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FIN-2023-259 - 2022 Audited Consolidated Financial Statements
Staff Report Financial Services Department www.kitchener.ca REPORT TO: Audit Committee DATE OF MEETING: June 26, 2023 SUBMITTED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-741- 2200 ext. 7895 PREPARED BY: Greg Demacio, Manager, Financial Reporting and Analysis, 519-741- 2200 ext. 7895 WARD(S) INVOLVED: All DATE OF REPORT: June 20, 2023 REPORT NO.: FIN -2023-259 SUBJECT: 2022 Audited Consolidated Financial Statements RECOMMENDATION: That the 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener be approved. REPORT HIGHLIGHTS: • The purpose of this report is to present the Corporation of the City of Kitchener's consolidated financial statements for the year ended December 31, 2022. • The key finding of this report is that the independent auditors have completed the audit of the consolidated financial statements, with the exception of certain remaining outstanding procedures as noted in the Audit Findings Report. The auditors have provided a draft Independent Auditor's Report expressing an unqualified audit opinion based on their completed procedures to date. • There are no financial implications associated with this report. • Community engagement included having this report posted to the City's website with the agenda in advance of the committee meeting. • This report supports the delivery of core services. BACKGROUND: Staff is pleased to submit the 2022 Audited Consolidated Financial Statements of the Corporation of the City of Kitchener. A presentation of financial highlights for the year will be given at the Audit Committee meeting on June 26, 2023. Representatives of the City's external auditors will also be in attendance to discuss the Audit Findings Report. REPORT: The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. These financial statements are prepared on a full accrual basis and combine the results of the tax -based operations, enterprises, local boards, capital activity, and reserve fund activities. Local boards *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 3 of 264 include The Centre in the Square Inc., Kitchener Public Library, Belmont Improvement Area, and Kitchener Downtown Improvement Area. The 2022 year-end results for the tax -based operations and the enterprises were provided to Council in March. Please see Attachment A to this report for a reconciliation between the non -consolidated figures provided in March and the Audited Consolidated Financial Statements. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: Capital Budget — The recommendation has no impact on the Capital Budget. Operating Budget — The recommendation has no impact on the Operating Budget. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. PREVIOUS REPORTS/AUTHORITIES: • FIN -2022-520 External Audit Planning Report for Fiscal Year 2022 APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services ATTACHMENTS: • Attachment A — Annual Surplus Reconciliation • Attachment B — City of Kitchener Financial Report Excerpts (including the Audited Consolidated Financial Statements) for the year ended December 31, 2022 • Attachment C — Audit Committee Presentation • Attachment D —Audit Findings Report for the year ended December 31, 2022 (KPMG) Page 4 of 264 Reconciliation of Operating Surplus to Consolidated Annual Surplus Year Ended Dec 31, Year Ended Dec 31, 2022 2021 Tax supported surplus (deficit) 1,234,927 (4,651,262) Enterprise surplus (deficit) 6,037,951 3,258,158 Total operating surplus (deficit) 7,272,878 (1,393,104) Consolidation Belmont Improvement Area (4,668) 7,222 Kitchener Downtown Improvement Area 91,733 773,160 Kitchener Public Library (348,497) (199,715) The Centre in the Square 2,731,674 (105,580) Kitchener Generation Corporation 49,318 64,114 Enova Energy Corporation 10,870,521 10,327,388 13,390,081 10, 866, 589 Revenues not included in operating surplus Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates 71,288,452 - Reserve fund revenue 43,749,511 42,290,841 Contributions of tangible capital assets 20,157,534 23,914,606 Gain (loss) on sale of tangible capital assets (1,797,776) (102,564) Other capital revenue 10,135,022 9,301,408 143,532,743 75,404,291 Items in operating surplus, not in consolidated statements Net transfers to capital and reserves 92,730,228 89,251,020 Various PSAB adjustments 3,975,051 4,438,141 96,705,279 93,689,161 COK expenses not included in operating surplus Amortization of tangible capital assets (54,098,524) (53,172,804) Other capital expenses (21,626,744) (17,977,556) Change in actuarial estimate for employee future benefits (415,195) 26,656 Reserve fund expenses (4,128,026) (1,915,486) (80,268,490) (73,039,191) Annual surplus per consolidated financial statements 180,632,491 105,527,746 Page 5 of 264 191AIT, Mil KPMG LLP 120 Victoria Street South Suite 600 Kitchener, ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 To t the 1 •. We Kitcl (Hei INDEPENDENT AUDITOR'S REPORT rs of the Corporation of )rporation of the City of nber 31, 2022 ,d the year then ended ,d i summary of significant In our opinion, TW11accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2022, and its consolidated results of operations, its changes in consolidated net financial assets, and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our auditor's report. l(l111 1110111111' 111111I'A11Ili IIIIViidIIIu:1,ItrirIIW111;11Ili ol1111111[ho I'd IC1r11.ovrII111rX1'vIRi11'1I1111)(9llI,)oI1[ 111 ^rr11�+.1 11111 M1"1'111 Myna 101 KI INC 111[ol i� [I' 1� l L...11111loni M 1-rlvr [o I �url1„r11 711 r Mary 111111loni Iw 1nwli lkms. I;fl'UVI� (, M1` M1 rn 1 vui�;�, ')Ivu w, 11 It,l1lV1( 1 1 I1 Page 6 of 264 R� Page 2 We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements . mul4llllluu Management is responsible for the preparatioXpublic """ resentation of the consolidated financial statements in accordance with Cana for accounting standards and for such internal control as managem determines ecessary to enable the preparation of consolidated financial st ents are free om material misstatement, whether due to fraud or error. um..uuillllll In preparing the consolidated cial st ents, management is responsible for assessing the Entity's ability to a g concern, disclosing as applicable, matters related to going concern a ging concern basis of accounting unless management eitheJoodloll Iiqu ?ethe Entity or to cease operations, or has no realistic alternative Those c ara g h" " """R responsible for overseeing the Entity's financial wit reporting prq IIII Allam. AuditdKs Respo "bilifies for the Audit of the Consolidated Financial Our objectives"""111114 to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. Page 7 of 264 in1W 3 We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusi Ilan, forgery, intentional omissions, misrepresentations, or the override of internal con • Obtain an understanding of internal control to the audit in order to design audit procedures that are appropriate in t arcums s, but not for the purpose of expressing an opinion on the effective of theEntity' mal control. • Evaluate the appropriateness of ac"' tinOLies used and the reasonableness of accounting estimates and related disclo made by management. anag'" nt's use of the going concern basis of ?cern. o tained, whether a material uncertainty that may cast significant doubt on the Entity's If we conclude that a material uncertainty ention in our auditor's report to the related 111financial statements or, if such disclosures are . Our conclusions are based on the audit evidence up to""IW da our auditor's report. However, future events or conditions e the En to cease to continue as a going concern. • Evaluat ov I presentation, structure and content of the consolidated financial statements, IIIIIII� ding the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Page 8 of 264 inIW 4 • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Chartered Professional Accountants, Licensed Pu Kitchener, Canada DRAFT ntants Page 9 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2022 The accompanying notes are of these consolidated financial statements. Page 10 of 264 2022 2021 Financial assets Cash and cash equivalents $ 113,065,078 $ 111,256,413 Taxes receivable (Note 2) 25,076,645 22,423,158 Trade and other accounts receivable (Note 2) 75,530,531 52,836,081 Loans receivable (Note 5) 5,994,236 6,126,258 Inventory for resale 9,956,554 13,728,401 Investments (Note 6) 229,381,003 219,049,058 Investment in Enova Energy Corporation (Note 7) 306,970,957 231,241,809 Investment in Kitchener Generation Corporation (Note 8) 1,858,014 2,090,266 767,833,018 658,751,444 Liabilities Accounts payable and accrued liabilities uo, °III 111111 111111 132,650,726 109,127,802 Deferred revenue - obligatory reserve funds Note 10 rY ( ) 2,750,528 IIIIIIIIII II��7908,681 83114403 Deferred revenue - other lull 42,722,904 Municipal debt (Note 11) 57,724,950 59,962,275 Employee future benefits (Note 13) 54,650,290 54,235,095 355,685,175 349,162,479 Net financial assets 412,147,843 309,588,965 Non-financial assets Tangible capital assets (Note 14) 1,467,695,615 1,389,634,219 Inventory of supplies lull 3,689,246 3,999,201 Prepaid expenses IIIIIIIIIIII 2,298,465 1,976,293 1,473,683,326 1,395,609,713 Accumulated surplus (No 5) u $ 1,885,831,169 $ 1,705,198,678 The accompanying notes are of these consolidated financial statements. Page 10 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Operations For the Year Ended December 31, 2022 Revenue Taxation User fees and charges Gasworks Water, sewer and storm water Other Government transfers Contributions of tangible capital assets Investment income Penalties and interest on taxes Development charge revenue recognized Share of net income of Enova Energy Corporation (Note 7) Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates (Note 7) Share of net income of Kitchener Generation Corporation (Note 8) Other Total revenue 2022 2022 2021 Budget $ 143,965,701 $ 144,746,539 $ 137,949,043 86,122,269 135,528,005 43,950,692 27,999,550 20,157,534 7, 3, 15, 95,397,822 143,636,140 41,389,583 25,852,681 20,157,534 290,584 087,007 600,867 18 1 79,217,208 138,271,884 30,682,192 25,443,264 23,914,606 6,577,291 3,783,814 21,836,143 870,521 10,327,388 71,288,452 - 49,318 64,114 75,715 4,136,861 42,763 482,203,808 Expenses General government lull 46,132,803 38,310,563 34,604,817 Protection services 56,706,841 56,443,685 56,441,084 Transportation services 44,170,722 42,723,395 39,002,183 Environmental services uo 106,373,867 105,546,179 99,840,274 Health services 2,652,111 2,811,452 3,842,758 Social and family services IIIIIIIIIIIIII 2,866,525 2 613 823 620 2,234,620 Recreation and cultural service 81,882,467 82,058,805 69,607,865 Planning and development VIII 16,639,323 18,247,365 11,777,358 Gasworks 67,246,826 71,255,005 59,325,103 Total expenses 424,671,485 420,010,272 376,676,062 Annual surplus 144,820,556 180,632,491 105,527,746 Accumulated surplus, beginning of year 1,705,198,678 1,705,198,678 1,599,670,932 Accumulated surplus, end of year (Note 15) $ 1,850,019,234 $ 1,885,831,169 $ 1,705,198,678 The accompanying notes are an integral part of these consolidated financial statements. Page 11 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets For the Year Ended December 31, 2022 Annual surplus Amortization of tangible capital assets Acquisition of tangible capital assets Gain on disposals of tangible capital assets Proceeds on disposal of tangible capital assets Acquisition of inventory of supplies Acquisition of prepaid expenses Consumption of inventory of supplies Use of prepaid expenses Change in net financial assets Net financial assets, beginning of year Net financial assets, end of vear 2022 2022 2021 Budget $ 144,820,556 $ 56,628,375 (99,302,508) (3,905,892) 4,494,090 102,7 4 180,632,491 $ 56,628,375 (135,277,969) (3,905,892) 4,494,090 (8,140,732) (1,827,271) 8,450,687 1,505,099 102,558,878 309,588,965 11412.147.843 $ The accompanying notes are an integral part of these consolidIfto,11floWncial statements. 105,527,746 55,588,593 (122,238,702) (900,085) 1,916,825 (7,155,383) (1,906,707) 6,674,597 1,796,008 39,302,892 270,286,073 309,588,965 Page 12 of 264 THE CORPORATION OF THE CITY OF KITCHENER Consolidated Statement of Cash Flow For the Year Ended December 31, 2022 2022 2021 Operating Annual surplus $ 180,632,491 $ 105,527,746 Items not involving cash Amortization of tangible capital assets 56,628,375 55,588,593 Gain on disposals of tangible capital assets (3,905,892) (900,085) Share of net income of Enova Energy Corporation (10,870,521) (10,327,388) Gain on dilution from prior interest in Kitchener Power Corp. and its affiliates (71,288,452) - Share of net income of Kitchener Generation Corporation (49,318) (64,114) Change in employee future benefits 415,195 (26,656) Net change in cash from financing activities (2,237,325) (2,776,849) Capital Acquisition of tangible capital assets (115,120,434) (98,324,096) Proceeds on disposal of tangible capital assets 4,494,090 1,916,825 Net change in cash from capital activities (110,626,344) (96,407,271) Net change in cash and cash equivalents 1,808,665 (29,200,096) Cash and cash equivalents, beginning of year 111,256,413 140,456,509 Cash and cash equivalents, end of year $ 113,065,078 $ 111,256,413 The accompanying notes are an integral part of these consolidated financial statements. Page 13 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 On June 9, 1912 the village of Berlin was officially designated a city. The Corporation of the City of Kitchener (the "City") was created in 1916 when Berlin changed its name to Kitchener. The City operates as a lower tier government in the Province of Ontario, Canada. The City provides municipal services such as fire protection, public works, gas distribution, urban planning, recreation and cultural services and other general government services. 1. Summary of significant accounting policies These consolidated financial statements of the City have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of consolidation Consolidated entities These consolidated financial statements reflect ass ts, liabilit , reserves, surpluses/deficits, revenues, and expenditures of those City funds ove °ental functions or entities which have been determined to comprise a part of the aggregate Cit ions based upon control exercised by the City except for the City's government busines s which ccounted for on the modified equity basis of accounting. The following boardconsolidated financial statements: s, mu luuuum terpn ,,and utilities have been included in the All inter -organizational and inter -fund transactions and balances have been eliminated. ii. Government business enterprises Enova Energy Corporation and Kitchener Generation Corporation are not consolidated but are accounted for on the modified equity basis which reflects the City of Kitchener's investment in the enterprises and its share of net income since acquisition. Under the modified equity basis, the enterprises' accounting principles are not adjusted to conform to those of the City, and inter -organizational transactions and balances are not eliminated. iii. Accounting for region and school board transactions The taxation, other revenue, expenditures, assets and liabilities, with respect to the operations of the school boards and the Regional Municipality of Waterloo, are not reflected in these consolidated financial statements. Page 14 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies (continued) a. Basis of consolidation (continued) iv. Trust funds Trust funds and their related operations administered by the City are not consolidated (see Note 4). b. Basis of accounting i. Accrual basis of accounting The consolidated financial statements are prepared using thN basis of accounting. The accrual basis of accounting recognizes revenues in the period innsactions or events occurred that gave rise to the revenues. Expenses are recognized in goods and services are acquired and a liability is incurred or when an external transfer i, 'eum. ii. Cash and cash equivalents Cash and cash equivalents include cash on hand an"hly liquid investments with original maturity of 90 days or less as at the end of the year. u iii. Trade and other accounts receivable Trade and other accounts rece, uelll repo net of any allowance for doubtful accounts. iv. Loans receivable Loans receivable arene ny allowance for doubtful accounts. Interest income is recorded as it accrues. When value ny receivable is identified as impaired, an allowance is set up to offset the carryi mount an y a Justments are included in materials and services expense in the period the impair „is recogn, d. v. Inventory for Inventory for resale is valued at the lower of cost or net realizable value on an average cost basis. vi. Investments Portfolio investments are carried at cost, net of accumulated amortization on premiums and discounts. Premiums and discounts are amortized on a straight line basis over the term to maturity. Interest income is recorded as it accrues. When the value of any portfolio investment is identified as impaired, the carrying amount is adjusted to the estimated realizable amount and any adjustments are included in investment income in the period the impairment is recognized. Page 15 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) vii. Deferred revenue Government transfers, contributions and other amounts are received from third parties pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs, in the completion of specific work or for the purchase of tangible capital assets. A requirement of the Public Sector Accounting Board of the Chartered Professional Accountants of Canada is that obligatory reserves be reported as deferred revenue. Obligatory reserves include development charges, the Canada Community -Building Fund, building permits, and recr .onal land. In addition, certain user charges and fees are collected for which the related servi ave yet to be performed. These are recorded under the classification Deferred revenue - other. a is recognized in the period when the related expenses are incurred, services performed or thea gible ital assets are acquired. viii. Employee future benefits u lllul��� The contributions to a multi-employer, defined ben n Ian are expensed when contributions are p p due. The costs of post-retirement benefits are re ized when the event that obligates the City occurs. Costs include projected future inc ment alth care continuation costs and fees paid to independent administrators of these plans, I n a sent value basis. The costs of post-retiremeobenareIly ermined using the projected benefits method prorated on service and maestate of retirement ages of employees, salary escalation, expected health care costs stme erformance. Liabilities are actuarially determined using discount rates that are con t rates of high quality debt instruments. Any gains or losses from changes in asence are amortized over the average remaining service period for active emp[ ix. Contamina llusites Contaminated sites define s the result of contamination being introduced into air, soil water or sediment of a chemic r or radioactive material or live organism that exceeds an environment standard. This Standard es to sites that are not in productive use and sites in productive use where an unexpected event resulted in contamination. As of December 31, 2022, no liability is recorded on the Consolidated Statement of Financial Position. x. Non-financial assets Non-financial assets are not available to discharge liabilities and are held for use in the provision of services. They have useful lives that extend beyond the current year and are not intended for sale in the ordinary course of operations. The change in non-financial assets during the year, together with the excess of revenues over expenses, provides the consolidated change in net financial assets for the year. Page 16 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) x. Non-financial assets (continued) a. Tangible capital assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight-line basis over their estimated useful lives as follows: Assets Land Land Improvements Buildings & building improvements Leasehold improvements Machinery & equipment Computer hardware Computer software Linear assets Vehicles b. Contributions of Amortizatweeriod 111111 The or al co_ 10 0 years 1m o 50 years and is not amortized r t seful life of the improvement or the lease to ichever is shorter 1 to 1 ars rto ,i1 ears 5 to 100 years 5 to 16 years Tangible capita ce'I as contributions are recorded at their fair value at time of receipt and are recor as rev ° um c. Leases Leases are class" a ital or operating leases. Leases which transfer substantially all the risks and benefits incide f ownership are accounted for as capital leases. All other leases are accounted for as oper ting leases and the related lease payments are recorded as expenses when incurred. d. Inventory of supplies Inventories held for consumption are recorded at the lower of cost and replacement cost. e. Works of art and cultural and historic assets Works of art and cultural and historic assets are not recorded as assets in these financial statements. Page 17 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies (continued) b. Basis of accounting (continued) xi. Revenue recognition Revenues are recognized in the period in which the transactions or events occurred that gave rise to the revenues. All revenues are recorded on an accrual basis, except when the accruals cannot be determined with a reasonable degree of certainty or when their estimation is impracticable. Government transfers are recognized as revenues when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations g' rise to an obligation that meets the definition of a liability. Transfers are recorded as deferred reve when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement rations as the stipulation liabilities are settled. mullllllllllllum. Government transfers, contributions, and other am s are recti"Xolct rom third parties pursuant to legislation, regulation, or agreement and may onl use in the of certain programs, in the completion of specific work, or the purchase of t 'ble al asset. In addition, certain user charges and fees are collected for which the related service et to be performed. Revenue is recognized in the period when the related expenses a incurred, IIIices performed, or the tangible assets are acquired. IIIA 1111m Tax revenue is recognized when it is aut reported relates to property taxes,,,,iiillllllllllll uum. xii. Use of estimates The preparation of the financi that affect the report at the date of the ncial year. These a ates and provisions, liability contami lives and amortizati re b significantly from future 2. Taxes and accounts receivable eriod for which the tax is levied. Tax revenue ments7tFquires management to make estimates and assumptions sets and liabilities, the disclosure of contingent assets and liabilities �e nd the reported amounts of revenues and expenses during the 'um p ions, including employee future benefits payable, legal claims �d sites, the valuation of tangible capital assets and their related useful d on management's best information and judgment and may differ ults. Taxes receivable are reported net of a valuation allowance of $10,071,810 (2021 - $9,321,997). Trade and other accounts receivable are reported net of a valuation allowance of $1,531,662 (2021 - $1,283,294). Page 18 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 3. Operations of school boards and the Regional Municipality of Waterloo Further to Note 1 a) iii, the taxation, other revenues and requisitions for the school boards and the Regional Municipality of Waterloo are comprised of the following: School Region Total Boards Taxation and user charges $ 80,331,067 $ 301,602,371 $ 381,933,438 Share of payments in lieu of taxes 559 3,272,976 3,273,535 Share of linear properties 45,038 125,279 170,317 Amounts requisitioned $ 80,3„ 64 $ 305,000,626 $ 385,377,290 4. Trust funds Trust funds administered by the City have not been incl d in the IIIIIIIII olidated Statement of Financial Position, nor have their operations been included in the olidat d Statem of Operations. The trust funds under administration are comprised of cemetery p tual a and prepaid interment funds totalling $18,313,775 (2021 - $17,616,272). 5. Loans receivable III Loans receivable are made up of the following: 2022 2021 Major capital improvement loans r° a $ 5,832,783 $ 5,929,891 Loans receivable with for iv 0 ro ns 25,396 25,396 Minor capital improveme d o oa @ceivable 136,057 170,971 $ 5,994,236 $ 6,126,258 Major capital improvemen ns arens ividual loans in excess of $500,000 when issued with no forgiveness provision built into the loan. a have repayment terms ranging from 10 to 12 years (2021 - 10 to 12 years). All major capital impro ans are unsecured and bear interest at rates ranging from 1.32% to 4.10% (2021 - 1.32% to 2.9596). Forgivable loans are those initially offered with forgiveness provisions built into the agreement. All loans in this category are unsecured and have repayment terms of 5 years (2021 - 5 years). The forgiveness provisions are 15% (2021 - 1596). The balances recorded are net of the allowance for forgiveness. Interest rates on these loans are 8% (2021 - 896). Minor capital improvement and other loans receivable comprise any loan receivable not fitting into the first two categories. There is a variety of terms related to these loans with payment terms ranging from 1 to 5 years (2021 - 1 to 5 years). The majority of these loans are secured by the asset the loan was granted to finance, but others are unsecured. The interest rates on these loans are 0% (2021 - 096). Page 19 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 6. Investments Investments are made up of the following: 2022 2022 2021 2021 Cost Market Cost Market Value Value Guaranteed investment certificates $ 199,795,915 $ 202,088,102 $ 186,525,161 $ 188,613,269 Bonds and debentures 29,177,482 25,733,632 32,242,655 31,993,486 Shares 407,606 556,284 281,242 564,401 $ 229,381,003 $ 228,3, 18 $ 219,049,058 $ 221,171,156 Investment in Enova Energy Corporation Under the provincial government's Electricity Competition (Bill 35)°°IIIIII Power Corp. ("KPC"), a holding company, along with its wholly owned subsidiar inclKitc��hener -Wilmot Hydro Inc. ("KWHI"), was incorporated on July 1, 2000. On August 1, 2000, under by-laws passed by the City and t ownship of Wilmot ("Wilmot"), the net assets of the former Hydro -Electric Commission of KitchVC mot transferred to the new corporation. The City took back a 92.25% share in the common shaer er Corp. and a 92.25% share in long-term notes payable by the affiliates for the assets trasurplus property assets and cash funds were excluded from the transfer and turned o�,�,thWilmot. Mergers of the holding companies C&�anate North Hydro Holding Corporation ("WNHC"), and the local distribution companies, KWHiI d ydro Inc. ("WNHI") were approved by the Councils of the City, Wilmot, the City of Water of Woolwich, and the Township of Wellesley in 2021. A Mergers, Amalgamations, A onss application was filed with the Ontario Energy Board on February 4, 2022 and apps Id o e The merger of KPC a' NHC clo on September 1, 2022 and the new holding company continues as Enova Energy Corporatio corpora amalgamated under the laws of Ontario. The City obtained a 53.39% share of the common share En Energy Corporation and the long-term notes payable were re -issued at the same amount and rates. sult of the transaction, the City recorded a gain of $71,288,452 on dilution from its prior interest in KPC. Im ediately following, KWHI and WNHI legally amalgamated on September 1, 2022 and the new local distribution company continues as Enova Power Corp., a corporation amalgamated under the laws of Ontario. Enova Power Corp. is 100% owned by Enova Energy Corporation. The City's investment in Enova Energy Corporation (2021 - KPC) is comprised of the following: 2022 2021 Common shares $ 174,183,807 $ 61,244,208 Long-term notes receivable 70,997,576 70,997,576 Share of net income and prior period adjustments due to changes in accounting policies since acquisition, net of dividends 61,789,574 99,000,025 $ 306,970,957 $ 231,241,809 The Enova Energy Corporation notes are unsecured and bear interest at the rate of 3.23% (2021 - 3.2396). There are no repayment terms and there is no intent to redeem the notes or the shares. Page 20 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 7. Investment in Enova Energy Corporation (continued) The continuity of the City's investment in Enova Energy Corporation (2021 - KPC) for the year ended December 31, 2022 is as follows: 2022 Balance, beginning of year $ 231,241,809 Share of net income of Kitchener Power Corp. and its affiliates for the period from January 1, 2022 to August 31, 2022 6,306,210 Dividends received from Kitchener Power Corp. from January 1, 2022 to August 31, 2022 ullllllllllllllllu^ (6,429,825) Balance, September 1, 2022 Gain on dilution from prior interest in Kitchener Power Corp. a Share of net income of Enova Energy Corporation for the peri September 1, 2022 to December 31, 2022 mullllll Dividends received from Enova Energy Corporation frorgl pi to December 31. 2022 um Balance. end of vear Balance, beginning of year Share of net income for year Dividends received during ye Balance. end of vear m 1, 2022 231,118,194 71,288,452 4,564,311 $ 306,970,957 2021 $ 224,960,021 10,327,388 (4,045,600) $ 231,241,809 The following table pro ill conde fin'Spial information with respect to Enova Energy Corporation (2021 - KPC) for its fiscal 2022°° r: " 2022 2021 Financial position Current assets $ 93,352,000 $ 46,263,000 Non-current assets 731,509,000 291,824,000 Regulatory assets 51,872,000 25,396,000 Total assets 876,733,000 363,483,000 Current liabilities 71,051,000 42,578,000 Long-term debt 228,630,000 76,963,000 Regulatory liabilities 14,717,000 4,543,000 Other liabilities 119,031,000 64,813,000 Total liabilities 433,429,000 188,897,000 Net assets $ 443,304,000 $ 174,586,000 Page 21 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 7. Investment in Enova Energy Corporation (continued) Page 22 of 264 Forthe Forthe period period January 1, September 1, 2022 to 2022 to August 31, December 31, 2022 2022 2021 Results of operations Revenues $ 183,695,000 $ 155,208,000 $ 257,588,000 Expenses (176,8 00) (146,659,000) (246,393,000) Net income ,000 8,549,000 11,195,000 City's share of net income - 53.39% (2021 - 92.2596) $ III 10 $ 4,564,311 $ 10,327,388 8. Investment in Kitchener Generation Corporation Under the provincialgovernment's Business Corp jjj Kitchen Generation Cor oration was incorporated on December 9, 2011. gKitchener Effective January 1, 2012, the City transferred t roof a constructed on the surface of the Kitchener Operations Facility to Kitchener Generation Co r exc ge for 100% of its common shares and interest bearing debt. The investment in Kitchener Generatiation comprised of the following: 111111111��� 2022 2021 Common shares 185,801 209,027 Long-term notes receiv 1,672,213 1,881,239 Share of net income sacquis\et of dividends - - $ 1,858,014 $ 2,090,266 The notes receivable areun and bear interest at the rate of 5.01%. To the extent that Kitchener Generation Corporation has posi a annual cash flows after any dividend payment, the cash will be returned to the City as repayment of the outstanding debt and return of capital. The proportion to which they contribute is 90% debt, 10% equity. Page 22 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 8. Investment in Kitchener Generation Corporation (continued) The continuity of the City's investment in Kitchener Generation Corporation is as follows: 2022 2021 Balance, beginning of year $ 2,090,266 $ 2,316,914 Share of net income for year 49,318 64,114 Dividends received during year (49,318) (56,589) Return of capital (23,226) (23,417) Repayment of outstanding debt (209,026) (210,756) Balance, end of year $ 1,858,014 $ 2,090,266 The following table provides condensed financial information with,11111100016111110 Kitchener Generation Corporation: 2022 2021 Financial position Current assets ""'iillllll $ 11,478 $ 7,676 Capital assets 1,858,012 2,090,264 Total assets 1,869,490 2,097,940 Current liabilities 11,476 7,674 Long-term debt 1,672,213 1,881,239 Total liabilities ullllll mu 1,683,689 1,888,913 2022 2021 Results of operations Revenues $ 386,220 $ 401,175 Expenses (336,902) (337,061) Net income 49,318 64,114 City's share of net income - 100% $ 49,318 $ 64,114 Page 23 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 9. Insurance pool Accounts payable and accrued liabilities include an amount of $12,733,568 (2021 - $10,581,610) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool (the "Pool") and administered by the City on behalf of the Pool's members. The members entered an agreement in 1998 to purchase property damage and public liability insurance on a group basis and share a retained level of risk. The members pay an actuarially determined annual levy to fund insurance, prefund expected losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductible and any losses above a predetermined total in any year. The City's share of Pool levies is 26.19% (2021 - 23.0296) and its share of the Pool's cumulative surplus as at May 31, 2022 was $1,644,228 (2021 - $1,805,325). The City's share ohe Pool's cumulative surplus has not been included in the Consolidated Statement of Financial Position. mullllll� 10. Deferred revenue -obligatory reserve funds Obligatory deferred revenue is comprised of the following: Development charges Canada Community -Building Fund Building Recreational land The continuity of obligatory d IIIIIIIIIVay a Commun top ent Building charges Fund 45,833,994 10,881,638 13,703,780 12,331,116 46,022,757 12,773,507 14,657,882 9,660,257 $ 82,750,528 $ 83,114,403 Recreational Building land Total Balance, January 1, 2022 lllll 46,022,757 $ 12,773,507 $ 14,657,882 $ 9,660,257 $ 83,114,403 Collections 27,003,435 7,396,672 1,761,269 2,896,115 39,057,491 Interest earned 408,670 77,324 294,048 189,588 969,630 Deferred revenue recognized (27,600,868) (9,365,865) (3,009,419) (414,844) (40,390,996) Balance, December 31, 2022 45,833,994 10,881,638 13,703,780 12,331,116 82,750,528 Balance, January 1, 2021 35,029,877 6,302,509 13,818,330 5,526,943 60,677,659 Collections 32,829,023 14,507,301 704,789 4,128,995 52,170,108 Interest earned - 89,115 144,637 87,161 320,913 Deferred revenue recognized (21,836,143) (8,125,418) (9,874) (82,842) (30,054,277) Balance, December 31, 2021 $ 46,022,757 $ 12,773,507 $ 14,657,882 $ 9,660,257 $ 83,114,403 Page 24 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 11. Municipal debt The City has assumed responsibility for the payment of principal and interest charges on certain long-term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $57,724,950 (2021 - $59,962,275). The annual principal repayments are: 2023 2024 2025 2026 2027 2028 and thereafter 1 9,483,327 8,662,268 9,069,372 8,830,468 5,815,174 5.864.341 $ 57,724,950 The annual principal and interest payments required to a municipal debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municip fairs and Housing. The municipal debt carries interest rates rangi 0% 5.65% (2021 - 0.30% to 5.6596). Interest charges for 2022 relating to municipal debt totalle 1,8 1 - $1,603,561). 12. Pension plan The City makes contributions toree "1''Employees' Retirement System (OMERS), which is a multi-employer plan, on behalf ofa defined benefit plan which specifies the amount of the retirement benefit to be rec sed on the length of service and rates of pay. Employee contributions are match y th were required on account of current service in 2022 amounting to $11,994, (2021 -The latest available repo thes at December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit, d ctuarial liabilities of $130.3 billion and actuarial assets of $123.6 billion. Ongoing adequacy of the curre tribution rates will need to be monitored and may lead to increased future funding requirements. As at Dece ber 31, 2022, the City has no obligation under the past service provisions of the OMERS agreement. 13. Employee future benefits The estimated liability for employee future benefits is comprised of the following: 2022 2021 Sick leave benefit plan $ 21,048,254 $ 20,869,210 Post-retirement benefits 24,344,236 23,658,385 Future payments to WSIB 9,257,800 9,707,500 $ 54,650,290 $ 54,235,095 Page 25 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) Significant actuarial assumptions 2024 Workplace Safety Insurance Sick Leave & Post - 2025 Board Retirement Benefits 990,076 2022 2021 2022 2021 Discount rate 5.00 2.75 5.00 2.75 Salary growth assumptions N/A N/A 3.00 3.00 CPI increase assumptions 2.502.00 2.50 2.50 V^ $ 12,127,708 Health care initial trend rate N/A N/A 5.90 5.90 Health care ultimate trend rate N/ N/A 4.50 4.50 Dental care initial trend rate /A /A 4.00 4.00 Dental care ultimate trend rate N/A 4.00 4.00 a. Sick leave benefit plan Under the sick leave benefitIan unused sic p �Y ve ca ulate and certain employees ma become entitled to cash payments when they leave the me he amount of benefits paid during the year were $1,953,862 (2021 - $2,550,997). A reserve fund to provide for this liabili uded cllllcumulated surplus, in the amount of $6,473,313 (2021 - $6,332,903). Anticipated undiscounted payment° Item re eligible to retire are: 2023 $ 3,473,703 2024 916,480 2025 990,076 2026 830,231 2027 788,047 2028 and thereafter 5,129,171 $ 12,127,708 The actuarial valuation of the future liability for sick leave assumes a discount rate of 5.00% (2021 - 2.75%). The last actuarial valuation for this liability was completed at December 31, 2020. Page 26 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) a. Sick leave benefit plan (continued) The actuarial expense for the current year was $2,132,906 (2021 - $2,158,899) and is comprised of the following items: 2022 2021 Current period benefit cost $ 1,286,234 $ 1,324,175 Amortization of actuarial losses 276,463 339,204 Sick leave benefit expense1 562 697 1,663,379 Sick leave benefit interest expense Vu 570,209 495,520 Total expenses related to sick leave benefits $ 2,132,906 $ 2,158,899 As at December 31, 2022, the unamortized actuarial gains (Is) were 1,247 (2021 - $443,601) and are amortized over 11 to 13 years (2021 - 11 to 13 years). 111111111l���O`e u b. Post-retirement benefits ""iillllll ui° The City pays certain health, dental and life ins enefits ehalf of its retired employees up to the age of 65 if they have at least ten years of service wi h he ount of benefits paid during the year were $1,185,801 (2021 - $1,257,388). The City holds no reserve to meet this�� The actuarial valuation of the fu liabil os t tirement benefits assumes a discount rate of 5.00% (2021 - 2.75%) and inflation rates ms of 4.0% to 5.9% (2021 - 4.0% to 5.9%). The last actuarial valuation for this lia ' as III leted at December 31, 2020. The actuarial expense,fe year $1, 652 11111�1� 111111111' (2021 - $2,252,930) and is comprised of the following items: AF 2022 2021 Current period benefit cost 1,126,425 1,199,344 Amortization of actuarial losses 113,028 516,731 Post-retirement benefit expense 1,239,453 1,716,075 Post-retirement benefit interest expense 632,199 536,855 Total expenses related to post-retirement benefits $ 1,871,652 $ 2,252,930 As at December 31, 2022, the unamortized actuarial gains (losses) were $6,059,480 (2021 - $1,202,863) and are amortized over 11 to 13 years (2021 - 11 to 13 years). Page 27 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 13. Employee future benefits (continued) 'SVT 91? The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf of the City as a Schedule 2 employer. The amount of benefits paid during the year were $2,465,700 (2021 - $2,366,600). A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,248,311 (2021 - $4,789,470). The actuarial valuation of the future liability for WSIB assumes a discount rate of 5.00% (2021 - 2.7596). The last actuarial valuation for this liability was completed at December 31, 2102. The actuarial expense for the current year was $2,016,000 (202 $1,736,500) and is comprised of the following items: mullllll um. As at December 31, 2022, the una ctua amortized over 12 years (2021 - 12 rs). 14. Tangible capital assets III�. 2022 2021 $ 996,400 $ 912,400 702,300 573,800 1,698,700 1,486,200 317,300 250,300 $ 2,016,000 $ 1,736,500 losses were $2,296,900 (2021 - $2,066,000) and are The continuity schedulegib ita' lllpts is presented in Schedule A. Assets under construhaving a lue of $68,956,354 (2021 - $53,812,220) have not been amortized. Amortization of these ass ill com ce when the assets are put into service. Contributed tangible capital a $20,157,534 (2021 - $23,914,606) have been recognized at fair market value at the date of contribution. a contributed assets include land rights 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 (2021 - $nil). The amount of interest capitalized was $nil (2021 - $nil). Page 28 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 15. Accumulated surplus The accumulated surplus consists of individual fund surpluses/(deficits) and reserve funds as follows: 2022 2021 Surplus: Invested in tangible capital assets $1,467,695,615 $1,389,634,219 Other 34,773,543 18,815,880 Investment in Enova Energy Corporation 306,970,957 231,241,809 Investment in Kitchener Generation Corporation Vu 1,858,014 2,090,266 Employee future benefits (unfunded) VIII (54,650,290) (54,235,095) Total surplus llll llllll uu 1,756,647,839 1,587,547,079 Program specific 11,890,075 10,059,829 Corporate 14,366,049 13,631,628 It 126,679,576 115,002,528 Reserve funds set aside for specifi es b onsolidated entities: Kitchener Public Library lull Kitchener Downtown Improvement A 584,339 and of Management 50,000 735,262 50,000 The Centre in the Square VIII 1,869,415 1,863,809 2,503,754 2,649,071 Total reserve funds 129,183,330 117,651,599 Accumulated surplus $1,885,831,169 $1,705,198,678 16. Contingent liabilities Legal actions have been undertaken against the City relating to a number of contract disputes and other matters. The outcome of these actions is not presently determinable. It is management's opinion that the City's insurance will adequately cover any potential liability arising from these contract disputes and other matters. Should any liability be determined and not covered by insurance it will be recognized in the period when it is determined. Page 29 of 264 THE CORPORATION OF THE CITY OF KITCHENER Notes to the Consolidated Financial Statements For the Year Ended December 31, 2022 17. Segmented information The City of Kitchener is a diversified municipal government institution that provides a wide range of services to its citizens, including fire, roads, water, sewer, storm sewer, gasworks, libraries, and community services. Segmented information has been presented in Schedule B by major functional classification of activities provided, consistent with the Consolidated Statement of Operations and provincially legislated requirements. For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The accounting policies used in these segments are consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 1. 11111. 18. Budget figures The budget figures reflected in these consolidated financial meeting on December 13, 2021. Budget figures have been standards. 111111111llllOl 19. Comparative figures Certain of the prior year's comparative figu presentation. 20. Subsequent events Financial statements are require] statements and the date of the a existed as at year end. 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Z N O N O m M r � N QE mE V O 0 W W O W m vI � R M f0 M 00 00 f0 IO ' N M IO N W y000 f0 O 00 r f0 O 00 M f0 I- 0 W 't F O N N f0 N 00 M- 00 a M r M W I� .4 W 00 N f0 In r 1p N M 00 In M O 00 a) O W r I-rl 00 Cl) N WM_ r IO Il 00 M O CO O O 00 N N IIL f0 O IO I- f0 N IO I- 00 IO CO W CO r O N O M r IO IO W IO It N N N r N 00 f0 IO I- M O r V3 V3 y Y Cl) ' Cl) ' ' ' ' W ' N r I- M W In ' r W 00 M M O I- a) W N M O M p 3 O f0 In M 00 M O r W� ( 00 r IO N M r' IO W y R N IO N a M W a) W M I- ao M a O M (q N M O O 0 O IO a) IO 00 a r I- 00 Cl) IO N V3 V3 r C 00 a) 't' IO ' r ' ' 't N It N W 00 - IO 00 W 0) R E O O f0 I- IO (q (q IO IO Cl) O IO IO 00 a M N It r% N IO M a) a Q In O M W W Cl) IO IO O CO N N CO I- CO S O 'a MLO a) 0 IO 00 O CO IO W W N f� f� M O Cl) M M I, CO a) C > Il N In N N R y ao » of 0 R y N IO ' fO W a O M O a r IO a .R U 00 N C W 0 O IO N f� O N ItO C I r O O N N 00 O� O f� f0 00 O N �, = r - � M �� � ` 0) O M I- Cl) f0 00 N f0 00 O f0 IO O M IO 00 't M 00 00 I- I- UU y 00 M 00 O IO r N O In 00 In f0 IO N 'O C IO M O Cl) O I- O I- M M W R V3 V3 m'E M N O R U r 00 N *� IO W N IO a) N M a) N W 0 00 R y a 06 IO N O ( Iz N W f0 a U LO 0 LO � M rN N OoW 00 y r N r N W.' V3 IIIA V3 r y M 11 O ' ' IO r W M IO I- ' 00 M00 r R U Cl) a) IO N N O M M I- IO .` f� N IO In W W In Cl) Ip r N = 0) f060 N a) M r M M W CIF (6 y M N IO IO IO IO 00 N N M M R y N IO O I- M I- ' 00 a N U Cl) LO 01 N r� NO N CO a) W r r f0 00 00 N N _ 00 It O Ip N Ip O In 00 4 N M 00 M O O co N r IO Cl) It a t IO (0 N 00 In O _ N 00 N Il r W a) 04 M W C y O d 00 f0 r IO ' 00 ' ' 0 0 a) O Cl) f0 U N r f0 r f0 M IO O O M f0 In f0 fO O O 00 M f0 O f0 00 00 r N M M O v N I- In f0 r N I -LO W IO T N 00 M N M M N 00 IO T N O r 0000_ F 60) C y OIO W N ' I. ' ' ' ' IO IO 00 't O Cl) U IO N W W a) Ip a) f0 O c r M00 O N U r r +�-0) M In M r IO a) I O T N ( W N IO O O f0 O y It r r N (0 a N d a) 00 r O In IO M r M IO 94,0 O IO ' 00 00 M M O O f- 00 N N O N0) O 00 a) M M IO a) r- E f0 N 00 In M r f0 N r r% 't r r 00 �E O r M M a r W I- I- M M 00 O N W It a N It r M a) N O IO M 0o O IO IO It � a) IO N O N O N N ( O W't j00 0 O N r 00 IO M r O IO 00 00 .... 00 f0 46 N IO M N CO N 60) 60) y (4 w 0 � .o y m o a 2- m Q U w 0 `0 0 R cl R y o a 0 R d N N m y Q Q X A L L >. y ... E R Q U o 0 > o Y Y E a o w .m In) w o w 21 OW O o o v a �_ o Q 'sem o R `y m °� E E E c m Z °� m y L w y N a y y a w y a x a) a m N o p y w .4 3 a g} H y E 0) Q C-2 j y _ R U R R X O E N p o o R N .p- C N 0) R d d U 0) > X 0) > C N C > R R L R 0) R p 0) o N E R im W H Z) 0 U S 00 o rn rn F O U) W J F N 4 O LL J'a"Im, M, KPMG LLP 120 Victoria Street South Suite 600 Kitchener, ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Mayor and Members of Council, Inhabitants a the City of Kitchener Opinion We have audited the financial sta- City of Kitchener (the Entity), which the statement of continuity for and notes to the accounting poligj� (Hereinafter contil standards. Basis for payers of The Corporation of Funds of the Corporation of the , including a summary of significant Ianying financial statements present fairly, in all material Y the Entity as at December 31, 2022, and the statement of ended in accordance with Canadian public sector accounting We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. l(l111 1110111111' 111111I'A11MliililyiidIIIu:1,ItrirIIW111;11Ili ol1111111[ho I',lvel1r11.ovrII111rX1'vIRi11'1Iuv)(9llI,)oI1[ 111 ^rr11�+.1 11111 M1"1'111 Myna 101 KI NC 111[ol im flu 1� l L...11111loni M 1-rlvr [o I �url1„x11111 r Mary 111111loni Iw 1nw mkms. v� (, M1` M1I r�11 vui�;, ")ivi w, 11 I It,fI'UW 1 1 I::. Page 35 of 264 J'a"Im, M, Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. TIIII„, In preparing the financial statements, managem is responsible for assessing the Entity's ability to continue as a going concern, di s l�ll s applicable, matters related to going concern and using the going concern $,cafio I�of acco Inless management either intends to liquidate the Entity or to ceasens, or ha realistic alternative but to do so. 4 IIIIIIIII Those charged with governance are res le for overseeing Y the Entity's financial reporting process. Auditor's Responsibilities %W JW of the Financial Statements Our objectives are44(0btain sona assurance about whether the financial statements as a whofr���� rom tatement, whether due to fraud or error, and to issue an Auditor's rep ti „ t includes our opinion. Reason assurait is dtiti111 h level of assurance, but is not a guarantee that an audit conduc ��II accords with Canadian generally accepted auditing standards will always detect a mement when it exists. �IIIIIIII � Misstatements c anse from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Page 36 of 264 J'a"Im, M, Page 3 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures maor management. • Conclude on the appropriateness of manage e of the going concern basis of accounting and, based on the audit eviden obtV� whether a material uncertainty exists related to events or conditions t lumay cast s� lli icant doubt on the Entity's ability to continue as a going con If w �IIVu,conclude ��at a material uncertainty exists, we are required to draw ti our Auditor's report to the related disclosures in the financial statement if such disclosures are inadequate, to modify our opinion. Our con ull�ll�l areb ion the audit evidence obtained up to the date of our Auditor's rep Ho"illll ut a events or conditions may cause the Entity to cease to co IIIIII a as a con c n. IV�II�l�ljl� �I� • Evaluate the ov pre tatio tructure and content of the financial statements, including the closeIIIllllllll�����i��� ether the financial statements represent the underlying trans and ev� s in a manner that achieves fair presentation. • Com O�IIIIIca111�11������ th charged with governance regarding,amon other matters g g g the nned scop nd �� ing of the audit and significant audit findings, including any signi �j„ deficien s in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada DRAFT Page 37 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Balance Sheet As at December 31, 2022 2022 2021 Assets Accounts receivable $ 36,485 $ 47,141 Interest receivable 131,586 140,846 Loans receivable (Note 2) 419,968 473,180 Investments (Note 3) Short-term 2,865,512 1,528,320 Long-term 14,860,224 15,426,785 18,313,775 17,616,272 Fund Balance The accompanying notes are an integral part of these financial s 100nents. $18,313,775 $17,61 Page 38 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Statement of Continuity For the Year Ended December 31, 2022 2022 2021 Receipts Perpetual care funds $ 461,298 $ 559,284 Interest earned 428,059 421,771 Other 72,115 111,157 961,472 1,092,212 Expenditures Transfer to cemeteries operations 263,969 262,380 263,969 262,380 Net chan a in fund 697,503 829,832 Balance, beginning of year 17,616,272 16,786,440 Balance, end of year $ ���l�ll��ti�18,313,775 $ 17,616,272 The accompanying notes are an integral part of these finan Page 39 of 264 THE CORPORATION OF THE CITY OF KITCHENER TRUST FUNDS Notes to the Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies These financial statements of the Corporation of the City of Kitchener Trust Funds have been prepared in accordance with Canadian generally accepted accounting principles for public sector entities as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of accounting Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes receipts as they become available and meas ale; expenditures are recognized as they are incurred and measurable as a result of receipt of good services and the creation of a legal obligation to pay. um 2. Loans receivable lu^ "0illl During 2019, under authorization of the Bereavement A ity of ntario tlllhlllowoodland Cemetery Perpetual Care Trust issued a loan to the Corporation of the City the n the amount of $575,000. The loan bears interest at 3% and will be repaid over ten years beginning i ary 2020. 3. InvestmentsIllll��ll�lll�lll�lll�ll�lll�llll�ll�lll�lll�u�u�i�n�«�,n,. The long-term investments of $14,860,224 (20215 '7801=eported on the Balance Sheet at cost, have a market value of $14,431,282 (2021 - $1M , P21). \ 4. Statement of cash flow A separate statemei activities are readily resented, since cash flows from operating, investing, and financing r,.financial statements. Page 40 of 264 I Z LL F- I F - w LU Z LU 2 U F— Y LL 0 F— L) W 2 H LL LL N 04 Z N 0 >+ M Q E v 0 00 a U � O � i O mw LU m 2 � L V) LL V! C E N V! L Q V! O— N W) M 0M 14; h W OI W, &0 CO CD W r &0 00 w M r �D h g N r r 00 ui W O N 00 W M ^ COW - O V r N M W M &0 &0 co 100 vl> N M N le h W) O h M 00 M h m co m O V M N V m 00 M T M N 1 r r r r r r O O O O O CO M M ll N h 00 r M CD N CD -4 W) O O M T W) -4 -4 r W 1 N T �D M � ""0�iillllll� T WW) h r W) W CD Cl) W) w T O-4 CD W) T O N M N W W — cD V O W) le CD V) N i i LL EN N N .y. D W C 0) U (1)U U U '� U °� o R o o o� N �E' 110! -0) 7 2 N N N N 0) ._ > 0CL 0) 00 -o d E LLI LL c O p 0 > p , 0) N d > m> (n U LL LL J W U` W W d N O r 0) J'allim, M, KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 To M We Ma W INDEPENDENT AUDITOR'S REPORT lanagement nprovement Area Board of >2 d surplus for the sar then ended ary of significant In our n, p' accompanying financial statements present fairly, in all material respects7%11 cial position of the Entity as at December 31, 2022, and its results of operations, an its changes in net financial assets for the year then ended in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. t,l Wv 1 1 I11, 11' 011 k1 I'I III IIIA Il11JIIIv r Mi lv�; d v 11W II olI Ijol 111111 r.,11 lv; KIINC irI, IjMI i,,wIv A1, 1I i.,II iv,)o1p lI,)oIIR 1v�:11 +.1 Ilrr1 M11111 i WIMI KI NC 1111�:11� [I'llml 111111[oo rI r11 [o I!.�7irlly 1 n1 jpwly Iu1111o(j Iry Ina M1 Mvkm It,l I �, rr M1 M r11 vuirsti v:1vi -s R1 I I'd 11 L...111''. Page 42 of 264 J'a"Im, M, Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necess y to enable the preparation of fistatements that are free from material 1nancial� ement, whether due to fraud or error. ��IIIIIIIum. In preparing the financial statements, ma cement is"""11111111 onsible for assessing the Entity's ability to continue as a going conc disclosing as licable, matters related to going concern and using the going conc basi accounting unless management either intends to liquidate the Entity or to cease ons, or has no realistic alternative but to do so.ml�����mv,.. Those charged with reporting process. Auditor's Our objectives e to as a whol issue an ditor's rel ReasonablalllllI conducted in %a,, detect a material for overseeing the Entity's financial Audit of the Financial Statements ;onable assurance about whether the financial statements rial misstatement, whether due to fraud or error, and to ludes our opinion. 145`1"is a high level of assurance, but is not a guarantee that an audit ce with Canadian generally accepted auditing standards will always atement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Page 43 of 264 J'a"Im, M, Page 3 • The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures madlio,management. • Conclude on the appropriateness of manage accounting and, based on the audit eviden ue ,, exists related to events or conditions t� rr ability to continue as a going con If exists, we are required to draw a Ill ti disclosures in the financial statement 11 of the going concern basis of fft!�jg;e a�I hether a material uncertainty ay cast s��� Ill0�q(cant doubt on the Entity's f 1,,conclude at a material uncertainty our Auditor's report to the related if such disclosures are inadequate, to modify our opinion. Our con °'�i��are b�Ion the audit evidence obtained up to the date of our Auditor's repo Hot a events or conditions may cause the Entity to cease to co ���� a as a concern. • Evaluate the ov pre �tatio tructure and content of the financial statements, including the closIIIII�Illl�lll���������� ether the financial statements represent the underlying transa ns in a manner that achieves fair presentation. • Com VfVi-ate" th" � ��Ilicharged with governance regarding, among other matters, the "'Ir scop nd ti in of the audit and significant audit findings, including any signi „ deficient sin in control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada DRAFT Page 44 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position As at December 31, 2022 2022 2021 Financial assets Cash $ 18,491 $ 19,992 Accounts receivable - 6,025 18,491 26,017 Financial liabilities Accounts payable and accrued liabilities 12,254 7,000 Net financial assets (liabilities) 6,237 19,017 Non-financial assets Tangible capital assets (Note 2) Prepaid expenses Net assets Accumulated Surplus Accumulated net revenue (deficit) Invested in tangible capital assets Total accumulated surplus The accompanying notes are an integral `'ft of tql e fina1jWjal statements. 51,030 1,195 25 7,432 51,030 43,057 1,056 44,113 63.130 20,073 43,057 63,130 Page 45 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus For the Year Ended December 31, 2022 2022 2021 Revenue 57,288 (4,668) Assessments $ 41,890 $ 40,670 Grants - 18,000 Other revenue 48,938 5,840 90,828 64,510 Expenses Streetscaping 39,552 15,277 Audit 1,808 1,808 Insurance 3,117 2,129 Winter maintenance 27,758 16,127 Advertisin g 9,599 12,485 Miscellaneous 8,280 5,028 Amortization um. �lllu 5,382 4,434 Net surplus (deficit) for year Accumulated surplus, beginninc Accumulated surplus. end of The accompanying notes are an of statements. 95,496 57,288 (4,668) 7,222 63,130 55,908 $ 58,462 $ 63,130 Page 46 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Change in Net Financial Assets For the Year Ended December 31, 2022 2022 2021 Net surplus (deficit) for year $ (4,668) $ 7,222 Acquisition of tangible capital assets (13,355) (903) Amortization of tangible capital assets 5,382 4,434 Acquisition of prepaid expenses (139) (138) Change in net financial assets (12,780) 10,615 Net financial assets, beginning of year 19,017 8,402 Net financial assets (liabilities), end of year $ 6,237 $ 19,017 The accompanying notes are an integral part of these financial state Page 47 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2022 1. Summary of significant accounting policies The financial statements of the Belmont Improvement Area Board of Management (the "Board") have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a) Accrual basis of accounting The financial statements are prepared using the accru accounting recognizes revenues in the period in which the to the revenues. Expenses are recognized in the perioc liability is incurred. b) Tangible capital assets Tangible capital assets are recorded at cost whi acquisition, construction, development or betterAl tangible capital assets is amortized on a straight-line punting. The accrual basis of events occurred that gave rise services are acquired and a clud ll amounf° that are directly attributable to of asset. The cost less residual value of the over their estimated useful lives as follows: Assets IIII�I ortizn Period Machinery & equipment�"5 to 15 years Computer hardware �����I�UIIIUIIIIIIIIIIII�I««������� 2 ears Tangible capital assets rece as «�II re recorded at their fair value at time of receipt and are recorded as revenue. lum uuillllll11 c) Use of estimates The preparationA he financi6 tatements requires management to make estimates and assumptions that affect the repo amount f assets and liabilities, the disclosure of contingent assets and liabilities at the date of the fin 1 I st ents and the reported amounts of revenues and expenses during the year. These estimates sumptions, including the valuation of tangible capital assets and their related useful lives and a ortization are based on management's best information and judgment and may differ significantly from future actual results. Page 48 of 264 BELMONT IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements For the Year Ended December 31, 2022 2. Tangible capital assets Cost Balance, beginning of year Additions Machinery & Computer Equipment Hardware Total 60,426 $ 131355 1,356 $ 61,782 - 13,355 Pp' Balance, end of year 3,781 1,356 75,137 Accumulated amortization Balance, beginning of year (17) (1,017) (18,725) Disposals - - p pu Amortization expense (5,043) (339) (5,382) Balance, end of yearl 22,751 (1,356) (24,107) Net book value, end of year 51,030 - 51,030 Net book value, beginning of year $ 42,718 $ 339 $ 43,057 3. Related party transactions During the year the Board �IIIII� ra�uN1 I support fees of $25,000 (2021 - $5,650) to the Corporation of the City of Kitchener, its utli con ppYY g These are included in streetscaping expenses on the Statement of Revenue and Expert and Acclm ate�urplus. 4. Statement of cash flow II A separate statement of cash is 11 N is not presented, since cash flows from operating, investing and financing activities are readily apparent from the other financial statements. Page 49 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT Opinion We have audited the financial statements of Kitchener Downtown Improvement Area Board of Management (the "Entity"), which comprise: • the statement of financial position as at December 31, 2022 • the statement of revenue and expenses and accumulated surplus for the year then ended • the statement of changes in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2022, and its results of operations, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. .I'�(( IIP. �n Om�rio ]�mn d li�bilin pn�u r,liip end m caber (u m (lie F.I'�(( �I�bal r��ni��ti� u (iud p:mdent m mhr(irm, lllilrn:zf nli h.I'�((�fiii runr u��l limnd�Prn'n Iu�lisla. mpuu lun dlx euaruuac. Page 50 of 264 Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Page 51 of 264 I 'I lip 1� I R-1 rm Page 3 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. «P Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada May 24, 2023 Page 52 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Financial Position Year ended December 31, 2022, with comparative information for 2021 2022 2021 Financial Assets Cash $ 642,649 $ 346,072 Term deposits (note 2) 116,537 115,670 Accounts receivable 77,853 406,075 Prepaid expenses 17,249 8,120 854,288 875,937 Financial Liabilities Accounts payable and accrued charges 437,303 428,758 Due to the City of Kitchener (note 4) 21,606 29,972 458,909 458,730 Net financial assets Non -Financial Assets Tangible capital assets (note 5) 395,379 417,207 724,560 610,999 Net assets $ 1,119,939 $ 1,028,206 Accumulated Surplus Reserve for rate stabilization Accumulated net revenue Invested in tangible capital assets $ 50,000 $ 50,000 345,379 367,207 724,560 610,999 Total accumulated surplus $ 1,119,939 $ 1,028,206 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 53 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Revenue and Expenses and Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 Budget Actual Actual 2022 2022 2021 (note 7) Revenue Assessments $ 1,379,000 $ 1,379,000 $ 1,379,000 Interest - 867 749 Other income (note 6) 95,000 81,669 372,885 1,474,000 1,461,536 1,752,634 Expenses Promotions and advertising 759,000 639,669 380,610 Salaries, wages and benefits 417,500 428,782 398,447 Administration 106,500 111,435 90,670 Meetings and seminars 4,000 4,428 183 Safety and beautification 97,000 86,453 82,276 Member relations 10,000 8,339 7,388 Amortization - 69,091 44,904 1,394,000 1,348,197 1,004,478 Net revenue before other items 80,000 113,339 748,156 Net assessment write-offs (note 4) 45,000 21,606 29,972 Annual surplus 35,000 91,733 718,184 Accumulated surplus, beginning of year 1,028,206 1,028,206 310,022 Accumulated surplus, end of year $ 1,063,206 $ 1,119,939 $ 1,028,206 See accompanying notes to financial statements. Page 54 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Changes in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements Page 55 of 264 2022 2021 Annual surplus $ 91,733 $ 718,184 Acquisition of tangible capital assets (182,652) (634,453) Amortization of tangible capital assets 69,091 44,904 Change in net financial assets (21,828) 128,635 Net financial assets, beginning of year 417,207 288,572 Net financial assets, end of year $ 395,379 $ 417,207 See accompanying notes to financial statements Page 55 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 2022 2021 Cash provided by (used in): Operating activities Annual surplus $ 91,733 $ 718,184 Item not involving cash: Amortization 69,091 44,904 Changes in non-cash assets and liabilities: Accounts receivable 328,222 (373,684) Prepaid expenses (9,129) 1,701 Accounts payable and accrued liabilities 8,545 238,733 Due to the City of Kitchener (8,366) (78,025) Cash from operating activities 480,096 551,813 Investing activities: Acquisition of tangible capital assets (182,652) (634,453) Purchase of investments (867) (749) Cash used in investing activities (183,519) (635,202) Increase (decrease) in cash 296,577 (83,389) Cash, beginning of year 346,072 429,461 Cash, end of year $ 642,649 $ 346,072 See accompanying notes to financial statements. Page 56 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements Year ended December 31, 2022 1. Summary of significant accounting policies: Kitchener Downtown Improvement Area Board of Management (the "Board") is established for the main purpose of revitalizing the Central Business District of the City of Kitchener. It is designated as a Business Improvement Area (BIA) through the Ontario Municipal Act and a City of Kitchener by-law enacted in 1977. The financial statements of the Board are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments, as recommended by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment. (a) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land and landfill sites, are amortized on a straight-line basis over their estimated useful lives as follows: Asset Useful Life - Years Computers 4 years Furniture and fixtures 7 years Leasehold improvements 7 years Event equipment 10 years Patio equipment 5 - 12 years Structures 5 years Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue. (b) Accrual basis of accounting: The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. Page 57 of 264 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2022 1. Summary of significant accounting policies (continued): (c) Revenue recognition: Revenues are recognized as follows: The Board Assessment revenue is recorded on an annual basis using the proportionate share of the total number of businesses for the year and an annually established rate per business. Revenue is recognized when assessed. Other revenues are recorded upon sale of goods or provision of service when collection is reasonably assured. 2. Term deposits: The term deposits consist of the following: Principal Maturity Rate $ 11,062 April 17, 2023 3.25% 52,295 March 20, 2023 1.20% 53,180 March 17, 2023 4.00% 3. Commitments: The Board executed a new lease agreement effective January 1, 2023. The lease expires on December 31, 2027. The Board is committed to the following minimum payments under the agreement: 2023 $ 48,395 2024 54,990 2025 58,304 2026 64,325 2027 69,327 4. City of Kitchener: The Board receives assessment income from the City of Kitchener for its operations. During the year, assessment write-offs were incurred for $ 21,606 (2021 - $29,972). Page 58 of 264 Z 0.0 a) Z� 0 V N O � N Q N N E N M � N W U) Z WV N (0 � V 'a O � N Z >- if N N O (0 Z O LO � Cl) O I LO CO O CO N cLd rS v o O Q � E15 (0 OD 00 C14 M�- 15 I� O N E P1 O OM Cp Cl) V OD O O Q ER O V O I V M I. - l0 O O V O NLO V V O E Q V) (n c I I I I I I O N 0 V) N N (6 O I LO Z O O M O O O 0Oj O Cl) M ! > p) O N N V O OD O N 0-0 LO Q =� 0 0 N N I.- O O V V CO Cl) O O .� O Cl) Cl) O N .0 p� O E N N CO V Cl) 0-0 Qm cq 615 (p 'O LO LO O LO V P- N Lr O V M O co m M O M V O r r - ON V) I I I I I I O N N I I I I I I N Q� D ~ LO I I I I O � V 00 Q � C U CO O O I.- Cl) � C O O V Lr M Q m M Cl) N_ O 0-0 co N O N E _Q N N0 > N Em. N U d J ii w in O (0 LO v N V) O V N V) O O O O O O O O O LO O N 60 O O M O O O N LO O N O V) r - LO O Cl) O N O LO KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued Year ended December 31, 2022 6. Government grants: Included in other income is a transfer of $ 20,219 received from City of Kitchener. 7. Budget figures: The budget figures shown in the financial statements were approved by the Board of Kitchener Downtown Improvement Area Board of Management at a meeting on September 28, 2021. I'im( Iarr-limn(IIIIIhilm )❑ I I "I I u p mid iuruihr(u 111 M 111KI'�U,L'IohliIorLIIInn i/,raId" 111 o(iiidI)ineuihW r ua(I Is i I i IIId �� i di I d.apinIll" IL'11,11"o m pu i c] In d lx euarint �e. KIU, il'bi prwirf Iv ""' I o KI' (( I.I_I'. Page 60 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 To the members of Kitchener Public Library Opinion We have audited the financial statements of Kitchener Public Library (the Entity), which comprise: • the statement of financial position as at December 31, 2022 • the statement of operations and changes in accumulated surplus for the year then ended • the statement of changes in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at December 31, 2022, and its results of operations and changes in accumulated surplus, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. t,l 1 11 I11, 111 0111fICl1 III IbA IIIry1rIII 1V r I1l�lmd it 11W IIiolI Ijol 111111 r.,11 lho KIINC irI, IjMI 1,,wIv I I, III i.,II III, )o1p lI,)oIIR 111(;11 �P,I 'll"YI X11111111'1:{ WIMI 1`, N C!a 11'1(;11I 110.1ImII I u1111(n) r I IV Uo I �'.C11Y11, I 111 prIIIV III I111;1:j I w II 111[x,. VI11 (, II"111'1 I rll VII )P;, ")IV I, — kI 1`, I INC 1 1 1 Page 61 of 264 Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Page 62 of 264 Page 3 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada March 15, 2023 Page 63 of 264 KITCHENER PUBLIC LIBRARY Statement of Financial Position December 31, 2022, with comparative information for 2021 2022 2021 Financial assets Cash $ 2,021,464 $ 1,956,322 Accounts receivable 161,972 153,690 Due from City of Kitchener 83,078 195,142 Investments (note 2) 50,000 50,000 Endowment investments (note 2) 100,000 100,000 Total financial assets 2,416,514 2,455,154 Financial liabilities Accounts payable and accrued liabilities 569,728 669,058 Due to Early Literacy Alliance of Waterloo Region 648,637 566,950 Deferred revenue (note 4) 513,810 402,384 1,732,175 1,638,392 Net financial assets 684,339 816,762 Non-financial assets Tangible capital assets (note 3) 5,095,735 5,293,309 Prepaid expenses - 18,500 5,095,735 5,311,809 Accumulated surplus (note 8) $ 5,780,074 $ 6,128,571 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 64 of 264 KITCHENER PUBLIC LIBRARY Statement of Operations and Changes in Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 Budget Actual Acutal 2022 2022 2021 Revenues: Grants: The City of Kitchener - Operating $ 11,558,934 $ 11,558,934 $ 11,410,596 The City of Kitchener - Capital and special (note 5) - 450,352 684,727 The City of Kitchener - special (note 6) - 70,069 211,571 Province of Ontario 306,980 306,980 306,980 Interest and miscellaneous 40,000 80,600 17,163 Rentals 105,000 79,565 18,122 Partnerships 55,000 56,568 53,079 Photocopy 43,000 40,667 14,745 Lost and damaged fees 30,000 21,926 13,871 Total revenue 12,138,914 12,665,661 12,730,854 Expenses: Personnel costs (schedule 1) 9,473,197 9,140,995 8,802,392 Resource materials 1,207,900 1,440,563 1,453,870 Equipment (schedule 2) 366,500 953,851 901,830 Facilities costs (schedule 3) 788,917 837,328 859,892 Administrative (schedule 4) 225,900 268,519 248,878 Expenditures related to capital and special (note 5) - 181,390 288,674 Required expenditures related to special grants (note 6) - 70,069 211,571 Programs and publicity (schedule 5) 76,500 68,496 72,196 Processing/bindery 90,000 44,342 79,240 General library equipment 10,000 8,605 12,026 Total expenses 12,238,914 13,014,158 12,930,569 Deficiency of revenue over expenses (100,000) (348,497) (199,715) Accumulated surplus, beginning of year 6,128,571 6,328,286 Accumulated surplus, end of year $ 5,780,074 $ 6,128,571 See accompanying notes to financial statements. Page 65 of 264 KITCHENER PUBLIC LIBRARY Statement of Change in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements. Page 66 of 264 2022 2021 Deficiency of revenue over expenses $ (348,497) $ (199,715) Acquisition of tangible capital assets (1,202,805) (1,388,350) Amortization of tangible capital assets 1,400,379 1,380,717 (150,923) (207,348) Change in prepaid expenses 18,500 (9,545) Change in net financial assets (132,423) (216,893) Net financial assets, beginning of year 816,762 1,033,655 Net financial assets, end of year $ 684,339 $ 816,762 See accompanying notes to financial statements. Page 66 of 264 KITCHENER PUBLIC LIBRARY Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 Operating activities: Deficiency of revenue over expenses Item not involving cash: Amortization of tangible capital assets Changes in non-cash operating working capital Accounts receivable Prepaid expenses Due from City of Kitchener Accounts payable and accrued liabilities Due to Early Literacy Alliance of Waterloo Region Deferred revenue Cash provided by operating activities Capital activities: Cash used to acquire tangible capital assets Increase in cash 2022 2021 $ (348,497) $ (199,715) 1,400,379 1,380,717 (8,282) 170,363 18,500 (9,545) 112,064 (57,218) (99,330) (89,693) 81,687 266,950 111,426 (13,279) 1,267,947 (1,202,805) 1,448,580 (1,388,350) 65,142 60,230 Cash, beginning of year 1,956,322 1,896,092 Cash, end of year $ 2,021,464 $ 1,956,322 See accompanying notes to financial statements. Page 67 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements Year ended December 31, 2022 Kitchener Public Library (the "Board") was incorporated as a not-for-profit organization, without share capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City") and is dependent on the City for a significant portion of its operating and capital funding. The Board contributes to the community as a resource and a gateway with sources of information and works of imagination. 1. Significant accounting policies: The financial statements of the Board are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments, as recommended by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada. The following is a summary of the significant accounting policies followed in the preparation of these financial statements. (a) Basis of accounting: The Board follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay. (b) Revenue recognition: Government transfers are recognized as revenues when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recorded as deferred revenue when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement of operations as the stipulation liabilities are settled. Government transfers, contributions, and other amounts are received from third parties pursuant to legislation, regulation, or agreement and may only be used in the conduct of certain programs, in the completion of specific work, or the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed, or the tangible assets are acquired. (c) Investments and investment income: When there has been a loss in value that is other than a temporary decline in value, the respective investment is written down to recognize the loss. Investment income is reported as revenue in the period earned. Page 68 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (d) Endowment investments and income: Endowment investments received are recorded as financial assets which have the principal restricted for use. When there has been a loss in value that is other than a temporary decline in value, the respective investment is written down to recognize the loss. Income earned on the endowment is used for the purpose specified by the donor. Any unspent funds earned during the year are deferred for future use. (e) Deferred revenue: Deferred revenue represents unspent funds subject to external restrictions as to how the funds are disbursed. These amounts are subsequently included in revenue when the related expenditures are made. (f) Employee future benefits: The costs of multi-employer defined contribution pension plan benefits, such as the Ontario Municipal Employees Retirement System ("OMERS") pensions, are the employer's contributions due to the plan in the period. (g) Non-financial assets: Non financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year. (h) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land, are amortized on a straight- line basis over their estimated useful lives as follows: Asset Rate Furniture, fixtures and equipment Other equipment and vehicle Computers Books and audio visual resources 10 - 30 years 8 years 3-10 years 2-10 years Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue. Page 69 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (i) Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant estimates include assumptions used in estimating provisions for accrued liabilities and useful lives of tangible capital assets. Actual results could differ from these estimates. 2. Investments: 2022 2021 Cost Market Value Cost Market Value Investments: Guaranteed Investment Certificate $ 50,000 $ 50,494 Endowment Investments: Guaranteed Investment Certificate 100,000 100,997 $ 50,000 100,000 $ 50,000 100,000 Page 70 of 264 s= J O M V N W N NN E O M L � N U ZO V V N W ca 0 s= T LL N U O � s= � N 3. z >- CO) � d N S � C x c r= •_ I�r Ln rn O O O Il- N N OD CO Cr ANO CT I- O In O N N O M� is 69- O O lq� lq� I�h 4�h N N Lornrn co � � OMCO Il- 00 Il- O m I,- Cr N 1-: - - CO 04 i M co N N M O rl- LO co O co O 1-7 O N N co Lr, C': r L; O' C L; 61 CIC CIC CIC L; 69- 1 1 16, O M M O M M n M M I� O '1 '1 � OC Il-C)M M 4mM CO r N — IT O cr cr cr cr v N— v N v N C 04 Cfl IN � I� I{f. 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O Ln tol (0 M Ln CO I- N LO M cO N I 1l- 1l- O M Cr O I�r M M v M CO CO — Lo N (o O O NLnCO O OC C M I C�• M ch N Ln C 9 O lq• � v � N N O C) s= C) N S] V O ,, s= +_ O to Co -3 C1 O co to .(n L)m<0 MOCA M I • LO OD Ln N O 1l- N M M K ,�T C• � cc O—OD _ O �- ++ co � N L O co E ,� N CC C N�•� cn N0 0 co C V E V •N Cn co V co O Q co V N E .w m QmQO O N O N K W N IT M C C C\ C r C r r C C\ C Cr 61 N O N [` N (6 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 4. Deferred revenue: The deferred revenues, reported on the statement of financial position, are made up of the following: 5. Capital and special grants: Each year, the City approves capital and special grants for the Board to purchase specific capital items. The capital grants approved for 2022 included $101,959 (2021 - $99,960) for general renovations, maintenance and upgrading of existing facilities, $334,070 (2021 - $327,517) for communication infrastructure and technology upgrades, $29,714 (2021 - $29,131) for KPL Accessibility Fund, $58,367 for resources, furniture and equipment (2021 - $57,222) and $Nil (2021 - $4,739,897) for the southwest community library. The portion of these grants and previous year grants that are included in revenue in 2022 is $450,352 (2021 - $684,727). 6. Special grants: As directed by the funding agency or terms of any applicable agreements, expenditures are made to finance, in whole or in part, capital items, replacements and maintenance projects. In 2022, the Board received various special non-recurring grants and donations totaling $163,628 (2021 - $197,139). The portion of these grants and previous year special grants that are included in revenue in 2022 is $70,069 (2021 - $211,571). The remainder is included in deferred revenue. Page 73 of 264 2022 2021 Deferred capital grants Other $ 479,825 33,985 $ 362,861 39,523 Total deferred revenue $ 513,810 $ 402,384 Continuity of deferred capital grants is as follows: 2022 2021 Balance, beginning of year Investing in infrastructure grant Contributions used $ 362,861 168,873 (51,909) $ 377,292 197,139 (211,570) Balance, end of year $ 479,825 $ 362,861 5. Capital and special grants: Each year, the City approves capital and special grants for the Board to purchase specific capital items. The capital grants approved for 2022 included $101,959 (2021 - $99,960) for general renovations, maintenance and upgrading of existing facilities, $334,070 (2021 - $327,517) for communication infrastructure and technology upgrades, $29,714 (2021 - $29,131) for KPL Accessibility Fund, $58,367 for resources, furniture and equipment (2021 - $57,222) and $Nil (2021 - $4,739,897) for the southwest community library. The portion of these grants and previous year grants that are included in revenue in 2022 is $450,352 (2021 - $684,727). 6. Special grants: As directed by the funding agency or terms of any applicable agreements, expenditures are made to finance, in whole or in part, capital items, replacements and maintenance projects. In 2022, the Board received various special non-recurring grants and donations totaling $163,628 (2021 - $197,139). The portion of these grants and previous year special grants that are included in revenue in 2022 is $70,069 (2021 - $211,571). The remainder is included in deferred revenue. Page 73 of 264 KITCHENER PUBLIC LIBRARY Notes to Financial Statements, continued Year ended December 31, 2022 7. Pension plan: The Board makes contributions to the Ontario Municipal Employees Retirement Systems (OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rate of pay. During the year, the Board incurred expenses equal to $606,721 (2021 - $607,866) for current service on behalf of its staff. The latest available report for the OMERS plan was as at December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit, based on actuarial liabilities of $128.8 billion and actuarial assets of $122.1 billion. Ongoing adequacy of the current contribution rates will need to be monitored and may lead to increased future funding requirements. As at December 31, 2022, the Board has no obligation under the past service provisions of the OMERS agreement. 8. Accumulated surplus: The accumulated surplus consists of surplus and reserve funds as follows: 2022 2021 Invested in tangible capital assets $ 5,095,735 $ 5,293,309 Endowment investments 100,000 100,000 Reserves set aside by the Board Capital fund 344,460 344,460 HR fund 37,000 37,000 Inclusion fund 67,876 199,361 Improvement fund 135,003 154,441 Total reserves 584,339 735,262 Accumulated surplus — unrestricted — — Accumulated surplus $ 5,780,074 $ 6,128,571 Page 74 of 264 KITCHENER PUBLIC LIBRARY Schedules of Expenses Year ended December 31, 2022, with comparative information for 2021 Schedule 3 - Facilities Facilities expenses $ 516,625 2022 Main utilities 2021 Schedule 1 - Personnel Country Hills building 44,639 49,357 Forest Heights utilities Salaries $ 7,328,934 $ 7,069,060 Pension benefits 740 960,071 930,365 Health benefits 568,800 468,940 Employment insurance 138,159 130,852 Sick leave reserve 70,000 70,000 Staff training 56,990 114,536 WSIB 18,041 18,639 $ 9,140,995 $ 8,802,392 Schedule 2 - Equipment Amortization $ 529,451 $ 487,610 Technology 407,008 405,353 Equipment maintenance 17,392 8,867 $ 953,851 $ 901,830 Schedule 3 - Facilities Facilities expenses $ 516,625 $ 516,310 Main utilities 236,339 228,337 Country Hills building 44,639 49,357 Forest Heights utilities 27,681 37,272 Pioneer Park building 11,304 19,018 Grand River Stanley Park building 740 9,598 $ 837,328 $ 859,892 Schedule 4 -Administrative Professional services $ 105,327 $ 99,521 General business 67,036 60,771 Stationery 49,075 40,365 Telephone 21,053 21,495 Insurance 20,796 20,389 Postage and delivery 5,232 6,337 $ 268,519 $ 248,878 Schedule 5 - Programs and Publicity Promotional Public programs $ 36,541 $ 43,005 31,955 29,191 $ 68,496 $ 72,196 Page 75 of 264 9MY � F A, A KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 To the Directors of The Centre In The Square Inc. Opinion We have audited the financial statements of The Centre In The Square Inc. (The Centre), which comprise: • the statement of financial position as at December 31, 2022 • the statement of operations and changes in accumulated surplus for the year then ended • the statement of changes in net financial assets for the year then ended • the statement of cash flows for the year then ended • and notes to the financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of The Centre as at December 31, 2022, and its results of operations and changes in accumulated surplus, its changes in net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of The Centre in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. t,l 1 11 I11, 11' 011 k1 I 1111IbA I�IIry1rIII 1V r X1l�lmd it 1 1 W II iolI Ijol 1 11 111 r.,11 lho KI IVirI, Ij MI i,,wIv I I, iI i.,II iII,)o1p lI,)oIIR 111(:11 �P,I 11'YI X11111 X1(:1{ W11V 1`, VII} 1 1 1(:11' X111 mII 111I1111n) fI r1VX11J I!.[1(I II,I 111 prIIIIV I11I 1111n1 'JV 1111 XI X1'1(:P",. Page 76 OI 264 1 �I a I, Xf11X 1 X r11 V1.) ,I:1V11 I:, k1 1 11VI a 1.11 Ig"01" R -m-1 Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing The Centre's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate The Centre or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing The Centre's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Page 77 of 264 Ig"01" mlm Page 3 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of The Centre's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on The Centre's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause The Centre to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada April 20, 2023 Page 78 of 264 THE CENTRE IN THE SQUARE INC. Statement of Financial Position December 31, 2022, with comparative information for 2021 2022 2021 Net Assets Financial assets: 13,270,528 Inventories (note 6) 74,673 Cash $ 3,352,049 $ 3,850,581 Due from City of Kitchener — 48,488 Accounts receivable (note 2) 1,992,751 358,470 Interest receivable 3,965 2,254 Costs to be recovered 165,235 122,105 Investments (note 3) 1,527,054 1,420,930 Total financial assets 7,041,054 5,802,828 Financial liabilities Accounts payable and accrued liabilities 2,817,533 1,537,203 Due to City of Kitchener 231,407 — Deferred revenue (note 4) 2,393,412 2,719,131 5,442,352 4,256,334 Net financial assets 1,598,702 1,546,494 Non-financial assets Tangible capital assets (note 5) 15,636,326 13,270,528 Inventories (note 6) 74,673 83,706 Prepaid expenses 196,040 233,609 15,907,039 13,587,843 Net assets $ 17,505,741 $ 15,134,337 Accumulated Surplus Operating fund activities (note 7) $ — $ — Reserves - Performance Development (note 10) — — Reserves - Capital (note 10) 935,502 1,032,161 Reserves - Sustainability (note 10) 205,213 202,230 Reserves - Restricted (note 10) 728,700 629,418 Invested in tangible capital assets 15,636,326 13,270,528 Accumulated surplus $ 17,505,741 $ 15,134,337 See accompanying notes to financial statements. On behalf of the Board: Director Director Page 79 of 264 THE CENTRE IN THE SQUARE INC. Statement of Operations and Changes in Accumulated Surplus Year ended December 31, 2022, with comparative information for 2021 Expenses: Budget 2022 Actual 2022 Actual 2021 Direct: (note 9) Revenues: 1,097,814 2,100,203 674,535 Performances $ 2,466,424 $ 2,559,785 $ 771,978 Rent - Kitchener -Waterloo Symphony 224,150 204,700 71,625 Capital reserve fund surcharge (note 10) 389,400 267,818 45,147 Grants from City of Kitchener - Operating 2,000,000 2,000,000 2,000,000 Grants from City of Kitchener - Capital 744,931 1,238,851 602,908 Grants from other 765,000 706,610 472,700 governments - Operating (note 11) - 459,804 700,971 Grants from other governments - Capital 1,622,454 1,801,926 160,202 Donations 8,000 42,113 15,223 Investment income 20,500 112,687 35,828 Sponsorships and memberships 148,293 63,423 26,799 Rent - Kitchener -Waterloo Art Gallery 107,222 107,222 105,120 Lottery revenue - 7,421 42,951 Other 192,000 490,618 177,779 Gain on sale of investments - 82,435 2,026 Total revenue 7,923,374 9,438,803 4,758,557 Expenses: Direct: Performances 1,097,814 2,100,203 674,535 Recovery of performance costs - - (2,126) Operating: Administration 624,354 575,081 428,517 Marketing 105,000 64,733 51,611 Lottery expenses - 7,796 41,568 Occupancy 765,000 706,610 472,700 Salaries and wages 2,411,866 2,522,922 2,116,580 Sponsorship - 28,118 5,415 Amortization 1,270,000 1,055,000 985,732 Loss on disposal and write-down of tangible capital assets 50,000 8,709 50,108 Reserves expenditures (recovery) (note 10) 55,000 (1,773) 39,497 Total expenses 6,379,034 7,067,399 4,864,137 Excess (deficiency) of revenue over expenses 1,544,340 2,371,404 (105,580) Accumulated surplus, beginning of year 15,134,337 15,134,337 15,239,917 Accumulated surplus, end of year 16,678,677 $ 17,505,741 $ 15,134,337 See accompanying notes to financial statements. Page 80 of 264 THE CENTRE IN THE SQUARE INC. Statement of Changes in Net Financial Assets Year ended December 31, 2022, with comparative information for 2021 See accompanying notes to financial statements. Page 81 of 264 2022 2021 Excess (deficiency) of revenue over expenses $ 2,371,404 $ (105,580) Acquisition of tangible capital assets (3,432,107) (1,008,270) Amortization of tangible capital assets 1,055,000 985,732 Write-down of tangible capital assets — 50,108 Loss on sale of tangible capital assets 8,709 — 5,606 (78,010) Net use (acquisition) of inventories 9,033 (26,138) Net use (acquisition) of prepaid expenses 37,569 (105,705) 46,602 (131,843) Increase (decrease) in net financial assets 52,208 (209,853) Net financial assets, beginning of year 1,546,494 1,756,347 Net financial assets, end of year $ 1,598,702 $ 1,546,494 See accompanying notes to financial statements. Page 81 of 264 THE CENTRE IN THE SQUARE INC. Statement of Cash Flows Year ended December 31, 2022, with comparative information for 2021 Cash provided by operating activities 3,037,099 3,552,836 Capital activities: Cash used to acquire tangible capital assets (3,432,107) (1,008,270) Cash proceeds on sale of tangible capital assets 2,600 — Cash used in capital activities (3,429,507) (1,008,270) Investing activities: Cash used in purchasing of investments (106,124) (17,307) Increase (decrease) in cash Cash, beginning of year (498,532) 3,850,581 2,527,259 1,323,322 Cash, end of year $ 3,352,049 $ 3,850,581 See accompanying notes to financial statements. Page 82 of 264 2022 2021 Operating activities: Excess (deficiency) of revenue over expenses $ 2,371,404 $ (105,580) Items not involving cash: Amortization 1,055,000 985,732 Loss on sale of tangible capital assets 8,709 — Write-down of tangible capital assets — 50,108 Change in non-cash operating working capital (398,014) 2,622,576 Cash provided by operating activities 3,037,099 3,552,836 Capital activities: Cash used to acquire tangible capital assets (3,432,107) (1,008,270) Cash proceeds on sale of tangible capital assets 2,600 — Cash used in capital activities (3,429,507) (1,008,270) Investing activities: Cash used in purchasing of investments (106,124) (17,307) Increase (decrease) in cash Cash, beginning of year (498,532) 3,850,581 2,527,259 1,323,322 Cash, end of year $ 3,352,049 $ 3,850,581 See accompanying notes to financial statements. Page 82 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements Year ended December 31, 2022 The mission of The Centre In The Square Inc. ("The Centre"), is to create memorable experiences. It is incorporated as a not-for-profit corporation without share capital, is exempt from income taxes under the Income Tax Act, and is a registered charity. The Centre is a governed by a Board of Directors and receives an operating grant from the City of Kitchener ("The City"). 1. Significant accounting policies: The financial statements of The Centre are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. (a) Basis of accounting: The Centre follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay. (b) Revenue recognition: Performance revenue is recognized when the show occurs. Deferred gift certificate revenue is an estimate based upon gift certificate sales during the period from July 1 to December 31 of the current year. Government transfers are recognized as revenues when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recorded as deferred revenue when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement of operations as the stipulation liabilities are settled. Government transfers, contributions, and other amounts are received from third parties pursuant to legislation, regulation, or agreement and may only be used in the conduct of certain programs, in the completion of specific work, or the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed, or the tangible assets are acquired. (c) Investments: Investments are recorded at the lower of cost or market value on a fund portfolio basis. Interest income and all expenses are fully accrued. (d) Employee future benefits: The costs of multi-employer defined contribution pension plan benefits, such as the Ontario Municipal Employees Retirement System ("OMERS") pensions, are the employer's contributions due to the plan in the period. Page 83 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 1. Significant accounting policies (continued): (e) Non-financial assets: Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year. (i) Tangible capital assets: Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land, is amortized on a straight-line basis over their estimated useful lives as follows: Asset Rate Buildings 5 - 100 years Equipment 4 - 50 years Computers 3 - 10 years Software 3 years Site 2 - 50 years Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue. (ii) Inventories: Bar stock inventories are valued at the most recent replacement cost. Supplies inventories are valued at the lower of cost and net realizable value on a first -in, first -out basis. Net realizable value is defined as replacement cost. (f) Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant estimates include assumptions used in estimating provisions for accrued liabilities and useful lives of tangible capital assets. Actual results could differ from these estimates. Page 84 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 2. Accounts receivable: Page 85 of 264 2022 2021 Accounts receivable $ 1,992,751 $ 213,739 Canada Emergency Wage Subsidy receivable — 144,731 Allowance for doubtful accounts — — $ 1,992,751 $ 358,470 3. Investments: Investments consist of: Carrying value Market Carrying value Market 2022 2022 2021 2021 Cash $ 19,212 $ 19,212 $ 28,735 $ 28,735 Guaranteed Investment Certificates 768,350 768,350 756,185 756,185 Fixed income 460,951 432,205 354,768 353,727 Equities 278,541 434,206 281,242 564,401 $ 1,527,054 $ 1,653,973 $ 1,420,930 $ 1,703,048 4. Deferred revenue: Deferred revenue consists of the following: 2022 2021 Performances $ 2,059,807 $ 2,496,475 Gift certificates 98,233 89,560 Sponsorships 53,311 50,756 Other 171,966 80,483 Membership 10,095 1,857 $ 2,393,412 $ 2,719,131 Page 85 of 264 LIJ Q Cl) N C: 2 O I— V N N Z N N E W O M M N U ZN v N W co V W N ca H z° >- i C: u � 4 • 4 • N O N "-� -- M LO M M r I1'— C1' M N M O N 1 1 1 r 00 00 LO r LO 1 00 I1' LO �1' r 0')— m M 0o I � LO 0o 0 O N 00 c0 CV rn O I c co M r 1- M O 0')— CV r � 0 LO (D 00 r— & Lo- C6 Lf •OLoOoLf N O N r- 00 00 — v C, M a) n O 00� 000 Lf) — O O — Cr LO 0 L 0 LO 00 Lo N fY lq O — Lf CC 00 CV Lf N r. r I I I I d 0 a LOif I LO M fY: O N M LO N — — 1 N a LQ Cc M r r O r I�r n 00 N r- O 0C 0o O O 0C 00 Lo O r 0o I O O O O O 00 —NLO 00 c0 NNr O M M v M N M 000 I N a r M 00 N d r O M I' Cr N N N N IT IT 00 a O r 00 I LO c 1� rn r r c i O LO N 00 n LO O O O OC N r M O r e1 LO n V r O_ e1 c0 0o a O N N � r I N IT 00 r LO r r 0 r— Ln I LO LO v c e1 Lf O 0c O I I I I C M fY: LO 0 a C O O N coN O C N E �- c0 N co '� p a N L c0 Q L N> L a W � N N CO =3>1 R O a O V>, Cf)E 7 w O C2 O w Cf) uNO c o<0 U Qm Q m Z N 4 O co N (6 LIJ Q Cl) Q) JL s= O I— V N N Z N N E W O M � N U Z LLJ c s= V � � W ca H z° >- i u � 4 • . M�0N NM(MMOD N N M I I� O ll j — In M OO- O) LO LO O O 00- LO 0 O p OD Il - O) O LO Il- CO O) CY N M v Ch O M N N N N CF) t ICF) IT I I I I CF) Cfl 0 Cfl M M M M M O) O Il_ LO N OD M I I 1 IT M IL � O Cfl � LO O (fl O OD OD Ch OD N (fl OD OD OD O) O) 6cy 6cy O In — O) In Lo O 0 1 LO 1 cl ch N LO - N O L Lf NLf N N V) v cl N— v M ka ka - OD M M � O) M O OD Cfl I (fl O) M I M OD (C) — O) OD N � O r-- - — N N Cfl O N M M N N N N MCO OD OD I- Ch Ch � O) O I Cfl (fl — � O) � M CO M I-- — OO M In cl 0 c1 O7 V) OD M O O) M M v I- Ch I� CY el N k OD -ON Cfl 'T CF) N el I- (fl M O O O) Cfl N CY 0 M — OI- N �-(fl O) N NM—M OD LO N M v M Lf Lf OD ka I I I(D I I I I LO LO LO � � � O O N � N O s= '� E ca ca c� co �CocnoL� (o•i-0 �° am), ca > O Q) v j •N t3 E V— O> O N cn co O 'C M O V ca O E .`- V O N O Z N 4 O ti co N (6 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 6. Inventories: 2,100,203 674,535 - Inventories consist of the following: (2,126) 624,354 575,081 428,517 105,000 2022 2021 Bar stock $ 72,798 $ 82,782 Supplies 472,700 1,875 924 2,116,580 $ 74,673 $ 83,706 7. Operating fund activities: Budget Actual Actual 2022 2022 2021 Revenues: Performances $ 2,310,664 $ 2,559,785 $ 771,978 Rent - Kitchener -Waterloo Symphony 224,150 204,700 71,625 Grants from City of Kitchener 2,000,000 2,000,000 2,000,000 Grants, other governments - 459,804 700,971 Donations 6,000 39,449 12,961 Investment income 16,000 71,743 6,560 Sponsorships and memberships 148,293 63,423 26,799 Rent - Kitchener -Waterloo Art Gallery 107,222 107,222 105,120 Lottery revenue - 7,421 42,951 Other 192,000 490,618 177,779 Total revenue Expenditures: Direct: Performances Unrecoverable performance costs Operating: Administration Marketing Lottery expenses Occupancy Salaries and wages Sponsorship 5,004,329 6,004,165 3,916,744 1,097,814 2,100,203 674,535 - - (2,126) 624,354 575,081 428,517 105,000 64,733 51,611 - 7,796 41,568 765,000 706,610 472,700 2,411,866 2,522,922 2,116,580 - 28,118 5,415 Total expenditures 5,004,034 6,005,463 3,788,800 Operating fund net revenues (deficiency) before amortization 295 (1,298) 127,944 Transfer from (to) reserve funds (note 10) (295) 649 (127,944) Transfer from City of Kitchener - 649 - Fund balances, end of year $ - $ - $ - Page 88 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 8. Economic dependence: The Centre is economically dependent on the City of Kitchener during the pandemic to provide sufficient funds to continue operations and capital projects. 9. 2022 budget: The original budgeted figures were approved by the Board of Directors at their meeting on August 21, 2021 and included certain expenses and offsetting recoveries on a net basis. 10. Schedule of reserve funds: (a) Performance Development Reserve Fund: The Centre has an agreement with the City, whereby The Centre's annual operating net revenue is shared equally between the City and The Centre. At the direction of the Board of Directors, transfers are made to and from the Performance Development reserve funds. (b) Capital Reserve Fund: The Capital Reserve Fund represents the collection of a surcharge from the sale of tickets. At the direction of the Board of Directors, expenditures from the Capital Reserve Fund are made to finance, in whole or in part, major capital items, replacements and major maintenance projects. In 2022, The Centre's Board of Directors approved transfers out of the Capital Reserve Fund for major capital asset projects of $3,432,107 (2021 - $1,008,270). (c) Sustainability Reserve Fund: Revenues from the Sustainability Reserve Fund come from fundraising contributions. At the direction of the Board of Directors, funds are allocated for specific capital projects and programming initiatives. (d) Restricted Fund: The Restricted Fund was set up by the Board of Directors of The Centre in 2000 by a transfer of investments from the Sustainability Reserve Fund in accordance with the Restricted Fund Policy. Income from this fund is to be used for capital requirements, special projects and/or new programming initiatives that help further The Centre's mandate. Page 89 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 10. Schedule of reserve funds (continued): Performance Total Development Capital Sustainability Restricted Funds Revenue Donations and sundry $ — — $ — $ 2,664 $ 2,664 Grants from City of Kitchener — 1,238,202 — — 1,238,202 Grants, other governments and foundations — 1,801,926 — — 1,801,926 Ticket surcharge — 267,818 — — 267,818 Investment income — 12,135 3,632 25,177 40,944 Gain on investments — — — 82,435 82,435 Total revenue — 3,320,081 3,632 110,276 3,433,989 Expenses: Professional fees — — — 10,994 10,994 Capital costs (recovery) — (12,767) — — (12,767) (12,767) — 10,994 (1,773) Recovery of loss on disposal of capital assets — (2,600) — — (2,600) Total expenses — (15,367) — 10,994 (4,373) Excess of revenue overexpenses Balance, beginning of year Transfer to accumulated surplus - tangible capital assets (note 10 (b)) — 3,335,448 3,632 — 1,032,161 202,230 — (3,432,107) Transfer to operating (note 7) — — (649) 99,282 3,438,362 629,418 1,863,809 — (3,432,107) — (649) Balance, end of year $ — $ 935,502 $ 205,213 $ 728,700 $ 1,869,415 11. COVID-19 funding: During the year, The Centre received $276,072 in Tourism and Hospitality Recovery Program subsidy, $83,732 in Canada Recovery Hiring Program and these amounts are recorded in the statement of operations under Grants from other governments - Operating (2021 - $700,971 in Canada Emergency Wage Subsidy). Page 90 of 264 THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued Year ended December 31, 2022 12. Pension agreements: The Centre belongs to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of the members of its staff. This plan specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Because OMERS is a multi-employer pension plan, any pension plan surpluses or deficits are the joint responsibility of Ontario municipal organizations and their employees. As a result, The Centre does not recognize any share of the OMERS pension surplus or deficit. The latest available report for the OMERS plan was December 31, 2022. At that time the plan reported a $6.7 billion actuarial deficit (2021 - $3.1 billion actuarial deficit), based on actuarial liabilities of $128.8 billion (2021 - $119.3 billion) and actuarial assets of $122.1 billion (2021 - $116.2 billion). Ongoing adequacy of the current contribution rates will need to be monitored and may lead to increased future funding requirements. The 2022 employer portion of OMERS pension contributions was $163,271 (2021 - $124,413). 13. Comparative information: The financial statements have been reclassified, where applicable, to conform to the presentation used in the current year. The changes do not affect prior year excess of revenue over expenses. Page 91 of 264 191AIT, mil KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Mayor and Members of Council, In the City of Kitchener We have audited the stater ended December 31, 2022 Enterprise (the Entity) (Hereir In our opinion, respects, the December 31, relevant to prg„p, rs of The Corporation of and accumulated surplus for the year of the City of Kitchener Gasworks e "financial statement"). nancial statement presents fairly, in all material 11th and accumulated surplus for the year ended Canadian public sector accounting standards statement. dit in accordance with Canadian generally accepted auditing nsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our Auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. l(l 111 111 011[111 a 111111I'A I Ili IIIIV ii4II [[I ,I v r I I W 11loli liol hili I [ho I'dINC irI,Ili �II lir I I I v I[I' I I uv)(9l lI,)oII[ ^rril�+.i lull 11"Pili M1�n0 101 KI vel 111[ol�i� 11u l l L...Irruloni 11-rlvr [o I �urli„ri i Iii r w�ry Ilrruloni Iw inwli lkms. v� (, Mi` 11 I r�i vui�;, vsr'vu w, k "JINC 1 1 1'' Page 92 of 264 R� Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, man Entity's ability to continue as a going concern going concern and using the going cone either intends to liquidate the Entity or t a but to do so. 11 um. Those charged with governa reporting process. Our objectives statements as a and to issue,,,avii responsible for assessing the applicable, matters related to knting unless management as no realistic alternative for overseeing the Entity's financial of the Financial Statements whether the financial 1'6100 Material misstatement, whether due to fraud or error, port that includes our opinion. is a''111high level of assurance, but is not a guarantee that an audit ice with Canadian generally accepted auditing standards will I misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Page 93 of 264 in1W 3 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures ma management. • Conclude on the appropriateness of manage e of the going concern basis of accounting and, based on the audit evide I p obtain hether a material uncertainty exists related to events or conditions may cast si leant doubt on the Entity's ability to continue as a going con If �IVulconclude at a material uncertainty exists, we are reguired to draw a t�� in our Auditor's report to the related disclosures in the financial 1atements iiillll if such disclosures are inadequate, to modify our opinion. Our con re ba on the audit evidence obtained up to the date of our Auditors repo Ho ure events or conditions may cause the Entity to cease to c i� as a concern. • Evaluate the o II pre tatio tructure and content of the financial statements, including the leo« 0��011�1��« hether the financial statements represent the underlyin IIIIIIIIIIIIII nsa and events in a manner that achieves fair presentation. • Com eat th li1pharged with governance regarding, among other matters, the 4ned scop nd timing of the audit and significant audit findings, including any signifi l I1111deficieg s in internal control that we identify during our audit. Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada DRAFT Page 94 of 264 THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE Statement of Operations and Accumulated Surplus For the Year Ended December 31, 2022 2022 2022 2021 Budget DELIVERY OPERATIONS Gas delivery 33,792,932 40,320,864 28,546,577 Revenue $ 41,290,695 $ 43,591,449 $ 39,422,933 Expenses 23,334,805 24,269,576 22,115,361 Accumulated surplus - Supply 17,955,890 19,321,873 17,307,572 Other programs 3,598,854 3,598,854 4,239,900 (Customer service, rental water heaters & financing) 34,313 75,336 44,697 enue 18,395 18,483,798 ,283,189 1,783,442 17,601,985 Expenses 19� 6,038,619 $ 3,598,854 19.246 Ilk. 3.799.391 4.181.457 Dispatch Revenue Expenses 859 712,234 859 712,234 �III� Excess of revenue over expenses �� 36 Accumulated surplus - Delivery Balance, beginning of year � 191,004,746 Interest revenue34,527 Transfer to gas investment reserve ����� (15,536,202) Excess of revenue over 21,175,136 Balance. end of vear 196.678.207 121.264 191,004,746 84,521 (15,536,202) 23,121,264 198.674.329 606,280 606,280 21.489.029 184,701,184 46,104 (15,231,571) 21,489,029 191,004,746 Revenue ""iillllll ui°"'" 33,792,932 40,320,864 28,546,577 Expenses 35,534,597 37,956,435 29,232,320 Excess/(deficiency) of revenue over expenses (1,741,665) 2,364,429 (685,743) Accumulated surplus - Supply Balance, beginning of year 3,598,854 3,598,854 4,239,900 Interest revenue 34,313 75,336 44,697 Excess/(deficiency) of revenue over expenses (1,741,665) 2,364,429 (685,743) Balance, end of year $ 1,891,502 $ 6,038,619 $ 3,598,854 Page 95 of 264 MANAGEMENT REPORT Management's Responsibility for Financial Reporting The accompanying financial statements of Kitchener Generation Corporation are the responsibility of management and have been prepared in accordance with Canadian public sector accounting standards. The significant accounting policies followed by Kitchener Generation Corporation are described in the Significant Accounting Policies contained in Note 2 of the financial statements. The preparation of financial statements necessarily involves the use of estimates based on management's judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. The financial statements have been prepared within reasonable limits of materiality and in light of information available up to June 26, 2023. Management maintained a system of internal controls designed to the assets were safeguarded and that reliable information was system included formal policies and procedures and an organiza appropriate delegation of authority and segregation of responsi KITCHENER GENERATION CORPORATION On behalf of management, Jonathan Lautenbach, CPA, CGA Chief Financial Officer and City Tr June 26, 2023 Kitchener, Canada 00 reasonable assurance that able on a timely basis. The structure that provided for the Page 96 of 264 KITCHENER GENERATION CORPORATION Statement of Financial Position As at December 31, 2022 (Unaudited) The accompanying notes are an integral part of these financial Page 97 of 264 2022 2021 Financial assets Accounts receivable $ 11,478 $ 7,676 11,478 7,676 Liabilities Due to the Corporation of the City of Kitchener 11,476 7,674 Long-term debt (Note 3) 1,672,213 1,881,239 1,683,689 1,888,913 Net financial debt 1,672,211 (1,881,237) Non-financial assets capital assets Note 4 1,858,012 2,090,264 —Tangible 1,858,012 2,090,264 Shareholder's equity Note 5 $ v 185,801 $ 209,027 The accompanying notes are an integral part of these financial Page 97 of 264 KITCHENER GENERATION CORPORATION Statement of Operations For the Year Ended December 31, 2022 (Unaudited) 2022 2022 2021 Budget Revenue Sale of electricity $ 385,000 $ 386,220 $ 401,175 Total revenue 385.000 386.220 401.175 Expenses Maintenance 20,000 10,400 - Amortization of tangible capital assets 232,252 232,252 232,252 Total expenses 252,252 242,652 232,252 Surplus before interest and provision for payments- in-lieu of corporate income taxes 132 K5011, 143,568 168,923 Interest expense 94,250 104,809 Surplus before provision for payments -in -lieu of����������������������� corporate income taxes 38 498 49,318 64,114 Provision for payments -in -lieu of corporate income �iiQQ taxes� - - - Annual surplus The accompanying notes are an integral part of these 498 $ 49,318 $ 64,114 Page 98 of 264 KITCHENER GENERATION CORPORATION Statement of Change in Net Financial Debt For the Year Ended December 31, 2022 (Unaudited) Annual surplus 2022 2021 49,318 $ 64,114 Change in share capital (23,226) (23,417) Dividends (49,318) (56,589) Amortization of tangible capital assets 232,252 232,252 Change in net financial debt 209,026 216,360 Net financial debt, beginning of year (1,881,237) (2,097,597) Net financial debt, end of year $ (1,672,211) $ (1,881,237) The accompanying notes a Page 99 of 264 KITCHENER GENERATION CORPORATION Statement of Cash Flow For the Year Ended December 31, 2022 (Unaudited) 2022 2021 Operating (23,417) (209,026) Annual surplus $ 49,318 $ 64,114 Items not involving cash (290,762) Amortization of tangible capital assets 232,252 232,252 Change in non-cash assets and liabilities Trade and other accounts receivable (3,802) 3,070 Accounts payable and accrued liabilities 3,802 (8,674) Net chanae in cash from oneratina activities '4111, 281.570 290.762 Financing Change in share capital Change in long-term debt Dividends paid Net change in cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of ye, Cash and cash eauivalents. end of vear The accompanying notes are an integral pqfjjV0MWe fin ial statements. (23,226) (23,417) (209,026) (210,756) (49,318) (56,589) (281,570) (290,762) Page 100 of 264 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2022 (Unaudited) 1. Incorporation On December 9, 2011 Kitchener Generation Corporation (the Company) was incorporated under the Business Corporations Act (Ontario). Effective January 1, 2012, the Corporation of the City of Kitchener transferred the solar roof asset constructed on the surface of the Kitchener Operations Facility to the Company in exchange for 100% of the Company's common shares and interest bearing debt. 2. Summary of significant accounting policies These financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles for public sector entities cis established by the Public Sector Accounting Board of the Chartered Professional Accountants of Can '. The following is a summary of the significant accounting policies followed in the preparation of these firy# , iial statements: a. Basis of accounting The financial statements are prepared using the accrual b I"of accountihe accrual basis of accounting recognizes revenues in the period in which the transacti or ev is occurr I'that gave rise to the revenues. Expenses are recognized in the period the goods and ces acquired and a liability is incurred or when an external transfer is due. b. Tangible capital assets Tangible capital assets are recorded at cost 'h ldq( all amounts that are directly attributable to acquisition, construction, development or terme a ass t. The cost less residual value of the solar roof asset is amortized on a straight-line b its es ated useful life of nineteen years. c. Revenue recognition (�IIII The Company records revenuefrom �e of electricity on the basis of regular meter readings and estimates �j) of energy generation since ' ete ding to the end of the year. d. Use of The preparation of the fi ial stat ' ents requires management to make estimates and assumptions that affect the reported amount as and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statemen the reported amounts of revenues and expenses during the year. These estimates and assumptions, incl ing the valuation of tangible capital assets and their related useful lives and amortization are based on management's best information and judgment and may differ significantly from future actual results. 3. Long-term debt Effective January 1, 2012 the Company issued an unsecured promissory note payable to the Corporation of the City of Kitchener. Payments are made annually including interest and principal. Interest is calculated at the fixed rate of 5.01 % per annum. Interest paid in 2022 amounted to $94,250 (2021 - $104,809). Page 101 of 264 KITCHENER GENERATION CORPORATION Notes to the Financial Statements For the Year Ended December 31, 2022 (Unaudited) 4. Tangible capital assets Accumulated Net Book Cost Amortization Value Opening balance $ 4,412,784 $ (2,322,520) $ 2,090,264 Additions - - - Amortization - (232,252) (232,252) Disposals - - - Endinq balance $ 4.44 784 $ (2,554,772) $ 1,858,012 5. Shareholder's equity Shareholder's equity consists of the following: 2022 2021 Share capital - common shares (Note 6) $ 185,801 $ 209,027 Retained earnings IV N- - 6. Share capital Authorized Unlimited common sha^c Issued 1,000 common shares 185.801 $ 209,027 Page 102 of 264 Ila KPMG LLP 120 Victoria Street South 6th Floor Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8830 INDEPENDENT AUDITOR'S REPORT To the Shareholders of Kitchener Power Corp. Opinion We have audited the consolidated financial statements of Kitchener Power Corp. (the Entity), which comprise: • the consolidated statementof financial position as at August 31, 2022 • the consolidated statement of comprehensive income for the period January 1, 2022 to August 31, 2022 • the consolidated statement of changes in equity forthe period January 1, 2022 to August 31, 2022 • the consolidated statement of cash flows for the period January 1, 2022 to August 31, 2022 • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as August 31, 2022, and its consolidated financial performance and its consolidated cash flows for the period January 1, 2022 to August 31, 2022 in accordance with International Financial Reporting Standards(IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. I W� 1111, Mil 011[ ri'l ui kmd li11riliy r Mi him hili Mivi 111( hili^ Iuiii,111 Uh(( ISI INC,11, l MI i ii,wli� Ai, i7III IIWq-(m,)(m[ ����,�����,� I�Irns 111111lkmd WDM ISI INC 111[mi, [I' lml I �I���kmd �;I ray k< 1 1'111,lIn, Iii ifmy lii��lkm, dry l �� �� k<, Page 103 of 264 ISI ly�l (,Mr7M1 M rii vuir,,, ,,ivir,Ri ISI ly�l L...I Ila Page 2 Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes ouropinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Page 104 of 264 Ila Page 3 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. ,1PWG «v Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada December 20, 2022 Page 105 of 264 KITCHENER POWER CORP. Consolidated Statement of Financial Position As at August 31, 2022, with comparative information for 2021 (Expressed in thousands of dollars) Page 106 of 264 Note 2022 2021 Assets Current assets Cash 4 $ - $ 6,079 Accounts receivable 5 20,687 21,287 Unbilled revenue 17,707 14,705 Inventory 6 3,493 3,080 Prepaid expenses 930 1,082 Income taxes receivable 727 30 Total current assets 43,544 46,263 Non-current assets: Property, plant and equipment 7 287,778 279,444 Intangible assets 8 10,556 11,185 Deferred tax assets 9 315 302 Investment in subsidiaries and associates 849 893 Total non-current assets 299,498 291,824 Total assets 343,042 338,087 Regulatory deferral account debit balances 10 29,768 25,396 Total assets and regulatory assets $ 372,810 $ 363,483 Page 106 of 264 KITCHENER POWER CORP. Consolidated Statement of Financial Position As at August 31, 2022, with comparative information for 2021 (Expressed in thousands of dollars) Note 2022 2021 Liabilities and Shareholder's Equity Current liabilities: Short term indebtedness Accounts payable and accrued liabilities Dividend payable Current portion of lease liabilities Current portion customer deposits Current portion of deferred revenue Total current liabilities Non-current liabilities: Long-term debt Employee future benefits Long-term customer deposits Long-term portion of lease liabilities Deferred revenue Deferred tax liablilty Total non-current liabilities Total liabilities Shareholder's equity: Share capital - common shares Retained earnings Accumulated other comprehensive loss Total shareholder's equity $ 3,033 $ - 29,336 32,821 2,400 - 17 42 42 13 10,687 8,530 1,257 1,185 46,755 42,578 11 76,963 76,963 12 6,068 6,012 13 5,443 5,675 17 552 556 46,144 44,451 9 9,478 8,675 144,648 142,332 191,403 184,910 14 66,389 66,389 108,127 108,261 (620) (620) 173,896 174,030 Total liabilities and shareholder's equity 365,299 358,940 Regulatory deferral account credit balances 10 3,430 779 Deferred taxes associated with regulatory accounts 4,081 3,764 Total equity, liabilities and shareholder's equity $ 372,810 $ 363,483 The accompanying notes are an integral part of these financial statements. On behalf of the Board: r Rosa Lupo, Chair Tim Martin, Vice -Chair Page 107 of 264 KITCHENER POWER CORP. Consolidated Statement of Comprehensive Income For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) Note 2022 2021 Energy sales Cost of energy sold $ 145,100 $ 149,500 205,727 208,472 5,674 (4,400) (2,745) Other operating revenue 10,977 25,210 Distribution sales 34,658 45,033 Other income 15 2,248 3,319 Net operating revenue 32,506 45,607 Expenses: Operations and maintenance Customer services Administration Amortization Other 8,598 11,552 4,503 5,674 4,108 6,452 8,001 10,977 25,210 34,655 Energy conservation program revenue (591) (1,262) Energy conservation program expense 340 1,277 Net energy conservation programs (251) 15 Finance income 16 (41) (39) Finance charges 16 1,844 2,509 Net finance costs 1,803 2,470 Income before income taxes 5,744 8,467 Income tax recovery 9 (35) (520) Income for the period before movements in regulatory deferral account balances 5,779 8,987 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 10 1,057 2,208 Income for the year and net movements in regulatory deferral account balances 6,836 11,195 Total comprehensive income for the period $ 6,836 $ 11,195 The accompanying notes are an integral part of these financial statements. Page 108 of 264 KITCHENER POWER CORP. Consolidated Statement of Changes in Equity For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) Net income before other comprehensive income (loss; - - 6,836 6,836 Dividends - - (6,970) (6,970) Balance at August 31, 2022 $ 66,389 $ (620) $ 108,127 $ 173,896 The accompanying notes are an integral part of these financial statements. Page 109 of 264 Accumulated Share capital other Retained Total comprehensive earnings income (loss) Balance at January 1, 2021 $ 66,389 $ (620) $ 101,452 $ 167,221 Net income before other comprehensive income (loss; - - 11,195 11,195 Dividends - - (4,386) (4,386) Balance at December 31, 2021 66,389 (620) 108,261 174,030 Net income before other comprehensive income (loss; - - 6,836 6,836 Dividends - - (6,970) (6,970) Balance at August 31, 2022 $ 66,389 $ (620) $ 108,127 $ 173,896 The accompanying notes are an integral part of these financial statements. Page 109 of 264 KITCHENER POWER CORP. Consolidated Statement of Cash Flows For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2022 2021 Cash flows from operating activities: Total comprehensive income for the period $ 6,836 $ 11,195 Adjustments to reconcile net income to cash provided by (used in) operations: Amortization 8,510 11,690 Amortization of deferred revenue (826) (1,140) Gain on disposal of property, plant and equipment (56) (51) 1 ncome tax expense (35) (520) Income taxes paid (750) 353 Interest on Lease Liability 24 24 Income from subsidiaries and associates 44 (55) Increase decrease in employee future benefits 56 75 Cash and cash equivalents, beginning of period 13,803 21,571 Change in non-cash operating working capital: $ - $ 6,079 Accounts receivable 600 (5,580) Unbilled revenue (3,002) 15,159 Inventory (413) (622) Prepaid expenses 152 64 Accounts payable and accrued liabilities (3,485) (4,923) Other current liabilities 2,229 (299) Change in regulatory debit balances (4,372) (5,735) Change in regulatory credit balances 2,968 47 Change in deferred tax 878 4,282 Net cash from operating activities 9,358 23,964 Cash flows from investing activities: Proceeds on disposals of property, plant and equipment 57 370 Purchase of property, plant and equipment (15,977) (22,644) Purchase of intangible assets (239) (3,733) Net cash used in investing activities (16,159) (26,007) Cash flows from financing activities: Net change in Short term indebtedness 3,033 - Net change in customer deposits (232) (158) Dividends paid out (4,570) (4,386) Change in contributed capital received 2,519 5,832 Payment of lease liability (28) (27) Net cash from financing activities 722 1,261 Change in cash and cash equivalents (6,079) (782) Cash and cash equivalents, beginning of period 6,079 6,861 Cash and cash equivalents, end of period $ - $ 6,079 The accompanying notes are an integral part of these financial statements. Page 110 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 1. Reporting entity: Kitchener Power Corp. (the "Corporation") is a holding company for the affiliate companies, Kitchener -Wilmot Hydro Inc. and Kitchener Energy Services Inc., and is itself wholly owned by the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot. The Corporation oversees the operations of Kitchener -Wilmot Hydro Inc., a regulated distribution company, and Kitchener Energy Services Inc., an unregulated retail services company. The Corporation also owns 33% of Grand River Energy Solutions Corp. (GRE), a generation and renewable energy solutions company. It is located in the City of Kitchener. The address of the Corporation's registered office is 301 Victoria Street South, Kitchener, Ontario, Canada. The financial statements are for the Corporation as at and for the period ended August 31, 2022. On January 12, 2022, the Corporation entered into a Merger Participation Agreement ("MPA") with: the Corporation of the City of Kitchener ("Kitchener"); the Corporation of the Township of Wilmot ("Wilmot"); the Corporation of the City of Waterloo ("Waterloo"); the Corporation of the Township of Woolwich ("Woolwich"); the Corporation of the Township of Wellesley ("Wellesley"); Kitchener - Wilmot Hydro Inc.,("KWHI"); Kitchener Energy Services Inc.("KESI"); Waterloo North Hydro Inc. ("WNH"); Waterloo North Holding Corporation ("WNHC"): and Alliance Metering Solutions ("AMS"). WNHC is the parent company of WNH and AMS. The MPA provided the terms and conditions under which the Corporation and WNHC would amalgamate (the "MergeCo Amalgamation"), followed immediately by the amalgamation of the KWHI and WNH ("LDC Amalgamation"). The LDC Amalgamation was subject to the approval of the Ontario Energy Board ("OEB") based on a Mergers, Acquisitions, Amalgamations and Divestitures Application ("MAADs Application") process. The MAADs Application included a request for OEB approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued a Decision and Order approving the LDC Amalgamation. The MergeCo Amalgamation occurred on August 31, 2022 (the "closing date") and the Corporation continues as Enova Energy Corporation, a corporation amalgamated under the laws of Ontario. On August 31, 2022, immediately following the MergeCo Amalgamation, the KWHI and WNH legally amalgamated and continues as Enova Power Corp., a corporation amalgamated under the laws of Ontario. 2. Basis of presentation: (a) Statement of compliance: The Corporation's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial statements were approved by the Enova Energy Corporation Board of Directors on December 16, 2022. Page 111 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (b) Basis of measurement: The financial statements have been prepared on the historical cost basis except for the following: (i) Where held, financial instruments at fair value through profit or loss (ii) Contributed assets are initially measured at fair value. The methods used to measure fair values are discussed further in note 23. (c) Functional and presentation currency: These financial statements are presented in Canadian dollars, which is the Corporation's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (d) Use of estimates and judgments: The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in these financial statements is included in the following notes: i) Note 3(b) — Determination of the performance obligation for contributions from customers and the related amortization period ii) Note 7 — Property, plant and equipment iii) Note 9 — Deferred tax assets iv) Note 12 — Employee future benefits v) Note 18 — Commitments and contingencies (e) Rate regulation: The Corporation is regulated by the Ontario Energy Board ("OEB"), under the authority granted by the Ontario Energy Board Act, 1998. Among other things, the OEB has the power and responsibility to approve or set rates for the transmission and distribution of electricity, providing continued rate protection for electricity consumers in Ontario, and ensuring that transmission and distribution companies fulfill obligations to connect and service customers. The OEB may also prescribe license requirements and conditions of service to local distribution companies ("LDCs"), such as the Corporation, which may include, among other things, record keeping, Page 112 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (e) Rate regulation (continued): regulatory accounting principles, separation of accounts for distinct businesses, and filing and process requirements for rate setting purposes. Rate setting: Distribution revenue and electricity rates The OEB sets electricity prices for low-volume consumers once each year based on an estimate of how much it will cost to supply the province with electricity for the next year. All low volume customers without a contract with an energy retailer are charged the OEB mandated rate for electricity. If a customer (regardless of volume) has a retailer agreement, then retailer rates are charged instead. All remaining consumers pay the market price for electricity. The Corporation is billed for the cost of the electricity that its customers use and passes this cost on to the customer at cost without a mark-up. For the distribution revenue included in electricity sales, the Corporation files a "Cost of Service" ("COS") rate application with the OEB every four years where rates are determined through a review of the forecasted annual amount of operating and capital expenses, debt and shareholder's equity required to support the Corporation's business. The Corporation estimates electricity usage and the costs to service each customer class to determine the appropriate rates to be charged to each customer class. The COS application is reviewed by the OEB and intervenors and rates are approved based upon this review, including any revisions resulting from that review. In the intervening years, an Incentive Rate Mechanism application ("IRM") is filed. An IRM application results in a formulaic adjustment to distribution rates that were set under the last COS application. The previous year's rates are adjusted for the annual change in the Gross Domestic Product Implicit Price Inflator for Final Domestic Demand ("GDP IPI -FDD") net of a productivity factor and a "stretch factor" determined by the relative efficiency of an electricity distributor. As a licensed distributor, the Corporation is responsible for billing customers for electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties. The Corporation is required, pursuant to regulation, to remit such amounts to these third parties, irrespective of whether the Corporation ultimately collects these amounts from customers. The Corporation filed a COS application on April 30, 2019 for rates effective January 1, 2020 to December 31, 2020. The GDP IPI -FDD for 2022 is 3.3%, the Corporation's productivity factor is 0% and the stretch factor is 0.15%, resulting in a net adjustment of 3.15% to the previous year's rates. Page 113 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 2. Basis of presentation (continued): (f) Investments Investments in subsidiary companies, associates and other long-term investments are accounted for by the equity method. Dividends received are recorded as a reduction of the carrying value of these investments. 3. Significant accounting policies: The accounting policies set out below have been applied consistently in all periods presented in these financial statements unless otherwise indicated. (a) Financial instruments: At initial recognition, the Company measures its financial assets at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss Subsequent measurement of the financial asset depends on the classification determined on initial recognition. Financial assets are classified as either amortized cost, fair value through other comprehensive income or fair value through profit or loss, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are not reclassified subsequent to their initial recognition, unless the Company changes its business model for managing financial assets. Financial liabilities are initially measured at fair value, net of transaction costs incurred. They are subsequently carried at amortized cost using the effective interest rate method; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as an adjustment to interest expense over the period of the borrowings. The Corporation has not entered into derivative instruments. Hedge accounting has not been used in the preparation of these financial statements. Cash equivalents include short-term investments with maturities of three months or less when purchased. (b) Revenue recognition: Sale and distribution of electricity The performance obligations for the sale and distribution of electricity are recognized over time using an output method to measure the satisfaction of the performance obligation. The value of the electricity services transferred to the customer is determined on the basis of cyclical meter readings plus estimated customer usage since the last meter reading date to the end of the period and represents the amount that the Corporation has the right to bill. Revenue includes the cost of electricity supplied, distribution, and any other regulatory charges. The related cost of power is recorded on the basis of power used. Page 114 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (b) Revenue recognition (continued): For customer billings related to electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties, the Corporation has determined that it is acting as a principal for these electricity charges and, therefore, has presented electricity revenue on a gross basis. Capital contributions Developers are required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. The developer is not a customer and therefore the contributions are scoped out of IFRS 15 Revenue from Contracts with Customers. Cash contributions received from developers are recorded as deferred revenue. When an asset other than cash is received as a capital contribution, the asset is initially recognized at its fair value, with a corresponding amount recognized as deferred revenue. The deferred revenue, which represents the Corporation's obligation to continue to provide the customers access to the supply of electricity, is amortized to income on a straight-line basis over the useful life of the related asset. Certain customers are also required to contribute towards the capital cost of construction of distribution assets in order to provide ongoing service. These contributions fall within the scope of IFRS 15 Revenue from Contracts with Customers. The contributions are received to obtain a connection to the distribution system in order to receive ongoing access to electricity. The Corporation has concluded that the performance obligation is the supply of electricity over the life of the relationship with the customer which is satisfied over time as the customer receives and consumes the electricity. Revenue is recognized on a straight-line basis over the useful life of the related asset. Other revenue Revenue earned from the provision of services is recognized as the service is rendered. Government grants and the related performance incentive payments under CDM programs are recognized as revenue in the period when there is reasonable assurance that the program conditions have been satisfied and the payment will be received. (c) 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. Page 115 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (d) Property, plant and equipment: Items of property, plant and equipment ("PP&E") used in rate -regulated activities and acquired prior to January 1, 2015 are measured at deemed cost established on the transition date, less accumulated depreciation. All other items of PP&E are measured at cost, or, where the item is transferred from customers, its fair value, less accumulated depreciation. Consistent with IFRS 1, the Corporation elected to use the carrying amount as previously determined under Canadian GAAP as the deemed cost at January 1, 2015, the transition date to IFRS. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self -constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to a working condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on the disposal of an item of PP&E are determined by comparing the proceeds from disposal, if any, with the carrying amount of the item of PP&E and are recognized net within other income in profit or loss. Major spare parts and standby equipment are recognized as items of PP&E. The cost of replacing a part of an item of property, plant and equipment is recognized in the net book value of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation and its cost can be measured reliably. In this event, the replaced part of property, plant and equipment is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred. Depreciation is calculated over the depreciable amount and is recognized in profit or loss on a straight-line basis over the estimated useful life of each part or component of an item of property, plant and equipment. The depreciable amount is cost. Land is not depreciated. Construction -in -progress assets are not amortized until the projects are complete and in service. The estimated useful lives are as follows: Buildings 20-50 years Transformer station equipment 15-50 years Distribution station equipment 15-50 years Distribution system 25-60 years Meters 15-25 years SCADA equipment 15 years Other capital assets 3-10 years Page 116 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (d) Property, plant and equipment (continued): Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. (e) Intangible assets (i) Computer software: Computer software that is acquired or developed by the Corporation, including software that is not integral to the functionality of equipment purchased which has finite useful lives, is measured at cost less accumulated amortization and accumulated impairment losses. (ii) Land rights: Payments to obtain rights to access land ("land rights") are classified as intangible assets. These include payments made for easements, right of access and right of use over land for which the Corporation does not hold title. Land rights are measured at cost less accumulated amortization and accumulated impairment losses. (iii) Amortization: Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives are: Computer software 3-10 years Land rights 100 years Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. (f) Impairment: (i) Financial assets: A loss allowance for expected credit losses on financial assets measured at amortized cost is recognized at the reporting date. The loss allowance is measured at an amount equal to the lifetime expected credit losses for the asset. Page 117 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (f) Impairment (continued): (ii) Non-financial assets: The carrying amounts of the Corporation's non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash -generating unit"). The recoverable amount of an asset or cash -generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset or its cash -generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss in respect of goodwill is not reversed. For assets other than goodwill, impairment recognized in prior periods is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (g) Provisions: A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Page 118 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (h) Regulatory deferral accounts: Regulatory deferral account debit balances represent costs incurred in excess of amounts billed to the customer at OEB approved rates. These amounts have been accumulated and deferred in anticipation of their future recovery in electricity distribution rates. Regulatory deferral account credit balances represent amounts billed to the customer at OEB approved rates in excess of costs incurred by the Corporation. Regulatory deferral account debit balances are recognized if it is probable that future billings in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate -making purposes. The offsetting amount is recognized in profit and loss. The debit balance is reduced by the amount of customer billings as electricity is delivered to the customer and the customer is billed at rates approved by the OEB for the recovery of the capitalized costs Regulatory deferral account credit balances are recognized if it is probable that future billings in an amount at least equal to the credit balance will be reduced as a result of rate -making activities. The offsetting amount is recognized in profit and loss. The credit balance is reduced by the amounts returned to customers as electricity is delivered to the customer at rates approved by the OEB for the return of the regulatory account credit balance. The probability of recovery or repayment of the regulatory account balances are assessed annually based upon the likelihood that the OEB will approve the change in rates to recover or repay the balance. Any resulting impairment loss is recognized in profit and loss in the period incurred. Regulatory deferral accounts attract interest at OEB prescribed rates. With the exception of the regulatory deferral account for Pension and Other Post -Employment benefits (OPEBs), the rate for 2022 was 0.57% for January to March, 1.02% for the period April to June and 2.2% for July and August. Prior year rates from January to December 2021 were 0.57%. In 2022, the interest rates for the regulatory OPEBs account were 2.72% for the period January to March, and 3.31 % for the period April to June and 4.66% for July and August. In 2021, the interest rates for the regulatory OPEBs account were 2.03% for the period January to March, and 2.29% for the period April to December. Page 119 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (i) Employee future benefits: (i) Pension plan: The Corporation provides a pension plan for all its full-time employees through Ontario Municipal Employees Retirement System ("OMERS"). OMERS is a multi-employer pension plan which operates as the Ontario Municipal Employees Retirement Fund ("the Fund"), and provides pensions for employees of Ontario municipalities, local boards and public utilities. The Fund is a contributory defined benefit pension plan, which is financed by equal contributions from participating employers and employees, and by the investment earnings of the Fund. To the extent that the Fund finds itself in an under -funded position, additional contribution rates may be assessed to participating employers and members. OMERS is a defined benefit plan. However, as OMERS does not segregate its pension asset and liability information by individual employers, there is insufficient information available to enable the Corporation to directly account for the plan. Consequently, the plan has been accounted for as a defined contribution plan. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in net income when they are due. (ii) Post -employment benefits, other than pension: The Corporation provides some of its retired employees with life insurance and medical benefits beyond those provided by government sponsored plans. The cost of these benefits is expensed as earned by employees through employment service. The accrued benefit obligations and the current service costs are actuarially determined by applying the projected unit credit method and reflect management's best estimate of certain underlying assumptions. Actuarial gains and losses arising from defined benefit plans are recognized immediately in other comprehensive income and reported in retained earnings. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in net income on a straight-line basis over the average period until the benefits become vested. In circumstances where the benefits vest immediately, the expense is recognized immediately in net income. Page 120 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): 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: At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation assess whether: (a) The contract involves the use of an identified asset — this may be specified explicitly or implicitly and should be physically distinct or represent substantially all the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; (b) The Corporation has the right to obtain substantially all the economic benefits from the use of the asset throughout the period of use; and (c) The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either the Corporation has the right to operate the asset, or the Corporation designed the asset in a way that predetermines how and for what purpose it will be used. The Corporation recognizes a right -of -use asset and a lease liability at the lease commencement date. The right -of -use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is locate, less any lease incentives received. The right -of -use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right -of -use asset or the end of the lease term. The estimated useful life of a right -of -use asset is determined on the same basis as those for property, plant and equipment. In addition, the right -of -use asset is periodically reduced by impairment losses, if any, and adjusted for certain re -measurements of the lease liability. Page 121 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 3. Significant accounting policies (continued): (1) Finance income and finance costs: Finance income is recognized as it accrues in profit or loss, using the effective interest method. Finance income comprises interest earned on cash and cash equivalents and on regulatory assets. Finance charges comprise interest expense on borrowings, finance lease obligations, regulatory liabilities and unwinding of the discount on provisions and impairment losses on financial assets. Finance costs are recognized as an expense unless they are capitalized as part of the cost of qualifying assets. (m) Income taxes: The income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case, it is recognized in equity. The Corporation is currently exempt from taxes under the Income Tax Act (Canada) and the Ontario Corporations Tax Act (collectively the "Tax Acts"). Under the Electricity Act, 1998, the Corporation makes payments in lieu of corporate taxes to the Ontario Electricity Financial Corporation ("OEFC"). These payments are calculated in accordance with the rules for computing taxable income and taxable capital and other relevant amounts contained in the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the Electricity Act, 1998, and related regulations. Prior to October 1, 2001, the Corporation was not subject to income or capital taxes. Payments in lieu of taxes are referred to as income taxes. Current tax is the tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the balance sheet method. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, as well as for tax losses available to be carried forward to future years that are likely to be realized. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates, at the reporting date, expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. Page 122 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 4. Cash: 2022 2021 Cash $ - $ 6,079 5. Accounts receivable: Customer and other trade receivables Trade receivables from related parties 6. Inventory: 2022 2021 $ 20,467 $ 21,027 220 260 $ 20,687 $ 21,287 The amount of inventories consumed by the Corporation and recognized as an expense during 2022 was $321 (2021 - $373). 7. Property, plant and equipment: (a) Cost or deemed cost: Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2022 $ 28,440 $ 300,102 $ 7,436 $ 2,754 $ 601 $ 339,333 Additions 128 2,240 310 13,299 - 15,977 Transfers 7 11,345 342 (11,694) - Disposals/Retirements - - (277) - - (277) Balance at August 31, 2022 $ 28,575 $ 313,687 $ 7,811 $ 4,359 $ 601 $ 355,033 Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2021 $ 26,433 $ 277,793 $ 9,992 $ 5,837 $ - $ 320,055 Additions 1,380 2,316 1,099 17,849 601 23,245 Transfers 692 19,982 28 (20,702) - - Disposals/Retirements (65) 11 (3,683) (230) - (3,967) Balance at December 31, 2021 $ 28,440 $ 300,102 $ 7,436 $ 2,754 $ 601 $ 339,333 Page 123 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): (b) Accumulated depreciation: Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2022 $ 4,122 $ 54,850 $ 897 $ $ 20 $ 59,889 Depreciation charge 513 6,167 942 20 7,642 Disposals/Retirements - - (276) (276) Balance at August 31, 2022 $ 4,635 $ 61,017 $ 1,563 $ $ 40 $ 67,255 Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total Balance at January 1, 2021 $ 3,429 $ 46,021 $ 3,024 $ $ $ 52,474 Depreciation charge 758 8,818 1,467 20 11,063 Disposals/Retirements (65) 11 (3,594) (3,648) Balance at December 31, 2021 $ 4,122 $ 54,850 $ 897 $ $ 20 $ 59,889 (c) Carrying amounts: Land and Distribution Other fixed Construction- Right -of -use buildings equipment assets in -progress assets Total At August 31, 2022 $ 23,940 $ 252,670 $ 6,248 $ 4,359 $ 561 $ 287,778 At December 31, 2021 $ 24,318 $ 245,252 $ 6,539 $ 2,754 $ 581 $ 279,444 (d) Leased plant and equipment: In May 2021, the Corporation entered into a lease agreement with Grand River Energy Solutions Corp., an associated company, for the construction and lease of solar PV roof -top equipment located at the Corporation's registered office. A right -of -use asset and corresponding lease liability of $601 were recorded. (e) Security: At August 31, 2022, the Corporation had zero properties subject to a general security agreement. (f) Borrowing costs: During the period, borrowing costs of $ nil (2021 - $ nil) were capitalized as part of the cost of property, plant and equipment. Page 124 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 7. Property, plant and equipment (continued): (g) Allocation of depreciation and amortization: The depreciation of property, plant and equipment and the amortization of intangible assets has been allocated to profit or loss as follows: Operations and Customer General and Energy maintenance services administration Conservation expense expense expense expense Other Total August 31, 2022: Depreciation of property, plant and equipment $ 503 $ 4 $ 2 $ $ 7,133 $ 7,642 Amortization of intangible assets 868 868 $ 503 $ 4 $ 2 $ $ 8,001 $ 8,510 December 31, 2021: Depreciation of property, plant and equipment $ 702 $ 9 $ $ 2 $ 10,350 $ 11,063 Amortization of intangible assets 627 627 $ 702 $ 9 $ $ 2 $ 10,977 $ 11,690 8. Intangible assets: (a) Cost or deemed cost Included within Computer Software is $272 (2021 - $250) of intangible assets under development. Page 125 of 264 Computer Software Land Rights Total Balance at January 1, 2022 $ 11,838 $ 8 $ 11,846 Additions 239 - 239 Disposals (15) - (15) Balance at August 31, 2022 $ 12,062 $ 8 $ 12,070 Balance at January 1, 2021 $ 10,938 $ 8 $ 10,946 Additions 3,733 - 3,733 Disposals (2,833) - (2,833) Balance at December 31, 2021 $ 11,838 $ 8 $ 11,846 Included within Computer Software is $272 (2021 - $250) of intangible assets under development. Page 125 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 8. Intangible assets (continued): (b) Accumulated amortization: Computer Software Land Rights Total Balance at January 1, 2022 $ 653 $ 8 $ 661 Additions 868 - 868 Disposals (15) - (15) Balance at August 31, 2022 $ 1,506 $ 8 $ 1,514 Balance at January 1, 2021 $ 2,859 $ 8 $ 2,867 Additions 627 - 627 Disposals (2,833) - (2,833) Balance at December 31, 2021 $ 653 $ 8 $ 661 (c) Carrying amounts: Computer Software Land Rights Total At August 31, 2022 $ 10,556 $ - $ 10,556 At December 31, 2021 $ 11,185 $ - $ 11,185 Page 126 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 9. Income tax expense: Current tax expense: 2022 2021 Current period $ 95 $ 291 Adjustment for prior periods (42) (700) $ 53 $ (409) Deferred tax expense: 2022 2021 Original & reversal of temporary differences $ (76) $ (20) Recognition of previously unrecognized tax losses (12) (91) $ (88) $ (111) Reconciliation of effective tax rate: 2022 2021 Total comprehensive income for the period $ 6,836 $ 11,195 Total income tax expense (35) (520) Comprehensive income before income taxes 6,801 10,675 Income tax using the Corporation's statutory tax rate of 26.5% 1,802 2,829 Temporary differences not benefitted (1,794) (2,649) Under (over) provided in prior periods (43) (700) $ (35) $ (520) Significant components of the Corporation's deferred tax balances are as follows: 2022 2021 Deferred tax assets (liabilities): Property, plant and equipment $ (23,880) $ (22,536) Non -vested sick leave 182 168 Employee future benefits 1,608 1,593 Intangible assets 11 7 Loss carry -forward 307 295 Ontario refundable tax credits 48 6 Deferred revenue - contributed capital 12,561 12,094 $ (9,163) $ (8,373) Page 127 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 10. Regulatory deferral account balance The following is a reconciliation of the carrying amount for each class of regulatory deferral account balances: Balances Remaining arising in the Recovery/ recovery/ reversal 2021 period Reversal Other 2022 period (years) Regulatory deferral account debit balances Group 1 deferred accounts $ 9,430 $ 5,461 $ (3,985) $ 25 $ 10,931 Note 1, Note 3 Regulatory asset recovery account 822 (1,579) 4,060 3,303 Note 1 Deferred tax asset 14,201 1,198 - 15,399 Note 2 LRAM 874 - (874) - 1 Year Other 69 66 - 135 1 Year Total amount related to regulatory deferral account debit balances $ 25,396 $ 5,146 $ (799) $ 25 $ 29,768 Balances Remaining arising in the Recovery/ recovery/ reversal 2021 period Reversal Other 2022 period (years) Regulatory deferral account credit balances Group 1 deferred accounts $ 220 $ 680 $ 1,942 $ 26 $ 2,868 Note 1 Other 559 3 - 562 3 Year Total amount related to regulatory deferral account credit balances $ 779 $ 683 $ 1,942 $ 26 $ 3,430 2022 2021 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances $ 1,722 $ 7,232 Less movement related to the balance sheet Deferred income tax (1,198) (5,826) Deferred revenue 533 802 Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement $ 1,057 $ 2,208 Note 1 KWHI has been approved for collection of these amounts in its 2021 filing for 2022 rates. Page 128 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 10. Regulatory deferral account balance (continued): Note 2 KWHI has not sought approval for the disposition of this amount as changes in underlying assumptions may reduce the amounts recorded in the account. KWHI may seek refunds in the future Note 3 In December 2020, KWHI was informed that beginning June 2015 charges were not included in the monthly power bill for one delivery point for Transmission Network Charges. KWHI accrued a payable of $6 million in 2020, offset by a regulatory asset. These monies were collected through an OEB approved rate rider through August 2022. 11. Long-term debt: Effective August 1, 2000, the Corporation incurred unsecured promissory notes payable to the City of Kitchener and the Township of Wilmot and have an interest rate of 3.23% per annum. Interest is payable in quarterly installments, in arrears, on March 31St, June 30th, September 30th and December 31 St 2022 2021 Senior unsecured debentures: City of Kitchener $ 70,998 $ 70,998 Township of Wilmot 5,965 5,965 Senior unsecured debentures, net proceeds $ 76,963 $ 76,963 Less: current portion of long-term debt $ - $ - Total long-term debt $ 76,963 $ 76,963 12. Employee future benefits: The Corporation pays certain medical and life insurance benefits on behalf of some of its retired employees. The Corporation recognizes these post-retirement costs in the period in which employees' services were rendered. The accrued benefit liability at August 31, 2022 of $6,068 was based on an actuarial valuation completed in 2020 using a discount rate of 3.1% (3.1 % in 2021). Page 129 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 12. Employee future benefits (continued): Changes in the present value of the defined benefit unfunded obligation and the accrued benefit liability: 2022 2021 Defined benefit obligation, beginning of period $ 6,012 $ 5,937 Current service cost 136 191 Interest cost 131 180 Benefits paid during the period (211) (296) Actuarial loss recognized in other - - comprehensive income Accrued benefit liability, end of period $ 6,068 $ 6,012 Components of net benefit expense recognized are as follows: Page 130 of 264 2022 2021 Current service cost Interest cost $ 136 $ 131 191 180 Net benefit expense recognized $ 267 $ 371 Actuarial losses recognized in other comprehensive income: 2022 2021 Cumulative amount at January 1 Recognized during the period (net of tax) $ (620) $ - (620) - Cumulative amount at the end of period $ (620) $ (620) Page 130 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The significant actuarial assumptions used in the valuation are as follows (weighted average): 2022 2021 Accrued benefit obligation: Discount rate 3.1% 3.1% Benefit cost for the period: Age Withdrawal rate 18-29 3.50% 3.50% 30-34 2.00% 2.00% 35-39 1.7% 1.7% 40-49 1.3% 1.3% 50-54 1.0% 1.0% Assumed health care cost trend rates Initial health care cost trend rate Health 4.9% 4.7% Dental 5.1% 4.9% The approximate effect on the accrued benefit obligation of the entire plan and the estimated net benefit expense of the entire plan if the health care trend rate assumption was increased or decreased by 1 %, and all other assumptions were held constant, is as follows: Benefit Periodic Obligation Benefit Cost 1% increase in health care trend rate $ 219 $ 27 1% decrease in health care trend rate $ (197) $ (15) Page 131 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 12. Employee future benefits (continued): The main actuarial assumptions utilized for the valuation are as follows: General inflation - future general inflation levels, as measured by the changes in the Consumer Price Index, were assumed at 2% in 2022, and thereafter (2021 - 2%). Discount (interest) rate - the discount rate used to determine the present value of future liabilities and the expense for the period ended August 31, 2022, was 3.1% (2021 — 3.1 %). Salary levels - future general salary and wage levels were assumed to increase at 3.3% (2021 - 3.3%) per annum. Medical costs - medical costs were assumed to be 4.7% for 2022 (4.4% for 2021). Dental costs - dental costs were assumed to be 4.9% for 2022 (4.7% for 2021). 13. Customer and IESO deposits: Customer deposits represent cash deposits from electricity distribution customers and retailers, as well as construction deposits. Deposits from electricity distribution customers are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Corporation in accordance with policies set out by the OEB or upon termination of their electricity distribution service. Construction deposits represent cash prepayments for the estimated cost of capital projects recoverable from customers and developers. Upon completion of the capital project, these deposits are transferred to deferred revenue. The Corporation delivers conservation and demand management programs for its customers on behalf of the 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: 2022 2021 Customer deposits $ 5,530 $ 5,623 Construction deposits 9,442 7,424 I ESO deposit for energy conservation programs 1,158 1,158 Total customer deposits $ 16,130 $ 14,205 Page 132 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 14. Share capital: 2022 2021 Authorized: Unlimited number of common shares 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 period common shares of $4,570 (2021 - $4,386). A further $2,400 was declared but not paid. 15. Other operating revenue: Other income comprises: 2022 2021 Specific service charges $ 1,074 $ 1,748 Deferred revenue 826 1,140 Scrap sales 206 187 Net gain on disposal of capital assets 56 51 Non -Utility operation 17 4 Retailer services 27 39 Sundry 42 150 Total other income $ 2,248 $ 3,319 16. Finance income and expense: 2022 2021 Interest income on bank deposits $ 41 $ 39 Finance income 41 39 Interest expense on long-term debt Interest expense (reco(ery) on short-term debt Interest expense on BMO Letter of Credit Interest expense on deposits Interest expense on capital lease Other 1,658 2,472 41 (256) 81 123 40 35 24 24 - 111 1,844 2,509 Net finance costs recognized in profit or loss $ 1,803 $ 2,470 Page 133 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 17. Lease Liabilities: The Corporation has entered into a lease agreement for solar PV roof -top equipment representing right - of -use assets (note 7). The right -of -use assets are recognized at the present value of the minimum lease payments, plus any extensions estimated to be exercised, with the corresponding equivalent lease liability recognized. The Corporation has determined the lease terms based on all available information as at the reporting date. August 31, December 31, Maturity Analysis - contractual undiscounted cash flows 2022 2021 Less than one year $ 42 $ 42 one - five years 233 228 More than five years 766 799 Total undiscounted lease liabilities at period end $ 1,041 $ 1,069 Interest included on the liabilities included in the statement of financial position at August 31, 2022 $ (447) $ (471) Lease Liabilities - current 42 42 Lease Liabilties - non-current $ 552 $ 556 18. Commitments and contingencies: Contractual Obligations KWHI entered into a lease agreement with Grand River Energy Solutions Corp for a rooftop solar PV system (see note 17 for details). General From time to time, the Corporation is involved in various litigation matters arising in the ordinary course of its business. The Corporation has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Corporation's financial position, results of operations or its ability to carry on any of its business activities. General Liability Insurance: The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange (MEARIE). MEARIE is a pooling of public liability insurance risks of many of the LDCs in Ontario. All members of the pool are subjected to assessment for losses experienced by the pool for the years in which they were members, on a pro -rata basis based on the total of their respective service revenues. As at August 31, 2022, no assessments have been made. Page 134 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 19. Guarantees: Kitchener Power Corp. is the guarantor for a line of credit issued by the Canadian Imperial Bank of Commerce on behalf of Grand River Energy Solutions Corp. (GRE Corp). GRE Corp. is one third owned by each of Kitchener Power Corp., Waterloo North Hydro Holding Corporation and Grandbridge Corporation.; each of which has guaranteed a maximum of $6 million in the event of default by GRE Corp. 20. Pension agreement: The Corporation provides a pension plan for its employees through OMERS. The plan is a multi- employer, contributory defined pension plan with equal contributions by the employer and its employees. In 2022, the Corporation made employer contributions of $1,118 to OMERS (2021 - $1,681). The Corporation's net benefit expense has been allocated as follows: (a) $294 (2021 - $439) capitalized as part of property, plant and equipment; (b) $824 (2021 - $1,242) charged to net income. The Corporation estimates that a contribution of $nil to OMERS will be made during the next fiscal year. 21. Employee benefits: 2022 2021 Salaries, wages and benefits $ 13,484 $ 19,657 CPP and EI remittances 756 782 Contributions to OMERS 1,118 1,681 Expenses related to employee future benefit plans 267 371 $ 15,625 $ 22,491 22. Related party transactions: (a) Parent and ultimate controlling party: The Corporation is wholly-owned by the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot. The City and the Township produce financial statements that are available for public use. (b) Entity with significant influence: The Corporation of the City of Kitchener exercises significant influence over the Corporation through its 92.25% ownership interest in the Corporation. Page 135 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 22. Related party transactions(continued): (c) Key management personnel: The key management personnel of the Corporation have been defined as members of its board of directors and executive management team members and is summarized below. 2022 2021 Directors' fees $ 48 $ 93 Salaries and other short-term benefits 898 1,106 Employe future benefits 17 20 Other long-term benefits (OMERS) 71 91 $ 1,034 $ 1,310 (d) Transactions with parent: During the year the Corporation paid management and business development services to its parent in the amount of $ nil (2021 - $ nil) (e) Transactions with entity with significant influence: In the ordinary course of business, the Corporation delivers electricity to the Corporation of the City of Kitchener. Electricity is billed to the City of Kitchener at prices and under terms approved by the OEB. (f) Transactions with ultimate parent (the City of Kitchener) In 2022, the Corporation had the following significant transactions with its ultimate parent, a government entity: • Construction, contracted through Kitchener Wilmot Hydro Inc. • Streetlight maintenance services contracted through Kitchener Energy Services Inc. 23. Financial instruments and risk management: Fair value disclosure Cash and cash equivalents are measured at fair value. The carrying values of receivables, and accounts payable and accrued charges approximate fair value because of the short maturity of these instruments. The carrying value of the customer deposits approximates fair value because the amounts are payable on demand. The fair value of the long term debt (senior unsecured debentures issued by the shareholders (City of Kitchener and Township of Wilmot) approximates the carrying value due to the short term nature of the loan. Financial risks The Corporation understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Corporation's exposure Page 136 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 23. Financial instruments and risk management (continued): to a variety of risks such as credit risk, interest rate risk, and liquidity risk, as well as related mitigation strategies are discussed below. (a) Credit risk: Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Corporation, such as accounts receivable, expose it to credit risk. The Corporation earns its revenue from a broad base of customers located in the City of Kitchener and the Township of Wilmot. As of August 31, 2022, no customers accounted for more than 1 % of total accounts receivable, $20,687. The carrying amount of accounts receivable is reduced through the use of an allowance for impairment and the amount of the related impairment loss is recognized in net income. Subsequent recoveries of receivables previously provisioned are credited to net income. The balance of the allowance for impairment at August 31, 2022 is $500 (2021 - $250). An impairment loss of $257 (2021 gain of $127) was recognized during the year. This is due to an increase of the allowance for bad debt to $500 from $250. The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At August 31, 2022, approximately $1,069 (2021 - $112) is considered 60 days past due. The Corporation has over 100 thousand customers, the majority of whom are residential. Credit risk is managed through collection of security deposits from customers in accordance with directions provided by the OEB. As at August 31, 2022, the Corporation holds security deposits in the amount of $5,530 (December 31, 2021 - $5,623). (b) Market risk: Market risks primarily refer to the risk of loss resulting from changes in commodity prices, foreign exchange rates, and interest rates. The Corporation currently does not have any material commodity or foreign exchange risk. The Corporation is exposed to fluctuations in interest rates as the regulated rate of return for the Corporation's distribution business is derived using a complex formulaic approach which is in part based on the forecast for long- term Government of Canada bond yields. This rate of return is approved by the OEB as part of the approval of distribution rates. The Corporation does not hold any long-term debt that is subject to market rates. Consequently a 1% increase or decrease in the interest rate at August 31, 2022 would have no financial impact. (c) Liquidity risk: The Corporation monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Corporation's objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Corporation has access to a $35,000 credit facility and monitors cash balances daily to ensure Page 137 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 23. Financial instruments and risk management (continued): (c) Liquidity risk (continued): that a sufficient level of liquidity is on hand to meet financial commitments as they come due. As at August 31, 2022, $3,564 had been drawn under Bank of Montreal credit facility (2021 - $ nil). The Corporation also has a bilateral facility for $35,000 (the "LC" facility) for the purpose of issuing letters of credit mainly to support the prudential requirements of the IESO, of which $35,000 has been drawn and posted with the IESO (2021 - $35,000). The majority of accounts payable, as reported on the balance sheet, are due within 30 days. (d) Capital disclosures: The main objectives of the Corporation, when managing capital, are to ensure ongoing access to funding to maintain and improve the electricity distribution system, compliance with covenants related to its credit facilities, prudent management of its capital structure with regard for recoveries of financing charges permitted by the OEB on its regulated electricity distribution business, and to deliver the appropriate financial returns. The Corporation's definition of capital includes shareholder's equity and long-term debt. As at August 31, 2022, shareholder's equity amounts to $173,896 (2021 - $174,030) and long-term debt amounts to $76,963 (2021 - $76,963). 24. Revenue from Contracts with Customers The Corporation generates revenue primarily from the sale and distribution of electricity to its customers. Other sources of revenue include performance incentive payments under CDM programs. 2022 2021 Revenue from Contracts with Customers $ 180,534 $ 252,110 Other Revenue: CDM programs 591 1,262 Other 1,513 2,011 Total $ 182,638 $ 255,383 Page 138 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 24. Revenue from Contracts with Customers (continued): In the following table, revenue from contracts with customers is disaggregated by type of customer. 25. Change in Accounting Policy The International Accounting Standards Board (IASB) has issued the following Standards, Interpretations and Amendments to Standards that were adopted by the Corporation effective January 1, 2022: (a) Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) (b) Onerous Contracts — Costs of Fulfilling a Contract (Amendments to IAS 37) (c) Annual Improvements to IFRS Standards 2018-2020 (d) Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 26. Future accounting pronouncements: At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Company and it is still to be determined if any will have a material impact on the Company's financial statements. (a) Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. Page 139 of 264 2022 2021 Residential $ 78,936 $ 111,252 Commercial 99,161 137,661 Large Users 1,323 1,565 Other 1,114 1,632 Total Revenue $ 180,534 $ 252,110 25. Change in Accounting Policy The International Accounting Standards Board (IASB) has issued the following Standards, Interpretations and Amendments to Standards that were adopted by the Corporation effective January 1, 2022: (a) Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) (b) Onerous Contracts — Costs of Fulfilling a Contract (Amendments to IAS 37) (c) Annual Improvements to IFRS Standards 2018-2020 (d) Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 26. Future accounting pronouncements: At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Company and it is still to be determined if any will have a material impact on the Company's financial statements. (a) Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their significant accounting policies; clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. Page 139 of 264 KITCHENER POWER CORP. - CONSOLIDATED Notes to Financial Statements For the period January 1, 2022 to August 31, 2022, with comparative information for the year ended December 31, 2021 (Expressed in thousands of dollars) 26. Future accounting pronouncements (continued): (b) Definition of Accounting Estimate (Amendments to IAS 8) On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. (C) Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes. On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. Page 140 of 264 KPMG LLP 120 Victoria Street South Suite 600 Kitchener ON N2G OE1 Canada Tel 519-747-8800 Fax 519-747-8811 INDEPENDENT AUDITOR'S REPORT To the Shareholders of Enova Energy Corporation Opinion We have audited the consolidated financial statements of Enova Energy Corporation (the Entity), which comprise: • the consolidated statement of financial position as at December 31, 2022 • the consolidated statement of comprehensive income for the period September 1, 2022 to December 31, 2022 • the consolidated statement of changes in equity for the period September 1, 2022 to December 31, 2022 • the consolidated statement of cash flows for the period September 1, 2022 to December 31, 2022 • and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the period September 1, 2022 to December 31, 2022 in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. t,l IN11 1 1 I11, X1' 011 XfI,I III IIII,A IIIlrIII IV r Millmd Ip 11W IIiori bol 111111,11 [ho KIINC irI, IjMI i,,wIv Mlu III i.,II iII,)oj-',II,),IIR II II;II �P,I 'll"YI X11111 X�I'I0 )WIMI KINC 111[ol I` Xl0.1I IX1 111I11[In) r II lv Uo I!.I'11Y 11,1 111 prIIIV 1111IIlo({ I w XI XI`[oo ,),= (,IfrIXd I r'11 vu)r9`+ ")Iv I, — kI KI INC L...1111 Page 141 of 264 Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Page 142 of 264 Page 3 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. kAW11X111- Z400 Chartered Professional Accountants, Licensed Public Accountants Kitchener, Canada May 2, 2023 Page 143 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Financial Position As at December 31, 2022 (Expressed in thousands of dollars) Note December 31, 2022 ASSETS Property, plant and equipment Current 570,164 Cash $ 15,189 Accounts receivable 5 34,660 Unbilled revenue 33,366 Inventories 7,655 Prepaid expenses 2,371 Current portion of lease receivables 111 Total current assets $ 93,352 Non-current assets Derivative asset 592 Property, plant and equipment 6 570,164 Intangible assets 7 18,571 Goodwill 3 140,077 Long term portion of lease receivables 1,255 Deferred tax asset 528 Investments in subsidiaries 322 Total non-current assets $ 731,509 Total assets 824,861 Regulatory deferral account debit balances 9 51,872 Total assets and regulatory deferral account debit balances $ 876,733 Page 144 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Financial Position As at December 31, 2022 (Expressed in thousands of dollars) Note December 31, 2022 LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 49,918 Current portion of lease liabilities 17 97 I ncome tax payable 1,685 Current portion of deferred revenue 2,214 Dividends payable 14 5,056 Current portion of customer deposits 13 12,081 Total current liabilities $ 71,051 Long-term Long-term debt 10 117,598 Notes payable to shareholder 11 110,254 Long term portion of customer deposits 13 8,634 Long term portion of lease liabilities 17 778 Deferred revenue 79,177 Employee future benefits 12 7,703 Deferred tax liability 8 23,517 Total lonq-term liabilities $ 347,661 Total liabilities 418,712 Shareholders' equity Share capital 14 326,248 Retained earnings 114,465 Accumulated other comprehensive income (loss) 12 1,591 Non -controlling interest 1,000 Total shareholders' equity $ 443,304 Total liabilities and shareholders' equity $ 862,016 Regulatory deferral account credit balances 9 6,072 Deferred taxes associated with regulatory accounts 9 8,645 Total equity, liabilities and regulatory deferral account credit balances $ 876,733 The accompanying notes are an integral part of these financial statements. On behalf of the Board: Rosa Lupo, Chair Tim Martin, Vice -Chair Page 145 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Comprehensive Income For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) REVENUES Energy sales Cost of enerav sold Note 2022 15 $ 114,666 117,918 (3,252) Other operating revenue Distribution revenue 15 30,483 Other income 15 2,554 Net operating revenue $ 29,785 EXPENSES Operations and maintenance 6,693 Customer services 3,057 Administration 4,106 Amortization 6 7,804 21,660 Other Energy conservation program revenue (2,791) Energy conservation program expense 2,801 Net energy conservation programs 10 Finance income 16 (183) Finance charges 16 3,085 Unrealized gain on derivative (953) Net finance costs 1,949 Income before income taxes $ 6,166 I ncome tax expense 8 1,195 Income for the period before movements in regulatory deferral account balances and OCI $ 4,971 Net movement in regulatory deferral account balances related to profit or loss and the related deferred tax movement 9 1,518 Other comprehensive income, net of taxes 12 2,211 Non -controlling interest (151) Net comprehensive income for the period $ 8,549 The accompanying notes are an integral part of these financial statements. Page 146 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Changes in Equity For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) The accompanying notes are an integral part of these financial statements. Page 147 of 264 Share Note Capital Non- Controlling Interest Accumulated Other Comprehensive Income (loss) Retained Earnings Total Balance at September 1, 2022 $ 66,389 $ - $ (620) $ 108,127 $ 173,896 Shares issued related to acquisition 3 259,859 849 - - 260,708 Net income and net movement in regulatory balances - - 2,211 6,338 8,549 Non -controlling interest 151 151 Balance at December 31, 2022 $ 326,248 $ 1,000 $ 1,591 $ 114,465 $ 443,304 The accompanying notes are an integral part of these financial statements. Page 147 of 264 ENOVA ENERGY CORPORATION Consolidated Statement of Cash Flows For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) Note 2022 OPERATING ACTIVITIES Proceeds on settlement of derivatives Net income Net change in customer deposits $ 8,549 Add (deduct) charges to operations not requiring a current 110,000 Repayment of long-term debt cash payment: Capital contributions received 3,408 Amortization 6 8,456 Amortization of deferred revenue Cash provided by financing activities (730) Gain on disposal of property, plant and equipment 15 (37) I ncome tax expense 8 1,195 Interest expense on lease liabilities 12 Income taxes paid (440) Change in non -controlling interest 151 Decrease in employee future benefits liability 12 (2,933) Unrealized gain on derivatives (953) Recognition of unrealized gain on derivatives (287) 12,983 Net change in non-cash operating working capital Accounts receivable 6,522 Unbilled revenue 3,123 1 nventories 1,460 Prepaid expenses (601) Deferred tax asset 604 Accounts payable and accrued liabilities (4,794) Deferred tax liability (364) Regulatory deferral account debit balances 2,451 Regulatory deferral account credit balances (2,894) Cash provided by operating activities $ 18,490 INVESTING ACTIVITIES Purchase of property, plant and equipment 6 (18,562) Purchase of intangible assets 7 (146) Proceeds on disposal of property, plant and equipment 37 Cash used in investing activities $ (18,671) FINANCING ACTIVITIES Proceeds on settlement of derivatives 6,135 Net change in customer deposits (1,882) Increase in long-term debt 10 110,000 Repayment of long-term debt (89,557) Capital contributions received 3,408 Payment of interest on lease liability (12) Payment of lease liability (net of receipts) (28) Cash provided by financing activities $ 28,064 Net cash provided (used) during period 27,883 Cash and cash equivalents, beginning of period (12,694) Cash and cash equivalents, end of period $ 15,189 The accompanying notes are an integral part of these financial statements. Page 148 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 1. Reporting Entity Enova Energy Corporation ("the Corporation") is wholly owned by the Cities of Kitchener and Waterloo, and the Townships of Wellesley, Wilmot and Woolwich. The Corporation oversees the operations of Enova Power Corp. ("EPC"), a regulated distribution company, and Kitchener Energy Services Inc. ("KESI"), an unregulated retail services company, and Alliance Metering Solutions Inc. ("AMS"), a submetering service provider. The Corporation also owns 66.7% of Grand River Energy Solutions Corp. ("GRE"), a generation and renewable energy solutions company, and 30.47% of Eyedro Green Solutions Inc. ("Eyedro"), a privately owned company with a focus on affordable energy products. The Corporation is located in the Regional Municipality of Waterloo. The address of the Corporation's registered head office is 301 Victoria Street South, Kitchener, Ontario, Canada. The financial statements are for the Corporation as at and for the period ended December 31, 2022 Legal Amalgamation On January 12, 2022, the Corporation entered into a Merger Participation Agreement ("MPA") with Kitchener; Wilmot; Waterloo; Woolwich; Wellesley; Kitchener Power Corp. ("KPC"); Kitchener Energy Services Inc. ("KESI"); Kitchener -Wilmot Hydro Inc. ("KWHI"); Waterloo North Hydro Inc. ("WNHI"); Waterloo North Holding Company ("WNHC"); and AMS. KPC was the parent company of KWHI and KESI. WNHC was the parent company of WHNI and AMS. For accounting purposes, former KPC was deemed the acquirer under the Amalgamation Transaction. Consequently, the opening balances in these statements are the balances of former KPC as at September 1, 2022. The MPA provided the terms and conditions under which WNHC and KPC would amalgamate (the "MergeCo Amalgamation"), followed immediately by the amalgamation of the WNHI and KWHI ("LDC Amalgamation"). The LDC Amalgamation was subject to the approval of the OEB based on a Mergers, Acquisitions, Amalgamations and Divestitures Application ("MAADs Application") process. The MAADs Application included a request for Ontario Energy Board ("OEB") approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued a Decision and Order approving the LDC Amalgamation. The MergeCo Amalgamation occurred on September 1, 2022 (the "closing date") and the parent corporation continues as Enova Energy Corporation, a corporation amalgamated under the laws of Ontario. On September 1, 2022, immediately following the MergeCo Amalgamation, WNHI legally amalgamated with KWHI and continues as EPC, a corporation amalgamated under the laws of Ontario. Page 149 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 2. Basis of Presentation (a) Statement of compliance The Corporation's financial statements have been prepared following International Financial Reporting Standards ("IFRS"). The financial statements were approved by the Board of Directors of the Corporation on April 28, 2023. (b) Basis of measurement The financial statements have been prepared on the historical cost basis except for the following: (i) Where held, financial instruments at fair value through profit or loss, including those held for trading, are measured at fair value. (ii) Contributed assets are initially measured at fair value. The methods used to measure fair values are discussed further in note 23. (c) Functional and presentation currency These financial statements are presented in Canadian dollars, which is the Corporation's functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (d) Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about judgments made in applying accounting policies that have the most significant effect on the amounts recognized in these financial statements is included in the following notes: (i) Note 4(c) — Revenue Recognition — determination of the performance obligation for contributions from customers and the related amortization period (ii) Note 4(e) — Capital assets (Property, plant and equipment) (iii) Note 12 — Employee future benefits (iv) Note 18 — Commitments and contingencies Page 150 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 2. Basis of Presentation (continued) (e) Rate regulation The Corporation is regulated by the OEB, under the authority granted by the Ontario Energy Board Act, 1998. Among other things, the OEB has the power and responsibility to approve or set rates for the transmission and distribution of electricity, providing continued rate protection for electricity consumers in Ontario, and ensuring that transmission and distribution companies fulfill obligations to connect and service customers. The OEB may also prescribe license requirements and conditions of service to LDCs, such as the Corporation, which may include, among other things, record keeping, regulatory accounting principles, separation of accounts for distinct businesses, and filing and process requirements for rate setting purposes. Rate setting Distribution revenue For the distribution revenue included in electricity sales, the Corporation files a "Cost of Service" ("COS") rate application with the OEB every five years where rates are determined through a review of the forecasted annual amount of operating and capital expenses, debt and shareholder's equity required to support the Corporation's business. The Corporation estimates electricity usage and the costs to service each customer class to determine the appropriate rates to be charged to each customer class. The COS application is reviewed by the OEB and interveners. Rates are approved based on this review including any required revisions. In the intervening years, an Incentive Rate Mechanism application ("IRM") is filed. An IRM application results in a formulaic adjustment to distribution rates set under the last COS application. The previous year's rates are adjusted for the annual change in the Gross Domestic Product Implicit Price Inflator for Final Domestic Demand ("GDP IPI -FDD") net of a "stretch factor' determined by the relative efficiency of an electricity distributor. As a licensed distributor, the Corporation is responsible for billing customers for electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties. The Corporation is required, under regulation, to remit such amounts to these third parties, irrespective of whether the Corporation ultimately collects these amounts from customers. In February 2022, KWHI and WNHI filed a Mergers, Acquisitions, Amalgamations and Divestitures ("MAADs") application (the WAADs Application") with the OEB under the Handbook to Electricity Distributor and Transmitter Consolidation (the WAADs Handbook") seeking approval for the Amalgamation Transaction. The MAADs Application included a request for OEB approval for the continuation of regulated rates and charges of the predecessor LDCs of the Corporation. On June 28, 2022, the OEB issued its Decision and Order in respect of the MAADs Application. The OEB granted the requested approvals and also approved a rebasing deferral period of 10 years, under which the Corporation will operate individual "rate zones" (based on the continuing rates and underlying cost structures of the predecessor LDCs). Page 151 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 3. Basis of Presentation (continued) (e) Rate regulation (continued) As provided within the OEB Report of the Board: Rate -Making Associated with Distributor Consolidation, the rate zones of the Corporation will continue on the Price Cap IR method. At its option, Enova Energy Corporation is permitted to apply for (a) inflationary increases to rates, adjusted for an efficiency factor; and (b) ICM rate adjustments that provide financing and recovery of incremental discrete capital projects. The predecessor utilities to the Corporation filed separate applications for the approval of electricity distribution rates as follows: • KWHI filed an annual Cost of Service Application with the OEB on April 30, 2019 for distribution rates effective January 1, 2020 to December 31, 2020. • WNHI filed an annual Cost of Service Application with the OEB on June 30, 2020 for distribution rates effective January 1, 2021 to December 31, 2021. The predecessor utilities to the Corporation filed separate applications for electricity distribution rates effective January 1, 2023, with decisions as follows: • KWHI — On December 8, 2022, Enova — KWHI rate zone received approval for IRM rates effective January 1, 2023. The distribution rates will be increased by 3.55%. • WNHI — On December 8, 2022, Enova — WNHI rate zone received approval for IRM rates effective January 1, 2023. The distribution rates will be increased by 3.40%. Electricity rates The OEB sets electricity prices for low-volume consumers based on an estimate of how much it will cost to supply the province with electricity for the next year. All low-volume customers without a contract with an energy retailer are charged the OEB-mandated rate for electricity. If a customer (regardless of volume) has a retailer agreement, then retailer rates are charged instead. All remaining consumers pay the market price for electricity. The Corporation is billed for the cost of the electricity that its customers use and passes this cost on to the customer at cost without a markup. Page 152 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Business Combination On September 1, 2022, KPC amalgamated with WNHC to form the Corporation. Under the Amalgamation Transaction, shares of the former KPC and WNHC were exchanged for the voting common shares of the Corporation. The Amalgamation Transaction has been recognized as a business combination following FIRS 3, Business Combinations using the acquisition method with the former KPC deemed as the acquirer based on its relative size compared to that of the former WNHC. These financial statements include the net fair value of the assets of former WNHC as at September 1, 2022; and the net assets of the former KPC at its carrying amounts at September 1, 2022. The aggregate purchase price was $259,859 for 2,000 common shares and 218,132 Class A special shares which were immediately converted to 42,120 common shares in the amalgamated company. The acquired value of WNHC's Investment in subsidiaries and associates is inclusive of $140,077 of goodwill associated to the amalgamation of WNHI and KWHI. The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of amalgamation: Page 153 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 3. Business Combination (continued) Accounts receivable Unbilled revenue Inventories Prepaid expenses Derivative asset Property, plant and equipment Intangible assets Deferred tax assets Investment in subsidiaries and associates Regulatory deferral account debit balances Short term bank indebtedness Accounts payable and accrued liabilities Income tax payable Dividends payable Current portion of customer deposits Long-term debt Notes payable to shareholder Long term portion of customer deposits Deferred revenue Employee future benefits Deferred tax liability Regulatory deferral account credit balances Deferred taxes associated with regulatory accounts WNHC Acquired Value 20,264 18,782 5,622 837 5,848 267,421 4,711 197 1,172 24,555 (10, 529) (25,234) (1,427) (2,656) (3,271) (89,410) (33,292) (3,196) (31,312) (4,568) (14,484) (5,536) (4,712) $ 119,782 Goodwill 140,077 Total purchase price $ 259,859 The valuation technique used for the purchase of WNHC was the discounted cash flow ("DCF') approach. Under the DCF approach, the expected future cash flows are discounted to their present value equivalent using appropriate market-based risk-adjusted rates of return. The fair market value of WNHC was determined using a discounted cash flows method with an implied valuation multiple of 1.53x regulated rate base. Consideration of implied multiples of recent transactions in the industry was used and the 1.53x was determined to be comparable. The business enterprise value was then adjusted by redundant assets and debt/debt equivalents to arrive at the fair market value of assets. The difference between this fair market value and the net book value of assets as of September 1, 2022 determined goodwill. Page 154 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies The accounting policies set out below have been applied consistently in all periods presented in these financial statements, except where otherwise described in Note 24 — Changes in Accounting Policies. (a) Basis of Consolidation These consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries: (i) EPC; (ii) KESI; and (iii) AMS, as well as its controlling interest in GRE. The Corporation's investment in Eyedro is accounted for in the consolidated financial statements using the equity method of accounting. Subsidiaries are entities controlled by the Corporation. The financial statements of the subsidiaries are included in these consolidated financial statements from the date on which control commences until the date on which control ceases. Associates are investments over which the Corporation has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee. Equity accounting involves recording the investment in associates initially at cost, and adjusting the carrying value of the investment from the date of acquisition based on the Corporation's share of the profit or loss of the associates included in the consolidated income statement. All significant inter -company accounts and transactions have been eliminated. (b) Financial instruments At initial recognition, the Corporation measures its financial assets at fair value. In the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset are included in the initial measurement. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Subsequent measurement of the financial asset depends on the classification determined on initial recognition. Financial assets are classified as either amortized cost, fair value through other comprehensive income or fair value through profit or loss, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are not reclassified after their initial recognition unless the Corporation changes its business model for managing financial assets. Derivative assets are always classified as fair value through profit or loss on inception. Financial liabilities are initially measured at fair value, net of transaction costs incurred. They are subsequently carried at amortized cost using the effective interest rate method; any difference between the proceeds (net of transaction costs) and the redemption value is recognized as an adjustment to interest expense over the period of the borrowings. Page 155 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (c) Revenue Recognition Sale and distribution of electricity The performance obligations for the sale and distribution of electricity are recognized over time using an output method to measure the satisfaction of the performance obligation. The value of the electricity services transferred to the customer is determined based on cyclical meter readings plus estimated customer usage from the last meter reading date to the end of the period and represents the amount that the Corporation has the right to bill. Revenue includes the cost of electricity supply, distribution, and any other regulatory charges. The related cost of power is recorded based on power used. For customer billings related to electricity generated by third parties and the related costs of providing electricity service, such as transmission services and other services provided by third parties, the Corporation has determined that it is acting as a principal for these electricity charges and, therefore, has presented electricity revenue on a gross basis. Capital contributions Developers are required to contribute towards the capital cost of construction of distribution assets to provide ongoing service. The developer is not a customer and therefore the contributions are scoped out of IFRS 15 Revenue from Contracts with Customers. Cash contributions, received from developers are recorded as deferred revenue. When an asset other than cash is received as a capital contribution, the asset is initially recognized at its fair value, with a corresponding amount recognized as deferred revenue. The deferred revenue, which represents the Corporation's obligation to continue to provide the customers access to the supply of electricity, is amortized to income on a straight-line basis over the useful life of the related asset. Certain customers are also required to contribute towards the capital cost of construction of distribution assets to provide ongoing service. These contributions fall within the scope of IFRS 15 Revenue from Contracts with Customers. The contributions are received to obtain a connection to the distribution system to receive ongoing access to electricity. The Corporation has concluded that the performance obligation is the supply of electricity over the life of the relationship with the customer which is satisfied over time as the customer receives and consumes the electricity. Revenue is recognized on a straight-line basis over the useful life of the related asset. Other revenue Revenue earned from the provision of services is recognized as the service is rendered. Government grants and the related performance incentive payments under CDM programs are recognized as revenue in the period when there is reasonable assurance that the program conditions have been satisfied and the payment will be received. Page 156 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (c) Revenue Recognition (continued) Solar Generation Revenue is principally produced from the generation of solar electricity which is sold to the Ontario Energy Market through the Independent Electricity System Operator ("IESO"). The performance obligation for the sale of electricity is satisfied when the electricity is delivered to the Ontario Energy Grid administered by the IESO. The value of the electricity sold to the customer is determined based on the meter readings at the rate designated in the contract with the customer. (d) Inventory Inventories consist of repair parts, supplies, and materials held for future capital expansion and are valued at lower of weighted average cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling expenses. (e) Property, Plant and Equipment Cost in items of property, plant and equipment ("PP&E") used in rate—regulated activities and acquired before January 1, 2014 are measured at deemed cost established on the transaction date, less accumulated depreciation. All other items of PP&E are measured at cost, or, where the item is transferred from customers, its fair value, less accumulated depreciation. Consistent with IFRS 1, the Corporation elected to use the carrying amount as previously determined under Canadian GAAP as the deemed cost at January 1, 2014, the transition date to IFRS. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self -constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to a working condition for its intended use. Borrowing costs on qualifying assets are capitalized as part of the cost of the asset based upon the actual cost of debt incurred on the Corporation's borrowings. Qualifying assets are considered to be those that take over 12 months to construct. When parts of an item of PP&E have different useful lives, they are accounted for and depreciated as separate items (major components) of PP&E. Gains and losses on the disposal of an item of PP&E are determined by comparing the proceeds from disposal, if any, with the carrying amount of the item of PP&E and are recognized net within other income in profit or loss. Major spare parts and standby equipment are recognized as items of PP&E. The cost of replacing a part of an item of PP&E is recognized in the net book value of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation and its cost can be measured reliably. In this event, the replaced part of PP&E is written off, and the related gain or loss is included in profit or loss. The costs of the day-to-day servicing of PP&E are recognized in profit or loss as incurred. Page 157 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (e) Property, Plant and Equipment (continued) Depreciation is calculated on the cost basis of the asset and is recognized in profit or loss on a straight-line basis over the estimated useful life of each part or component of an item of PP&E. Land and land rights are not depreciated. Construction -in -progress assets are not depreciated until the projects are complete and in service. The estimated useful lives are as follows: Buildings 20-50 years Transformer and substation equipment 15-50 years Supervisory control and data acquisition (SCADA) equipment 15 years Distribution system 25-60 years Meters 15-25 years General equipment 3-10 years Solar equipment 15-20 years Right -of -use assets 15-20 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted prospectively if appropriate. Page 158 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (f) Intangible assets (i) Computer Software Computer software that is acquired or developed by the Corporation, including software that is not integral to the functionality of equipment purchased which has finite useful lives, is measured at cost less accumulated amortization. (ii) Land Rights Payments to obtain rights to access land ("land rights") are classified as intangible assets. These include payments made for easements, right of access, and right of use over land for which the Corporation does not hold title and are not amortized. Land rights are measured at cost less accumulated amortization and accumulated impairment losses. (iii) Amortization Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives are: Computer software 3-10 years Land rights 100 years Solar contracts and permits 15-20 years Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate. (g) Goodwill Goodwill arising on the acquisition of subsidiaries or on amalgamation is measured at cost and not amortized. Page 159 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (h) Impairment (i) Financial assets measured at amortized cost: A loss allowance for expected credit losses on financial assets measured at amortized cost is recognized at the reporting date. The loss allowance is measured at an amount equal to the lifetime expected credit losses for the asset. (ii) Non-financial assets: The carrying amounts of the Corporation's non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Goodwill and intangible assets with indefinite lives are tested; annually for impairment; and when circumstances indicate that the carrying value may be impaired. For impairment testing, assets are grouped into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash -generating unit"). Goodwill acquired in a business combination is allocated to groups of cash -generating units ("CGUs") that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash -generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if an asset's carrying amount or CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses relating to CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs and then to reduce the carrying amounts of the other assets in the CGUs on a pro - rata basis. An impairment loss in respect of goodwill is not reversed. For assets other than goodwill, impairment recognized in prior periods is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Goodwill arising on the acquisition of subsidiaries is measured at cost and is not amortized. Goodwill is tested annually for impairment. Page 160 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (i) Provisions A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. 0) Regulatory deferral accounts Regulatory deferral account debit balances represent costs incurred over amounts billed to the customer at OEB-approved rates. These amounts have been accumulated and deferred in anticipation of their future recovery in electricity distribution rates. Regulatory deferral account credit balances represent amounts billed to the customer at OEB-approved rates over costs incurred by the Corporation. Regulatory deferral account debit balances are recognized if it is probable that future billings in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs for rate -making purposes. The offsetting amount is recognized in profit and loss. The debit balance is reduced by the amount of customer billings as electricity is delivered to the customer and the customer is billed at rates approved by the OEB for the recovery of the capitalized costs. Regulatory deferral account credit balances are recognized if it is probable that future billings in an amount at least equal to the credit balance will be reduced as a result of rate -making activities. The offsetting amount is recognized in profit and loss. The credit balance is reduced by the amounts returned to customers as electricity is delivered to the customer at rates approved by the OEB for the return of the regulatory account credit balance. The probability of recovery or repayment of the regulatory account balances is assessed annually based on the likelihood that the OEB will approve the change in rates to recover or repay the balance. Any resulting impairment loss is recognized in profit and loss in the period incurred. Regulatory deferral accounts attract interest at OEB-prescribed rates. With the exception of the regulatory deferral account for Pension and Other Future benefits ("OPEBs"), from September 1, 2022 to September 30, 2022 the rate was 2.20%. From October 1, 2022 to December 31, 2022 the rate was 3.87%. The interest rates for the regulatory OPEB account were as follows: from September 1, 2022 to September 30, 2022 the rate was 4.66%. From October 1, 2022 to December 31, 2022 the rate was 5.01%. Page 161 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (k) Employee future benefits (i) Pension Plan The Corporation provides a pension plan for its employees through the Ontario Municipal Employees Retirement System ("OMERS"). OMERS is a multi-employer pension plan which operates as the Ontario Municipal Employees Retirement Fund ("the Fund") and provides pensions for employees of Ontario municipalities, local boards, public utilities, and school boards. To the extent that the Fund finds itself in an underfunded position, additional contribution rates may be assessed to participating employers and members. The Fund is a contributory defined benefit pension plan, which is financed by equal contributions from participating employers and employees and by the investment earnings of the Fund (note 20). The Corporation recognizes the expense related to this plan as contributions are made. (ii) Future Benefits, other than pension Future benefits provided by the Corporation include health, dental, and life insurance benefits. These plans provide benefits for some of its retired employees. Future benefit expense is recognized in the period in which the employees render the services. Future benefits are recorded on an accrual basis. The accrued benefit obligations and current service cost are calculated using the projected benefits method pro -rated on service and based on assumptions that reflect management's best estimate. The current service cost for a period is equal to the actuarial present value of benefits attributed to employees' services rendered in the period. Gains and losses are recognized in the current period. Actuarial gains and losses arising from defined benefit plans are recognized immediately in other comprehensive income and reported in retained earnings. The future health, dental, and life insurance benefits were provided to retired employees of KWHI and WNHI as separate entities and as such, are not identical offerings. These plans have been maintained in their original offerings. (1) Deferred revenue and assets transferred from customers Certain customers and developers are required to contribute towards the capital cost of construction to provide ongoing service. When an asset is received as a capital contribution, the asset is initially recognized at its fair value, with the corresponding amount recognized as deferred revenue. Deferred revenue represents the Corporation's obligation to continue to provide customers access to the supply of electricity and is amortized to income on a straight-line basis over the economic useful life of the acquired or contributed asset, which represents the period of ongoing service to the customer. Page 162 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (m) Leased assets At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation assesses whether: (i) The contract involves the use of an identified asset — this may be specified explicitly or implicitly and should be physically distinct or represent substantially all the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; (ii) The Corporation has the right to obtain substantially all the economic benefits from the use of the asset throughout the period of use; and (iii) The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either the Corporation has the right to operate the asset, or the Corporation designed the asset in a way that predetermines how and for what purpose it will be used. The Corporation recognizes a right -of -use asset and a lease liability at the lease commencement date. The right -of -use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is located, less any lease incentives received. The right -of -use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right -of -use asset or the end of the lease term. The estimated useful life of a right -of -use asset is determined on the same basis as those for property, plant and equipment. In addition, the right -of -use asset is periodically reduced by impairment losses, if any, and adjusted for certain re -measurements of the lease liability. (n) Interest income and interest costs Interest income is recognized as it accrues in profit or loss, using the effective interest method. Interest income comprises interest earned on cash and cash equivalents, and on regulatory assets. Interest costs comprise interest expense on borrowings, finance lease obligations, customer deposits and regulatory liabilities, and unwinding of the discount on provisions and impairment losses on financial assets. Interest costs are recognized as an expense unless they are capitalized as part of the cost of qualifying assets. Page 163 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (o) Corporate Income taxes The income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case, it is recognized in equity. The current tax-exempt status of the Corporation under the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) reflects the fact that the Corporation is wholly owned by municipalities. This tax-exempt status might be lost in a number of circumstances, including if the shareholder (municipalities) ceases to own 90% or more of the shares or capital of the Corporation, or if a non- government entity has rights immediately or in the future, either absolutely or contingently, to acquire more than 10% of the shares of the Corporation. Commencing October 1, 2001, the Corporation is required, under the Electricity Act, 1998, to make payments in lieu of corporate taxes to the Ontario Electricity Financial Company. These payments are calculated under the rules for computing income and other relevant amounts contained in the Income Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the Electricity Act, 1998 and related regulations. As a result of becoming subject to payments in lieu of corporate income taxes ("PILs"), the Corporation's taxation period was deemed to have ended immediately beforehand and a new taxation period was deemed to have commenced immediately thereafter. The Corporation was therefore deemed to have disposed of each of its assets at its then fair market value and to have reacquired such assets at that same amount for purposes of computing its future income subject to PILs. For purposes of certain provisions, the Corporation was deemed to be a new company and, as a result, tax credits or tax losses not previously utilized by the Corporation would not be available to it after the change in tax status. Essentially, the Corporation was taxed as though it had a "fresh start" at the time of its change in tax status. Current tax is the tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods. Deferred tax is recognized using the balance sheet method. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their carrying amounts for accounting purposes, as well as for tax losses available to be carried forward to future periods that are likely to be realized. Deferred tax assets and liabilities are measured using enacted or substantively enacted rates, at the reporting date, expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. Page 164 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 4. Significant Accounting Policies (continued) (p) Business combinations The Corporation accounts for business combinations using the acquisition method when control is transferred to the Corporation. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts are generally recognized in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re -measured and settlement is accounted for within equity. Otherwise, other contingent consideration is re -measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. 5. Accounts Receivable December 31, 2022 Trade receivables $ 28,273 IESO receivable 2,962 Miscellaneous receivables 4,107 Allowance for bad debt (800) Other 118 Total Accounts Receivable $ 34,660 6. Property, Plant and Equipment (a) Cost or deemed cost Distribution Land & Other Fixed Construction Right -of -use Eauipment Buildina Assets in Proaress assets Total Balance at September 1, 2022 $ 313,687 $ 28,575 $ 7,811 $ 4,359 $ 601 $ 355,033 Acquired value - WNHC 229,420 24,674 6,399 6,928 - 267,421 Acquired control - GRE - - 3,295 - 889 4,184 Additions 20,323 230 1,499 (3,490) - 18,562 Remeasurement - - - (73) (73) Disposals / retirements (513) (10) (909) - - (1,432) Balance at December 31, 2022 $ 562,917 $ 53,469 $ 18,095 $ 7,797 $ 1,417 $ 643,695 Page 165 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 6. Property, Plant and Equipment (continued) (b) Accumulated depreciation (c) Carrying amounts Distribution Distribution Land & Other Fixed Construction Right -of -use Equipment Building Equipment Building Assets in Progress Assets Total Balance at September 1, 2022 $ 61,017 $ 4,635 $ 1,563 $ - $ 40 $ 67,255 Depreciation charge 5,944 538 1,192 - 34 7,708 Disposals / retirements (513) (10) (909) - - (1,432) Balance at December 31, 2022 $ 66,448 $ 5,163 $ 1,846 $ - $ 74 $ 73,531 (c) Carrying amounts Distribution Land & Other Fixed Construction Right -of -use Equipment Building Assets in Progress Assets Total At December 31, 2022 $ 496,469 $ 48,306 $ 16,249 $ 7,797 $ 1,343 $ 570,164 (d) Security At December 31, 2022, the Corporation had zero properties subject to a general security agreement. (e) Borrowing costs During the period, borrowing costs of $ nil were capitalized as part of the cost of property, plant and equipment. (f) Allocation of depreciation and amortization The depreciation of property, plant and equipment and the amortization of intangible assets have been allocated to profit or loss as follows: Page 166 of 264 Operations and Customer General and Energy maintenance services administration conservation expense expense expense expense Amortization Total December 31, 2022: Depreciation of property, plant $ 640 $ 1 $ 11 $ - $ 7,056 $ 7,708 and equipment Amortization of intangible assets - - - - 748 748 $ 640 $ 1 $ 11 $ - $ 7,804 $ 8,456 Page 166 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 7. Intangible Assets and Goodwill (a) Cost or deemed cost Computer Land FIT Work in Software Rights Contracts Progress Total Balance at September 1, 2022 $ 12,062 $ 8 $ - $ - $ 12,070 Acquired value - WNHC 2,394 1,199 - 1,118 4,711 Acquired control - GRE - - 3,906 - 3,906 Additions 253 39 - (146) 146 Disposals / retirements (185) - - - (186) Balance at December 31, 2022 $ 14,624 $ 1,246 $ 3,906 $ 972 $ 20,648 (b) Accumulated amortization Computer Land FIT Software Rights Contracts Total Balance at September 1, 2022 $ 1,506 $ 8 $ - $ 1,514 Amortization charge 641 - 107 748 Disposal/retirements (185) - (185) Balance at December 31, 2022 $ 1,962 $ 8 $ 107 $ 2,077 (c) Carrying amounts Computer Land FIT Work in Software Rights Contracts Progress Total At December 31, 2022 $ 12,562 $ 1,238 $ 3,799 $ 972 $ 18,571 Page 167 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 8. Income Tax Expense Current period Adjustment for prior periods Deferred 2022 $ 1,268 156 (229) Income tax expense $ 1,195 Reconciliation of effective tax rate: 2022 Net comprehensive income for the period $ 8,549 Income tax expense 1,195 Income from operations before income taxes $ 9,744 Statutory Canadian federal and provincial income tax rate 26.50% Expected taxes on income $ 2,582 Changes in income taxes resulting from: Permanent differences 6 Other temporary differences (1,598) Adjustment for prior periods 205 $ (1,387) Income tax expense $ 1,195 Significant components of the Corporation's deferred tax balances are as follows: December 31, 2022 Deferred tax assets (liabilities): Plant and equipment $ (48,572) Deferred revenue 21,569 Employee future benefits 2,041 Non -vested sick leave 340 Unrealized gain on derivatives (157) Allowance for doubtful accounts 212 Other 1,050 $ (23,517) Regulatory deferred tax asset $ 32,624 Deferred taxes associated with regulatory accounts (8,645) Page 168 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 8. Income Tax Expense (continued) In 2022, the legacy WNHI entity underwent a PILs audit from the Ministry of Finance (the "Ministry") for the taxation years of 2017 and 2018. The audit resulted in two significant adjustments. The following items were previously accrued as uncertain tax treatments and remain so at December 31, 2022: CCA classification of meters The Ministry disagreed with WNHI's assessment that these assets should be reported under Class 8 and made an adjustment to move the assets to Class 47. This is a similar adjustment that was made to taxations years 2013 to 2016 which were audited in previous periods. WNHI made an accrual in fiscal year 2021 to accrue future adjustments for the years 2017 to 2020. The accrual for unaudited years has been recorded in income taxes payable as a contingent liability. WNHI issued a joint court appeal with KWHI to overrule the decision with other distributors in Ontario who had similar adjustments made. The appeal remains unresolved as of the date of these statements. Disallowed interest expense to the parent company The Ministry determined that the amount of interest paid during 2017 and 2018 to WNHC exceeded a reasonable amount. Therefore, the Ministry adjusted the interest expense allowable to the OEB- deemed rate that was applicable during the period of 4.54%. WNHI appealed the decision through a Notice of Objection which remains unresolved as of the date of these statements. An amount anticipated to be disallowed in future audits for the taxation years of 2019 to 2022 has been recorded in income taxes payable as an uncertain tax treatment. Page 169 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 9. Regulatory Deferral Account Balance The following is a reconciliation of the carrying amount for each class of regulatory deferral account balances: Balances Transfer Recovery / 2022 arising in the between Recovery/ 2022 reversal Opening Acquired period accounts reversal Ending period (years) Regulatory deferral account debit balances Group 1 accounts $ 10,931 $ 6,727 $ (4) $ 510 $ - $ 18,164 Note 1 Regulatory asset recovery account 3,303 (56) - - (2,469) 778 Note 1 Deferred tax asset 15,398 17,785 (559) 32,624 Note 2 Other regulated accounts 136 99 71 - 306 Note 3 Total amount related to regulatory deferral account $ 29,768 $ 24,555 $ (492) $ 510 $ (2,469) $ 51,872 debit balances Balances Transfer Recovery / 2022 arising in the between Recovery/ 2022 reversal Opening Acquired period accounts reversal Ending period (years) Regulatory deferral account credit balances Group 1 accounts $ 2,868 $ 5,534 $ (3,408) $ 510 $ $ 5,504 Note 1 Other regulated accounts 562 2 4 568 Note 3 Total amount related to regulatory deferral account $ 3,430 $ 5,536 $ (3,404) $ 510 $ $ 6,072 credit balances 2022 Movements in regulatory accounts Net change in regulatory deferral account debit and credit balances $ 443 Less movement related to the balance sheet Deferred income tax 559 Deferred revenue 516 Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement $ 1,518 Note 1: The Corporation has been approved for collection of these amounts in its 2022 filings for 2023 rates. Note 2: The Corporation has not sought approval for the disposition of this amount as changes in underlying assumptions may reduce the amounts recorded in the account. Enova may seek refunds in the future. Note 3: In December 2020, the legacy KWHI entity was informed that beginning June 2015 charges were not included in the monthly power bill for one delivery point for Transmission Network Charges. KWHI accrued a payable of $6 million in 2020, offset by a regulatory asset. These monies were collected through an OEB-approved rate rider through December 2022. Page 170 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 10. Long -Term Debt On October 27, 2022, Enova Energy Corporation entered into a credit agreement with Bank of Montreal ("BMO") whereby all outstanding credit facilities previously provided by CIBC were transferred to BMO. This included an operating line of credit for legacy WNHI ($15,000) as well as the consolidated long-term debt and related swap. As a result, the debt was re -issued under BMO and the swap agreement was terminated on November 2, 2022. The value of the terminated swap, less applicable fees, was $6,135. The BMO credit facility is for a total of $200,000 of which the Corporation borrowed $110,000 in long- term debt from BMO with no defined repayment terms. The full balance is variable-rate and has not been hedged with any derivatives. In March 2021, the Corporation entered into an amended Credit Facility Agreement ("Credit Facility") with a Canadian Chartered Bank. The Credit Facility is a demand revolving credit facility, which provides funding for: (i) up to $11,700 for capital expenditures; and (ii) $1,800 US for interest rate hedging. Loans advanced under the credit facility are amortized on a mortgage style basis over a period which sit he lesser of: (a) 20 years; or (b) the length of the revenue contract underlying the asset. Interest on the loan(s) are at Prime or Bankers acceptances plus 1 %. As of December 31, 2022, the Corporation had the following loans outstanding under the Credit Facility: Swap Monthly Bank loans Rate Pavments Term 2022 Term loan 1 4.205% $ 30.00 August 15, 2035 $ 3,365 Term loan 2 3.845% $ 18.00 December 21, 2034 $ 1,922 Term loan 3 2.510% $ 11.00 July 31, 2040 $ 1,759 Term loan 4 2.365% $ 4.00 July 31, 2035 $ 552 $ 7,698 The aggregate amount of expected principal repayments required under the Credit Facility are as follows: 2023 $ 453 2024 470 2025 487 2026 505 2027 526 Thereafter 5,157 $ 7,698 Page 171 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 10. Long -Term Debt (continued) Interest rate swaps The Corporation has entered into interest swap agreements with a Canadian chartered bank for the purpose of eliminating the risk of fluctuating interest rates and removing the economic impact of interest rate volatility on its debt. The swap instruments result in the Corporation receiving interest at the 30 -day banker' acceptance floating rate and require the Corporation to pay the fixed rate in the swap instrument. The term of each individual swap instrument matches the amortization period of the corresponding bank loan although, each instrument can be terminated in 30 days, due to the Credit Facility being a demand revolving bank loan. The swaps have a put provision whereby on the five-year anniversary of each swap, either party can unilaterally elect to terminate the contract requiring a cash payment upon settlement based on the fair value of the swap instrument on that date. FIRS requires the Corporation to determine and record the fair value of its interest rate swap agreements in the Statement of Financial Position, with changes in fair values being recorded in unrealized gains (losses) from interest rate swaps in the Statement of Comprehensive Income (Loss). As a result, the Corporation has recorded interest rate swap assets of $592 and recognized a corresponding unrealized gain on interest rate swaps of $953. There is no impact on current PILs. Over the term of the debt, the non-cash charges and assets are expected to reverse into income. Page 172 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 11. Notes Payable to Shareholder 2022 Senior unsecured debentures: City of Kitchener $ 70,998 City of Waterloo 27,404 Township of Woolwich 3,355 Township of Wilmot 5,965 Township of Wellesley 2,532 Total shareholder debt $ 110,254 Note (a) Effective August 1, 2000, KWHI incurred unsecured promissory notes payable to the Corporation of the City of Kitchener and the Corporation of the Township of Wilmot, which have an interest rate of 3.23% per annum. Interest is payable in quarterly installments, in arrears, on March 31, June 30, September 30, and December 31. On September 1, 2022, these notes payable were re -issued at the same amount and rates under Enova Energy Corporation Note (b) The former WNHC held senior and junior long-term notes payable with its legacy shareholders. The notes were amalgamated and replaced with a single note for each shareholder as of September 1, 2022 with the same terms, including interest rate payable, as the notes to the City of Kitchener and the Township of Wilmot. Page 173 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 12. Employee Future Benefits The Corporation pays certain medical and life insurance benefits on behalf of some of its retired employees. These benefits are provided through group -defined benefit plans. There are two defined benefit plans for the retirees of the legacy companies. A full actuarial valuation of the plans was performed as at December 31, 2022. The Corporation recognizes these post-retirement costs in the period in which employees' services were rendered. The accrued benefit liability at December 31, 2022 is $7,703 and includes both legacy plans. Changes in the present value of the aggregate defined benefit unfunded obligation and the aggregate accrued benefit liability are as follows: 2022 Accrued benefit obligation Balance, beginning of period $ 10,637 Current service cost 134 Interest cost 130 Benefits Paid (189) Actuarial gains recognized in other comprehensive income (3,009) Accrued benefit liability, end of period $ 7,703 Components of net benefit expense recognized are a follows: 2022 Current service cost $ 134 Interest cost 130 Net benefit expense recognized $ 264 Actuarial losses recognized in other comprehensive income 2022 Cumulative amount at September 1 $ (620) Recognized during the period (net of tax) 2,211 Net benefit expense recognized $ 1,591 Page 174 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 12. Employee Future Benefits (continued) The significant actuarial assumptions used in the valuation are as follows (weighted 2022 General inflation: Changes in the Consumer Price Index 3.00% Accrued obligation: Discount rate 5.05% Salary increases 4.00% Benefit cost for the period: Age Withdrawal rate 18-29 2.75% 30-34 2.20% 35-39 1.65% 40-49 1.40% 50-54 1.20% Assumed health care cost trend rates: Initial health care cost trend rate Health 4.70% Dental 4.90% The approximate effect on the accrued benefit obligation of the entire plan and the estimated net benefit expense of the entire plan if the health care trend rate assumption was increased or decreased by 1 %, and all other assumptions were held constant, is as follows: 1% increase in trend rate 1% decrease in trend rate 2022 $ 375 (320) Page 175 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 13. Customer Deposits and IESO Deposits Customer deposits represent cash deposits from electricity distribution customers and retailers, as well as construction deposits. Deposits from electricity distribution customers are refundable to customers who demonstrate an acceptable level of credit risk as determined by the Corporation under policies set out by the OEB or upon termination of their electricity distribution service. Construction deposits represent cash prepayments for the estimated cost of capital projects recoverable from customers and developers. Upon completion of the capital project, these deposits are transferred to deferred revenue. Customer deposits comprise: 2022 Current Customer deposits $ 1,731 Contruction deposits 10,150 Performance bond 200 $ 12,081 Long-term I ESO deposit for energy conservation programs 1,158 Customer deposits - long-term 7,476 $ 8,634 Page 176 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 14. Share Capital Authorized Unlimited Common shares Unlimited Class A special shares Unlimited Class B special shares Issued 100,000 Common shares $ 326,248 10,000 Class A special shares - 10,000 Class B common shares - 120,000 Total Shares $ 326,248 Common shares are issued as follows: • 53,390 are issued to the Corporation of the City of Kitchener • 30,830 shares are issued to the Corporation of the City of Waterloo • 8,510 shares are issued to the Corporation of the Township of Woolwich • 4,490 shares are issued to the Corporation of the Township of Wilmot • 2,780 shares are issued to the Corporation of the Township of Wellesley Class A special shares are issued as follows: • 9,225 shares are issued to the Corporation of the City of Kitchener • 775 shares are issued to the Corporation of the Township of Wilmot Class B special shares are issued as follows: • 7,320 shares are issued to the Corporation of the City of Waterloo • 2,020 shares are issued to the Corporation of the Township of Woolwich • 660 shares are issued to the Corporation of the Township of Wellesley Special shares were issued as part of the Amalgamation Transaction on September 1, 2022 to effect post -closing adjustments provided for in corresponding agreements. As of December 31, 2022, the redemption value has not been set. Dividends The holders of the common shares are entitled to receive dividends as declared from time to time. No dividends were declared or paid during the period. The Corporation has $5,056 in dividends payable carried forward from prior periods. Page 177 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 15. Revenue 2022 Revenue from contracts with customers $ 145,149 Other revenue Specific service charges 843 Deferred revenue 730 Scrap sales 100 Net gain on disposal of capital assets 37 Non -Utility operations 338 Retailer services 13 Sundry 206 Net realized gain on derivatives 287 Total other revenue $ 2,554 Total revenues $ 147,703 In the following table, revenue from contracts with customers is disaggregated by type of customer. 2022 Residential $ 58,419 Commercial 80,470 Large users 3,898 Other 2,362 $ 145,149 Page 178 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 16. Interest Income and Expense 2022 Interest income on bank deposits $ (183) $ (183) Interest on shareholder debt 1,188 Interest expense on long term debt 1,677 Interest expense on short tem debt 27 Interest expense on BMO letter of credit 51 Interest expense on deposits 130 Interest expense on capital lease 12 $3,085 Net interest cost $ 2,902 17. Lease Liabilities The Corporation has entered into a lease agreement for solar PV roof -top equipment representing right -of -use assets (note 6). The right -of -use assets are recognized at the present value of the minimum lease payments, plus any extensions estimated to be exercised, with the corresponding equivalent lease liability recognized. The Corporation has determined the lease terms based on all available information as at the reporting date. Maturity analysis - contractual undiscounted cash flows 2022 Less than one year $ 97 One - five years 490 More than five years 570 Total undiscounted lease liabilities at period end $ 15157 Interest included on the liabilities included in the statement of financial position at December 31, 2022 (282) Lease Liabilities - current $ 97 Lease Liabilities - non-current $ 778 Page 179 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 18. Commitments and Contingencies General From time to time, the Corporation is involved in various litigation matters arising in the ordinary course of its business. The Corporation has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Corporation's financial position, results of operations, or ability to carry on any of its business activities. General Liability Insurance The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange ("MEARIE"). MEARIE is a pooling of public liability insurance risks of many of the LDCs in Ontario. All members of the pool are subjected to assessment for losses experienced by the pool for the periods in which they were members, on a pro -rata basis based on the total of their respective service revenues. As at December 31, 2022, no assessments have been made. 19. Guarantees Guarantees do not apply to the Corporation. 20. Pension Agreement The Corporation provides a pension plan for its employees through OMERS. The plan is a multi- employer, contributory defined pension plan with equal contributions by the employer and its employees. From September 1, 2022 to December 31, 2022, the Corporation made employer contributions of $969 to OMERS. The Corporation's net benefit expense has been allocated as follows: (a) $291 capitalized as part of labour in PP&E and (b) $678 recorded as an expense against net income. 21. Employee Benefits 2022 Salary, wages and benefits $ 11,399 CPP and EI remittances 142 Contributions to OMERS 969 Expenses related to employee future benefits 264 $ 12,774 Page 180 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 22. Related Party Transactions (a) Parent and ultimate controlling party The Corporation is wholly owned by the Cities of Kitchener and Waterloo, and the Townships of Wilmot, Wellesley and Woolwich. The Cities and the Townships produce financial statements that are available for public use. (b) Entity with significant influence The Cities of Kitchener and Waterloo control and exercise significant influence over the Corporation through their indirect ownership interest in the Corporation of 53.4% and 30.8% respectively. (c) Key management personnel The key management personnel of the Corporation have been defined as members of its Board of Directors and executive management team members, and are summarized below: 2022 Directors' fees $ 70 Executive compensation and benefits 683 $753 (d) Transactions with entities with significant influence In the ordinary course of business, the Corporation may issue dividends to the shareholders. (e) Transactions with ultimate shareholders (the Cities and Townships) In 2022 the Corporation had the following significant transactions with its ultimate shareholders, all of which are government entities: The Corporation delivers electricity to the Cities of Kitchener and Waterloo and the Townships of Wellesley, Wilmot and Woolwich and its related organizations throughout the period for their electricity needs. Electricity delivery charges are at prices and under terms approved by the OEB. The Corporation also provides the following services to the Cities of Kitchener and Waterloo and the Townships of Wellesley, Wilmot and Woolwich: • streetlight maintenance services • streetlight construction services For the City of Kitchener and the Township of Wilmot, these services are contracted through Kitchener Energy Services Inc. The Corporation conducted transactions with related parties during the period ended December 31, 2022. These transactions are in the normal course of operations and are measured at fair value. Page 181 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 23. Financial Instruments and Risk Management Fair value disclosure Cash and cash equivalents are measured at fair value. The carrying value of receivables, unbilled energy receivable, accounts payable, and accrued charges approximate fair value due to the short maturity of these instruments. The carrying value of the customer deposits approximates fair value since the amounts are payable on demand. The Corporation's activities provide for a variety of risks, particularly credit risk, market risk, and liquidity risk. The fair value of the long-term debt approximates its carrying value due to the short maturity and/or the variable interest rates. Financial risks The Corporation understands the risks inherent in its business and defines them broadly as anything that could impact its ability to achieve its strategic objectives. The Corporation's exposure to a variety of risks such as credit risk, interest rate risk and liquidity risk, as well as related mitigation strategies, are discussed below. (a) Credit risk Financial assets carry credit risk that a counterparty will fail to discharge an obligation which could result in a financial loss. Financial assets held by the Corporation, such as accounts receivable, expose it to credit risk. The Corporation earns its revenue from a broad base of customers located in the Cities of Kitchener and Waterloo, and the Townships of Wellesley, Wilmot and Woolwich. No single customer accounts for a balance over 3.26% of total accounts receivable. The carrying amount of accounts receivable is reduced through the use of an allowance for impairment and the amount of the related impairment loss is recognized in net income. Subsequent recoveries of receivables previously provisioned are credited to net income. The balance of the allowance for expected credit losses at December 31, 2022 is $800. The Corporation's credit risk associated with accounts receivable is primarily related to payments from distribution customers. At December 31, 2022, approximately $1,627 is considered 60 days past due. The Corporation has over 157,000 customers, the majority of whom are residential. Credit risk is managed through collection of security deposits from customers under directions provided by the OEB. As at December 31, 2022, the Corporation holds security deposits in the amount of $9,206. Page 182 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 23. Financial Instruments and Risk Management (continued) (b) Market risk Market risks primarily refer to the risk of loss resulting from changes in commodity prices, foreign exchange rates, and interest rates. The Corporation currently does not have any material commodity or foreign exchange risk. The Corporation is exposed to fluctuations in interest rates as the regulated rate of return for the Corporation's distribution business is derived using a complex formulaic approach which is in part based on the forecast for long-term Government of Canada bond yields. The Corporation's long-term debt as of December 31, 2022 is at a variable interest rate. (c) Liquidity risk The Corporation monitors its liquidity risk to ensure access to sufficient funds to meet operational and investing requirements. The Corporation's objective is to ensure that sufficient liquidity is on hand to meet obligations as they fall due while minimizing interest exposure. The Corporation has access to a $45M credit facility and monitors cash balances daily to ensure that a sufficient level of liquidity is on hand to meet financial commitments as they come due. As at December 31, 2022, $nil had been drawn under BMO's $45M operating credit facility. In 2022 the Corporation was assigned an Issuer Rate of A, Stable, from DBRS Limited. The Corporation's financial risk profile is reasonable with key metrics supporting the "A" rating. The Corporation also has a bilateral facility for $35,000 (the "LC" facility) to issue letters of credit mainly to support the prudential requirements of the IESO of which the $35,000 has been drawn and posted with the IESO. The majority of accounts payable, as reported on the balance sheet, are due within 30 days (d) Capital disclosures The main objectives of the Corporation, when managing capital, are to ensure ongoing access to funding to maintain and improve the electricity distribution system, compliance with covenants related to its credit facilities, prudent management of its capital structure with regard for recoveries of financing charges permitted by the OEB on its regulated electricity distribution business, and to deliver the appropriate financial returns. The Corporation's definition of capital includes shareholder's equity and long-term debt. As at December 31, 2022, shareholder's equity amounts to $443,304 and long-term debt including shareholder debt amounts to $227,852. Page 183 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 24. Changes in Accounting Policies The International Accounting Standards Board (IASB) has issued the following Standards, Interpretations and Amendments to Standards that were adopted by the Corporation effective January 1, 2022: Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) ii. Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) iii. Annual Improvements to IFRS Standards 2018-2020 iv. Reference to the Conceptual Framework (Amendments to IFRS 3) The amendments and clarifications did not have an impact on the financial statements. 25. Future Changes in Accounting Policy and Disclosures At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by The Corporation and it is still to be determined if any will have a material impact on the Corporation's financial statements. Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. ii. Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help companies provide useful accounting policy disclosures. The key amendments to IAS 1 include a requirement for companies to disclose their material accounting policies rather than their transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company's financial statements. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. Page 184 of 264 ENOVA ENERGY CORPORATION Notes to Consolidated Financial Statements For the period September 1, 2022 to December 31, 2022 (Expressed in thousands of dollars) 25. Future Changes in Accounting Policy and Disclosures (continued) iii. Definition of Accounting Estimate (Amendments to IAS 8) On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. Page 185 of 264 N 4- 0 co N O1 mu Vumuuuuuuuuuui �� muu >. 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