ANNUAL REPORT 2006
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2006
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 198 of the Crown Entities Act 2004.
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 9 August 2005.
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 2004.
Sundry Debtors
Sundry debtors are stated at their net realisable value after providing for doubtful and uncollectible 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 to which the Panel’s claim for reimbursement relates.
The balance of the fund is disclosed as a component of equity in the statement of financial position.
NOTE 2 CHANGES IN ACCOUNTING POLICIES
The policy on the reporting of reimbursements from the Crown to top-up the litigation fund has been changed to better reflect the matching of this revenue with its related expenditure. This is the first year that the Panel has received such a reimbursement but the change does not have a material effect on the current year's outcome.
There have been no other changes in the Panel's accounting policies. All of the other 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 Commission staff on Panel business. Payments are at a rate that covers the cost
of overheads including the use of premises and equipment and totalled $1,115,956 for the year.
The payments to the Commission are paid in advance at the start of each quarter and are reconciled to actual usage at the end of the quarter. The amount of the unused portion of the advance to the Commission at 30 June 2006 was $10,696. This is included in sundry debtors and prepayments in the statement of financial position.
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 2006 were:
| |
2006
$ |
2005
$ |
|
|
| J.C. King (Chairman) |
84,970 |
84,500 |
| D.O. Jones (Deputy Chairman) |
45,115 |
69,024 |
| D.M. Byrne |
14,751 |
15,000 |
| A.N. Frankham |
23,631 |
22,900 |
| C.G. Giffney |
23,832 |
33,236 |
| A. Lawrence |
33,182 |
29,580 |
| K.J. O’Connor |
36,675 |
31,784 |
| D.J. Quigg |
34,202 |
44,528 |
| D.M.D. Rawstorne |
14,288 |
20,040 |
| S. Suckling |
26,727 |
14,000 |
 |
|
|
| Total |
$337,373 |
$364,592 |
|
|
|
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 made a further appropriation of $500,000 (GST inclusive) for the year ended 30 June 2006 to top-up the fund to the set level of $675,000. The Crown has undertaken to provide funds of $35,000 + GST from this appropriation as a partial top-up of the Panel's fund for the year ended 30 June 2006.
The issue of costs in the Oyster Bay litigation is currently before the High Court. Although the Court has issued its judgment the final amounts to be paid to the Panel have not yet been agreed. Accordingly the Panel has not made any provision for this in its revenue.
A summary of the movements in the fund during the year is as follows:
| |
2006
$ |
2005
$ |
|
|
| Government grant received |
35,000 |
- |
Interest received |
44,434 |
40,430 |
Interest accrued |
3,005 |
8,164 |
Expenditure on approved litigation |
(152,513) |
- |
|
|
|
Surplus/(deficit) for the year |
(70,074) |
48,594 |
Opening balance 1 July 2005 |
708,871 |
753,277 |
Part return of litigation fund to the Crown |
- |
(93,000) |
|
|
|
Balance at 30 June 2006 |
$638,797 |
$708,871 |
|
|
|
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 2006 is as follows:
| |
2006
$ |
2005
$ |
|
|
Exemptions |
232,704 |
295,254 |
Approvals |
60,382 |
89,641 |
Enforcement – section 32 |
106,810 |
94,951 |
Miscellaneous |
- |
3,646 |
|
|
|
Total |
$399,896 |
$483,492 |
|
|
|
NOTE 7 RECONCILIATION OF STATEMENT OF FINANCIAL PERFORMANCE WITH STATEMENT OF CASH FLOWS
| |
2005
$
|
2004
$
|
|
|
| Net surplus (deficit) |
(30,115) |
50,032 |
| |
|
|
| Movement in working capital: |
|
|
| Increase (decrease) in creditors |
(56,613) |
79,882 |
| (Increase) decrease in receivables |
(66,962) |
6,869 |
|
|
|
| |
(123,575) |
86,751 |
|
|
|
Net cash flows from operating activities
|
$(153,690) |
$136,783 |
|
|
|
NOTE 8 CASH FLOWS
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 for the purposes of the statement of cash flows include all activities other than investing and financing activities. Activities funded from the litigation fund are included in this category.
Cash
This means cash balances on hand, held in bank accounts, and short-term deposits in part of its day-to-day cash management.
The closing balance of cash reported in the statement of cash flows is comprised of:
| |
2006
$ |
2005
$ |
|
|
| Cash |
17,333 |
9,610 |
| Cash - litigation fund |
3,484 |
- |
| Short-term deposits - other |
261,399 |
322,897 |
|
|
|
Closing cash balance |
$282,216 |
$332,507 |
|
|
|
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 carrying amounts that are a reasonable approximation to their 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 6.90%. (2005 - 6.85%)
NOTE 10 COMMITMENTS
There were no lease commitments at balance date. (2005 - no commitments)
The Panel has no capital commitments at balance date. (2005 - no commitments)
NOTE 11 CONTINGENT LIABILITIES
There were no contingent liabilities at balance date. (2005 - no contingent liabilities)
NOTE 12 CONTINGENT ASSETS
As referred to in Note 5 the issue of costs in the Oyster Bay litigation is currently before the High Court.
Although the Court has awarded costs in the Panel's favour the final amounts due from each party to the Panel have not yet been settled.
The amount that the Panel will receive will be determined in accordance with the judgment of the Court and until the decision has been made the Panel cannot reliably estimate the amount that will be received. The expectation of the Panel is that the amount will be at least $45,000.
There were no other contingent assets at balance date. (2005 - no contingent assets)
NOTE 13 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.
The Panel has a special relationship with the Securities Commission, another independent Crown Entity and therefore also a related party. This is referred to in Note 3 above.
NOTE 14 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. (2005 – no subsequent events)
NOTE 15 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 16 BUDGET VARIANCES
Significant variances from budget were:
Income
Total operating income was $90,371 lower than budgeted, primarily because of the lower than expected level of exemption and approval work, and lower than expected recoveries from enforcement action.
Expenditure
Total operating expenditure for the year was $75,280 lower than budgeted, primarily because of lower than expected expenditure on communications, members' fees, and travel.
Net operating surplus
The Panel recorded a slightly smaller operating surplus than had been expected. This was a combination of the decreased 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.
NOTE 17 PROFESSIONAL INDEMNITY INSURANCE
The Panel has effected a professional indemnity insurance policy to provide cover for members of the Panel and employees of the Securities Commission working for the Panel as the Panel performs its duties and statutory functions.
NOTE 18 INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Accounting Standards Review Board has issued replacement New Zealand Financial Reporting Standards to apply to periods beginning on or after 1 January 2007 but entities may choose to elect adoption for up to 2 years earlier. The new standards are the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS).
The Panel has elected to publish its first full NZ IFRS financial statements for the year ending 30 June 2008.
For the purposes of FRS-41 Disclosing the Impact of Adopting New Zealand Equivalents to IFRS the Panel discloses
the following:
Management of the transition to NZ IFRS
The Audit Committee is overseeing the transition to and implementation of the NZ IFRS on behalf of the Panel.
To comply with NZ IFRS for the first time, the Takeovers Panel will restate the comparative balances applying NZ IFRS. This will require a restatement of the opening balances as at 1 July 2006 to reflect any accounting policies required by the new standards.
Major changes in accounting policy and their impacts
Changes in accounting policies under NZ IFRS are applied retrospectively i.e. as if the new policy had always applied, except as permitted in particular circumstances by NZ IFRS 1 First-time Adoption of New Zealand
Equivalents to International Financial Reporting Standards. An opening balance sheet prepared under NZ IFRS will
be required as at 1 July 2006. This will also enable the 2007/08 financial statements to report comparatives under
NZ IFRS.
Conclusion on impacts
From an initial review of the transactions and balances of the Panel it would appear that NZ IFRS is unlikely to have a material impact on the 1 July 2006 opening balances, the 2006/07 financial performance, or the 30 June 2007 balances.
The actual impact of adopting NZ IFRS may vary from the information presented, and the variation may be material.
The accompanying notes form part of these financial statements.
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