ANNUAL FINANCIAL REPORT 2005

Transcription

1 ANNUAL FINANCIAL REPORT 2005 VILLE DE MONTRÉAL Annual financial report Year ended December 31, 2005 Deposited at the City Clerk's Office of the March 31, 2006

2 ANNUAL FINANCIAL REPORT 2005 Prepared by the Service des finances Direction de la comptabilité et du contrôle financier

3 The Government Finance Officers Association of the United States and Canada (GFOA) presented a Canadian Award for Financial Reporting to the Ville de Montréal for its annual financial report for the fiscal year ended December, 31, 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, and we are submitting it to GFOA.

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5 Table of Contents Page FINANCIAL REPORTING Financial statements The Municipal Administration's Responsibility for Financial Reporting... 1 Report of the General Auditor of Montréal External Auditors' Report 3 Financial Statements Balance Sheet... 4 Statement of Financial Activities 5 Statement of Investment Activities 6 Statements of Surplus and Reserved Funds 7 Statement of Cost of Municipal Services 8 Statement of Net Investment in Long-Term Assets 10 Statement of Changes in Financial Position 11 Notes and Schedules to the Financial Statements 12 Schedule 1 Operating Expenditures by Item 32 Schedule 2 Long-Term Unfunded Expenditures. 33 Schedule 3 Direct and Indirect Debt and Long-Term Unfunded Expenditures 34 FINANCIAL REPORTING Supplementary information (unaudited) Analysis of Revenues 35 Analysis of Operating Expenditures 41 Analysis of Cost of Municipal Services 44 Analysis of Investment Expenditures by Type Changes in Sinking Fund Investments Long-Term Debt Maturity 48 Changes in Long-Term Debt 50 COMPLEMENTARY AND STATISTICAL INFORMATION (unaudited) Equivalent Taxable Valuation to 2006 Tax Rates Residential Immovables 52 Non-Residential Immovables 53 Property Values in the Boroughs 54 Statement of Financial Activities (Four Years) 55 Statement of Investment Activities (Four Years) Statements of Surplus and Reserved Funds (Four Years) Statement of Cost of Municipal Services (Four Years) 58 Operating Expenditures by Item (Four Years) 59 Analysis of Investment Expenditures by Type (Four Years) 60 Direct and Indirect Debt and Long-Term Unfunded Expenditures (Four Years) Management Indicators 63 General Statistics 64 A

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7 FINANCIAL REPORTING FINANCIAL STATEMENTS

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9 The Municipal Administration s Responsibility for Financial Reporting The financial statements in this report have been prepared according to the particularities of Québec municipal accounting, as described in Note 2 to the financial statements. The financial statements and all other information in this annual financial report are the responsibility of the Municipal Administration. The Municipal Administration has also ensured consistency between the financial statements and all other information disclosed in the annual financial report. To assess certain facts and operations, the Municipal Administration has made estimates based on its best judgment of the situation and by taking into account materiality. The Municipal Administration is responsible for maintaining appropriate internal control and accounting systems that provide reasonable assurance that the City s policies are adopted, that its operations are carried out in accordance with the appropriate laws and authorizations, that its assets are adequately safeguarded and that the financial statements are based on reliable accounting records. In compliance with the distribution of powers and competencies set out in its charter, the City s powers are exercised by the City Council or by the borough committees. The City Council has appointed an Audit Committee made up of five members, two of which are external members. The Audit Committee s responsibilities include overseeing financial reporting and presentation procedures, which includes reviewing the financial statements and other information in this annual report. The financial statements and the reports that follow were audited by the General Auditor of Montréal and the external audit firm, Samson Bélair/Deloitte & Touche, s.e.n.c.r.l., whose services were retained by the City Council. Robert Lamontagne Senior Director and Treasurer Robert Abdallah Director-General Montréal, March 24,

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12 Balance Sheet As at December 31, 2005 Notes ASSETS Current Cash and investments 3 439, ,132 Investments Sinking Fund 3 52, ,181 Accounts receivable 4 411, ,540 Inventories 29,132 27,055 Current portion of long-term receivables 6 97,001 76,644 1,029,457 1,094,552 Investments 3 21,133 27,154 Investments Sinking Fund 3 993, ,212 Real estate assets held for sale 154, ,002 Deferred charges and other assets 5 58,825 46,467 Long-term receivables 6 1,362,199 1,365,348 Capital assets 7 6,165,802 5,992,208 9,785,838 9,605,943 LIABILITIES Current Accounts payable, provisions and accrued liabilities 9 1,008, ,725 Prepaid amount - Reconstitution of the municipalities ,142 Current portion of long-term debt , ,695 1,521,172 1,393,420 Deferred revenues , ,557 Long-term debt 12 6,149,629 5,916,347 Net obligation Pension plans and other employee future benefits ,317 1,042,963 Deferred subsidies 7 1,229,788 1,180,748 9,669,285 9,670,035 TAXPAYERS' EQUITY Unrestricted surplus 166,186 51,191 Restricted surplus , ,469 Reserved funds 42,888 50,406 Net investment in long-term assets , ,621 Amount to be provided Pension plans and other employee future benefits 13 (622,317) (1,042,963) Amount to be provided Other 16 (73,416) (93,816) Commitments and contingent liabilities ,553 (64,092) 9,785,838 9,605,943 The notes and schedules are an integral part of the financial statements. 4

13 Statement of Financial Activities Year ended December 31, Budget Actual Actual Revenues Taxes 2,675,945 2,691,682 2,599,580 Payments in lieu of taxes 244, , ,840 Other revenues from local sources 613, , ,379 Transfers 494, , ,696 4,029,337 4,089,688 3,900,495 Specific revenues transferred to investment activities (84,577) (66,294) (66,174) 3,944,760 4,023,394 3,834,321 Operating expenditures General administration 619, , ,305 Public safety 745, , ,414 Transportation 626, , ,269 Environmental health 325, , ,249 Health and welfare 131, , ,747 Urban planning and development 186, , ,984 Recreation and culture 460, , ,331 Power grid 21,761 21,621 21,149 Financing expenses 434, , ,994 3,552,350 3,513,356 3,324,442 Other financial activities Repayment of long-term debt 425, , ,307 Other transfers to investment activities 2,141 16,957 25, , , ,469 Total operating expenditures and other financial activities 3,980,090 3,961,647 3,767,911 Surplus (deficiency) of financial activities before appropriations and repayment of net obligation of pension plans (35,330) 61,747 66,410 Appropriations Unrestricted surplus 491 Restricted surplus 39,429 99,744 78,598 Reserved funds (4,099) (950) (17,288) 35,330 98,794 61,801 Repayment of net obligation of pension plans (Note 13) (410,977) Surplus (deficiency) before long-term financing of financial activities (250,436) 128,211 Long-term financing of financial activities Net obligation of pension plans (Note 13) 410,977 Other expenditures 2, , Surplus for the year 162, ,980 The notes and schedules are an integral part of the financial statements. 5

14 Statement of Investment Activities Year ended December 31, 2005 Note Budget Actual Actual Sources of financing Specific revenues transferred to financial activities from third parties Developers' contributions 27,057 5,158 5,069 Conditional transfers 57,520 61,136 61,105 84,577 66,294 66,174 Other transfers from financial activities 2,141 16,957 25,162 Other sources Unrestricted surplus 133 3,240 Restricted surplus 22,534 19,340 12,221 Reserved funds 11,242 1,823 Issue of long-term loans 537, , , , , ,745 Investment expenditures General administration 45,958 56,615 50,161 Public safety 33,791 23,305 32,363 Transportation 232, , ,449 Environmental health 143, , ,498 Health and welfare Urban planning and development 48,407 32,662 31,489 Recreation and culture 140, , ,874 Power grid 1,300 1,340 1, , , ,858 Investment activity deficiency for the year (289,351) (134,113) The notes and schedules are an integral part of the financial statements. 6

15 Statements of Surplus and Reserved Funds Year ended December 31, 2005 SURPLUS Note Transfer from Transfer to Balance UNRESTRICTED Balance as at December 31, ,191 Appropriation Financial activities Appropriation Investment activities 133 (133) Appropriation Restricted surplus 3,766 51,587 (47,821) Surplus for the year 162, ,949 UNRESTRICTED Balance as at December 31, ,715 51, ,186 RESTRICTED Balance as at December 31, ,469 Appropriation Financial activities 99,744 (99,744) Appropriation Investment activities 19,340 (19,340) Appropriation Unrestricted surplus 51,587 3,766 47,821 Appropriation Reserved funds 158 2,553 (2,395) RESTRICTED Balance as at December 31, , , ,811 SURPLUS Balance as at December 31, , , ,997 RESERVED FUNDS Balance as at Financial activities Investment activities Balance as at 31/12/2004 Transfer from Transfer to Transfer from Transfer to 31/12/2005 Water management 20,449 42,797 39,427 9,483 14,336 Parks and playing fields 10,328 4, ,640 12,681 Parking areas 2, ,604 Balance of closed loan by-laws 7, ,670 Land reserve funds 1,754 1,754 Security issuance expenses 1, ,080 Assisted departure program 6,719 6,719 Other ,406 47,311 46, ,281 40,457 Working capital 2, ,431 50,406 49,861 46, ,400 42,888 The notes and schedules are an integral part of the financial statements. 7

16 Statement of Cost of Municipal Services Year ended December 31, Amortization Deferred subsidies Operating Financing Capital (governments and expenditures expenses assets their enterprises) Expenditures General administration 568,831 43,087 17,377 (1,385) Public safety 748,004 25,949 17,816 (303) Transportation 638, , ,135 (11,346) Environmental health 321, , ,129 (32,530) Health and welfare 139,501 10, (89) Urban planning and development 189,469 45,725 23,343 (837) Recreation and culture 473,232 53,174 71,738 (8,193) Power grid 21, (22) Financing expenses 413,338 (413,338) 3,513, ,713 (54,705) The notes and schedules are an integral part of the financial statements. 8

17 Statement of Cost of Municipal Services (continued) Year ended December 31, Operating subsidies Cost of Cost of (governments and Services Gain on municipal municipal their enterprises) provided disposals services services (12,836) (10,897) 604, ,775 (1,188) (22,536) (14) 767, ,928 (29,690) (21,993) (42) 845, ,332 (56,204) (15,474) (3) 426, ,622 (72,942) (29,340) 48,172 40,400 (41,133) (64,658) 151, ,061 (53,341) (66,242) (14) 470, ,121 (138) (23,417) (1,259) (1,699) (267,472) (254,557) (73) 3,312,262 3,168,540 9

18 Statement of Net Investment in Long-Term Assets Year ended December 31, Balance, beginning of year 729, ,778 Add Acquisition of capital assets 564, ,157 Acquisition of real estate assets held for sale 4, Contributions to Sinking Fund 214, ,607 Amortization and write-off of deferred subsidies 54,705 52,652 Issue and adjustments of long-term receivables 90, ,124 Repayment of long-term debt net of refinancings 469, ,020 Other Foreign exchange gain 756 1,174 Accounts payable Surplus of long-term unfunded financial activity expenditures for the year 276,663 1,399,451 1,871,834 Deduct Disposal and write-off of capital assets 15, Disposal of real estate assets held for sale 3,084 11,204 Disposal of Sinking Fund investments 211, ,152 Amortization of capital assets 375, ,426 Receipt and write-off of long-term receivables 79,445 73,018 Subsidies for capital assets acquisition 103,745 89,592 Issue of long-term debt 587, ,687 Other Investment activity deficiency for the year 289, ,113 Deficiency of long-term unfunded financial activity expenditures for the year 23,411 Change in unrealized net foreign exchange gains and losses 3,525 4,927 Closed loan by-laws and projects ,693,671 1,533,991 Balance, end of year 435, ,621 The notes and schedules are an integral part of the financial statements. 10

19 Statement of Changes in Financial Position Year ended December 31, 2005 Notes Operating activities Surplus for the year 162, ,980 Financing and investment items charged to financial activities Contributions to Sinking Fund 214, ,607 Transfers to investment activities 83,251 91,336 Repayment of long-term debt 219, ,766 Receipt of long-term receivables (78,711) (71,545) Subsidies for acquisition of capital assets (61,136) (61,105) Disposal of capital assets and real estate assets held for sale (14,732) (18,366) Long-term financing of financial activities (413,385) (769) 112, ,904 Items not affecting cash Appropriations (98,794) (61,801) Amortization of transitional measures 16 6,624 9,365 Amortization of deferred charges 11,855 21,030 Change in deferred revenues 6,297 20,488 Long-term receivables and balance of purchase price receivable 8, ,080 Reduction in borrowing Financial activity expenditures 5,998 13,069 Other 96 (933) 53, ,202 Net change in other current items 18 (2,320) 21,099 51, ,301 Investment activities Disposal of investments 215, ,800 Receipt of long-term receivables 88,409 76,162 Disposal of capital assets and real estate assets held for sale 14,732 18,366 Acquisition of investments (214,819) (215,607) Acquisition of capital assets (564,494) (550,157) Issue of long-term receivables (123,931) (306,322) Acquisition of real estate assets held for sale (4,584) (345) Deferred charges (24,213) (8,175) (613,308) (668,278) Financial activities Proceeds from long-term debt issue 900,529 1,016,323 Prepaid amount - Reconstitution of the municipalities ,440 Subsidies for acquisition of capital assets 104,084 89,255 Repayment of long-term debt net of refinancings (469,924) (490,020) Bond redemption by refinancing (312,606) (434,636) 475, ,922 Net decrease in cash and cash equivalents (86,317) 274,945 Cash and cash equivalents, beginning of year 521, ,521 Cash and cash equivalents, end of year 435, ,466 Cash and cash equivalents are made up of bank overdraft and short-term investments (maturity of less than 3 months as of date of acquisition) of Funds other than the Sinking Fund. The notes and schedules are an integral part of the financial statements. 11

20 Notes and Schedules to the Financial Statements December 31, GOVERNING STATUTE The (the City) is a municipal corporation incorporated on January 1, 2002 under the Charter of the City of Montréal (R.S.Q., chapter C-11.4). The City is divided into 27 boroughs. On January 1, 2006, following the results of the referendum held during 2004 under an Act regarding public consultation on the territorial reorganization of certain municipalities (Act 9), the former municipalities of Baie-d Urfé, Beaconsfield, Côte-Saint-Luc, Dollard-des-Ormeaux, Dorval, Hampstead, Kirkland, Île-Dorval, Montréal-Est, Montréal-Ouest, Ville Mont-Royal, Pointe-Claire, Sainte-Anne-de-Bellevue, Village de Senneville and Westmount were reconstituted, thus forming 19 residual boroughs of the, grouping together 87% of the entire population of the island of Montréal. In compliance with the provisions of this Act, all the municipalities located on the Island of Montréal remain however linked to one another and form an agglomeration consistent with the territory of the as prevailed as at December 31, An Act respecting the exercise of certain municipal powers in certain urban agglomerations (Act 75), amended in 2005 by Acts 111 and 134 and completed in 2005 by the Montréal Agglomeration Order (Order-in-Council No ), lists and defines the powers over the agglomeration. Under Act 75, the is formed as the central municipality in charge of exercising, in addition to its local powers, the powers over the agglomeration. The agglomeration is headed by an urban agglomeration council, a political and decision-making body created on January 1, 2006, and assumes the decision-making, taxation and rate-setting powers for the agglomeration services. The agglomeration council is a central municipal legislative body, separate from the City s Council pursuant to Section 14 of the Charter of the City of Montréal. It is made up of representatives of each linked municipality; the number of representatives of each municipality is determined proportionately based on the relative size of their respective population. The reconstitution of the municipalities results in sharing, as at January 1, 2006, of assets, liabilities, and surplus between the City and each of the reconstituted municipalities. The principles and rules governing this sharing are stated in the Act regarding public consultation on the territorial reorganization of certain municipalities (Act 9), in the Montréal Agglomeration Order (Order-in-Council No ), and in the ministerial directives on sharing assets and liabilities and on the pension plans. Since the work related to this sharing has not been completed, it was not possible to estimate the financial impact of this sharing on the City s balance sheet. 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES The financial statements of the City have been prepared in accordance with generally accepted municipal accounting principles in Québec and with the specific principles described below. The financial statements of the municipal organizations included in the financial reporting entity of the City are not combined or consolidated with those of the City. Additional information concerning these municipal organizations is provided in Note 22. The significant accounting policies and practices are the following: a) Accounting method Transactions are recorded in the City s books using the accrual basis of accounting. Under this method, revenues and expenditures are recognized in the year in which the events and transactions occur. Transactions involving the following items existing prior to January 1, 2001 are recorded in the Statement of Financial Activities using the cash basis of accounting: interest income from Sinking Fund investments, including their reinvestment, and from long-term receivables, and interest expense on long-term debt, including any refinancing until the debt is extinguished. The offsetting entry to accrued interest receivable and payable related to these items existing prior to January 1, 2001 is presented under Amount to be provided Other. Pension plan costs and obligations and other employee future benefits are accounted for using the methods described in Note 2 o). b) Use of estimates The preparation of the financial statements, in accordance with generally accepted municipal accounting principles in Québec and specific principles described, requires municipal management to make assumptions and estimates that affect reported amounts of revenues, expenses, assets, liabilities, commitments and contingencies. Actual results could differ from those estimates. 12

21 Notes and Schedules to the Financial Statements (continued) December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued) c) Investments and loans Temporary investments, which consist of term deposits and other securities, are recorded at the lower of cost and fair value. Long-term investments are recorded at cost and are written down when there is a permanent decline in their value. The discount or premium on investments is amortized on a straight-line basis to maturity. The amounts accumulated in Investments Sinking Fund are restricted to the repayment of long-term loans that do not require annual repayment. Loans are recorded at the lower of cost and net recoverable value. d) Inventories Inventories are valued at cost determined under the average cost method. Obsolete inventory is written off. e) Real estate assets held for sale Real estate assets held for sale are recorded at cost. f) Deferred charges The expense of issuing loans is amortized over the duration of the loans. Unrealized foreign exchange net losses are amortized under the method described in Note 2 s). Election expenses are amortized over a 4-year period. g) Capital assets Capital assets, recorded at cost, are amortized over their estimated useful lives as of the year following their respective commissioning dates. Capital assets are amortized on a straight-line basis over the following periods: Infrastructures Power grid Buildings Leasehold improvements Vehicles Office furniture and equipment Machinery, tools and equipment Other 15 to 40 years 20 to 40 years 25 to 40 years 10 to 15 years 5 to 20 years 5 to 10 years 5 to 25 years 20 to 25 years Amortization is recorded in the Statement of Cost of Municipal Services. h) Provision for contested valuations The provision for contested valuations is an estimate of blended repayments, which may result from court decisions related to contested real estate valuations or rental values and to contested classifications under the Act respecting Municipal Taxation. i) Deferred revenues Proceeds on disposal of capital assets and real estate assets held for sale are shown as deferred revenues up to the balance of the entire debt related to the loan by-law; proceeds of disposal exceeding the balance of debt are recorded in the Statement of Financial Activities. These deferred revenues are amortized on a straight-line basis over the remaining term of the loan by-law. Premiums upon issuance of securities are amortized over the terms of the loans and deferred revenues from the sale of a franchise are amortized on a straight-line basis over the term of the agreement. 13

22 Notes and Schedules to the Financial Statements (continued) December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued) j) Deferred subsidies Subsidies related to the acquisition of capital assets are shown in the balance sheet as Deferred subsidies and are amortized on the same basis as the capital assets to which they relate. The amortization is recorded in the Statement of Cost of Municipal Services. k) Restricted surplus The restricted surplus corresponds to the portion of the surplus whose use is reserved by the Act to reform the municipal territorial organization of the metropolitan regions of Montréal, Québec and Outaouais or by resolutions adopted by the City Council. l) Reserved funds Certain amounts received by the City must be recorded in special accounts and used for specific purposes, particularly the assisted departures program and the development and maintenance of parks and playing fields and parking areas. In addition, the City mentioned the legislative changes effective January 1, 2006 in its financial statements by allocating the special tax on water services to the reserved fund, water management. Amounts corresponding to the excess of operating expenditures and other financial activities over revenues attributed to water management, and other investing expenditures financed from these reserved funds were transferred to financial and investment activities, respectively. m) Amount to be provided - Other Interest is recorded using the method described in 2 a). The employee benefits of certain employees as at January 1, 2000, are amortized over a period that does not exceed the employees estimated remaining service life. The amortization is recorded in the Statement of Financial Activities. n) Subsidies Revenues from subsidies are recognized in the Statement of Financial Activities at the time the operating expenditures and other financial activities related to the subsidies are recorded, on the condition the City satisfies eligibility criteria. o) Costs and obligations resulting from pension plans and other employee future benefits The City provides its employees with various pension plans and other employee future benefits. Under these plans, pension benefits are paid to the employees and certain other retirement benefits, related to life insurance and insurance covering the reimbursement of medical and dental expenses, are granted. Certain post-employment benefits are also provided to employees. These benefits include, in particular, income replacement benefits, supplemental unemployment benefits, maintenance of coverage during periods of temporary absence and certain termination allowances. - Defined benefit pension plans and other employee future benefits The obligation related to the defined benefit pension plans and other employee future benefits, net of assets, is presented in the balance sheet. The obligation is determined through actuarial valuations that include the municipal administration s best estimate assumptions, related to, among other things, the discount rates, the expected rate of return on plan assets and the rate of compensation increase and cost of healthcare plans. The plans assets are valued using a market-related value, determined over a period not exceeding five years. The offsetting entry to the net obligation is included in the balance sheet in Amount to be provided. The actuarial valuations of the pension obligations are determined at least once every three years using the projected benefit method prorated on service, taking into account projected salaries. The pension plan expense comprises the current service contribution and the contribution for special payment and for the other recorded deficits. The expense for other employee future benefits, namely other retirement benefits, post-employment benefits, paid leave and termination benefits, is recorded using the cash accounting method. - Defined contribution pension plans Some employees are members of defined contribution plans, under which the City s contribution represents a percentage of pay. The expense for the year comprises the current service contribution and the contribution related to the amortization of plan amendments. 14

23 Notes and Schedules to the Financial Statements (continued) December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued) - Elected officials pension plan Elected officials participate in a defined benefit pension plan administered by the Commission administrative des régimes de retraite et d assurances du Québec. The expense for the year corresponds to the current service contribution. p) Closure and post-closure costs for sanitary landfills For an estimated period of 20 years, the City will assume closure and post-closure costs for sanitary landfills that it has operated. These accrued costs equal the present value of the expenses related to the final recovery of the site, as well as the control and maintenance of the collecting and processing systems of biogas and leachates. These estimated costs are recognized based on the landfill capacity already used. Assumptions regarding the calculation of these costs are periodically reviewed to take into account the progress made in the management of sanitary landfills. q) Environmental obligations The City records an environmental liability when it is likely that corrective measures will be applied and the costs of these measures can be reasonably estimated. r) Repayment of long-term debt This item represents the repayment of loans and payments to the Sinking Fund related to contracted loans. s) Foreign currency translation Revenues and expenditures resulting from transactions in foreign currencies are translated into Canadian dollars using the rates prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rates prevailing on the balance sheet date. The repayment of loans and payments to the Sinking Fund relating to loans denominated in foreign currencies that are not subject to hedging of currency exposure, are translated using the exchange rates prevailing at the transaction dates. For these loans, gains and losses resulting from the difference between the historical foreign exchange rate and the foreign exchange rate in effect at the date of repayment or payment are recorded in the Statement of Financial Activities. The foreign exchange gain or loss related to a long-term monetary item denominated in a foreign currency but not subject to hedging of currency exposure is recognized as a deferred item and charged to the Statement of Financial Activities using the straight-line method. For loans contracted as of December 31, 1992, amortization is calculated over the remaining term of the loans and those contracted prior to this date are amortized over the remaining life of the loan by-laws. t) Derivative financial instruments The City uses derivative financial instruments to reduce its currency and interest rate risk exposure on long-term debt. The City does not use financial instruments for trading or speculation purposes. The City uses currency swaps to manage risk associated with loans denominated in foreign currencies. These currency swaps are converted at the exchange rate prevailing at the balance sheet date. Those that represent financial assets are deducted from long-term debt, and those that represent financial liabilities are added to long-term debt. Gains and losses from derivatives are recognized in the same period as exchange gains and losses related to the corresponding debt and are charged against the latter. Furthermore, the City uses interest rate swaps to manage interest rate risk related to its debt. These contracts result in interest exchanges that are recorded as an adjustment of financing expenses. The amount payable to counterparties or receivable from counterparties is recorded as an adjustment of accrued interest on the corresponding debt. 15

24 Notes and Schedules to the Financial Statements (continued) December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued) u) Presentation of operating expenditures General administration comprises all activities related to municipal administration and management. Expenditures are primarily related to the operations of the City Council, the application of the law, and financial, administrative and human resources management. Public safety comprises activities related to the protection of people and property. It includes all expenditures related to control, prevention and emergency measures as regards civil security. Transportation comprises all activities related to the planning, organization and maintenance of road systems and to the transport of people and goods. Environmental health encompasses expenditures related to aqueduct and sewer systems, waste management and protection of the environment. Health and welfare comprises all public health and welfare services. Urban planning and development comprises all activities related to urban development or the planning program and expenditures to develop the City s economic development programs. Recreation and culture encompasses all activities connected with planning, organizing and managing recreational and cultural programs. Power grid comprises expenditures for the operation of a power grid. Financing expenses encompass interest and other financing costs for municipal activities. v) Budget data Budget data include the forecasts approved by the Council in December CASH AND INVESTMENTS Sinking Fund Other Total Total Bank overdraft (34,166) (34,166) (7,034) Investments Term deposits and other securities 28, , , ,851 Bonds and debentures 1,018,141 25,136 1,043,277 1,037,862 1,046, ,285 1,506,589 1, 593,679 Less: current portion 52, , , , ,920 21,133 1,015, ,366 As at December 31, 2004, Sinking Fund investments and other investments totalled $1,043.4 million and $550.3 million, respectively. The fair value of investments amounts to $1,587.1 million ($1,658,3 million in 2004). Bonds and debentures held by the City are essentially comprised of securities issued by governments and their bodies, by municipalities, school boards, CEGEPs, CLSCs and hospitals. They specifically include City bonds totalling $133.2 million ($135.7 million in 2004). Substantially all of the investments are denominated in Canadian dollars as at December 31, 2005 and

25 Notes and Schedules to the Financial Statements (continued) December 31, CASH AND INVESTMENTS (continued) The investments held by the City mature as follows: Term deposits Weighted and Bonds and nominal other securities debentures Total interest rate ,478 28, , % ,096 96, % , , % , , % , , % 2011 to , , % 497,478 1,043,277 1,540, ACCOUNTS RECEIVABLE Taxes 105,149 83,624 Government of Canada and its enterprises 77,882 41,779 Government of Québec and its enterprises 71,989 70,140 Municipal organizations 3,525 1,682 Services provided and other 153, , , ,540 An allowance for doubtful accounts of $103.5 million ($93.7 million in 2004) has been deducted from accounts receivable. 5- DEFERRED CHARGES AND OTHER ASSETS Issue costs 28,549 25,597 Election expenses 9,810 Assisted departure program 6,219 Other assets 20,466 14,651 58,825 46,467 17

26 Notes and Schedules to the Financial Statements (continued) December 31, LONG-TERM RECEIVABLES Amounts recoverable from third parties for repayment of long-term debt and other long-term items Government of Québec and its entreprises 1,367,256 1,389,441 Other third parties Other receivables Government of Québec and its enterprises (1) 61,097 36,935 Loans Office municipal d'habitation de Montréal (2) 7,770 7,770 Other 23,010 7,776 1,459,200 1,441,992 Less: current portion 97,001 76,644 1,362,199 1,365,348 (1) Receivables, bearing interest at rates varying from 2.73% to 4.98%, extendible through (2) Non-interest-bearing loans, receivable from 2006 to The fair value of long-term receivables amounts to $1,625.8 million ($1,595 million in 2004). The receipts recoverable from the Government of Québec and its enterprises for the repayment of long-term debt, for which the terms are determined as at December 31, 2005, are as follows: Weighted nominal Receipts interest rate Refinancing , % 97, , % 31, , % 87, , % 19, , % 36, to , % 248, , ,610 18

27 Notes and Schedules to the Financial Statements (continued) December 31, CAPITAL ASSETS Classes Accumulated Net book Net book Cost Amortization value value Infrastructures Power grid 8,430,126 26,023 3,525,226 11,831 4,904,900 14,192 4,812, ,004 Buildings Leasehold improvements 1,706,209 38, ,078 18, ,131 20, , ,020 Vehicles 381, , , , 783 Office furniture and equipment 239, , , ,738 Machinery, tools and equipment 97,804 62,061 35,743 39,276 Other 43,343 33,726 9, , ,963,098 4,797,296 6,165,802 5,992, 208 Deferred subsidies 1,915, ,312 1,229,788 1,180,748 As at December 31, 2004, the cost of capital assets and accumulated amortization amounted to $10,591.7 million and $4,599.5 million, respectively, while deferred subsidies and the related accumulated amortization amounted to $1,820.3 million and $639.6 million. 8- LINES OF CREDIT The City has lines of credit with various banking institutions totalling up to $85 million. Under these facilities, the amounts can be drawn in Canadian or US dollars at floating rates based on the prime rates of the banking institutions. These lines of credit are not secured and are renewable annually. As at December 31, 2005, the lines of credit remain undrawn. 9- ACCOUNTS PAYABLE, PROVISIONS AND ACCRUED LIABILITIES Suppliers 264, , 294 Salaries, deductions at source and employee benefits 350, ,877 Accrued interest payable on long-term debt 81,301 97,002 Provisions Contested valuations 95,632 76, 892 Closure and post-closure costs for sanitary landfills 30,578 38,288 Organizations included in the financial reporting entity 6,311 6,810 Other 77,974 58, 747 Deposits and holdbacks 42,140 41, 291 Government of Québec and its enterprises 34,653 33,831 Government of Canada and its enterprises 10,322 7,559 Other 15,413 19, 134 1,008, ,

28 Notes and Schedules to the Financial Statements (continued) December 31, PREPAID AMOUNT RECONSTITUTION OF THE MUNICIPALITIES Since January 1, 2006, the City continues to assume certain debt attributable to the reconstituted municipalities. In order to repay this debt to the City, and in compliance with the terms and conditions under the Montréal Agglomeration Order, the Transition Committee of the Agglomeration of Montréal, with the authorization of the Minister of Municipal and Regional Affairs, contracted a loan of $253.4 million. On December 29, 2005, the proceeds from the loan were paid to the City. Of this amount, $38.3 million was used to repay the loans originally contracted by the reconstituted municipalities, and matured in In 2006, the balance of $215.1 million will be applied against the regulations of borrowing powers that have already been authorized. 11- DEFERRED REVENUES Proceeds on disposal of capital assets and real estate assets held for sale 31,046 31,393 Sale of a franchise 38,000 40, 000 Premiun upon issuance of securities 45,661 Disposal of collections of books 35,000 Pension plan 9,843 10, 813 Unrealized net foreign exchange gains 7,863 4,338 Miscellaneous 13,966 15, , , LONG-TERM DEBT Bonds and notes In Canadian currency (1) 6,200,094 6,080,537 In foreign currencies 230, ,789 Other long-term debt Obligations under capital leases 3,879 4,134 Government of Québec and its enterprises Other 11,860 12,242 6,446,705 6,347,042 Current portion 297, ,695 6,149,629 5,916,347 (1) Includes long-term debt related to the repayment of the net obligation of pension plans that totals $1,477.4 million ($1 103 million in 2004). 20

29 Notes and Schedules to the Financial Statements (continued) December 31, LONG-TERM DEBT (continued) Recovery of long-term debt for purposes of repayment is as follows: A portion of taxpayers All taxpayers Amounts accumulated for repayment 2,746,096 1,148,904 1,077,359 2,645, 906 1,123, 757 1,074,790 Recoverable from third parties Government of Québec and its enterprises 1,267,240 1,309,238 Third parties Through user fees 207, , 281 6,446,705 6,347, 042 The City uses currency and interest-rate swap agreements for loans totalling $875.1 million ($ million in 2004). The financial liabilities associated with these swaps, which amount to $167.9 million ($131.7 million in 2004), are included in the long-term debt amount. Considering the existence of these swaps, substantially all of the loans contracted by the City bear interest at a fixed rate. As at December 31, 2005, unhedged foreign exchange loans amounted to $230.6 million ($249.8 million in 2004) and the foreign exchange loss on these loans amounted to $35.8 million ($54.1 million in 2004). In this regard, a provision of $53.6 million ($50.9 million in 2004) is recorded in the Sinking Fund. During the year, the City paid $211,6 million ($210.5 million in 2004) to the Sinking Fund and $219,7 million ($207.8 million in 2004) to pay down the debt. 21

30 Notes and Schedules to the Financial Statements (continued) December 31, LONG-TERM DEBT (continued) Estimated payments on long-term debt are as follows: Years of Canadian Foreign Maturity Maturity maturity dollars (1) currencies Maturity Refinancing net Maturity Refinancing net , , , , , , , , , , ,258 27, , , , , , , , , , , , , , ,512 38, ,548 90, , ,590 91, , , , , ,215 1 to 5 years 2,528,510 66,097 2,594, ,458 1,821,149 2,686,580 1,014,918 1,671,662 6 to 10 years 1,799, ,791 1,963, ,077 1,164,449 2,132, ,158 1,384, to 15 years 171, ,495 14, , ,764 14, , to 20 years 543, ,986 8, , ,446 8, , to 25 years 1,496 1,496 1,496 2,338 2, ,051,668 1,051,668 1,051, , , , , ,174 Perpetuity TOTAL 6,216, ,641 6,446,705 1,595,001 4,851,704 6,347,042 1,785,542 4,561,500 (1) Including loans contracted in foreign currencies that are subject to hedging. Summary of the debt: Foreign Canadian Foreign Canadian currencies dollars % currencies dollars % Canadian dollars (1) 6,216, ,097, U.S. dollars 138, , , , Swiss Francs 46,700 41, ,700 49, Japonese Yen 2,750,000 27, ,750,000 32, Sterling Pound ,446, ,347, (1) Including loans contracted in foreign currencies that are subject to hedging. 22

31 Notes and Schedules to the Financial Statements (continued) December 31, LONG-TERM DEBT (continued) Interest rate The interest rates presented in the table include the nominal interest rate and the impact of interest rate swaps Years of Canadian Foreign Weighted Weighted maturity dollars currencies average average 1 to 5 years 6.14% 4.07% 6.06% 6.24% 6 to 10 years 5.84% 3.48% 5.81% 6.00% 11 to 15 years 6.10% 3.00% 6.10% 6.17% 16 to 20 years 5.89% 3.00% 5.89% 5.98% 21 to 25 years 6.00% 3.00% 6.00% 6.00% % 3.00% 6.00% 6.00% % 3.00% 4.23% Perpetuity 3.00% 3.00% 3.00% Weighted average 6.00% 3.00% 5.97% 6.08% Fair value The fair value of debt amounts to $7,074,8 million ($6,901.9 million in 2004). Fair value includes the financial liabilities associated with foreign currency and interest-rate swaps of $230.2 million ($196.3 million in 2004). 13- PENSION PLANS AND OTHER EMPLOYEE FUTURE BENEFITS Net obligation The following table shows the net obligation for the defined benefit pension plans and other employee future benefits provided to City employees: Pension plans Actuarial value of accrued benefits 9,308,552 8,989,343 Actuarial value of assets 9,302,370 8,500, 183 Obligation 6, , 160 Valuation allowance 519, , 266 Net obligation Pension plans 525, , 426 Other employee future benefits Actuarial value of accrued benefits 96,385 92, 537 Net obligation Pension plans and employee future benefits 622,317 1,042,963 23

32 Notes and Schedules to the Financial Statements (continued) December 31, PENSION PLANS AND OTHER EMPLOYEE FUTURE BENEFITS (continued) Net obligation (continued) The actuarial value of accrued benefits for some pension plans exceeds the actuarial value of the plan assets. As at December 31, 2005, the total obligation for these plans amounts to $577.1 million ($990.9 million in 2004). The fair value of the plan assets is $5,062 million ($4,674.2 million in 2004). Similarly, the actuarial value of the assets of other pension plans exceeds the actuarial value of accrued pension benefits by a total of $570.9 million ($501.7 million in 2004). Pursuant to agreements reached to date between the municipal administration and the pension plan members in respect of surplus sharing, the employer s portion has been set at $51.2 million ($40.4 million in 2004). A valuation allowance of $519.7 million ($461.3 million in 2004) has been recorded to reflect the existence of projected surpluses to be shared accordingly to terms and various conditions that have yet to be negotiated. The fair value of the assets of these plans totals $4,731.9 million ($3,942 million in 2004). In 2005, the net average return on invested amounts was estimated at 12.5% (9.6% in 2004). This return owes to the various investment policies adopted by the pension plan commissions and to growth in financial markets. The net returns vary from 8.5% to 18.8% (from 4.1% to 14.5% in 2004). Actuarial assumptions The main assumptions used to calculate the net obligation and in the actuarial valuations completed over the period from December 31, 2001 to December 31, 2004, are shown in the following table: Pension plans Other employee future benefits Weighted discount rates 6.8% 6.5% Expected rate of return on plan assets 6.8% Salary escalation rate 3.8% 3.25% In 2005, the discount rates vary from 5% to 7% (from 4.5% to 7.25% in 2004) and the expected rates of return on plan assets vary from 4.5% to 7% (from 4.5% to 7.25% in 2004). In 2005 and 2004, the rates of compensation increase vary from 2% to 5.5%. The health-care plan growth rates vary according to the type of care. For dental care, hospitalization fees, and other medical costs, the annual growth rate is 3.25%. For drugs, the annual growth rate is set at 9.7% in 2005 and will gradually decrease to 4.25% in Repayment of net obligation of a pension plan During the year, the City repaid the actuarial liability of a pension plan subject to a notarial act valued at $411 million. This repayment was partly financed by issuing a non-negotiable bond at a tiered interest rate on behalf of the pension plan in the amount of $119.2 million (bond issued on September 15, 2005 at 5.0% through September 2010, at 5.5% through September 2015 and at 6.0% through September 2045) and by issuing $250 million in loans on the capital markets (Sinking Fund bonds issued on September 30, 2005 at 6.0%, maturing on June 1, 2043) and $12.4 million (serial bonds issued on September 30, 2005 at rates varying from 2.85% to 3.3% maturing from 2006 to 2010). Unrealized long-term financing as at December 31, 2005 amounted to $23.4 million. Expenditure for the year Excluding the repayment of the net obligation of the pension plan, the total expenditure for the year amounts to $182.3 million ($148.4 million in 2004) and is allocated to the different types of plans as follows: Defined benefit pension plans 179, , 381 Other pension plans 2,933 3, , ,

33 Notes and Schedules to the Financial Statements (continued) December 31, PENSION PLANS AND OTHER EMPLOYEE FUTURE BENEFITS (continued) To honour its pension plan obligations, the City has committed to make special payments that will be due through to December 31, The present value of these payments is $705.9 million as at December 31, Annual payments for the next five years are as follows: $72 million in 2006, $72 million in 2007, $72.4 million in 2008, $72.9 million in 2009 and $70.1 million in During the year, the contributions paid by the members and the benefits paid out by the pension plans totalled $66.8 million and $561.8 million, respectively ($68.2 million and $539.8 million, respectively, in 2004). 14- RESTRICTED SURPLUS Boroughs 112, ,681 Unanticipated expenditures 23,443 57,909 Next year's budget 39,429 Other 31,379 36, , , NET INVESTMENT IN LONG-TERM ASSETS ASSETS Investments Sinking Fund 1,046,304 1,043, 393 Real estate assets held for sale 154, , 002 Long-term receivables 1,398,103 1,405, 057 Capital assets 6,165,802 5,992, 208 8,764,711 8,593, 660 LIABILITIES AND TAXPAYERS' EQUITY Accounts payable (2,262) (2,360) Deferred revenues Unrealized net foreign exchange gains (7,863) (4,338) Deferred subsidies (1,229,788) (1,180,748) Long-term debt (6,446,705) (6,347,042) Investment expenditures to be funded on a long-term basis (544,725) (254,995) Financial activity expenditures to be funded on a long-term basis (97,967) (74,556) (8,329,310) (7,864,039) 435, ,

34 Notes and Schedules to the Financial Statements (continued) December 31, AMOUNT TO BE PROVIDED - OTHER Balance as at Balance as at December 31, Financial December 31, 2004 activities Changes 2005 Revenues Interest Investments - Sinking Fund 13,583 (1,226) 12,357 Long-term receivables 24,293 (2,044) 22,249 37,876 (3,270) 34,606 Expenditures Employee benefits (50,021) 6,624 (43,397) Interest - Long-term debt (81,671) 17,046 (64,625) (131,692) 6,624 17,046 (108,022) (93,816) 6,624 13,776 (73,416) 17- INVESTMENT EXPENDITURES Real estate assets held Long-term Capital assets for sale receivables Total Total General administration 52,031 4,584 56,615 50,161 Public safety 23,305 23,305 32,363 Transportation 221, , ,449 Environmental health 108,656 22, , ,498 Health and welfare Urban planning and development 17,094 15,568 32,662 31,489 Recreation and culture 140, , ,874 Power grid 1,340 1,340 1, ,494 4,584 38, , ,858 Investment expenditures for 2004 are detailed as follows: capital assets, $550.2 million; real estate assets held for sale, $0.3 million; and longterm receivables, $8.4 million. 26