Report to/Rapport au :

As at December 31

The City of Ottawa

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION

[dollars in thousands]

2005 2004

$ $

FINANCIAL ASSETS

Cash and short-term investments 172,616 170,614

Accounts receivable 165,804 157,760

Investments [note 4] 719,825 526,868

Investment in government business enterprises [note 5] 253,569 431,059

Total financial assets 1,311,814 1,286,301

NON-FINANCIAL ASSETS

Inventories 23,483 23,854

Prepaid expenses [note 6] 11,372 9,231

Total non-financial assets 34,855 33,085

Total assets 1,346,669 1,319,386

LIABILITIES

Accounts payable and accrued liabilities 276,133 227,284

Short-term loan [note 7] 16,907 12,985

Deferred revenue [note 8] 324,343 300,826

Employee benefits [notes 9 and 14] 253,498 236,758

Accrued interest [note 14] 12,650 11,278

Landfill closure and post-closure liability [notes 10 and 14] 10,847 17,828

Net long-term debt [notes 11 and 14] 721,848 655,481

Capital lease obligations [notes 12 and 14] 87,667 72,628

Total liabilities 1,703,893 1,535,068

Contingencies and commitments [notes 12 and 13]

MUNICIPAL POSITION

Operating fund (10,765) 1,188

Capital fund 67,811 58,503

Reserves and reserve funds 451,428 300,202

Equity in government business enterprises [note 5] 253,569 431,059

Fund balances 762,043 790,952

Amounts to be recovered in future years [note 14] (1,119,267) (1,006,634)

Total municipal position (357,224) (215,682)

Total liabilities and municipal position 1,346,669 1,319,386

See accompanying notes

The City of Ottawa

CONSOLIDATED STATEMENT OF FINANCIAL ACTIVITIES

[dollars in thousands]

For the year ended December 31

2005 2004

$ $

REVENUES

Net taxes available for municipal purposes [note 15] 1,099,196 1,059,355

Fees and user charges 489,446 467,690

Government grants 391,080 363,975

Investment income 44,913 40,448

Interest from Hydro Ottawa Holding Inc. 189 16,455

Fines and penalties 20,448 18,767

Development charges 72,262 47,052

Other revenue 35,668 30,321

Total revenues 2,153,202 2,044,063

EXPENDITURES

General administration 179,707 187,141

Fire 116,341 113,716

Police 178,524 176,494

Land ambulance and other protective services 103,946 79,261

Roads, traffic and parking 215,874 199,256

Public transit 391,578 310,920

Wastewater treatment 101,961 77,627

Water supply and distribution 88,491 66,616

Waste and recycling services 46,729 44,221

Social housing 169,186 137,318

Parks and recreation 135,417 131,950

Libraries 43,051 29,152

Planning and development 30,936 32,784

Social services 272,475 267,458

Homes for the aged 53,162 58,855

Child care 89,546 82,280

Health 37,592 35,095

Interest and financing fees 62,738 62,353

Total expenditures 2,317,254 2,092,497

Net expenses for the year before the following: (164,052) (48,434)

Equity in earnings of government business enterprises [note 5] 22,510 19,659

Net expenses for the year (141,542) (28,775)

Financing

New debt issued 130,062 35,026

Capital lease 16,200 —

Debt principal repayments (64,856) (61,970)

Obligations to be funded in future years 31,227 11,937

Increase (decrease) in financing 112,633 (15,007)

Change in fund balances for the year (28,909) (43,782)

Fund balance at the beginning of the year 790,952 834,734

Fund balance at the end of the year 762,043 790,952

See accompanying notes

For the year ended December 31

The City of Ottawa

CONSOLIDATED STATEMENT OF CASH FLOWS

[dollars in thousands]

2005 2004

$ $

OPERATING ACTIVITIES

Net expenses for the year (141,542) (28,775)

Adjustment for non-cash items:

Equity in earnings of government business enterprises (22,510) (19,659)

Capital expenditures financed by capital lease 16,200 —

Uses:

Increase in accounts receivable (8,044) (16,829)

Increase in inventories — (90)

Increase in prepaid expenses (2,141) —

Decrease in accounts payable and accrued liabilities — (27,920)

Decrease in landfill closure and post-closure liability (6,981) —

(165,018) (93,273)

Sources:

Decrease in inventories 371 —

Decrease in prepaid expenses — 2,855

Increase in accounts payable and accrued liabilities 48,849 —

Increase in short-term loan 3,922 12,985

Increase in deferred revenue 23,517 57,446

Increase in employee benefit obligation 16,740 10,327

Increase in accrued interest 1,372 896

Increase in landfill closure and post-closure liability — 3,247

94,771 87,756

Cash used in operating activities (70,247) (5,517)

INVESTING ACTIVITIES

Decrease (increase) in investments (192,957) 49,171

Cash provided by (used in) investing activities (192,957) 49,171

FINANCING ACTIVITIES

Proceeds from payment of Hydro Ottawa Holding Inc loan 200,000 —

New debt issued 130,062 35,026

Debt principal repayment (64,856) (61,970)

Cash provided by (used in) financing activities 265,206 (26,944)

Net increase in cash and short-term

investments for the year 2,002 16,710

Cash and short-term investments, beginning of the year 170,614 153,904

Cash and short-term investments, end of the year 172,616 170,614

See accompanying notes

The City of Ottawa

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[dollars in thousands]

December 31, 2005

1. NATURE OF BUSINESS

The City of Ottawa [“the City”] was created through Provincial legislation on December 20, 1999 and commenced operations on January 1, 2001.

The City is responsible for providing municipal services such as employment and financial assistance, long-term care, community services and libraries, emergency and protective services including police, fire and ambulance, and transportation, utilities and public works, including roads, sewers and wastewater, drinking water, garbage and recycling.

As sole shareholder of Hydro Ottawa Holding Inc. and the Ottawa Community Housing Corporation, the City also provides hydro and housing services to the residents of Ottawa.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These consolidated financial statements are prepared by management in accordance with accounting policies prescribed by the Public Sector Accounting Board [“PSAB”] of the Canadian Institute of Chartered Accountants [“CICA”]. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves estimates, which have been made using careful judgment.

Basis of consolidation

These consolidated financial statements reflect the assets, liabilities, revenues and expenditures of the operating fund, capital fund, reserves and reserve funds, and include the activities of all committees of council, and the following boards:

The Police Services Board	The Carp Village Business Improvement Area
The City of Ottawa Public Library Board	The Vanier Business Improvement Area
The Ottawa Community Housing Corporation	The Manotick Business Improvement Area
The Ottawa-Nepean Campsite Authority	The Sparks Street Mall Authority
The Bank Street Business Improvement Area	The Somerset Heights Business Improvement Area
The Westboro Business Improvement Area	The Preston Street Business Improvement Area
The Sparks Street Business Improvement Area	The Byward Market Business Improvement Area
The Somerset Village Business Improvement Area	The Rideau Business Improvement Area

All interfund assets and liabilities, revenues and expenditures have been eliminated.

Certain subsidiary corporations are accounted for on a modified equity basis, consistent with the generally accepted accounting treatment for such government business enterprises [see note 5]. Under the modified equity basis, the business enterprise’s accounting principles are not adjusted to conform to those of the City, and inter-organizational transactions and balances are not eliminated. Subsidiary corporations accounted for in this manner are:

Pine View Municipal Golf Course

Hydro Ottawa Holding Inc. and its subsidiaries

The City of Ottawa Sinking Fund is not consolidated, except for the City’s share of Sinking Fund interest income used to finance the principal amount of debt. The financial statements also exclude trust assets that are administered for the benefit of external parties.

School boards

The taxation, other revenues, expenditures, assets and liabilities with respect to the operations of the school boards are not reflected in these consolidated financial statements.

Basis of accounting

Revenues and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues, as they are earned and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay.

Measurement uncertainty

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions on such areas as employee benefits, assessment appeals and environmental provisions. These estimates and assumptions are based on the City’s best information and judgment and may differ significantly based on actual results.

Financial instruments

The City’s financial instruments consist of cash and short-term investments, accounts receivable, investments, accounts payable and accrued liabilities, deferred revenue, and net long-term debt. Unless otherwise noted, it is management’s opinion that the City is not exposed to significant interest, currency or credit risks arising from these financial instruments. The carrying values of the City’s financial instruments approximate their fair values unless noted.

Cash and short-term investments

Cash and short-term investments include all highly liquid investments with remaining maturities of 90 days or less as at the balance sheet date.

Investments

Investments are recorded at amortized cost less amounts written off to reflect a permanent decline in value. Investments consist of authorized investments pursuant to provisions of the Municipal Act and comprise of financial instruments issued by Canadian government and Schedule I and II banks, as well as asset-backed securities and eligible commercial paper. Investments for Ottawa Community Housing Corporation are carried at cost and only written down when there has been a permanent impairment to the carrying value. Investments maturing less than or equal to 90 days are classified as short-term investments on the Consolidated Statement of Financial Position.

Environmental provisions

The City provides for the cost of compliance with environmental legislation when conditions are identified which indicate non-compliance with environmental legislation and costs can be reasonably determined. The estimated amounts of future restoration costs are reviewed regularly, based on available information and governing legislation.

Deferred revenue

Certain amounts are received pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs or in the completion of specific work. In addition, certain user charges and fees are collected but for which the related services have yet to be performed. These amounts are recognized as revenue in the fiscal year the related expenditures are incurred or services performed.

Government transfers

Government transfers relate to the social services and housing programs and are recognized in the consolidated financial statements in the period in which events giving rise to the transfer occur, providing the transfers are authorized, any eligibility criteria have been met and reasonable estimates of the amounts can be made.

Inventories

Inventories are recorded at the lower of cost and replacement cost.

Capital assets

The historical cost and accumulated depreciation of capital assets are not recorded for municipal purposes. Capital assets are reported as an expenditure on the Consolidated Statement of Financial Activities in the year of acquisition.

Employee benefit plans

The City has adopted the following policies with respect to employee benefit plans:

[a] The costs of post-employment benefits are recognized as a liability when earned; costs include projected future income payments, health care continuation costs and fees paid to independent administrators of these plans, calculated on a present value basis;

[b] The costs of pensions and other retirement benefits are actuarially determined using the projected benefits method prorated on service and management’s best estimate of retirement ages of employees, salary escalation, expected health care costs and plan investment performance; and

[c] The contributions to a multi-employer, defined benefit pension plan are expensed when contributions are due.

Solid waste landfill provision

The estimated costs to close and maintain solid waste landfill sites are based on estimated future expenditures in current dollars, adjusted for estimated inflation, and are reported as a liability on the Consolidated Statement of Financial Position.

Reserves and reserve funds

Reserves and reserve funds comprise funds set aside for specific purposes by Council [see schedule 3].

3. CHANGE IN BASIS OF ACCOUNTING

The City has adopted the accounting and disclosure requirements for local governments related to contingent liabilities in 2005. Contingent liabilities must now be recognized as an expense in the financial statements when it is likely that a future event will confirm that a liability had been incurred at the date of the financial statements, and the amount can be reasonably estimated. This change in accounting was applied prospectively in 2005. As a result, an amount of $17,270 has been expensed in the Consolidated Statement of Financial Activities.

4. INVESTMENTS

Investments are comprised of:

Cost Market Value

2005 2004 2005 2004

$ $ $ $

City of Ottawa debentures 43,274 49,164 45,908 52,482

Federal government 315,045 119,933 317,965 123,732

Provincial government 97,147 140,661 102,122 146,375

Municipal government 134,551 116,461 137,846 120,657

Banks 49,285 39,391 50,402 40,471

OCHC securities* 31,088 30,000 34,552 31,800

Other 49,435 31,258 49,293 31,744

719,825 526,868 738,088 547,261

* Corporate bonds, common and foreign stock held for Ottawa Community Housing Corporation

The weighted average yield on investments held as at December 31, 2005 is 4.28% [2004 ‑ 5.00%]. Investments mature from April 7, 2006 to March 8, 2029.

Investments include $200,000 supporting a City Endowment Fund created through the repayment of a promissory note from Hydro Ottawa Holding Inc. [see note 5].

5. INVESTMENT IN GOVERNMENT BUSINESS ENTERPRISES

Investments are comprised of:

Net Assets Share of Income

2005 2004 2005 2004

$ $ $ $

Pine View Municipal Golf Course (253) (198) (55) (41)

Hydro Ottawa Holding Inc. 253,822 431,257 22,565 19,700

253,569 431,059 22,510 19,659

[a] Investment [100% owned] in Pine View Municipal Golf Course

The following table provides condensed supplementary financial information for Pine View Municipal Golf Course:

2005 2004

$ $

Financial position

Current assets 123 83

Capital assets 1,704 1,550

Total assets 1,827 1,633

Current liabilities 71 69

Cash advanced by the City of Ottawa 2,009 1,762

Total liabilities 2,080 1,831

Net assets (253) (198)

2005 2004

$ $

Results of operations

Total revenues 2,007 1,682

Total expenses 2,062 1,723

Net loss (55) (41)

[b] Investment [100% owned] in Hydro Ottawa Holding Inc.

The following table provides condensed supplementary financial information of Hydro Ottawa Holding Inc. for the year ended December 31:

2005 2004

$ $

Financial position

Current assets 152,571 140,529

Capital assets 470,271 440,141

Other assets 10,977 7,239

Total assets 633,819 587,909

Current liabilities 148,480 138,888

Other 231,517 17,764

Total liabilities 379,997 156,652

Net assets 253,822 431,257

Net assets consist of:

2005 2004

$ $

Investment in Hydro Ottawa Holding Inc.:

Notes payable to the City of Ottawa — 200,000

Common shares [100%] 228,453 228,453

Retained earnings 25,369 2,804

Net assets 253,822 431,257

Interest income of $189 [2004 ‑ $16,455] was earned by the City of Ottawa in 2005 on promissory notes bearing an annual interest rate of 6.9%. On December 31, 2004, by Resolution approved by City Council dated August 25, 2004, $37,825 of the $237,825 promissory note issued by Hydro Ottawa Holding Inc. was converted into 37,825,000 Class A common shares of Hydro Ottawa Holding Inc. On January 6, 2005, Hydro Ottawa Holding Inc repaid the promissory note to the City of Ottawa in the amount of $200,000 with proceeds contributed to a City Endowment Fund [see schedule 3].

A target dividend policy of 60% of any annual net income of Hydro Ottawa Holding Inc was also approved by City Council. The City of Ottawa as holder of common shares in Hydro Ottawa Holding Inc is entitled to receive dividends related to 2005 operations as declared by Hydro Ottawa Holding Inc Board in 2006.

For the year ended December 31, 2005, Hydro Ottawa Holding Inc. earned revenues related to sale of electricity and broad bandwidth, the provision of street lighting services, and energy management consulting in the amount of $29,999 [2004 ‑ $30,757] from the City of Ottawa. Certain services mainly related to water and sewer charges, fuel and permits were purchased from the City of Ottawa in the amount of $354 [2004 ‑ $852]; property taxes in the amount of $1,712 [2004 ‑ $1,644] and royalties in the amount of $137 [2004 ‑ $nil].

Hydro Ottawa Holding Inc. also owns 28.33% of Chaudière Water Power Inc. [“CWP”], a corporate entity formed and owned by Domtar Inc., Energy Ottawa Inc. and Hydro-Quebec that operates and maintains the Chaudière dam. By agreement, all expenditures incurred by CWP, including those of a capital nature, are recovered from shareholders based on their pro-rata interest in the Company.

2005 2004

$ $

Results of operations

Total revenues 707,934 621,856

Total expenses 685,369 602,156

Net income 22,565 19,700

6. PREPAID EXPENSES

The balance of prepaid expenses reported on the Consolidated Statement of Financial Position is comprised of:

2005 2004

$ $

Prepaid welfare entitlements 7,100 7,800

Other prepaids 4,272 1,431

11,372 9,231

Prepaid welfare entitlements represent the advance payment of January benefit entitlements in the month of December. Of this amount, the Province of Ontario will fund 80%.

7. SHORT-TERM LOAN

The City has entered into an agreement with the Ontario Strategic Infrastructure Financing Authority [“OSIFA”] for up to $45,700 in long-term loans to be issued in future years for bridge, water and wastewater projects. The City had short-term construction loans outstanding in the amount of $16,907 [2004 ‑ $12,985] under this loan facility as at December 31, 2005. In addition during 2005, $11,841 has been issued as a long term debenture to OSIFA. This amount is included in note 11.

8. DEFERRED REVENUE

Deferred revenue, set aside for specific purposes by legislation, regulation or agreement as at December 31 is comprised of:

2005 2004

$ $

Development charges 257,407 255,537

Other deferred revenue 43,861 34,914

Gas Tax 12,463 —

Cash in lieu of parkland 7,374 7,475

Cash in lieu of parking 3,022 2,669

Local improvements 216 231

Total deferred revenue 324,343 300,826

9. EMPLOYEE BENEFITS AND PENSION AGREEMENTS

The City provides certain benefits including retirement and other employment benefits to most of its employees.

[a] Employee benefits

Employee benefit liabilities of the City as at December 31 are as follows:

2005 2004 $ $

Post-retirement benefits 116,407 107,402

Post-employment benefits 68,089 66,939

Workplace Safety and Insurance Board obligations 51,851 49,112

Vacation leave 17,151 13,305

253,498 236,758

The defined benefit plans relating to post-retirement and post-employment provide a variety of benefits to retirees, active and long-term disabled employees, including income, medical, dental, life insurance, workers’ compensation and sick leave gratuity benefits.

The City is a schedule 2 employer under the Workplace Safety and Insurance Act and, as such, assumes full responsibility for financing its workplace safety insurance costs. The accrued obligation represents the present value of future benefits on existing claims.

The continuity for post-retirement and post-employment benefits for 2005 is as follows:

Post-retirement Post-employment Total

$ $ $

Balance, at the beginning of the year 107,402 66,939 174,341

Experience trend and interest adjustments 5,421 (5,733) (312)

Current service costs/cost of new claims 3,119 8,314 11,433

Interest cost 5,326 3,433 8,759

Benefits paid (4,861) (4,864) (9,725)

Balance, at the end of the year 116,407 68,089 184,496

Due to the complexities in valuating the plans, actuarial valuations are conducted on a periodic basis. The liabilities reported in these consolidated financial statements are based on a valuation as of December 31, 2005.

Many of the estimates and assumptions used in 2005 may change significantly with the next detailed evaluation. The significant actuarial assumptions adopted in measuring the City’s accrued benefit obligations for post-retirement and post-employment benefits are as follows:

2005

Discount rate 4.5%

Inflation rate 3.0%

Health care inflation rate 10% initially, grading down to 5% in 2014

2004

Discount rate 5.0%

Inflation rate 3.0%

Health care inflation rate 11% initially, grading down to 5% in and after 2014

[b] Pension agreements

[i] Ontario Municipal Employees Retirement Fund

The City makes contributions to the Ontario Municipal Employees Retirement System [“OMERS”], which is a multi-employer pension plan, on behalf of most of its employees. The plan is a defined benefit plan, which specifies the amount of the retirement benefit to be received by the employees based on length of service and rates of pay. The City’s contribution to the OMERS Plan for 2005 was $45,514 [2004 ‑ $41,590] for current service and is included as an expenditure on the Consolidated Statement of Financial Activities.

The amount contributed for past service to OMERS for the year ended December 31, 2005 was $297 [2004 ‑ $320] and is included as an expenditure on the Consolidated Statement of Financial Activities.

[ii] City of Ottawa Superannuation Fund

The City also sponsors the City of Ottawa Superannuation Fund [“COSF”], a defined benefit plan which provides retirement benefits to employees based on length of service and rates of pay. With the introduction of OMERS, the COSF became a closed group in 1965. As at December 31, 2005 there were no active members and 950 pension recipients. As at December 31, 2004, there were 4 active members and 978 pension recipients. No employee or matching employer contributions to the COSF for current service or for past service was required in 2005 or 2004.

The latest actuarial valuation was made as at December 31, 2004. The net pension asset is as follows:

Pension fund assets ‑ end of the year 274,330

Accrued benefit obligation ‑ end of the year 272,469

Net pension asset 1,861

The City is committed to provide an increase in indexation from 55% of inflation to 75% in 2005 and an increase of 5% for each of the next 5 years. The cost of this indexation is expected to be approximately $20,000 and will be recorded over the average remaining life expectancy of the former employees.

[iii] Ottawa-Carleton Regional Transit Commission Employees’ Pension Plan

Staff of the former Ottawa-Carleton Regional Transit Commission [“OC Transpo”] joined OMERS as of January 1, 1999.

OC Transpo maintains a contributory defined benefit plan, which covers all of its employees and provides a pension based on length of service and rates of pay. The last actuarial evaluation was conducted as at January 1, 2005 and no experience deficiency existed in the plan at that time.

10. LANDFILL CLOSURE AND POST-CLOSURE LIABILITIES

The Ontario Environmental Protection Act sets out the regulatory requirements for the closure and maintenance of landfill sites. Under this Act, the City is required to provide for closure and post-closure care of solid waste landfill sites. The costs related to these obligations are provided over the estimated remaining life of the landfill sites based on usage.

The City has two active landfill sites ‑ Trail Road Landfill and Springhill as well as one inactive site for which the City has responsibilities for all costs relating to closure and post-closure care. As at December 31, 2005, the remaining capacity of the Trail Road site is approximately 8,200,000 [2004 ‑ 912,747] cubic meters, all of which is expected to be used by the year 2038. A Site Optimization/Expansion Environmental Assessment for Trail Road was approved in 2005, which increased the capacity of the Trail Rd landfill and will therefore extend the life [capacity] of the landfill from the year 2009 to the year 2038. The remaining capacity at the Springhill site is approximately 1,009,193 [2004 ‑ 1,140,017] cubic meters, which is expected to be used by the year 2021.

Closure for the Trail Road Landfill and Springhill will involve covering the site, implementing drainage control, installing ground water monitoring wells and gas recovery facilities. Post-closure care activities for these sites and other inactive sites are expected to occur for approximately 25 years.

The estimated liability for the care of landfill sites is the present value of future cash flows associated with closure and post-closure costs discounted using the City’s cost of capital of 4.5% [2004 ‑ 5.0%] as well as considering an annual CPI inflation rate of 2.02% [2004 ‑ 2.02%] [annual average of the last 10 years]. This estimate amounts to $10,847 at December 31, 2005 [2004 ‑ $17,828] and is included as a liability on the Consolidated Statement of Financial Position. The main reason for the reduction of the liability is due to the extension of the life of the Trail Road Landfill from 2009 to 2038.

Estimated total expenditures over the 25 years post-closure period are approximately $39,870.

11. NET LONG-TERM DEBT

[a] Net long-term debt reported on the Consolidated Statement of Financial Position comprise the following:

2005 2004

$ $

Instalment and sinking fund debenture debt issued at various rates of interest ranging from 2.41 % to 10.75% 618,773 544,251

The total value of sinking fund deposits, which have accumulated to the end of the year to retire Sinking Fund debentures included in the above amount (154,221) (135,034)

464,552 409,217

Public Private Partnership Debt 12,882 —

Mortgages payable on housing properties at various interest rates ranging from 2.5% to 11.25% guaranteed by the Canada Mortgage and Housing Corporation 242,175 245,663

Forgivable loans related to Canada Ontario Affordable Housing Program and the Residential Rehabilitation Assistance Program 2,239 601

721,848 655,481

Public housing debentures issued by Canada Mortgage and Housing Corporation in the amount of $93,061 [2004 ‑ $96,877] included in the Ottawa Community Housing Corporation [“OCHC”] have not been included in these consolidated financial statements as they are the responsibility of the Province.

Mortgages and forgivable loans on housing properties are governed by operating agreements with the Province of Ontario and/or the Canada Mortgage and Housing Corporation and involve no direct or indirect obligation to the City of Ottawa. Properties owned by OCHC with a net book value of approximately $244,414 [2004 ‑ $246,264] pledged as collateral for the mortgages and forgivable loans, have not been reflected in the Consolidated Statement of Financial Position.

[b] Principal payments including contributions to the Sinking Fund in future years are:

2006 55,746

2007 48,902

2008 47,760

2009 49,457

2010 and thereafter 473,453

675,318

These amounts will be paid from tax and rate supported operations. It is estimated that interest to be earned by the Sinking Fund will amount to approximately $46,530, which together with the $675,318 shown above, will be used to retire the outstanding debt of $721,848.

[c] In addition to the net long-term debt set out above, the City has entered into guarantees of loans amounting to $47,800 arranged to provide financing for the development of an ice rink and the construction of a Paramedic headquarters facility under Public Private Partnerships. The City’s guarantees also cover the borrowers’ obligations under interest rate derivative agreements to manage the volatility of interest rates. Similarly, the City has entered into a loan agreement and a respective interest rate derivative agreement for the construction of another ice rink facility in the amount of $12,882 under another Public Private Partnership. With respect to these loan facilities, the City has converted $60,800 of floating rate debt for fixed rate debt ranging from 5.85% to 6.49%. The related derivative agreements are in place until the maturity of the debts in 2025 to 2035.

12. CAPITAL LEASE OBLIGATIONS

The City leases an administrative office building and Paramedic Services headquarters building as detailed below:

Office Paramedic Services

Building Building

Lease term 24 years 30 years

Interest rate 6.0% 5.794%

Purchase option $10,000 $Nil

Future minimum payments for both the above capital leases are as follows:

Paramedic

Office Building Services Building Total

Principal Interest Principal Interest Principal Interest

$ $ $ $ $ $

2006 1,231 4,127 517 858 1,748 4,985

2007 1,305 4,053 529 830 1,834 4,883

2008 1,388 3,975 542 800 1,930 4,775

2009 1,473 3,892 554 770 2,027 4,662

2010 1,561 3,803 566 739 2,127 4,542

Thereafter 64,509 38,392 13,492 7,932 78,001 46,324

71,467 58,242 16,200 11,929 87,667 70,171

13. CONTINGENCIES AND COMMITMENTS

[a] In the normal course of operations, the City has become involved in various claims and legal proceedings. While the final outcome with respect to claims and legal proceedings pending at December 31, 2005 cannot be predicted with certainty, it is the opinion of management that their resolution will not have a materially adverse effect on the City’s financial position or results of operations.

[b] A class action suit claiming $500,000 in restitution payments plus interest was served on the former Toronto Hydro-Electric Commission in 1998 as the representative of the Defendant Class consisting of all municipal electric utilities in Ontario which have charged late payment charges on overdue utility bills at any time after April 1, 1981.

The claim is that late payment penalties result in electric utilities receiving interest at effective rates in excess of what is allowed under Section 347(1)(b) of the Criminal Code. This action has not yet been certified as a class action and no discoveries have been held, as parties were awaiting the outcome of a similar proceedings brought against The Consumers Gas Company Limited [now Enbridge Gas Distribution Inc.].

On April 22, 2004, the Supreme Court of Canada released a decision in the Enbridge Gas Distribution Inc. [“EGD”] case with respect to late payment penalties. The Court rejected all the defences which had been raised by EGD, however the Court did not permit the plaintiff class to recover damages for any period prior to the issuance of the Statement of Claim in 1994. At this time, it is not possible to quantify the effect, if any, on the financial statements of the City of Ottawa.

[c] Purchasers of electricity in Ontario, through the Independent Electricity System Operator [“IESO”], are required to provide security to mitigate the risk of their default based on their expected activity in the market.

The IESO could draw on these guarantees if Hydro Ottawa Holding Inc fails to make a payment required by a default notice issued by the IESO. A prudential support obligation is calculated based upon a default protection amount and the distributor’s trading limit less a reduction for the distributor’s credit rating. As at December 31, 2005 and December 31, 2004, Hydro Ottawa Holding Inc. provided bank letters of credit of $22,000 to cover its prudential support obligation. In addition, Hydro Ottawa Holding Inc provided bank letters of credit of $376 to the City of Ottawa and Ontario Power Authority as security for construction projects.

[d] Hydro Ottawa Holding Inc. participates with other electrical utilities in Ontario in an agreement to exchange reciprocal contracts of indemnity through the Municipal Electrical Association Reciprocal Insurance Exchange. Hydro Ottawa Holding Inc. is liable for additional assessments to the extent premiums collected and reserves established are not sufficient to cover the cost of claims and costs incurred. If any additional assessments are required in the future, their cost would be charged to operations in the year in which they occur.

[e] Hydro Ottawa Holding Inc. may be subject to environmental regulatory requirements related to the destruction of PCBs in distribution transformers and other clean up related to PCBs if draft federal legislation in its current form is ultimately passed. Proposed revisions to the Federal PCB Regulatory Framework under the Canadian Environmental Protection Act, 1999 recommends that certain equipment containing PCBs be removed from service by December 31, 2009 with final removal of PCB equipment expected by December 31, 2014. This legislation could result in approximately $10,000 to $11,000 being spent over the 4-year period from 2006 to 2009. No amount has been recorded in these financial statements.

[f] The City has commitments on capital projects at December 31, 2005 in the amount of $261,075 [2004 ‑ $130,208].

[g] The City is committed to the following payments over the next five years under operating lease agreements:

2006 14,260

2007 11,612

2008 10,875

2009 10,384

2010 5,521

[h] Hydro Ottawa Holding Inc. has $9,600 in open commitments for 2006. This includes $3,200 for an application services agreement, for its customer information system and beginning in 2005 an arrangement to provide call centre services, with IBM Canada Limited. The minimum billable value of the agreement over its term is $16,418 and is set to expire December 31, 2010.

[i] The City has commitments for the purchase of ice rental time in the amount of $8,064 and $13,047 in accordance with two Public Private Partnership Agreements. These commitments are set to expire in 2024 and 2034 respectively.

14. AMOUNTS TO BE RECOVERED IN FUTURE YEARS

The amounts to be recovered in future years reported on the Consolidated Statement of Financial Position are comprised of:

2005 2004

$ $

Net long-term debt 721,848 655,481

Employee benefits 253,498 236,758

Capital lease obligations 87,667 72,628

Accrued interest on debt 12,650 11,278

Landfill closure and post-closure liability 10,847 17,828

Others 32,757 12,661

1,119,267 1,006,634

Net financial liabilities are comprised of:

2005 2004

$ $

Total financial assets 1,311,814 1,286,301

Total liabilities 1,703,893 1,535,068

Net financial liabilities (392,079) (248,767)

15. NET TAXES AVAILABLE FOR MUNICIPAL PURPOSES

2005 2004

$ $

Property taxes 1,334,561 1,291,913

Payment in lieu of taxes 175,686 176,821

Local improvements and other charges 15,159 15,157

Less education taxes (426,210) (424,536)

Net taxes available for municipal purposes 1,099,196 1,059,355

16. OPERATING EXPENDITURES BY OBJECT

2005 2004

$ $

Salaries, wages and employee benefits 979,280 922,292

Contracted and general services 92,958 86,219

Materials, equipment and supplies 337,340 296,878

Interest charges 61,053 61,462

Rents and financial expenses 41,735 35,537

Third-party social, cultural and recreation programs 321,926 313,153

Expenditures recovered from capital (27,560) (28,855)

1,806,732 1,686,686

17. PUBLIC LIABILITY INSURANCE

The City self-insures for public liability claims up to a specific amount and outside coverage is in place for claims in excess of these limits.

The City has reserve funds for self-insurance which at December 31, 2005 amounted to $4,298. The City contributed $1,146 [2004 ‑ $703] to these reserve funds from operations.

18. BUDGET AMOUNTS

Budgets established for capital, reserves and reserve funds cover multiple fiscal years and, therefore, have not been shown on the consolidated financial statements.

19. COMPARATIVE FIGURES

Certain comparative figures for 2004 have been reclassified to conform with the presentation adopted in 2005.

SUBJECT:	2005 CITY OF OTTAWA CONSOLIDATED FINANCIAL STATEMENTS

OBJET :	ÉTATS FINANCIERS CONSOLIDÉS DE 2005 DE LA VILLE D’OTTAWA

DOCUMENT 1

Consolidated Financial Statements

The City of Ottawa

AUDITORS’ REPORT

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION

Reserve funds: