Consolidated financial statements of Corporation of the Town of Ajax
Table of contents Independent Auditor s Report... 1-2 Consolidated statement of financial position... 3 Consolidated statement of operations... 4 Consolidated statement of change in net financial assets... 5 Consolidated statement of cash flows... 6... 7-26
Deloitte LLP 5140 Yonge Street Suite 1700 Toronto ON M2N 6L7 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Independent Auditor s Report To the Members of Council, Inhabitants and Ratepayers of the Corporation of the Town of Ajax We have audited the accompanying consolidated financial statements of the Corporation of the Town of Ajax, which comprise the consolidated statement of financial position as at, and the consolidated statements of operations, change in net financial assets and cash flows for the year then ended, and 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. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers 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 included 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 financial position of the Corporation of the Town of Ajax as at and the results of its operations, change in its net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants Licensed Public Accountants May 16, 2016 Page 2
Consolidated statement of financial position as at 2015 2014 (Restated - Note 2) Financial assets Cash (Note 4, 5) 65,297,292 54,569,464 Temporary investments (Note 4, 5) 40,801,450 40,051,095 Inventories for resale 2,913 2,161 Land held for resale 940,775 940,775 Taxes receivable 8,572,464 11,014,805 Accounts receivable 7,985,732 10,138,099 Investment in government business enterprise (Note 6) 57,975,481 56,880,871 181,576,107 173,597,270 Liabilities Accounts payable and other liabilities 19,788,330 21,429,266 Deferred revenue (Note 7) 27,270,774 27,111,779 Accrued interest on municipal debt 171,746 166,164 Municipal debt (Note 8) 13,918,608 16,538,293 Employee benefits payable (Note 9) 6,644,450 6,321,456 Landfill post-closure liability (Note 10) 393,656 390,255 68,187,564 71,957,213 Contingencies and commitments (Note 12) Net financial assets 113,388,543 101,640,057 Non-financial assets Tangible capital assets (Note 14) 513,163,216 506,361,905 Construction in progress (Note 14) 3,735,245 11,391,691 Inventories of supplies 305,401 318,117 Prepaid expenses 981,513 927,276 518,185,375 518,998,989 Accumulated surplus (Note 11) 631,573,918 620,639,046 The accompanying notes to the consolidated financial statements are an integral part of this financial statement. Page 3
Consolidated statement of operations year ended 2015 budget 2015 2014 (Note 13) (Restated - Note 2) Revenue Net taxation 57,698,480 58,209,304 55,589,632 Taxation from other governments 678,700 825,818 873,172 User charges 11,902,500 13,420,583 15,491,204 Government grants 238,100 443,204 856,661 Gaming and casino revenues 6,817,500 7,163,982 6,905,811 Restricted funds earned (Note 7) 11,945,800 8,591,394 12,468,595 Investment income 1,960,600 2,193,053 2,237,746 Penalties and interest on taxes receivable 1,800,000 1,788,597 1,841,433 Donations and contributions from developers (Note 14) - 5,344,473 8,995,480 Income from government business enterprise (Note 6) - 2,844,060 1,830,663 Other 563,400 1,018,447 1,122,794 (Loss) on disposal of tangible capital assets - (178,349) (1,400,806) 93,605,080 101,664,566 106,812,385 Expenses (Note 15) General government 13,017,300 13,028,333 12,808,694 Protection to persons and property 20,892,300 20,619,747 19,706,923 Transportation services 10,898,400 18,544,665 18,438,431 Environmental services 3,529,300 3,351,637 3,255,110 Health services 122,700 243,830 125,000 Social and family services 126,100-162,006 Recreation and culture services 30,759,400 30,439,436 27,492,667 Planning and development 3,962,800 4,502,046 4,330,575 83,308,300 90,729,694 86,319,406 Annual surplus 10,296,780 10,934,872 20,492,979 Accumulated surplus, beginning of year 620,639,046 620,639,046 600,146,067 Accumulated surplus, end of year 630,935,826 631,573,918 620,639,046 The accompanying notes to the consolidated financial statements are an integral part of this financial statement. Page 4
Consolidated statement of change in net financial assets year ended 2015 budget 2015 2014 (Restated - (Note 13) Note 2) Annual surplus (deficit) 10,296,780 10,934,872 20,492,979 Acquisition of tangible capital assets (5,604,900) (25,554,436) (28,093,496) Amortization of tangible capital assets 18,400,000 18,407,950 17,829,704 Transfer of tangible capital assets to land for resale - - 440,000 Loss on sale of tangible capital assets - 178,350 1,400,806 Proceeds on sale of tangible capital assets - 166,825 61,600 23,091,880 4,133,561 12,131,593 Additions to construction in progress (19,624,700) (2,395,651) (9,242,299) Transfer of construction in progress to tangible capital assets - 10,047,672 3,550,760 Construction in progress expensed - 4,425 - (19,624,700) 7,656,446 (5,691,539) Acquisition inventory of supplies - (305,401) (318,117) Use/consumption of inventory of supplies - 318,117 189,068 Acquisition of prepaid expenses - (981,513) (927,276) Use/consumption of prepaid expenses - 927,276 857,638 - (41,521) (198,687) Net change in net financial assets 3,467,180 11,748,486 6,241,367 Net financial assets, beginning of year 101,640,057 101,640,057 95,398,690 Net financial assets, end of year 105,107,237 113,388,543 101,640,057 The accompanying notes to the consolidated financial statements are an integral part of this financial statement. Page 5
Consolidated statement of cash flows year ended 2015 2014 (Restated - Note 2) Operating activities Annual surplus 10,934,872 20,492,979 Items not involving cash Income from investment in government business enterprise (2,844,060) (1,830,663) Amortization 18,407,950 17,829,704 Loss on disposal of tangible capital assets 178,350 1,400,806 Value of contributed tangible capital assets recognized as revenue (5,344,473) (8,995,480) 21,332,639 28,897,346 Changes in non-cash assets and liabilities Accounts receivable 2,152,367 (2,657,603) Taxes receivable 2,442,341 (558,101) Accounts payable and other liabilities (1,640,936) 592,905 Deferred revenue 158,995 (2,390,605) Inventory held for resale (752) (359) Inventories of supplies 12,716 (129,049) Prepaid expenses (54,237) (69,638) Employee benefits payable 322,994 316,701 Landfill post-closure liability 3,401 3,504 24,729,528 24,005,101 Capital transactions Acquisition of tangible capital assets (net of contributed tangible capital assets) (20,209,963) (19,098,016) Decrease (increase) in construction in progress 7,656,446 (5,691,539) Proceeds on disposal of tangible capital assets 166,825 61,600 (12,386,692) (24,727,955) Investing activity Dividend from government business enterprise 1,749,450 1,508,700 Financing activities Municipal debt repaid (2,619,685) (1,367,311) Increase (decrease) in accrued interest on municipal debt 5,582 (13,911) (2,614,103) (1,381,222) Net change in cash and temporary investments 11,478,183 (595,376) Cash and temporary investments, beginning of year 94,620,559 95,215,935 Cash and temporary investments, end of year (Note 4) 106,098,742 94,620,559 The accompanying notes to the consolidated financial statements are an integral part of this financial statement. Page 6
1. Summary of significant accounting of policies Management responsibility The consolidated financial statements (the financial statements ) of Corporation of the Town of Ajax (the Town ) are the representations of management prepared in accordance with accounting policies and standards established by the Public Sector Accounting Board ( PSAB ) of the Chartered Professional Accountants of Canada (CPA Canada). Basis of accounting The focus of these financial statements is on the financial position of the Town and the changes thereto. The consolidated statement of financial position includes all the financial assets and liabilities of the Town as well as non-financial assets. Financial assets are those assets which could provide resources to discharge existing liabilities or finance future operations. Net financial assets form a part of the financial position and are the difference between financial assets and liabilities. This provides information about the municipality s overall future revenue requirements and its ability to finance activities and meet its obligations. Non-financial assets are normally used to deliver services. Their value lies with their service potential rather than their ability to generate future cash inflows. They form part of the financial position as they provide resources that the government can employ in the future to meet its objectives. The accumulated surplus is made up of the combination of net financial assets and nonfinancial assets. Significant accounting policies adopted by the Town are as follows: (a) Reporting entity (i) Consolidated financial statements (ii) (iii) The consolidated financial statements reflect the assets, liabilities, revenues and expenses of the reporting entity. The reporting entity is comprised of the activities of all committees of Council, the Town of Ajax Public Library Board, the Ajax Downtown Business Improvement Area and the Pickering Village Business Improvement Area which are controlled by the Town. All material inter-fund transactions and balances are eliminated on consolidation. Investment in Veridian Corporation The Town s investment in Veridian Corporation is accounted for on a modified equity basis, consistent with generally accepted accounting principles as recommended by PSAB for investments in government business enterprises. Under the modified equity basis, Veridian Corporation s accounting policies are not adjusted to conform to those of the Town and interorganizational transactions and balances are not eliminated. The Town recognizes its equity interest in the annual earnings or loss of Veridian Corporation in its consolidated statement of operations with a corresponding increase or decrease in its investment asset account. Dividends that the Town may receive from Veridian Corporation and other capital transactions are reflected as adjustments in the investment asset account. Operations of School Boards and the Region of Durham The taxation, other revenues, expenses, assets and liabilities with respect to the operations of the school boards and the Region of Durham are not reflected in these consolidated financial statements. Page 7
1. Significant accounting policies (continued) Basis of accounting (continued) (b) Basis of accounting (i) Accrual basis of accounting Revenue and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they are earned and measurable; expenses are recognized as they are incurred and measurable as a result of the receipt of goods and services and the creation of a legal obligation to pay. (ii) Tax revenue Tax revenue is recognized on all taxable properties within the Town included in the tax roll provided by the Municipal Property Assessment Corporation, using property values included in the tax roll or property values that can be reasonably be estimated by the Town as it relates to supplementary or omitted assessments using tax rates authorized by Council for the Town s own purposes in the period for which the tax is levied. (iii) Investments Temporary investments are recorded at the lower of cost and market value. Accrued interest is included in accounts receivable. (iv) Tangible capital assets ( TCA ) Tangible capital assets are recorded at cost less accumulated amortization. Cost includes all costs directly related to acquisition or construction of the tangible capital asset including transportation costs, installation costs, design and engineering fees, legal fees and site preparation costs. Amortization is recorded on a straight-line basis over the estimated life of the tangible capital asset commencing once the asset is available for use as follows: Land improvements 15-40 years Buildings 20-50 years Computer hardware/software 5 years Vehicles and rolling equipment 7-20 years Furniture fixtures and equipment 5-20 years Road network 20-75 years Storm water network 25-75 years One-half of the 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. Land is not amortized. Tangible capital assets received as contributions, excluding road allowances, are recorded at their fair value at the date contributed, and that amount is also recorded as revenue. Contributed road allowances are recorded at nominal value. (v) Deferred revenue Deferred revenues represent user charges and fees which have been collected but for which the related services have yet to be performed. These amounts will be recognized as revenues in the fiscal year the services are performed. In addition, any contributions received with external restrictions are deferred until the related expenditures are made. Page 8
1. Significant accounting policies (continued) Basis of accounting (continued) (b) Basis of accounting (continued) (vi) Post-employment benefits The present value of the cost of providing employees with future benefit programs is recognized as employees earn these entitlements through service. Actuarial gains and losses are amortized over the average remaining service period ( ARSP ). (vii) Inventory Inventory is valued at cost which is determined on a weighted-average basis. (viii) Government transfers Government transfers are recognized as revenues by the Town in the period during which the transfer is authorized and any eligibility criteria are met unless they are restricted through stipulations that require specific actions to be carried out in order to keep the transfer. For such transfers, revenue is recognized when the stipulation has been met. (ix) Intangible assets Intangible assets are not recognized as assets in the financial statements. (x) Use of estimates The preparation of financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Accounts involving significant estimates include allowance for doubtful accounts, accrued liabilities, employee future benefits liabilities, landfill post closure liability and estimates relating to tangible capital assets. Actual results could differ from these estimates. 2. Restatement (a) Veridian Corporation first time adoption of International Financial Reporting Standards (IFRS) Veridian Corporation, which is a 32.1% subsidiary of the Town of Ajax, adopted IFRS on January 1, 2015. The adoption of IFRS requires retrospective application of the new accounting framework to January 1, 2014, the date of transition. As a result, the amounts reported by Veridian Corporation for its December 31, 2014 year end and the opening balance sheet as at the date of transition have been restated. In preparing its opening IFRS consolidated balance sheet, Veridian Corporation has adjusted amounts reported previously in its financial statements prepared in accordance with Canadian GAAP. IFRS 1 requires an entity to explain how the transition from its previous GAAP to IFRS affected its reported financial position, financial performance and cash flows by providing reconciliations of shareholder s equity, comprehensive income and cash flows for prior periods. Accordingly, Veridian Corporation prepared their first annual financial statements in accordance with IFRS and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. The adjustments in the Town s financials due to IFRS are provided as per below: Page 9
2. Restatement of comparative figures (continued) IFRS adjustments to opening As at and for the year accumulated ended December 31, Balance surplus as at IFRS Balance, 2014, unless otherwise previously January 1, adjustments restated stated reported 2014 to 2014 (Note 6) Investment in Veridian Corporation 57,387,741 (356,000) (150,870) 56,880,871 Equity pick up from Veridian Corporation 1,981,533 - (150,870) 1,830,663 Accumulated surplus, January 1, 2014 600,502,067 (356,000) - 600,146,067 (b) Liability for Contaminated Sites The Town has implemented PSAB section 3260 Liability for Contaminated Sites. Section 3260 requires governments to record a liability in their financial statements if they have a contaminated site that meets the requirements set out in the standard. The standard defines contamination as the introduction into air, soil, water, or sediment of a chemical, organic or radiative material or live organism that exceeds an environmental standard. The standard generally applies to sites that are not in productive use. Sites that are in productive use are only considered contaminated if there was an unexpected event that resulted in contamination. The adoption of this standard has been applied retroactively without the restatement of prior periods. The adoption of this Standard did not have an impact on the Town s Financial Statements 3. Operations of school boards and the Region of Durham Further to Note 1 (a) (iii) requisitions are made by the Region of Durham and School Boards requiring the Town to collect property taxes and payments in lieu of property taxes on their behalf. The amounts collected and remitted are summarizes as follows: Region School Board Taxation 106,194,355 42,496,233 Payments in lieu of taxes 816,530 387,274 107,010,885 42,883,507 Page 10
4. Cash and temporary investments 2015 2014 Unrestricted Cash 39,976,687 24,763,678 Temporary investments 35,723,950 35,051,095 75,700,637 59,814,773 Restricted (Note 5) Cash 25,320,605 29,805,786 Temporary investments 5,077,500 5,000,000 106,098,742 94,620,559 Cash is held on deposit and in Guaranteed Investment Certificates. The cash in the bank is earning interest on a monthly basis. The interest rate is based on average balances and will fluctuate based on the bank s prime rate. The Corporation holds four Guaranteed Investment Certificates purchased from the Royal Bank of Canada totaling $40,750,000. The rate of return on these GICs range from 1.40% to 2.2%. The temporary investments held by The Ajax Public Library consist of a $51,450 redeemable GIC maturing on September 19, 2016 at an interest rate of 0.50%; each year principal and interest are reinvested. 5. Restricted assets 2015 2014 Cash and temporary investments (Note 4) 30,398,105 34,805,786 Interest receivable 54,760 64,320 Due to own municpality (4,509,645) (8,984,899) 25,943,220 25,885,207 Restricted assets represent assets of obligatory reserve funds (Note 7). Page 11
6. Investment in government business enterprise (a) Veridian Corporation is owned by the Town of Ajax, City of Pickering, Municipality of Clarington and the City of Belleville. The Town has a 32.1% per cent interest in Veridian Corporation. Veridian Corporation, as a government business enterprise, is accounted for on the modified equity basis in these financial statements. Veridian Corporation serves as the electrical distribution utility for a number of communities including the four noted above and conducts non-regulated utility service ventures through its subsidiaries. The following table provides condensed supplementary consolidated financial information for the corporation and its subsidiaries for the year ended December 31. The amounts are disclosed in thousands of dollars: 2015 2014 (000 s) (000 s) (Restated - Note 2) Assets Current 84,500 89,380 Capital and intangibles 231,368 214,725 Other 6,325 8,278 Total assets 322,193 312,383 Regulatory balances 3,170 6,764 Total assets and regulatory balances 325,363 319,147 Liabilities Current 100,133 117,719 Long-term debt 78,600 63,225 Other 19,460 12,313 Total liabilities 198,193 193,257 Shareholders' equity Share capital 67,260 67,260 Contributed capital 25 25 Accumulated other comprehensive loss (264) (264) Retained earnings 52,496 49,086 Total equity 119,517 116,107 Regulatory balances 7,653 9,783 Total liabilities, equity and regulatory balances 325,363 319,147 Comprehensive Income Commodity revenue 283,052 262,211 Commodity expenses (280,564) (261,966) Distribution revenue 51,768 49,820 Operating expenses (37,875) (37,298) Other income (expense) (5,366) (8,023) Accumulated other comprehensive loss - (264) Net movements in regulatory balances, net of tax (1,465) 1,223 Total comprehensive income for the year 9,550 5,703 Page 12
6. Investment in Veridian Corporation (continued) (b) Equity in Veridian Corporation 2015 2014 (Restated - Note 2) Balance, beginning of year 56,880,871 56,558,908 Equity share of net earnings for the year, net of adjustment to Veridian retained earnings of $221,490 (2015 -$Nil) 2,844,060 1,830,663 Dividend received from Veridian Corporation (1,749,450) (1,508,700) Balance, end of year 57,975,481 56,880,871 (c) Promissory note receivable The following promissory notes are receivable and form part of the investment in government business enterprise: 2015 2014 Veridian Corporation 5,550,000 5,550,000 Veridian Connections Inc. 14,060,000 14,060,000 19,610,000 19,610,000 Veridian Corporation The note issued by Veridian Corporation matured on and has been amended with a new maturity date of December 31, 2018 as per by-law 79-2015. The interest rate of the note issued by Veridian Corporation, remained unchanged, and is the greater of: 6%; A rate equal to the Ontario Energy Board s deemed long-term debt rate with interest rate changes effective May 1 st of each year. Veridian Connections Inc. On March 29, 2010 bylaw 46-2010 was approved by Council which amended the note issued by Veridian Connections Inc. only. The new maturity date of the note is November 1, 2039 with the following interest rates: From November 1, 2009 to April 30, 2010-7.62% From May 1, 2010 to December 31, 2014-5.57% Every 5 years, starting January 1, 2015 the rate will be reset based on the Ontario Energy Board s deemed long term debt rate. On November 20 th, 2014, the Ontario Energy Board s deemed long term rate has been established for the five year period commencing January 1, 2015 until December 31, 2019 at 4.47%. This rate will be reset on January 1 st 2020. Page 13
6. Investment in Veridian Corporation (continued) (c) Promissory note receivable (continued) The note is no longer convertible but the Town may demand full or partial repayment with six months notice with certification that the funds are required for municipal purposes. The Town has signed an inter-creditor agreement confirming the subordinated ranking of these promissory notes to the senior debt financing issued by Veridian. (d) Contingencies and guarantees of Veridian Corporation (the Corporation ) as disclosed in their financial statements are as follows: (i) Insurance claims (ii) (iii) The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange ( MEARIE ) which was created on January 1, 1987. A reciprocal insurance exchange may be defined as a group of persons formed for the purpose of exchanging reciprocal contracts of indemnity or inter-insurance with each other. MEARIE provides general liability insurance to member electric utilities. MEARIE also provides vehicle and property insurance to the Corporation. Insurance premiums charged to each member utility consist of a levy per $1,000 of service revenue subject to a credit or surcharge based on each electric utility s claims experience. The maximum coverage is $24,000,000 per occurrence for liability insurance, $15,000,000 for vehicle insurance and $98,685,000 for property insurance, plus $10,000,000 excess coverage on top of the regular liability and vehicle coverage. Contractual obligation - Hydro One Networks Inc. The Corporation s subsidiary, Veridian Connections Inc. ( VCI ), is party to a connection and cost recovery agreement with Hydro One related to the construction by Hydro One of a transformer station designated to meet VCI s anticipated electricity load growth. Construction of the project was completed during 2007 and VCI connected to the transformer station during 2008. To the extent that the cost of the project is not recoverable from future transformation connection revenues, VCI is obliged to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to VCI. The construction costs allocated to VCI for the project are $9,975,000. The Corporation has recorded a liability and a corresponding intangible asset for $1,212,000, as at (2014 - $1,212,000), based on management s best estimate of the present value of the future transformation connection revenue shortfall. Hydro One will perform a true-up based on actual load at the end of the fifth, tenth and fifteenth anniversaries of the in-service date. General Claims From time to time, the Corporation is involved in various lawsuits, claims and regulatory proceedings in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Corporation s financial position, results of operations or cash flows. Page 14
6. Investment in Veridian Corporation (continued) (e) Lease commitments Future minimum lease payment obligations under operating leases are as follows: $ 2016 34,000 2017 11,000 2018 10,000 2019 3,000 2020 2,000 Thereafter 62,000 122,000 7. Deferred revenue The obligatory reserve funds and other deferred revenue balances are summarized below: 2015 2014 Obligatory reserve funds Development charges 18,114,239 18,684,345 Gas tax 5,826,533 4,871,368 Recreational land 805,214 778,446 Building approvals 1,197,234 1,551,047 25,943,220 25,885,206 Other unearned revenues 1,327,554 1,226,573 27,270,774 27,111,779 The changes during the year in obligatory reserve funds which are reflected directly in the deferred revenue balance are analyzed as follows: Development Recreational Building charges act Gas tax land approvals Total $ Opening balance 18,684,345 4,871,368 778,446 1,551,047 25,885,206 Restricted funds received 5,128,446 3,173,513 18,109-8,320,068 Interest earned 260,454 60,227 8,659-329,340 Revenue recognized (5,959,006) (2,278,575) - (353,813) (8,591,394) Closing balance 18,114,239 5,826,533 805,214 1,197,234 25,943,220 Page 15
8. Municipal debt 2015 2014 The municipality has assumed responsibility for the payment of principal and interest charges on certain debt issued by the Regional Municipality of Durham and internally. At the end of the year, the outstanding principal was 18,039,608 20,287,672 The municipality has entered into a Development Agreement for the construction of infrastructure and is responsible for the payment of principal only, upon completion. At the end of the year, the outstanding principal was - 1,200,000 Amount to be recovered from future revenue 18,039,608 21,487,672 Less: amount owed to operating fund (4,121,000) (4,949,379) Net municipal debt 13,918,608 16,538,293 The above long-term debt has interest rates ranging from 2.650% to 6.375% per annum and maturity dates in, 2018, 2019, 2021 and 2028. The annual required payment expected for 2016 is $2,066,848 including principal and interest, and the timing of principal repayments are as follows to be paid from general municipal revenues: 2016 1,477,373 2017 1,538,447 2018 3,275,975 2019 1,377,036 2020 to 2024 3,877,777 2025 and beyond 2,372,000 13,918,608 The above debt issued in the name of the Town has been approved by by-law as required by legislation. The annual principal and interest payments required to service these liabilities are within the annual debt repayment limit prescribed by the Ministry of Municipal Affairs and Housing. Interest paid or payable in 2015 and included in expenses is $630,320 (2014 - $683,281). 9. Employee benefits payable The Town provides certain employee benefits which will require funding in the future. 2015 2014 Vacation payable 1,368,330 1,300,740 Post employment benefits 5,117,220 4,863,409 Council severance 158,900 157,307 6,644,450 6,321,456 Less: amount already funded from operations to mitigate the future impact of these obligation (473,641) (478,440) Unfunded portion 6,170,809 5,843,016 $ Page 16
9. Employee benefits payable (continued) a) Vacation payable Vacation pay owing at has been partially funded from operations and is included in employee future benefits payable in these financial statements. b) Post-employment benefits The Town sponsors a defined benefit plan for retirement benefits other than pensions for substantially all of its employees and councillors. The plan provides extended health and dental as well as vision coverage to full-time employees and councillors. The plan is unfunded and requires no contribution from employees or councillors. Total benefit payments to retirees during the year were $222,566 (2014 - $166,219). Actuarial valuations for accounting purposes are performed triennially using the projected benefit method prorated on services. An actuarial valuation was completed as at December 31, 2013 and the accrued benefit obligation of $5,833,415 is based on that valuation. The post-employment benefit liability at includes the following components: 2015 2014 Actuarially determined accrued benefit obligation 5,456,430 5,231,079 Unamortized actuarial losses (339,210) (367,670) 5,117,220 4,863,409 The current actuarial valuation is based on a number of assumptions about future events, such as inflation rates, interest rates, medical inflation rates, wage and salary increases, and employee turnover and mortality. The assumptions used reflect the Town s best estimates; however actual experience may vary from these estimates. The main actuarial assumptions employed for the valuation are as follows: Expected inflation rate 2.50% Discount rate 3.75 % Medical cost increases First year 7.00 % Decreasing over 10 years to 1% plus CPI Expected rate of dental cost increase 1% plus CPI Estimated average remaining service life of the employee group 13.0 years The post-employment benefit expense is reported on the consolidated statement of operations in the various functional categories. Composition of the amount is as follows: 2015 2014 Current year benefit cost 251,215 207,835 Amortization of actuarial losses 28,460 107,393 Interest on post-employment benefit liability 196,702 263,440 476,377 578,668 Page 17
9. Employee benefits payable (continued) c) Pension agreement The Town makes contributions to the Ontario Municipal Employees Retirement Fund (OMERS), a multi-employer pension plan, on behalf of members of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. The Administration Corporation Board of Directors, representing plan members and employers, is responsible for overseeing the management of the pension plan, including investment of the assets and administration of the benefits. OMERS provides pension services to 450,000 active and retired members and 1,000 employers. Each year an independent actuary determines the funding status of OMERS Primary Pension Plan (the Plan) by comparing the actuarial value of invested assets to the estimated present value of all pension benefits that members have earned to date. The most recent actuarial value of the Plan was conducted at. The results of this valuation disclosed total actuarial liabilities of $82,369 million in respect of benefits accrued for service with actuarial assets at that date of $75,392 million indicating an actuarial deficit of $6,977 million. As OMERS is a multi-employer plan, any pension plan surpluses or deficits are a joint responsibility of Ontario municipal organizations and their employees. As a result, the Town does not recognize any share of the OMERS pension surplus or deficit. The amount contributed to OMERS for 2015 was $3,161,809 (2014 - $3,243,094). d) Council severance Part of the remuneration package includes eligibility of all Councillors to receive a severance payment of one month salary per year of continuous service, with a minimum of four years of continuous service, to a maximum payment of 12 months should they not be re-elected. The estimated liability based on service and salary levels as at totalling $158,900 (2014 - $157,307) has been fully funded from operations and included in employee benefits payable in these financial statements. 10. Landfill post-closure liability The Town owns one closed landfill site requiring post-closure care including monitoring of ground and surface water, leachate and gas, as well as ongoing maintenance and annual reporting to comply with environmental legislation. Municipalities are required to recognize liabilities for all of these future costs as the sites are filled, therefore all post-closure costs must be estimated and recognized fully for closed sites. This liability is unfunded and is therefore shown as a separate component of accumulated surplus (Note 11). In 2013, an environmental consulting firm was engaged to provide an updated estimate post-closure costs. The estimate was based on assumptions regarding the nature and amount of annual expenses, an inflation factor of 2%, a 40 year future monitoring requirement and discounted at 3.75%. Actual experience may vary from these assumptions and as new information becomes available. Based on an extrapolation of that valuation, the estimated present value of costs as at December 31, 2015 is $393,656 (2014 - $390,255). Composition of the liability is as follows: 2015 2014 Liability, beginning of the year 390,255 386,751 Expenses (11,448) (10,797) Gain on revaluation of liability - - Cost adjustment to account for inflation 14,849 14,301 393,656 390,255 Page 18
11. Accumulated surplus 2015 2014 (Restated - Note 2) Surplus - BIAs and Library 182,686 329,626 Invested in tangible capital assets (Note 14) 513,163,216 506,361,905 Invested in construction in progress (Note 14) 3,735,245 11,391,691 Municipal debt (Note 8) (13,918,608) (16,538,293) Internal debt - owing to operating fund (Note 8) (4,121,000) (4,949,379) Internal capital fund 4,879,008 3,751,454 Reserve/reserve fund balances 75,301,580 68,703,667 Equity in government business enterprise (Note 6) 57,975,481 56,880,871 Employee benefits payable (Note 9) (6,170,809) (5,843,016) Landfill post-closure (Note 10) (393,656) (390,255) Land for resale 940,775 940,775 631,573,918 620,639,046 12. Contingencies and commitments a) Capital project commitments The Town has committed to many capital projects expected to be completed over several years including the Reconstruction of Rossland Road and the construction of Pat Bayly Square. As at, the Town had awarded contracts in the amount of $124,339,705 (2014 - $102,301,102) and $87,943,979 (2014 - $91,030,116) of those awarded amounts have been spent. The remaining contractual commitments of $36,395,726 (2014 - $11,270,985) will be incurred as capital expenditures as the work is completed. Funding for the completion costs is expected to include use of funds from various discretionary and obligatory reserve funds. b) Legal matters The Town has been named in litigation matters, the outcome of which is undeterminable and accordingly, no provision has been provided for any potential liability in these financial statements. Should any loss result from these claims, which is not covered by insurance, such loss would be charged to operations in the year of resolution or earlier if the loss is likely and measurable. c) Participation in Durham Municipal Insurance Pool The Town is a member of the Durham Municipal Insurance Pool ( DMIP ), which was created in July 2000. DMIP provides insurance coverage to seven member municipalities. The annual contributions from each member municipality are based on the value of its insured assets, claims experience, population and risk management philosophy. Future levies depend on the experience of the pool. Beyond the $10,000 Town deductible, DMIP covers eligible insurance claims up to $500,000. DMIP has outside coverage in place for claims over $500,000. Because DMIP is a multi-municipality insurance pool, surpluses or deficits are a joint responsibility of the member municipalities through future levies. The Town does not recognize any share of the DMIP surplus or deficit, but has made provision for estimated deductible amounts of $111,600 (2014 - $112,100) for all outstanding Town claims. Page 19
13. Budget figures The 2015 Budget adopted by Council on February 9, 2015 was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while Public Sector Accounting Standards require a full accrual basis. The budget figures treated all tangible capital asset additions as expenses and did not include amortization expense on tangible capital assets, postemployment benefits or landfill costs. As a result, the budget figures presented in the Consolidated Statements of Operations and Change in Net Financial Assets represent the budget adopted by Council on February 9, 2015 with adjustments as follows: 2015 budget Non TCA Amortization/ 2015 budget adopted by expenditures post emp ben/ presented in Council from capital landfill costs statements Revenue Taxation 58,377,180 - - 58,377,180 Restructed funds earned 11,945,800 - - 11,945,800 Other 23,282,100 - - 23,282,100 93,605,080 - - 93,605,080 Expenses General government 11,399,700 329,100 1,288,500 13,017,300 Protection 19,458,000 230,100 1,204,200 20,892,300 Transportation 867,100 1,798,800 8,232,500 10,898,400 Environmental 617,700 440,000 2,471,600 3,529,300 Health 122,700 - - 122,700 Social and family 126,100 - - 126,100 Recreation and culture 23,762,400 1,471,400 5,525,600 30,759,400 Planning and development 3,909,300 15,000 38,500 3,962,800 60,263,000 4,284,400 18,760,900 83,308,300 Annual surplus 33,342,080 (4,284,400) (18,760,900) 10,296,780 Capital expenditures (30,040,300) Transfers to (from) reserve/reserve funds (2,590,500) Transfer GBE dividends 1,508,700 Debt proceeds - Debt repayment (2,248,100) Budgeted use of prior year surplus (28,120) Consists of Ajax Public Library (25,000) Ajax Downtown BIA (1,120) Pickering Village BIA - Town of Ajax - (26,120) Page 20
14. Tangible capital assets 2015 General assets Infrastructure assets Vehicles Computer Furniture, Vehicles Furniture, Land & rolling hardware fixtures & Road Storm water & rolling fixtures & Land improv. Buildings equipment & software equipment Land network network equipment equipment Total Cost, beginning of year 126,381,441 55,435,263 116,603,479 11,982,341 1,238,860 12,253,195 13,315,119 254,961,733 95,065,096 5,573,717 43,404 692,853,648 Additions 3,652,726 5,045,056 1,487,188 673,694 776,545 1,270,626 95,718 10,728,107 1,251,036 573,740-25,554,436 Disposals (2,172) (23,575) (426,716) (661,364) (217,340) (514,478) - (922,147) (1,225,832) (304,769) - (4,298,393) Cost, end of year 130,031,995 60,456,744 117,663,951 11,994,671 1,798,065 13,009,343 13,410,837 264,767,693 95,090,300 5,842,688 43,404 714,109,691 Accumulated amortization, beginning of year - 20,548,947 26,069,583 6,484,980 599,821 5,862,308-95,250,628 28,118,185 3,542,138 15,153 186,491,743 Amortization - 2,798,373 2,890,734 885,453 259,734 1,098,789-7,672,381 2,449,242 344,563 8,681 18,407,950 Disposals - (23,575) (394,101) (601,060) (217,341) (494,768) - (715,325) (1,225,832) (281,216) - (3,953,218) Accumulated amortization, end of year - 23,323,745 28,566,216 6,769,373 642,214 6,466,329-102,207,684 29,341,595 3,605,485 23,834 200,946,475 Net book value, beginning of year 126,381,441 34,886,316 90,533,896 5,497,361 639,039 6,390,887 13,315,119 159,711,105 66,946,911 2,031,579 28,251 506,361,905 Net book value, end of year 130,031,995 37,132,999 89,097,735 5,225,298 1,155,851 6,543,014 13,410,837 162,560,009 65,748,705 2,237,203 19,570 513,163,216 Page 21
14. Tangible capital assets (continued) 2014 General assets Infrastructure assets Vehicles Computer Furniture, Vehicles Furniture, Land & rolling hardware fixtures & Road Storm water & rolling fixtures & Land improv. Buildings equipment & software equipment Land network network equipment equipment Total Cost, beginning of year 126,327,944 47,941,830 115,904,623 10,974,373 1,159,748 11,622,627 13,269,155 246,454,515 92,172,150 5,746,138 43,404 671,616,507 Additions 53,497 8,129,309 757,795 1,193,688 286,100 2,544,665 485,964 11,496,381 2,892,946 253,151-28,093,496 Disposals - (635,876) (58,939) (185,720) (206,988) (1,914,097) (440,000) (2,989,163) - (425,572) - (6,856,355) Cost, end of year 126,381,441 55,435,263 116,603,479 11,982,341 1,238,860 12,253,195 13,315,119 254,961,733 95,065,096 5,573,717 43,404 692,853,648 Accumulated amortization, beginning of year - 18,452,831 23,305,385 5,783,235 587,646 6,663,452-89,560,187 25,698,819 3,559,027 5,406 173,615,988 Amortization - 2,537,323 2,793,078 887,466 219,163 1,112,953-7,441,925 2,419,366 408,683 9,747 17,829,704 Disposals - (441,207) (28,880) (185,721) (206,988) (1,914,097) - (1,751,484) - (425,572) - (4,953,949) Accumulated amortization, end of year - 20,548,947 26,069,583 6,484,980 599,821 5,862,308-95,250,628 28,118,185 3,542,138 15,153 186,491,743 Net book value, beginning of year 126,327,944 29,488,999 92,599,238 5,191,138 572,102 4,959,175 13,269,155 156,894,328 66,473,331 2,187,111 37,998 498,000,519 Net book value, end of year 126,381,441 34,886,316 90,533,896 5,497,361 639,039 6,390,887 13,315,119 159,711,105 66,946,911 2,031,579 28,251 506,361,905 Page 22
14. Tangible capital assets (continued) The net book value of tangible capital assets not being amortized because they are under construction is $3,735,245 (2014 - $11,391,691). Assets contributed to the Town in 2015, consisting of Land, Land Improvements, Road Network and Storm Water Network assets, had a fair market value of $5,344,473 (2014 - $8,995,480). They have been capitalized at their fair market value. The Town holds various works of art and historical treasures pertaining to the heritage and history of the Town of Ajax. These items are not recognized as tangible capital assets in the financial statements because a reasonable estimate of the future benefits associated with such property cannot be made. Under agreement with Toronto Region Conservation Authority (TRCA), the Town has the right to use certain lands owned by TRCA for recreational purposes and enjoyment of the general public. Within the terms of the agreement, the Town is responsible for the full cost of construction and maintenance of assets which are situated on the property as well as maintenance and improvements to the land. The following table summarizes the value of assets located on TRCA land. Furniture Land fixtures & Storm water Buildings improvements equipment network Total Cost, beginning of year 2,525,568 5,434,883-616,130 8,576,581 Additions 64,302 119,944 66,828-251,074 Disposals - (23,575) - - (23,575) Cost, end of year 2,589,870 5,531,252 66,828 616,130 8,804,080 Accumulated amortization, beginning of year 542,445 2,311,453-493,557 3,347,455 Amortization 53,263 253,481 3,341 24,645 334,730 Disposals - (23,575) - - (23,575) Accumulated amortization, end of year 595,708 2,541,359 3,341 518,202 3,658,610 Net book value, beginning of year 1,983,123 3,123,430-122,573 5,229,126 Net book value, end of year 1,994,162 2,989,893 63,487 97,928 5,145,470 Page 23
15. Segmented information The Town is a diversified municipal government institution that provides a wide range of services to its citizens. Distinguishable functional segments have been separately disclosed in the segmented information. The nature of the segments and the activities they encompass are as follows: General government This item relates to revenues and expenses of the Town itself and cannot be directly attributed to specific segments. Protection to persons and property Protection includes fire services, animal control and building inspection/enforcement of building code to ensure the safety and protection of citizens and their property. Transportation services Transportation includes construction and maintenance of the Municipality s roadways, including snow removal, asphalt patching and sidewalk repairs. Environmental services Environmental services include urban storm water management costs, litter pickup and closed landfill site monitoring costs. Health, social and family services Health and social services for assistance or services for seniors. Recreation and culture services Recreation and cultural services are actively supported by the municipality and include recreation programs, current and new facilities, parks, maintenance and construction and library services. Planning and development Planning and development provides a number of services including municipal planning and review of all property development plans through its application processes. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Where revenues are not directly attributable to a segment, they are prorated as a percentage of the segment s expenses versus total expenses. Page 24
15. Segmented information (continued) 2015 Protection to Health, social Recreation General persons and Transportation Environmental and family and culture Planning and government property services services services services development Unallocated Total $ Revenue Taxation 8,477,148 13,416,659 12,066,464 2,180,811 158,653 19,806,039 2,929,348 59,035,122 User charges 379,038 1,267,483 858,115 2,979 31,697 8,072,577 2,808,694 13,420,583 Government grants - - - - 7,228 435,976-443,204 Gaming and casinos 1,028,712 1,628,127 1,464,280 264,644 19,253 2,403,486 355,480 7,163,982 Investment income 314,911 498,406 448,248 81,013 5,894 735,760 108,820 2,193,053 Restricted funds earned 38,250-6,418,213 29,847-1,659,061 446,023 8,591,394 Penalties and interest on taxes 256,834 406,487 365,580 66,072 4,807 600,067 88,751 1,788,597 Donations and contributed assets 78,190-1,936,327 416,304-2,913,650 5,344,473 Government business enterprise - - - - - - - 2,844,060 2,844,060 Gain (loss) on disposal (17,602) - (125,960) - - (34,787) - (178,349) Other 146,244 231,458 208,165 37,622 2,737 341,685 50,536 1,018,447 10,701,725 17,448,620 23,639,432 3,079,292 230,269 36,933,514 6,787,652 2,844,060 101,664,566 Expenses Salaries, wages and benefits 8,427,778 17,436,293 4,447,680 267,377 20,935 15,229,056 3,589,926-49,419,045 Materials, supplies and services 1,946,473 1,081,875 3,975,220 425,303 13,189 6,361,389 468,127-14,271,576 Contracted services 1,288,229 525,014 1,715,467 168,571 3,799 2,240,336 737,822-6,679,238 Rents and financial expenses 473,116 5,864 354,693-17,305 189,960 392-1,041,330 Amortization 1,211,633 1,068,840 8,201,774 2,449,242 5,471,388 73,035-18,475,912 Other (318,896) 501,861 (150,169) 41,144 188,602 947,307 (367,256) - 842,593 13,028,333 20,619,747 18,544,665 3,351,637 243,830 30,439,436 4,502,046-90,729,694 Annual surplus (2,326,608) (3,171,127) 5,094,767 (272,345) (13,561) 6,494,078 2,285,606 2,844,060 10,934,872 Page 25
15. Segmented information (continued) 2014 Protection to Health, social Recreation General persons and Transportation Environmental and family and culture Planning and government property services services services services development Unallocated Total $ Revenue Taxation 8,520,591 12,890,591 12,057,581 2,129,216 52,041 17,980,091 2,832,693-56,462,804 User charges 425,453 1,510,653 303,262 43,690 32,996 10,358,343 2,816,807-15,491,204 Government grants 82,244-498,915 - - 275,502 - - 856,661 Gaming and casinos 1,042,130 1,576,613 1,474,730 260,418 6,365 2,199,096 346,459-6,905,811 Investment income 337,690 510,882 477,868 84,386 2,063 712,591 112,266-2,237,746 Restricted funds earned 3,524 375 10,983,925 378,483-1,044,942 57,346-12,468,595 Penalties and interest on taxes 277,884 420,403 393,236 69,442 1,697 586,388 92,383-1,841,433 Donations and contributed assets - - 6,276,314 2,471,835-247,331 - - 8,995,480 Government business enterprise - - - - - - - 1,830,663 1,830,663 Gain (loss) on disposal 4,482 752 (1,196,746) - - (209,294) - - (1,400,806) Other 169,437 256,337 239,772 42,341 1,035 357,542 56,330-1,122,794 10,863,435 17,166,606 31,508,857 5,479,811 96,197 33,552,532 6,314,284 1,830,663 106,812,385 Expenses Salaries, wages and benefits 7,998,627 16,649,792 4,551,696 216,462 7,311 14,243,057 3,463,986-47,130,931 Materials, supplies and services 1,937,366 918,248 3,900,912 419,415 9,278 5,004,810 262,464-12,452,493 Contracted services 1,571,879 581,705 1,746,929 160,385 53,909 2,061,032 796,215-6,972,054 Rents and financial expenses 392,113 26,261 286,600-8,097 159,541 360-872,972 Amortization 1,196,216 1,038,440 8,021,908 2,419,366-5,147,747 6,027-17,829,704 Other (287,507) 492,477 (69,614) 39,482 208,411 876,480 (198,477) - 1,061,252 12,808,694 19,706,923 18,438,431 3,255,110 287,006 27,492,667 4,330,575-86,319,406 Annual surplus (1,945,259) (2,540,317) 13,070,426 2,224,701 (190,809) 6,059,865 1,983,709 1,830,663 20,492,979 Page 26