Consolidated Financial Statements - City of Langford Year ended December 31, 2015 (Audited)

Council and Officials

• Mayor: Stewart Young
• Councillors:
  • Denise Blackwell
  • Matt Sahlstrom
  • Lanny Seaton
  • Winnie Sifert
  • Lillian Szpak
  • Roger Wade
• Administrator: Jim Bowden, MPA
• Treasurer: Steve Ternent
• City Engineer: Michelle Mahovlich, M.Eng., P.Geo., P.Eng.
• City Planner: Matthew Baldwin, MCIP
• Fire Chief: Bob Beckett, MA
• Auditors: KPMG
• Solicitors: Young Anderson
• Bankers: Bank of Montreal
• Police: RCMP - West Shore

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Contents

1. Management's Responsibility for the Consolidated Financial Statements
2. Independent Auditors' Report
3. Consolidated Statement of Financial Position
4. Consolidated Statement of Operations
5. Consolidated Statement of Change in Net Debt
6. Consolidated Statement of Cash Flows
7. Notes to Consolidated Financial Statements

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Management's Responsibility for the Consolidated Financial Statements

The accompanying consolidated financial statements of the City of Langford (the "City") are the responsibility of management and have been prepared in compliance with legislation, and in accordance with Canadian public sector accounting standards for local governments as recommended by the Public Sector Accounting Board of The Canadian Professional Accountants of Canada. A summary of the significant accounting policies are described in note 1 to the consolidated financial statements. The preparation of financial statements necessarily involves the use of estimates based on management's judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods.

The City's management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are properly authorized and recorded in compliance with legislative and regulatory requirements, and reliable financial information is available on a timely basis for preparation of the consolidated financial statements. These systems are monitored and evaluated by management.

The Administration and Finance Committee meets with management and the external auditors to review the consolidated financial statements and discuss any significant financial reporting or internal control matters prior to their approval of the consolidated financial statements.

The consolidated financial statements have been audited by KPMG LLP, independent external auditors appointed by the City. The accompanying Independent Auditors' Report outlines their responsibilities, the scope of their examination and their opinion on the City's consolidated financial statements.

Treasurer

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Independent Auditors' Report

Chartered Professional Accountants

April 18, 2016
Victoria, Canada

(Full audit opinion text omitted for brevity in the table of contents; see full statements below.)

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Consolidated Statement of Financial Position

December 31, 2015, with comparative information for 2014

Commitments and contingencies (note 12)

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Consolidated Statement of Operations

December 31, 2015, with comparative information for 2014

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Consolidated Statement of Changes in Net Debt

December 31, 2015, with comparative information for 2014

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Consolidated Statement of Cash Flows

December 31, 2015, with comparative information for 2014

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Notes to Consolidated Financial Statements

December 31, 2015, with comparative information for 2014

1. Significant accounting policies

(a) Reporting entity
The City of Langford (the "City") is incorporated and operates under the provisions of the British Columbia Local Government Act and the Community Charter of British Columbia.

(b) Basis of accounting
The consolidated financial statements of the City are prepared by management in accordance with Canadian public sector accounting standards for local governments as recommended by the Public Sector Accounting Board ("PSAB") of the Chartered Professional Accountants of Canada.

The consolidated financial statements include the assets, liabilities, revenues and expenses of the City. The consolidated financial statements also include the City's proportionate interest in the West Shore Parks and Recreation Society ("West Shore"), an organization jointly controlled by the City. The City does not administer any trust activities on behalf of external parties.

(c) Revenue recognition
The City follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable.

Government transfers are recognized as revenues in the period in which events giving rise to the transfer occur, provided the transfers are authorized and any eligibility criteria have been met.

Property tax revenue is recognized on an accrual basis using approved tax rates and the anticipated assessment for the current year. Parcel tax revenues are recognized in the year that they are levied.

Investment income is reported as revenue in the period earned. When required by the funding government or related Act, investment income earned on deferred revenue is added to the investment and forms part of the deferred revenue balance.

(d) Deferred revenue
Deferred revenue includes grants, contributions and other amounts received from third parties pursuant to legislation, regulation and agreement which may only be used in certain programs, in the completion of specific work, or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed, or the tangible capital assets are acquired thereby extinguishing any liability to the City.

Development cost charges are amounts which are restricted by government legislation or agreement with external parties. When qualifying expenditures are incurred, development cost charges are recognized as revenue in amounts which equal the associated expenses.

(e) Refundable deposits
Receipts restricted by third parties are deferred and reported as refundable deposits under certain circumstances. Refundable deposits are returned when the third party meets their obligations or the deposits are recognized as revenue when qualifying expenditures are incurred.

(f) Investment income
Investment income is reported as revenue in the period earned.

(g) Cash equivalents
Cash equivalents include short-term, highly liquid investments that are cashable on demand or have a term to maturity of 90 days or less at acquisition.

(h) Long-term debt
Long-term debt is recorded net of related repayments and actuarial earnings.

(i) Non-financial assets

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

(ii) Works of art and cultural and historic assets
Works of art and cultural and historic assets are not recorded as assets in these financial statements.

(iii) Leased tangible capital assets
Leases which transfer substantially all of the benefits and risks incidental to ownership of property are accounted for as leased tangible capital assets. All other leases are accounted for as operating leases and the related payments are charged to expenses as incurred.

(iv) Inventory of supplies
Inventory of supplies held for consumption is recorded at the lower of cost and replacement cost.

(j) Employee benefits
The City and its employees make contributions to the Municipal Pension Plan. These contributions are expensed as incurred.

(k) Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period.

(l) Contributions of tangible capital assets
Tangible capital assets received as contributions are recorded at their fair value and are recorded as revenue at the date of receipt.

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2. Adoption of new accounting policy

The City of Langford adopted Public Sector Accounting Board Standard PS 3260 Liability for Contaminated Sites effective January 1, 2015. The City adopted this standard on a retroactive basis and there were no adjustments as a result of the adoption of this standard.

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3. Cash and cash equivalents

The City has an approved operating line of credit of $7,500,000.

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4. Deferred revenue

Development cost charges details:

Deferred revenue, reported on the consolidated statement of financial position, is comprised of the above.

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5. Debt

(a) Short-term debt is comprised of an interim financing facility through the TD Bank due on demand which bears interest at the Bankers Acceptance Rate plus stamping fee of 75 basis points.

(b) Long-term debt consists of the following:

Long-term debt from the TD Bank consists of five year floating rate term loans maturing from 2017 to 2021, with a current interest rate of 1.61%.

Long-term debt through the MFA is presented net of repayments and actuarial earnings. The gross value of debenture debt at December 31, 2015 is $2,918,000 (2014 - $4,643,000). The accumulation of principal repayments and actuarial earnings allocated to the City as of December 31, 2015 is $2,868,702 (2014 - $4,338,572).

(c) Principal payments on long term debt and budgeted repayments on short-term debt for the next five years are as follows:

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6. Tangible capital assets

(a) Assets under construction have a value of $10,330,582 (2014 - $3,908,536) and have not yet been amortized. Amortization will commence when the asset is put into service.

(b) Contributed tangible capital assets have been recognized at fair market value at the date of contribution. The value of contributed capital assets received during the year is $12,230,536 (2014 - $8,978,502) comprised of land $7,271,605 (2014 - $4,069,876), land improvements $106,375 (2014 - $20,172), buildings $NIL (2014 - $NIL), sewer and storm infrastructure $2,113,823 (2014 - $1,612,867) and roads infrastructure $2,738,733 (2014 - $3,275,587).

(c) The City manages works of art and non-operational historical cultural assets which are not recorded as tangible capital assets.

(d) No tangible capital assets were written down in 2015 or 2014.

(e) The City's proportionate share of West Shore Parks and Recreation Society assets includes land, buildings, and equipment which are subject to amortization policies consistent with those of the City.

Tangible capital assets — Cost, Accumulated Amortization and Net Book Value (2015 vs 2014)

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7. Sewer franchise agreement

During 2004, the City entered into a franchise and partnering agreement with West Shore Environmental Services Inc. ("WSES") and Terasen Utility Services Inc. The term of the agreement is 21 years, with a single 21 year renewal. Under the agreement, the City grants an exclusive franchise to WSES to design, construct, finance, own, and operate and maintain sanitary sewers in the City. The City also grants an exemption from municipal property tax for sewer infrastructure and WSES has been granted an Order in Council to extend that exemption to property taxes for all other jurisdictions. Upon termination of the agreement, the sewer infrastructure constructed by WSES will be acquired by the City for a nominal payment.

WSES will recover its capital costs by imposition of a sewer capital recovery fee ("SCRF") on owners of property who wish to connect to the sewer. WSES will also bill and collect all user fees. Fees were frozen for five years ended in 2009. WSES will pay the City franchise fees that are estimated to total $11 million over the 21 year term of the agreement.

The City records the costs of sewer infrastructure constructed by WSES $905,271 (2014 - $2,374,329) and corresponding remaining cost to be recovered. The remaining cost to be recovered is reduced as SCRF's are collected by WSES.

The cost of WSES sewer infrastructure, less residual value, is amortized on a straight line basis over their estimated useful lives, 60 to 70 years.

Sewer franchise agreement — Summary

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8. Accumulated surplus

Accumulated surplus consists of individual fund surplus and reserves and reserve funds as follows:

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9. Taxation

Taxation revenue, reported on the consolidated statement of operations, is comprised of the following:

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10. Government transfers

The City recognizes the transfer of government funding as revenue when received and all related eligibility criteria and stipulations have been satisfied.

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11. Municipal pension plan

The City and its employees contribute to the Municipal Pension Plan (the "Plan"), a jointly trusteed pension plan. The pension plan is a multi-employer defined benefit pension plan. The most recent actuarial valuation as at December 31, 2012 indicated a $1,370 million funding deficit for basic pension benefits. The next valuation will be as at December 31, 2015 with results available later in 2016.

Employers participating in the Plan record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). The City paid $629,637 (2014 - $563,627) for employer contributions to the Plan in fiscal 2015.

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12. Commitments and contingencies

(a) Contingent liabilities: There are several lawsuits pending in which the City is involved. It is considered that the potential claims against the City resulting from such litigation will be covered by insurance and therefore will not materially affect the consolidated financial statements of the City.

(b) Municipal Finance Authority contingent demand notes: Under borrowing arrangements with the MFA, the City is required to lodge security by means of demand notes and interest-bearing cash deposits. At December 31, 2015 there were contingent demand notes of $23,459 which are not included in the financial statements of the City.

(c) Litigation liability: See (a) above.

(d) Commitments: The City entered into a long-term contract with the Royal Canadian Mounted Police (RCMP) for the provision of police services effective October 1, 1994. Under the terms of this contract, the City is responsible for 90% of policing costs. The 2016 estimated cost of this contract is $5,309,500.

On February 7, 2013, the City entered into a purchase of service agreement with the YMCA/YWCA of Greater Victoria to provide access for Langford residents to an aquatic facility to be built in Langford. The facility is expected to open later in 2016 at which time the City agrees to pay $750,000 per year to be indexed by population every two years from the opening date to a maximum of $950,000 per year for a period of 25 years.

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13. Financial plan

The financial plan data presented in these consolidated financial statements is based upon the 2015 operating and capital financial plans approved by Council on May 4, 2015. Amortization expense was not contemplated on development of the financial plan and, as such, has not been included. The chart below reconciles the approved financial plan to figures reported in these consolidated financial statements.

Annual surplus (Financial plan) = 23,467,365 $

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14. West Shore Parks and Recreation Society

(a) Capital asset transfer:
The Capital Regional District (the "CRD") transferred the lands and facilities comprising the Juan de Fuca Recreation Centre to the municipal members effective January 2, 2002. The lands and facilities were transferred to the Municipalities in their proportionate share, as specified in the Co-Owners' Agreement. For 2015, the City's share of improvements purchased by the Society on its behalf is $NIL.

(b) Consolidation:
Financial results and budget for the Society are consolidated into the City's financial statements proportionately, based on the cost sharing formula outlined in the Members' Agreement. In 2015, the City's proportion for consolidation purposes was 49.96% (2014 - 50.27%).

Condensed financial information for the Society is as follows:

Because the cost sharing formula in the Members' Agreement produces different cost shares for the members from year-to-year, there is a gain or loss on the opening fund balances. In 2015, the City recorded a loss of $149,190.

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15. Segmented information

The City is a diversified municipal government institution that provides a wide range of services to its citizens, including General Government Services, Protective Services, Engineering and Public Works Services, Community Services and Utility and Enterprise Services. Service Areas were created for the purpose of recording specific activities to attain certain objectives in accordance with regulations, restrictions or limitations.

The accounting policies used in these segments are consistent with those followed in the preparation of the financial statements as disclosed in Note 1. Taxation and grants in lieu of taxes are apportioned to the functions based on their share of the net budgeted expenditures in the Financial Plan.

2015 Segmented Information (Revenue and Expenses)

2014 Segmented Information (Revenue and Expenses)

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