ANNUAL REPORT 2005

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 30 June 2005

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 28 September 2004. The budget figures are prepared in accordance with generally accepted accounting practice.

Short Term Deposits

Short term deposits are shown at cost.

GST

All items in the financial statements are exclusive of GST with the exception of sundry debtors and prepayments and creditors and accruals which are stated with GST included.

Financial Instruments

All financial instruments are recognised in the statement of financial position and all revenues and expenses in relation to financial instruments are recognised in the statement of financial performance.

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

Government grant is recognised as revenue when earned and is reported in the financial period to which it relates. 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 small remaining balance was amortised last year.

NOTE 2 CHANGES IN ACCOUNTING POLICIES

There have been no changes in the Panel’s accounting policies.

All policies have been applied on bases consistent with those used last year.

NOTE 3 SECURITIES COMMISSION SERVICES

Although the Panel is an independent Crown entity it does not have its own premises or equipment and does not employ its own staff. Instead these services are provided by the Securities Commission in terms of an agreement negotiated between the Panel and the Commission on an arm’s length basis. The Panel pays the Commission on the basis of the hours worked by the Commission staff on Panel business. Payments are at a rate that covers the cost of overheads including the use of premises and equipment.

NOTE 4 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 2005 were:

	2005 $	2004 $
J.C. King (Chairman)	84,500	81,223
D.O. Jones (Deputy Chairman)	69,024	50,935
D.M. Byrne	15,000	13,312
A.N. Frankham	22,900	19,361
C.G. Giffney	33,236	26,652
A. Lawrence	29,580	15,832
K.J. O’Connor	31,784	22,800
D.J. Quigg	44,528	29,193
D.M.D. Rawstorne	20,040	15,033
S. Suckling	14,000	13,942
Total	$364,592	$288,283

NOTE 5 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 (GST inclusive) for the year ending 30 June 2005 to top-up the fund to the set level of $675,000. The Panel has not drawn on this appropriation during the year ended 30 June 2005. The Panel returned $93,000 of accumulated interest to the Crown during the year. The outcome was a reduction in the litigation fund of $44,406 over the year.

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

	2005 $	2004 $
Interest received	40,430	31,549
Interest accrued	8,164	5,829
Expenditure on approved litigation	-	(23,386)
Surplus/(deficit) for the year	48,594	13,992
Opening balance 1 July 2004	753,277	739,285
Part return of litigation fund to the Crown	(93,000)	-
Balance at 30 June 2005	$708,871	$753,277

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 2005 is as follows:

	2005 $	2004 $
Exemptions	295,254	200,260
Approvals	89,641	90,173
Enforcement – section 32	94,951	131,645
Miscellaneous	3,646	-
Adjustment to prior year income	-	(11,239)
Total	$483,492	$410,839

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

	2005 $	2004 $
Net surplus (deficit)	50,032	(12,314)
Movement in working capital:
Increase (decrease) in creditors	79,882	7,327
(Increase) decrease in receivables	6,869	87,872
	86,751	95,199
Net cash flows from operating activities	$136,783	$82,885

NOTE 8 CASH FLOWS

Cash

This means cash balances on hand, held in bank accounts, and short-term deposits in which the Panel invests as part of its day-to-day cash management. Some of the prior year’s comparative figures have been amended to reflect this updated definition of cash.

Investing Activities

Investing activities are those activities relating to the movements in short-term deposits. 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 which are rolled over frequently through the year.

Financing Activities

Financing activities are those activities relating to changes in equity structure of the Panel.

Operating Activities

Operating activities include all activities other than investing and financing activities.

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

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Panel invests only in short-term bank deposits for which there is no interest rate risk. The weighted average effective interest rate on short-term deposits was 6.85% (2004 - 5.46%).

NOTE 10 COMMITMENTS

There were no lease commitments at balance date. (2004 - no commitments)

The Panel has no capital commitments at balance date. (2004 - no commitments)

NOTE 11 CONTINGENT LIABILITIES

There were no contingent liabilities at balance date. (2004 - no contingent liabilities)

NOTE 12 TRANSACTIONS WITH RELATED PARTIES

The Panel is an independent Crown entity for the purposes of the Crown Entities Act 2004. The Crown is its major source of revenue.

The Panel has entered into a number of transactions with other entities within the Crown on an arm’s length basis. Where those parties are acting in the course of their normal dealings with the Panel, related party disclosures have not been made for transactions of this nature.

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. (2004 - 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 $236,622 higher than budgeted, primarily because of the additional funding provided by the Crown in the final month of the year, and the higher than expected level of exemption work.

Expenditure

Total operating expenditure for the year was $156,873 higher than budgeted, primarily because of higher expenditure on outside experts, members’ fees, and travel relating to the higher level of activity including exemption and enforcement work.

Net Operating Surplus

The Panel recorded a small operating surplus when a large deficit had been expected. This was a combination of the increased income and 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.