Trustee Banks Restructuring Act 1988 Consolidated Statement of Financial Performance for the Year Ended 31 March 1997 1997 1996 Note $ $ Dividends CTIL 700 WestpacTrust 8,400,000 12,600,000 Interest 27,984,817 659,150 Investment income 2,475,257 2,492,827 Total revenue 38,860,774 15,751,977 Less expenses Advertising, public relations, distribution and travelling costs 361,278 204,034 Audit fees 12,750 7,750 Central administration and support costs 264,302 69,967 Consultants fees 249,300 1,038 Custodial and investment management fees 123,216 123,988 Depreciation and loss on sale 28,301 22,684 Professional fees 185,938 97,990 Property costs 38,516 35,794 Salaries and staff recruiting fees 279,432 145,735 Trustees fees 89,945 82,800 Write off of debit balance in revaluation reserve4 14,740 Total expenses 1,632,978 806,520 Net surplus before taxation 37,227,796 14,945,457 Less taxation12 40,892 Net surplus before retentions and distributions 37,227,796 14,904,565 Less retentions Future donation/capital base reserves 8,740,535 1,427,932 Available for distribution 28,487,261 13,476,633 Donations to tax approved entities Donations approved3 2,824,165 1,404,225 Special project donations approved3 3,494,188 3,592,065 Cancelled donations from prior years (123,489) Total distributed/approved 6,194,864 4,996,290 Net surplus transferred to trust funds $22,292,397 $8,480,343 Transferred to: Accumulated income reserve4 22,292,397 8,480,343 $22,292,397 $8,480,343 The notes to the financial statements form part of and are to be read in conjunction with these financial statements. Consolidated Statement of Movements in Trust Funds for the Year Ended 31 March 1997 1997 1996 Note $ $ Total trust funds at beginning of year 325,737,272 254,036,286 Less donations paid from capital3 (9,490,218[teh]) (7,807,289[teh]) Plus cancelled donations from prior years 37,661 316,284,715 246,228,997 Add net surplus for the year 22,292,397 8,480,343 Prior years donations transferred to long term commitments 51,667 Increase in capital base reserve 8,740,535 1,427,932 Revaluation of investments4 45,757,244 69,600,000 Total recognised revenues and expenses 76,841,843 79,508,275 Total trust funds at end of year $393,126,558 $325,737,272 Represented by: Core real capital base reserve4 358,000,000 61,968,961 Accumulated income reserve4 26,386,023 13,228,061 Capital base reserve4 8,740,535 872,935 Revaluation reserve4 244,490,769 Future donation reserve4 5,176,546 $393,126,558 $325,737,272 The notes to the financial statements form part of and are to be read in conjunction with these financial statements. Consolidated Statement of Financial Position as at 31 March 1997 1997 1996 Note $ $ Trust funds4 $393,126,558 $325,737,272 Represented by: Current assets WestpacTrust Current account 308,794 71,180 On call account 13,205,282 1,367,780 Bank deposits 350,037,627 6,533,175 Donations paid in advance 708 Accrued interest 2,085,340 143,915 Prepayments 15,419 Taxation refund due12 4,733,115 40,056 Goods and services tax 38,080 11,276 Current portion of investments 194,947 634,976 370,619,312 8,802,358 Investments 2 Government securities 450,040 593,006 Local authorities securities 51,040 539,917 Trust Bank New Zealand Limited shares 296,400,000 Community loans 397,142 543,625 Armstrong Jones (NZ) Limited/managed funds 23,378,506 23,147,761 Investment property 1,862,270 192,539 26,138,998 321,416,848 Less current portion (194,947[teh]) (634,976[teh]) 25,944,051 320,781,872 Fixed assets7 84,338 100,865 Total assets 396,647,701 329,685,095 Current liabilities Accounts payable 89,100 92,425 Accrued charges 29,872 28,310 Committed special project donations 3,110,971 3,547,388 Committed donations 291,200 159,700 Committed community loans 120,000 Total liabilities 3,521,143 3,947,823 Net assets $393,126,558 $325,737,272 The notes to the financial statements form part of and are to be read in conjunction with these financial statements. Consolidated Statement of Cash Flows for the Year Ended 31 March 1997 1997 1996 $ $ Cash was provided by (used for): Operations 5 Dividend from WestpacTrust 8,400,000 12,600,000 Income from investments 26,045,945 642,887 Payments to suppliers and employees (1,572,362[teh]) (760,906[teh]) Payments of taxation (4,693,059[teh]) (77,721[teh]) Payments of goods and services tax (32,304[teh]) (5,776[teh]) Donations to the community (15,901,377[teh]) (9,510,104[teh]) 12,246,843 2,888,380 Investing Purchase of Government securities (491,000[teh]) Sale of Government and local authorities securities 1,121,000 300,000 Sale of Armstrong Jones Investment 1,164,625 Sale of Trust Bank New Zealand Limited shares 342,157,244 Increase in bank deposits (343,504,451[teh]) (2,697,562[teh]) Reduction of Armstrong Jones managed funds 2,244,502 Purchase of investment property (1,713,731[teh]) (148,539[teh]) Community loans 26,483 (150,656[teh]) Purchase of fixed assets (11,774[teh]) (54,858[teh]) Sale of fixed assets 28,500 (171,727[teh]) (1,558,490[teh]) Increase in cash 12,075,116 1,329,890 Cash at beginning of year 1,438,960 109,070 Cash at end of year $13,514,076 $1,438,960 Represented by: WestpacTrust current account 308,794 71,180 WestpacTrust on call account 13,205,282 1,367,780 $13,514,076 $1,438,960 The notes to the financial statements form part of and are to be read in conjunction with these financial statements. Notes to the Financial Statements for the Year Ended 31 March 1997 1. Statement of Accounting Policies General Accounting Policies The following general accounting policies have been adopted in the preparation of the financial statements. (i) Trust Bank Canterbury Community Trust Inc. was incorporated as a charitable trust in accordance with the provisions of the Trustee Banks Restructuring Act 1988. These financial statements have been prepared in accordance with applicable financial reporting standards. (ii) The measurement base adopted is that of historical cost, except for the revaluation of investments. Reliance is placed on the fact that the trust is a going concern. (iii) The matching of revenue earned and expenses incurred using accrual accounting concepts. Specific Accounting Policies Depreciation Depreciation has been charged in the financial statements using rates which will write off the cost of assets less their estimated residual value over their estimated economic lives. The depreciation rates used are: Office equipment 6 to 48 percent c.p. Motor vehicles 18 to 22 percent c.p. Fixed Assets Fixed assets are recorded at cost less accumulated depreciation. Investments Investments held as managed funds are shown at market value. Net income including realised and unrealised gains or losses from holding or trading these investments are recorded in the statement of financial performance. Other investments represent assets to be held to maturity or as long-term strategic investments and are shown at market value. Unrealised gains or losses from holding such investments are transferred directly to the revaluation reserve. These unrealised gains or losses when realised on subsequent disposal of investments are transferred from the revaluation reserve direct to the core real capital base reserve. Differences between the book value and sale proceeds of investments realised are recorded in the statement of financial performance. Donations, Special Projects and Community Loans Donations, special projects and community loans are accounted for on an accruals basis. Dividend Income Dividend income is included in the statement of financial performance when it is received. Income Tax Income tax expense is recognised on the surplus available for distribution before taxation, adjusting for differences between taxable and accounting income. Goods and Services Tax The subsidiary of Canterbury Community Trust Charities Limited, Canterbury Trust House Limited is registered for G.S.T. Accordingly its financial performance and financial position have been consolidated within the accounts on a G.S.T. exclusive basis. Subject to the above, the trust is not registered for G.S.T. purposes and therefore the financial statements have been prepared on a G.S.T. inclusive basis. Financial Instruments Foreign currency transactions are translated to New Zealand currency at the exchange rate ruling at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are translated at the exchange rate at that date. Exchange differences arising from the translation of amounts payable and receivable in foreign currencies are recognised in the statement of financial performance. Off-balance sheet financial instruments that are designated as hedges are recognised on the same basis as the underlying hedged item. Off-balance sheet transactions that do not constitute specific hedges are stated at market value and any resultant gain or loss is recognised in the statement of financial performance. Basis of Consolidation The Trust Bank Canterbury Community Trust Inc., Canterbury Community Trust Charities Limited and its subsidiary Canterbury Trust House Limited have been consolidated using the purchase method of consolidation. Changes in Accounting Policies Realised gains on sale of investments which were previously credited to the revaluation reserve are transferred direct to the core real capital base reserve. The accounting policy in the previous years was for this transfer to go to the statement of financial performance. The effect of this change in policy is for the gain on sale of Trust Bank New Zealand Limited shares to be transferred direct to the core real capital base reserve. There have been no other changes in accounting policies. All other policies have been applied on bases consistent with those used in the previous year. 2. Investments Face Value$ 1997 Market Value$ 1996 Market Value$ Government securities440,000 450,040 593,006 Local authorities securities50,000 51,040 539,917 Community loans397,142 397,142 543,625 Armstrong Jones (NZ) Limited managed funds 23,378,506 23,147,761 Investment property 1,862,270 192,539 26,138,998 25,016,848 Trust Bank New Zealand Limited 4,940 Trust Bank New Zealand Limited (via Community Trust Nominees Limited) 296,395,060 296,400,000 $26,138,998 $321,416,848 Brief History During 1994 the trust transfered 119 998 000 Trust Bank New Zealand Limited shares to Community Trust Nominees Limited (CTN) which held the shares as bare trustee. Altogether CTN holds 337 654 000 Trust Bank New Zealand Limited shares as bare trustee for various community trusts through their investments in Community Trusts Investments Limited (CTIL). CTN had a share capital of $100 consisting of 100 $1 shares, and was wholly owned by CTIL. During the year the shares in TBNZ and CTI were sold and the funds received were invested in a range of short term deposits, pending fund manager appointments to allow appropriate diversification of the portfolio. The investment property situated at 262 Oxford Terrace, Christchurch is shown in the statement of financial position at cost. As the investment property has not yet been completed an independent valuation has not yet been performed. Therefore a net current value as required by SSAP-17 are not available. Particulars of the most recent Government valuation is as follows: Date Property Land Value Improvements Capital Value $ $ $ 01/09/95 262 Oxford Terrace 400,000 400,000 $400,000 $400,000 3. Donations The names of organisations to whom distributions have been made by the trust under section 21 of the Trustee Banks Restucturing Act 1988 during the financial year and the amounts distributed are shown in the annual report. Donations and Special Projects 1997 1996 $ $ Canterbury12,368,029 9,619,433 Nelson2,233,868 2,116,520 Marlborough1,206,674 1,067,626 Total donations approved per annual report15,808,571 12,803,579 Cancelled donations from prior years(161,150[teh]) Net donations allocated$15,647,421 $12,803,579 Future donation commitments$8,158,855 $4,393,122 Funds carried forward as accumulated income are available for the payment of donations in future years. Budgeted donations unspent in the current year are to be distributed in the following year. Future donation commitments represent donations approved in the current or previous years which are to be distributed from either capital or future income sources. 4. Trust Funds 1997 1996 $ $ Core real capital base reserve Balance brought forward61,968,961 72,774,519 Transfer from revaluation reserve290,248,013 Transfer from capital base reserve872,935 Transfer from (to) accumulated income reserve14,362,648 (2,998,269[teh]) Donations paid from capital(9,452,557[teh]) (7,807,289[teh]) $358,000,000 $61,968,961 Accumulated income reserve Balance brought forward13,228,061 1,749,449 Transfer from future donations reserve5,176,546 Transfer from (to) core real capital base reserve(14,362,648[teh]) 2,998,269 Net surplus for year22,292,397 8,480,343 Prior years donations transferred to long term commitments51,667 $26,386,023 $13,228,061 Future donations reserve Balance brought forward5,176,546 4,248,614 Transfer from net surplus 927,932 Transfer to accumulated income reserve(5,176,546[teh]) $5,176,546 The future donation reserve was created for the purpose of providing cover for 1 year's donations in the unlikely event of diminished or lack of dividend income in the future. This was to allow the trust to continue its charitable activities at least in the short term. 1997 1996 $ $ Capital base reserve Balance brought forward872,935 372,935 Retention as per statement of financial performance8,740,535 500,000 Transfer to core real capital base reserve(872,935[teh]) $8,740,535 $872,935 The capital base reserve is an allowance for the erosion of the value of the core real capital base reserve, due to inflation. For 1997 this was calculated based on inflation at 2.50 percent on a core real capital base reserve of $324,000,000 for 3 months and $358,000,000 for the remaining 9 months. 1997 1996 $ $ Revaluation reserve Balance brought forward244,490,769 174,890,769 Revaluation of shares45,757,244 69,600,000 Revaluation of securities (14,740[teh]) Transfer to core real capital base reserve(290,248,013[teh]) Write off debit balance 14,740 $244,490,769 The revaluation reserve measured the difference between the cost of Government and local authorities securities and Trust Bank New Zealand Limited shares and the market value as at balance date. The write off of debit balance is in respect of Government and local authorities securities and is taken to the statement of financial performance. The transfer to core real capital base reserve represents the realised gain on sale of the Trust Bank New Zealand Limited shares. Transfers have been made between reserves to reflect the new structure for trust funds. 5. Reconciliation of Net Surplus to Net Operating Cash Flow 1997 1996 $ $ Net surplus22,292,397 8,480,343 Adjustments for non cash items in net surplus Armstrong Jones investment income(2,473,404[teh]) (2,492,827[teh]) Depreciation28,301 16,311 Loss on realisation of local authorities securities 6,882 Write off debit balance in revaluation reserve 14,740 Prior years donations transferred to long term commitments51,667 19,898,961 6,025,449 Adjustments for changes in working capital Decrease (increase) in accrued interest(1,941,425[teh]) (19,920[teh]) Decrease (increase) in prepayments(15,419[teh]) Increase (decrease) in accrued charges1,563 4,310 Increase (decrease) in accounts payable(3,329[teh]) 53,377 Increase (decrease) in donations payable(304,915[teh]) 3,293,480 Increase (decrease) in taxation payable(4,693,059[teh]) (40,056[teh]) Increase (decrease) in goods and services tax(26,804[teh]) (5,776[teh]) Increase (decrease) in donations paid in advance(708[teh]) 12,914,865 9,310,864 Add back Loss on sale 6,373 Future donation reserve transfer 927,932 Capital base reserve transfer8,740,535 500,000 Deduct Donations paid from capital(9,452,557[teh]) (7,807,289[teh]) Capital items included in working capital adjustments44,000 (49,500[teh]) Cash flow from operations$12,246,843 $2,888,380 6. Capital Commitments Costs to complete the construction of the investment property are estimated at $1,740,086 (1996: $3,844,383). 7. Fixed Assets Cost Accumulated Depreciation 1997 Book Value 1996 Book Value $ $ $ $ Plant and equipment64,813 29,456 35,357 37,228 Motor vehicles72,654 23,673 48,981 63,637 $137,467 $53,129 $84,338 $100,865 8. Contingent Liabilities There are no contingent liabilities at balance date (1996 nil) apart from donation commitments as per note 3. 9. Segmental Reporting The trust operates as a charitable trust in the Canterbury, Marlborough and Nelson areas. As all operations occur within New Zealand, segmental reporting is not required. 10. Related Party In the normal course of business the trust has received $7,605,270 (1996 $262,125) of interest from WestpacTrust. At balance date the bank balances held at WestpacTrust are $13,514,076 (1996 $3,147,006) and deposits of $97,227,768 (1996 $2,668,593). 11. Financial Instruments Investments are stated at estimated market value at balance date. Accrued interest, accounts payable, community loans, and donations approved not yet paid are stated at the amounts expected to be received or paid. Accordingly, the trustees consider that the fair value of each class of financial assets and financial liabilities is the same as the carrying value in the statement of financial position. Concentration of Credit Risk Over 90 percent of the assets of the trust are represented by short term deposits with a range of financial institutions. However the trustees consider the risk of non-recovery of these investments to be within satisfactory guidelines. Currency Risk The trust incurs currency risk as a result of investment transactions entered into by Armstrong Jones (NZ) Limited. The currency, giving rise to currency risk, in which the trust primarily deals, is Australian dollars. The trust hedges all the Armstrong Jones managed funds transactions denominated in Australian dollars through the National Bank of New Zealand Limited. Interest Rate Risk The following investments of the trust are sensitive to changes in interest rates: bank call accounts and deposits, Government and local authority securities, and various debt securities held with Armstrong Jones (NZ) Limited/Managed Funds. 12. Taxation 1997 1996 $ $ Net income before taxation as per statement of financial performance37,227,796 14,945,457 Add: Non deductible expenditure145,752 551,186 Imputation credits received4,137,658 6,205,970 Canterbury Trust House Limited loss non deductible6,093 Less non assessable income: Allocated as beneficiaries income (22,913,047[teh]) (2,770,364[teh]) Donations to tax approved entities(6,194,864[teh]) Assessable income for tax purposes12,409,388 18,932,249 Less: loss carry forward entitlement 2,363 Taxable income12,409,388 18,929,886 Taxation @ 33 percent4,095,098 6,246,862 Less: imputation credits received4,137,658 6,205,970 Taxation as per statement of financial performance 40,892 Excess imputation credits(42,560[teh]) Converted to loss to carry forward(128,970[teh]) Voluntary tax paid20,941 60,000 Resident withholding tax4,712,174 20,948 Taxation payable (refund) as per the statement of financial position$(4,733,115[teh]) $(40,056[teh]) Auditors' Report We have audited the consolidated financial statements. The consolidated financial statements provide information about the past financial performance of the Trust Bank Canterbury Community Trust Inc. and its financial position as at 31 March 1997. This information is stated in accordance with the accounting policies set out therein. Trustees' Responsibilities: The trustees are responsible for the preparation of consolidated financial statements which give a true and fair view of the financial position of the Trust Bank Canterbury Community Trust Inc. as at 31 March 1997 and of the results of its operations and cash flows for the year ended on that date. Auditors' Responsibilities: It is our responsibility to express an independent opinion on the consolidated financial statements presented by the trustees and report our opinion to you. Basis of Opinion: An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the consolidated financial statements. It also includes assessing: the significant estimates and judgments made by the trustees in the preparation of the consolidated financial statements, and whether the accounting policies are appropriate to the circumstances of the trust, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the consolidated financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the consolidated financial statements. Other than in our capacity as auditors, we have no relationship with, or interests in, the trust. Unqualified Opinion: We have obtained all the information and explanations we have required. In our opinion: proper accounting records have been kept by the trust as far as appears from our examination of those records; and the consolidated financial statements: comply with generally accepted accounting practice; give a true and fair view of the financial position of the trust as at 31 March 1997, and the results of its operations and cash flows for the year ended on that date. Our audit was completed on 6 June 1997 and our unqualified opinion is expressed as at that date. DELOITTE TOUCHE TOHMATSU, Chartered Accountants. Christchurch, New Zealand. A full list of donation recipients is available on request from Trust Bank Canterbury Community Trust Inc., Level Eleven, Canterbury Centre, 166 Cashel Mall (P.O. Box 13-744), Christchurch.