalk and curb repairs Uses of Aggregates Recycled concrete aggregate can be used in the following instances: • as bedding materials around sewers, gas lines, and watermains; • to backfill holes created by utility cuts made to repair watermain breaks and install water/gas services • to backfill deep potholes • as base structural materials for replacement or new trail construction 2-3 • as base structural materials for sportsfields or to repair gravel shoulders Recycled asphalt aggregate can be used in the following instances: • to backfill holes created by utility cuts made to repair watermain breaks and install water/gas services • to repair gravel shoulders Capital engineering projects that are tendered out typically source their own supply and disposal of aggregates externally in order to have more control over cost, quantity and quality. Contrary to previous understanding, an opinion from a qualified person has recommended that virgin materials are not specifically required in any City applications currently and recycled aggregates may be used. However, recycled asphalt material consists of high concentrations of petroleum hydrocarbons and other contaminants, and would not meet the applicable soil criteria in a potable groundwater environment here in the Region of Waterloo. Their recommendation was that recycled asphalt may be used in the road base; however it may not be used below the water table for any applications. This means that the specifications for any recycled concrete aggregate that we may produce through crushing or purchase from a 3rd party must indicate the requirement to not contain any recycled asphalt. If this condition is not met, then virgin material would need to be purchased for some (but not all) applications. Supply of Aggregates Historically the majority of recycled aggregates have been sourced through crushing scrap materials generated by City projects. Other options include purchasing either new (virgin) or recycled aggregates externally. The inventory of new or recycled aggregates is managed by the Supply Services — Stores division. Regardless of which option is ultimately chosen, there will always be a need for a tender to supply materials. The tender includes the supply of multiple building and landscaping materials (including aggregates) up to specified maximum amounts. There is no requirement to actually purchase the maximum amounts. Therefore even though aggregates may be listed on the tender, if the City is recycling aggregates then limited supply would be needed, if any at all. The only time when the City would need to purchase either virgin or recycled aggregates is if the supply of internally crushed aggregates was depleted. And although the City has attempted to sell excess quantities of recycled aggregates in the past, they are not in the business of selling aggregates nor should they be. The core business of the City in this instance is to maintain the City infrastructure only. Sale of excess recycled aggregates should only be done as a means to maintain adequate space at the KOF, and not as primary focus of the recycling process. 2-4 Historical Process Pros and Cons Until recently, staff from Operations - Roads & Traffic, Operations — Environmental Services and Kitchener Utilities (KU) divisions hauled concrete and asphalt materials (also known as removals materials) from a variety of core service activities, as described above, to the Battler Yard for crushing and reuse. The removals materials were stockpiled until a sufficient amount was available for crushing. Every two years a contracted crusher was mobilized to the Battler Yard through a tender process to crush the materials into a granular material (concrete aggregate and asphalt aggregate) with the intent for reuse. Stakeholders to this process were asked to comment on the pros and cons of the Battler Yard process in order to understand what was working well in the old process and what could be improved if the recycling operation was moved to the KOF. The followina feedback was gathered: Pros of Battler Yard process Cons of Battler Yard process Cost effective Yard was closed at 3pm which meant contractors and staff had nowhere to pick- up or dispose of materials. Complete control over the process and Lack of process and controls around use incoming materials. of materials (i.e. not weighed or applied to work orders; cost divided evenly between user groups when physical inventory done). No waste — material was recycled and very Yard loader staff had other duties, such as little was shipped offsite. winter maintenance, that pulled him away from Battler so he was not available when needed. Large area to stockpile materials. No controls to ensure loads were properly tested and disposed of in compliance with legislation. Ease of disposal and procurement. Lack of data integrity regarding volume of materials generated and used. Close proximity to work locations and Some areas were ordering this product close access to the highway. rather than using the recycled stockpiles. Battler Yard became a dumping ground for scrap material — metal, plastic, brush, soil, etc. Concern that the end recycled product may not have met all end user needs in terms of quality and content. 2-5 Analysis: Process Steps The following flow chart shows the disposal and supply of aggregates. The process of disposing of scrap concrete and asphalt from work sites can be broken down into three steps, with decision points at each step. There is also one step related to supplying material for the use in City projects (shown as step 4 on the flow chart). Please note that the volumes of material required to be supplied are not related in any way to the volume of material generated. They are shown on the same diagram simply because the decisions made in steps 1-3 determine what options are available for supply of material in step 4. 2-6 2-% f i3 i� t!f a CL CL Q � o a s C u s � � m .- 0 M. •� 4- Q .N Q) 0 co m o N co 0- 00 -0 c w O � ° a o o c a a !A N :3 — Q f0 VI s Q Ln cuUcu� v a i, U +, i V M iaj CLCL CL v CL O E E ,4; cn a) 0 a) v iD 14 •- cv O L O U0 - 0- �, 4� y L — O 0 o75C CL a) [6 ^ N m -C Iu a cu Q ns Y , can O O� E Ln bA w v cg o t - a 0- " a +1 � o g +1 m 4- '� �-a U 003 O Q O C_ 4 m to O O 6 C cn v (6 ca s + U W v= o f y `� -- L Q In V +s > V) 0 t!1 4-J a�a — W 4—J U � W o u La)E 2-% Analysis of Options In order to analyze the best course of action, the information was looked at in two different ways. First, the options at each step were evaluated against each other to determine which option was better. Second, each of the eleven combinations of options or scenarios was scored using an evaluation matrix (see below in Evaluation Matrix section) to attempt to assign a value to each of the criteria and objectively determine which scenario is best overall. The criteria used included: • Cost per tonne and total cost for three volume scenarios • Environmental impact due to emissions from equipment / vehicles and ability to recycle material • Degree of control over where the material is used and ability to test for contamination • Impacts on staff and equipment • Relative amount of land required at the KOF • Other pros and cons • Number of high risks Step 1 — Removal of scrap materials from the work site: The options include either having City staff haul the scrap material to: (A) the KOF or (B) to a disposal site such as the Regional landfill. Through conversations with various suppliers it was determined that it is not possible to have City staff haul the material directly to a pit for recycling as they can only accommodate processing of unsorted incoming materials on their schedule. It is also not feasible to have suppliers pick up the material directly at the work site because it would not happen on our schedule and material would end up piling up at the work site. Option A is better than Option B for all criteria except for the amount of space required at the KOF. It is significantly cheaper as landfills do not want this material since their capacity is limited. It will, however, require space at the KOF to place the piles of incoming material. Step 2 — Sorting: When material is generated at the work site, a variety of materials end up in the trucks such as soil and other debris in addition to the concrete or asphalt. Assuming the material has been hauled to the KOF, the next decision point is whether to: (A) sort the material or (B) not sort it. Option B is better for all criteria except that it does not provide the ability to recycle or use recycled material. 2-8 Step 3 — Disposal of material (i.e. what happens to the material once it is at the KOF): Step 3.1 — This relates to material that has been brought to the KOF and sorted. There are three options to choose from at this step: (A) — crush / recycle the material; (B) — City staff haul it to a pit to be recycled; or (C) — 3rd party hauls it to their pit to be recycled. Option A is better or the same in all criteria except for the amount of space required at the KOF. Recycling will generate additional piles of crushed aggregates. However, it could be argued that the space for those piles would be required in Step 4 anyways if material is purchased. Step 3.2 — This relates to material that has been brought to the KOF and not sorted. There are two options to choose from at this step: (A) — City staff haul it to a disposal site; or (B) — 3rd party hauls it to their disposal site. There is no clear better option in this step, although option A is cheaper. Neither option allows for the recycling of material. Step 4 — Supply of material: When aggregate material is required in City projects there are three options for supply: (A) use the recycled product (if the City has sorted and crushed the incoming material); (B) — purchase virgin material; or (C) purchase recycled material. Option A is the best in all criteria. Evaluation Matrix As noted above, the eleven combinations of options / scenarios were scored using an evaluation matrix, similar to ones used in environmental assessments (EAs). For each criterion, all eleven scenarios were compared and the best combinations were given a score of 10. Combinations which had a negative impact on the City received a score of 1 and any combinations which had an impact somewhere in between the best and worst case (or neutral), were assigned a score of 5. In this approach, a higher overall score would represent a preferred solution. Each criterion was weighted equally for simplicity and because this is the standard approach taken in EA's. The resulting scores are shown below: 2-9 E co H E > 2-10 W a�- 7 R O R — L a r Ln Ln O W V r R V R Q- ` Ur C tA = w R p R .— G L C t N LO LO O N U Q- E r C r w 7 LL r V R R 0 V R Q 2 R a . 0 0 = > E L C U �"' r R N R L0 V D N M W r t>1 N Y 'Q N ` u +�+ O O E t U.+ " Qw o O W 7 LL M r R R R r Y R 7 y L N Q ` Qt ' r LO O N .O � U EQ- r "_ 7 LL 0 7 •— w R R 0 VI R •O R •— m R ` R LO LO co +�+ � 7 R E r LL r N d R 0 co _ R _ Q L Y t+ Q 7 Q V> r LO O N N O O R y t w.3 o � d 'O VI R •O R — R 0co r O r = Y v� 0 0 7 �O M L p R C N co R C t 07 r r r O LO LO N LL ` .— r 0 O R� C, Q U 7 7 y M L O Co N R C t uLn t tF > Ln N > w U R r y 0 0= a N ca 0 Qr Q U Y R r O 7 N R �� R �y L LL W U R o 0 0 0 o o > 0 2 a E U Y u o - a a? o 0 -o ( 0 m 0 � O O a) ° o o a) > '� O C a) m T > L C -O — a) > f/1 a) a) .> C > .r.. > o D > O E o .0 E °� ° E E U (D (WD =� m Y E o 0 E u, > E E E Y Q U w m a) m 0 N (D 3: a) a) m .L.. a) -° O w m �' E w m Q E m -O a) O° - - C m� p� U VI > a) = m .a) � C� C U L m O m U U a) m m N C U_ .Q a) a) LL Y D a) N +L-• O L Y .w L f/1 O) m p ° c �.c 6)— o° o w `o m o `oma L m Fo U D 0 o o° m _ �� Y o Q ' ° Q° °- Q Q .X m m o m C)E u° E° r E° E°E E° -E=(D o LU � m C C f/1 (U6 a) S' O R a)w O m E -O 0 O L! R E ' ° m °- E C m u5 O a) (o r O p U U U N J Q � U W > c o o ins Q O y -o F O O U Q E co H E > 2-10 U) (3) O U U > 0 cu X cu E C O cu cu > a) L C a) U U N 0 U 4- 0 0 U cu 70 (3) U (3) yr U U U L 70 c cu Tl - cu cu 70 (3) cu L cu 0 U (3) I_- 0) 0) 0 (3) L O 0 0 U cu U) U cu D) yr cn 0 U cu a) -ocu L uo o Ln Ln Ln Ln Ln Ln Ln Ln a)70 Z) O O>p cu 0 L 0 O E a) O v cu cu _ _ a)(nL cu O -0 a) D_0 0 O Ol O N --IN N N M N � N Ln N Ln N 00 N Ln 0-1Ol N U) y-+ Li O O to p LO ca _ c y-+ p .00 cu 00 00 � � � 00 � � 00 _0L U Q ' O O > 0 a)a� c a) 0 "_ cn a) -0 O a) CU w .� cn 0-1 C-4 Cn rn Ca) -0 a) cII ?> 0 O M CU 0 Q -0 a) fl- -0 a) a) ' N c N cu 0 Ln Ln Ln Ln Ln O cB (n L C- >� cB 3: 0 O fn N 4 to "r V a) o Ln 00 cII ' Q> (n 0 to a) a) _r_00 p 0 0 ~ V> 0 cu C .D O o Ln 0 0 Ln o o Ln Ln CD CD p cn Q E U cu 0 — r— M O Ln n � Ol 00 N g cu cu U L O U U O U al N 00 Ln M 4-0 M n 1� 00 N Ol Ol O Ol M Ol Ol Ol l0 yL+ U U L ca .--1 N N N N N N M M 1— N n N 0 cu 70- o 0E c 70 Ca) cu 0)0.0 E •� L cu (ncu -0 D m 2� C to c a) n♦ a� > — VJ ^�♦ Li ca cu E E Ca CD E a) cII 0Z)L "' O v — ca v uA — ca 'dp ca r� cn to cu fn ,� U N t > N t ] v L j v c O U o cB cu O cu o) E � = C O fl O O f2 (B c—a O O L 0-0 Q .— L (B U) y..r r-+ cu N fl O ns O fl O ns O fl- fl - QJ ca 0E p r� - L Li NEi N .� .� -C30 a) Q � E c �' � � � � �_ �_ �_° -=� Li C 0) CCU O cu !E L U _ V M f6 V M f6 f6 f6 N N �_ CU O 0 t i i O_ i i O_ t t f6 f6 -0 O U c E � i v O O M O O M +-�' +-�' v v cII L � � � L EU 0 "- C� o OZ) ON -C3 -Z3 -Z3 to>% C O L cn o cu C LL 0 LL 0 LL 0 LL 0 LL 0 LL 0 LL 0 LL 0 LL 0 L QC O a O a O a O a O a O a O a O a O a O a O a 0) rte+ 0 O 0 cu fl c�a c�a c�a c�a c�a c�a ca c�a L C U 70 _a to 0 0 Q L Li i a, ? • ? ? ? ? ? ? ? ? ? ? ^♦ O yr p p ^♦ A V V V V V V V V V V V yr Q (1) -r— ` yly+ to cu (3)U E y --i L ci -�r N Ln l0 M n 00 Ol 2-11 Recommendations: Disposal and Supply of Aggregates It is clear from the analysis that the best option is for City staff to haul material from the work site to the KOF, sort it, crush it and use the recycled materials. This option has the lowest cost per tonne and total cost. The difference between the next closest option is approximately $115K more per year or $11 per tonne. Furthermore, environmentally this is the best option. It limits the amount of hauling as material only travels from the work site to the KOF. There is no additional hauling to dispose of it or to supply materials to use. This means less emissions and impact on green -house gases in total and for the City as a contributor. It also allows the scrap material to be recycled rather than taking up space in a landfill, which is better for the environment. By bringing the material to the KOF it gives the City the ability to properly sort and test for contamination. Since the material is then being crushed and used in City applications, the City retains complete control over where the material is used and the quality of the material. This option has no impact on City staff as the crushing is done by a 3rd party. Purchasing a crusher for City staff to use was cost prohibitive. Regardless of whether this option was chosen or not, there will always be a requirement for one or more staff to run the loader to load and unload trucks with various materials. Therefore no additional staff or equipment are needed. In terms of impact on equipment, other than additional wear and tear on the loader, there is no impact. No additional pieces of equipment or vehicles are required. Since there is no additional haulage there is also no additional risk to CVOR points. While this option does require the most amount of land at the KOF, there is currently sufficient space for this and this risk can be mitigated by crushing more frequently, organizing the yard in the most space efficient manner, and disposing of any unneeded material on a regular basis. City staff are currently working on creating a site plan for the KOF yard to allocate adequate space to all stakeholders, including aggregate recycling. This option will also require a better process and controls to manage the yard including weighing incoming and outgoing loads. 2-12 Other Recommendations In order for this operational model to work, the following actions are recommended: 1. Refer to Aggregate Recyclers Ontario for best practices when developing the details for many of the following recommendations. 2. Establish and document the weighing process. This should include: a. A method of informing Stores staff of incoming and outgoing loads b. A review of Cityworks templates to ensure material generated and used gets recorded appropriately using the weigh scale c. Physical barriers / controls that ensure trucks must go over the weigh scale d. Training for staff including educating front-line staff and management regarding the importance and impact of weighing the incoming and outgoing loads. e. Periodic audit / monitoring by supervisors to ensure the process is being followed 3. Set-up raw material part numbers in SAP for the incoming loads. Determine and set the maximum limit for raw materials in the system to trigger the crushing activity (i.e. to ensure the raw material piles do not get too large). 4. Determine and set the maximum limit for recycled aggregates in line with the internal demand for the product in order to trigger sale or disposal of excess supply in a timely manner. Over time this limit can be adjusted as more accurate usage information becomes available. 5. Complete the KOF yard plan to ensure the most effective layout of piles. This should include areas for raw materials waiting for sorting / testing, sorted raw material, and crushed aggregates. All piles should be clearly labeled and delineated where required. Thought should be given as to whether protective lining is required for the unsorted piles to protect the land from possible contamination. 6. Develop signage and maps of the yard that can be given to staff indicating the proper location for dropping off loads as well as where each of the material types are stored. 7. Revisit the quality standards set out in the crushing tender prior to re -issue to ensure they meet the needs of all users. Test the output to ensure standards are met. 8. Further investigate whether permits are required for crushing activities in order to ensure that the City remains compliant with the Environmental Protection Act. 9. Document roles and responsibilities of the loader position as well as other roles within Utilities and Operations with respect to material handling duties. Include the responsibility for supervisors to discuss loading / unloading locations for materials during daily tailgate discussions. 2-13 10. Testing for contamination and advising on proper disposal of contaminated loads requires specialized knowledge from a qualified person. The quantity of this work would not justify a position at the City. Therefore, contract out testing of incoming loads. Build the cost of testing into the Utilities and Operations maintenance plan budget. Conclusion This thorough analysis has concluded that it is best to resume the practice of recycling concrete and asphalt for use in City projects. Operations — Roads and Traffic management will be responsible for facilitating the implementation of the above recommendations which will involve collaboration with the other stakeholder groups. A status update must be provided to the Internal Auditor a year following this report. 2. Stores, Tool Crib — Physical Inventory Completed: June 5, 2017 Background: A tool crib is a location which stocks frequently used tools which can be loaned out to staff for their work and returned when they are finished using them. Typical tools in the tool crib range from larger dollar items such as ladders and small power tools, to lower cost items such as rakes, shovels, and hand tools. Having a central lending location allows work areas to share tools and maximize their use, rather than each area purchasing the same tools which may not be used to their full capacity. However, if an area uses a particular tool on a daily basis they may purchase it outright and keep it in their work area. Many years ago a tools database was created internally by I.T. staff which is used to track the location of tools that have been loaned out. Although this is used daily, there has never been a process to follow up on tools not returned, and no physical inventory has ever been done to compare the database to what is on hand. In 2008, when the Kitchener Operation Facility was built, three previously separate tool cribs were consolidated into the one location and physically located within the Stores warehouse. This way staff can pick up both their tools and their supplies at the same location each day, rather than traveling to two different locations as was done previously. Audit Objective: To review and improve the controls and management of tools. As part of this exercise, clean up the existing tool inventory to confirm tools in stock and in the field and retire any tools no longer in existence. Methodology: The following activities were conducted as part of this review: • Interviews with Stores staff regarding current process • Review of database capabilities with I.T. staff 2-14 • Full physical inventory of all tools within the tool crib and out in the field; subsequent cleanup of database • Discussion with Financial Planning regarding proper accounting treatment of tools inventory • Development of new process and controls Findings: The physical inventory found that the majority of the tools that are currently out in the field are required on a daily basis and staff has no intentions of returning the tools to the tool crib. They have previously been expensed to the operating areas. The database will be cleaned up to remove these tools from the tool crib and the operating areas will maintain responsibility for these tools. The majority of the tools physically in the tool crib are listed correctly in the database as being available for lending. However, over 50% of the tools listed in the database as being in the field were not found anywhere These could be old tools that were damaged and disposed of but the database never updated. Given the lack of controls it is also not possible to rule out theft of some tools. Since financial costs are not listed for every tool in the database it is difficult to estimate the value of these missing tools. However, based on the volume of tools and the average price of a tool, the value is thought to be under $100K. Looking back at past accounting records there was inconsistent treatment of the purchase of new tools. The majority were expensed to the operating areas that initially requested the tool and journal entries were made to transfer to other accounts if multiple areas utilized the tool. Some purchases, however, were also charged to the Stores cost centre. A consistent process is required going forward. Recommendations: 1. Draft a current state map and future state map to explain the current process flow and the recommended changes. Share this with affected stakeholders (i.e. divisions who sign out tools) and get their input. 2. Once the database has been cleaned up and only contains tools available for lending, start using the "Return By" field in the database to indicate when the tool is expected to be returned based on user input. The default is 2 weeks if no other date is given. 3. On a weekly basis Stores staff should run a report from the database to show any tools that were not returned by the expected date. Staff would then follow up with the operating areas to determine if an extension is warranted, or whether the tool has been broken / disposed of, in which case it would be retired from the system and a request for purchase of a new tool could be made if required. 2-15 4. Develop a process for the purchase of new and replacement tools as part of the future state process map. This would include a decision regarding how to budget and account for the cost of the tools. 5. Management should be informed when tools are retired and / or purchases are made to ensure visibility to these purchases and why they are being made. For example, to replace a lost or broken tool. This will allow management to monitor staff usage of tools and hold them accountable if they repeatedly break or lose tools. Conclusion: This exercise has enabled the City to have an accurate listing of available tools. By implementing the follow-up on the expected return date and by informing management of retired or purchased tools this will allow for better control of tools. 3. CSD Administration — Capacity Review - Status Report Complete: March 10, 2017 Background: The objective of the original review, completed in August 2012, was to assess all administrative roles within the CSD Administration section to determine capacity and resourcing needs prior to filling a vacancy left by a retirement in the section. It was found that there was excess capacity in some roles while other roles were overburdened and lacked trained back-ups. The primary recommendation focused on combining and redistributing duties among staff in order to eliminate one full time position. Other recommendations focused on process improvements that would decrease workload and on training back-ups for every role to allow coverage during vacations and absences. Audit Objective: In order to hold staff accountable for implementing audit recommendations a status update is conducted at least one year following the completion of the audit. The purpose is to assess the outcome of the audit in terms of which recommendations have been implemented and comment on what the impact to the division has been. This will help determine if a further follow-up or direction to the division is required. Audit Statistics: Date original audit completed August 1, 2012 # of Recommendations 9 # of Recommendations complete 6 # of Recommendations in progress 0 # of Recommendations not started 1 # of Recommendations not required* 2 2-16 *Recommendations not required — the recommendation does not require any action, or it is no longer relevant and no work will be done to implement it. Positive Impacts: • Cost savings realized due to elimination of 1 full time position. The position was declared redundant and approved as a new position during the 2017 budget process — Neighbourhood Strategy Engagement Associate. • Phone calls not intended for the division have decreased due to removing the zero -out target for other divisions and discussions with the corporate contact centre regarding which calls to transfer to this division. • Staff are trained on back-up responsibilities which allows for coverage during absences. • Due to Canada Revenue Agency decisions, child fitness tax receipts are no longer required which reduces workload. Next Steps: There are no new recommendations in this report and no further follow-up audits will be conducted. 4. Kitchener Utilities Operations Centre and Corporate Contact Centre Functions — Status Report Complete: March 9, 2017 Background: The objective of the original review, completed in December 2012, was to examine the options available for providing dispatch and alarm monitoring services across the corporation to determine the best service delivery model. It was recommended that all non -utilities dispatch work and corporate alarm monitoring be transitioned to the corporate contact centre (CCC) and the CCC would operate on a 24/7 basis. Resourcing was to be adjusted to support the new model. The Kitchener Operations Centre would operate from 8 a.m. Monday to Saturday and all after-hours utilities dispatch work would be handled by the CCC. Audit Objective: In order to hold staff accountable for implementing audit recommendations a status update is conducted at least one year following the completion of the audit. The purpose is to assess the outcome of the audit in terms of which recommendations have been implemented and comment on what the impact to the division has been. This will help determine if a further follow-up or direction to the division is required. 2-17 Audit Statistics: Date original audit completed December 3, 2012 # of Recommendations 18 # of Recommendations complete 16 # of Recommendations in progress 1 # of Recommendations not started 1 Positive Impacts: • Improved service levels for both internal and external customers with easy to access 24/7 service • Improved dispatching function • Improved alarm monitoring — mitigating risk, better controls • Up to date processes and procedures — live documents constantly updated • Employee satisfaction as they have the most current and up to date tools available • KU Dispatch - improved employee morale as they no longer are burdened with non -KU work and no longer has to work the night shift. Unaddressed Recommendations: Kitchener Utilities still needs to create a business continuity plan for the Operations Centre and continue to implement key performance indicators. This will be started once current staffing transitions are complete, likely within the next six months. Next Steps: There are no new recommendations in this report and no further follow-up audits will be conducted. Management should begin implementing the remaining recommendations and continue to use key performance indicators to assess future resourcing needs. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: This report supports the achievement of the city's strategic vision through the delivery of core service. FINANCIAL IMPLICATIONS: There are no financial implications related to this report. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. ACKNOWLEDGED BY: Dan Chapman, Deputy CAO, Finance and Corporate Services 2-18 0 0 N 2-19 0 0 LL cc W H 0a � Z W N GC 2-20 2-21 W W 2-22 LL O 10 V) a� buo C-0 C-0 E0 0 0 0 2-23 ro (n C- O O Q Q c6 O � coo �0 •- o V) N V 0 sh— N a, � m � c� o V � � � O � U v LL O 10 V) a� buo C-0 C-0 E0 0 0 0 2-23 I 1 2-24 LO (L) a --J ra tL0 t7� aA MD fu QJ V X C- ro Q V ro L V Q L ago 0 0 v1 a -J R5 L � a -J U O Q O Q 4— v) � R5 � O � Q � v) — O v 4-J •� O 4-J L =3 _N O R5 Ul L L ate-+ 0 R5 U E �J h� r • �.RJI/ U 4- a E a R v c C 4- rEL .` (i Q v) 4— 2-25 E O (� � N QJ E +- 4-j E Ln +-+ QJ O QJ QJ — E cin 4J O 4-j 4-J CSA O O O 0 c- 0 `4— Lf) V) 4- CSA }' CSA Lncn O v Ln 4-j O0 0— U N (� fB c O- Q O O O v O p O Ln Q +_' v)QJ — -0 U U U E f� O J >- z _3 bn V) o c� aJ E Ln aJ U cn O ate-+ v O O — E 4-j Ln V) > � �O Q E O QJ �J O 0 M Q QJ • O O O � cn p U U Z —i w U 2-26 w m R W � JIMI :t >- CL 0 CL RIM -3 om- 0 W V) 4-J M C buO 0 (U W 4-J c u b.0 o V) fur E < 2-27 Ln ro 3: c� Ca .O a -- 4-j ro O o V) O a -- C: O u O ca V) c6 L Q) 4 m V a -J Ca ' Ca > ._ o • CC o 4J U V4-1� -0 •- }' O (M O E 4-J E 4-- O _0 M O O so O ca ca o � +� vco U w 0 cn oc O z ro > W (1) . . . . . . . 2-28 ate-+ .,z V V C6 2-29 L O W � O NE o L O O V }, Ln O O a--+ ateJ X O N • - (1) O E .O r--1 O O •— E O N O V ca > %fto-ow_0 O Ca • L t�A •cii Q u I N ate-+ .,z V V C6 2-29 LL O 2-30 •m N L O r1 • _ E N a--+ L E =3U ro O (a)V }' U +-+ U N a--+ a 2-30 L M, ate-+ C6 W, 2-31 ^L ^W W ^L r1 � V Ca � V O � -tom-00 a--+ 0 Ln E O O � O O a--+ a--+ a--+ Q) o . — > N O V O N V ate-+ U O +J O N O V X a--+ O , a--+ � (a)O O 4—JO m L M, ate-+ C6 W, 2-31 .0. ro ^L W Om E 4- 0 Ca cr W L ^cr W L E cr w L O N • • • Ln .O 0- • LL O I Ow • ro L V cr tvo O n 2-32 2-33 J 0 0 FM o N W _U 0 �N FM � r 2-34 it C- N m O V O a--+ a--+ Ca � LL O }' O O }, •° O }' N o V O cn � O � V N V L .O O 'L � a-Jro V 4J V +-j O c6 O D00 O � c� O O O o O Ln (1) O C: O O O Q > O �O O O .V V � O O O z z 2-35 L O > M C6 N •U O >, c 0L O c6 U > Z3 0-0 Q C— E O O C— m m vi O O O O E .� w V � .� m OE 2-36 2-37 O a -- p v •O > .-Co 4-j v1 j v .- _0 � � E .- � p cz +J O � a .- •� O >-� s U- O O vi o O O O ._ ._ -1-jO Ln � 4 -JN V) 0 m p p > m ro -0 > 0 O I I I � 2-37 L EEO 0 2-38 2-39 i O a -J O C: (1) .O • V � � t�A cn � Qr) c6 • c C:u O l s — �.O v1 O cn � cn cn cn � U O C6 Q 70 >. u Q Fo .. 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