ANNUAL REPORT 2004

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 30 June 2004

NOTE 1   STATEMENT OF ACCOUNTING POLICIES

Reporting Entity
The Takeovers Panel is a body corporate established by the Takeovers Act 1993. The financial statements presented here are prepared pursuant to section 16 of the Takeovers Act 1993 and section 41 of the Public Finance Act 1989.

Measurement System
The accounting principles recognised as appropriate for the measurement and reporting of results and financial position on an historical cost basis have been applied.

Specific Accounting Policies
Budget Figures
The budget figures are those approved by Panel members on 30 September 2003. The budget figures are prepared in accordance with generally accepted accounting practice.

Short Term Deposits
Short term deposits are shown at cost.

GST
The Panel is registered for GST and GST is accounted for by the net method.

Financial Instruments
Financial instruments recognised in the statement of financial position include cash balances, receivables, payables, and investments.

Income Tax
The Panel is exempt from income tax under the Income Tax Act 1994.

Sundry Debtors
Sundry debtors are stated at their net realisable value after providing for doubtful and uncollectable debts.

Revenue Recognition
The Government grant is recognised as revenue when it becomes due. Revenue from application fees and costs recoverable is recognised when the relevant services are provided or when the Panel has made the relevant determination under section 32 of the Takeovers Act 1993.

Litigation Fund
Interest income and expenditure on approved litigation fund matters are reported as income and expenditure of the Panel in the financial period in which they were derived or incurred. Reimbursements from the Crown to top-up the fund are reported as income in the period in which the Panel’s claim for reimbursement is accepted by the Crown. The balance of the fund is disclosed as a component of equity in the statement of financial position.

Prepayment for Use of Assets
This represents amounts paid to the Securities Commission to finance the purchase of assets required by the Commission to service the requirements of the Panel. The amounts are being written off, having regard to the expected life of the assets and the estimated period of the arrangements with the Commission, over the following periods:

The small remaining balance after writing off the current portion of prepayments was amortised this year. In future years the Securities Commission is expected to finance capital expenditure items related to furniture, fittings, and office equipment.

NOTE 2   CHANGES IN ACCOUNTING POLICIES

There have been no changes in the Panel’s accounting policies other than for Prepayment for Use of Assets. All of the other policies have been applied on bases consistent with those used last year.

NOTE 3   REMUNERATION OF MEMBERS OF THE PANEL

Members are remunerated on the basis of time spent on the work of the Panel. Members’ fees for the year ended 30 June 2004 were:

	2004 $	2003 $
J.C. King (Chairman)	81,223	81,059
D.O. Jones (Deputy Chairman)	50,935	47,030
D.M. Byrne	13,312	14,212
A.N. Frankham	19,361	6,729
C.G. Giffney	26,652	29,285
A. Lawrence	15,832	16,500
K.J. O’Connor	22,800	20,867
D.J. Quigg	29,193	15,613
D.M.D. Rawstorne	15,033	20,371
S. Suckling	13,942	6,633
P.D. McKenzie (Associate)	-	133
Total	$288,283	$258,432

NOTE 4   LITIGATION FUND

The Panel has established a litigation fund from an appropriation of $675,000 (GST not applicable) made by Parliament. The fund is to be used solely for litigation costs that are incurred by the Panel as it enforces compliance with the Takeovers Code or responds to litigation brought against it. It is being held on short term deposit. Parliament has made a further appropriation of $675,000 for the year ending 30 June 2005 to top-up the fund to the set level of $675,000, should this be required during the year.

The fund was used during the year to defend proceedings brought against the Panel in relation to one of the exemption applications submitted to the Panel. The proceedings were later withdrawn.

A summary of the movements in the fund during the year is as follows:

	2004 $	2003 $
Opening balance 1 July 2003	739,285	699,208
Government grant received	-	-
Recovery of costs	-	12,375
Interest received	31,549	34,701
Interest accrued	5,829	5,376
Expenditure on approved litigation	(23,386)	(12,375)
Balance at 30 June 2004	$753,277	$739,285

NOTE 5   PREPAYMENT FOR USE OF ASSETS

	2004 $	2003 $
Opening balance	25,177	26,629
Amount paid to finance the purchase of additional assets	-	34,105
Amount amortised for use of assets	(25,177)	(35,557)
Balance at 30 June 2004	-	$25,177
Current portion	-	20,950
Non-current portion	-	4,227
Balance at 30 June 2004	-	$25,177

NOTE 6   APPLICATION FEES AND COSTS RECOVERABLE

The Takeovers (Fees) Regulations 2001 enable the Panel to recover costs with respect to applications received for various approvals, for exemptions, and for certain enforcement action pursuant to the Takeovers Act. An analysis of the amounts received for the year ended 30 June 2004 is as follows:

	2004 $	2003 $
Exemptions	200,260	209,722
Approvals	90,173	78,997
Enforcement – section 32	131,645	166,266
Miscellaneous	-	5,885
Adjustment to prior year income	(11,239)	-
Total	$410,839	$460,870

NOTE 7   RECONCILIATION OF STATEMENT OF FINANCIAL PERFORMANCE WITH STATEMENT OF CASH FLOWS

	2004 $	2003 $
Reported surplus (deficit)	(12,314)	(57,745)
Add prepayment for use of assets	-	34,106
Movement in working capital:
Increase (decrease) in creditors	7,327	(86,291)
(Increase) decrease in receivables	87,872	124,544
	95,199	38,253
Net cash flows from operating activities	$82,885	$14,614

NOTE 8   CASH FLOWS

The cash flows relating to the Panel’s investing activities are reported on a net basis in the statement of cash flows. The amounts involved are held in short term deposits that are rolled over frequently through the year.

NOTE 9   FINANCIAL INSTRUMENTS

Credit Risk
Financial instruments which potentially subject the Panel to credit risk consist of bank balances, bank short term deposits, sundry debtors, and accrued interest receivable.

The Panel’s investments are deposited with a registered bank in New Zealand.

The Panel does not require collateral or security to support financial instruments.

There are no concentrations of credit risk.

Fair Values
All financial instruments are recognised in the statement of financial position and are stated at fair values.

Currency Risk
The Panel does not hold any overseas securities or deposits and is therefore not exposed to any currency risk.

Interest Rate Risk
The Panel has not purchased any financial instruments that may be subject to interest rate risk.

NOTE 10   COMMITMENTS

There were no lease commitments at balance date. (2003 – no commitments)
The Panel has no material commitments at balance date. (2003 – no commitments)

NOTE 11   CONTINGENT LIABILITIES

There were no contingent liabilities at balance date. (2003 – no contingent liabilities)

NOTE 12   TRANSACTIONS WITH RELATED PARTIES

There were no transactions with related parties during the year. (2003 – Mr Peter McKenzie QC provided a number of expert opinions and acted as counsel assisting the Panel on several occasions during 2003. Mr McKenzie was appointed as an associate member of the Panel for the period 19 September 2002 to 19 March 2003 in relation to one matter before the Panel. Fees totalling $24,032 were paid to him during the year for his opinions and advice, in addition to his fees earned as an associate member of the Panel. There were no other transactions with related parties during the year.)

NOTE 13   SUBSEQUENT EVENTS

There were no material events subsequent to balance date that would affect the interpretation of the financial statements or the performance of the Panel. (2003 – no subsequent events)

NOTE 14   SEGMENTAL INFORMATION

The Takeovers Panel operates in one industry segment administering the Takeovers Act and Code and is based in one geographical segment, which is New Zealand.

NOTE 15   BUDGET VARIANCES

Significant variances from budget were:

Income
Total operating income was $15,823 lower than expected, primarily because of the fewer enforcement meetings held during the year from which the Panel was able to recover its costs under the Takeovers (Fees) Regulations 2001.

Expenditure
Total operating expenditure for the year was $115,498 less than expected, primarily because utilisation of Securities Commission staff resources was below the level agreed with the Commission. Expenditure on outside experts was also less than budgeted.

Net Surplus
The Panel recorded a lower deficit than had been expected. This was a combination of reduced third party fee income and reduced staff and expert expenditure discussed above. The activities of the Panel are influenced significantly by the level of takeover activity and the needs of the market for exemptions and approvals. The Panel also has obligations to keep the Code under review and to review market practices.