FCS ACCT Financial Report - Kitchener · Finance and Corporate Services Department FINANCIAL REPORT • 2016 Kitchener, Ontario, Canada. 2. Where we are. As the largest municipality

2016 KITCHENER FINANCIAL REPORT 1

FINANCIALREPORTDECEMBER 31, 2016

Prepared by:

ACCOUNTING DIVISIONFinance and Corporate Services Department

Kitchener, Ontario, CanadaFINANCIAL REPORT • 2016

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Where we are

As the largest municipality in Waterloo Region, Kitchener is situated in the heart of Southwestern Ontario, close to major highways - including Canada’s super highway, 401 - that easily connects to London, Stratford and the Greater Toronto Area.

Situated on the Grand River, Kitchener is the perfect destination for recreation and leisure activities, with a plethora of choices, including many parks, trails and natural areas.

Downtown Kitchener is the heart of the arts and culture scene for Waterloo Region. Festivals and special events provide the opportunity to experience a variety of activities and cultural events, in celebration of our great diversity.


Table of Contents

Introductory Section234567

Message from the Mayor Kitchener City Council Organizational Structure Message from the City Treasurer

14Financial Section2346525867799194

Consolidated Financial Statements Trust Funds Belmont Improvement Area Board of Management Kitchener Downtown Improvement Area Board of Management Kitchener Public Library The Centre in the Square Inc. Gasworks Enterprise Kitchener Generation Corporation Kitchener Power Corporation 101

Statistical SectionFinancial and Statistical Review 138

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Messagefrom the Mayor

On behalf of city council, I am pleased to introduce the 2016 Annual Financial Report. Last year, City of Kitchener staff and council worked really hard on a number of initiatives that kept the priorities of our strategic plan – and therefore, our citizens – front and centre. We made difficult decisions in order to deliver a balanced budget.

As we look ahead to crafting our next strategic plan, our commitment to accountability, transparency and community participation ensures our city is a place where every resident can make a good living, and live a meaningful life. Our city is an inspiring and exciting place to be. It is thriving. We work hard to make sure it thrives, aided in no small way by our bold approach to economic development – Make It Kitchener – and through our new Neighbourhood Strategy, where the city supports residents who are working together to take the lead in creating great places and connecting people.

We actively advocate with other orders of government to make sure the momentum created by Make It Kitchener continues. One of the ways we did this was to set up a Waterloo Region Day in Ottawa last November, where local municipal leaders and other stakeholders in our community met with the prime minister, governor general, government ministers and staff to find ways to deliver on our priorities.

The Government Finance Officers’ Association (GFOA) awarded our accounting division the Canadian Award for Financial Reporting for their 2015 financial report. Open communication, two-way citizen engagement and transparency in governance are hallmarks of the ways our staff do business.

Beyond any legislated requirements, we at the City of Kitchener are proud to produce reports like these each year, demonstrating our commitment to openness and transparency. This report provides a financial perspective on how we met the challenge of making big things happen in 2016.


Kitchener City CouncilMAYOR

Berry Vrbanovic

WARD 6 Councillor Paul Singh

WARD 1 Councillor Scott Davey

WARD 7 Councillor Bil Ioannidis

WARD 2 Councillor Dave Schnider

WARD 8 Councillor Zyg Janecki

WARD 3 Councillor John Gazzola

WARD 9 Councillor Frank Etherington

WARD 4 Councillor Yvonne Fernandes

WARD 5 Councillor Kelly Galloway-Sealock

WARD 10 Councillor Sarah Marsh

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OrganizationalStructure

OFFICE OF THE CHIEF ADMINISTRATIVE OFFICER Jeff Willmer: Chief Administrative Officer

> Corporate Communications and Marketing> Corporate Customer Service> Economic Development> Office of the Mayor and Council> Project Integration and Coordination> Strategy and Business Planning

COMMUNITY SERVICES Michael May: Deputy CAO

> Building> Bylaw Enforcement> Community Programs and Services> Sport and Cemeteries> Fire> Planning

INFRASTRUCTURE SERVICES

Cynthia Fletcher, Justin Readman: Interim Executive Directors

> Asset Management> Engineering> Facilities Management> Fleet> Operations - Roads and Traffic> Operations - Environmental Services> Transportation Services> UtilitiesFINANCE & CORPORATE SERVICES

Dan Chapman: Deputy CAO

> Accounting> Financial Planning> Human Resources> Information Technology> Legal Services> Legislated Services> Revenue> SAP Business Solutions> Supply Services

CITY COUNCIL

Message from the City Treasurer

I am pleased to present the Annual Financial Report for the City of Kitchener for the year ended December 31, 2016. This report communicates the 2016 financial results for the City of Kitchener to council, residents and other interested parties. These results demonstrate Kitchener’s continued sound financial management and fiscal prudence.

FINANCIAL MANAGEMENT The financial statements and related information contained in this annual report are the responsibility of the management team of the City of Kitchener. Management has instituted a system of internal controls intended to safeguard assets and to provide accurate, timely and complete financial information for both internal decision-making and external reporting.

The City has the following foundations in place to ensure appropriate financial controls and accountability are maintained, and to take a proactive approach to identify and address financial challenges.

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FOCUS ON EFFECTIVE AND EFFICIENT GOVERNMENT IN STRATEGIC PLANNING

At the beginning of each new four-year term of council, the City of Kitchener develops a strategic plan to advance the vision, mission and goals for Kitchener. The 2015-2018 strategic plan was developed in collaboration with extensive community input. The plan is designed to ensure that over time, the public funds the City is entrusted to manage on behalf of citizens are allocated to top public priorities, invested effectively and spent efficiently. Simply stated, the strategic plan serves as the community's roadmap to take us from where we are today to where we want to go in the coming years.

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The 2015-2018 plan includes five key strategic priorities:

Open Government We will be transparent and accountable to citizens, providing easy access to information, a great customer service experience, and meaningful opportunities to participate in the democratic process.

Strong & Resilient Economy

We will work within a collaborative network of city-builders to create a dynamic and prosperous Kitchener that is rich with employment opportunities and successful business ventures that can grow and thrive within the broader global economy.

Safe & Thriving Neighbourhoods

We will work with community partners to create complete, connected, safe and walkable neighbourhoods with a range of housing options. We will encourage people to come together, interact with one another and build relationships through inclusive programs, services, events and great public gathering places.

Sustainable Environment & Infrastructure

We will have well planned, managed and cost effective infrastructure systems that support long-term community needs for services, harnessing the benefits of nature through green infrastructure programs to create a healthy urban environment.

Effective & Efficient City Services

We will deliver quality public services that meet the day-to-day needs of the community in a reliable and affordable way, made possible through technology, innovation, employee engagement and a sound long-term financial plan.


BUSINESS PLANNING AND BUDGET PROCESS

Business planning

The purpose of the business planning process is to manage and support the strategic plan to guide the medium-term course of the corporation. This involves the development, communication and facilitation of a process that engages council, the corporate leadership team, management and staff in establishing operational priorities that:

• are driven by the objectives of the strategic plan,

• meet the expectations of the community,

• respond to emerging issues in a sustainable and affordable way.

With this plan, the organization as a whole will be able to make progress on its strategic priorities, as well as maintain and continuously improve the City's core services.

The business plan is updated annually and is comprised of a brief overview of each department. It contains a profile of the City's 44 core services delivered by those departments, service trends and future challenges, and a listing of project commitments by division identifying the primary link back to the strategic plan.

The City implemented a comprehensive performance measurement framework to monitor and report on key results on an annual basis. In 2016, the City reported on 37 performance measures related to 10 different core services and has started collecting performance data for 13 additional core services that will be reported in 2017.

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Budget process

In addition to the business planning process city council approves the annual budget, made up of three parts: operating, capital and reserves. The City of Kitchener is charged with responsibly managing and investing the tax dollars and user fees its residents pay to meet the needs of the community and ensure all of the strategic priorities are addressed.

City council and staff are committed to striking a healthy balance between offering valued services and programs to residents, making strategic investments in community priorities, and keeping property taxes at a reasonable rate.

To provide transparency in the budget process, budget information is posted on the city’s website and budget meetings are held in a public forum. Citizens are able to provide their input through a number of channels, including by phone, letter, email, social media, or in person at a public delegation night.

Management staff review their budgets regularly. Detailed variance reports are prepared and presented to council three times per year, at the end of April, August and December. These reports ensure departmental accountability for financial results and are a key tool to allow management to respond to financial pressures during the year.

External audit

As required by the Municipal Act, city council has appointed a public accounting firm, KPMG LLP, to express an independent audit opinion on management’s consolidated financial statements. Their reports to the members of council, inhabitants and ratepayers of the Corporation of the City of Kitchener accompany the various financial statements in the financial section of this report.

Audit committee

The audited consolidated financial statements are presented to the audit committee for approval. The committee provides a focal point for communications between council, the external auditor, the internal auditor and management, and facilitates an impartial, objective and independent review of management practices through the internal and external audit functions.


FINANCIAL STATEMENT DISCUSSION AND ANALYSIS

The City of Kitchener’s consolidated financial statements have been prepared in accordance with reporting standards set by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. KPMG LLP have audited the financial statements and provided the accompanying auditors’ report. The financial statements and auditors’ report satisfy a legislated reporting requirement as set out in the Municipal Act of Ontario.

The following financial statement discussion and analysis has been prepared by management and should be read in conjunction with the audited consolidated financial statements and financial and statistical review.

There are four required financial statements:

- statement of financial position;- statement of operations;- statement of change in net financial assets, and- statement of cash flow.

The consolidated financial statements reflect the assets, liabilities, reserves, surpluses/deficits, revenue, and expenditures of city funds and governmental functions or entities. These functions and entities comprise a part of the combined city operations based upon control exercised by the city. The exception is the city’s government business enterprises, which are accounted for on the modified equity basis of accounting. References to the “City” below include all activity for the consolidated entity.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The Consolidated Statement of Financial Position highlights four key figures that together describe the financial position of a government: 1) cash resources, 2) net financial asset position, 3) non-financial assets that are normally held for service provision such as tangible capital assets, and 4) accumulated surplus (deficit). The statement is used to evaluate the City’s ability to meet its financial obligations and commitments.

The City’s net financial asset balance is $214 million (2015 - $194 million), an increase of $20 million. This balance is calculated as total financial assets less liabilities and represents the amount available to finance future operations. The increase year over year is due to the culmination of changes in the various balance sheet accounts which are described in the paragraphs below.

Cash and cash equivalents

The City’s cash position is closely managed and remains adequate along with short-term investments to meet ongoing cash requirements. The cash position has increased to $39 million from $27 million in 2015 as certain large monthly payments were made after yearend in 2016 but prior to yearend in 2015. The Consolidated Statement of Cash Flows summarizes the sources and uses of cash in both 2016 and 2015.

NET FINANCIAL ASSETS


Trade and other accounts receivable

The amount in Trade and other accounts receivable has decreased to $29 million from $34 million in 2015. This is due primarily to the settlement of a significant receivable that was outstanding in 2015.

Investments

It is the policy of the City of Kitchener to invest public funds in a manner that provides the highest investment return while protecting and preserving capital, maintaining liquidity to meet the daily cash flow demands and to conform to all legislation governing the investment of public funds.

The balance in investments grew in 2016 to $158 million from $139 million in 2015. This increase relates primarily to funding received for specific capital projects that had not been fully spent.

Investment in Kitchener Power Corporation & Kitchener Generation Corporation

The City’s investment in both Kitchener Power Corporation and its affiliates and Kitchener Generation Corporation is made up of the City’s initial investment and its share of net income since acquisition less dividends received. See Notes 6 and 7 to the Consolidated Financial Statements for further details.

Deferred revenue – obligatory reserve funds

The increase in deferred revenue – obligatory reserve funds is due to funding received for specific capital projects that has not been spent in the year. Please see Note 9 to the financial statements which provides greater detail regarding activity in 2016 compared to 2015.

Municipal Debt

The City has three components that comprise the overall debt total. Debt has been issued to fund: • a portion of the tax-supported capital program• capital improvements to Enterprises, where the debt charges will be funded

through user fees or external sources, such as the Parking Enterprise or theKitchener Rangers

• the Economic Development Investment Fund (EDIF)

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The City’s capital investment philosophy ensures that any increases in debt charges from one year to the next do not exceed assessment growth (excluding the impact of the debt associated with EDIF). As well, the overall contribution from the tax base through taxes and debt charges will not increase more than assessment growth plus inflation from one year to the next.

This philosophy has ensured that the impact on the taxpayer does not exceed inflation and that the City must prioritize projects to fit the funding available.

The City created EDIF in 2004 as a $110 million commitment to invest in catalyst projects to strengthen the local economy and stimulate urban development in Downtown Kitchener. The fund has provided dollars for major strategic investment projects including the University of Waterloo School of Pharmacy, Communitech Hub, and King Street streetscaping. EDIF investments have had a remarkable positive impact on the City, increasing the City’s recognition as a location for innovation, entrepreneurship, and a sought-after urban lifestyle.

Municipal debt has decreased to $85 million from $94 million in 2015. The change in debt is a result of new debt issuance of $2.4 million offset by repayment of $11.1 million of existing debt. Debt is expected to decrease for the next number of years as the ten year EDIF program continues to be paid down.

MUNICIPAL DEBT


Tangible Capital Assets

Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight-line basis over their estimated useful lives ranging from 2 to 100 years.

During 2016, the City acquired $75 million in tangible capital assets (2015 - $91 million). Amortization of assets was $43 million (2015 - $40 million). Refer to Note 13 and Schedule A of the Consolidated Financial Statements for a detailed breakdown of tangible capital asset activity for 2016. The net book value of tangible capital assets at December 31, 2016 is $1.07 billion, up from $1.03 billion in 2015.

TANGIBLE CAPITAL ASSETS BY ASSET TYPE 2016 Net Book Value - $1,065 Million (2015 Net Book Value $1,033 Million)

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Accumulated Surplus

The City’s accumulated surplus for fiscal 2016 is $1.28 billion (2015 - $1.23 billion). The accumulated surplus reflects the resources that have been built over time at the City and the balance includes items such as tangible capital assets, equity in Kitchener Power Corporation and Kitchener Generation Corporation and various reserves.

ACCUMULATED SURPLUS 2016 - $1,283 Million (2015 - $1,231 Million)


Reserve Funds

Reserve funds are included as part of accumulated surplus and these balances are disclosed in Note 14 to the financial statements. Reserve fund balances have increased during 2016 to $55 million (2015 - $51 million).

Under the authority of the Municipal Act, the City has established reserve funds to set aside funds to be used for future purposes.

Reserve funds are established to ensure future liabilities can be met, capital assets are properly maintained and sufficient financial flexibility exists to respond to economic cycles or unanticipated financial requirements. Council is responsible for exercising discretion with respect to the use of reserve funds, subject to the terms of Council policy, as well as statutory and legal requirements.

The reserve policy contains guiding principles to ensure the reserves continue to support the financial goals and serve the highest priority needs of the City and its citizens.

RESERVE FUNDS

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CONSOLIDATED STATEMENT OF OPERATIONS

The Consolidated Statement of Operations reports the revenue collected by the City, the cost of providing municipal services and the resulting annual surplus/deficit.

This year, overall assessment growth was 1.29%. While this new assessment creates revenue for the City, there is also a cost to provide services to new development. In addition, cost increases in excess of inflation, public demand for new services and unreliable revenue sources all place significant pressure on the City budget. The tax rate increase for 2016 operations was 1.46%.


Revenue

Revenue is received from the following sources: taxation; user fees from gasworks, water, sewer, storm water and other; grants and other. Kitchener is one of only two municipalities in Ontario that own and operate a natural gas utility.

Gasworks revenue is $14M lower than 2015 due to lower supply rates charged to customers as planned and decreased usage due to milder temperatures experienced in 2016. It is less than budget due to the decreased usage.

Water, sewer & storm water revenue is $10M greater than in 2015 due to the approved increases in the user fee rates charged for these services.

Grant revenue is less than budget and prior year due to the deferral of unspent Federal Gas Tax funds. These funds will be spent in future years on eligible capital projects.

The ‘Other’ category in the chart above includes contribution of tangible capital assets, investment income, penalties and interest on taxes, obligatory reserve funds revenue recognized, and share of net income of Kitchener Power Corporation and Kitchener Generation Corporation. Revenue is lower in this category for 2016 compared to 2015, due to significantly smaller amounts of contributed assets to the City.

REVENUE

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Expenses

The City of Kitchener is a diversified government institution and provides a wide range of services to its citizens including fire, roads, water, sewer, natural gas, libraries, and community services. Schedule B of the Consolidated Financial Statements breaks the expenses into major functional activities, consistent with provincially-legislated requirements.

As is common with most Ontario municipalities, the City of Kitchener does not budget for amortization of tangible capital assets or gains and losses on disposal of assets. In order that the actual results may be compared to budget in a meaningful way, the Council-approved budgets have been adjusted to include amortization expense and other accounting adjustments mandated by the Public Sector Accounting Board to express the financial statements on an accrual basis. This provides greater clarity for all readers in assessing budget to actual variances.

General government expenses are $7.6 million higher in 2016 than 2015. This is primarily due to a large gain on disposal of land that offset the 2015 expenses.

The lower Gasworks expenses compared to 2015 and budget relates to lower costs associated with purchasing natural gas due to lower commodity prices and the milder temperatures experienced in 2016.

EXPENSES BY FUNCTION


CONSOLIDATED STATEMENT OF CHANGE IN NET FINANCIAL ASSETS

The Statement of Change in Net Financial Assets explains the difference between a municipality’s surplus or deficit for the reporting year and its change in net financial assets in the same reporting year. This statement provides for the reporting of the acquisition of tangible capital assets and other significant items that impact the difference between the annual surplus/deficit and the change in net financial assets.

CONSOLIDATED STATEMENT OF CASH FLOW

The statement of cash flows reports changes in cash and cash equivalents resulting from operations, capital, investing and financing activities and shows how the City financed its activities during the year and met its cash requirements.

EXPENSES BY OBJECT 2016 - $288 Million (2015 - $285 Million)

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CANADIAN AWARD FOR FINANCIAL REPORTING

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Canadian Award for Financial Reporting to the City of Kitchener for its annual financial report for the fiscal year ended December 31, 2015. The Canadian Award for Financial Reporting program was established to encourage municipal governments throughout Canada to publish high quality financial reports and to provide peer recognition and technical guidance for officials preparing these reports.

In order to be awarded a Canadian Award for Financial Reporting, a government unit must publish an easily readable and efficiently organized annual financial report, whose contents conform to program standards. Such reports should go beyond the minimum requirements of generally accepted accounting principles and demonstrate an effort to clearly communicate the municipal government’s financial picture, enhance an understanding of financial reporting by municipal governments, and address user needs.

A Canadian Award for Financial Reporting is valid for a period of one year only. We believe our current report continues to conform to the Canadian Award for Financial Reporting program requirements.

LOOKING AHEAD

Looking ahead to 2017, the City will continue to balance community priorities with affordable property tax rates and user fees. The in-depth business planning and budgeting processes help the City to manage these healthy pressures and make the right decisions between strategic investments and affordable tax rates for our citizens.

Continuing to focus on building an even stronger financial position through lower debt levels and healthier reserve balances will allow the City to be resilient and flexible in responding to growth and change, not just in 2017 but for the years to come.

Dan Chapman, CPA, CA, MPA Deputy CAO, Finance and Corporate Services & City Treasurer June 26, 2017


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KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830

INDEPENDENT AUDITORS’ REPORT

To the Mayor and Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener

We have audited the accompanying consolidated financial statements of the Corporation of the City of Kitchener, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of operations, change in net financial assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP

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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation of the City of Kitchener as at December 31, 2016, and its consolidated results of operations and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Chartered Professional Accountants, Licensed Public Accountants

June 26, 2017 Waterloo, Canada

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THE CORPORATION OF THE CITY OF KITCHENERConsolidated Statement of Financial PositionAs at December 31, 2016

2016 2015(RestatedNote 19)

Financial assets

Cash and cash equivalents $ 38,577,079 $ 26,731,623

Taxes receivable 20,598,155 19,616,794

Trade and other accounts receivable 28,851,877 34,138,663

Loans receivable (Note 4) 9,070,598 10,311,403

Inventory for resale 8,914,964 9,752,764

Investments (Note 5) 158,360,514 139,030,212

Investment in Kitchener Power Corporation and its affiliates (Note 6) 201,721,655 196,196,525

Investment in Kitchener Generation Corporation (Note 7) 3,251,490 3,483,759

469,346,332 439,261,743

Liabilities

Accounts payable and accrued liabilities 75,794,240 72,312,929

Deferred revenue - obligatory reserve funds (Note 9) 38,400,547 26,265,531

Deferred revenue - other 14,005,912 14,377,402

Municipal debt (Note 10) 84,859,304 93,535,658

Employee future benefits (Note 12) 42,238,419 38,310,362

255,298,422 244,801,882

Net financial assets 214,047,910 194,459,861

Non-financial assets

Tangible capital assets (Note 13) 1,065,060,311 1,033,009,510

Inventory of supplies 2,568,188 2,608,281

Prepaid expenses 1,327,158 1,273,716

1,068,955,657 1,036,891,507

Accumulated surplus $ 1,283,003,567 $ 1,231,351,368

See accompanying notes


THE CORPORATION OF THE CITY OF KITCHENERConsolidated Statement of OperationsFor the Year Ended December 31, 2016

2016Budget


Revenue

Taxation $ 116,095,329 $ 116,674,911 $ 113,610,395

User fees and charges

Gasworks 80,176,875 74,320,186 88,530,770

Water, sewer and storm water 55,049,109 55,173,590 45,064,711

Other 42,722,772 46,728,761 43,008,956

Grants 10,136,075 5,830,399 10,012,836

Contributions of tangible capital assets 4,404,349 4,404,349 12,459,464

Investment income 6,295,196 7,518,318 7,175,465

Penalties and interest on taxes 3,099,262 3,250,779 3,282,870

Development charge revenue recognized 17,160,169 10,388,476 11,044,439

Share of net income of Kitchener Power Corporationand its affiliates (Note 6) 9,593,078 9,593,078 10,120,748

Share of net income of Kitchener GenerationCorporation (Note 7) - 24,480 8,529

Other 3,399,977 5,899,048 2,874,721

Total revenue 348,132,191 339,806,375 347,193,904

Expenses

General government 39,544,414 38,931,568 31,272,756

Protection services 46,034,452 45,291,230 44,727,876

Transportation services 35,771,346 35,100,204 34,566,319

Environmental services 30,632,889 30,012,049 29,194,029

Health services 2,158,806 2,257,225 2,244,858

Social and family services 2,489,661 2,722,141 2,752,404

Recreation and cultural services 68,288,152 68,495,718 68,644,751

Planning and development 12,642,310 13,160,042 12,059,970

Gasworks 66,885,438 52,183,999 59,245,602

Total expenses 304,447,468 288,154,176 284,708,565

Annual surplus 43,684,723 51,652,199 62,485,339

Accumulated surplus, beginning of year 1,231,351,368 1,231,351,368 1,168,866,029

Accumulated surplus, end of year (Note 14) $ 1,275,036,091 $ 1,283,003,567 $ 1,231,351,368


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THE CORPORATION OF THE CITY OF KITCHENERConsolidated Statement of Change in Net Financial AssetsFor the Year Ended December 31, 2016

2016

Budget

2016 2015

(RestatedNote 19)

Annual surplus $ 43,684,723 $ 51,652,199 $ 62,485,339

Amortization of tangible capital assets 42,657,709 42,657,709 40,273,778

Acquisition of tangible capital assets (73,293,540) (75,104,330) (91,158,022)

Gain on disposals of tangible capital assets (1,812,732) (1,812,732) (5,364,831)

Proceeds on disposal of tangible capital assets 2,208,552 2,208,552 8,182,407

Acquisition of supplies of inventories - (5,828,681) (5,961,928)

Acquisition of prepaid expenses - (428,135) (972,985)

Consumption of supplies inventory - 5,868,774 5,972,447

Use of prepaid expenses - 374,693 995,043

Change in net financial assets 13,444,712 19,588,049 14,451,248

Net financial assets, beginning of year 194,459,861 194,459,861 180,008,613

Net financial assets, end of year $ 207,904,573 $ 214,047,910 $ 194,459,861



THE CORPORATION OF THE CITY OF KITCHENERConsolidated Statement of Cash FlowFor the Year Ended December 31, 2016


Operating

Annual surplus $ 51,652,199 $ 62,485,339

Items not involving cash

Amortization 42,657,709 40,273,778

Gain on disposal of tangible capital assets (1,812,732) (5,364,831)

Share of net income of Kitchener Power Corporation and its affiliates (9,593,078) (10,120,748)

Share of net income of Kitchener Generation Corporation (24,480) (8,529)

Change in employee future benefits 3,928,057 3,459,068

Contributions of tangible capital assets (4,404,349) (12,459,464)

Change in non-cash assets and liabilities

Taxes receivable (981,361) 3,089,347

Trade and other accounts receivable 5,286,786 6,347,086

Loans receivables 1,240,805 1,716,447

Inventory of supplies 40,093 10,519

Inventory for resale 837,800 1,615,803

Prepaid expenses (53,442) 22,058

Deferred revenue - obligatory reserve funds 12,135,016 11,515,328

Deferred revenue - other (371,490) (372,663)

Accounts payable and accrued liabilities 3,481,309 (1,643,955)

Net change in cash from operating activities 104,018,842 100,564,583

Investing

Dividends received from Kitchener Power Corporation 4,067,948 3,935,100

Debt and equity payments received from Kitchener Generation Corporation 256,749 240,798

Net acquisition of investments (19,330,302) (37,584,092)

Net change in cash from investing activities (15,005,605) (33,408,194)

Financing

Municipal debt issued 2,381,000 1,166,000

Municipal debt repaid (11,057,352) (10,629,382)

Net change in cash from financing activities (8,676,352) (9,463,382)

Capital

Acquisition of tangible capital assets (70,699,981) (78,698,558)

Proceeds on disposal of tangible capital assets 2,208,552 8,182,407

Net change in cash from capital activities (68,491,429) (70,516,151)

Net change in cash and cash equivalents 11,845,456 (12,823,144)

Cash and cash equivalents, beginning of year 26,731,623 39,554,767

Cash and cash equivalents, end of year $ 38,577,079 $ 26,731,623


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THE CORPORATION OF THE CITY OF KITCHENERNotes to the Consolidated Financial StatementsFor the Year Ended December 31, 2016

1. Summary of significant accounting policies

These consolidated financial statements of The Corporation of the City of Kitchener (the “City”) have beenprepared by management in accordance with Canadian generally accepted accounting principles for localgovernments as established by the Public Sector Accounting Board of the Chartered Professional Accountantsof Canada. The following is a summary of the significant accounting policies followed in the preparation ofthese financial statements:

a. Basis of consolidation

i. Consolidated entities

These consolidated financial statements reflect the assets, liabilities, reserves, surpluses/deficits,revenues, and expenditures of those City funds and governmental functions or entities which have beendetermined to comprise a part of the aggregate City operations based upon control exercised by the Cityexcept for the City’s government businesses which are accounted for on the modified equity basis ofaccounting. The following boards, municipal enterprises and utilities have been included in theconsolidated financial statements:

Kitchener Public Library

Kitchener Downtown Improvement Area Board of Management

Belmont Improvement Area Board of Management

The Centre in the Square Inc.

Waterworks Enterprise

Gasworks Enterprise

Sewer Surcharge Enterprise

Storm Water Management Enterprise

Building Enterprise

Golf Enterprise

Parking Enterprise

All inter-organizational and inter-fund transactions and balances have been eliminated.

ii. Government business enterprises

Kitchener Generation Corporation and Kitchener Power Corporation and its affiliates are not consolidatedbut are accounted for on the modified equity basis which reflects the City of Kitchener’s investment in theenterprises and its share of net income since acquisition. Under the modified equity basis, theenterprises’ 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 theschool boards and the Regional Municipality of Waterloo, are not reflected in these consolidated financialstatements.

iv. Trust funds

Trust funds and their related operations administered by the City are not consolidated, but are reportedseparately on the “Trust Funds Statement of Continuity and Balance Sheet” (see Note 3).



1. Summary of significant accounting policies (continued)

b. Basis of accounting

i. Accrual basis of accounting

The consolidated financial statements are prepared using the accrual basis of accounting. The accrualbasis of accounting recognizes revenues in the period in which the transactions or events occurred thatgave rise to the revenues. Expenses are recognized in the period the goods and services are acquiredand a liability is incurred or transfers are due.

ii. Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with original maturity of90 days or less as at the end of the year.

iii. Trade and other accounts receivable

Trade and other accounts receivable are reported net of any allowance for doubtful accounts.

iv. Loans receivable

Loans receivable are reported net of any allowance for doubtful accounts. Interest income is recorded asit accrues. When the value of any loan receivable is identified as impaired, an allowance is set up tooffset the carrying amount and any adjustments are included in materials and services expense in theperiod the impairment is recognized.

v. Inventory for resale

Inventory for resale is valued at the lower of cost or net realizable value on an average cost basis.

vi. Investments

Portfolio investments are carried at cost, net of accumulated amortization on premiums and discounts.Premiums and discounts are amortized on a straight line basis over the term to maturity. Interest incomeis recorded as it accrues. When the value of any portfolio investment is identified as impaired, thecarrying amount is adjusted to the estimated realizable amount and any adjustments are included ininvestment income in the period the impairment is recognized.

vii. Deferred revenue

Government transfers, contributions and other amounts are received from third parties pursuant tolegislation, regulation or agreement and may only be used in the conduct of certain programs, in thecompletion of specific work or for the purchase of tangible capital assets. In addition, certain usercharges and fees are collected for which the related services have yet to be performed. Revenue isrecognized in the period when the related expenses are incurred, services performed or the tangiblecapital assets are acquired.

viii. Employee future benefits

The contributions to a multi-employer, defined benefit pension plan are expensed when contributions aredue. The costs of post-retirement benefits are recognized when the event that obligates the Cityoccurs. Costs include projected future income payments, health care continuation costs and fees paid toindependent administrators of these plans, calculated on a present value basis.

30



b. Basis of accounting (continued)

viii. Employee future benefits (continued)

The costs of post-retirement benefits are actuarially determined using the projected benefits methodprorated on service and management’s best estimate of retirement ages of employees, salary escalation,expected health care costs and plan investment performance. Liabilities are actuarially determined usingdiscount rates that are consistent with the market rates of high quality debt instruments. Any gains orlosses from changes in assumptions or experience are amortized over the average remaining serviceperiod for active employees.

ix. Contaminated Sites

Contaminated sites are defined as the result of contamination being introduced in air, soil, water orsediment of a chemical, organic, or radioactive material of live organism that exceeds an environmentstandard. This Standard relates to sites that are not in productive use and sites in productive use where

an unexpected event resulted in contamination. As of December 31, 2016, there was no liability recordedon the statement

x. Non-financial assets

Non-financial assets are not available to discharge liabilities and are held for use in the provision ofservices. They have useful lives that extend beyond the current year and are not intended for sale in theordinary course of operations. The change in non-financial assets during the year, together with theexcess of revenues over expenses, provides the consolidated change in net financial assets for the year.

a. Tangible capital assets

Tangible capital assets are recorded at cost which includes all amounts that are directly attributableto acquisition, construction, development or betterment of the asset. The cost less residual value ofthe tangible capital assets is amortized on a straight-line basis over their estimated useful lives asfollows:

Assets Amortization Period

Land The original cost of land is not amortized

Land Improvements 15 to 100 years

Buildings & building improvements 15 to 50 years

Leasehold improvement Over the useful life of the improvement or the leaseterm, whichever is shorter

Machinery & equipment 3 to 20 years

Computer hardware 5 years

Computer software 2 to 10 years

Linear assets 6 to 100 years

Vehicles 5 to 16 years

b. Contributions of tangible capital assets

Tangible capital assets received as contributions are recorded at their fair value at time of receiptand are recorded as revenue.




b. Basis of accounting (continued)

x. Non-financial assets (continued)

c. Leases

Leases are classified as capital or operating leases. Leases which transfer substantially all the risksand benefits incidental of ownership are accounted for as capital leases. All other leases areaccounted for as operating leases and the related lease payments are charged to expenses asincurred.

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 financialstatements.

xi. Government transfers

Government transfers are recognized in the financial statements in the period in which the events givingrise to the transfer occur, providing the transfers are authorized, any eligibility criteria have been met andreasonable estimates of the amounts can be made.

Government transfers and developer contributions-in-kind related to capital acquisitions are required tobe recognized as revenue in the consolidated financial statements in the period in which the tangiblecapital assets are acquired.

xii. Use of estimates

Since precise determination of many assets and liabilities is dependent upon future events, thepreparation of periodic financial statements necessarily involves the use of estimates andapproximations. These have been made using careful judgments. Actual results could differ from theseestimates.

2. Operations of school boards and the Regional Municipality of Waterloo

Further to Note 1 a) iii, the taxation, other revenues and requisitions for the school boards and the RegionalMunicipality of Waterloo are comprised of the following:

SchoolBoards

Region Total

Taxation and user charges $ 87,885,248 $ 232,833,484 $ 320,718,732

Share of payments in lieu of taxes 592 2,447,908 2,448,500

Share of linear properties 63,432 125,040 188,472

Amounts requisitioned $ 87,949,272 $ 235,406,432 $ 323,355,704

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3. Trust funds

Trust funds administered by the City have not been included in the Consolidated Statement of FinancialPosition, nor have their operations been included in the Consolidated Statement of Operations. The trust fundsunder administration are comprised of cemetery perpetual care and prepaid interment funds totalling$14,029,550 (2015 - $13,273,757).

4. Loans receivable

Loans receivable are made up of the following:

2016 2015

Major capital improvement loans receivable $ 8,126,151 $ 8,732,179

Loans receivable with forgiveness provisions 55,745 77,791

Minor capital improvement and other loans receivable 888,702 1,501,433

$ 9,070,598 $ 10,311,403

Major capital improvement loans are individual loans in excess of $500,000 when issued with no forgivenessprovision built into the loan. These loans have repayment terms ranging from 10 to 12 years (2015 - 10 to 12years). All major capital improvement loans are unsecured and bear interest at rates ranging from 1.53% to1.95% (2015 - 1.53% to 1.75%).

Forgivable loans are those initially offered with forgiveness provisions built into the agreement. All loans in thiscategory are unsecured and have repayment terms of 5 to 10 years (2015 - 5 to 10 years). The forgivenessprovisions range from 8% to 50% (2015 - 15% to 100%). The balances recorded are net of the allowance forforgiveness. Interest rates on these loans range from 0% to 8% (2015 - 0% to 8%).

Minor capital improvement and other loans receivable comprise any loan receivable not fitting into the first twocategories. There is a variety of terms related to these loans with payment terms ranging from 6 months to 25years (2015 - 6 months to 25 years). The majority of these loans are secured by the asset the loan wasgranted to finance, but others are unsecured. The interest rates on these loans range from 0.0% to 12.9%(2015 - 0.0% to 12.9%).

5. Investments

Investments are made up of the following:

2016Cost

2016Market

Value

2015Cost

2015MarketValue

Guaranteed investment certificates $ 150,124,084 $ 151,937,572 $ 134,235,069 $ 137,151,429

Bonds and debentures 7,949,154 8,180,459 4,510,654 4,715,394

Common stock 287,276 468,924 284,489 421,867

$ 158,360,514 $ 160,586,955 $ 139,030,212 $ 142,288,690



6. Investment in Kitchener Power Corporation and its Affiliates

Under the provincial government’s Electricity Competition Act (Bill 35), Kitchener Power Corporation, a holdingcompany, along with its wholly owned subsidiaries, including Kitchener-Wilmot Hydro Inc., was incorporated onJuly 1, 2000.

On August 1, 2000, under by-laws passed by the City and the Township of Wilmot, the net assets of the formerHydro-Electric Commission of Kitchener-Wilmot were transferred to the new corporation. The City took back a92.25% share in the common shares of Kitchener Power Corporation and a 92.25% share in long-term notespayable by the affiliates for the assets transferred. Certain surplus property assets and cash funds wereexcluded from the transfer and turned over to the City and the Township.

The investment is comprised of the following:

2016 2015

Kitchener Power Corporation common shares $ 61,244,208 $ 61,244,208

Kitchener-Wilmot Hydro Inc. long-term notes receivable 70,997,576 70,997,576

Share of net income and prior period adjustments due to changes inaccounting policies since acquisition, net of dividends 69,479,871 63,954,741

$ 201,721,655 $ 196,196,525

The Kitchener-Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 4.88% (2015 - 4.88%).There are no repayment terms and there is no intent to redeem the notes or the shares.

The following table provides condensed financial information with respect to Kitchener Power Corporation:

2016 2015

Current assets $ 75,614,000 $ 74,720,000

Non-current assets 225,417,000 208,638,000

Regulatory assets 4,487,000 4,923,000

Deferred taxes 141,000 280,000

Total assets 305,659,000 288,561,000

Current liabilities 39,059,000 38,904,000

Long-term debt 79,872,000 80,952,000

Regulatory liabilities 10,320,000 6,908,000

Other liabilities 34,378,000 25,756,000

Total liabilities 163,629,000 152,520,000

Net assets 142,030,000 136,041,000

Results of operations

Revenues 277,930,000 250,525,000

Expenses (267,531,000) (239,554,000)

Net income 10,399,000 10,971,000

City's share of net income - 92.25% $ 9,593,078 $ 10,120,748

34


7. Investment in Kitchener Generation Corporation

Under the Business Corporation Act (Ontario), Kitchener Generation Corporation was incorporated onDecember 9, 2011.

Effective January 1, 2012, the City transferred the solar roof asset constructed on the surface of the KitchenerOperations Facility to Kitchener Generation Corporation in exchange for 100% of its common shares andinterest bearing debt.

The investment in Kitchener Generation Corporation is comprised of the following:

2016 2015

Kitchener Generation Corporation common shares $ 336,837 $ 362,513

Kitchener Generation Corporation long-term notes receivable 3,031,534 3,262,609

Share of net income since acquisition, net of dividends (116,881) (141,363)

$ 3,251,490 $ 3,483,759

The notes receivable are unsecured and bear interest at the rate of 5.01%. To the extent that KitchenerGeneration Corporation has positive annual cash flows after any dividend payment, the cash will be returned tothe City as repayment of the outstanding debt and return of capital. The proportion to which they contribute is90% debt, 10% equity.

The following table provides condensed financial information with respect to Kitchener Generation Corporation:

2016 2015

Current assets $ 4,883 $ 6,035

Capital assets 3,251,524 3,483,776

Total assets 3,256,407 3,489,811

Current liabilities 4,916 6,051

Long-term debt 3,031,535 3,262,609

Total liabilities (3,036,451) 3,268,660

Net assets 219,956 221,151

Results of operations

Revenues 433,797 416,888

Expenses (409,317) (408,359)

Net income 24,480 8,529

City's share of net income - 100% $ 24,480 $ 8,529



8. Insurance pool

Liabilities include an amount of $4,746,320 (2015 - $4,829,612) which represents funds belonging to theWaterloo Region Municipalities Insurance Pool and administered by the City on behalf of the Pool’s members.The members entered an agreement in 1998 to purchase property damage and public liability insurance on agroup basis and share a retained level of risk.

The members pay an actuarially determined annual levy to fund insurance, prefund expected losses andcontribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductibleand any losses above a predetermined total in any year.

The City’s share of Pool levies is 25.72 % (2015 - 24.99%) and its share of the Pool surplus as at May 31, 2016was $1,066,337 (2015 - $1,079,627). The City’s share of the Pool surplus has not been included in theConsolidated Statement of Financial Position.

9. Deferred revenue - obligatory reserve funds

Obligatory deferred revenue is comprised of the following:

2016 2015(Restated

Note19)

Development charges $ 16,552,083 $ 10,405,624

Federal gas tax 5,749,009 3,404,675

Building 8,736,758 6,252,773

Recreational land 7,362,697 6,202,459

$ 38,400,547 $ 26,265,531

The continuity of obligatory deferred revenue is as follows:

Developmentcharges

Federal gastax Building

Recreatonalland Total

Balance, January 1, 2016 $ 10,405,624 $ 3,404,675 $ 6,252,773 $ 6,202,459 $ 26,265,531

Collections 16,534,936 6,662,949 2,404,533 1,076,914 26,679,332

Interest earned - 18,208 92,452 92,569 203,229

Contributions used (10,388,477) (4,336,823) (13,000) (9,245) (14,747,545)

Balance, December 31, 2016 16,552,083 5,749,009 8,736,758 7,362,697 38,400,547

Balance, January 1, 2015 10,102,225 5,569,262 5,235,033 4,689,980 25,596,500

Collections 11,347,837 6,345,666 949,398 1,467,357 20,110,258

Interest earned - 13,651 77,343 68,143 159,137

Contributions used (11,044,438) (8,523,904) (9,001) (23,021) (19,600,364)

Balance, December 31, 2015 $ 10,405,624 $ 3,404,675 $ 6,252,773 $ 6,202,459 $ 26,265,531

36


10. Municipal debt

The City has assumed responsibility for the payment of principal and interest charges on certain long-term debtissued by other municipalities. At the end of the year, the outstanding principal amount of this liability is$84,859,304 (2015 - $93,535,658).

The annual principal repayments are:

2017 $ 11,409,256

2018 10,617,151

2019 10,479,884

2020 9,628,731

2021 8,717,187

2022 and thereafter 34,007,095

$ 84,859,304

The annual principal and interest payments required to service the long-term debt are within the annual debtrepayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing.

The long-term liabilities carry interest rates ranging from 1.15% to 5.75% (2015 – 1.05% to 5.70%). Interestcharges for 2016 relating to municipal debt totalled $3,534,339 (2015 - $3,869,098).

11. Pension plan

The City makes contributions to the Ontario Municipal Employees Retirement System (OMERS), which is amulti-employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of theretirement benefit to be received by the employees based on the length of service and rates of pay. Employeecontributions are matched by the City. Contributions were required on account of current service in 2016amounting to $10,095,019 (2015 - $10,093,752).

12. Employee future benefits

The estimated liability for employee future benefits is comprised of the following:

2016 2015

Sick leave benefit plan $ 17,714,432 $ 16,331,940

Post-retirement benefits 16,387,087 14,873,522

Future payments to WSIB 8,136,900 7,104,900

$ 42,238,419 $ 38,310,362



12. Employee future benefits (continued)

a. Sick leave benefit plan

Under the sick leave benefit plan, unused sick leave can accumulate and certain employees may becomeentitled to cash payments when they leave the City’s employment. The amount of benefits paid during the yearwere $1,273,695 (2015 - $1,467,875).

A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $5,287,741 (2015- $5,259,154).

Anticipated undiscounted payments to employees who are eligible to retire are:

2017 $ 2,168,437

2018 783,547

2019 1,000,314

2020 1,234,453

2021 1,145,034

2022 and thereafter 10,780,624

$ 17,112,409

The actuarial valuation of the future liability for sick leave assumes a discount rate of 3.50% (2015 –3.50%). The last actuarial valuation for this liability was completed at December 31, 2014.

The expense for the current year was $2,656,186 (2015 - $2,509,722) and is comprised of the following items:

2016 2015

Current period benefit cost $ 1,091,144 $ 1,054,245

Amortization of plan improvements - (220,795)

Amortization of actuarial losses 795,085 922,896

Sick leave benefit expense 1,886,229 1,756,346

Sick leave benefit interest expense 769,957 753,376

Total expenses related to sick leave benefits $ 2,656,186 $ 2,509,722

As at December 31, 2016, the unamortized actuarial losses were $4,417,435 (2015 – $5,212,520) and areamortized over 10 to 13 years (2015 – 12 to 13 years).

38


12. Employee future benefits (continued)

b. Post-retirement benefits

The City pays certain health, dental and life insurance benefits on behalf of its retired employees up to the ageof 65 if they have at least ten years of service with the City. The amount of benefits paid during the year were$1,101,539 (2015 - $1,118,127).

The City holds no reserve in accumulated surplus to meet this liability.

The actuarial valuation of the future liability for post-retirement benefits assumes a discount rate of 3.75%(2015 – 3.75%) and inflation rates for benefit premiums of 4.0% to 7.4% (2015 – 4.0% to 7.4%). The lastactuarial valuation for this liability was completed at December 31, 2014.

The expense for the year was $2,615,104 (2015 - $2,695,148) and is comprised of the following items:

2016 2015



Post-retirement benefit expense 1,833,595 1,941,308

Post-retirement benefit interest expense 781,509 753,840

Total expenses related to post-retirement benefits $ 2,615,104 $ 2,695,148

As at December 31, 2016, the unamortized actuarial losses were $4,683,875 (2015 – $5,423,639) and areamortized over 11 to 13 years (2015 – 10 to 13 years).

c. WSIB

The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf ofthe City as a Schedule 2 employer. The amount of benefits paid during the year were $668,600 (2015 -$695,800).

A reserve fund to provide for this liability is included in accumulated surplus, in the amount of $1,463,983 (2015- $1,314,025).

The actuarial valuation of the future liability for WSIB assumes a discount rate of 3.25% (2015 – 3.50%). Thelast actuarial valuation for this liability was completed at December 31, 2014.

The expense for the current year was $1,700,600 (2015 - $1,536,000) and is comprised of the following items:

2016 2015



WSIB benefit expense 1,402,800 1,274,800

WSIB benefit interest expense 297,800 261,200

Total expenses related to WSIB benefits $ 1,700,600 $ 1,536,000

As at December 31, 2016, the unamortized actuarial losses were $525,300 (2015 - $522,400) and areamortized over 13 years (2015 – 13 years).



13. Tangible capital assets

The continuity schedule of tangible capital assets is presented in schedule A.

Assets under construction having a value of $18,719,217 (2015 - $50,839,697) have not been amortized.Amortization of these assets will commence when the assets are put into service.

Contributed tangible capital assets of $4,404,349 (2015 - $12,459,464) have been recognized at fair marketvalue at the date of contribution. The contributed assets include land right of way as well as developer createdlinear assets such as water, sanitary, storm, and road assets.

The write-down of tangible capital assets during the year was $nil (2015 – $nil).

The amount of interest capitalized was $nil (2015 - $nil).

14. Accumulated surplus

The accumulated surplus consists of individual fund surpluses/ (deficits) and reserve funds as follows:

2016 2015(Restated

Note 19)

Surplus:

Invested in tangible capital assets $ 1,065,060,311 $ 1,033,009,510

Other 518,199 (13,843,612)

Equity in Kitchener Power Corporation and its affiliates 201,721,655 196,196,525

Equity in Kitchener Generation Corporation 3,251,490 3,483,759

Employee future benefits (unfunded) (42,238,419) (38,310,362)

Total surplus 1,228,313,236 1,180,535,820

Reserve funds set aside for specific purposes by Council for:

Capital 28,793,325 27,126,300

Stabilization 6,212,167 5,556,200

Program specific 10,422,750 9,651,464

Corporate 7,500,643 7,132,266

52,928,885 49,466,230

Reserve funds set aside for specific purposes by consolidatedentities:

Kitchener Public Library 381,336 381,264

Kitchener Downtown Business Improvement Area 50,000 50,000

The Centre in the Square Inc. 1,330,110 918,054

1,761,446 1,349,318

Total reserve funds 54,690,331 50,815,548

Accumulated surplus $ 1,283,003,567 $ 1,231,351,368

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15. Contingent liabilities

a. The City has extended a line of credit not to exceed $2,000,000 to Kitchener Housing Inc.. Interest ischarged on the outstanding balance at bank prime plus 1% (rate as at December 31, 2016 was 3.70%).

b. Legal actions have been undertaken against the City relating to a number of contract disputes and othermatters. The outcome of these actions is not presently determinable. It is management’s opinion that the City’sinsurance will adequately cover any potential liability arising from these contract disputes and othermatters. Should any liability be determined and not covered by insurance it will be recognized in the periodwhen it is determined.

16. Segmented information

The City of Kitchener is a diversified municipal government institution that provides a wide range of services toits citizens, including fire, roads, water, sewer, storm sewer, gasworks, libraries, and community services.

Segmented information has been prepared by major functional classification of activities provided, consistentwith the Consolidated Statement of Operations and provincially legislated requirements.

For each reported segment, revenues and expenses represent both amounts that are directly attributable to thesegment 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 theconsolidated financial statements as disclosed in Note 1.

See Schedule B

17. Budget figures

The budget figures reflected in these consolidated statements are those approved by Council at a meeting onJanuary 18, 2016. Budget figures have been translated to reflect Public Sector Accounting Board standards.

18. Comparative figures

Certain of the prior year’s comparative figures have been restated to conform to the current year’s presentation.

19. Restatement of prior period figures

The City has made an adjustment to the accounting treatment of capital projects that have received obligatoryreserve fund revenue. This change relates to deferring the recognition of development charge and otherobligatory reserve fund revenue until the original funds are spent, instead of when the funds are transferred tothe capital project.

As a result, the Consolidated Statement of Financial Position as at December 31, 2015 is being restated asfollows:

Deferred revenue – obligatory was increased by $21,977,853 of which $9,813,733 was reclassified from

Deferred revenue – other (to present all obligatory reserve fund deferred revenue consistently);

Deferred revenue – other was decreased by $9,813,733 to present all obligatory reserve fund deferred

revenue consistently on the Consolidated Statement of Financial Position; and

Accumulated surplus was decreased by $12,163,915.



19. Restatement of prior period figures (continued)

The Consolidated Statement of Operations for the year ended December 31, 2015 is being restated as follows:

Total revenue was decreased by $4,781,022 (Other user fees and charges increased by $17,685, Grant

revenue decreased by $3,222, Investment income decreased by $2,830, Development charge revenue

earned decreased by $4,283,157, and Other revenue decreased by $509,498); and

Accumulated surplus, beginning of 2015 was decreased by $7,382,895.

42

THE CORPORATION OF THE CITY OF KITCHENERSchedule A - Tangible Capital AssetsFor the Year Ended December 31, 2016

General Infrastructure

Land LandImprovements

Buildings LeaseholdImprovements

Machinery &Equipment

ComputerSoftware

ComputerHardware

Vehicles Land Buildings Linear Assets Assets UnderConstruction

Total

Cost

Balance, beginning ofyear $ 40,001,109 $ 40,046,619 $ 234,638,907 $ 3,054,251 $ 45,654,716 $ 21,276,429 $ 6,934,246 $ 22,873,770 $ 147,914,560 $ 66,439,759 $ 788,846,612 $ 50,839,697 $1,468,520,675

Additions 1,053,659 1,794,749 4,613,796 - 3,918,552 4,122,247 2,052,177 1,808,844 1,279,469 159,709 40,304,402 13,996,726 75,104,330

Transfers (3,856) 1,253,157 - - 256 15,309,646 - - 3,856 - 29,554,147 (46,117,206) -

Disposals (16,118) (148,446) (77,299) - (3,516,147) (8,353,680) (1,691,879) (1,251,824) (15,904) (20,032) (6,533,338) - (21,624,667)

Balance, end of year 41,034,794 42,946,079 239,175,404 3,054,251 46,057,377 32,354,642 7,294,544 23,430,790 149,181,981 66,579,436 852,171,823 18,719,217 1,522,000,338

Accumulatedamortization

Balance, beginning ofyear - (12,228,448) (99,210,605) (665,861) (21,132,300) (17,653,666) (3,552,729) (8,715,141) - (12,429,453) (259,922,962) - (435,511,165)

Disposals - 148,446 67,435 - 3,474,315 8,353,680 1,678,254 1,206,764 - 4,410 6,295,543 - 21,228,847

Amortization expense - (1,915,056) (7,251,119) (71,196) (4,268,194) (1,160,011) (1,259,791) (2,062,797) - (2,130,516) (22,539,029) - (42,657,709)

Balance, end of year - (13,995,058) (106,394,289) (737,057) (21,926,179) (10,459,997) (3,134,266) (9,571,174) - (14,555,559) (276,166,448) - (456,940,027)

Net book value, end ofyear 41,034,794 28,951,021 132,781,115 2,317,194 24,131,198 21,894,645 4,160,278 13,859,616 149,181,981 52,023,877 576,005,375 18,719,217 1,065,060,311

Net book value,beginning of year $ 40,001,109 $ 27,818,171 $ 135,428,302 $ 2,388,390 $ 24,522,416 $ 3,622,763 $ 3,381,517 $ 14,158,629 $ 147,914,560 $ 54,010,306 $ 528,923,650 $ 50,839,697 $1,033,009,510


THE CORPORATION OF THE CITY OF KITCHENERSchedule B - Segmented InformationFor the Year Ended December 31, 2016

GeneralGovernment

ProtectionServices

TransportationServices

EnvironmentalServices

HealthServices

Social andFamily

Services

Recreationand Cultural

Services

Planning andDevelopment

Gasworks Total

Revenue

Taxation $ 20,524,329 $ 34,362,331 $ 15,587,462 $ 744,735 $ 263,265 $ 1,316,855 $ 37,774,409 $ 6,101,525 $ - $ 116,674,911

User fees and charges 1,757,914 8,505,385 9,117,371 55,173,721 1,731,555 512,383 21,741,516 3,362,506 74,320,186 176,222,537

Grants 149,479 - 4,150,068 483,326 - 685,409 362,117 - - 5,830,399

Investment income 6,642,623 133,290 22,601 23,303 276,118 1,587 88,491 133,518 196,787 7,518,318

Penalties and interest on taxes 3,250,779 - - - - - - - - 3,250,779

Development charge revenue recognized 872,297 29,282 884,553 6,241,864 52,395 - 1,953,087 354,998 - 10,388,476

Share of net income of Kitchener Power Corporation and itsaffiliates 9,593,078 - - - - - - - - 9,593,078

Share of net income of Kitchener GenerationCorporation 24,480 - - - - - - - - 24,480

Contributions of tangible capital assets - - 2,085,001 2,196,267 - - 108,634 - 14,447 4,404,349

Other 564,901 415,939 965,296 2,490,947 14,066 19,517 743,062 448,009 237,311 5,899,048

Total Revenue 43,379,880 43,446,227 32,812,352 67,354,163 2,337,399 2,535,751 62,771,316 10,400,556 74,768,731 339,806,375

Operating expenses

Salaries, wages and employee benefits 34,183,180 39,170,577 12,012,339 8,864,239 1,489,632 1,991,699 38,021,886 6,239,771 5,250,500 147,223,823

Materials 14,856,716 3,199,704 7,900,603 8,619,156 432,695 548,341 17,370,740 2,274,801 36,793,786 91,996,542

Long term debt interest 297,623 146,011 660,744 54,794 23,129 29,615 1,472,171 850,252 - 3,534,339

Interfunctional and program support (16,265,105) 1,725,225 2,488,334 3,874,291 175,557 68,818 2,724,554 1,183,131 4,025,195 -

External transfers 284,350 - 7,243 372,743 - 8,325 1,807,195 1,734,100 - 4,213,956

Amortization of tangible capital assets 5,557,171 1,077,502 13,198,023 8,180,294 142,905 75,343 7,498,297 881,435 6,046,739 42,657,709

Loss (gain) on disposals of tangible capital assets 17,633 (27,789) (1,167,082) 46,532 (6,693) - (399,125) (3,448) 67,779 (1,472,193)

Total expenses 38,931,568 45,291,230 35,100,204 30,012,049 2,257,225 2,722,141 68,495,718 13,160,042 52,183,999 288,154,176

Annual surplus $ 4,448,312 $ (1,845,003) $ (2,287,852) $ 37,342,114 $ 80,174 $ (186,390) $ (5,724,402) $ (2,759,486) $ 22,584,732 $ 51,652,199

44

THE CORPORATION OF THE CITY OF KITCHENERSchedule B - Segmented Information (Continued)For the Year Ended December 31, 2015 (Restated)

GeneralGovernment

ProtectionServices

TransportationServices

EnvironmentalServices

HealthServices

Social andFamily

Services

Recreationand Cultural

Services

Planning andDevelopment

Gasworks Total

Revenue

Taxation $ 19,726,562 $ 33,711,161 $ 15,218,594 $ 754,577 $ 191,719 $ 1,391,797 $ 36,421,104 $ 6,194,881 $ - $ 113,610,395

User fees and charges 1,781,513 8,157,736 7,709,897 45,064,711 1,653,755 496,173 20,530,996 2,678,886 88,530,770 176,604,437

Grants 310,475 - 8,034,622 147,800 - 652,261 867,678 - - 10,012,836

Investment income 6,441,572 115,145 3,769 61,950 268,472 1,603 77,112 28,141 177,701 7,175,465

Penalties and interest on taxes 3,282,870 - - - - - - - - 3,282,870

Development charge revenue recognized 1,345,553 (6,923) 1,958,802 3,513,132 10,797 - 3,981,862 241,216 - 11,044,439

Share of net income of Kitchener Power Corporation and itsaffiliates 10,120,748 - - - - - - - - 10,120,748

Share of net income of Kitchener GenerationCorporation 8,529 - - - - - - - - 8,529

Contributions of tangible capital assets - - 5,815,253 6,447,506 - - 196,705 - - 12,459,464

Other 721,261 350,132 188,110 1,014,268 26,730 21,578 703,374 (465,609) 314,877 2,874,721

Total revenue 43,739,083 42,327,251 38,929,047 57,003,944 2,151,473 2,563,412 62,778,831 8,677,515 89,023,348 347,193,904

Operating expenses

Salaries, wages and employee benefits 32,638,902 37,968,776 11,131,510 8,899,210 1,428,600 2,006,821 36,927,690 5,838,928 5,100,231 141,940,668

Materials 15,938,270 3,246,407 7,258,197 6,753,668 434,924 571,007 17,810,037 1,720,723 44,175,496 97,908,729

Long term debt interest 313,131 168,160 741,542 63,668 24,465 36,630 1,588,019 933,483 - 3,869,098

Interfunctional and program support (16,309,382) 1,786,651 2,720,696 3,714,288 192,429 50,909 2,799,813 1,118,241 3,926,355 -

External transfers to others 30,300 - 7,171 343,564 - 11,456 1,491,191 1,147,090 - 3,030,772

Amortization of tangible capital assets 5,472,693 1,204,248 11,318,302 7,503,509 142,518 75,581 7,568,505 1,026,314 5,962,108 40,273,778

Loss (gain) on disposals of tangible capital assets (6,811,158) 353,634 1,388,901 1,916,122 21,922 - 459,496 275,191 81,412 (2,314,480)

Total expenses 31,272,756 44,727,876 34,566,319 29,194,029 2,244,858 2,752,404 68,644,751 12,059,970 59,245,602 284,708,565

Annual surplus $ 12,466,327 $ (2,400,625) $ 4,362,728 $ 27,809,915 $ (93,385) $ (188,992) $ (5,865,920) $ (3,382,455) $ 29,777,746 $ 62,485,339





We have audited the accompanying financial statements of the Trust Funds of the Corporation of the City of Kitchener, which comprise the balance sheet as at December 31, 2016 and the statement of continuity for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.


Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

46

Page 2

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


Opinion

In our opinion, the financial statements present fairly, in all material respects, the balance sheet of the Trust Funds of the Corporation of the City of Kitchener as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.




CORPORATION OF THE CITY OF KITCHENER TRUSTFUNDS

Balance SheetAs at December 31, 2016

2016 2015

Assets

Accounts receivable $ 257,387 $ 186,438

Interest 86,971 65,235

Investments (Note 2)

Short-term 2,832,603 4,960,568

Long-term 10,852,589 8,063,115

14,029,550 13,275,356

Liabilities

Accounts payable and accrued liabilities - 1,600

Fund Balance 14,029,550 13,273,756

$14,029,550 $13,275,356


48


Statement of ContinuityFor the Year Ended December 31, 2016

2016 2015

Receipts

Perpetual care $ 419,451 $ 359,833

Interest earned 416,093 400,469

Other 194,913 220,254

1,030,457 980,556

Expenditures

Transfer to cemeteries operations 274,663 267,013

274,663 267,013

Net change in fund 755,794 713,543

Balance, beginning of year 13,273,756 12,560,213

Balance, end of year $ 14,029,550 $ 13,273,756




Notes to the Financial StatementsFor the Year Ended December 31, 2016


The Financial Statements have been prepared in accordance with Canadian generally accepted accountingprinciples for local government as recommended by the Public Sector Accounting Board of the CharteredProfessional Accountants of Canada. The significant accounting policies are summarized below.

a. Basis of Accounting

Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis ofaccounting recognizes receipts as they become available and measurable; expenditures are recognized as theyare incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation topay.

2. Investments

The long-term investments of $10,852,589 (2015 - $8,063,115) reported on the Balance Sheet at cost, have amarket value of $11,508,917 (2014 - $8,735,981).

3. Statement of Cash Flow

A separate statement of cash flow is not presented, since cash flow from operating, investing and financingactivities are readily apparent from the other financial statements.

50

CORPORATION OF THE CITY OF KITCHENER TRUST FUNDSSchedule of Continuity by FundFor the Year Ended December 31, 2016

BalanceDecember 31,

2015Perpetual Care

FundsInterest Earned Other Receipts Transfer Interest

to CemeteriesDisbursements

BalanceDecember 31,

2016

Perpetual care

Mount Hope Cemetery $ 591,983 $ 1,011 $ 18,108 $ 500 $ 18,108 $ - $ 593,494

Woodland Cemetery 4,785,212 126,760 147,910 7,400 147,910 - 4,919,372

Bridgeport Cemetery 147,843 6,807 4,594 350 4,594 - 155,000

Williamsburg Cemetery 2,672,626 284,537 85,084 14,275 85,084 - 2,971,438

St. Peter's Cemetery 492,145 336 15,046 500 15,046 - 492,981

Cemetery Trusts

F. E. Tremain 15,550 - 475 - 475 - 15,550

Florence V. Cober 8,783 - 268 - 268 - 8,783

L. F. Glick 20,664 - 631 - 631 - 20,664

Edna Atherton 1,331 - 41 - 41 - 1,331

George Wright Estate 42,614 - 1,302 - 1,302 - 42,614

E. L. Goetz 1,357 - 41 - 41 - 1,357

E. Weiderhold 38,065 - 1,163 - 1,163 - 38,065

Prepaid Interments 4,455,583 - 141,430 171,888 - - 4,768,901

$ 13,273,756 $ 419,451 $ 416,093 $ 194,913 $ 274,663 $ - $ 14,029,550




To the Members of the Belmont Improvement Area Board of Management

We have audited the accompanying financial statements of the Belmont Improvement Area Board of Management, which comprise the statement of financial position as at December 31, 2016, the statements of revenue and expenses and accumulated surplus and change in net financial assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.




Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.


52

Page 2

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Belmont Improvement Area Board of Management as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.




BELMONT IMPROVEMENT AREA BOARD OFMANAGEMENT

Statement of Financial PositionAs at December 31, 2016

2016 2015

Financial assets

Cash $ 40,781 $ 31,212

Accounts receivable - 375

40,781 31,587

Financial liabilities

Accounts payable and accrued liabilities 7,764 3,536

Net financial assets 33,017 28,051


Tangible capital assets (Note 2) 2,823 611

Prepaid expenses 664 646

3,487 1,257

Net assets 36,504 29,308

Accumulated Surplus

Accumulated net revenue 33,681 28,697

Invested in tangible capital assets 2,823 611

Total accumulated surplus $ 36,504 $ 29,308


54


Statement of Revenue and Expenses and Accumulated SurplusFor the Year Ended December 31, 2016

2016 2015

Revenue

Assessments $ 40,671 $ 39,334

Other revenue 1,508 5,872

42,179 45,206

Expenses

Streetscaping 2,320 3,925

Audit 1,808 1,808

Summer maintenance 5,267 5,040

Insurance 1,407 1,350

Winter maintenance 19,070 14,576

Advertising 489 3,374

Miscellaneous 3,699 1,574

Amortization 923 1,220

34,983 32,867

Net surplus (deficit) for year 7,196 12,339

Accumulated surplus, beginning of year 29,308 16,969

Accumulated surplus, end of year $ 36,504 $ 29,308




Statement of Change in Net Financial AssetsFor the Year Ended December 31, 2016

2016 2015

Net surplus for year $ 7,197 $ 12,339

Acquisition of tangible capital assets (3,135) -

Amortization of tangible capital assets 923 1,220

Acquisition of prepaid expenses (19) (33)

Change in net financial assets 4,966 13,526

Net financial assets, beginning of year 28,051 14,525

Net financial assets, end of year $ 33,017 $ 28,051


56


Notes to Financial StatementsFor the Year Ended December 31, 2016


The financial statements of the Belmont Improvement Area Board of Management are the representation ofmanagement and have been prepared in accordance with Canadian generally accepted accounting principlesfor local governments as recommended by the Public Sector Accounting Board of the Canadian Institute ofChartered Accountants. Since precise determination of many assets and liabilities is dependent upon futureevents, the preparation of periodic financial statements necessarily involves the use of estimates andapproximations. These have been made using careful judgment. The following is a summary of the significantaccounting policies followed in the preparation of these financial statements:

a) Tangible capital assets

Tangible capital assets are recorded at cost which includes all amounts that are directly attributable toacquisition, construction, development or betterment of the asset. The cost less residual value of thetangible capital assets is amortized on a straight-line basis over their estimated useful lives as follows:

Assets Amortization Period

Equipment 5 Years

Annual amortization is charged in the year of acquisition and in the year of disposal. Assets underconstruction are not amortized until the asset is available for productive use.

Tangible capital assets received as contributions are recorded at their fair value at time of receipt and arerecorded as revenue.

b) Accrual basis of accounting

Revenue and expenses are reported on the accrual basis of accounting. The accrual basis of accountingrecognizes revenue as it becomes available and measurable; expenses are recognized as they areincurred and measurable as a result of receipt of goods or services and the creation of a legal obligationto pay.

2. Tangible Capital Assets

CostAccumulatedAmortization

Net BookValue

Opening balance $ 6,102 $ (5,491) $ 611

Additions 3,135 - 3,135

Amortization expense - (923) 923

Disposals - - -

Ending balance $ 9,237 $ (6,414) $ 2,823

3. Statement of cash flow

A separate statement of cash flow is not presented, since cash flow from operating, investing and financingactivities are readily apparent from the other financial statements.




We have audited the accompanying financial statements of Kitchener Downtown Improvement Area Board of Management, which comprise the statement of financial position as at December 31, 2016, the statements of revenue and expenses and accumulated surplus and changes in net financial assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.




Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.


58

Page 2

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Kitchener Downtown Improvement Area Board of Management as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.


April 26, 2017 Waterloo, Canada


KITCHENER DOWNTOWN IMPROVEMENT AREA

BOARD OF MANAGEMENT Statement of Financial Position

Year ended December 31, 2016, with comparative information for 2015

2016 2015

Financial Assets

Cash $ 84,423 $ 2,863 Term deposits (note 2) 111,594 217,029 Accounts receivable 23,065 32,435 Prepaid expenses 6,867 3,317

225,949 255,644

Financial Liabilities

Accounts payable and accrued charges 111,033 74,738 Due to the City of Kitchener (note 4) 46,560 37,360

157,593 112,098


Non-Financial Assets

Tangible capital assets (note 5) 77,552 71,723

Net assets $ 145,908 $ 215,269

Accumulated Surplus

Reserve for rate stabilization $ 50,000 $ 50,000 Accumulated net revenue 18,356 93,546 Invested in tangible capital assets 77,552 71,723

Total accumulated surplus $ 145,908 $ 215,269

See ccompanying notes to financial statements.

60

KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT

Statement of Revenue and Expenses and Accumulated Surplus


Budget Actual Actual 2016 2016 2015

Revenue:Assessments $ 1,081,831 $ 1,081,831 $ 950,000 Interest - 1,195 768 Special events income - - 5,500 Other income 72,000 93,733 29,562 1,153,831 1,176,759 985,830

Expenses: Promotions and advertising 463,000 437,375 372,961 Salaries, wages and benefits 450,906 476,065 372,701 Administration 84,425 115,547 94,401Meetings and seminars 4,500 7,696 11,686 Safety and beautification 149,000 136,265 64,158 Member relations 15,000 7,439 13,900 Amortization 10,000 19,173 14,942 1,176,831 1,199,560 944,749

Net revenue (expense) before other items (23,000) (22,801) 41,081

Net assessment write-offs (note 4) 34,000 46,560 37,360

Net revenue (expense) (57,000) (69,361) 3,721

Accumulated surplus, beginning of year 215,269 215,269 211,548

Accumulated surplus, end of year $ 158,269 $ 145,908 $ 215,269

See accompanying notes to financial statements.



Statement of Changes in Net Financial Assets


2016 2015

Net revenue (expense) $ (69,361) $ 3,721

Acquisition of tangible capital assets (25,002) (53,836)

Amortization of tangible capital assets 19,173 14,942

Change in net financial assets (75,190) (35,173)




62


Statement of Cash Flows


2016 2015

Cash provided by (used in):

Operating activities: Net revenue (expense) $ (69,361) $ 3,721 Item not involving cash:

Amortization 19,173 14,942 Changes in non-cash assets and liabilities:

Accounts receivable 9,370 10,476 Prepaid expenses (3,550) (330) Accounts payable and accrued liabilities 36,295 (18,910) Due to/from City of Kitchener 9,200 15,162

Cash from operating activities 1,127 25,061

Investing activities: Acquisition of tangible capital assets (25,002) (53,836) Redemption (purchase) of investments 105,435 (150,767) Cash used in investing activities 80,433 (204,603)

Increase (decrease) in cash 81,560 (179,542)

Cash, beginning of year 2,863 182,405

Cash, end of year $ 84,423 $ 2,863




Notes to Financial Statements

Year ended December 31, 2016

1. Summary of significant accounting policies:

Kitchener Downtown Improvement Area Board of Management (the “Board”) is established forthe main purpose of revitalizing the Central Business District of the City of Kitchener. It isdesignated as a Business Improvement Area (BIA) through the Ontario Municipal Act and a Cityof Kitchener by-law enacted in 1977.

The financial statements of the Board are the representation of management and have beenprepared in accordance with Canadian generally accepted accounting principles for localgovernments, as recommended by the Public Sector Accounting Board (PSAB) of the CanadianProfessional Accountants. Since precise determination of many assets and liabilities isdependent upon future events, the preparation of periodic financial statements necessarilyinvolves the use of estimates and approximations. These have been made using carefuljudgment.

(a) Tangible capital assets:

Tangible capital assets are recorded at cost which includes amounts that are directlyattributable to acquisition, construction, development or betterment of the asset. The cost,less residual value, of the tangible capital assets, excluding land and landfill sites, areamortized on a straight-line basis over their estimated useful lives as follows:

Asset Useful Life - Years

Computers 4 yearsFurniture and fixtures 7 years Leasehold improvements 7 yearsEvent equipment 10 years

Annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the asset is available for productive use.

Tangible capital assets received as contributions are recorded at their fair value at the date of receipt and also are recorded as revenue.

(b) Accrual basis of accounting:

The accrual basis of accounting recognizes revenues as they become available andmeasurable; expenditures are recognized as they are incurred and measurable as a result ofreceipt of goods or services and the creation of a legal obligation to pay.

64


Notes to Financial Statements, page 2


2. Term deposits:

The term deposits consist of the following:

Principal Maturity Rate

$ 50,580 March 1, 2017 0.58% 10,578 March 18, 2017 0.50%

50,250 March 26, 2017 0.40%

3. Commitments:

During 2016, the Board executed a new lease agreement. The lease expires on June 30, 2021.The Board is committed to the following minimum payments under the agreement:

2017 $ 35,5382018 35,5382019 35,5382020 35,5382021 35,538

4. City of Kitchener:

The Board receives assessment income from the City of Kitchener for its operations. During theyear, assessment write-offs were incurred for $46,560 (2015 - $37,360). The 2015 amount waspaid to the City of Kitchener in 2016.


KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT Notes to Financial Statements, continued


5. Tangible capital assets:

Accumulated Net Accumulated Net Balance, amortization, book value, amortization, book value,

Opening Disposals/ Write- end of beginning beginning end of end of balance Additions Transfers downs year of year of year Deletions Amortization year year

Computers $ 17,000 $ 6,155 $ - $ - $ 23,155 $ 12,127 $ 4,873 $ - $ 4,236 $ 16,363 $ 6,792

Furniture 50,697 15,699 - - 66,396 25,369 25,328 - 9,485 34,854 31,542

Leasehold Improvements 3,498 - - - 3,498 2,500 998 - 500 3,000 498

Event equipment 45,027 3,148 - - 48,175 4,503 40,524 - 4,952 9,455 38,720

$ 116,222 $ 25,002 $ - $ - $ 141,224 $ 44,499 $ 71,723 $ - $ 19,173 $ 63,672 $ 77,552

66

KPMG LLP115 King Street South2nd FloorWaterloo ON N2J 5A3CanadaTel 519-747-8800Fax 519-747-8830

INDEPENDENT AUDITORS' REPORTTo the members of the Kitchener Public Library Board

We have audited the accompanying financial statements of the Kitchener PublicLibrary, which comprise the statement of financial position as at December 31,2016 and the statements of revenues, expenses and accumulated net revenue,cash flows and changes in net financial assets for the year then ended, andnotes, comprising a summary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of thesefinancial statements in accordance with Canadian public sector accountingstandards, and for such internal control as management determines is necessaryto enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements basedon our audit. We conducted our audit in accordance with Canadian generallyaccepted auditing standards. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the financial statements. The procedures selecteddepend on our judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, we consider internal control relevant to theentity's preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internalcontrol. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the financialstatements.

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.


Page 2

We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, thefinancial position of Kitchener Public Library as at December 31, 2016, and itsresults of operations and its cash flows for the year then ended in accordancewith Canadian accounting standards for not-for-profit organizations.


April 19, 2017

Waterloo, Canada

68

KITCHENER PUBLIC LIBRARYStatement of Financial Position

December 31, 2016, with comparative information for 2015

2016 2015

AssetsCash $ 1,266,477 $ 1,199,220Accounts receivable 72,757 125,787Investments 50,000 -Due from City of Kitchener 168,419 266,734

1,557,653 1,591,741

Financial LiabilitiesAccounts payable and accrued liabilities 490,457 577,009Deferred revenue (note 2) 685,860 633,468

1,176,317 1,210,477


Non-Financial AssetsTangible capital assets 6,363,535 6,349,696

$ 6,744,871 $ 6,730,960

Accumulated SurplusInvested in tangible capital assets 6,363,535 6,349,696

Reserves 381,336 381,264

$ 6,744,871 $ 6,730,960


On behalf of the Board:

Director

Director


KITCHENER PUBLIC LIBRARYStatement of Operations and Changes in Net Assets

Year ended December 31, 2016, with comparative figures for 2015

2016 Budget 2016 2015

RevenuesGrants:

Province of Ontario $ 286,755 $ 286,755 $ 286,755City of Kitchener:

Operating 10,423,548 10,423,548 10,269,505Capital and special (note 4) - 1,068,083 1,194,200Special grants (note 5) - 128,250 671,141

Fines 210,000 227,772 216,404Interest and miscellaneous 30,000 25,797 31,738Partnerships 27,132 27,377 27,133Room rental 25,000 33,896 23,407Photocopy 30,000 35,949 30,869

11,032,435 12,257,427 12,751,152

ExpensesPersonnel costs (Schedule 1) 8,508,675 8,499,175 8,338,803Resource materials 1,215,906 1,488,435 1,491,980Equipment (Schedule 2) 243,850 619,634 621,045Administrative(Schedule 3) 174,854 188,987 178,949Facilities costs (Schedule 4) 714,600 727,277 676,221Processing/bindery 118,200 118,469 117,757Programs and publicity

(Schedule 5) 51,500 54,217 44,873General library equipment 4,850 5,914 2,074Expenditures related to capital

and special (note 4) - 413,158 565,049Required expenditures related to

special grants (note 5) - 128,250 671,14111,032,435 12,243,516 12,707,892

Net revenue - 13,911 43,260

Accumulated net revenue, beginning of year 6,730,960 6,687,700

Accumulated net revenue, end of year $ 6,744,871 $ 6,730,960


70

KITCHENER PUBLIC LIBRARYStatement of Cash Flows


2016 2015

Operating activities:Net revenue $ 13,911 $ 43,260Item not involving cash:

Amortization 1,525,955 1,521,193Change in non-cash operating working capital

Accounts receivable 53,030 (12,083)Due from City of Kitchener 98,315 (102,135)Accounts payable and accrued liabilities (86,552) 24,974Deferred revenue 52,392 (303,325)Cash flows from operating activities 1,657,051 1,171,884

Capital activities:Acquisition of tangible capital assets (1,539,794) (1,564,448)

Investing activities:Investments (50,000) -

Increase in cash 67,257 (392,564)

Cash, beginning of year 1,199,220 1,591,784

Cash, end of year $ 1,266,477 $ 1,199,220


KITCHENER PUBLIC LIBRARYStatement of Changes in Net Financial Assets


2016 2015

Excess of revenue over expenses $ 13,911 $ 43,260

Acquisition of tangible capital assets (1,539,794) (1,564,448)

Amortization of tangible capital assets 1,525,955 1,521,193

Change in net financial assets 72 5




72

KITCHENER PUBLIC LIBRARYNotes to Financial Statements


Kitchener Public Library (the "Board") was incorporated as a not-for-profit organization, withoutshare capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City") and isdependent 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 informationand works of imagination.

The financial statements of the Board are the representation of management and have beenprepared in accordance with Canadian generally accepted accounting principles for localgovernments, as recommended by the Public Sector Accounting Board of the Canadian Institute ofChartered Accountants. Since precise determination of many assets and liabilities is dependentupon future events, the preparation of periodic financial statements necessarily involves the use ofestimates and approximations. These have been made using careful judgments. The following is asummary of the significant accounting policies followed in the preparation of these financialstatements.

1. Significant accounting policies:

(a) Accrual basis of accounting:

The accrual basis of accounting recognizes revenues as they become available andmeasurable; expenditures are recognized as they are incurred and measurable as a resultof receipt of goods or services and the creation of a legal obligation to pay.

(b) Tangible capital assets:

Tangible capital assets are recorded at cost which includes amounts that are directlyattributable to acquisition, construction, development or betterment of the asset. The cost,less residual value, of the tangible capital assets, excluding land are amortized on astraight-line basis over their estimated useful lives as follows:

Furniture, fixtures and equipment 10 - 30 yearsSpecialty and other equipment 8 yearsComputer 3 - 10 yearsBooks and audio visual resources 2 - 10 years

2. Deferred revenue:

Deferred revenue represents the annual Board's approval of the appropriation of unspent funds,and are subject to external restrictions as to how the funds are disbursed. These appropriationsare included in required expenses and are subsequently charged directly to operations whenspent.


KITCHENER PUBLIC LIBRARYNotes to Financial Statements (continued)



2016Opening balance Additions Disposals

Balance,end of

year

Accumulatedamortization,beginning of

year Amortization Disposals

Accumulatedamortization,

end ofyear

Net bookvalue,end of

year

Books and audio visualresources $ 9,510,634 $ 1,027,337 $ (1,432,276) $ 9,105,695 $ 5,523,942 $ 1,120,507 $ (1,432,276) $ 5,212,173 $ 3,893,522

Computer 1,837,149 436,352 (94,899) 2,178,602 1,029,828 262,943 (94,899) 1,197,872 980,730Furniture fixtures and

equipment 2,004,646 76,105 (62,650) 2,018,101 461,076 139,353 (62,650) 537,779 1,480,322Other equipment and

vehicle 70,806 - - 70,806 58,693 3,152 - 61,845 8,961

$ 13,423,235 $ 1,539,794 $ (1,589,825) $ 13,373,204 $ 7,073,539 $ 1,525,955 $ (1,589,825) $ 7,009,669 $ 6,363,535

2015Opening balance Additions Disposals

Balance,end of

year

Accumulatedamortization,beginning of

year Amortization Disposals

Accumulatedamortization,

end ofyear

Net bookvalue,end of

year

Books and audio visualresources $ 10,104,861 $ 1,108,837 $ (1,703,064) $ 9,510,634 $ 6,092,339 $ 1,134,667 $ (1,703,064) $ 5,523,942 $ 3,986,692

Computer 1,767,175 278,640 (208,666) 1,837,149 992,023 246,471 (208,666) 1,029,828 807,321Furniture fixtures and

equipment 1,878,925 176,971 (51,250) 2,004,646 377,993 134,333 (51,250) 461,076 1,543,570Other equipment and

vehicle 95,306 - (24,500) 70,806 77,471 5,722 (24,500) 58,693 12,113

$ 13,846,267 $ 1,564,448 $ (1,987,480) $ 13,423,235 $ 7,539,826 $ 1,521,193 $ (1,987,480) $ 7,073,539 $ 6,349,696

74



4. Capital and special grants:

Each year, the City approves capital and special grants for the Board to purchase specificcapital items.

The capital grants approved for 2016 included $91,035 for general renovations, maintenanceand upgrading of existing facilities, $273,891 for communication infrastructure and technologyupgrades and $27,000 for KPL Accessibility Fund.

The portion of these grants and previous year grants that are included in revenue in 2016, is$890,916 (2015 - $888,204).

5. Special grants:

In 2016, the Board received various special non-recurring grants and donations totaling$182,235 (2015 - $376,342). The portion of these grants and previous year special grants thatare included in revenue in 2016, is $128,250 (2015 - $671,141). The remainder is included indeferred revenue.

6. Pension plan:

The Board makes contributions to the Ontario Municipal Employees Retirement Systems(OMERS), which is a multi-employer plan, on behalf of its staff. The plan is a defined benefitplan which specifies the amount of the retirement benefit to be received by the employeesbased on the length of service and rate of pay.

During the year, the Board incurred expenses equal to $596,969 (2015 - $584,793) for currentservice on behalf of its staff.




7. Related party transactions:

The Kitchener Public Library Foundation (the "Foundation") was an independent organizationwhich raised funds to support the development of the Kitchener Public Library.

During 2016, the Foundation donated $nil (2015 - $221,632) to the Board to fund variousprojects. In 2015 the Foundation ceased operations and all assets were transferred to theKitchener Public Library.

76

KITCHENER PUBLIC LIBRARYSchedules of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses


2016 2015

Schedule 1 - Personnel

Personnel:Salaries $ 6,893,901 $ 6,778,894Health benefits 450,786 427,731Pension benefits 878,295 857,727Employment insurance 151,142 146,774WSIB 22,710 23,094Sick leave reserve 66,000 66,000Staff training 36,341 38,583

$ 8,499,175 $ 8,338,803

Schedule 2 - Equipment

Equipment:Technology $ 198,069 $ 208,376Equipment maintenance 16,117 26,142Amortization 405,448 386,527

$ 619,634 $ 621,045

Schedule 3 - Administrative

Administrative:Postage and delivery $ 7,294 $ 8,621Insurance 18,466 18,204Professional services 43,867 49,209General business 49,096 40,188Telephone 24,776 24,253Stationery 45,488 38,474

$ 188,987 $ 178,949

Schedule 4 - Facilities

Facilities:Facilities expenses $ 370,296 $ 362,857Country Hills building 45,055 41,684Main utilities 262,870 221,937Forest Heights utilities 20,174 24,248Pioneer Park building 25,111 22,313Grand River Stanley Park building 3,771 3,182

$ 727,277 $ 676,221


KITCHENER PUBLIC LIBRARYSchedule 5 - Programs and Publicity


2016 2015

Programs and publicity:Promotional $ 27,687 $ 26,616Public programs 26,530 18,257

$ 54,217 $ 44,873

78



To the Directors of The Centre In The Square Inc.

We have audited the accompanying financial statements of The Centre In The Square Inc., which comprise the statement of financial position as at December 31, 2016, the statements of operations, changes in net financial assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.




Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.



Page 2


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of The Centre In The Square Inc. as at December 31, 2016, and its results of operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.


March 22, 2017 Waterloo, Canada

80

THE CENTRE IN THE SQUARE INC. Statement of Financial Position

December 31, 2016, with comparative information for 2015

2016 2015

Net Assets Financial assets:

Cash $ 3,885,724 $ 3,625,529 Due (to) from The City of Kitchener (42,392) 122,910 Accounts receivable 163,118 57,582 Interest receivable 1,242 743 Costs to be recovered 162,429 160,419 Investments (note 2) 1,311,384 545,476 Total financial assets 5,481,505 4,512,659

Financial liabilities: Accounts payable and accrued liabilities 1,287,942 1,031,677 Deferred revenue (note 3) 3,141,323 2,778,312

4,429,265 3,809,989

Net financial assets 1,052,240 702,670

Non-financial assets: Tangible capital assets (note 4) 8,283,205 8,520,879 Inventories (note 5) 51,494 48,558 Prepaid expenses 226,376 166,826

8,561,075 8,736,263

Net assets $ 9,613,315 $ 9,438,933

Accumulated Surplus Operating fund activities (note 6) $ - $ - Reserves - Capital (notes 7 and 11) 765,447 424,530 Reserves - Performance Development (note 8) - - Reserves - Sustainability (notes 8 and 11) 62,686 - Reserves - Restricted (notes 9 and 11) 501,977 493,524 Invested in tangible capital assets 8,283,205 8,520,879

Accumulated surplus $ 9,613,315 $ 9,438,933


On behalf of the Board:

Director

Director


THE CENTRE IN THE SQUARE INC. Statement of Operations


Budget 2016 Actual 2016 Actual 2015

Revenues: Performances $ 6,313,821 $ 6,613,377 $ 5,772,441 Rent - Kitchener-Waterloo Symphony 95,000 105,855 92,015 Capital reserve fund surcharge (note 7) 360,000 309,753 264,082 Grants from The City of Kitchener - Operating 2,000,000 2,000,000 1,400,000 Grants from The City of Kitchener - Capital 1,949,420 219,294 510,810 Grants from other governments - Operating 42,300 21,150 - Grants from other governments - Capital 2,088,461 121,365 - Donations 3,621 15,619 5,731 Investment income 65,960 52,660 48,652 Sponsorships and memberships 97,444 104,117 121,255 Rent - Kitchener-Waterloo Art Gallery 95,520 95,520 93,648 Lottery revenue - 6,942 - Other 132,878 134,282 145,625 Gain on investments - 3,565 40,230 (Loss) gain on sale of assets - (32,975) 630 Portion of operating (gain) loss for The City

of Kitchener - (62,060) 119,098 Total revenue 13,244,425 9,708,464 8,614,217

Expenses: Direct:

Performances 5,509,400 5,806,354 4,631,017 Operating:

Administration 425,000 398,848 397,933 Marketing 100,000 174,263 128,814 Lottery expenses - 6,942 - Occupancy 879,000 706,418 631,623 Salaries and wages 2,450,932 2,905,787 3,008,331 Recoveries - performances (559,197) (1,004,214) (916,367)

Amortization 700,000 500,302 687,986 Write down of tangible capital assets 612,500 30,062 30,976 Reserves expenditures (recoveries) (note 11) 15,000 9,320 9,197 Total expenses 10,132,635 9,534,082 8,609,510

Excess of revenue over expenses 3,111,790 174,382 4,707

Accumulated surplus, beginning of year 9,438,933 9,438,933 9,434,226

Accumulated surplus, end of year $ 12,550,723 $ 9,613,315 $ 9,438,933


82

THE CENTRE IN THE SQUARE INC. Statement of Change in Net Financial Assets


2016 2015

Excess of expenses over revenue $ 174,382 $ 4,707 Acquisition of tangible capital assets (292,690) (348,703) Amortization of tangible capital assets 500,302 687,986 Write-downs of tangible capital assets 30,062 30,976

412,056 374,966

Net acquisition use of supplies inventory (2,936) 1,103 Acquisition use of prepaid expenses (59,550) 41,454

(62,486) 42,557

Increase in net financial assets 349,570 417,523


Net financial assets, end of year $ 1,052,240 $ 702,670



THE CENTRE IN THE SQUARE INC. Statement of Cash Flows


2016 2015

Operating activities: Excess of expenses over revenue $ 174,382 $ 4,707 Items not involving cash:

Amortization 500,302 687,986 Write down of tangible capital assets 30,062 30,976

Change in non-cash operating working capital 614,047 1,150,648 Cash (used) provided by operating activities 1,318,793 1,874,317

Capital activities: Cash used to acquire tangible capital assets (292,690) (348,703)

Investing activities: Investments (765,908) (45,849)

Increase in cash 260,195 1,479,765

Cash, beginning of year 3,625,529 2,145,764

Cash, end of year $ 3,885,724 $ 3,625,529


84

THE CENTRE IN THE SQUARE INC. Notes to Financial Statements


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”).


The financial statements of The Centre are the representation of management and have beenprepared in accordance with Canadian generally accepted accounting principles for localgovernments, as recommended by the Public Sector Accounting Board (PSAB) of the CanadianInstitute of Chartered Accountants. Since precise determination of many assets and liabilities isdependent upon future events, the preparation of periodic financial statements necessarilyinvolves the use of estimates and approximations. These have been made using carefuljudgment.

(a) Tangible capital assets:

Tangible capital assets are recorded at cost which includes amounts that are directlyattributable to acquisition, construction, development or betterment of the asset. The cost,less residual value, of the tangible capital assets, excluding land, are amortized on a straight-line basis over their estimated useful lives as follows:

Asset Rate

Building 9 - 100 years Equipment 4 - 50 years Computers 5 - 14 years Software 3 years Site 10 - 50 years

(b) Accrual basis of accounting:

The accrual basis of accounting, recognizes revenues as they become available andmeasurable; expenditures are recognized as they are incurred and measurable as a result ofreceipt of goods or services and the creation of a legal obligation to pay.

(c) Inventories:

Bar stock inventories are valued at the most recent replacement cost. Supplies inventoriesare valued at the lower of cost and net realizable value on a first-in, first-out basis. Netrealizable value is defined as replacement cost.


THE CENTRE IN THE SQUARE INC. Notes to Financial Statements, continued


1. Significant accounting policies (continued):

(d) Investments:

Investments are recorded at the lower of cost or market value on a fund portfolio basis.Interest income and all expenses are fully accrued.

(e) Deferred revenue:

Performance revenue is recognized when the show occurs. Deferred gift certificate revenueis an estimate based upon gift certificate sales during the period from July 1 to December 31of the current year.

2. Investments:

Investments consist of:

Carrying value Market Carrying value Market 2016 2016 2015 2015

Shares $ 287,276 $ 468,924 $ 284,489 $ 421,866 Bonds 214,344 214,202 249,555 249,101 Cash 54,068 54,068 11,432 11,432 GIC 755,696 755,696 - -

$ 1,311,384 $ 1,492,890 $ 545,476 $ 682,399

3. Deferred revenue:

Deferred revenue consists of the following:

2016 2015

Sponsorships $ 23,750 $ 50,149 Performances 1,985,048 1,642,400 Gift certificates 46,069 47,178 Membership 2,897 11,783 Other 1,078,775 1,022,526 Lottery 4,784 4,276

$ 3,141,323 $ 2,778,312

86




Accumulated Net Accumulated Net Balance, amortization, book value, amortization, book value,

Opening end of beginning beginning end of end of balance Additions Disposals year of year of year Deletions Amortization year year

Land $ 975,300 $ - $ - $ 975,300 $ - $ 975,300 $ - $ - $ - $ 975,300

Building 8,495,153 64,671 (77,299) 8,482,525 3,836,132 4,659,021 (67,435) 246,352 4,015,049 4,467,476

Equipment 5,433,574 169,941 (90,712) 5,512,803 3,617,758 1,815,816 (84,139) 157,633 3,691,252 1,821,551

Computers 247,395 31,204 (68,123) 210,476 163,492 83,903 (54,498) 26,074 135,068 75,408

Software 155,849 - - 155,849 153,941 1,908 - 1,908 155,849 -

Site 1,640,465 26,874 - 1,667,339 655,534 984,931 - 68,335 723,869 943,470

$16,947,736 $ 292,690 $(236,134) $ 17,004,292 $ 8,426,857 $ 8,520,879 $ (206,072) $ 500,302 $ 8,721,087 $ 8,283,205




5. Inventories:

Inventories consist of the following:

2016 2015

Bar stock $ 50,610 $ 47,540 Supplies 884 1,018

$ 51,494 $ 48,558

6. Operating fund activities:

Budget Actual Actual 2016 2016 2015

Revenues: Performances $ 6,313,821 $ 6,613,377 $ 5,772,441 Rent - Kitchener-Waterloo Symphony 95,000 105,855 92,015 Grants from City of Kitchener 2,000,000 2,000,000 1,400,000 Grants, other Governments and Foundations 42,300 21,150 - Donations - 13,403 3,520 Investment income 25,960 23,872 14,652 Sponsorships and memberships 97,444 104,117 121,255 Rent - Kitchener-Waterloo Art Gallery 95,520 95,520 93,648 Lottery revenue - 6,942Other 132,878 134,282 145,625 Total revenue 8,802,923 9,118,518 7,643,156

Current fund expenditures: Direct:

Performances 5,509,400 5,806,354 4,631,017 Operating:

Administration 425,000 398,848 397,933 Marketing 100,000 174,263 128,814 Lottery expenses - 6,942 - Occupancy 879,000 706,418 631,624 Salaries and wages 2,450,932 2,905,787 3,008,331 Recoveries - performances (559,197) (1,004,214) (916,367)

Total current fund expenditures 8,805,135 8,994,398 7,881,352

Operating fund net revenues before amortization (2,212) 124,120 (238,196)

Transfer (to) from reserve funds 2,212 (62,060) 119,098

Transfer (to) from the City of Kitchener - (62,060) 119,098

Fund balances, end of year $ - $ - $ -

88



7. Capital Reserve Fund Surcharge:

The Capital Reserve Fund represents the collection of a surcharge from sale of tickets.

At the direction of the Board of Directors, expenditures from the Capital Reserve Fund are madeto finance, in whole or in part, major capital items, replacements and major maintenance projects.

In 2016, the Centre’s Board of Directors approved transfers out of the Capital Reserve Fund formajor capital asset projects ($292,690).

8. Performance Development and Sustainability Reserve Funds:

At the direction of the Board of Directors, transfers are made to and from the PerformanceDevelopment Reserve and Sustainability Funds, equal to one-half of the annual operating netrevenue.

In 2016, The Centre’s Board of Directors approved the transfer of the funds to the SustainabilityFund of $62,686 from the operating fund.

9. Restricted Fund:

The Restricted Fund was set up by the Board of Directors of The Centre in 2000 by a transfer ofinvestments 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 newprogramming initiatives that help further The Centre’s mandate.

10. 2016 budget:

The original budgeted figures were approved by the Board of Directors at their meeting in August2015 and included certain expenses and offsetting recoveries on a net basis. For purposes ofpresentation in these financial statements, these items have been shown as gross amounts.




11. Schedule of reserve funds:

Performance Total Development Capital Sustainability Restricted Funds

Revenue: Donations and sundry $ - $ - $ - $ 2,216 $ 2,216 Grants from The City

of Kitchener 2016 - 219,294 - - 219,294 Grants from the

other governments - 121,365 - - 121,365 Ticket surcharge - 309,753 - - 309,753 Investment income 626 16,170 - 11,992 28,788 Gain on investments - - - 3,565 3,565 Loss on sale of assets - (32,975) - - (32,975) Total Revenue 626 633,607 - 17,773 652,006

Expenses: Professional fees - - - 9,320 9,320

Excess of revenue over expenses 626 633,607 - 8,453 642,686

Transfer to accumulated surplus - tangible capital assets - (292,690) - - (292,690)

Other transfers (626) - 62,686 - 62,060

Balance, beginning of year - 424,530 - 493,524 918,054

Balance, end of year $ - $ 765,447 $ 62,686 $ 501,977 $ 1,330,110

90




We have audited the accompanying statement of operations and accumulated surplus of The Corporation of the City of Kitchener Gasworks Enterprise for the year ended December 31, 2016 (“the financial statement”).

Management's Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement, and for such internal control as management determines is necessary to enable the preparation of the financial statement that is free from material misstatement, whether due to fraud or error.


Our responsibility is to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement.



Page 2

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.


Opinion

In our opinion, the financial statement presents fairly, in all material respects the results of operations and accumulated surplus of The Corporation of the City of Kitchener Gasworks Enterprise for the year ended December 31, 2016 in accordance with Canadian public sector accounting standards relevant to preparing such a financial statement.



92

Statement of Operations and Accumulated SurplusFor the Year Ended December 31, 2016

2016 Budget

2016 2015

DELIVERY OPERATIONSGas delivery

Revenue 37,377,363$ 42,881,159$ 35,925,514$ Expenses 17,400,328 19,514,058 17,155,633

19,977,035 23,367,101 18,769,881 Other programs(Customer Service, Rental Water Heaters & Financing)

Revenue 9,239,347 9,993,685 9,844,557 Expenses 6,701,775 6,505,337 6,717,169

2,537,572 3,488,348 3,127,388 Dispatch

Revenue 600,591 509,821 480,610 Expenses 600,591 509,821 480,610

- - - Excess of revenue over expenses 22,514,607 26,855,449 21,897,269

Accumulated Surplus - DeliveryBalance, beginning of year 128,979,948 128,979,948 120,526,554 Interest Revenue 1,305 1,138 81,325 Transfer to Gas Investment Reserve (13,795,704) (13,795,704) (13,525,200) Add excess of revenue over expenses 22,514,607 26,855,449 21,897,269 Balance, end of year 137,700,156 142,040,831 128,979,948

SUPPLY OPERATIONSGas supply


Excess of revenue over expenses (5,666,682) (741,319) 7,461,532

Accumulated Surplus - SupplyBalance, beginning of year 8,947,187 8,947,187 1,464,077 Interest Revenue 92,541 132,588 21,578 Add excess of revenue over expenses (5,666,682) (741,319) 7,461,532 Balance, end of year 3,373,046 8,338,456 8,947,187

TRANSPORTATION OPERATIONSGas transportation


Excess of revenue over expenses 199,899 (777,768) (1,227,401)

Accumulated Surplus - TransportationBalance, beginning of year (49,745) (49,745) 1,160,551 Interest Revenue 7,882 (737) 17,105 Add excess of revenue over expenses 199,899 (777,768) (1,227,401)

THE CORPORATION OF THE CITY OF KITCHENER GASWORKS ENTERPRISE

Balance, end of year (49,745)$ 158,036 $ (828,250) $


MANAGEMENT REPORT

Management’s Responsibility for Financial Reporting

The accompanying financial statements of Kitchener Generation Corporation are the responsibility of management and have been prepared in accordance with Canadian public sector accounting standards. The significant accounting policies followed by Kitchener Generation Corporation are described in the Significant Accounting Policies contained in Note 2 of the financial statements. The preparation of financial statements necessarily involves the use of estimates based on management’s judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. The financial statements have been prepared within reasonable limits of materiality and in light of information available up to June 25, 2017.

Management maintained a system of internal controls designed to provide reasonable assurance that the assets were safeguarded and that reliable information was available on a timely basis. The system included formal policies and procedures and an organizational structure that provided for the appropriate delegation of authority and segregation of responsibilities.

KITCHENER GENERATION CORPORATION

On behalf of management,

Dan Chapman Deputy CAO, Finance & Corporate Services and City Treasurer

June 26, 2017 Kitchener, Canada

94

KITCHENER GENERATION CORPORATIONStatement of Financial PositionAs at December 31, 2016(Unaudited)

2016 2015

Financial assets

Accounts receivable $ 4,883 $ 6,035

4,883 6,035

Liabilities

Due to The Corporation of the City of Kitchener 4,916 6,051

Long-term debt (Note 3) 3,031,535 3,262,609

3,036,451 3,268,660

Net financial debt (3,031,568) (3,262,625)


Tangible capital assets (Note 4) 3,251,524 3,483,776

Total non-current assets 3,251,524 3,483,776

Accumulated surplus (Note 5) $ 219,956 $ 221,151



KITCHENER GENERATION CORPORATIONStatement of OperationsFor the Year Ended December 31, 2016(Unaudited)

2016Budget

2016 2015

Revenue

Sale of electricity $ 415,000 $ 433,797 $ 416,888

Total revenue 415,000 433,797 416,888

Expenses

Maintenance 19,000 13,608 1,793

Amortization 232,252 232,252 232,252

Total expenses 251,252 245,860 234,045

Surplus before interest and provision for payments-in-lieu of corporate income taxes 163,748 187,937 182,843

Interest expense 163,457 163,457 174,314

Surplus before provision for payments-in-lieu ofcorporate income taxes 291 24,480 8,529

Provision for payments-in-lieu of corporate incometaxes - - -

Annual surplus $ 291 $ 24,480 $ 8,529


96

KITCHENER GENERATION CORPORATIONStatement of Change in Net Financial DebtFor the Year Ended December 31, 2016(Unaudited)

2016 2015

Annual surplus $ 24,480 $ 8,529

Change in share capital (25,675) (24,079)

Amortization of tangible capital assets 232,252 232,252

Change in net financial debt 231,057 216,702

Net financial debt, beginning of year (3,262,625) (3,479,327)

Net financial debt, end of year $ (3,031,568) $(3,262,625)



KITCHENER GENERATION CORPORATIONStatement of Cash FlowFor the Year Ended December 31, 2016(Unaudited)

2016 2015

Operating

Annual surplus $ 24,480 $ 8,529

Items not involving cash

Amortization 232,252 232,252

Change in non-cash assets and liabilities

Trade and other accounts receivable 1,152 21,598

Accounts payable and accrued liabilities (1,135) (21,582)

Net change in cash from operating activities 256,749 240,797

Financing

Change in contributed capital (25,675) (24,079)

Change in long-term debt (231,074) (216,718)

Net change in cash from financing activities (256,749) (240,797)

Net change in cash and cash equivalents - -

Cash and cash equivalents, beginning of year - -

Cash and cash equivalents, end of year $ - $ -


98

KITCHENER GENERATION CORPORATIONNotes to the Financial StatementsFor the Year Ended December 31, 2016(Unaudited)

1. Incorporation

On December 9, 2011 Kitchener Generation Corporation (the Company) was incorporated under the BusinessCorporation Act (Ontario). Effective January 1, 2012, The Corporation of the City of Kitchener transferred thesolar roof asset constructed on the surface of the Kitchener Operations Facility to the Company in exchange for100% of the Company's common shares and interest bearing debt.


a. Basis of accounting

The financial statements have been prepared by management in accordance with Canadian generally acceptedaccounting principles for local governments as established by the Public Sector Accounting Board of theChartered Professional Accountants of Canada.

b. Tangible capital assets

Tangible capital assets are recorded at cost which includes all amounts that are directly attributable toacquisition, construction, development or betterment of the asset. The cost less residual value of the tangiblecapital asset is amortized on a straight-line basis over its estimated useful life of nineteen years.

c. Revenue recognition

The Company records revenue from the sale of electricity on the basis of regular meter readings and estimatesof energy generation since the last meter reading to the end of the year.

d. Use of estimates

Since precise determination of many assets and liabilities is dependent upon future events, the preparation ofperiodic financial statements necessarily involves the use of estimates and approximations. These have beenmade using careful judgments. Actual results could differ from these estimates.

3. Long-term debt

Effective January 1, 2012 the Company incurred an unsecured promissory note payable to The Corporation ofthe City of Kitchener. For shareholder debt, payments are made annually including interest and principal.Interest is calculated at the fixed rate of 5.01% per annum. Interest paid in 2016 amounted to $163,457 (2015- $174,314).

4. Tangible capital assets

CostAccumulatedAmortization

Net BookValue

Opening balance $ 4,412,784 $ (929,008) $ 3,483,776

Additions - - -

Amortization expense - (232,252) (232,252)

Disposals - - -

Ending balance $ 4,412,784 $ (1,161,260) $ 3,251,524


KITCHENER GENERATION CORPORATIONNotes to the Financial StatementsFor the Year Ended December 31, 2016(Unaudited)

5. Accumulated surplus

The accumulated surplus consists of the following:

2016 2015

Share capital - common shares (Note 6) $ 336,837 $ 362,513

Retained earnings (116,881) (141,362)

$ 219,956 $ 221,151

6. Share capital

AuthorizedUnlimited common sharesIssued1,000 common shares

100


To the Shareholders of Kitchener Power Corporation

We have audited the accompanying consolidated financial statements of Kitchener Power Corporation, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.


Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.



Page 2

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Kitchener Power Corporation as at December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.


March 24, 2017 Waterloo, Canada

102

KITCHENER POWER CORPORATION Consolidated Statement of Financial Position

As at December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars)

NoteDecember 31,

2016December 31,

2015

Assets

Current assets Cash 4 20,448$ 20,634$ Accounts receivable 5 23,764 23,738 Unbilled revenue 27,589 25,789 Inventory 6 2,864 3,545 Prepaid expenses 949 1,014 Total current assets 75,614 74,720

Non-current assets: Property, plant and equipment 7 222,159 205,412 Intangible assets 8 1,174 864 Deferred tax assets 9 2,015 2,362 Investment in subsidiaries and associates 69 - Total non-current assets 225,417 208,638

Total assets 301,031 283,358

Regulatory deferral account debit balances 10 4,487 4,923 Deferred taxes associated with regulatory accounts 141 280 Total assets and regulatory assets 305,659$ 288,561$


KITCHENER POWER CORPORATION

Consolidated Statement of Financial Position

Year ended December 31, 2016, with comparative information for 2015 (Expressed in thousands of dollars)

Note December 31,

2016

Liabilities and Shareholders' Equity

Current liabilities: Accounts payable and accrued liabilities $ 28,608

Income taxes payable 195

Current portion of long-term debt 11 1,080

Current portion customer deposits 13 8,592

Current portion of deferred re\enue 584

Total current liabilities 39,059

Non-current liabilities: Long-term debt 11 79,872

Employee future benefits 12 5,035

Long-term customer deposits 13 5,571

Deferred re\enue 23,772

Total non-current liabilities 114,250

Total liabilities 153,309

Shareholders' equity: Share capital - common shares 14 66,389

Retained earnings 75,641

Total shareholders' equity 142,030

Total liabilities and shareholders' equity 295,339

Regulatory deferral account credit balances 10 10,320

Total eguity, liabilities and shareholders' eguity $ 305,659

The accompanying notes are an integral part of these financial statements.

n behalf of the Board:

Director

December 31,

2015

$ 28,576

366

1,036

8,549

377

38,904

80,952

4,900

5,318

15,538

106,708

145,612

66,389

69,652

136,041

281,653

6,908

$ 288,561

Director

104

KITCHENER POWER CORPORATION Consolidated Statement of Comprehensive Income



Note 2016 2015 Energy sales 232,647$ 210,496$ Cost of energy sold 228,633 205,624

4,014 4,872 Other operating revenue

Distribution sales 40,600 36,295 Other income 15 2,006 1,912

Net operating revenue 46,620 43,079

Expenses:Operations and maintenance 9,174 8,980 Customer services 4,415 3,717 Administration 4,133 4,051 Amortization 8,721 7,417

26,443 24,165 Other

Energy conservation - IESO program revenue (2,443) (1,618) Energy conservation - IESO program expense 2,443 1,441 Net energy conservation - IESO programs - (177)

Finance income 16 (234) (204)Finance charges 16 4,145 4,189 Net finance costs 3,911 3,985

Income before income taxes 16,266 15,106

Income tax expense 9 1,999 1,848

Income for the year before movementsin regulatory deferral account balances 14,267 13,258

Net movement in regulatory deferral account balancesrelated to profit or loss and the related deferredtax movement 10 (3,868) (2,287)

Total comprehensive income for the year 10,399$ 10,971$


KITCHENER POWER CORPORATION Consolidated Statement of Changes in Equity

Year ended December 31, 2016, with comparative information for 2015 (In thousands of Canadian dollars)


Share capital

Accumulated other

comprehensive income (loss)

Retained earnings

Total

Balance at January 1, 2015 66,389$ (245)$ 63,192$ 129,336$ Net income 10,971 10,971 Other comprehensive income - - - Dividends (4,266) (4,266) Balance at December 31, 2015 66,389 (245) 69,897 136,041

Net income 10,399 10,399 Other comprehensive income - Dividends (4,410) (4,410) Balance at December 31, 2016 66,389$ (245)$ 75,886$ 142,030$

106

KITCHENER POWER CORPORATION Consolidated Statement of Cash Flows



2016 2015 Cash flows from operating activities:

Total comprehensive income for the year 10,399$ 10,971$ Adjustments to reconcile net income to cash provided by (used in) operations:

Amortization 9,411 8,087 Amortization of deferred revenue (480) (271) Gain on disposal of property, plant and equipment (54) (43) Income tax expense 1,999 1,848 Income taxes paid (2,209) (1,495) Increase decrease in employee future benefits 135 136

19,201 19,233 Change in non-cash operating working capital:

Accounts receivable (26) (1,730) Unbilled revenue (1,800) 3,393 Inventory 681 (408) Prepaid expenses 66 71 Accounts payable and accrued liabilities 32 (329) Other current liabilities 294 1,650 Change in regulatory assets 436 2,002 Change in regulatory liabilities 3,935 (316)

Net cash from operating activities 22,819 23,566

Cash flows from investing activities:Proceeds on disposals of property, plant and equipment 72 66 Purchase of property, plant and equipment (25,776) (20,875) Purchase of intangible assets (710) (544) Net cash from investing activities (26,414) (21,353)

Cash flows from financing activities:Net change in customer deposits 253 1,245 Investments in subsidiaries and associates (69) Dividends paid out (4,410) (4,266) Change in contributed capital received 8,715 9,428 Repayment of long-term debt (1,080) (1,036) Net cash from financing activities 3,409 5,371

Change in cash and cash equivalents (186) 7,584 Cash and cash equivalents, beginning of year 20,634 13,050 Cash and cash equivalents, end of year 20,448$ 20,634$


1. Reporting entity:

Kitchener Power Corporation (the “Corporation”) is a holding company for the affiliate companies,Kitchener-Wilmot Hydro Inc. and Kitchener Energy Services Inc., and is itself wholly owned by theCorporation 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 distributioncompany, and Kitchener Energy Services Inc., an unregulated retail services company. TheCorporation also owns 33% of GRE Corp., a generation and renewable energy solutions company.

It is located in the City of Kitchener. The address of the Corporation’s registered office is 301Victoria Street South, Kitchener, Ontario, Canada.

The financial statements are for the Corporation as at and for the year ended December 31, 2016.

2. Basis of presentation:

(a) Statement of compliance:

The Corporation's financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"). The financial statements were approved by the Boardof Directors on March 24, 2017.

(b) Basis of measurement:

The financial statements have been prepared on the historical cost basis except for thefollowing:

(i) Where held, financial instruments at fair value through profit or loss, including those heldfor trading, are measured at fair value.

(ii) Contributed assets are initially measured at fair value.

The methods used to measure fair values are discussed further in note 22.

(c) Functional and presentation currency:

These financial statements are presented in Canadian dollars, which is the Corporation'sfunctional currency. All financial information presented in Canadian dollars has been roundedto the nearest thousand.

108

KITCHENER POWER CORPORATION - CONSOLIDATEDNotes to Financial Statements

Year ended December 31, 2016 (Expressed in thousands of dollars)

2. Basis of presentation (continued):

(d) Use of estimates and judgments:

The preparation of financial statements in conformity with IFRS requires management to makejudgments, estimates and assumptions that affect the application of accounting policies andthe reported amounts of assets, liabilities, income and expenses and disclosure of contingentassets and liabilities. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognized in the year in which the estimates are revised and in anyfuture periods affected.

Information about critical judgments in applying accounting policies that have the mostsignificant effect on the amounts recognized in these financial statements is included in thefollowing notes:

i) Note 7 – Property, plant and equipmentii) Note 9 – Deferred tax assetsiii) Note 12 – Employee future benefitsiv) Note 17 – Commitments and contingencies

(e) Rate regulation:

The Corporation is regulated by the Ontario Energy Board (“OEB”), under the authority grantedby the Ontario Energy Board Act, 1998. Among other things, the OEB has the power andresponsibility to approve or set rates for the transmission and distribution of electricity, providingcontinued rate protection for electricity consumers in Ontario, and ensuring that transmissionand distribution companies fulfill obligations to connect and service customers. The OEB mayalso prescribe license requirements and conditions of service to local distribution companies(“LDCs”), such as the Corporation, which may include, among other things, record keeping,regulatory accounting principles, separation of accounts for distinct businesses, and filing andprocess requirements for rate setting purposes.

The Corporation is required to bill customers for the debt retirement charge set by the province.The Corporation may file to recover uncollected debt retirement charges from OntarioElectricity Financial Corporation (“OEFC”) once each year.

Rate setting:

Distribution revenue and electricity rates

The OEB sets electricity prices for low-volume consumers twice each year based on anestimate of how much it will cost to supply the province with electricity for the next year. All lowvolume customers without a contract with an energy retailer are charged the OEB mandatedrate for electricity. If a customer (regardless of volume) has a retailer agreement, then retailerrates are charged instead. All remaining consumers pay the market price for electricity. TheCorporation is billed for the cost of the electricity that its customers use and passes this coston to the customer at cost without a mark-up.




2. Basis of presentation (continued):

(e) Rate regulation (continued):

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 areview of the forecasted annual amount of operating and capital expenses, debt andshareholder’s equity required to support the Corporation’s business. The Corporationestimates electricity usage and the costs to service each customer class to determine theappropriate rates to be charged to each customer class. The COS application is reviewed bythe OEB and intervenors and rates are approved based upon this review, including anyrevisions resulting from that review.

In the intervening years an Incentive Rate Mechanism application (“IRM”) is filed. An IRMapplication results in a formulaic adjustment to distribution rates that were set under the lastCOS application. The previous year’s rates are adjusted for the annual change in the GrossDomestic Product Implicit Price Inflator for Final Domestic Demand (“GDP IPI-FDD”) net of aproductivity factor and a “stretch factor” determined by the relative efficiency of an electricitydistributor.

As a licensed distributor, the Corporation is responsible for billing customers for electricitygenerated by third parties and the related costs of providing electricity service, such astransmission 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 theCorporation ultimately collects these amounts from customers.

The Corporation last filed a COS application on June 21, 2013 for rates effective January 1,2015 to December 31, 2015. The GDP IPI-FDD for 2016 is 2.1%, the Corporation’s productivityfactor is 0% and the stretch factor is 0.15%, resulting in a net adjustment of 1.95% to theprevious year’s rates.

(f) Investments

Investments in subsidiary companies, associates and other long-term investments areaccounted for by the equity method. Dividends received are recorded as a reduction of thecarrying value of these investments.


The accounting policies set out below have been applied consistently in all years presented in thesefinancial statements unless otherwise indicated.

110




(a) Financial instruments:

All financial assets are classified as loans and receivables and all financial liabilities areclassified as other liabilities. These financial instruments are recognized initially at fair valueplus any directly attributable transaction costs. Subsequently, they are measured at amortizedcost using the effective interest method less any impairment for the financial assets asdescribed in note 3(f). The Corporation does not enter into derivative instruments.

Hedge accounting has not been used in the preparation of these financial statements.

Cash equivalents include short-term investments with maturities of three months or less whenpurchased.

(b) Revenue recognition:

Electricity sales:

Electricity sales are recognized as the electricity is delivered to customers and includes theamounts billed to customers for electricity, including the cost of electricity supplied, distribution,and any other regulatory charges. Electricity revenue is recorded on the basis of regular meterreadings and estimated customer usage since the last meter reading date to the end of theyear. The related cost of power is recorded on the basis of power used.

For customer billings related to electricity generated by third parties and the related costs ofproviding electricity service, such as transmission services and other services provided by thirdparties, the Corporation has determined that it is acting as a principal for these electricitycharges and, therefore, has presented electricity revenue on a gross basis.

Customer billings for debt retirement charges are recorded on a net basis as the Corporationis acting as an agent for this revenue stream.





(b) Revenue recognition (continued):

Revenue from contracts with customers:

Certain customers and developers are required to contribute towards the capital cost ofconstruction of distribution assets in order to provide ongoing service. Cash contributions areinitially recorded as deferred revenue. When an asset other than cash is received as a capitalcontribution, the asset is initially recognized at its fair value, with a corresponding amountrecognized as deferred revenue. The deferred revenue, which represents the Corporation'sobligation to continue to provide the customers access to the supply of electricity, is amortizedto income on a straight-line basis over the economic useful life of the constructed or contributedasset, which represents the period of ongoing service to the customer.

Rendering of services:

Revenue earned from the provision of services is recognized as the service is rendered.

Government grants

Incentive payments to which the Corporation is entitled from the Independent Electricity SystemOperator (“IESO”) are recognized as revenue in the period when they are determined by theIESO and the amount is communicated to the Corporation.

(c) Inventory:

Inventory, comprising material and supplies, the majority of which is consumed by theCorporation in the provision of its services, is valued at the lower of cost and net realizablevalue, with cost being determined on a weighted average cost basis, and includes expendituresincurred in acquiring the material and supplies and other costs incurred in bringing them to theirexisting location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, lessestimated selling expenses.

(d) Property, plant and equipment:

Items of property, plant and equipment (“PP&E”) used in rate-regulated activities andacquired prior to January 1, 2015 are measured at deemed cost established on the transitiondate, less accumulated depreciation. All other items of PP&E are measured at cost, or, wherethe item is transferred from customers, its fair value, less accumulated depreciation.Consistent with IFRS 1, the Corporation elected to use the carrying amount as previouslydetermined under Canadian GAAP as the deemed cost at January 1, 2015, the transitiondate to IFRS.

112




(d) Property, plant and equipment (continued):

Cost includes expenditures that are directly attributable to the acquisition of the asset. Thecost of self-constructed assets includes the cost of materials, direct labour, and any other costsdirectly 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 areaccounted 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 theproceeds from disposal, if any, with the carrying amount of the item of PP&E and arerecognized 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 thenet book value of the item if it is probable that the future economic benefits embodied withinthe part will flow to the Corporation and its cost can be measured reliably. In this event, thereplaced part of property, plant and equipment is written off, and the related gain or loss isincluded in profit or loss. The costs of the day-to-day servicing of property, plant and equipmentare recognized in profit or loss as incurred.

Depreciation is calculated over the depreciable amount and is recognized in profit or loss on astraight-line basis over the estimated useful life of each part or component of an item ofproperty, 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 inservice.

The estimated useful lives are as follows:

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 softwarethat 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.

Buildings 20-50 yearsTransformer station equipment 15-50 yearsDistribution station equipment 15-50 yearsDistribution system 25-60 yearsMeters 15-25 yearsSCADA equipment 15 yearsOther capital assets 3-10 years





(e) Intangible assets (continued):

(ii) Land rights:

Payments to obtain rights to access land ("land rights") are classified as intangible assets.These include payments made for easements, right of access and right of use over landfor which the Corporation does not hold title. Land rights are measured at cost lessaccumulated amortization and accumulated impairment losses.

(iii) Amortization:

Amortization is recognized in profit or loss on a straight-line basis over the estimated usefullives of intangible assets, other than goodwill, from the date that they are availablefor use. The estimated useful lives are:

Amortization methods and useful lives of all intangible assets are reviewed at each reporting date and adjusted prospectively if appropriate.

(f) Impairment:

(i) Financial assets:

A financial asset is assessed at each reporting date to determine whether there is anyobjective evidence that it is impaired. A financial asset is considered to be impaired ifobjective evidence indicates that one or more events have had a negative effect on theestimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculatedas the difference between its current carrying amount (using prevailing interest rates), andthe present value of the estimated future cash flows discounted at the original effectiveinterest rate. Interest on the impaired assets continues to be recognized through theunwinding of the discount.

All impairment losses are recognized in profit or loss. An impairment loss is reversed if thereversal can be related objectively to an event occurring after the impairment loss wasrecognized. For financial assets measured at amortized cost the reversal is recognized inprofit or loss.

Computer software 3-5 yearsLand rights 100 years

114




(f) Impairment (continued):

(ii) Non-financial assets:

The carrying amounts of the Corporation's non-financial assets, other than inventories anddeferred tax assets are reviewed at each reporting date to determine whether there is anyindication of impairment. If any such indication exists, then the asset's recoverable amountis estimated.

For the purpose of impairment testing, assets are grouped together into the smallest groupof assets that generates cash inflows from continuing use that are largely independent ofthe cash inflows of other assets or groups of assets (the "cash-generating unit"). Therecoverable amount of an asset or cash-generating unit is the greater of its value in useand its fair value less costs to sell. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects currentmarket 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-generatingunit exceeds its estimated recoverable amount. Impairment losses are recognized in profitor 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 anyindications that the loss has decreased or no longer exists. An impairment loss is reversedif 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 notexceed the carrying amount that would have been determined, net of depreciation oramortization, 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 orconstructive obligation that can be estimated reliably, and it is probable that an outflow ofeconomic benefits will be required to settle the obligation. Provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and the risks specific to the liability.





(h) Regulatory deferral accounts:

Regulatory deferral account debit balances represent costs incurred in excess of amountsbilled to the customer at OEB approved rates. These amounts have been accumulated anddeferred in anticipation of their future recovery in electricity distribution rates. Regulatorydeferral account credit balances represent amounts billed to the customer at OEB approvedrates in excess of costs incurred by the Corporation.

Regulatory deferral account debit balances are recognized if it is probable that future billingsin an amount at least equal to the capitalized cost will result from inclusion of that cost inallowable costs for rate-making purposes. The offsetting amount is recognized in profit andloss. The debit balance is reduced by the amount of customer billings as electricity is deliveredto the customer and the customer is billed at rates approved by the OEB for the recovery of thecapitalized costs.

Regulatory deferral account credit balances are recognized if it is probable that future billingsin an amount at least equal to the credit balance will be reduced as a result of rate-makingactivities. The offsetting amount is recognized in profit and loss. The credit balance is reducedby the amounts returned to customers as electricity is delivered to the customer at ratesapproved by the OEB for the return of the regulatory account credit balance.

The probability of recovery or repayment of the regulatory account balances are assessedannually based upon the likelihood that the OEB will approve the change in rates to recover orrepay the balance. Any resulting impairment loss is recognized in profit and loss in the yearincurred.

Regulatory deferral accounts attract interest at OEB prescribed rates. The rates from Januaryto December 2016 were 1.1% (2015 – 1.1%).

116




(i) Employee future benefits:

(i) Pension plan:

The Corporation provides a pension plan for all its full-time employees through OntarioMunicipal Employees Retirement System (“OMERS”). OMERS is a multi-employerpension plan which operates as the Ontario Municipal Employees Retirement Fund (“theFund”), and provides pensions for employees of Ontario municipalities, local boards andpublic utilities. The Fund is a contributory defined benefit pension plan, which is financedby equal contributions from participating employers and employees, and by the investmentearnings 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 pensionasset and liability information by individual employers, there is insufficient informationavailable to enable the Corporation to directly account for the plan. Consequently, the planhas been accounted for as a defined contribution plan. Obligations for contributions todefined contribution pension plans are recognized as an employee benefit expense in netincome when they are due.

(ii) Post-employment benefits, other than pension:

The Corporation provides some of its retired employees with life insurance and medicalbenefits beyond those provided by government sponsored plans.

The cost of these benefits is expensed as earned by employees through employmentservice. The accrued benefit obligations and the current service costs are actuariallydetermined by applying the projected unit credit method and reflect management’s bestestimate of certain underlying assumptions. Actuarial gains and losses arising fromdefined benefit plans are recognized immediately in other comprehensive income andreported in retained earnings. When the benefits of a plan are improved, the portion of theincreased benefit relating to past service by employees is recognized in net income on astraight-line basis over the average period until the benefits become vested. Incircumstances where the benefits vest immediately, the expense is recognizedimmediately in net income.





(j) Deferred revenue and assets transferred from customers:

Certain customers and developers are required to contribute towards the capital cost ofconstruction in order to provide ongoing service. When an asset is received as a capitalcontribution, the asset is initially recognized at its fair value, with the corresponding amountrecognized as deferred revenue. Deferred revenue represents the Corporation's obligation tocontinue to provide customers access to the supply of electricity, and is amortized to incomeon a straight-line basis over the economic useful life of the acquired or contributed asset, whichrepresents the period of ongoing service to the customer.

(k) Leased assets:

Leases, where the terms cause the Corporation to assume substantially all the risks andrewards of ownership, are classified as finance leases. Upon initial recognition, the leasedasset is measured at an amount equal to the lower of its fair value and the present value of theminimum lease payments. Subsequent to initial recognition, the asset is accounted for inaccordance with the accounting policy applicable to that asset.

All other leases are classified as operating leases and the leased assets are not recognized onthe Corporation’s balance sheet. Payments made under operating leases are recognized inprofit or loss on a straight-line basis over the term of the lease.

(l) 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 regulatoryassets.

Finance charges comprise interest expense on borrowings, finance lease obligations,regulatory liabilities and unwinding of the discount on provisions and impairment losses onfinancial assets. Finance costs are recognized as an expense unless they are capitalized aspart of the cost of qualifying assets.

118




(m) Income taxes:

The income tax expense comprises current and deferred tax. Income tax expense isrecognized in profit or loss except to the extent that it relates to items recognized directly inequity, in which case, it is recognized in equity.

The Corporation is currently exempt from taxes under the Income Tax Act (Canada) and theOntario Corporations Tax Act (collectively the “Tax Acts”). Under the Electricity Act, 1998, theCorporation makes payments in lieu of corporate taxes to the Ontario Electricity FinancialCorporation (“OEFC”). These payments are calculated in accordance with the rules forcomputing taxable income and taxable capital and other relevant amounts contained in theIncome Tax Act (Canada) and the Corporations Tax Act (Ontario) as modified by the ElectricityAct, 1998, and related regulations. Prior to October 1, 2001, the Corporation was not subjectto income or capital taxes. Payments in lieu of taxes are referred to as income taxes.

Current tax is the tax payable on the taxable income for the year, using tax rates enacted orsubstantively enacted at the reporting date, and any adjustment to tax payable in respect ofprevious years.

Deferred tax is recognized using the balance sheet method. Under this method, deferredincome taxes reflect the net tax effects of temporary differences between the tax basis of assetsand liabilities and their carrying amounts for accounting purposes, as well as for tax lossesavailable to be carried forward to future years that are likely to be realized. Deferred tax assetsand liabilities are measured using enacted or substantively enacted tax rates, at the reportingdate, expected to apply to taxable income in the years in which those temporary differencesare expected to be recovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in income in the year that includes the date of enactment orsubstantive enactment.




4. Cash:

5. Accounts receivable:

6. Inventory:

The amount of inventories consumed by the Corporation and recognized as an expense during2016 was $275 (2015 - $389).

December 31, December 31,2016 2015

Cash 20,448$ 20,634$

December 31, December 31,2016 2015

Customer and other trade receivables 23,695 23,465 Trade receivables from related parties 69$ 273$

23,764$ 23,738$

120



7. Property, plant and equipment:

(a) Cost or deemed cost:

(b) Accumulated depreciation:

Land and buildings

Distribution equipment

Other fixed assets

Construction-in-progress Total

Balance at January 1, 2016 23,880$ 181,825$ 6,280$ 4,672$ 216,657$

Additions 222 22,176 1,150 2,228 25,776

Transfers - - - - -

Disposals/Retirements 1,496 499 703 - 2,698

Balance at December 31, 2016 22,606$ 203,502$ 6,727$ 6,900$ 239,735$

Land and buildings


Other fixed assets


Balance at January 1, 2015 24,056$ 163,069$ 6,375$ 5,172$ 198,672$

Additions 88 20,368 1,042 (499) 20,999

Transfers (124) - - - (124)

Disposals/Retirements 139 1,613 1,136 - 2,888

Balance at December 31, 2015 23,881$ 181,824$ 6,281$ 4,673$ 216,659$

Land and buildings


Other fixed assets


Balance at January 1, 2016 1,501$ 9,223$ 522$ -$ 11,246$

Depreciation charge 824 6,978 1,209 - 9,011

Disposals/Retirements 1,496 500 685 - 2,681

Balance at December 31, 2016 829$ 15,701$ 1,046$ -$ 17,576$

Land and buildings


Other fixed assets


Balance at January 1, 2015 821$ 5,157$ 425$ -$ 6,403$

Depreciation charge 820 5,674 1,215 - 7,709

Disposals/Retirements 139 1,608 1,118 - 2,865

Balance at December 31, 2015 1,502$ 9,223$ 522$ -$ 11,247$




7. Property, plant and equipment (continued) :

(c) Carrying amounts:

(d) Leased plant and machinery:

The Corporation does not have leases for equipment.

(e) Security:

At December 31, 2016, the Corporation had zero properties subject to a general securityagreement.

(f) Borrowing costs:

During the year, borrowing costs of nil (2015 - nil) were capitalized as part of the cost ofproperty, plant and equipment.

Land and buildings


Other fixed assets


At December 31, 2016 21,777$ 187,800$ 5,681$ 6,901$ 222,159$ At December 31, 2015 22,379$ 172,601$ 5,759$ 4,673$ 205,412$

122



7. Property, plant and equipment (continued):

(g) Allocation of depreciation and amortization:

The depreciation of property, plant and equipment and the amortization of intangible assetshas been allocated to profit or loss as follows:

8. Intangible assets:

(a) Cost or deemed cost:

Operations and

maintenance expense

Customer services expense

Administration expense

Energy conservation

expense Other Total December 31, 2016:Depreciation of property, plant and equipment 677$ 6$ -$ 7$ 8,311$ 9,001$ Amortization of intangible assets - - - - 410 410

677$ 6$ -$ 7$ 8,721$ 9,411$

December 31, 2015:Depreciation of property, plant and equipment 658$ 4$ 1$ 7$ 7,039$ 7,709$ Amortization of intangible assets - - - - 378 378

658$ 4$ 1$ 7$ 7,417$ 8,087$

Computer Software

Land Rights Total

Balance at January 1, 2016 1,680$ 8$ 1,688$ Additions 710 - 710 Balance at December 31, 2016 2,390$ 8$ 2,398$

Balance at January 1, 2015 1,136$ 8$ 1,144$ Additions 544 - 544 Balance at December 31, 2015 1,680$ 8$ 1,688$




8. Intangible assets(continued):

(b) Accumulated amortization:

(c) Carrying amounts:

9. Income tax expense:

Current tax expense:

Computer Software

Land Rights Total

Balance at January 1, 2016 819$ 5$ 824$ Additions in 2016 398 2 400 Balance at December 31, 2016 1,217$ 7$ 1,224$

Balance at January 1, 2015 444$ 3$ 447$ Additions in 2015 374 3 377 Balance at December 31, 2015 818$ 6$ 824$

Computer Software

Land Rights Total

At December 31, 2016 1,173$ 1$ 1,174$ At December 31, 2015 862$ 2$ 864$

December 31, 2016

December 31, 2015

Current period 2,029$ 1,848$ Adjustment for prior periods 9 46

2,038$ 1,894$

124



9. Income tax expense (continued):

Deferred tax expense:

December 31, 2016

December 31, 2015

Original & reversal of temporary differences (36)$ (36)$ Recognition of previously unrecognized tax losses (3) (10)

(39)$ (46)$

Reconciliation of effective tax rate:

2016 2015 Profit for the period 10,399$ 10,971$ Total income tax expense 1,999 1,848 Profit excluding income tax 12,398 12,819 Income tax using the Corporation's statutory tax rate of 26.5% 3,286 3,397 Temporary differences not benefitted (1,296) (1,595) Under (over) provided in prior periods 9 46

1,999$ 1,848$

Significant components of the Corporation's deferred tax balances are as follows:

2016 2015 Deferred tax assets (liabilities):

Plant and equipment (6,063)$ (3,441)$ Non-vested sick leave 167 167 Employee benefits 1,334 1,298 Intangible assets 7 7 Loss carry-forward 116 114 Deferred revenue - contributed capital 6,454 4,217.00

2,015$ 2,362$




10. Regulatory deferral account balance:The following is a reconciliation of the carrying amount for each class of regulatory deferralaccount balances:

2015

Balances arising in the period

Recovery/ Reversal Other 2016

Remaining recovery/ reversal period (years)

Regulatory deferral account debit balances

Group 1 deferred accounts 3,505$ (143)$ -$ -$ 3,362$ Note 1Regulatory asset recovery account 686 (474) 613 - 825 Note 1Smart meter recovery 13 - - - 13 3LRAM 575 - (575) - - 1Other 144 143 - - 287 3

Total amount related to regulatory deferral account debit balances $ 4,923 $ (474) $ 38 $ - $ 4,487

2015

Balances arising in the period

Recovery/ Reversal Other 2016

Remaining recovery/ reversal period (years)

Regulatory deferral account credit balances

Group 1 deferred accounts 5,533$ 3,909$ -$ -$ 9,442$ Note 1Deferred tax liability 1,056 (523) - - 533 Note 2Other 319 26 - - 345 3

Total amount related to regulatory deferral account credit balances $ 6,908 $ 3,412 $ - $ - $ 10,320

2016 2015Movements in regulatory accountsNet change in regulatory deferral account debit and credit balances (3,847)$ 870$ Less movement related to the balance sheet

Deferred income tax (523) (2,556) Deferred revenue 502 (575) Amounts moved to property, plant, equipment - (26)

(3,868)$ (2,287)$

Net movement in regulatory deferral account balances related to profit or loss and the related deferral tax movement

126



10. Regulatory deferral account balance (continued):

Note 1 The Corporation expects to be approved for the collection of these amounts in its 2017 filing for 2018 rates.

Note 2 The Corporation has not sought approval for the disposition of this amount as these amounts as changes in underlying assumptions may reduce the amounts recorded in the account. The Corporation may see refunds in the future.

11. Long-term debt:

Effective August 1, 2000, the Corporation incurred unsecured promissory notes payable to the Cityof Kitchener and the Township of Wilmot, and have an interest rate of 4.88% per annum. Interestis payable in quarterly installments, in arrears, on March 31st, June 30th, September 30th andDecember 31st.

Effective February 1, 2010, the Corporation incurred a ten year senior unsecured debenturepayable to Ontario Infrastructure Projects Corporation. An initial payable of $7,000 was receivedFebruary 1, 2010, followed by a second payment of $3 million on May 17, 2010. The debenturehas an interest rate of 4.28%, and interest is payable in equal semi-annual installments, in arrears,on May 17th and November 17th each year commencing November 17, 2010 until maturity.

12. Employee future benefits:

The Corporation pays certain medical and life insurance benefits on behalf of some of its retiredemployees. The Corporation recognizes these post-retirement costs in the period in whichemployees’ services were rendered. The accrued benefit liability at December 31, 2016 of $5,035was based on an actuarial valuation completed in 2015 using a discount rate of 3.95%.

2016 2015 Senior unsecured debentures:City of Kitchener 70,998$ 70,998$ Township of Wilmot 5,965 5,965 Ontario Infrastructure Projects Corporation 3,989 5,025 Senior unsecured debentures, net proceeds 80,952$ 81,988$

Less: current portion of long-term debt (1,080)$ (1,036)$ Total long-term debt 79,872$ 80,952$




12. Employee future benefits (continued):

Changes in the present value of the defined benefit unfunded obligation and the accrued benefitliability:

2016 2015 Defined benefit obligation, beginning of year 4,900$ 4,764$

Current service cost 156 150 Interest cost 188 184 Benefits paid during the year (209) (198) Actuarial loss recognized in other - -

comprehensive incomeAccrued benefit liability, end of year 5,035$ 4,900$

Components of net benefit expense recognized are as follows:

December 31, 2016

December 31, 2015

Current service cost 157$ 150$ Interest cost 188 184 Net benefit expense recognized 345$ 334$

Actuarial losses recognized in other comprehensive income:

2016 2015Cumulative amount at January 1 - - Recognized during the year - - Cumulative amount at December 31 - - Net benefit expense recognized -$ -$

128




The significant actuarial assumptions used in the valuation are as follows (weighted average):

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:

2016 2015

Accrued benefit obligation: Discount rate 4.5% 4.5%

Benefit cost for the year: Age

Withdrawal rate 18-29 2.75% 2.75%30-34 2.25% 2.25%35-39 2.0% 2.0%40-54 1.5% 1.5%

Assumed health care cost trend rates: Initial health care cost trend rate Health 6.4% 6.7%

Dental 4.6% 4.6%

Defined Benefit

Obligation Periodic

Benefit Cost

1% increase in health care trend rate 185$ 23$ 1% decrease in health care trend rate (162)$ (20)$

Historical InformationAmounts for the current and previous year, for the entire plan, are as follows:

2016 2015

Defined benefit obligation 5,035$ 4,900$ Experience adjustments -$ -$





The main actuarial assumptions utilized for the valuation are as follows:

General inflation - future general inflation levels, as measured by the changes in the ConsumerPrice Index, were assumed at 2% in 2016, and thereafter (2015 - 2%).

Discount (interest) rate - the discount rate used to determine the present value of future liabilitiesand the expense for the year ended December 31, 2016, was 4.5% (2015 – 4.5%).

Salary levels - future general salary and wage levels were assumed to increase at 3.3% (2015 -3.3%) per annum.

Medical costs - medical costs were assumed to increase 6.7% for 2015, 6.4% for 2016, and 6.1%thereafter.

Dental costs - dental costs were assumed to increase 4.6% for 2015, 4.6% for 2016, and 4.6%thereafter.

13. Customer and IESO deposits:

Customer deposits represent cash deposits from electricity distribution customers and retailers, aswell as construction deposits.

Deposits from electricity distribution customers are refundable to customers who demonstrate anacceptable level of credit risk as determined by the Corporation in accordance with policies set outby the OEB or upon termination of their electricity distribution service.

Construction deposits represent cash prepayments for the estimated cost of capital projectsrecoverable from customers and developers. Upon completion of the capital project, these depositsare transferred to deferred revenue.

The Corporation delivers conservation and demand management programs for its customers onbehalf of the IESO. Prepayments received from the IESO have been recorded and will betransferred to revenue as programs are delivered and the revenue is earned.

The deposits comprise:

2016 2015Customer deposits 7,546$ 6,986$ Construction deposits 5,459 5,723 IESO deposit for energy conservation programs 1,158 1,158 Total customer deposits 14,163$ 13,867$

130



14. Share capital:

Dividends:

The holders of the common shares are entitled to receive dividends as declared from time to time. The Corporation paid aggregate dividends in the year on common shares of $4,410 (2015 - $4,266).

15. Other operating revenue:

Other income comprises:

16. Finance income and expense: [note excludes finance income and expense on regulatory accounts]

2016 2015 Authorized: Unlimited number of common sharesIssued: 20,000 common shares 66,389$ 66,389$

2016 2015 Specific service charges 1,223$ 1,247$ Deferred revenue 480 271 Scrap sales 170 243 Net gain on disposal of capital assets 54 43 Retailer services 39 44 Sundry 40 64 Total other income 2,006$ 1,912$

2016 2015 Interest income on bank deposits 234$ 204$ Finance income 234 204

Interest expense on long-term debt 3,957 3,999 Interest expense on BMO Letter of Credit 123 120 Interest expense on deposits 58 67 Other 7 3

4,145 4,189 Net finance costs recognized in profit or loss 3,911$ 3,985$




17. Commitments and contingencies:

Contractual Obligations

There are no contractual obligations.

General

From time to time, the Corporation is involved in various litigation matters arising in the ordinarycourse of its business. The Corporation has no reason to believe that the disposition of any suchcurrent matter could reasonably be expected to have a materially adverse impact on theCorporation’s financial position, results of operations or its ability to carry on any of its businessactivities.

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 theyears in which they were members, on a pro-rata basis based on the total of their respective servicerevenues. As at December 31, 2016, no assessments have been made.

18. Guarantees:

Guarantees are not applicable to the Corporation.

19. Pension agreement:

The Corporation provides a pension plan for its employees through OMERS. The plan is a multi-employer, contributory defined pension plan with equal contributions by the employer and itsemployees. In 2016, the Corporation made employer contributions of $1,500 to OMERS (2015 -$1,500). The Corporation’s net benefit expense has been allocated as follows:

a. $400 (2015 - $400) capitalized as part of property, plant and equipment;

b. $1,100 (2015 - $1,100) charged to net income.

The Corporation estimates that a contribution of $1,500 to OMERS will be made during the next fiscal year

20. Employee benefits:

2016 2015 Salaries, wages and benefits 18,356$ 17,257$ CPP and EI remittances 724 675 Contributions to OMERS 1,528 1,493 Expenses related to defined benefit plans 345 334

20,953$ 19,759$

132



21. Related party transactions:

(a) Parent and ultimate controlling party:

The Corporation is wholly-owned by the Corporation of the City of Kitchener and theCorporation of the Township of Wilmot. The City and the Township produce financialstatements that are available for public use.

(b) Entity with significant influence:

The Corporation of the City of Kitchener exercises significant influence over the Corporationthrough its 92.25% ownership interest in the Corporation.

(c) Key management personnel:

The key management personnel of the Corporation have been defined as members of its boardof directors and executive management team members, and is summarized below.

(d) Transactions with parent:

During the year the Corporation paid management and business development services to itsparent in the amount of nil (2015 - nil)

(e) Transactions with entity with significant influence:

In the ordinary course of business, the Corporation delivers electricity to the Corporation of theCity of Kitchener. Electricity is billed to the City of Kitchener at prices and under terms approvedby the OEB.

(f) Transactions with ultimate parent (the City of Kitchener)

In 2016, the Corporation had the following significant transactions with its ultimate parent, agovernment entity:

• construction• streetlight maintenance services

2016 2015 Directors' fees 104$ 101$ Salaries and other short-term benefits 981 1,088 Post employment benefits 18 20 Other long-term benefits (OMERS) 79 91

1,182$ 1,300$




22. Financial instruments and risk management:

Fair value disclosure

Cash and cash equivalents are measured at fair value. The carrying values of receivables, andaccounts payable and accrued charges approximate fair value because of the short maturity ofthese instruments. The carrying value of the customer deposits approximates fair value becausethe amounts are payable on demand.

The fair value of the long term debt (senior unsecured debentures issued by the shareholders (Cityof Kitchener and Township of Wilmot) approximates the carrying value due to the short term natureof the loan.

The fair value of the long term debt (senior unsecured debentures) issued by Ontario InfrastructureProjects Corporation at December 31, 2016 is $4,000 (2015 - $5,000). The fair value is calculatedbased on the present value of future principal and interest cash flows, discounted at the currentrate of interest at the reporting date. The interest rate used to calculate fair value at December 31,2016 was 4.28% (2015 – 4.28%).

Financial risks

The Corporation understands the risks inherent in its business and defines them broadly asanything that could impact its ability to achieve its strategic objectives. The Corporation’s exposureto a variety of risks such as credit risk, interest rate risk, and liquidity risk, as well as relatedmitigation strategies are discussed below.

(a) Credit risk:

Financial assets carry credit risk that a counterparty will fail to discharge an obligation whichcould result in a financial loss. Financial assets held by the Corporation, such as accountsreceivable, expose it to credit risk. The Corporation earns its revenue from a broad base ofcustomers located in the City of Kitchener and the Township of Wilmot. No single customeraccounts for a balance in excess of 1% of total accounts receivable.

The carrying amount of accounts receivable is reduced through the use of an allowance forimpairment and the amount of the related impairment loss is recognized in net income.Subsequent recoveries of receivables previously provisioned are credited to net income. Thebalance of the allowance for impairment at December 31, 2016 is $250 (2015 - $250). Animpairment loss of $129 (2015 - $147) was recognized during the year.

134



22. Financial instruments and risk management (continued):

(a) Credit risk (continued):

The Corporation’s credit risk associated with accounts receivable is primarily related topayments from distribution customers. At December 31, 2016, approximately $178 (2015 - $80)is considered 60 days past due. The Corporation has over 94 thousand customers, the majorityof whom are residential. Credit risk is managed through collection of security deposits fromcustomers in accordance with directions provided by the OEB. As at December 31, 2016, theCorporation holds security deposits in the amount of $14,200 (2015 - $13,900).

(b) Market risk:

Market risks primarily refer to the risk of loss resulting from changes in commodity prices,foreign exchange rates, and interest rates. The Corporation currently does not have anymaterial commodity or foreign exchange risk. The Corporation is exposed to fluctuations ininterest rates as the regulated rate of return for the Corporation’s distribution business isderived 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 ofthe approval of distribution rates.

A 1% increase in the interest rate at December 31, 2016 would have increased interestexpense on the long-term debt by $ 80 (2015 - $80), assuming all other variables remainconstant. A 1% decrease in the interest rate would have an equal but opposite effect.

(c) Liquidity risk:

The Corporation monitors its liquidity risk to ensure access to sufficient funds to meetoperational and investing requirements. The Corporation’s objective is to ensure that sufficientliquidity is on hand to meet obligations as they fall due while minimizing interest exposure. TheCorporation has access to a $5,000 credit facility and monitors cash balances daily to ensurethat a sufficient level of liquidity is on hand to meet financial commitments as they come due.As at December 31, 2016, no amounts had been drawn under BMO Bank of Montreal creditfacility (2015, $0).

The Corporation also has a bilateral facility for $35,000 (the “LC” facility) for the purpose ofissuing letters of credit mainly to support the prudential requirements of the IESO, of which$35,000 has been drawn and posted with the IESO (2015 - $35,000).

The majority of accounts payable, as reported on the balance sheet, are due within 30 days.




22. Financial instruments and risk management (continued):

(d) Capital disclosures:

The main objectives of the Corporation, when managing capital, are to ensure ongoing accessto funding to maintain and improve the electricity distribution system, compliance withcovenants related to its credit facilities, prudent management of its capital structure with regardfor recoveries of financing charges permitted by the OEB on its regulated electricity distributionbusiness, and to deliver the appropriate financial returns.

The Corporation’s definition of capital includes shareholder’s equity and long-term debt. As atDecember 31, 2016, shareholder’s equity amounts to $142,030 (2015 - $136,041) and long-term debt amounts to $79,872 (2015 - $80,952).

23. Future accounting pronouncements

The Company is evaluating the adoption of the following new and revised standards along withany subsequent amendments.

Revenue Recognition The IASB has issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue and various interpretations and establishes principles regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. The standard requires entities to recognize revenue for the transfer of goods or services to customers measured at the amounts an entity expects to be entitled to in exchange for those goods or services. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Corporation is assessing the impact of IFRS 15 on its results of operations, financial position and disclosures.

Financial Instruments

In July 2015, the IASB issued a new standard, IFRS 9 Financial Instruments, which will replace IAS 39 Financial Instruments: Recognition and Measurement. The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments. The issuance of IFRS 9 is part of the first phase of this project. IFRS 9 is effective for periods beginning on or after January 1, 2018 and must be applied retrospectively. The Corporation is assessing the impact of IFRS 9 on its results of operations, financial position, and disclosures.

Property, Plant and Equipment and Intangible Assets

In May 2015, the IASB issued amendments to IAS 16, Property, Plant and Equipment and IAS 38 Intangible Assets, which are effective for years beginning on or after January 1, 2016. The amendments clarify when revenue-based depreciation methods are permitted. The Corporation does not expect this to have an impact.

136



23. Future accounting pronouncements (continued):

Leases

In January 2016, the IASB issued IFRS 16 to establish principles for the recognition, measurement, presentation and disclosures of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. IFRS 16 replaces IAS17 and it is effective for annual periods beginning on or after January 1, 2019. The Corporation is assessing the impact of IFRS 16 on its results of operations, financial position and disclosures.




FINANCIAL & STATISTICAL REVIEW As at December 31 (unaudited)

2016 2015 2014 2013 2012

1. DEMOGRAPHIC STATISTICS

Population1 246,700 239,900 236,500 234,000 234,100Households1 94,170 92,050 90,560 88,765 88,540Area in acres2 33,802 33,802 33,802 33,802 33,802

2. TAXABLE ASSESSMENT ($000's)

Residential and farm 22,414,567 22,010,705 21,596,614 21,314,131 17,720,136Commercial and industrial 3,390,259 3,399,805 3,359,143 3,273,998 3,040,482Total 25,804,826 25,410,510 24,955,757 24,588,129 20,760,618

3. TAX RATES

Residential and Farm Taxable FullCity 0.36742 0.37488 0.38135 0.39217 0.40039Region 0.61359 0.61489 0.61875 0.62784 0.62967School Boards 0.18800 0.19500 0.20300 0.21200 0.22100Total 1.16901 1.18477 1.20310 1.23201 1.25106

Commercial Taxable FullCity 0.71647 0.73101 0.74363 0.76474 0.78076Region 1.19650 1.19903 1.20656 1.22429 1.22785School Boards 1.40000 1.43000 1.46000 1.49000 1.49000Total 3.31297 3.36004 3.41019 3.47903 3.49861

Industrial Taxable FullCity 0.71647 0.73101 0.74363 0.76474 0.78076Region 1.19650 1.19903 1.20656 1.22429 1.22785School Boards 1.50000 1.53000 1.56000 1.59000 1.59000Total 3.41297 3.46004 3.51019 3.57903 3.598611. Source: Planning, Housing and Community Services Department, Regional Municipality of Waterloo

2. Source: Statistics Canada, 2016 Census Data

The 2011 tax rate increase has been restated to indicate what the tax rate increase would have been prior to thetransfer of storm water management costs to a new user rate. Without this restatement, a decrease would haveshown for 2011.

Weighted Assessment Growth

Final 2016: 1.29%

Final 2015: 1.51%

Final 2014: 1.31%

012345

06 07 08 09 10 11 12 13 14 15 16

Year

%

Cumulative Tax Rate & CPI

05

1015

202530

06 07 08 09 10 11 12 13 14 15 16

Year

%

City Tax Rate (%) Ontario CPI (%)

138


($000's)2016 2015

(Restated)2014 2013 2012

4. COLLECTION STATISTICS

Total taxes billed 394,020 379,110 368,577 359,385 346,514Total collections 389,608 382,899 365,882 359,339 344,955Total collections as a % of current levy 99% 101% 99% 100% 100%Taxes receivable, net of allowance 20,598 19,617 22,706 20,610 21,586Total receivable as a % of current levy 5% 5% 6% 6% 6%

5. CONSOLIDATED REVENUE

292,898 290,215 291,714 280,998 273,4465,830 10,013 6,991 4,101 11,772

9,593 10,121 9,793 7,639 8,44810,388 11,044 8,076 6,892 6,877

Taxation and user chargesGrantsShare of net income of Kitchener Power

Corporation and its affiliatesDevelopment charge revenue recognized Other 21,097 25,801 21,020 25,943 37,424Total revenue 339,806 347,194 337,595 325,573 337,967

6. CONSOLIDATED EXPENSES

Expenses by Function

General government 38,932 31,273 37,797 36,033 38,010Protection services 45,291 44,728 42,727 41,776 40,572Transportation services 35,100 34,566 35,328 32,908 29,508Environmental services 30,012 29,194 28,332 29,730 32,291Health services 2,257 2,245 2,144 2,155 1,947Social and family services 2,722 2,752 2,609 2,640 2,307Recreation and cultural services 68,496 68,645 66,141 62,907 59,490Planning and development 13,160 12,060 13,100 8,600 9,243Gasworks 52,184 59,246 70,824 64,605 64,551Total Expenses 288,154 284,709 299,002 281,354 277,919

Expenses by Object

Salaries, wages and employee benefits 147,224 141,941 138,259 133,464 128,444 Materials and services 91,996 97,908 110,106 98,719 103,261 Debenture debt interest 3,534 3,869 3,740 3,941 3,889Grants and other 4,214 3,031 4,192 3,879 3,867Amortization 42,658 40,274 39,646 37,355 34,299Loss/(Gain) on sale of assets (1,472) (2,314) 3,059 3,996 4,159Total Expenses 288,154 284,709 299,002 281,354 277,919

7. ANNUAL SURPLUS 51,652 62,485 38,593 44,219 60,048



2016 2015(Restated)

2014 2013 2012

8. ANALYSIS OF LONG-TERM DEBT ($000's)

Gross debt issued by the municipality 84,859 93,536 102,999 112,039 111,263 Less debt recoverable from municipal

enterprises and consolidated boards 10,121 10,629 11,125 11,607 12,077 Less debt recoverable from other sources 8,587 9,870 11,105 12,292 13,434 Net debt to be repaid from property taxes 66,151 73,037 80,770 88,140 85,752Net debt per capita ($'s) 268 304 342 377 366Legal debt limit ($000's)3 296,556 288,323 281,852 305,717 294,540 Interest on long-term debt as a % of

total expenditures 1.2% 1.4% 1.3% 1.4% 1.4%

9. ACCUMULATED SURPLUS ($000's)

Reserve funds including discretionary& obligatory reserve funds 66,340 59,616 47,982 40,844 44,547

Unexpended capital financing 108,099 94,927 85,939 83,448 68,323 Accumulated surplus 1,283,004 1,231,351 1,176,249 1,137,656 1,093,437

10. NEW CONSTRUCTION

Value of construction ($000's) 739,739 565,081 573,063 331,491 418,227 Number of building permits 3,158 2,749 2,559 2,307 2,420Number of single family dwelling starts 840 614 504 348 396

11. NET FINANCIAL ASSETS ($000's) 214,048 194,460 187,392 176,202 160,566 3. The debt limit is based on the Financial Information Return from the second immediate preceding year.

New Construction

0

200,000

400,000

600,000

800,000

2012 2013 2014 2015 2016

Year

($ 0 0 0 's)Debt Per Capita

0100200300400500

2012 2013 2014 2015 2016Year

$

Tax Supported Non-Tax Supported

$

140


12. PRINCIPAL CORPORATE TAXPAYERS2016 Taxable Assessment Value ($000's)

DREWLO HOLDINGS INC 301,450CF/REALTY HOLDINGS INC 218,778ONTREA INC. 210,777ONTARIO MINISTER OF ENERGY & INFRASTRUCTURE 81,757VOISIN DEVELOPMENTS LIMITED 77,931EUROPRO (KITCHENER) GP INC 74,656MORGUARD NAR (ONTARIO) HOLDINGS LIMITED 73,253KITCHENER HOUSING INC 67,167HOMESTEAD LAND HOLDINGS LIMITED 66,312THE INCC CORP 63,792STAMM INVESTMENTS LIMITED 59,731ACTIVA HOLDINGS INC 51,0297550332 CANADA INC 49,254STEEVES & ROZEMA ENTERPRISES LIMITED 47,811KINGSWOOD DRIVE KITCHENER GP INC 46,252


FINANCIALREPORTDECEMBER 31, 2016

Prepared by:

ACCOUNTING DIVISIONFinance and Corporate Services Department

Kitchener, Ontario, CanadaFINANCIAL REPORT • 2016

Documents

FCS ACCT Financial Report - Kitchener · Finance and Corporate Services Department FINANCIAL REPORT • 2016 Kitchener, Ontario, Canada. 2. Where we are. As the largest municipality